Wilks Brothers LLC Files Proxy Circular and Addresses Deceptive Information from Calfrac, Including the Real Impact of the Proposed Management Transaction; Encourages Shareholders to Protect Their Interests by Voting AGAINST the Management Transaction

Highlights from the Proxy Circular:

• The Management Transaction delivers Calfrac to a self-selected group of unsecured creditors and insiders, including the Chairman, Mr. Ron Mathison, his company MATCO Investments Ltd. and an activist investor, G2S2Capital Inc., in a transaction that will massively dilute to approximately 3% or completely eliminate Shareholders ownership stake in Calfrac
  
  
• If completed, the Management Transaction will result in G2S2 Capital Inc. owning 41.2% of the shares of Calfrac. G2S2 Capital is an investment vehicle controlled by Mr. George Armoyan, an "activist investor" who is also (through G2S2 and Clarke Inc.) a significant shareholder (19.23%) of Trican Well Service Ltd., a direct Canadian competitor of Calfrac.
  
  
• G2S2 Capital and Mr. Mathison will, between them, be in a position to control over 50% of Calfrac's outstanding shares if the Management Transaction is completed. Notably, no change of control premium will have been paid to the Shareholders of Calfrac in this transaction.
  
  
• Concerned about the true level of support of Shareholder support and in a clear attempt to suppress shareholder voting against the Management Transaction, Calfrac has announced that they have now switched the Meeting to be an in-person meeting only. This notwithstanding the prior announcement that the Meeting would be held virtually given the COVID 19 pandemic, related Border closures and attendant risks to Shareholders who attend in person. An in-person Meeting in this current pandemic is inexplainable when virtual voting is now common place.
  
  
• Calfrac's announced levels of Shareholder support for the Management Transaction is deceptive and misleading. The announced level of support includes shares held by Mr. Mathison and/or MATCO which will NOT be entitled to vote as part of the "minority" vote in respect of the Management Transaction that is required under Canadian securities laws.  Independent Shareholders do not support the Management Transaction.  
  
  
• Shareholders should vote Against the Management Transaction to protect their interests from the true "wolves in sheep's clothing."  If the Management Transaction is rejected by Shareholders, the Wilks Superior Alternative Proposal, the full details of which are available at www.afaircalfrac.com , will remain available to Calfrac and provide a premium recovery to all stakeholders.

CISCO, Texas, Aug. 24, 2020 /CNW/ - Wilks Brothers, LLC ("Wilks") announced today they have filed and will mail out a proxy circular and BLUE voting form, to the shareholders of Calfrac Well Services Ltd. ("Calfrac" or the "Company") (TSX: CFW) in advance of the special meeting of Calfrac shareholders scheduled to occur on September 17, 2020 (the "Meeting").  Wilks urges shareholders to vote the BLUE form of proxy or BLUE voting instruction form ("VIF") AGAINST the self-interested management-led recapitalization transaction (the "Management Transaction").

Unsecured Noteholders Receive Superior Value Under the Wilks Proposal (CNW Group/Wilks Brothers, LLC.)

Equity Holders Receive Superior Value Under the Wilks Proposal (CNW Group/Wilks Brothers, LLC.)

The proxy circular includes a letter from Wilks to their fellow Calfrac Shareholders that focuses on the real agenda that is being played out via the Management Transaction. The letter is set out below:

"Dear Fellow Calfrac Shareholders:

This is a decisive moment in Calfrac's history.

Like you, we are long-time shareholders of Calfrac and have watched as the current, entrenched Board and Management have led Calfrac to the brink of bankruptcy.

They now seek to implement a "restructuring" of Calfrac (the "Management Transaction") that will deliver the company to a self-selected group of unsecured creditors and insiders, including the Chairman, Mr. Ron Mathison, and his company MATCO Investments Ltd. ("MATCO"), and an activist investor, G2S2Capital Inc., in a transaction that will massively dilute or completely eliminate your ownership stake in Calfrac.

The entrenched Board and Management have tried to distract you from the truth by painting Wilks, a long-time shareholder, as an "activist" investor with hidden motivations. In their Management Information Circular, they advised you to carefully assess "the motives and actions" of Wilks. Yet they do not advise similar caution with respect to the motives and actions of the self-selected group of unsecured creditors and insiders (including Mathison and his personal holding company, MATCO) who have proposed the "restructuring".

If completed, the Management Transaction will result in G2S2 Capital Inc. owning 41.2%^[1] of the shares of Calfrac. G2S2 Capital is an investment vehicle controlled by Mr. George Armoyan, an "activist investor"^[2] who is also (through G2S2 and Clarke Inc.) a significant shareholder (19.23%) of Trican Well Service Ltd., a direct Canadian competitor of Calfrac.  G2S2 Capital's holdings of Common Shares, even on an undiluted basis, will be sufficient for it to block any transaction requiring 66 2/3% shareholder approval.

Further, G2S2 Capital and Mr. Mathison will, between them, be in a position to control over 50%^[3] of Calfrac's outstanding shares if the "restructuring" is completed. No change of control premium will have been paid to the Shareholders of Calfrac. Instead, they will face immediate massive and continuing dilution of their ownership interest.

The concerns regarding "conflicts and unknown risks" to Calfrac stakeholders that the entrenched Board and Management of Calfrac express with respect to Wilks acquiring a controlling interest seem to magically vanish in the case of Calfrac's proposed Management Transaction; a transaction that delivers a majority stake in the company to an insider and an "activist" investor who owns a significant stake in a direct competitor.

You have also been threatened by the entrenched Board and Management team. They have told you that the Management Transaction is the only viable alternative and that, if you do not vote for it, your investment will be wiped out. That is false. Wilks Brothers LLC ("Wilks") have made an alternative superior proposal to Calfrac for a superior alternative recapitalization transaction (the "Superior Alternative Proposal") that provides a premium recovery to Shareholders over the proposed restructuring transaction. The Superior Alternative Proposal will remain available to Calfrac if Shareholders vote to reject the Management Transaction.

The entrenched Board and Management of Calfrac also claim that holders of 23% of the outstanding shares of Calfrac support the Management Transaction. This is misleading and vastly overstates the level of required support they actually have since the majority of those shares (19.8%) are held by Mr. Mathison and/or MATCO who will NOT be entitled to vote as part of the "minority" in respect of the restructuring that is required under Canadian securities laws.

Protecting the interests of Calfrac's Shareholders will come down to all of us, the "minority" Shareholders of Calfrac. We are the only ones who can stop this.

THE ENTRENCHED BOARD AND MANGEMENT ARE TRYING TO SUPPRESS THE SHAREOLDER VOTE

The entrenched Board and Management of Calfrac is clearly concerned about the shareholder vote and are taking measures to suppress it. In the published version of the Management Information Circular Calfrac announced that the Meeting is to be held as an in-person meeting only, notwithstanding the COVID 19 pandemic and the attendant risks to Shareholders who attend in person. In the version of the Circular they filed with the Court in connection with obtaining the Interim Order they proposed having a "virtual only" meeting. Calfrac's rationale for changing to an in-person meeting is that: "Given the fundamental nature of the [transaction]…the Company determined that the Meeting should be held in person…". This is, of course, absurd on its face. On the day after Calfrac published its circular with this cynical and self-serving rationale for holding an in-person meeting, Alberta reported 144 new cases of COVID 19 and was second only to Quebec in terms of total active cases.^[4]

Calfrac knew that changing to an in-person only meeting would prevent Wilks' representatives from attending and participating in the Meeting due to travel restrictions and quarantines and discourage other Shareholders from attending the Meeting due to health concerns.

If Calfrac were truly interested in ensuring that as many of its Shareholders as possible voted, it would provide alternative methods for voting that enfranchised as many Shareholders as possible while ensuring their safety. Many companies this year have held hybrid meetings, which allow holders to attend in person, while also allowing the opportunity for appointed proxyholders and registered holders who are unable to attend due to health-related concerns, to attend and vote online.

^1			On a fully-diluted basis. G2S2 would own 38.1% on a non-diluted basis and 59.4% on a partially- diluted basis, see page 76 of Calfrac's Management Information Circular dated August 17, 2020.
^2			Financial Post January 9, 2014: "Activist George Armoyan set for Proxy Fight at Sherritt after negotiations fall apart".
^3			On a fully-diluted basis; Page 76 of Calfrac's Management Information Circular dated August 17, 2020.
^4			www.cbc.ca "What you need to know about COVID-19 in Alberta on Saturday, August 22, 2020".

WILKS' SUPERIOR ALTERNATIVE PROPOSAL

On August 4^th, 2020, Wilks made the Superior Alternative Proposal to Calfrac. That proposal was summarily rejected by the "Special Committee" of the Board that was created to consider it.

The rejection was based, not on the economics, and vastly superior recoveries to Shareholders provided in the Superior Alternative Proposal but solely because it would not be acceptable to the self-selected group of insiders and unsecured noteholders who will disproportionately benefit from their own insider deal and ultimately control Calfrac (the "Select Insiders").

At the time Calfrac rejected the Wilks proposal, they offered no analysis or comparison of the economic benefits and consequences to the Company and its stakeholders of Wilks' Superior Alternative Proposal versus the Management Transaction. This is undoubtedly because the Special Committee and Calfrac recognize that, in fact, the Wilks proposal delivers superior recoveries across the Company's capital structure and results in a stronger, more sustainable, capital structure for Calfrac.

Independent analysts agree:

"In our view, the new Wilks Bros restructuring proposal is unambiguously superior to the original proposal for equity holders and 2nd lien noteholders." – Raymond James Ltd., August 4, 2020

 

"We believe that should the Wilks proposal succeed, Calfrac's survivability would be materially improved and have raised our target from zero to $0.15 (13.5x 2021 EV/EBITDA) and rating to Market Perform from Reduce on the potential success of the deal and deleveraging of the Company." – Cormark Securities Inc., August 5, 2020.

ADVANTAGES OF THE SUPERIOR ALTERNATIVE PROPOSAL

• Significantly reduces Calfrac's total debt and debt service (excluding capital leases):
• Reduces debt by $814.4 million to less than $95 million, and meaningfully increases cash and working capital to ensure a financially sound and de-levered Calfrac.
• Reduces annual debt service costs to approximately $5 million compared to $25 million under the Management Transaction ($31 million, if $6 million of PIK interest on the 1.5 Lien Notes is included).
• Under the 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:
• Provides existing Shareholders 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 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.
• Better treatment to Unsecured Noteholders:
• Provides no less than 35% of the pro forma equity in a reorganized company with dramatically less debt, compared with the 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.
• 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, certain key insiders and a small select group of stakeholders of the Company (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:
• The Superior Alternative Proposal provides for the repayment of first lien debt of C$75 million and the payment of amendment fees to the First Lien Lenders, compared to the paydown under the Management Transaction of C$45 million.
• Under the Superior Alternative Proposal, Wilks would also commit to arrange to fully re-finance the existing First Lien Debt.

THE MANAGEMENT TRANSACTION IS SERIOUSLY FLAWED

In addition to the inferior value for each class noted above, the Management Transaction is seriously flawed, including:

• High probability of a near term bankruptcy:
• With no less than C$286 million of secured debt, the Management Transaction leaves the Company overleveraged exposing it to the risk of future defaults under the Senior Credit Facility.
• Given ongoing concerns in the energy market, this sizeable level of debt significantly increases the probability that Calfrac will need to seek bankruptcy protection in the near future even if it completes the Management Transaction, which will erase value for all stakeholders except those holding secured debt, which includes the Chairman.
• Enriches a select group of insiders:
• The securities owned by the Select 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.
• The providers of the "1.5 Lien" Financing are entitled to a "break fee" of $5,000,000 in certain circumstances; an amount that represented approximately 30% of Calfrac's market capitalization on the date it was agreed to.
• Calfrac never pursued a market test of the Initial Management Transaction:
• The 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 pursued for the benefit of Calfrac and its stakeholders

SUPERIOR ALTERNATIVE PROPOSAL VS. MANAGEMENT TRANSACTION CLASS-BY-CLASS COMPARISON

Using the current 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 the Select Insiders) is demonstrably greater:

Class of Securities	Superior Alternative Proposal	Initial Management Transaction
Recovery to existing Shareholders	C $16 million	C $2 million
Recovery to unsecured noteholders	C $96 million	C $27 million
Recovery to second-lien debtholders (other than Wilks)	C $72 million	C $71 million
Recovery to MATCO Investments Ltd. (insider)	C $4 million	C $7 million

RECOVERY ANALYSIS

It is important that stakeholders properly compare their recoveries using a realistic assessment for enterprise value. We have provided the following comparisons based on current Enterprise Value (see appendix A). Stakeholders should note that in addition to providing a significantly superior economic recovery across a range of enterprise values, the Wilks Superior Alternative Proposal provides significantly less downside risk to recovery due to the substantially reduced leverage inherent in the Wilks Superior Alternative Proposal.

We will be voting AGAINST the Management Transaction.

We encourage all Shareholders to vote their shares AGAINST the Management Transaction and the related proposals in order to stop this self-enrichment at their expense. A superior outcome for Shareholders is within your control.

Sincerely Yours,

"Matthew D. Wilks"

Matthew D. Wilks
Wilks Brothers, LLC"

We encourage all Shareholders to carefully read the Wilks Proxy Circular and vote AGAINST approval of the Management Transaction.

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, 855-2^nd Street S.W. Calgary, Alberta, Canada, T2P 4K7, and its head office is at 411-8^th 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.

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 continuing economic and social impacts of the current COVID 19 pandemic and, in particular, the effects of the pandemic on the demand for oil and gas and related services; Calfrac's future growth potential; its results of operations; future cash flows; the future performance and business prospects and opportunities of Calfrac; the response to and outcome of any court applications relating to the transactions described herein or otherwise that may be made by or against Calfrac or Wilks; the implementation and timing of Calfrac's business strategy; the current general and regulatory environment and economic conditions remaining unchanged; the availability of financing; operating and capital costs; Calfrac's available cash resources; Calfrac's ability to attract and retain skilled staff; sensitivity to commodity prices and other sensitivities; the supply and demand for, and the level and volatility of the price of, oil and natural gas; the supply and availability of consumables and services; currency exchange rates; energy and fuel costs; required capital investments; estimates of net present value and internal rate of returns; capital and operating cost estimates and the assumptions on which such estimates are based; market competition; ongoing relations with employees and impacted communities; and general business and economic conditions.

Forward-looking information contained in this Press Release reflect 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 ability of Calfrac to retain and hire key personnel and maintain relationships with customers, suppliers or other business partners; the impact of legislative, regulatory, competitive and technological changes; the state of the economy; credit and equity markets; availability of credit and other financing; the financial markets in general; price volatility; increases in costs; environmental compliance and changes in environmental legislation; regulation and policies; interest rate and exchange rate fluctuations; general economic conditions and other risks involved in the hydraulic fracking industry. Many of these risks and uncertainties could affect Calfrac's actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking information provided by Wilks. 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 results or events predicted. All of the forward-looking information reflected in this Circular 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. Forward-looking information is provided, and forward-looking statements are made as of the date of this Circular 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.

Questions/ Voting Assistance: Stakeholders 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 [phone] (outside North America) or by e-mail at [email protected]