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

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.

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

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.

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“).