Wilks Brothers Provides Answers to Frequently Asked Questions Regarding Calfrac and Wilks' Premium Offer
CISCO, TX, Oct. 2, 2020 /PRNewswire/ - Wilks Brothers, LLC ("Wilks") appreciates the overwhelming support from the Shareholders of Calfrac Well Services Ltd. ("Calfrac" or the "Company") (TSX: CFW) and today provided answers to some of the most frequently asked questions about Calfrac and Wilks' $0.18 cash Premium Offer for the common shares of Calfrac.
1. Why did Wilks make the Premium Offer?
Wilks made the Premium Offer to provide Shareholders with an actionable alternative to the Management Transaction and to neutralize the threat from Calfrac that, if Shareholders do not approve the Management Transaction, they will be left with no recovery. Calfrac should not be able to threaten its way into a transaction that benefits only its executive chairman and a self-selected group of unsecured creditors.
As Wilks has said in its previous press releases, options create value; the launch of the Premium Offer focused the Board and management of Calfrac on the importance of creating value for Shareholders. Clearly it worked. Calfrac was forced to go back to the drawing board and improve their own transaction terms. Unfortunately, the Amended Management Transaction announced by Calfrac still does not deliver adequate value to Shareholders and is significantly inferior to Wilks' Premium Offer. The only benefit of the Amended Management Transaction is that it has focused the debate on the essential issues: value and fairness.
2. Calfrac has announced that if their Amended Management Transaction is not implemented, they will cause the original Management Transaction to be implemented through proceedings under the CCAA. Is it fair and legal for Calfrac to try to do this if Shareholders vote down Calfrac's Amended Management Transaction?
It is certainly not fair and Wilks' believes the original and amended Management Transactions are not capable of implementation without Shareholder approval. Calfrac's threat speaks volumes to what Calfrac and its Board think about its Shareholders and their rights. The Calfrac Board acted in complete disregard of Shareholders' interests when it agreed to amend the support agreement with unsecured noteholders to contractually commit Calfrac to seek CCAA protection and, as punishment, take from the Shareholders the meager enhancements to the original Management Transaction that were offered.
3. Will the Wilks' Premium Offer be available if Calfrac tries to harm its Shareholders by seeking to force through its original Management Transaction in a CCAA proceeding?
The conditions to the Premium Offer are clear. If the Amended Management Transaction is not approved by the Shareholders and is denied by the CBCA Court and Calfrac "pivots" to a CCAA proceeding to attempt to implement its original Management Transaction, the Premium Offer will remain outstanding for acceptance by Shareholders.
Calfrac has attempted to confuse Shareholders by stating that, in a CCAA proceeding Shareholders cannot receive $0.18 from Wilks if Calfrac's creditors are not paid in full. This is completely false. The Premium Offer is a contract between Wilks and the Shareholders, not between Calfrac and the Shareholders. The $0.18 per share is being paid by Wilks and not by Calfrac, so the rankings of the various claims against Calfrac within a CCAA proceeding are not applicable.
4. Calfrac has stated publicly that "there is no reasonable prospect" that the Premium Offer will be completed. Is this true?
The only transactions that Wilks believes have no reasonable prospect of being completed are the two proposed Management Transactions. Both suffer from serious legal defects and require stakeholder consent that will not be provided. The Management Transaction also contains a lengthy list of onerous conditions precedent that may never be satisfied (including reaching an arrangement with the first lien lenders, which looks unlikely or very expensive given Calfrac's leverage and financial outlook).
As it relates to the Premium Offer, Calfrac seems to be making two arguments in support of its allegation the offer will not be completed, neither of which withstand any scrutiny.
First, they maintain that it is unlikely that the "statutory minimum condition" will be met or that Wilks will be able to convince the securities regulators that it should be waived.
Second, they argue that as the Premium Offer is conditional upon the original Management Transaction being "terminated", the Premium Offer will never be completed because the Amended Management Transaction will, if it is voted down by the Shareholders and denied by the Court, continue as a CCAA proceeding (and on the terms proposed for the original Management Transaction) and will therefore never be "terminated".
With respect to the first point, Wilks believes that, in the circumstances of this case, it has a valid basis for obtaining this relief.
With respect to the second point, the amendments by Calfrac to the original Management Transaction have confused the situation somewhat (which may have been Calfrac's intention). Calfrac now clearly states that it intends to "pivot" to a CCAA proceeding if they cannot obtain CBCA Court approval of the Amended Management Transaction. Moreover, coercively, and in a classic "carrot and stick" approach, they now propose to retract the modest enhancements they offered to the original Management Transaction in any CCAA proceeding.
Wilks has made its position on this point clear via the press release that it issued on September 28, 2020. To repeat, Wilks' position is that, if the Amended Management Transaction is voted down by Shareholders and that transaction is denied by the Court, Wilks will waive the requirement that the original Management Transaction be terminated as a condition to the Premium Offer.
5. According to Calfrac, if Wilks acquires a majority of Calfrac's issued and outstanding shares through the Premium Offer, the "change of control" provisions under the Senior Unsecured Notes and the Second Lien Notes would be triggered, requiring that Calfrac offer to acquire such notes at 101% of their principal amount, plus accrued interest, thereby guaranteeing Calfrac's insolvency. What is your response to that?
This is disingenuous at best. Calfrac is insolvent right now. And Calfrac has already confirmed it has agreed to commence insolvency proceedings under the CCAA in mere weeks, if necessary.
Calfrac's failure to make the scheduled interest payment on the unsecured notes on June 15, 2020 caused defaults not only under those notes but also under the Second Lien Notes and the first lien credit facility, which caused all of those obligations to become due and payable. In addition, Calfrac triggered the immediate acceleration of the maturity of the Second Lien Notes by commencing the CBCA proceedings.
All of this debt is due now and enforcement of it is only being held back by the "stay" Calfrac obtained from the CBCA Court and, in the case of the first lien credit agreement, a "waiver" of certain defaults. A similar stay against the repayment of this debt will be granted in the CCAA proceedings Calfrac has announced it intends to commence.
Moreover, Wilks is of the view that if the Amended Management Transaction is implemented on the terms set out in Calfrac's public disclosure, these "change of control" provisions will be triggered as well because the "ad hoc noteholders", G2S2 and MATCO/Mathison are a "group" that will hold, beneficially, over 50% of Calfrac's outstanding common shares.
6. Calfrac has said that Wilks' ultimate goal is to acquire Calfrac and "break it up" and sell its component parts. Is this true?
No. Wilks feels that a properly restructured Calfrac can be a significant player in the oilfield services market and has the potential to gain market share through being a consolidator. But this will only happen through a drastic reduction of Calfrac's debt. Wilks has offered Calfrac a direct path to achieve this result and deliver superior recoveries to all of its stakeholders.
The fact is that either Management Transaction, if implemented, will not solve Calfrac's financial problems, it will merely "kick the can down the road" for an inevitable and imminent CCAA filing.
7. Would Wilks move Calfrac's Canadian equipment to the United States.?
No, because it would not make any sense to do so. Calfrac's Canadian fleet has been engineered to operate in the extremes of the Canadian climate. The specific alterations that have been made to allow the fleet to operate in Canada are either not useful or actually detrimental for operations in the US. The equipment should remain in Canada where it has been optimized to operate.
8. Why is MATCO/Mathison the only Shareholder who was invited to participate in the $60 million PIK Financing and the additional $10 million PIK loan under the Amended Management Proposal?
We don't know why, and Calfrac has not offered any convincing explanation for it. What we do know is that MATCO/Mathison is the only Shareholder of Calfrac that will benefit to a greater extent than any other Shareholder of Calfrac from either of Management Transactions.
9. What is your message to Shareholders who are being told by Calfrac that the Amended Management Transaction is a better deal for them and to not vote AGAINST the Amended Management Transaction?
Calfrac has failed to protect its Shareholders. Calfrac agreed to a transaction with its chairman and a self-selected group of unsecured creditors that would transfer tremendous shareholder value to those parties, and see Shareholders left in the cold. Only after Wilks decided that enough was enough, and made the Premium Offer, did Calfrac respond. And their response has failed. The Premium Offer provides $0.18 in cash per Calfrac share, a significant premium to market and to the $0.12 of likely consideration offered under the Amended Management Transaction.
Calfrac Shareholders: The only path to protect your interests today is by voting AGAINST the Management Transaction. Vote the BLUE Proxy AGAINST the Management Transaction.
Click here for voting instructions or learn more at www.afaircalfrac.com.
The deadline to submit your blue proxy is October 13, 2020 at 11:59 p.m. MST.
If you have already voted AGAINST the Management Transaction using the BLUE proxy, you do not need to do anything further and we thank you for your support.
If you have yet to vote or want to change your vote, you are encouraged to vote using only the BLUE proxy. Please disregard any other proxies you receive. If you have already submitted a proxy solicited by Management, you may still change your vote and protect your economic interests by voting your BLUE proxy today. The later dated proxy will supersede any earlier proxy submitted.
Need help voting? Please contact Laurel Hill Advisory Group as noted below.
QUESTIONS/ VOTING/ TENDERING ASSISTANCE
Shareholders who have questions or require voting or tendering assistance, may contact our communications advisor, proxy solicitation agent, information agent and depositary, Laurel Hill Advisory Group, by phone, toll-free at 1-877-452-7184 (North America) or +1-416-304-0211 (outside North America) or by e-mail at [email protected].
NOTICE
THIS ANNOUNCEMENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE OR FORM PART OF THE OFFER OR AN INVITATION TO PURCHASE, OTHERWISE DISPOSE OF OR A SOLICITATION OF AN OFFER TO SELL, ANY SECURITY. WILKS HAS FILED A TAKE-OVER BID CIRCULAR AND RELATED MATERIALS WITH VARIOUS SECURITIES COMMISSIONS IN CANADA PURSUANT TO WHICH THE OFFER IS MADE. THE TAKE-OVER BID CIRCULAR CONTAINS IMPORTANT INFORMATION ABOUT THE OFFER AND SHOULD BE READ IN ITS ENTIRETY BY CALFRAC SHAREHOLDERS AND OTHERS TO WHOM THE OFFER IS ADDRESSED. CALFRAC SHAREHOLDERS (AND OTHERS) WILL BE ABLE TO OBTAIN, AT NO CHARGE, A COPY OF THE OFFER TO PURCHASE, TAKE-OVER BID CIRCULAR AND VARIOUS ASSOCIATED DOCUMENTS ON THE SYSTEM FOR ELECTRONIC DOCUMENT ANALYSIS AND RETRIEVAL (SEDAR) AT WWW.SEDAR.COM. THE OFFER WILL NOT BE MADE IN, NOR WILL DEPOSITS OF SECURITIES BE ACCEPTED FROM A PERSON IN, ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. HOWEVER, WILKS MAY, IN ITS SOLE DISCRETION, TAKE SUCH ACTION AS IT DEEMS NECESSARY TO EXTEND THE OFFER IN ANY SUCH JURISDICTION.
ADDITIONAL DISCLOSURE
Wilks is relying on the exemption under section 9.2(4) of National Instrument 51-102 - Continuous Disclosure Obligations and exemptive relief provided by the Alberta Securities Commission in an Order dated August 4, 2020 (the "Order") to make this public broadcast solicitation. The following information is provided in accordance with corporate and securities laws applicable to public broadcast solicitations. This solicitation is being made by Wilks, and not by or on behalf of the management of Calfrac. Wilks has engaged Laurel Hill Advisory Group to act as our communications advisor and proxy solicitation agent.
Based upon publicly available information, Calfrac's registered office is at 4500, 855-2nd Street S.W. Calgary, Alberta, Canada, T2P 4K7, and its head office is at 411-8th Avenue S.W. Calgary, Alberta, Canada, T2P 1E3. Wilks is soliciting proxies in reliance upon the public broadcast exemption to the solicitation requirements under applicable Canadian corporate and securities laws (including the Order), conveyed by way of public broadcast, including press release, speech or publication, and by any other manner permitted under applicable Canadian laws. In addition, this solicitation may be made by mail, telephone, facsimile, email or other electronic means as well as by newspaper or other media advertising and in person. All costs incurred for the solicitation will be borne by Wilks.
Wilks and Dan and Staci Wilks together hold 28,720,172 Common Shares, representing approximately 19.78% of the issued and outstanding Common Shares of Calfrac on the basis of Calfrac's disclosure in its management information circular dated August 17, 2020. that there are 145,616,827 Common Shares outstanding.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain information in this Press Release may constitute "forward-looking information", as such term is defined in applicable Canadian securities legislation, about the objectives of Wilks as they relate to Calfrac. All statements other than statements of historical fact may be forward-looking information. Forward-looking information is often, but not always, identified by words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions.
Material factors or assumptions that were applied in providing forward-looking information include, but are not limited to: the intention of Wilks to make a formal take-over bid for the shares of Calfrac and the results of such bid; that required regulatory approvals will be obtained on terms satisfactory to Wilks; the reaction of Calfrac's Board and management to the Bid; the response to and outcome of any applications to Courts or regulators relating to the transactions described herein or otherwise that may be made by or against Calfrac or Wilks; the intention of Wilks to apply to securities regulators for discretionary relief from certain statutory requirements applicable to the bid and the results of such application.
Forward-looking information contained in this Press Release reflects current reasonable assumptions, beliefs, opinions and expectations of Wilks regarding future events and operating performance of Calfrac and speaks only as of the date of this Press Release. Such forward-looking information is based on currently publicly available competitive, financial and economic data and operating plans and is subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Calfrac, or general industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Many other factors could also cause Calfrac's actual results, performance or achievements to vary from those expressed or inferred herein, including, without limitation, the success of the proposed Wilks Premium Offer, the reaction of the market and Calfrac's shareholders, creditors and customers to the Wilks' Premium Offer, the impact of legislative, regulatory, competitive and technological changes; the state of the economy; credit and equity markets; the financial markets in general; price volatility; interest rate and exchange rate fluctuations; general economic conditions and other risks involved in the hydraulic fracking industry. The impact of any one factor on a particular piece of forward-looking information is not determinable with certainty as such factors are interdependent upon other factors, and Wilks' course of action would depend upon its assessment of the future considering all information then available.
Should any factor affect Calfrac in an unexpected manner, or should any assumptions underlying the forward-looking information prove incorrect, the actual results or events may differ materially from the events predicted. All of the forward-looking information reflected in this Press Release is qualified by these cautionary statements. There can be no assurance that the results or developments anticipated by Wilks will be realized or, even if substantially realized, that they will have the expected consequences for Calfrac, Calfrac's shareholders or Wilks. Forward-looking information is provided, and forward-looking statements are made as of the date of this Press Release and except as may be required by applicable law, Wilks disclaims any intention and assumes no obligation to publicly update or revise such forward-looking information or forward-looking statements whether as a result of new information, future events or otherwise. Nothing herein shall be deemed to be an acknowledgement or acceptance by Wilks that the terms of the amended Management Transaction are legally permissible, appropriate or capable of implementation.
SOURCE Wilks Brothers, LLC.
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