Wilks Brothers, LLC Announces Proposal for Superior Calfrac Recapitalization Transaction

• Stakeholders are encouraged to review the Term Sheet available at www.afaircalfrac.com

CISCO, Texas, Aug. 4, 2020 /CNW/ - Wilks Brothers, LLC ("Wilks"), a significant, long-term shareholder and debtholder of Calfrac Well Services Ltd. ("Calfrac" or the "Company") (TSX: CFW) announces that, further to Calfrac's announced recapitalization transaction (the "Initial Management Transaction"), it has submitted a superior alternative recapitalization transaction (the "Superior Alternative Proposal") to the board of directors of Calfrac today.

The Superior Alternative Proposal will significantly de-lever Calfrac and provide a superior recovery to stakeholders at all levels of Calfrac's capital structure. The Superior Alternative Proposal is fully committed, not subject to any financing or due diligence conditions and capable of being immediately implemented. The Initial Management Transaction, if it proceeds, would instead result in a continuing highly leveraged Calfrac, provide inferior recoveries to stakeholders, and is designed to unfairly enrich certain key insiders and a small select group of stakeholders of the Company (the "Select Investors").  

Superior Alternative Proposal vs. Initial Management Transaction Class-by-Class Comparison
Using an enterprise value of C$374 million, the value implied by the current trading prices of Calfrac's public securities, the dollar recovery under the Superior Alternative Proposal to each group of Calfrac's stakeholders (other than to the Select Investors) is demonstrably greater:

The Superior Alternative Proposal
The Superior Alternative Proposal is structured as a fully consensual transaction involving all levels of Calfrac's capital structure. It significantly de-levers Calfrac, and provides enhanced value and recovery to all affected stakeholder groups, as Wilks has committed to provide significantly more consideration for a smaller equity stake (C$236 million for 60% of pro forma equity) than the consideration provided under the Initial Management Transaction (C$60 million for 63% of pro forma equity). 

Advantages of the Superior Alternative Proposal:

• Significantly reduces Calfrac's total debt (not including capital leases) to less than C$95 million, and meaningfully increases cash and working capital to ensure a healthy and de-levered Calfrac. Under the Initial Management Transaction, total debt remains at no less than C$286 million, creating very real risk of an imminent bankruptcy.
• Better treatment to existing shareholders by providing them with no less than 5% of the pro forma equity in a reorganized Company with dramatically less debt, and up to 10% of aggregate pro forma equity upon the exercise of warrants at a strike price of C$0.15 per share, compared with the Initial Management Transaction that offers existing shareholders less than 3% of pro forma equity after dilution in a company with no less than C$286 million of debt.¹
• Better treatment to Unsecured Noteholders by providing them with no less than 35% of the pro forma equity in a reorganized company with dramatically less debt, compared with the Initial Management Transaction that offers existing Unsecured Noteholders 34% of the pro forma equity after dilution in a company with no less than C$286 million of debt.¹
• Provides almost 3x the consideration for the new equity issued. The Superior Alternative Proposal converts C$160 million of Second Lien Debt and invests a further C$80 million of cash for a 60% pro forma equity position. Under the Initial Management Transaction, the Select Investors would receive 63% of the pro forma common shares upon conversion of their C$60 million "loan".
• Provides a greater paydown of the First Lien Debt (C$75 million) and payment of amendment fees to the First Lien Lenders, compared to the paydown under the Initial Management Transaction (C$45 million). Under the Superior Alternative Proposal, Wilks would also commit to arrange to fully re-finance the existing First Lien Debt.

Wilks encourages all interested stakeholders to review its Term Sheet, available at www.afaircalfrac.com, for full details on the Superior Alternative Proposal.

Initial Management Transaction Contains Serious Flaws
In addition to the inferior value for each class noted above, the Initial Management Transaction contains serious flaws, including:

• High probability of a near term bankruptcy: With no less than C$286 million of secured debt, the Initial Management Transaction leaves the Company overleveraged. Given ongoing concerns in the energy market, this sizeable level of debt significantly increases the probability that Calfrac will need to seek bankruptcy protection even if it completes the transaction, erasing value for all stakeholders except those holding secured debt.
• Enriches a select group of insiders: The securities owned by the insiders will immediately be worth significantly more than these insiders paid for them. The cost will be unfairly borne by the second lien debtholders, the unsecured noteholders and the Company's shareholders (collectively, the "Impaired Classes").
• Favorable treatment of a select group in a non-arm's length investment: The Company has agreed to favor a select group of unsecured noteholders to participate in their non-arm's length investment to the detriment of non-insiders in the Impaired Classes, without disclosing the identities of these parties.
• Calfrac never pursued a market test of the Initial Management Transaction: The Initial Management Transaction was never subjected to a market test of "higher and better offers". The Superior Alternative Proposal is clearly a superior transaction and should be pursed for the benefit of Calfrac and its stakeholders

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¹ Shareholders and Unsecured Noteholders in the Initial Management Transaction receive up to 7.8% and 89.2%, respectively, of the pro forma equity before the applicable dilution, in a Company with no less than C$346 million of debt.

Questions
Stakeholders with questions may contact our communications advisor, 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].

Early Warning Disclosure
The following information is disclosed in compliance with National Instruments 62-103 and 62-104.

Wilks announces that they have filed an amended early warning report to disclose changes in certain material facts relating to their ownership of securities of Calfrac. In the amended report, Wilks discloses, among other things, that (i) they intend to seek to influence voting by shareholders and debtholders at any shareholders or debtholders meetings called to consider the Initial Management Transaction, any amendment to such proposal or any other restructuring proposal in any manner permitted by applicable law including, without limitation, the solicitation of proxies from Calfrac's securityholders and (ii) consistent with disclosure made in Wilks' previous early warning reports, Wilks may seek to effect material changes in Calfac's business, capital or corporate structure including, without limitation, changes to the board of directors or management, the sale or transfer of material assets of Calfrac or its subsidiaries and/or the issue or exchange of securities.

Wilks and Dan and Staci Wilks (the "Wilkses" and together with Wilks, the "Acquirors") 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 discussion and analysis for the three months ended March 31, 2020, that there are 145,171,194 Common Shares outstanding.

Calfrac is located at 411 ? 8th Avenue S.W., Calgary, Alberta, T2P 4G8.  Wilks is located at 17010 Interstate 20, Cisco, Texas, 76437. A copy of the early warning report can be obtained from Wilks (817-850-3600) or on the SEDAR profile of Calfrac at www.sedar.com

SOURCE Wilks Brothers LLC