Twin Butte Energy Debentureholders Outline Proposed Alternative Transaction as Presented to the Special Committee of Twin Butte's Board

Corrected source

CALGARY, Aug. 30, 2016 /CNW/ -

Dear Twin Butte Securityholders,

We, the ad hoc committee of unaffiliated senior debentureholders (the "Ad Hoc Group") of Twin Butte Energy Ltd. ("Twin Butte"), wish to update Twin Butte's securityholders concerning recent developments in connection with the proposed restructuring of Twin Butte:

• Immediately following the special meeting of the Twin Butte securityholders held on August 29, 2016, the Ad Hoc Group presented an alternate restructuring proposal (the "Alternate Proposal") to the Special Committee of Twin Butte's Board (the "Special Committee").
• The Alternate Proposal outlines a proposed plan whereby Twin Butte would file for creditor protection under the Companies' Creditors Arrangement Act ("CCAA") in order to complete a concurrent selected asset sale, private placement and rights offering that would allow Twin Butte to emerge from CCAA creditor protection with significantly reduced leverage and material interest savings.
• The Alternate Proposal (attached) represents a near-term viable solution for the benefit of all Twin Butte securityholders.  The Ad Hoc Group asked for a short window to formalize the proposal  and that Twin Butte remove barriers currently in place that restrict implementation. Specifically, we have requested that Twin Butte release parties contacted during the strategic alternatives process from the standstill clauses under their confidentiality agreements, and received no substantive response to this request. Following the removal of these barriers to action, we strongly believe that we would be in a position to provide a revised proposal with limited conditions or risk of closing in an expedited period.
• In light of the materially improved commodity price environment between current strip pricing and when the corporate bid from Reignwood Resources Holding Pte. Ltd. ("Reignwood") was received, the Ad Hoc Group believes that the completion of the selected asset sale, private placement and rights offering would allow Twin Butte to continue as a going concern after emergence from CCAA.
• Twin Butte's asset base is highly levered to changes in oil price and as such, multiple alternatives exist today for Twin Butte that were previously unavailable at the bottom of the cycle when the initial strategic alternative process was initiated and when the Reignwood offer was accepted:
  • Western Canadian Select spot prices have increased by $9.56 per barrel since March 11, 2016, the bid date for the strategic alternatives process run by Peters & Co. Limited and National Bank Financial Inc.
  • This increase is highly material and significantly improves Twin Butte's netback relative to the Q1 2016 period in which Twin Butte's netback was negative at $(2.35)/boe.
• The Ad Hoc Group understands that this Alternate Proposal has been provided to the Lending Syndicate by the Special Committee. Twin Butte has not indicated what response, if any, the company has received from the Lending Syndicate.
• The Ad Hoc Group believes that the Alternate Proposal provides Twin Butte with a preferred alternative to receivership, which would be to the benefit of all of Twin Butte's stakeholders including the Lending Syndicate, debentureholders, shareholders, and the employees of Twin Butte and all other stakeholders.

We look forward to the opportunity to engage with the Lending Syndicate and the Special Committee to discuss and advance the Alternate Proposal.

Attached is a redacted copy of the term sheet provided to the Special Committee August 29, 2016 outlining the proposed terms of the Alternate Transaction Proposal.

SUMMARY OF PRINCIPAL TERMS AND CONDITIONS

This term sheet dated as of August 29, 2016 describes the principal terms on which Twin Butte Energy Ltd. ("Twin Butte" or the "Company") will complete a series of transactions under which Twin Butte's (i) CDN$140 million revolving facility (the "Revolving Facility") and associated CDN$85 million term loan, (ii) C$85 million of 6.25% Convertible Unsecured Subordinated Debentures due December 31, 2018 (the "Debentures"), iii) unsecured creditor and other claimants and (iv) existing common shares (the "Existing Common Shares") will be restructured pursuant to a recapitalization and restructuring plan to be implemented though proceedings to be commenced under the Companies' Creditors Arrangement Act (the "CCAA Proceedings" and the "CCAA Transaction").¹ 

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¹ This Summary of Principal Terms and Conditions does not purport to summarize all the terms, conditions, representations, warranties and other provisions with respect to the transactions referred to herein, which transactions will be entered into on the basis of mutually satisfactory definitive documentation after, among other things, satisfactory completion of due diligence (including without limitation financial, operational, technical, legal and tax due diligence) and receipt of necessary internal and external approvals.

PRINCIPAL TERMS OF CCAA TRANSACTION

I. CCAA Transaction

Affected Persons

Debentures	"Debenture Claims" shall consist of all outstanding obligations, liabilities and indebtedness owed to the Debentureholders, including, without limitation, any and all outstanding principal and all accrued and unpaid interest owing under the documents governing the Debentures.
General Unsecured Claims	"General Unsecured Claims" means claims of any unsecured creditor as that term is defined in the CCAA.
Existing Shareholders	"Existing Shares" means the common shares of the Company currently outstanding, including, without limitation, all options, warrants, rights, shareholder rights plans, performance share units or similar instruments derived from, relating to, or convertible or exchangeable therefore.
Priority Claims	"Priority Claims" shall consist of any priority claims (taxes, unpaid wages, etc.) required to be paid pursuant to section 6 of the CCAA.
DIP Financing	The Ad Hoc Committee has procured a term sheet for a DIP Financing from [redacted] attached hereto as Appendix "A".
Private Placement	The Company will complete a "best efforts" treasury offering of common shares in an amount up to $19,000,000 on a private placement basis.  The offering price of the common shares pursuant to the Private Placement will be subject to the maximum permissible discount pursuant to the rules of the Toronto Stock Exchange (the "TSX").
Rights Offering	The Company will complete a rights offering (the "Rights Offering") in an amount up to $11,000,000, with an exercise price offering price subject to the maximum permissible discount pursuant to the rules of the TSX. Current holders of Existing Shares and holders of Debentures will each as a group be entitled to subscribe for up to $5,500,000 rights pursuant to the Rights Offering.  Allocations to subscribers will be made on a pro rata basis.  The Ad Hoc Committee will provide a stand-by commitment for the Rights Offering.
New Common Shares	Approximately [·] new common shares of the Company (the "New Common Shares") will be issued on implementation of the CCAA Transaction, such that following completion of the CCAA Transaction it is anticipated that the New Common Shares will be allocated approximately 68% to holders of Debentures and to holders of General Unsecured Claims (as of a record date to be determined) as a group, approximately 27% to participants in the Private Placement and the Rights Offering, and approximately 5% to participants in the New Employee Incentive Plan (as defined below).   The allocation of New Common Shares is based upon the maximum proceeds outlined above and is subject to reallocation.    All rights in respect of Existing Shares shall be cancelled upon plan implementation.   For certainty, no equity or equity derivative securities will be issued on implementation of the CCAA Transaction, other than pursuant to the New Employee Incentive Plan.
Bank Debt	The Banks agree that Twin Butte's debt shall equal the fair market value of debt as per Note 5 in the Company's Q2 2016 financial statements, and agree to an extension of the forbearance agreement for a minimum of 60 days, if applicable.   Twin Butte shall use any proceeds raised pursuant to the Private Placement, Rights Offering and Asset Sale Process (as defined below) for further reduction of debt.   The Banks agree to provide the remaining debt in the form of a New Revolving Facility (as defined below).
Asset Sale Process	The Company will undertake a process to sell certain assets identified by the Ad Hoc Committee.  Net proceeds of any such sales will be used to repay bank debt upon closing.

II. Implementation

CCAA Plan

The restructuring and recapitalization will be implemented pursuant to a Plan of Arrangement and Compromise (the "Plan").  The Plan shall have two classes of creditors, being: a) Secured Class - Consisting of the current banking syndicate and receiving the treatment set forth herein, and b) Unsecured Class - consisting of Debentures and General Unsecured Claims. The Plan will include provision for the Asset Sale Process described above.   The indicative timeline for the implementation of the Plan is as follows:   Day 1 -  Obtain Initial Order under CCAA   Day 10 - Obtain Claims Process Order   Day 30 - File Plan and Seek Meeting Order   Day 51 - Meeting   Day 55 - Apply for Sanction Order   Day 60 - Implementation of Plan

III. Other Claims and Interests

Non-Priority Unsecured Claims

All non-priority, unsecured claims, leases and executory contracts (other than the Debentures) will either be unaffected under the CCAA Transaction and remain in place under their existing terms or will be treated in a manner acceptable to the Company and the Ad Hoc Committee.

IV. Other Conditions

Revolving Credit Facility	The Revolving Facility shall be replaced with a new revolving credit facility (the "New Revolving Facility") on terms and conditions acceptable to the Company and the Ad Hoc Committee. The New Revolving Facility will be based on the fair market value of debt as described above in "Bank Debt". The New Revolving Facility shall be available to the Company following implementation of the CCAA Transaction with a redetermination date not before November 30, 2017.
Listing of New Common Shares	The Company and the Ad Hoc Committee shall engage in good faith discussions regarding listing, reporting, registration rights and the public nature of reorganized Twin Butte going forward, following implementation of the CCAA Transaction. For greater certainty, the parties intend that the Company remain a listed company on the TSX.
Ad Hoc Committee Professionals	The fees of Macquarie Capital, the financial advisor to the Ad Hoc Committee, and Bennett Jones LLP, legal advisors to the Ad Hoc Committee shall be paid in accordance with their respective engagement letters, copies of which have been provided to the Company. Macquarie Capital's engagement letter may only be shared with third parties pursuant to a confidentiality agreement in form and substance satisfactory to Macquarie Capital.
Definitive Documents	Definitive agreements, court materials and other documents (the "Definitive Documents") in connection with CCAA Proceedings, shall be consistent in all respects with the terms of this term sheet and otherwise reasonably acceptable to the Company and the Ad Hoc Committee. The Definitive Documents shall implement the CCAA Transaction in a tax efficient manner acceptable to the Company and the Ad Hoc Committee.
New Employee Incentive Plan	The terms of any employment agreements shall be modified, as a condition to the CCAA Transaction to address Twin Butte's restructured capital structure and specifically to confirm that no amounts shall be payable to any employee, officer or director in connection with any change of control that may arise in connection with or result from the implementation of the CCAA Transaction.   The existing employee incentive programs will be cancelled and replaced by a new incentive plan (the "New Employee Incentive Plan") to be approved at the discretion of the post-recapitalization Board of Directors.   Approximately [·] New Common Shares will be issued on implementation of the CCAA Transaction pursuant to the New Employee Incentive Plan, such that following completion of the CCAA Transaction it is anticipated that 5% of the New Common Shares will be allocated to the New Employee Incentive Plan. The New Common Shares issued pursuant to the New Employee Incentive Plan will be issued in exchange for no consideration but will be subject to certain performance hurdles.
Corporate Governance	The Ad Hoc Committee will work with the current Board of Directors of the Company to establish the membership of the post-recapitalization Board, provided that the Board will consist of (i) the Chief Executive Officer of the Company, (ii) one or more existing directors of the Company acceptable to the Ad Hoc Committee, and (iii) other new individuals acceptable to the Ad Hoc Committee.
Other Approvals and Conditions	The implementation of the Plan shall be subject to court, stock exchange, regulatory, lender and other approvals and conditions precedent as may be required for a transaction of this nature, including without limitation, that there shall be no material adverse change in the Company's business operations. The transactions set forth in this term sheet shall be subject to standard due diligence by the Ad Hoc Committee.
Monitor	[Redacted] shall be retained to serve as the proposed CCAA monitor (the "Proposed Monitor").

SCHEDULE "A"

[Redacted]

SOURCE Informal Committee of Concerned Debentureholders of Twin Butte

On behalf of the Ad Hoc Group, Macquarie Capital Markets Canada Ltd.: Sandy Edmonstone, [phone], [email protected]; Chase Edgelow, [phone], [email protected]; Bennett Jones LLP: Will Osler, [phone], [email protected]; Robert Staley, [phone], [email protected]