CISCO, Texas, Sept. 3, 2020 /PRNewswire/ - Wilks Brothers, LLC ("Wilks") provides the true facts in response to recent statements by Calfrac Well Services Ltd. ("Calfrac" or the "Company") (TSX: CFW). Calfrac has attempted to distract shareholders from the obvious flaws of the Management Plan by raising irrelevant issues and indulging in inuendo. Shareholders should focus on the real facts and Wilks' announced intention to make the Premium Offer to Shareholders as they vote down the flawed management transaction.
Shareholders should use the BLUE PROXY to vote AGAINST the Management Transaction.
The facts set out below, and a side-by-side comparison of the Management Transaction vs Wilks Superior Alternative Proposal can be found in a new presentation that can be found at www.afaircalfrac.com.
Calfrac Statement: "Wilks is a wolf in sheep's clothing".
Wilks rejects this false and defamatory characterization and reminds its fellow shareholders of the adage that: "The sheep spends its entire life fearing the Wolf, only to be eaten by the Shepherd".
Ron Mathison and MATCO are the only shareholders who will be entitled to receive additional benefits under the Management Transaction. Mathison/MATCO:
- Will be entitled to participate in the "1.5 Lien" Notes financing;
- Will have the right to appoint a director to the Board;
- Will have pre-emptive rights with respect to future equity issuances by Calfrac. Such participation will be on an "as converted basis"; i.e. MATCO/Mathison will be deemed to own the shares into which the 1.5 Lien Notes can be converted;
- Will be granted "registration rights" pursuant to a Registration Rights Agreement (i.e. the right to compel the Company to file a prospectus to allow him to sell his shares); and
- No other shareholders are entitled to these benefits.
Calfrac Statement: "The only transaction that is available is the Management Transaction".
The Management Transaction is NOT the only transaction that is available.
The Premium Offer
On September 1, 2020 Wilks announced that they intend to make a formal take over bid to acquire all of Calfrac's common shares for $0.18 per share (the "Premium Offer"). This offer will provide Shareholders with a clear path to financial recovery if the Management Transaction is voted down at the Shareholders meeting to be held on September 17, 2020 (the "Meeting") and is not ultimately approved by the Court of Queen's Bench of Alberta. The Management Transaction is not the only transaction that is available.
The Premium Offer provides a highly attractive cash recovery to Shareholders if Calfrac does not move forward with the Wilks Superior Alternative Proposal and even if Calfrac makes good on its implied threat to commence proceedings under the Companies Creditors Arrangement Act (Canada) (the "CCAA") should the Management Transaction not proceed. Under the terms of the Premium Offer, Shareholder recovery will NOT be threatened by a CCAA filing. The Offer will nullify the threats made to Shareholders by the entrenched Board and management of Calfrac by guaranteeing a premium-to-market recovery to Shareholders.
The Superior Alternative Proposal
The Superior Alternative Proposal, which provides a premium recovery to Shareholders, remains fully available to Calfrac. The Superior Alternative Proposal is not subject to any financing or due diligence conditions and can be immediately implemented. The only way Shareholders can benefit from a better deal for themselves is by VOTING DOWN the Management Transaction.
Calfrac Statement: "George Armoyan and his affiliated company, G2S2 Capital, act entirely independently and at arm's length to MATCO and the other parties to this transaction. Adding together the holdings of these parties to invent a control position does not equate to the 63% control position sought by Wilks Brothers".
By entering into the "Investor Agreement" described in the Management Information Circular, Mathison, G2S2 and the other unsecured noteholders will likely be presumed to be acting "jointly and in concert" under applicable law and will therefore be deemed, collectively, to be a "control person" of Calfrac.
Calfrac Statement: "Wilks Brothers also never explains why it continuously seeks, in both Canada and the United States, to force Calfrac into insolvency, while it concurrently seeks to seduce Calfrac stakeholders into rejecting the only executable deal that is on the table. This combination of actions makes no common sense, and creates untenable risk for stakeholders".
It is not Wilks who have created this mess; the blame lies at the feet of the Calfrac board and management. It is those insiders who have handed over their fiduciary duties to a group of noteholders, thereby creating an OPPRESSIVE regime and disenfranchising stakeholders. In contrast, Wilks is seeking an outcome that is fair to all.
Calfrac Statement: "The real problem is: Wilks Brothers seeking to own over 63% of Calfrac's equity in a no premium change of control, while it also owns 100% of a direct competitor (ProFrac). This would diminish future opportunities for Calfrac, in particular, pursuing a premium value at a better time in the cycle".
- Management's own transaction includes the issuance of a convertible note that allows its mostly insider holders to acquire more than 50% of Calfrac for C$0.02665, more than 80% below the most recent closing price of Calfrac shares
- The Management Transaction is a "change of control" transaction in which shareholders not only do not receive a premium but are subject to immediate, massive dilution as well as being subject to continuing dilution through the 1.5 Lien Notes. Current shareholders will have no real say or material interest in the future of Calfrac. The vast majority of the benefit of the "future opportunities" will accrue to the self-selected group of unsecured noteholders and MATCO.
- G2S2 will hold over 38.1% of the outstanding shares of Calfrac on the completion of the Management Transaction, which will allow G2S2 to block any transaction involving a further change of control of Calfrac. G2S2, on its own, will be in a position to control Calfrac.
- The Toronto Stock Exchange is requiring that Shareholders approve the issuance of common shares of Calfrac pursuant to the 1.5 Lien financing as it will have "a material effect on control" of Calfrac.
Calfrac Statement: "The Recapitalization Transaction is better for Unsecured Noteholders above $400 million TEV".
- This is false. The Superior Alternative Proposal provides far greater recoveries to Unsecured Noteholders, other than G2S2 Capital and the select members of the Ad Hoc Committee, with substantially reduced downside risk given the significantly reduced pro forma debt under the Superior Alternative Proposal.
- The Truth is that the Management Transaction is only better for Ron Mathison, G2S2 Capital and the select members of the Ad Hoc Committee.
- Calfrac's public statements overstate the benefits of the Management Transaction to the holders of unsecured notes. The recoveries attributed to this creditor class in the Management Transaction are distorted by the very significant financial benefits that accrue to the small group of unsecured noteholders who participate disproportionately in the 1.5 Lien financing. Other holders of unsecured notes do not have the ability to participate in the 1.5 Lien financing to the same, disproportionate, extent and therefore do not enjoy the same level of recovery.
- Slide 8 in the presentation posted on www.afaircalfrac.com shows the Unsecured Noteholder Value at Various TEVs
Calfrac Statement: "All eligible Unsecured Noteholders have the opportunity to participate in the 1.5 Lien Notes".
The participation of these noteholders in the 1.5 Lien financing is limited. If the self-selected noteholders and MATCO were actually interested in allowing broad participation by unsecured noteholders they would have structured the 1.5 Lien financing as a "backstopped" offering of 1.5 Lien notes, in which every unsecured noteholder could participate pro rata.
Calfrac Statement: "It is impossible for Calfrac shareholders to know how they would fare if they ended up in a company controlled by Wilks Brothers. Wilks Brothers will simply not explain how Calfrac could ever prosper, with Wilks Brothers as a future 63% shareholder, while competing and colliding directly with ProFrac, which is 100% owned by Wilks Brothers. An independent Calfrac is far better than one controlled by Wilks Brothers, which would then hold the power, if it wished: to squeeze Calfrac out of business; and to propose another disadvantageous business combination, where Calfrac would have essentially no alternatives. A deal with Wilks Brothers would carry significant, unmeasurable risks".
- Wilks has a track record of success in the hydraulic fracing business and a reputation for prudent financial and operational management. The hydraulic fracing business run by Wilks has seen consistent and profitable growth even in challenging markets.
- There is minimal overlap between Calfrac and ProFrac's operation. They service different markets and customers. Wilks believe the competitive overlap would be minimal.
- In contrast to Wilks' prudent and successful stewardship of its hydraulic fracing business, Calfrac's current management has presided over a virtually complete destruction of shareholder and bondholder value through operational mismanagement and reckless financial leverage. Wilks believes that shareholders and lenders would fare better with a significantly de-levered Calfrac under Wilks' prudent and transparent leadership.
- If the Superior Alternative Transaction were to be implemented, Calfrac would be significantly de-levered, having only $95 million of debt and annual debt service requirements of $5 million. This is significantly better than the $349 million of debt and the $31 million of annual debt service requirements under the Management Transaction.
- As pointed out in Wilks' proxy circular, G2S2 and Mr. Armoyan are significant shareholders of Trican Well Service Ltd., a direct Canadian competitor of Calfrac. Mr. Armoyan has representation on the board of Trican and will be entitled to representation on the board of Calfrac. Calfrac has not explained how it intends to deal with this inherent, and likely significant, direct conflict of interest.
Calfrac Statement: "Calfrac has been criticized for agreeing to its new financing with parties who hold Unsecured Notes. To be clear, these were the parties prepared to provide new, much-needed financing to Calfrac on reasonable terms; and MATCO's participation was considered to be an important reassurance to other investors".
- It is obvious that a convertible loan with a 10% interest rate and a conversion price more than 80% below the current market price is anything but "reasonable". The 1.5L financing is extraordinarily dilutive and made available disproportionately to insiders. Management's attempt to fool shareholders into ignoring this tremendous dilution, after it has already presided over an extraordinary destruction of shareholder and bondholder value is unconscionable, Ultimately, it is a thinly veiled attempt to pick the pockets of shareholders and non-insider unsecured noteholders after management presided over the multi-year evisceration of their investment.
- The principal amount of this financing was not dictated by the actual needs of Calfrac but, rather, by the maximum amount of debt that can be incurred (albeit not on a priming basis) without obtaining the consent of the holders of the 2nd lien notes. Whether or not it is adequate to Calfrac's needs is not clear. Calfrac has not provided any information to the market that would allow an objective assessment of whether it is adequate. What the "1.5 lien" financing actually does is simply move a dollar for dollar portion of the 1st lien secured debt into a slightly lower ranking instrument for the benefits of the self-selected noteholders and MATCO. It does nothing to reduce the amount of the Company's secured debt.
Wilks reminds all Shareholders to VOTE AGAINST THE MANAGEMENT TRANSACTION USING THE BLUE VOTING FORM THAT HAS BEEN SENT TO YOU BY WIILKS. Shareholders should also review Wilks' Proxy Circular dated August 24, 2020 which has been mailed to shareholders and copies of which have posted to Calfrac's SEDAR profile, and are also available at www.afaircalfrac.com.
QUESTIONS/ VOTING ASSISTANCE
Shareholders who have questions or require voting assistance, may contact our communications advisor and proxy solicitation agent, 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].
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 proposed Premium 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.
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 Premium Bid, the reaction of the market and Calfrac's shareholders, creditors and customers to the Premium Bid, 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 Management Transaction are legally permissible, appropriate or capable of implementation.
SOURCE Wilks Brothers, LLC.