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Source Energy Services Obtains Interim Order and Announces Meeting Details in Connection with Recapitalization Transaction





Calgary, AlbertaTheNewswire - October 26, 2020 – (TSX:SHLE)

Source Energy Services Ltd. (together with its affiliates, “Source” or the “Company”) announced today that the Court of Queen’s Bench of Alberta (Commercial List) (the “Court”) has issued an interim order (the “Interim Order”) in connection with the recapitalization transaction (the “Recapitalization Transaction”) announced by Source in its October 7, 2020 news release (the “Transaction Announcement”). The Interim Order, among other things, authorizes the holding of (i) a meeting (the “Noteholders’ Meeting”) of holders of the Company’s 10.5% senior secured first lien notes due 2021 (the “Notes”); and (ii) a meeting (the “Shareholders’ Meeting”) of holders of the Company’s common shares (the “Common Shares”), in each case to consider and vote upon a corporate plan of arrangement (the “Plan of Arrangement”) under the Canada Business Corporations Act (the “CBCA”) to implement the Recapitalization Transaction.

The background to the Recapitalization Transaction and its key terms are set out in the Transaction Announcement. To date, the Company has entered into support agreements with holders of approximately 74% of the Notes and approximately 45% of the Common Shares pursuant to which such holders have agreed to vote in favour of the Plan of Arrangement at the Meetings.

The Meetings and Voting Matters

The Noteholders’ Meeting and the Shareholders’ Meeting (collectively, the “Meetings”) are scheduled to be held virtually on November 25, 2020. Pursuant to the Interim Order, the Noteholders’ Meeting is scheduled to begin at 11:00 a.m. (Calgary time) and the Shareholders’ Meeting is scheduled to begin at 11:30 a.m. (Calgary time).

As previously announced by the Company, the record date (the “Record Date”) for voting at the Meetings is 5:00 p.m. (Calgary time) on October 29, 2020.

Holders of the Notes (the “Noteholders”) will each be entitled to vote on the Plan of Arrangement at the Noteholders’ Meeting based on one vote per $1,000 of principal amount of Notes held as at the Record Date. Holders of the Common Shares (the “Shareholders”) will be entitled to vote on the Plan of Arrangement at the Shareholders’ Meeting based on one vote per Common Share held as at the Record Date.

The deadline for Noteholders and Shareholders to submit their proxies or voting instructions in order to vote on the Plan of Arrangement and other items to be considered at the applicable Meeting is 5:00 p.m. (Calgary time) on November 23, 2020 (the “Voting Deadline”).

To be approved at the applicable Meeting, the Plan of Arrangement requires the affirmative vote of at least 66⅔% of the votes cast at each Meeting. As noted above, holders of approximately 74% of the Notes and approximately 45% of the Common Shares have agreed to vote in favour of the Plan of Arrangement pursuant to the terms of support agreements entered into with the Company.

Banks, brokers or other intermediaries (each, an “Intermediary”) that hold the Notes or Common Shares on a securityholder’s behalf may have internal deadlines that require certain securityholders to submit their votes to such Intermediary by an earlier date in advance of the Voting Deadline, and may have internal requirements for the submission of such voting instructions. Securityholders are encouraged to contact their Intermediaries directly to confirm any such internal deadline or voting instruction requirements.

Early Consent Consideration

As set out in the Transaction Announcement, and as will be described in further detail in the management information circular (“the Circular”) to be issued by the Company in connection with the Meetings, each Noteholder that votes in favour of the Plan of Arrangement by 5:00 p.m. (Calgary time) on November 18, 2020 (the “Early Consent Deadline”) (a “Consenting Noteholder”) will be entitled to receive its pro rata share (determined based on the total principal amount of Notes held by such Consenting Noteholder as a percentage of the aggregate principal amount of Notes outstanding) of additional New Secured Notes (as defined in the Transaction Announcement) in a principal amount equal to all accrued interest on the Notes from June 16, 2020 to the closing of the Recapitalization Transaction (the “Early Consent Consideration”). In order for a Noteholder to be entitled to receive its pro rata share of the Early Consent Consideration, such Noteholder must submit a vote in favour of the Plan of Arrangement by the Early Consent Deadline (or such earlier deadline as may be established by its Intermediary) and follow such other applicable procedures as set forth in the Interim Order and the Circular.

Circular

The Circular will contain, among other things, background and material information regarding the Recapitalization Transaction, information regarding procedures for voting on the Plan of Arrangement, and eligibility for Early Consent Consideration pursuant to the terms of the Plan of Arrangement and the Interim Order. The Company expects the mailing of the Circular to begin on or about November 2, 2020. The Circular, the forms of proxies, the voting information and election forms and the form of letter of transmittal will also be available:

  • - on Source’s website at www.sourceenergyservices.com;

    - under Source’s SEDAR profile at www.sedar.com; and/or

    - through Kingsdale Advisors by calling toll free at 1-800-749-9890 or 416-867-2272 or by email at contactus@kingsdaleadvisors.com or on Kingsdale Advisors’ website at www.KingsdaleAdvisors.com.

Any questions or requests for further information regarding voting at the Meetings or eligibility for Early Consent Consideration should be directed to Kingsdale Advisors using the contact information set forth above.

Shareholder Approvals

In connection with the Recapitalization Transaction, it is anticipated that (a) Source will reduce the stated capital of its Common Shares to $10 million (the “Stated Capital Reduction”), and (b) the Common Shares will be consolidated on the basis of one Common Share for every 12 Common Shares currently outstanding (the “Share Consolidation”). The Stated Capital Reduction and the Share Consolidation require the affirmative vote of at least 66⅔% of the votes cast at the Shareholders’ Meeting.

In addition, under the rules of the Toronto Stock Exchange (“TSX”), approval of the majority of shareholders voting at the Shareholders’ Meeting is required in connection with the Recapitalization Transaction, as the issuance of the new common shares to the Noteholders pursuant to the Plan of Arrangement is expected to exceed 25% of the issued and outstanding securities, at a price per security that is less than the market price (the “TSX Plan Approval Matters”).

At the Shareholders’ Meeting, Shareholders will be asked to consider and vote in respect of the Plan of Arrangement, the TSX Plan Approval Matters, the Stated Capital Reduction and the Share Consolidation. As part of the Shareholders’ Meeting, the Company will also hold its annual general meeting to deal with certain annual matters.

Court Approval and Implementation

If the Plan of Arrangement is approved by the requisite majorities at the Meetings, the Company will attend a hearing before the Court scheduled for November 27, 2020 at 9:00 a.m. (Calgary time) to seek a court order approving the Plan of Arrangement and granting related relief (the “Final Order”).

As part of the Court approval of the Recapitalization Transaction, the Company will seek a permanent waiver of any defaults, third party change of control rights or any non-compliance with any agreement relating to the commencement of the CBCA proceedings, the non-payment of interest or any other amounts due and payable in respect of the Notes, and the completion of the Recapitalization Transaction.

At this time, the Interim Order provides for a limited stay of proceedings in favour of the Company in respect of any defaults resulting from the commencement of the CBCA proceedings, the steps contemplated by or related to the proposed Recapitalization Transaction, the non-payment of any amounts due and payable in respect of the Notes or any cross-defaults relating to the foregoing, subject to the terms of the Interim Order.

Completion of the Recapitalization Transaction is subject to, among other things, approval of the Plan of Arrangement by the requisite majority of Noteholders at the Noteholders’ Meeting, the issuance of the Final Order approving of the Plan of Arrangement by the Court, the implementation of the BDC Facility and Amended Credit Facility (as noted in the Transaction Announcement and to be more particularly described in the Circular), and the satisfaction or waiver of the conditions to implementation set out in the Noteholder support agreement. Subject to the receipt of all requisite approvals and the satisfaction or waiver of the other conditions to completion of the Recapitalization Transaction, the Company is working towards completing the Recapitalization Transaction in November or December 2020. Upon implementation, the Plan of Arrangement would bind all Noteholders and Shareholders.

Additional information in connection with the implementation of the Recapitalization Transaction and the CBCA proceedings will be made publicly available by the Company and certain additional documents relating to the Recapitalization Transaction and/or and the CBCA proceedings will be hosted on the Company’s website (www.sourceenergyservices.com) in the Investors section.

The securities to be issued pursuant to the Recapitalization Transaction have not been and will not be registered under the U.S. Securities Act of 1933 (the “1933 Act”), or the securities laws of any state of the United States, and may not be offered or sold within the United States except pursuant to an exemption from the registration requirements of the 1933 Act. The securities to be issued pursuant to the Recapitalization Transaction will be issued and distributed in reliance on the exemption from registration set forth in Section 3(a)(10) of the 1933 Act (and similar exemptions under applicable state securities laws).

ABOUT SOURCE ENERGY SERVICES

Source is a logistics company that focuses on the supply and distribution of high quality Northern White frac sand. Source provides its customers with a full end-to-end solution supported by its Wisconsin mines and processing facilities, its Western Canadian terminal network and its “last mile” logistics capabilities. In addition to its industry leading frac sand transload terminal network and in-basin frac sand storage capabilities, Source also provides storage and logistics services for other bulk oil and gas well completion materials that are not produced by Source. Source has also developed Sahara, a proprietary wellsite mobile sand storage and handling system.

Source’s full-service approach allows customers to rely on its logistics capabilities to increase reliability of supply and to ensure the timely delivery of their requirements for frac sand and other bulk completion materials at the wellsite.

For further information, please contact:


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 |Media Inquiries:                       |Investor Relations Inquiries:             |
 |----------------------------------------------------------------------------------|
 |Meghan Somers                          |Brad Thomson                              |
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 |Communications Advisor                 |Chief Executive Officer                   |
 |----------------------------------------------------------------------------------|
 |(403) 262-1312 (ext. 295)              |(403) 262-1312 (ext. 225)                 |
 |----------------------------------------------------------------------------------|
 |communications@sourceenergyservices.com|investorrelations@sourceenergyservices.com|
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FORWARD-LOOKING STATEMENTS

Certain statements contained in this press release constitute forward-looking statements relating to, without limitation, expectations, intentions, plans and beliefs, including information as to the future events, the Recapitalization Transaction, the Plan of Arrangement, the Amended Credit Facility, the BDC Facility, the voting results at the Meetings, results of operations and Source’s future performance (both operational and financial) and business prospects. In certain cases, forward-looking statements can be identified by the use of words such as “expects”, “estimates”, “forecasts”, “intends”, “anticipates”, “believes”, “plans”, “seeks”, “projects” or variations of such words and phrases, or state that certain actions, events or results “may” or “will” be taken, occur or be achieved. Such forward-looking statements reflect Source’s beliefs, estimates and opinions regarding the Recapitalization Transaction and related transactions, the CBCA proceedings and the Meetings, Source’s future growth, results of operations, future performance (both operational and financial), and business prospects and opportunities at the time such statements are made, and Source undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or circumstances should change. Forward-looking statements are necessarily based upon a number of estimates and assumptions made by Source that are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Forward-looking statements are not guarantees of future performance. In particular, this press release contains forward-looking statements pertaining, but not limited, to: expectations regarding the Recapitalization Transaction, including the terms, timing and implementation of the Recapitalization Transaction and related financings, including the Amended Credit Facility and the BDC Facility; expectations regarding demand for and sales volumes of sand in light of the COVID-19 pandemic; expectations regarding the price of proppants and sensitivity to changes in such prices; outlook for operations and sales volumes; expectations respecting future competitive conditions; industry activity levels; expectations regarding market share; industry conditions pertaining to the frac sand industry; expectations regarding customer relationships and counterparty risk; drilling and well completion activity in 2020; expectations regarding the impact of direct-source contracts; sand sales volumes and sand spot pricing in 2020; expectations regarding future working capital and capital expenditures; the ability to secure future funding; expectations regarding fluctuations in foreign currency; expectations regarding the severity and outcome of legal claims and proceedings; expectations regarding insurance coverage and proceeds; expectations regarding the impact of climate change; risks associated with information systems and cyber security and operational risks. Statements relating to mineral resources are deemed to be forward looking-statements, as they involve the implied assessment, based on certain estimates and assumptions, that the mineral resources described exist in the quantities predicted or estimated and that the mineral resources described might be able to be profitably produced in the future.

By their nature, forward-looking statements involve numerous current assumptions, known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Source to differ materially from those anticipated by Source and described in the forward-looking statements.

With respect to the forward-looking statements contained in this press release, assumptions have been made regarding, among other things: the Recapitalization Transaction and the CBCA proceedings; proppant market prices; future oil, natural gas and natural gas liquids prices; future global economic and financial conditions; future commodity prices, demand for oil and gas and the product mix of such demand; levels of activity in the oil and gas industry in the areas in which Source operates; the continued availability of timely and safe transportation for Source’s products, including without limitation, Source’s rail car fleet and the accessibility of additional transportation by rail and truck; the maintenance of Source’s key customers and the financial strength of its key customers; the maintenance of Source’s significant contracts or their replacement with new contracts on substantially similar terms and that contractual counterparties will comply with current contractual terms; operating costs; that the regulatory environment in which Source operates will be maintained in the manner currently anticipated by Source; future exchange and interest rates; geological and engineering estimates in respect of Source’s resources; the recoverability of Source’s resources; the accuracy and veracity of information and projections sourced from third parties respecting, among other things, future industry conditions and product demand; demand for horizontal drilling and hydraulic fracturing and the maintenance of current techniques and procedures, particularly with respect to the use of proppants; Source’s ability to obtain qualified staff and equipment in a timely and cost-efficient manner; the regulatory framework governing royalties, taxes and environmental matters in the jurisdictions in which Source conducts its business and any other jurisdictions in which Source may conduct its business in the future; future capital expenditures to be made by Source; future sources of funding for Source’s capital program; Source’s future debt levels; the impact of competition on Source; and Source’s ability to obtain financing on acceptable terms.

A number of factors, risks and uncertainties could cause results to differ materially from those anticipated and described herein including, among others: Source’s ability to complete the Recapitalization Transaction and obtain requisite stakeholder and Court approvals; the final terms, timing and implementation of the Recapitalization Transaction and related transactions; effects of competition and pricing pressures; risks inherent in key customer dependence; effects of fluctuations in the price of proppants; risks related to indebtedness and liquidity, including Source’s leverage, restrictive covenants in Source’s debt instruments and Source’s capital requirements; risks related to interest rate fluctuations and foreign exchange rate fluctuations; changes in general economic, financial, market and business conditions in the markets in which Source operates; changes in the technologies used to drill for and produce oil and natural gas; Source’s ability to obtain, maintain and renew required permits, licenses and approvals from regulatory authorities; the stringent requirements of and potential changes to applicable legislation, regulations and standards; the ability of Source to comply with unexpected costs of government regulations; liabilities resulting from Source’s operations; the results of litigation or regulatory proceedings that may be brought against Source; the ability of Source to successfully bid on new contracts and the loss of significant contracts; uninsured and underinsured losses; risks related to the transportation of Source’s products, including potential rail line interruptions or a reduction in rail car availability; the geographic and customer concentration of Source; the impact of climate change risk; the ability of Source to retain and attract qualified management and staff in the markets in which Source operates; labour disputes and work stoppages and risks related to employee health and safety; general risks associated with the oil and natural gas industry, loss of markets, consumer and business spending and borrowing trends; limited, unfavourable, or a lack of access to capital markets; uncertainties inherent in estimating quantities of mineral resources; sand processing problems; implementation of recently issued accounting standards; the use and suitability of Source’s accounting estimates and judgments; and the impact of information systems and cyber security breaches.

Although Source has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in the forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will materialize or prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement. Readers should not place undue reliance on forward-looking statements. These statements speak only as of the date of this press release. Except as may be required by law, Source expressly disclaims any intention or obligation to revise or update any forward-looking statements or information whether as a result of new information, future events or otherwise.

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