EX-99.1 2 d692746dex991.htm EX-99.1 EX-99.1
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Exhibit 99.1

 

LOGO

NOTICE OF MEETINGS OF HOLDERS OF

8.5% SENIOR UNSECURED NOTES DUE 2020 AND

6.75% CONVERTIBLE DEBENTURES DUE 2021

AND

NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

OF BELLATRIX EXPLORATION LTD.

To be held on May 23, 2019

MANAGEMENT INFORMATION CIRCULAR

with respect to, among other things, a proposed

PLAN OF ARRANGEMENT

and

RECAPITALIZATION TRANSACTION

Dated April 18, 2019

These materials are important and require your immediate attention. They require shareholders and certain affected debtholders of Bellatrix Exploration Ltd. to make important decisions. If you are in doubt as to how to make such decisions please contact your financial, legal, tax or other professional advisors. If you have any questions or require additional information with regard to the voting of your debt or your shares, please contact Kingsdale Advisors by: (i) telephone, toll-free in North America at 1-866-229-8874 or at 416-867-2272 outside of North America; or (ii) e-mail to contactus@kingsdaleadvisors.com.


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LOGO

April 18, 2019

 

To the holders of:    the Senior Unsecured Notes (as defined in the accompanying management information circular)
And to the holders of:    the Convertible Debentures (as defined in the accompanying management information circular)
And to the holders of:    common shares (“Common Shares”) of Bellatrix Exploration Ltd. (“Bellatrix”, the “Corporation” or “we”)

In connection with our key strategic priority of maintaining financial strength and liquidity, the Corporation has, for a significant period of time, been reviewing and evaluating potential options and alternatives to improve our capital structure, improve liquidity and maximize value for all stakeholders. Bellatrix has also been engaged in extended discussions with parties across our capital structure in connection with advancing potential transaction alternatives.

As described further in the accompanying management information circular (the “Information Circular”), the Corporation, overseen by a special committee (the “Special Committee”) of the Corporation’s board of directors (the “Board”), and with the assistance of its legal and financial advisors, engaged in extended and detailed discussions and due diligence efforts with holders of a significant amount of Senior Unsecured Notes and Convertible Debentures subject to confidentiality agreements with the Corporation with the aim of achieving a consensual transaction that would, among other things, reduce the Corporation’s debt levels and cash interest payments, address certain upcoming debt maturities and improve and strengthen the Corporation’s overall financial position. The Corporation also engaged in discussions with the lenders under its senior bank facility (the “First Lien Lenders”) and the holders of the Corporation’s existing 8.5% second lien notes due 2023 (the “Existing Second Lien Notes”) in connection with advancing such consensual transaction efforts.

Following Bellatrix’s strategic review efforts and detailed consultation and negotiations undertaken with key stakeholders in connection with a consensual recapitalization transaction, the Board determined that the proposed series of transactions (collectively, the “Recapitalization Transaction”), which will, among other things, reduce the Corporation’s debt obligations by approximately $110 million, reduce annual cash interest payments by over $12 million annually until December 31, 2021, and address certain of the Corporation’s debt maturities such that the Corporation will have no debt maturities in respect of non-revolving debt prior to 2023, as set out in greater detail in the Information Circular, is the best available transaction for the Corporation in the circumstances and is in the best interest of the Corporation and its stakeholders in order to improve and strengthen the Corporation’s financial position and maximize value for all stakeholders.

The Corporation is working to complete the Recapitalization Transaction by the end of May 2019. The Board unanimously recommends that the Senior Unsecured Noteholders, Convertible Debentureholders and Shareholders (as each such term is defined below) support and vote in favour of the Recapitalization Transaction.

The Recapitalization Transaction is to be implemented by way of an arrangement (the “Arrangement”) pursuant to Section 192 of the Canada Business Corporations Act (the “CBCA”), as more particularly set forth in the plan of arrangement attached as Appendix H to the Information Circular (the “Plan”) and as further described in the Information Circular. The Recapitalization Transaction includes, among other things, the following key elements:


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The Corporation’s approximately US$145.8 million of Senior Unsecured Notes, plus US$2 million of accrued and unpaid interest (the “Exchanged Interest Amount”), will be exchanged for (in the aggregate and subject to certain early consent conditions described below) US$50 million of new second lien notes due September 11, 2023 on the terms described in the Information Circular (“New Second Lien Notes”), US$50 million of new third lien notes due December 15, 2023 on the terms described in the Information Circular (the “New Third Lien Notes”) and approximately 51% of the Common Shares issued and outstanding immediately following the implementation of the Recapitalization Transaction.

 

   

All accrued and unpaid interest in respect of the Senior Unsecured Notes outstanding on the implementation date of the Recapitalization Transaction (the “Effective Date”) less the Exchanged Interest Amount will be paid to Senior Unsecured Noteholders in cash (the “Cash Interest Payment”), provided that the Corporation and the Initial Consenting Noteholders (as defined in the Information Circular) will have the right to agree, prior to closing of the Recapitalization Transaction, that, in lieu of paying the Cash Interest Payment in cash on the Effective Date, the Corporation will issue to the Senior Unsecured Noteholders additional New Third Lien Notes in an aggregate principal amount equal to the amount of the Cash Interest Payment.

 

   

The Corporation’s $50 million of Convertible Debentures, plus all accrued and unpaid interest, will be exchanged for (in the aggregate, including the early consent consideration Common Shares described below) approximately 32.5% of the Common Shares issued and outstanding immediately following the implementation of the Recapitalization Transaction.

 

   

As described further in the Information Circular, in order for holders of Senior Unsecured Notes (“Senior Unsecured Noteholders”) to be entitled to receive a pro rata share of the New Second Lien Notes as partial consideration for the exchange of their Senior Unsecured Notes, and for holders of Convertible Debentures (“Convertible Debentureholders”) to be entitled to receive their pro rata share of the 5% of early consent consideration Common Shares as additional consideration for the exchange of their Convertible Debentures, such holders must vote in favour of the Plan by 5:00 p.m. (EDT) on the early consent date of May 15, 2019, as such date may be extended by Bellatrix, in consultation with the Initial Consenting Noteholders.

 

   

Holders of the existing Common Shares (the “Shareholders”) will retain their Common Shares, subject to a share consolidation on the basis of one Common Share for every 12 existing Common Shares (the “Share Consolidation”), and will collectively own approximately 16.5% of the Common Shares issued and outstanding immediately following the implementation of the Recapitalization Transaction.

 

   

The Corporation shall have the right, on or prior to the Effective Date, to repay the Convertible Debentures in full with cash from proceeds of one or more equity issuances for up to 32.5% of the aggregate Common Shares issued and outstanding immediately following implementation of the Recapitalization Transaction, and to the extent such equity issuances are for less than 32.5% of the aggregate Common Shares issued and outstanding immediately following implementation of the Recapitalization Transaction, any such difference shall reduce the dilution in respect of the Shareholders.

 

   

As a condition to the implementation of the Recapitalization Transaction, the Corporation will, among other things, require an extension of its senior bank facility for an additional one year term.

 

   

The Corporation will continue to satisfy its obligations to employees, suppliers, customers and governmental authorities in the ordinary course of business.

In addition, in connection with the Recapitalization Transaction, the Corporation will amend the exercise price of the unvested warrants (the “Second Lien Exchange Warrants”) to acquire 3,088,205 Common Shares held by holders of Existing Second Lien Notes (the “Existing Second Lien Noteholders”) to reflect an exercise price of $3.03 per Common Share (post-Share Consolidation) and such Existing Second Lien Noteholders will be granted additional warrants on the same terms as the Second Lien Exchange Warrants (including the amended exercise price), which, together with the currently held warrants, will be exercisable for 2,043,162 post-Share Consolidation Common Shares, equal to approximately 5% of the Common Shares to be outstanding immediately following the implementation of the Recapitalization Transaction (on a non-diluted basis) (the “Warrant Transactions”).

The Corporation will seek to continue into the federal jurisdiction of Canada under the CBCA (the “Continuance”) and reduce its stated capital in respect of the Common Shares (the “Stated Capital Reduction”) prior to the implementation of the Arrangement in connection with implementing the Arrangement and the Plan pursuant to the CBCA.


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The Recapitalization Transaction is supported by holders of approximately 90% of the Senior Unsecured Notes and 50% of the Convertible Debentures. Such parties have entered into support agreements with the Corporation pursuant to which they have agreed, among other things and subject to the terms of such agreements, to vote in favour of the Arrangement. In addition, the Corporation has entered into waiver and consent agreements with the Existing Second Lien Noteholders and the First Lien Lenders, pursuant to which the Existing Second Lien Noteholders and the First Lien Lenders have, among other things and subject to the terms of those agreements, agreed to waive certain potential defaults under the terms and conditions of the Existing Second Lien Notes and the Corporation’s existing senior bank facility which may result from the Corporation’s commencement of proceedings under the CBCA.

Peters & Co. Limited (“Peters & Co.”), an independent financial advisor to the Special Committee and the Board, has provided opinions to the Special Committee and the Board that: (i) the Senior Unsecured Noteholders, the Convertible Debentureholders and the Shareholders would be in a better financial position, respectively, under the Recapitalization Transaction than if the Corporation were liquidated as, in each case, the estimated aggregate value of the consideration made available to Senior Unsecured Noteholders, Convertible Debentureholders and Shareholders, respectively, pursuant to the Recapitalization Transaction would exceed the estimated value the Senior Unsecured Noteholders, Convertible Debentureholders and Shareholders would receive in a liquidation, respectively; and (ii) the Recapitalization Transaction is fair, from a financial point of view, to the Corporation.

Following the Corporation’s review and consultation process, and after careful consideration and based on a number of factors, including the opinions of Peters & Co., legal advice from the Corporation’s counsel, financial advice from the Corporation’s financial advisor, the facts and circumstances facing the Corporation, the terms of the Recapitalization Transaction and the recommendation of the Special Committee, the Board unanimously determined that the Recapitalization Transaction is the best available transaction to the Corporation and is in the best interests of the Corporation and its stakeholders.

In the event the Recapitalization Transaction is not successful, the Corporation will need to evaluate all of its options and alternatives related to any future court proceedings or other alternatives to address key liquidity and debt leverage matters which exist today. In the event the Recapitalization Transaction is not successful, the value available to stakeholders may be significantly less and there is a risk that any proceeds available for distribution to stakeholders would be paid in priority to the First Lien Lenders, Existing Second Lien Noteholders, Senior Unsecured Noteholders and Convertible Debentureholders, with the remaining proceeds, if any, paid to the Shareholders. There is significant risk that there may be no recovery of any kind, or amount available for, those parties which are lower in the priority waterfall in such circumstances.

Senior Unsecured Noteholders will be asked to approve the Arrangement at the Senior Unsecured Noteholders’ meeting scheduled to be held at 9:30 a.m. (MDT) on May 23, 2019. Convertible Debentureholders will be asked to approve the Arrangement at the Convertible Debentureholders’ meeting scheduled to be held at 10:00 a.m. (MDT) on May 23, 2019. Shareholders will be asked to approve the Continuance, the Stated Capital Reduction, the Arrangement, the Warrant Transactions and certain other annual matters described in the Information Circular at the Shareholders’ annual and special meeting to be held at 10:30 a.m. (MDT) on May 23, 2019. These meetings will be held at the Gerwing Room at the Residence Inn by Marriott, 610 10 Ave. SW, Calgary, Alberta, T2R 1M3.

Management of Bellatrix and the Board urge you to give serious attention to the Recapitalization Transaction and to support it in person or by proxy at the applicable meeting(s) to be held on May 23, 2019. We hope that we will receive your support. We encourage you to vote on the matters set out in the Information Circular by following the voting instructions set out therein by the applicable deadline. We thank you for your continued support of Bellatrix.

[signature page to follow.]


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DATED at Calgary, Alberta this 18th day of April, 2019.

 

BY ORDER OF THE BOARD OF DIRECTORS OF BELLATRIX EXPLORATION LTD.
(signed)     “Charles R. Kraus
Executive Vice President, General Counsel and Corporate Secretary

These materials are important and require your immediate attention. The transactions contemplated in the Recapitalization Transaction are complex. The accompanying Information Circular contains a description of the Recapitalization Transaction and a copy of the Plan, along with other information concerning Bellatrix to assist you in considering these matters. You are urged to review this information carefully. Should you have any questions or require assistance in understanding and evaluating how you will be affected by the proposed Recapitalization Transaction, please consult your legal, tax or other professional advisors.

If you have any questions or require additional information with regard to voting your debt or your shares, please contact our proxy solicitation and information agent, Kingsdale Advisors, by: (i) telephone, toll-free in North America at 1-866-229-8874 or at 416-867-2272 outside of North America; or (ii) e-mail to contactus@kingsdaleadvisors.com.


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TABLE OF CONTENTS

 

IMPORTANT INFORMATION

     iv  

NOTICE TO SECURITYHOLDERS IN THE UNITED STATES

     vii  

REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES

     viii  

EXCHANGE RATES

     viii  

DOCUMENTS INCORPORATED BY REFERENCE

     viii  

GLOSSARY OF TERMS

     x  

NOTICE OF MEETING OF SENIOR UNSECURED DEBTHOLDERS

     xxvi  

NOTICE OF MEETING OF CONVERTIBLE DEBENTUREHOLDERS

     xxix  

NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

     xxxii  

SUMMARY

     1  

INFORMATION CONCERNING THE MEETINGS

     10  

SOLICITATION OF PROXIES

     10  

APPOINTMENT OF PROXIES

     11  

SENIOR UNSECURED NOTEHOLDER PROXIES

     11  

CONVERTIBLE DEBENTUREHOLDER PROXIES

     11  

SHAREHOLDER PROXIES

     11  

ENTITLEMENT TO VOTE AND ATTEND

     12  

REVOCATION OF PROXIES

     12  

VOTING OF PROXIES

     12  

NON-REGISTERED HOLDERS

     13  

QUORUM AND VOTING REQUIREMENTS

     15  

VOTING SHARES AND PRINCIPAL HOLDERS THEREOF

     17  

INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

     17  

QUESTIONS AND OTHER ASSISTANCE

     17  

SPECIAL BUSINESS OF THE SHAREHOLDERS’ MEETING

     17  

DESCRIPTION OF THE RECAPITALIZATION TRANSACTION  & CERTAIN RELATED MATTERS

     18  

Continuance of Bellatrix from Alberta to Canada

     18  

Stated Capital Reduction

     20  

Arrangement

     20  

Certain U.S. Securities Laws Matters

     26  

Procedures

     27  

ARRANGEMENT STEPS

     31  

CONDITIONS PRECEDENT TO THE IMPLEMENTATION OF THE PLAN

     35  

FAILURE TO IMPLEMENT THE RECAPITALIZATION TRANSACTION

     35  

ALTERNATIVE IMPLEMENTATION PROCESS

     35  

BACKGROUND TO AND REASONS FOR THE RECAPITALIZATION TRANSACTION

     35  

Peters & Co. Limited Opinions

     38  

Recommendation of the Board of Directors

     41  

EFFECT OF THE RECAPITALIZATION TRANSACTION

     41  

NOTEHOLDER SUPPORT AGREEMENT

     42  

 

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DEBENTUREHOLDER SUPPORT AGREEMENT

     46  

CONSENT AGREEMENTS

     49  

CERTAIN REGULATORY AND OTHER MATTERS RELATING TO THE RECAPITALIZATION TRANSACTION

     51  

United States

     51  

Canada

     52  

Stock Exchange Listing

     52  

Expenses

     53  

UNAUDITED PRO FORMA BALANCE SHEET

     53  

BELLATRIX AFTER THE RECAPITALIZATION TRANSACTION

     56  

Share Capital

     56  

Principal Shareholders

     56  

PRICE RANGE AND TRADING VOLUME FOR THE COMMON SHARES

     56  

WARRANT TRANSACTIONS

     57  

TSX MATTERS

     58  

LEGAL PROCEEDINGS

     59  

INCOME TAX CONSIDERATIONS

     59  

CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

     59  

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

     67  

RISK FACTORS

     77  

Risks Relating to the Recapitalization Transaction

     77  

Risks Relating to the Non-Implementation of the Recapitalization Transaction

     79  

Risk Factors Related to the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes

     80  

Risk Factors Related to the Business and the Common Shares

     87  

Tax Risks

     87  

ANNUAL BUSINESS OF THE SHAREHOLDERS’ MEETING

     88  

Election of Directors

     88  

Appointment of Auditors

     92  

Approval of Unallocated Awards Pursuant to the Award Plan

     92  

Shareholder Advisory Vote on Executive Compensation

     93  

STATEMENT OF EXECUTIVE COMPENSATION

     94  

Compensation Governance

     94  

Compensation Disclosure and Analysis

     97  

Executive Officer Share Ownership and Retention Guidelines

     101  

Performance Graph

     102  

Summary Compensation Table

     105  

Director Compensation

     114  

Securities Authorized for Issuance under Equity Compensation Plans

     118  

INDEBTEDNESS OF DIRECTORS AND OFFICERS

     119  

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

     119  

INTEREST OF CERTAIN PERSONS OR COMPANIES IN MATTERS TO BE ACTED UPON

     128  

ADDITIONAL INFORMATION

     128  

DIRECTORS’ APPROVAL

     129  

CONSENT OF PETERS & CO. LTD.

     130  

 

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APPENDIX A

   SENIOR UNSECURED NOTEHOLDERS’ ARRANGEMENT RESOLUTION      A-1  

APPENDIX B

   CONVERTIBLE DEBENTUREHOLDERS’ ARRANGEMENT RESOLUTION      B-1  

APPENDIX C

   SHAREHOLDERS’ RESOLUTIONS      C-1  

APPENDIX D

   ARTICLES OF CONTINUANCE      D-1  

APPENDIX E

   NEW BY-LAWS      E-1  

APPENDIX F

   COMPARISON OF SHAREHOLDER RIGHTS      F-1  

APPENDIX G

   SECTION 191 OF THE ABCA      G-1  

APPENDIX H

   ARRANGEMENT AGREEMENT      H-1  

APPENDIX I

   PLAN OF ARRANGEMENT UNDER SECTION 192 OF THE CANADA BUSINESS CORPORATIONS ACT      I-1  

APPENDIX J

   PETERS & CO. LIMITED OPINION      J-1  

APPENDIX K

   NOTICE OF APPLICATION      K-1  

APPENDIX L

   INTERIM ORDER      L-1  

APPENDIX M

   MAJORITY VOTING POLICY      M-1  

APPENDIX N

   BOARD MANDATE      N-1  

 

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IMPORTANT INFORMATION

General

This Information Circular is furnished in connection with the solicitation of proxies by and on behalf of the management of the Corporation for use at the Meetings and any adjournments or postponements thereof. No person has been authorized to give any information or make any representation in connection with the Recapitalization Transaction or any other matters to be considered at the Meetings other than those contained in this Information Circular and, if given or made, any such information or representation must not be relied upon as having been authorized and should not be relied upon in making a decision as to how to vote on the Recapitalization Transaction or the other matters set forth herein.

All summaries of, and references to, the Recapitalization Transaction in this Information Circular are qualified in their entirety by reference to the complete text of the Plan, a copy of which is attached as Appendix I to this Information Circular. You are urged to carefully read the full text of the Plan.

All information contained in this Information Circular is given as of April 18, 2019 unless otherwise specifically stated. All capitalized terms used in this Information Circular but not otherwise defined herein have the meanings set forth under “Glossary of Terms”.

Forward Looking Information and Statements

Certain statements contained in this Information Circular and the information incorporated herein by reference constitute “forward looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and “forward-looking information” within the meaning of applicable Canadian Securities Laws (collectively, “forward-looking statements”), which are based upon the current internal expectations, estimates, projections, assumptions and beliefs of the Corporation’s management. Statements concerning the Corporation’s objectives, goals, strategies, intentions, plans, beliefs, assumptions, projections, predictions, expectations and estimates, and the business, operations, future financial performance and condition of the Corporation are forward- looking statements. The use of words in this Information Circular such as “believe”, “expect”, “anticipate”, “estimate”, “intend”, “may”, “will”, “would”, “could”, “plan”, “create”, “designed”, “predict”, “project”, “seek”, “ongoing”, “increase”, “upside” and similar expressions and the negative and grammatical variations of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such forward-looking statements reflect the current beliefs of the Corporation’s management based on information currently available to them, and are based on assumptions and are subject to risks and uncertainties. These statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in or implied by the forward-looking statements. In addition, this Information Circular may contain forward-looking statements attributed to third-party industry sources.

By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections or other characterizations of future events or circumstances that constitute forward-looking statements will not occur. Such forward-looking statements in this Information Circular speak only as of the date of this Information Circular. Forward-looking statements in this Information Circular include, but are not limited to, statements with respect to:

 

   

the performance of the Corporation’s business and operations;

 

   

the timing of, and matters to be considered at, the meetings of Debtholders and Shareholders as well as with respect to voting at such meetings;

 

   

the Corporation’s future liquidity and financial capacity;

 

   

the Corporation’s ability to satisfy its financial obligations in future periods;

 

   

expectations regarding the Corporation’s ability to restructure its capital structure;

 

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the Corporation’s intention to reduce its debt and annual interest payments;

 

   

the Corporation’s intention to realign its capital structure and the timing thereof;

 

   

the Corporation’s filings with the Court and the ability to obtain the Final Order;

 

   

failure to timely satisfy the conditions of the Recapitalization Transaction or to otherwise complete the Recapitalization Transaction;

 

   

the expected process for implementing the Recapitalization Transaction;

 

   

the effect of the Recapitalization Transaction;

 

   

the structure and timing of future transactions to increase the Corporation’s liquidity;

 

   

Bellatrix’s future business plans and strategy; and

 

   

capital expenditures and the timing and method of financing thereof.

With respect to the forward-looking statements contained in this Information Circular, such statements are subject to certain risks, including those risks set forth below and in the “Risk Factors” section of this Information Circular and the “Risk Factors” section of the AIF, and the Corporation has made assumptions regarding, among other factors:

 

   

the ability of the Corporation to significantly reduce its debt and annual interest payments through the implementation of the Recapitalization Transaction and the terms of any such reduction;

 

   

the ability of the Corporation to realign its capital structure and the timing thereof;

 

   

the ability of the Corporation to achieve its financial goals including with respect to the nature of any agreement with its lenders;

 

   

the ability of the Corporation to operate in the ordinary course during the CBCA Proceedings, including with respect to satisfying obligations to service providers, suppliers, contractors and employees;

 

   

the ability of the Corporation to receive all necessary regulatory, court, third party and stakeholder approvals in order to complete the Recapitalization Transaction;

 

   

the ability of the Corporation to continue as a going concern;

 

   

the ability of the Corporation to continue to realize its assets and discharge its liabilities and commitments;

 

   

the Corporation’s future liquidity position, and access to capital, to fund ongoing operations and obligations (including debt obligations);

 

   

the ability of the Corporation to stabilize its business and financial condition;

 

   

the ability of the Corporation to implement and successfully achieve its business priorities;

 

   

the ability of the Corporation to comply with its contractual obligations, including, without limitation, its obligations under debt arrangements;

 

   

the general regulatory environment in which the Corporation operates, including the areas of taxation and environmental protection;

 

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the tax treatment of the Corporation and the materiality of legal and regulatory proceedings;

 

   

the general economic, financial, market and political conditions impacting the industry and jurisdictions in which the Corporation operates;

 

   

the ability of the Corporation to sustain or increase profitability, fund its operations with existing capital and/or raise additional capital to fund its operations;

 

   

the ability of the Corporation to meet its financial forecasts and projections;

 

   

future currency exchange and interest rates;

 

   

the ability of the Corporation to generate sufficient cash flow from operations;

 

   

the impact of competition;

 

   

the ability of the Corporation to obtain and retain qualified staff, equipment and services in a timely and efficient manner (particularly in light of the Corporation’s efforts to restructure its debt obligations);

 

   

the ability of the Corporation to conduct operations in a safe, efficient and effective manner;

 

   

the ability of the Corporation to retain members of the senior management team, including but not limited to, the officers of the Corporation; and

 

   

the ability of the Corporation to successfully market its products and services.

Forward-looking statements contained in this Information Circular are based on the key assumptions described herein. Readers are cautioned that such assumptions, although considered reasonable by the Corporation, may prove to be incorrect. Actual results achieved during the forecast period will vary from the information provided in this Information Circular as a result of numerous known and unknown risks and uncertainties and other factors. The Corporation cannot guarantee future results.

Risks related to forward-looking statements include those risks referenced herein and in the Corporation’s other filings with the Canadian Securities Regulators and the SEC. Some of the risks and other factors which could cause actual results to differ materially from those expressed in the forward-looking statements contained in this Information Circular include, but are not limited to, the risk factors described above and included under the heading “Risk Factors” in this Information Circular and under the heading “Risk Factors” in the AIF.

Forward-looking statements contained in this Information Circular are based on the Corporation’s current plans, expectations, estimates, projections, beliefs and opinions and the assumptions relating to those plans, expectations, estimates, projections, beliefs and opinions may change. Management has included the summary of assumptions and risks related to forward-looking statements included in this Information Circular for the purpose of assisting the reader in understanding management’s current views regarding those future outcomes. Readers are cautioned that this information may not be appropriate for other purposes. Readers are cautioned that the lists of assumptions and risk factors contained herein are not exhaustive. Neither the Corporation nor any other person assumes responsibility for the accuracy or completeness of the forward-looking statements contained herein.

Such forward-looking statements are made as of the date of this Information Circular and the Corporation disclaims any intention or obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

All of the forward-looking statements made in this Information Circular are expressly qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments anticipated in or implied by such forward-looking statements will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Corporation.

 

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Actual results, performance or achievements could differ materially from those anticipated in or implied by any forward-looking statement in this Information Circular, and, accordingly, investors should not place undue reliance on any such forward-looking statement. New factors emerge from time to time and the importance of current factors may change from time to time and it is not possible for the Corporation’s management to predict all of such factors, or changes in such factors, or to assess in advance the impact of each such factors on the business of the Corporation or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement contained in this Information Circular.

NOTICE TO SECURITYHOLDERS IN THE UNITED STATES

THE SECURITIES ISSUABLE IN CONNECTION WITH THE RECAPITALIZATION TRANSACTION HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION OR SECURITIES REGULATORY AUTHORITIES IN ANY STATE OF THE UNITED STATES; NOR HAS THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY SUCH STATE REGULATORY AUTHORITY PASSED UPON THE ADEQUACY OR ACCURACY OF THIS INFORMATION CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The issuance and distribution of New Second Lien Notes, New Third Lien Notes, Additional New Third Lien Notes (if any) and New Common Shares under the Plan have not been registered under the 1933 Act, and the New Second Lien Notes, New Third Lien Notes, Additional New Third Lien Notes (if any) and New Common Shares may not be offered or sold within the United States except pursuant to an exemption from the registration requirements of the 1933 Act. The New Second Lien Notes, New Third Lien Notes, Additional New Third Lien Notes (if any) and New Common Shares are being 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) on the basis of the approval of the Court, which will consider, among other things, the fairness of the Arrangement to the persons affected. Section 3(a)(10) of the 1933 Act exempts from the general requirement of registration under the 1933 Act securities issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of the issuance and exchange are approved by a court or other government authority that is expressly authorized by law to grant such approval, after a hearing upon the fairness of such terms and conditions of such issuance and exchange at which all persons to whom the securities will be issued in such exchange have the right to appear and receive timely notice thereof. The Court will conduct a hearing to determine the fairness of the terms and conditions of the Arrangement, including: (i) the proposed issuance of New Second Lien Notes, New Third Lien Notes, Additional New Third Lien Notes (if any) and New Common Shares, as applicable, in exchange for the Senior Unsecured Notes (or a portion thereof in the event the Cash Interest Payment is paid in cash); and (ii) the proposed issuance of New Common Shares in exchange for the Convertible Debentures. The Court entered the Interim Order on April 16, 2019 and, subject to, among other things, approval of the Arrangement by the Senior Unsecured Noteholders and Convertible Debentureholders, a hearing on the fairness of the Plan will be held by the Court at 10:00 a.m. (EDT) on May 28, 2019, or such other time and/or date as may be approved by the Court. Pursuant to the Interim Order, the Applicants may seek Court approval of the Plan whether or not the Arrangement is approved by Shareholders at the Shareholders’ Meeting.

All Voting Parties are entitled to appear and be heard at the hearing for the Final Order on the terms set out in the Interim Order. The Final Order will constitute the basis for the exemption from the registration requirements of the 1933 Act provided by Section 3(a)(10) thereof with respect to: (i) the proposed issuance of New Second Lien Notes, New Third Lien Notes, Additional New Third Lien Notes (if any) and New Common Shares, as applicable, in exchange for the Senior Unsecured Notes (or portion thereof), the Exchanged Interest Amount and the Cash Interest Payment (if any Additional New Third Lien Notes are issued); and (ii) the proposed issuance of New Common Shares in exchange for the Convertible Debentures plus all accrued and unpaid interest, in each case pursuant to the Plan. Prior to the hearing on the Final Order, the Court will be informed of this effect of the Final Order. See “Description of the Recapitalization Transaction and Certain Related Matters – Required Approvals for the Arrangement” and “Certain Regulatory and Other Matters Relating to the Recapitalization Transaction” included herein.

The Corporation has filed with the SEC applications on Form T-3 for qualification of the indentures for the New Second Lien Notes and New Third Lien Notes (and any Additional New Third Lien Notes) under the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”). Forms of the Second Lien Notes Indenture, if applicable, and the New Third Lien Notes Indenture will be filed as exhibits to the Form T-3. No exchanges will be

 

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consummated, and no New Second Lien Notes nor New Third Lien Notes will be issued, before these indentures have been so qualified.

Financial statements included or incorporated by reference herein have been prepared in accordance with IFRS as issued by the International Accounting Standards Board, which differ from U.S. GAAP in certain material respects, and are subject to Public Company Accounting Oversight Board auditing and auditor independence standards, and thus may not be comparable to financial statements and information of U.S. companies prepared in accordance with U.S. GAAP. See “Reporting Currencies and Accounting Principles”.

REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES

Except where otherwise indicated, all dollar amounts set forth in this Information Circular are in Canadian Dollars, the presentation currency used by the Corporation in its financial results.

In this Information Circular, unless otherwise stated, all references to percentages of Common Shares are expressed on a non-diluted basis.

The financial statements incorporated by reference in this Information Circular have been prepared in accordance with IFRS.

IFRS differs in certain material respects from U.S. generally accepted accounting principles (“U.S. GAAP”) and, as such, the Corporation’s financial statements and the financial information derived therefrom may not be comparable to the financial statements and financial information of U.S. companies prepared in accordance with U.S. GAAP. As the SEC has adopted rules to accept, from foreign private issuers, such as the Corporation, financial statements prepared in accordance with IFRS without reconciliation to U.S. GAAP, this Information Circular does not include an explanation of the principal differences between, or any reconciliation of, IFRS and U.S. GAAP. Readers should consult their own professional advisors for an understanding of the differences between IFRS and U.S. GAAP, and of how those differences might affect the financial information presented herein.

EXCHANGE RATES

The following table sets forth, for each of the periods indicated, the end-of-period noon exchange rate, the average noon exchange rate and the high and low noon exchange rates of one Canadian Dollar in exchange for one U.S. dollar, as quoted by Bloomberg. The Bank of Canada’s daily average exchange rate on April 18, 2019 for the conversion of Canadian Dollars to U.S. dollars, was $1 equals US$0.7473.

 

     Year Ended December 31,  
     2018 (USD$)      2017 (USD$)  

High

     0.8141        0.8243  

Low

     0.7327        0.7275  

Average

     0.7719        0.7711  

End of Period

     0.7329        0.7987  

The foregoing rates may differ from the actual rates used in the preparation of Bellatrix’s financial statements and other financial information appearing in this Information Circular. The Corporation’s inclusion of these exchange rates is not meant to suggest that the Canadian amounts actually represent such U.S. dollar amounts or that such amounts could have been converted into U.S. dollars at any particular rate, if at all.

DOCUMENTS INCORPORATED BY REFERENCE

Information has been incorporated by reference in this Information Circular from documents filed by Bellatrix with securities commissions or similar authorities in Canada and the United States. Copies of the documents incorporated herein by reference may be obtained upon request to the Vice President, Investor Relations at Suite 1920, 800 – 5th Avenue S.W., Calgary, Alberta, T2P 3T6, Attention: Steve Toth (phone (403) 266-8670)

 

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or investor.relations@bxe.com, without charge to the Voting Parties, and are also available under the Corporation’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”), at www.sedar.com and on the Electronic Data Gathering, Analysis, and Retrieval System (“EDGAR”) at www.sec.gov.

The following documents of Bellatrix, filed with the various provincial securities commissions or similar regulatory authorities in Canada, are specifically incorporated into and form an integral part of this Information Circular:

 

  (a)

the annual information form for the year ended December 31, 2018, dated March 21, 2019 (the “AIF”);

 

  (b)

the audited financial statements as at December 31, 2018 and 2017, and for the years ended December 31, 2018 and 2017 and related notes, management’s report on internal controls over financial reporting, and the auditors’ report thereon;

 

  (c)

management’s discussion and analysis of the financial condition and results of operations of the Corporation for the year ended December 31, 2018;

 

  (d)

the material change report of the Corporation dated April 5, 2019 with respect to the announcement of the Recapitalization Transaction; and

 

  (e)

the management information circular of the Corporation dated March 26, 2018 in respect of the annual and special meeting held on May 9, 2018.

Any annual information form, annual report, annual or interim financial statement and related management’s discussion and analysis, material change report (excluding confidential material change reports), business acquisition report, information circular, news release containing financial information for financial periods more recent than the most recent annual or interim financial statements, or disclosure document filed pursuant to an undertaking to a Canadian securities regulatory authority by Bellatrix with any securities commission or similar regulatory authority in Canada subsequent to the date of this Information Circular and prior to the Effective Time shall be deemed to be incorporated by reference in this Information Circular, as well as any document so filed by Bellatrix which expressly states it is to be incorporated by reference in this Information Circular. These documents will be available under the Corporation’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

Any statement contained herein, or in any document incorporated or deemed to be incorporated by reference herein, shall be deemed to be modified or superseded, for the purposes of this Information Circular, to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes that statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement shall not be deemed an admission for any purpose that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded shall not constitute a part of this Information Circular, except as so modified or superseded.

 

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GLOSSARY OF TERMS

Unless the context otherwise requires, when used in this Information Circular the following terms shall have the meanings set forth below. Words importing the singular number shall include the plural and vice versa, and words importing any gender shall include all genders.

1933 Act” means the United States Securities Act of 1933, as amended and now in effect and as it may be further amended from time to time prior to the Effective Date.

1934 Act” means the United States Securities Exchange Act of 1934, as amended and now in effect and as it may be further amended from time to time prior to the Effective Date.

ABCA” means the Business Corporations Act (Alberta) and the regulations thereto, as now in effect and as it may be amended from time to time.

Accrued Interest” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations – Tax Treatment of the Exchanges”.

Additional New Third Lien Notes” means additional new U.S. Dollar third lien notes due 2023 in the aggregate principal amount equal to the amount of the Cash Interest Payment with the same terms as the New Third Lien Notes.

Additional Notes” has the meaning ascribed thereto under the Existing Second Lien Note Purchase Agreement.

Adjustment Ratio” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Awards Plan – Adjustment for Dividends”.

Advance Notice By-Law” has the meaning ascribed thereto under the heading “Description of the Recapitalization Transaction and Certain Related Matters – Articles of Continuance and New By-Laws”.

AIF” has the meaning ascribed thereto under the heading “Documents Incorporated by Reference”.

Alder Flats Gas Plant” means the O’Chiese Nees-Ohpawganu’ck deep-cut gas plant in Alder Flats, Alberta.

allowable capital loss” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Taxation of Capital Gains and Capital Losses”.

Alternative Senior Unsecured Noteholder Group Equity Allocation” has the meaning ascribed thereto under the heading “Description of the Recapitalization Transaction and Certain Related Matters – Arrangement – Treatment of Senior Unsecured Noteholders”.

Alternative Senior Unsecured Noteholder Group Equity Allocation Conditions” means, in respect of any Alternative Senior Unsecured Noteholder Group Equity Allocation, a Senior Unsecured Noteholder Group: (i) withdrawing the applicable amount of Senior Unsecured Notes to implement such Alternative Senior Unsecured Noteholder Group Equity Allocation from DTC and holding Senior Unsecured Notes in fully registered form prior to the Early Consent Date; (ii) providing to the Applicants or their advisors all information reasonably requested in order to implement the Alternative Senior Unsecured Noteholder Group Equity Allocation (including, where applicable, providing the applicable registration information in respect of the New Second Lien Notes, New Third Lien Notes and/or New Common Shares to be issued in exchange for any Senior Unsecured Notes held in registered form); and (iii) taking such other steps as the Applicants or their advisors may advise are reasonably necessary in order to implement the Alternative Senior Unsecured Noteholder Group Equity Allocation in accordance with applicable Laws.

Amalgamated Bellatrix” has the meaning ascribed thereto under the heading “Arrangement Steps”.

Applicants” means, collectively, Bellatrix and the Bellatrix Subsidiary.

 

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Arrangement” means the arrangement under section 192 of the CBCA on the terms and subject to the conditions set out in the Plan, subject to any amendments, modifications and/or supplements thereto made in accordance with the Arrangement Agreement and the Plan, or otherwise with the consent of the Applicants, the Initial Consenting Noteholders and the Majority Consenting Debentureholders, each acting reasonably.

Arrangement Agreement” means the arrangement agreement dated April 15, 2019, among the Applicants, as it may be amended, modified and/or supplemented from time to time.

Articles of Arrangement” means the articles of arrangement of the Applicants in respect of the Arrangement, in form and substance satisfactory to the Applicants, the Initial Consenting Noteholders and the Majority Consenting Debentureholders, each acting reasonably, that are required to be filed with the CBCA Director in order for the Arrangement to become effective on the Effective Date.

Articles of Continuance” has the meaning ascribed thereto under the heading “Description of the Recapitalization Transaction and Certain Related Matters – Continuance of Bellatrix from Alberta to Canada – The Continuance”.

“ATOP” means the Automated Tender Offer Program (ATOP) system operated by DTC.

Audit Committee” means the audit committee of the Corporation.

Award Plan” means the incentive award plan of Bellatrix as it may be amended or amended and restated from time to time.

Award Value” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Awards Plan – Restricted Awards”.

Awards” means, together the Restricted Awards and Performance Awards.

Bellatrix” or the “Corporation” means Bellatrix Exploration Ltd.

Bellatrix Entities” means Bellatrix and its subsidiaries.

Bellatrix Subsidiary” means 11260049 Canada Limited.

beneficial” means, in respect of a Debtholder or Shareholder, a holder who holds their Debt and/or Common Shares in the name of an Intermediary or who does not otherwise hold their Debt and/or Common Shares in their own name.

BIA” means the Bankruptcy and Insolvency Act (Canada) and the regulations thereto, as now in effect and as it may be amended from time to time.

Black-Out Period” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Awards Plan – Blackout Extension”.

Board of Directors” or “Board” means the board of directors of Bellatrix.

Bond Premium Note” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations – Ownership and Disposition of the New Notes”.

Bonus Plan” has the meaning ascribed thereto under the heading “Compensation Disclosure and Analysis – Bonus Plan”.

boot” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations – Tax Treatment of the Exchanges”.

Broadridge” means, collectively, Broadridge Investor Communications Solutions, Canada and its counterpart in the U.S.

 

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Business Day” means any day, other than a Saturday, Sunday or a statutory or civic holiday, on which banks are generally open for business in Toronto, Ontario; Calgary, Alberta; and New York, New York.

Canadian Dollars” or “$” means the lawful currency of Canada.

Canadian Holder” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada”.

Canadian Securities Laws” means collectively, and, as the context may require, the applicable securities laws of each of the provinces of Canada, and the respective regulations and rules made under those securities laws together with all applicable published policy statements, instruments, blanket orders, and rulings of the Canadian securities commissions and all discretionary orders or rulings, if any, of the Canadian securities commissions and all discretionary orders or rulings, if any, of the Canadian securities commissions made in connection with the transactions contemplated by the Recapitalization Transaction together with applicable published policy statements of the Canadian Securities Administrators, as the context may require.

Cashless Exercise” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Option Plan”.

Cash Interest Payment” has the meaning ascribed thereto under the heading “Description of the Recapitalization Transaction and Certain Related Matters – Arrangement”.

CBCA” means the Canada Business Corporations Act, R.S.C. 1985, c. C-44, as amended.

CBCA Director” means the Director appointed under section 260 of the CBCA.

CBCA Opinion” has the meaning ascribed thereto under the heading “Background to and Reasons for the Recapitalization Transaction – Peters & Co. Limited Opinions”.

CBCA Proceedings” means the proceedings commenced by the Applicants under the CBCA in connection with the Plan.

CCAA” means the Companies’ Creditors Arrangement Act and the regulations thereto, as now in effect and as it may be amended from time to time.

CDS” means the CDS Clearing and Depository Services Inc. and its successors and assigns.

CDSX” means CDS’ clearing and settlement system.

CD&A” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Compensation Committee – C&G Committee Mandate”.

Certificate of Arrangement” means the certificate giving effect to the Arrangement, to be issued by the CBCA Director pursuant to section 192(7) of the CBCA upon receipt of the Articles of Arrangement in respect of the Applicants in accordance with section 262 of the CBCA.

CEO” means the chief executive officer of the Corporation.

CFO” means the chief financial officer of the Corporation.

COO” means the chief operating officer of the Corporation.

Claim” means any right or claim of any Person that may be asserted or made in whole or in part against the applicable Persons, or any of them, in any capacity, whether or not asserted or made, in connection with any indebtedness, liability or obligation of any kind whatsoever, and any interest accrued thereon or costs payable in respect thereof, whether at law or in equity, including by reason of the commission of a tort (intentional or unintentional), by reason of any breach of contract or other agreement (oral or written), by reason of any breach of

 

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duty (including, any legal, statutory, equitable or fiduciary duty), by reason of any right of setoff, counterclaim or recoupment, or by reason of any equity interest, right of ownership of or title to property or assets or right to a trust or deemed trust (statutory, express, implied, resulting, constructive or otherwise), and together with any security enforcement costs or legal costs associated with any such claim, and whether or not any indebtedness, liability or obligation is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, unsecured, perfected, unperfected, present or future, known or unknown, by guarantee, warranty, surety or otherwise, and whether or not any right or claim is executory or anticipatory in nature, including any claim made or asserted against the applicable Persons, or any of them, through any affiliate, subsidiary, associated or related Person, or any right or ability of any Person to advance a claim for an accounting, reconciliation, contribution, indemnity, restitution or otherwise with respect to any matter, grievance, action (including any class action or proceeding before an administrative or regulatory tribunal), cause or chose in action, whether existing at present or commenced in the future.

Code” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations”.

Code of Business Conduct” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Compensation Committee – C&G Committee Mandate”.

Common Shares” means common shares in the capital of Bellatrix.

Company Released Parties” has the meaning ascribed thereto under the heading “Description of the Recapitalization Transaction and Certain Related Matters – Arrangement – Releases and Waivers”.

Compensation Peer Group” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Compensation Disclosure and Analysis”.

Consent Agreements” means, collectively, the First Lien Consent Agreement and the Second Lien Consent Agreement.

Consent Debentures” means, in respect of a Consenting Debentureholder, the Convertible Debentures held by such Consenting Debentureholder in respect of which votes have been validly cast in favour of the Plan by the Early Consent Date pursuant to the Interim Order and in respect of which such vote in favour of the Plan has not been changed or withdrawn, and/or the Convertible Debentures in respect of which such Consenting Debentureholder has otherwise supported the Plan, in each case in a manner acceptable to the Applicants, acting reasonably.

Consent Notes” means, in respect of a Consenting Noteholder, the Senior Unsecured Notes held by such Consenting Noteholder in respect of which votes have been validly cast in favour of the Plan by the Early Consent Date pursuant to the Interim Order and in respect of which such vote in favour of the Plan has not been changed or withdrawn, and/or the Senior Unsecured Notes in respect of which such Consenting Noteholder has otherwise supported the Plan, in each case in a manner acceptable to the Applicants, acting reasonably.

Consenting Debentureholder Early Consent New Common Share Pool” means New Common Shares representing approximately 5% of the aggregate Common Shares issued and outstanding immediately following the implementation of the Plan.

Consenting Debentureholder Pro Rata Share” means, in respect of a Consenting Debentureholder, (i) the total principal amount of Consent Debentures held by that Consenting Debentureholder as at the Distribution Record Date, divided by (ii) the aggregate principal amount of Consent Debentures held by all Consenting Debentureholders as at the Distribution Record Date.

Consenting Debentureholders” means the Convertible Debentureholders who, on or prior to the Early Consent Date, vote in favour of the Plan or otherwise support the Plan, in each case in a manner acceptable to the Applicants acting reasonably, and provided that in each case such Convertible Debentureholders hold their respective Convertible Debentures as at the Effective Date.

Consenting Noteholder New Second Lien Note Amount” means, in respect of a Consenting Noteholder, its Consenting Noteholder New Second Lien Notes Pro Rata Share of the New Second Lien Notes Pool; provided that if such Consenting Noteholder New Second Lien Note Amount based on the foregoing calculation is greater than the

 

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principal amount of the Consent Notes held by such Consenting Noteholder as at the Distribution Record Date, then such Consenting Noteholder’s Consenting Noteholder New Second Lien Note Amount shall be equal to the principal amount of the Consent Notes held by such Consenting Noteholder as at the Distribution Record Date.

Consenting Noteholder New Second Lien Notes Pro Rata Share” means, in respect of a Consenting Noteholder, (i) the total principal amount of Consent Notes held by that Consenting Noteholder as at the Distribution Record Date, divided by (ii) the aggregate principal amount of Consent Notes held by all Consenting Noteholders as at the Distribution Record Date.

Consenting Noteholder Pro Rata Share” means, in respect of a Consenting Noteholder, (i) the total principal amount of Senior Unsecured Notes held by that Consenting Noteholder as at the Distribution Record Date less its Consenting Noteholder New Second Lien Note Amount, divided by (ii) the aggregate principal amount of Senior Unsecured Notes held by all Senior Unsecured Noteholders as at the Distribution Record Date less the aggregate Consenting Noteholder New Second Lien Note Amounts of all Consenting Noteholders.

Consenting Noteholders” means the Senior Unsecured Noteholders who, on or prior to the Early Consent Date, vote in favour of the Plan or otherwise support the Plan, in each case in a manner acceptable to the Applicants acting reasonably, and provided that in each case such Senior Unsecured Noteholders hold their respective Consent Notes as at the Effective Date.

Continuance” means the continuation of Bellatrix from the ABCA to the CBCA pursuant to section 189(1) of the ABCA.

Continuance Resolution” means the special resolution of the shareholders approving the Continuance and the New By-Laws, the full text of which is set forth in Appendix C to this Information Circular.

Convertible Debenture Indenture” means the indenture dated as of August 9, 2016 between Bellatrix and the Convertible Debenture Trustee, as amended from time to time.

Convertible Debenture Trustee” means Computershare Trust Company of Canada in its capacity as trustee under the Convertible Debenture Indenture, and any successor thereof.

Convertible Debentureholder Claims” means all outstanding Obligations owing by any Person, whether as issuer, guarantor or otherwise, with respect to the Convertible Debentures or the Convertible Debenture Indenture as at the Effective Date, including, without limitation, all outstanding principal, accrued and unpaid interest at the applicable contract rate, and any fees and other payments as at the Effective Date.

Convertible Debentureholder Meeting Package” means, collectively, this Information Circular (including the Convertible Debentureholders’ Notice, the Notice of Application and the Interim Order), the form of proxy and the Convertible Debentureholder VIEF, along with such amendments or additional documents as the Applicants may determine are necessary or desirable and not inconsistent with the terms of the Interim Order.

Convertible Debentureholder New Common Share Pool” means New Common Shares representing approximately 27.5% of the aggregate Common Shares issued and outstanding immediately following the implementation of the Plan.

Convertible Debentureholder Pro Rata Share” means, in respect of a Convertible Debentureholder, (i) the total principal amount of Convertible Debentures held by that Convertible Debentureholder, as at the Distribution Record Date, divided by (ii) the aggregate principal amount of Convertible Debentures outstanding as at the Distribution Record Date.

Convertible Debentureholder VIEF” means the Convertible Debentureholder voting information and election form.

Convertible Debentureholders” means the holders of Convertible Debentures.

 

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Convertible Debentureholders’ Arrangement Resolution” means the resolution of the Convertible Debentureholders relating to the Arrangement to be considered at the Convertible Debentureholders’ Meeting, substantially in the form attached as Appendix B to this Information Circular.

Convertible Debentureholders’ Meeting” means the meeting of the Convertible Debentureholders as of the Record Date called and held pursuant to the Interim Order for the purpose of considering and voting on the Convertible Debentureholders’ Arrangement Resolution and to consider such other matters as may properly come before such meeting and includes any adjournment(s) or postponement(s) of such meeting.

Convertible Debentureholders’ Notice” means the notice of the Convertible Debentureholders’ Meeting.

Convertible Debentures” means the 6.75% convertible unsecured subordinated debentures due 2021 issued by Bellatrix pursuant to the Convertible Debenture Indenture.

Convertible Debentures Accrued Interest” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations – Tax Treatment of the Exchanges”.

Convertible Debentures Exchange” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations”.

Court” means the Ontario Superior Court of Justice (Commercial List).

CRA” means the Canada Revenue Agency.

C&G Committee” means the Compensation and Governance Committee of the Corporation.

Debentureholder Early Consent Consideration” has the meaning ascribed thereto under the heading “Description of the Recapitalization Transaction and Certain Related Matters – Arrangement – Treatment of Convertible Debentureholders”.

Debentureholder Support Agreement” means the support agreement (including all schedules attached thereto) between Bellatrix and the Initial Consenting Debentureholder dated March 28, 2019, as it may be amended, modified and/or supplemented from time to time.

Debentureholder Support Agreement Superior Proposal” has the meaning ascribed thereto under the heading “Debentureholder Support Agreement – Superior Proposal”.

Debt” means, collectively, the Obligations in respect of the Senior Unsecured Notes and the Convertible Debentures.

Debt Documents” means, collectively, (i) the Senior Unsecured Notes Indenture, (ii) the Senior Unsecured Notes, (iii) the Convertible Debenture Indenture, (iv) the Convertible Debentures, and (v) all other documentation related to the foregoing.

Debtholders” means, collectively, the Senior Unsecured Noteholders and the Convertible Debentureholders.

Deferred Remuneration” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Director Compensation – DSU Plan”.

Distribution Record Date” means a date to be determined by Bellatrix in consultation with the Trustees, the Initial Consenting Noteholders and the Majority Consenting Debentureholders for purposes of distributions under the Plan.

Disclosure, Confidentiality and Trading Policy” means the disclosure, confidentiality and trading policy of the Corporation.

Dissent Right” means the right of Registered Shareholders to exercise a right of dissent under Section 191 of the ABCA in respect of the Continuance.

 

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Dissenting Shareholder” means a Registered Shareholder who validly exercises the Dissent Right and who have not withdrawn or be deemed to have withdrawn the exercise of Dissent Rights.

Diversity and Board Renewal Policy” means the board and management diversity and board renewal policy of the Corporation.

DRS Statement” has the meaning ascribed thereto under the heading “Description of the Recapitalization Transaction and Certain Related Matters – Procedures Registered Shareholders”.

DSU Plan” means the deferred share unit plan of the Corporation, as it may be amended or amended and restated from time to time.

DSUs” means deferred share units issued pursuant to the DSU Plan.

“DTC” means the Depository Trust & Clearing Corporation and its successors and assigns.

Early Consent Date” means 5:00 p.m. (EDT) on May 15, 2019, or such later date as the Applicants may determine, in consultation with the Initial Consenting Noteholders.

EDGAR” has the meaning ascribed thereto under the heading “Documents Incorporated by Reference”.

Effective Date” means the date shown on the Certificate of Arrangement issued by the CBCA Director and on which all conditions to implementation of the Plan as set forth therein have been satisfied or waived in accordance with the terms thereof.

Effective Time” means a time on the Effective Date as the Applicants and the Initial Consenting Noteholders may agree, each acting reasonably.

Eligible Participants” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Award Plan”.

Employee Savings Plan” means the employee savings plan of the Corporation.

Exchange” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations”.

Exchange Notes” has the meaning ascribed thereto under the Existing Second Lien Note Purchase Agreement.

Exchanged Interest Amount” has the meaning ascribed thereto under the heading “Description of the Recapitalization Transaction and Certain Related Matters – Arrangement”.

Executive Employment Agreements” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Termination and Change of Control Benefits”.

Existing Second Lien Note Purchase Agreement” means the note purchase agreement dated July 25, 2018, among Bellatrix, as issuer, the Existing Second Lien Notes Agent, as agent, and the other persons signatory thereto, as amended by a first amendment dated as of August 24, 2018, a second amendment dated as of September 7, 2018, a third amendment dated as of December 5, 2018 and the Second Lien Consent Agreement, and as may be further amended in connection with the Plan.

Existing Second Lien Note Purchase Agreement Amendment” means an amendment to the Existing Second Lien Note Purchase Agreement to reflect the terms of and allow for the implementation of the Plan in form and substance acceptable to Bellatrix and the Initial Consenting Noteholders, each acting reasonably.

Existing Second Lien Noteholders” means the holders of Existing Second Lien Notes.

 

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Existing Second Lien Notes” means the existing U.S. Dollar 8.5% second lien notes issued by Bellatrix pursuant to the Existing Second Lien Note Purchase Agreement.

Existing Second Lien Notes Agent” means U.S. Bank National Association, as agent under the Existing Second Lien Note Purchase Agreement, and any successor thereof.

Fairness Opinion” has the meaning ascribed thereto under the heading “Background to and Reasons for the Recapitalization Transaction – Peters & Co. Limited Opinions”.

Final Order” means the Order of the Court approving the Arrangement under section 192 of the CBCA, which shall include such terms as may be necessary or appropriate to give effect to the Arrangement and the Plan, in form and substance satisfactory to the Applicants, the Initial Consenting Noteholders and the Majority Consenting Debentureholders, each acting reasonably.

First Lien Agent” means National Bank of Canada, as administrative agent under the First Lien Credit Agreement, and any successor thereof.

First Lien Consent Agreement” means the consent agreement among Bellatrix, the First Lien Lenders and the First Lien Agent dated March 28, 2019, as it may be amended, modified and/or supplemented from time to time.

First Lien Credit Agreement” means the Amended and Restated Credit Agreement among Bellatrix, as borrower, the First Lien Agent, as agent, and the First Lien Lenders, as lenders, dated September 11, 2018, as amended from time to time.

First Lien Credit Facilities” means the credit facilities available under the First Lien Credit Agreement. “First Lien Lenders” means the lenders party to the First Lien Credit Agreement.

Form 58-101F1 Disclosure” has the meaning ascribed thereto under the heading “Statement of Corporate Governance Practices”.

Governmental Entity” means any government, regulatory authority, governmental department, agency, commission, bureau, official, minister, Crown corporation, court, board, tribunal or dispute settlement panel or other law, rule or regulation-making organization or entity: (i) having or purporting to have jurisdiction on behalf of any nation, province, territory or state or any other geographic or political subdivision of any of them; or (ii) exercising, or entitled or purporting to exercise any administrative, executive, judicial, legislative, policy, regulatory or taxing authority or power.

Grantees” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Award Plan”.

Health Care and Wellness Spending Accounts” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Compensation Disclosure and Analysis”.

Holders” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations”.

IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Board.

In-Person Holder” has the meaning ascribed thereto under the heading “Non-Registered Holders”.

Information Circular” means this management information circular dated April 18, 2019, as it may be amended, modified and/or supplemented from time to time, subject to the terms of the Interim Order or other Order of the Court.

 

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Initial Consenting Debentureholder” means Polar, the Convertible Debentureholder that executed the Debentureholder Support Agreement as of March 28, 2019.

Initial Consenting Debentureholder Advisor” means Davies Ward Phillips & Vineberg LLP, in its capacity as legal counsel to the Initial Consenting Debentureholder.

Initial Consenting Noteholder Advisors” means Paul, Weiss, Rifkind, Wharton & Garrison LLP and Bennett Jones LLP, in their capacity as legal counsel to the Initial Consenting Noteholders, and Stephens Inc., in its capacity as financial advisor to the Initial Consenting Noteholders.

Initial Consenting Noteholders” means the Senior Unsecured Noteholders that executed the Noteholder Support Agreement as of March 28, 2019.

Insider” means “reporting insiders” as defined in National Instrument 55-104 - Insider Reporting Requirements and Exemptions of the Canadian Securities Administrators.

Interim Order” means the interim order of the Court in respect of the Applicants granted on April 16, 2019, which, among other things, approves the calling of, and the date for, the Meetings, as such order may be amended from time to time in a manner acceptable to the Applicants, the Initial Consenting Noteholders and the Majority Consenting Debentureholders, each acting reasonably.

Intermediary” means a broker, custodian, investment dealer, nominee, bank, trust company or other intermediary.

IRS” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations”.

Lane Caputo” means Lane Caputo Compensation Inc.

Law” means any law, statute, constitution, treaty, convention, code, injunction, order, decree, consent decree, judgment, rule regulation, ordinance or other pronouncement having the effect of law whether in Canada, the United States or any other country, or any domestic or foreign state, county, province, city or other political subdivision or of any Governmental Entity.

Letter of Transmittal” means the letter of transmittal to be delivered by Registered Shareholders with certificates representing their pre-Share Consolidation Common Shares to receive DRS Statements or certificates representing their post-Share Consolidation Common Shares.

Loomis” means various accounts independently managed by managers associated with Loomis Sayles & Company, L.P.

Majority Consenting Debentureholders” means Convertible Debentureholders that are party to the Debentureholder Support Agreement holding in aggregate not less than a majority of the aggregate principal amount of Convertible Debentures held by all Convertible Debentureholders that are party to the Debentureholder Support Agreement at the applicable time.

Majority Voting Policy” means the majority voting policy of the Corporation.

Management” means the management of the Corporation as of the date of this Information Circular.

Market Price” means the volume weighted average trading price of the Common Shares on the TSX for the five consecutive trading days immediately preceding the relevant date, and where the weighted average trading price is calculated by dividing the total value by the total volume of Common Shares traded for such period.

Maturity Date” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Director Compensation – DSU Plan”.

Meetings” means, collectively: (i) the Senior Unsecured Noteholders’ Meeting; (ii) the Convertible Debentureholders’ Meeting; and (iii) the Shareholders’ Meeting.

 

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Mercer” means Mercer Human Resource Consulting Ltd.

Mountainview” means Moutainview Energy Ltd.

NI 45-102” means National Instrument 45-102 – Resale of Securities.

“NI 51-101” means National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities.

NI 58-101” means National Instrument 58-101 – Disclosure of Corporate Governance Practices.

NI 58-101F1” means Form 58-101F1 – Corporate Governance Disclosure.

Named Executive Officer” or “NEO” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Summary Compensation Table”.

New Assets” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations”.

New By-Laws” means the proposed new by-laws of the Corporation after the Continuance, substantially in the form set out in Appendix E.

New Common Shares” means newly issued Common Shares issued on the Effective Date pursuant to the Plan.

New Directors” means such individuals to be appointed to the board of directors of Bellatrix on the Effective Date as determined by the Initial Consenting Noteholders, provided that the number of New Directors to be appointed by the Initial Consenting Noteholders shall be agreed to by Bellatrix and the Initial Consenting Noteholders prior the Effective Date.

New Money Notes” has the meaning ascribed thereto under the Existing Second Lien Note Purchase Agreement.

New Notes” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations”.

New Second Lien Notes” means new U.S. Dollar 8.5% second lien notes due 2023 in the aggregate principal amount of US$50 million to be issued on the Effective Date by Bellatrix pursuant to the Existing Second Lien Note Purchase Agreement (or, if the Existing Second Lien Note Purchase Agreement is replaced with the Second Lien Notes Indenture on the Effective Date, pursuant to the Second Lien Notes Indenture) and the Plan.

New Second Lien Notes Basket Deadline” has the meaning ascribed thereto under the heading “Background to and Reasons for the Recapitalization Transaction – Senior Unsecured Notes Exchange Transaction”.

New Second Lien Notes Pool” means New Second Lien Notes in an aggregate principal amount equal to US$50 million.

New Securities” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations – Tax Treatment of the Exchanges”.

New Third Lien Notes” means new U.S. Dollar third lien notes due 2023 in the aggregate principal amount of US$50 million to be issued on the Effective Date by the Corporation with (i) a maturity of December 15, 2023, (ii) an option for the Corporation to pay interest at a rate of (A) (1) 12.5% (of which 9.5% shall be deferred and added to principal and 3.0% shall be paid in cash) until December 31, 2021, and (2) 9.5% paid in cash after December 31, 2021, or (B) 9.5% paid in cash (iii) security on collateral on a third priority basis to the liens securing the obligations under the Existing Second Lien Note Purchase Agreement, (iv) an option for the Corporation to repay the New Third Lien Notes in full or in part, at any time, and from time to time, without any penalty or premium, and (v) such other terms and conditions as agreed by the Corporation and the Initial Consenting Noteholders, each acting reasonably.

 

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New Third Lien Notes Indenture” means the indenture to be entered into on the Effective Date by Bellatrix and the New Third Lien Notes Trustee on the terms substantially as described in this Information Circular and/or as may otherwise be agreed by Bellatrix and the Initial Consenting Noteholders, each acting reasonably, pursuant to which the New Third Lien Notes and, if applicable, any Additional New Third Lien Notes will be issued.

New Third Lien Notes Trustee” means U.S. Bank National Association in its capacity as trustee under the New Third Lien Notes Indenture, or such other entity or entities as agreed to by Bellatrix and the Initial Consenting Noteholders, each acting reasonably.

Non-Consenting Noteholder Pro Rata Share” means, in respect of a Senior Unsecured Noteholder that is not a Consenting Noteholder, (i) the total principal amount of Senior Unsecured Notes held by that Senior Unsecured Noteholder as at the Distribution Record Date, divided by (ii) the aggregate principal amount of Senior Unsecured Notes held by all Senior Unsecured Noteholders as at the Distribution Record Date less the aggregate Consenting Noteholder New Second Lien Note Amounts of all Consenting Noteholders.

Non-Registered Holders” means, collectively, beneficial Shareholders and Debtholders.

Non-Resident Holder” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations – Holders Not Resident in Canada”.

Noteholder Interest Pro Rata Share” means, in respect of a Senior Unsecured Noteholder, (i) the total principal amount of Senior Unsecured Notes held by that Senior Unsecured Noteholder as at the Distribution Record Date, divided by (ii) the aggregate principal amount of Senior Unsecured Notes held by all Senior Unsecured Noteholders as at the Distribution Record Date.

Noteholder Support Agreement” means the support agreement (including all schedules attached thereto) among Bellatrix and the Senior Unsecured Noteholders party thereto dated March 28, 2019, as it may be amended, modified and/or supplemented from time to time.

Noteholder Support Agreement Superior Proposal” has the meaning ascribed thereto under the heading “Noteholder Support Agreement – Superior Proposal”.

Notices of Meetings” means, collectively, the Senior Unsecured Noteholders’ Notice, the Convertible Debentureholders’ Notice and the Shareholders’ Notice.

NYSE” means the New York Stock Exchange.

Obligations” means all liabilities, duties and obligations, including without limitation principal and interest, any make whole, redemption or similar premiums, reimbursement obligations, fees, penalties, damages, guarantees, indemnities, costs, expenses or otherwise, and any other liabilities, duties or obligations, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the applicable Debt Document.

OID” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations – Tax Treatment of the Exchanges”.

Old Notes” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations”.

Opinions” has the meaning ascribed thereto under the heading “Background to and Reasons for the Recapitalization Transaction – Peters & Co. Limited Opinions”.

Option Plan” means the share option plan of Bellatrix, as it may be amended or amended and restated from time to time.

Options” means the options to purchase Common Shares granted pursuant to the Option Plan.

 

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Optionees” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Option Plan”.

Order” means any order entered by the Court in the CBCA Proceedings.

Other New Notes” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations – Tax Treatment of the Exchanges”.

Outside Date” means June 30, 2019, as such date may be extended pursuant to the Support Agreements.

Payment Date” or “Payment Dates” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Awards Plan – Restricted Awards”.

Performance Awards” means the performance awards granted pursuant to the Award Plan.

Person” means an individual, a corporation, a partnership, a limited liability company, organization, trustee, executor, administrator, a trust, an unincorporated association, a Governmental Entity or any agency, instrumentality or political subdivision of a Governmental Entity, or any other entity or body.

Peters & Co.” has the meaning ascribed thereto under the heading “Background to and Reasons for the Recapitalization Transaction – Peters & Co. Limited Opinions”.

PFIC” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations – Ownership and Disposition of the New Common Shares”.

Plan” means the plan of arrangement in the form and content of Appendix I to this Information Circular and any amendments, modifications or supplements thereto made in accordance with the terms thereof.

Polar” means certain investment funds for which Polar Asset Management Partners Inc. acts as investment manager or advisor.

Proxy and Information Agent” means Kingsdale Advisors.

PUC” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations”.

RDSP” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Eligibility for Investment”.

Recapitalization Transaction” means, collectively, the transactions contemplated by the Plan.

Record Date” means 5:00 p.m. on April 16, 2019.

Registered” means, in reference to a Debtholder or Shareholder, a holder whose Debt or Common Shares are registered in its name.

Regulation S” means Regulation S as promulgated by the SEC under the 1933 Act.

Regulations” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations”.

Released Parties” has the meaning ascribed thereto under the heading “Description of the Recapitalization Transaction and Certain Related Matters – Arrangement – Releases and Waivers”.

Reserves, Safety and Environment Committee” means the reserves, safety and environment committee of the Corporation.

 

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RESP” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Eligibility for Investment”.

Restricted Awards” means the restricted awards granted pursuant to the Award Plan.

Revolving Credit Facility” means the revolving credit facility governed by the First Lien Credit Agreement.

RRIF” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Eligibility for Investment”.

RRSP” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Eligibility for Investment”.

Say on Pay Resolution” has the meaning ascribed thereto under the heading “Annual Business of the Shareholders’ Meeting – Shareholder Advisory Vote on Executive Compensation”.

Say on Pay Vote” has the meaning ascribed thereto under the heading “Annual Business of the Shareholders’ Meeting – Shareholder Advisory Vote on Executive Compensation”.

SEC” means the United States Securities and Exchange Commission.

Second Lien Consent Agreement” means the fourth amendment, consent and waiver to the Existing Second Lien Note Purchase Agreement (including all schedules attached thereto) among Bellatrix, the Existing Second Lien Notes Agent and the Existing Second Lien Noteholders dated March 28, 2019, as it may be amended, modified and/or supplemented from time to time.

Second Lien Exchange Warrants” has the meaning ascribed thereto under the heading “Background to and Reasons for the Recapitalization Transaction – Senior Unsecured Notes Exchange Transaction”.

Second Lien Notes” means, collectively, the Existing Second Lien Notes and the New Second Lien Notes.

Second Lien Notes Indenture” means, in the event the Existing Second Lien Note Purchase Agreement is converted into a trust indenture as part of implementation of the Plan, such indenture to be entered into on the Effective Date by Bellatrix and the Second Lien Notes Trustee on terms substantially the same as the Existing Second Lien Note Purchase Agreement, subject to the amendments and modifications described in the Second Lien Consent Agreement and such additional amendments and modifications as may be agreed by Bellatrix, the Existing Second Lien Noteholders and the Initial Consenting Noteholders, each acting reasonably, pursuant to which, among other things, the New Second Lien Notes will be issued.

Second Lien Notes Trustee” means, in the event the Existing Second Lien Note Purchase Agreement is converted into the Second Lien Notes Indenture as part of implementation of the Plan, U.S. Bank National Association in its capacity as trustee under such Second Lien Notes Indenture and in its capacity as collateral agent in respect of the Existing Second Lien Notes and the New Second Lien Notes, or such other entity or entities as agreed to by Bellatrix and the Initial Consenting Noteholders, each acting reasonably.

Secured Notes Accrued Interest” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations – Tax Treatment of the Exchanges”.

Securityholder Released Parties” has the meaning ascribed thereto under the heading “Description of the Recapitalization Transaction and Certain Related Matters – Arrangement – Releases and Waivers”.

SEDAR” has the meaning ascribed thereto under the heading “Documents Incorporated by Reference”.

Senior Note Exchange” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations”.

 

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“Senior Notes Accrued Interest” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations – Tax Treatment of the Exchanges”.

Senior Unsecured Noteholder Claims” means all outstanding Obligations owing by any Person, whether as issuer, guarantor or otherwise, with respect to the Senior Unsecured Notes or the Senior Unsecured Notes Indenture as at the Effective Date, including, without limitation, all outstanding principal, accrued and unpaid interest at the applicable contract rate, and any fees and other payments (including any applicable prepayment and/or make-whole amounts) as at the Effective Date.

Senior Unsecured Noteholder Group” means those Senior Unsecured Noteholders (i) that are under common control, ownership or management; or (ii) for which the same person, or an affiliate, manager or employee thereof, acts as investment manager, advisor or sub-advisor.

Senior Unsecured Noteholder Meeting Package” means, collectively, this Information Circular (including the Senior Unsecured Noteholders’ Notice, the Notice of Application and the Interim Order), the form of proxy and Senior Unsecured Noteholder VIEF, along with such amendments or additional documents as the Applicants may determine are necessary or desirable and not inconsistent with the terms of the Interim Order.

Senior Unsecured Noteholder New Common Share Pool” means New Common Shares representing approximately 51% (and for greater certainty, in no event less than 50.01%) of the aggregate Common Shares issued and outstanding immediately following the implementation of the Plan.

Senior Unsecured Noteholder VIEF” means the Senior Unsecured Noteholder voting information and election form.

Senior Unsecured Noteholders” means holders of Senior Unsecured Notes.

Senior Unsecured Noteholders’ Arrangement Resolution” means the resolution of the Senior Unsecured Noteholders relating to the Arrangement to be considered at the Senior Unsecured Noteholders’ Meeting, substantially in the form attached as Appendix A to this Information Circular.

Senior Unsecured Noteholders’ Meeting” means the meeting of the Senior Unsecured Noteholders as of the Record Date called and held pursuant to the Interim Order for the purpose of considering and voting on the Senior Unsecured Noteholders’ Arrangement Resolution and to consider such other matters as may properly come before such meeting and includes any adjournment(s) or postponement(s) of such meeting.

Senior Unsecured Noteholders’ Notice” means the notice of the Senior Unsecured Noteholders’ Meeting.

Senior Unsecured Notes” means the U.S. Dollar 8.5% senior unsecured notes due 2020 issued by Bellatrix pursuant to the Senior Unsecured Notes Indenture.

Senior Unsecured Notes for Equity Exchanges” has the meaning ascribed thereto under the heading “Background to and Reasons for the Recapitalization Transaction – Senior Unsecured Notes for Equity Exchanges”.

Senior Unsecured Notes Indenture” means the indenture dated as of May 21, 2015, among Bellatrix, as issuer, and the Senior Unsecured Notes Trustee, as amended from time to time.

Senior Unsecured Notes Exchange Transaction” has the meaning ascribed thereto under the heading “Background to and Reasons for the Recapitalization Transaction – Senior Unsecured Notes Exchange Transaction”.

Senior Unsecured Notes Trustee” means U.S. Bank National Association in its capacity as trustee under the Senior Unsecured Notes Indenture, and any successor thereof.

Share Consolidation” has the meaning ascribed thereto under the heading “Arrangement Steps”.

 

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Shareholder Meeting Package” means, collectively, this Information Circular (including the Shareholders’ Notice, the Notice of Application and the Interim Order), the form of proxy and the Letter of Transmittal, along with such amendments or additional documents as the Applicants may determine are necessary or desirable and not inconsistent with the terms of the Interim Order.

Shareholders” means holders of Common Shares, in their capacities as such.

Shareholders’ Arrangement Resolution” means the resolution of the Shareholders relating to the Arrangement to be considered at the Shareholders’ Meeting, substantially in the form attached as Appendix C to this Information Circular.

Shareholders’ Meeting” means the annual and special meeting of the Shareholders as of the Record Date to be called and held for the purpose of considering and voting on the matters set out in the Shareholders’ Notice pursuant to the Interim Order, as applicable, and to consider such other matters as may properly come before such meeting and includes any adjournment(s) or postponement(s) of such meeting.

Shareholders’ Notice” means the notice of the Shareholders’ Meeting.

Small Issue Exception” has the meaning ascribed thereto under the heading “Certain U.S. Federal Income Tax Considerations – Tax Treatment of the Exchanges”.

Special Committee” means the independent special committee of the Board comprised of Messrs. Cuthbertson, McInnis, and Dunn.

Special Meeting Resolutions” means, collectively, the Continuance Resolution, the Stated Capital Reduction Resolution, the Shareholders’ Arrangement Resolution and the Warrant Transactions Resolution.

Stated Capital Reduction” has the meaning ascribed thereto under the heading “Description of the Recapitalization Transaction and Certain Related Matters – Stated Capital Reduction”.

Stated Capital Reduction Resolution” means the special resolution of the Shareholders approving the Stated Capital Reduction, the full text of which is set forth in Appendix C to this Information Circular.

Support Agreements” means, together, the Noteholder Support Agreement and the Debentureholder Support Agreement.

Surrender Offer” has the meaning ascribed thereto under the heading “Statement of Executive Compensation – Option Plan”.

Tax Act” means the Income Tax Act (Canada), as amended.

Tax Proposals” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations”.

taxable capital gain” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Taxation of Capital Gains and Capital Losses”.

TFSA” has the meaning ascribed thereto under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Eligibility for Investment”.

Transfer Agent” means Computershare Trust Company of Canada.

Treasury Regulations” means the U.S. Treasury Regulations promulgated under the Code.

Trustees” means, together, the Senior Unsecured Notes Trustee and the Convertible Debenture Trustee.

TSX” means the Toronto Stock Exchange.

 

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TSX Approval Matters” has the meaning ascribed thereto under the heading “Quorum and Voting Requirements – Shareholders’ Meeting”.

Unallocated Award Resolution” has the meaning ascribed thereto under the heading “Annual Meeting of Shareholders – Approval of Unallocated Awards pursuant to the Award Plan.”

U.S.” or “United States” means the “United States” as defined in Regulation S.

U.S. Dollars” or “US$” means the lawful currency of the United States of America.

U.S. GAAP” has the meaning ascribed thereto under the heading “Reporting Currencies and Accounting Principles”.

U.S. Securities Laws” means, collectively, the 1933 Act, 1934 Act and the rules and regulations of the SEC.

Voting Deadline” means 5:00 p.m. on May 21, 2019 or such later date as may be agreed by the Applicants, in consultation with the Initial Consenting Noteholders in the event that the Meetings are postponed or adjourned.

Voting Parties” means, collectively, the Debtholders and Shareholders that are entitled to vote at the Senior Unsecured Noteholders’ Meeting, the Convertible Debentureholders’ Meeting and/or the Shareholders’ Meeting, as applicable.

Warrant Amendment” has the meaning ascribed thereto under the heading “Warrant Transactions”.

Warrant Issuance” has the meaning ascribed thereto under the heading “Warrant Transactions”.

Warrant Transactions” means, together, the Warrant Amendment and the Warrant Issuance.

Warrant Transactions Resolution” means the ordinary resolution of the Shareholders approving the Warrant Transactions, the full text of which is set forth in Appendix C to this Information Circular.

 

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BELLATRIX EXPLORATION LTD.

NOTICE OF MEETING OF SENIOR UNSECURED DEBTHOLDERS

NOTICE IS HEREBY GIVEN that, pursuant to an order (the “Interim Order”) of the Ontario Superior Court of Justice (Commercial List) (the “Court”) dated April 16, 2019, a meeting (the “Senior Unsecured Noteholders’ Meeting”) of holders (the “Senior Unsecured Noteholders”) of the existing 8.5% senior unsecured notes due 2020 (the “Senior Unsecured Notes”) issued pursuant to the indenture dated as of May 21, 2015, among Bellatrix Exploration Ltd. (“Bellatrix” or the “Corporation”), as issuer, and U.S. Bank National Association, in its capacity as trustee, as amended from time to time, will be held at the Gerwing Room at the Residence Inn by Marriott, 610 10 Ave. SW, Calgary, Alberta, T2R 1M3, on May 23, 2019 at 9:30 a.m. (MDT) for the following purposes:

 

  1.

to consider and, if deemed advisable, to pass, with or without variation, a special resolution (the “Senior Unsecured Noteholders’ Arrangement Resolution”), the full text of which is set out in Appendix A to the accompanying management information circular dated April 18, 2019 (the “Information Circular”), approving an arrangement (the “Arrangement”) pursuant to Section 192 of the Canada Business Corporations Act, which Arrangement is more particularly described in the Information Circular; and

 

  2.

to transact such further and other business as may properly come before the Senior Unsecured Noteholders’ Meeting or the reconvening of any adjournment or postponement thereof.

AND NOTICE IS HEREBY GIVEN that the Court has been advised that its order approving the Arrangement, if granted, will constitute the basis for an exemption from the registration requirements of the United States Securities Act of 1933, as amended, as provided by Section 3(a)(10) thereof, with respect to the issuance of certain New Common Shares, New Third Lien Notes, Additional New Third Lien Notes (if any) and New Second Lien Notes (as each such term is defined in the accompanying Information Circular) to be issued pursuant to the Arrangement.

Additional information on the above matters can be found in the Information Circular.

The record date for entitlement to notice of the Senior Unsecured Noteholders’ Meeting has been set by the Court as of April 16, 2019 (the “Record Date”). Senior Unsecured Noteholders entitled to vote at the Senior Unsecured Noteholders’ Meeting will be entitled to one vote for each US$1,000 principal amount of Senior Unsecured Notes owed to such Senior Unsecured Noteholder as of 5:00 p.m. (EDT) on the Record Date in respect of the Senior Unsecured Noteholders’ Arrangement Resolution and any other matters to be considered at the Senior Unsecured Noteholders’ Meeting.

Subject to any further order of the Court, the Court has set the quorum for the Senior Unsecured Noteholders’ Meeting at two or more persons entitled to vote at the Senior Unsecured Noteholders’ Meeting present in person or represented by proxies.

The Information Circular, this notice, the Senior Unsecured Noteholder proxy and voting information and election form (the “Senior Unsecured Noteholder VIEF”) (collectively, the “Senior Unsecured Noteholder Meeting Package”) are being distributed to Senior Unsecured Noteholders as at the Record Date and are available online under the Corporation’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. Senior Unsecured Noteholders are reminded to review the Senior Unsecured Noteholder Meeting Package before voting.

If you receive these materials through your broker, custodian, investment dealer, nominee, bank, trust company or other intermediary (an “Intermediary”), you should follow the instructions provided by such Intermediary in order to vote your Senior Unsecured Notes and receive certain consideration described in the Information Circular (if applicable).

All Senior Unsecured Noteholders are requested to vote in accordance with the instructions provided on the Senior Unsecured Noteholder proxy or the Senior Unsecured Noteholder VIEF, as applicable. In order to cast a vote at the Senior Unsecured Noteholders’ Meeting, beneficial holders of the Senior Unsecured Notes must submit to their respective Intermediaries at or prior to 5:00 p.m. (EDT) on May 21, 2019, or such later date as may be agreed by Bellatrix, in consultation with the Initial Consenting Noteholders (as such term is defined in the Information Circular) in the event that the Senior Unsecured Noteholders’ Meeting is postponed or adjourned (the “Voting Deadline”) or such earlier deadline as an Intermediary may advise the applicable beneficial holder, their duly completed Senior Unsecured Noteholder proxy and/or Senior Unsecured Noteholder VIEF (or such other

 

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documentation or information as the Intermediary may customarily request for purposes of obtaining voting and election instructions), following which Intermediaries shall provide such voting and election instructions to Kingsdale Advisors, Bellatrix’s proxy and information agent (the “Proxy and Information Agent”).

Senior Unsecured Noteholders that vote in favour of the Plan and submit their early consent election as set forth in the Information Circular by 5:00 p.m. (EDT) on May 15, 2019, or such later date as Bellatrix may determine, in consultation with the Initial Consenting Noteholders (the “Early Consent Date”), will be entitled to receive their pro rata share of the New Second Lien Notes as partial consideration for the exchange of their Senior Unsecured Notes, in addition to their pro rata share (taking into account the exchange of a portion of such holders’ Senior Unsecured Notes for New Second Lien Notes) of the New Third Lien Notes and the New Common Shares on the terms set out in the Plan and the Information Circular. Senior Unsecured Noteholders that do not vote in favour of the Plan and submit their early consent election by the Early Consent Date will be entitled to receive only their pro rata share of the New Third Lien Notes and the New Common Shares in consideration for the exchange of their Senior Unsecured Notes, and no New Second Lien Notes. All Senior Unsecured Noteholders will also be entitled to receive either a cash payment or additional New Third Lien Notes with respect to certain accrued and unpaid interest in respect of the Senior Unsecured Notes, as set out in the Plan and the Circular.

Senior Unsecured Noteholders may attend the Senior Unsecured Noteholders’ Meeting in person or may appoint another person as proxyholder. The Senior Unsecured Noteholder proxy nominates Charles Kraus, the Executive Vice President, General Counsel and Corporate Secretary of Bellatrix, or Maxwell Lof, the Chief Financial Officer of Bellatrix, and either one of them with full power of substitution as proxyholders. A Senior Unsecured Noteholder may appoint another person as his, her or its proxyholder by contacting Kingsdale Advisors and following the instructions as provided. Senior Unsecured Noteholders requiring assistance should contact the Proxy and Information Agent. Persons appointed as proxyholders need not be Senior Unsecured Noteholders.

Subject to any further order of the Court, the Senior Unsecured Noteholders’ Arrangement Resolution must be passed by at least two-thirds (6623%) of the votes cast by the Senior Unsecured Noteholders entitled to vote at the Senior Unsecured Noteholders’ Meeting and present in person or represented by proxy, voting together as a single class, at the Senior Unsecured Noteholders’ Meeting. The implementation of the Arrangement is subject to, among other things, the approval of the Arrangement by holders of Bellatrix’s Convertible Debentures (as such term is defined in the Information Circular) at a separate meeting, other approvals as may be required by the Court and the TSX, any applicable regulatory approvals, the approval of the Court and the satisfaction or waiver of other applicable conditions to the Arrangement. The hearing to seek Court approval of the Plan is scheduled to be heard at the Court, located at 330 University Avenue, Toronto, Ontario, at 10:00 a.m. (EDT) on May 28, 2019.

 

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Dated at Calgary, Alberta, this 18th day of April, 2019.

 

BY ORDER OF THE BOARD OF DIRECTORS OF BELLATRIX EXPLORATION LTD.
(signed)     “Charles R. Kraus
Executive Vice President, General Counsel and Corporate Secretary

 

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BELLATRIX EXPLORATION LTD.

NOTICE OF MEETING OF CONVERTIBLE DEBENTUREHOLDERS

NOTICE IS HEREBY GIVEN that, pursuant to an order (the “Interim Order”) of the Ontario Superior Court of Justice (Commercial List) (the “Court”) dated April 16, 2019, a meeting (the “Convertible Debentureholders’ Meeting”) of holders (the “Convertible Debentureholders”) of 6.75% convertible unsecured subordinated debentures due 2021 (the “Convertible Debentures”) issued pursuant to the indenture dated as of August 9, 2016 between Bellatrix Exploration Ltd. (“Bellatrix” or the “Corporation”), as issuer, and Computershare Trust Company of Canada, in its capacity as trustee, as amended from time to time, will be held at the Gerwing Room at the Residence Inn by Marriott, 610 10 Ave. SW, Calgary, Alberta, T2R 1M3, on May 23, 2019 at 10:00 a.m. (MDT) for the following purposes:

 

  1.

to consider and, if deemed advisable, to pass, with or without variation, a special resolution (the “Convertible Debentureholders’ Arrangement Resolution”), the full text of which is set out in Appendix B to the accompanying management information circular dated April 18, 2019 (the “Information Circular”), approving an arrangement (the “Arrangement”) pursuant to Section 192 of the Canada Business Corporations Act, which Arrangement is more particularly described in the Information Circular; and

 

  2.

to transact such further and other business as may properly come before the Convertible Debentureholders’ Meeting or the reconvening of any adjournment or postponement thereof.

AND NOTICE IS HEREBY GIVEN that the Court has been advised that its order approving the Arrangement, if granted, will constitute the basis for an exemption from the registration requirements of the United States Securities Act of 1933, as amended, as provided by Section 3(a)(10) thereof, with respect to the issuance of certain New Common Shares (as such term is defined in the accompanying Information Circular) to be issued pursuant to the Arrangement.

Additional information on the above matters can be found in the Information Circular.

The record date for entitlement to notice of the Convertible Debentureholders’ Meeting has been set by the Court as of April 16, 2019 (the “Record Date”). Convertible Debentureholders entitled to vote at the Convertible Debentureholders’ Meeting will be entitled to one vote for each $1,000 principal amount of Convertible Debentures owed to such Convertible Debentureholder as of 5:00 p.m. (EDT) on the Record Date in respect of the Convertible Debentureholders’ Arrangement Resolution and any other matters to be considered at the Convertible Debentureholders’ Meeting.

Subject to any further order of the Court, the Court has set the quorum for the Convertible Debentureholders’ Meeting at two or more persons entitled to vote at the Convertible Debentureholders’ Meeting present in person or represented by proxies.

The Information Circular, this notice, the Convertible Debentureholder proxy and voting information and election form (the “Convertible Debentureholder VIEF”) (collectively, the “Convertible Debentureholder Meeting Package”) are being distributed to Convertible Debentureholders as at the Record Date and are available online under the Corporation’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. Convertible Debentureholders are reminded to review the Convertible Debentureholder Meeting Package before voting.

If you receive these materials through your broker, custodian, investment dealer, nominee, bank, trust company or other intermediary (an “Intermediary”), you should follow the instructions provided by such Intermediary in order to vote your Convertible Debentures and receive certain additional consideration described in the Information Circular (if applicable).

All Convertible Debentureholders are requested to vote in accordance with the instructions provided on the Convertible Debentureholder proxy or the Convertible Debentureholder VIEF, as applicable. In order to cast a vote at the Convertible Debentureholders’ Meeting, beneficial holders of the Convertible Debentures must submit to their respective Intermediaries at or prior to 5:00 p.m. (EDT) on May 21, 2019, or such later date as may be agreed by Bellatrix, in consultation with the Initial Consenting Noteholders (as such term is defined in the Information Circular) in the event that the Convertible Debentureholders’ Meeting is postponed or adjourned (the “Voting

 

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Deadline”) or such earlier deadline as an Intermediary may advise the applicable beneficial holder, their duly completed Convertible Debentureholder proxy and/or Convertible Debentureholder VIEF (or such other documentation or information as the Intermediary may customarily request for purposes of obtaining voting and election instructions), following which Intermediaries shall provide such voting and election instructions to Kingsdale Advisors, Bellatrix’s proxy and information agent (the “Proxy and Information Agent”).

Convertible Debentureholders will be entitled to receive their pro rata share of a pool of New Common Shares representing approximately 27.5% of the aggregate issued and outstanding common shares in the capital of Bellatrix (“Common Shares”) immediately following the implementation of the Arrangement in consideration for the exchange of their Convertible Debentures. Convertible Debentureholders that vote in favour of the Plan by 5:00 p.m. (EDT) on May 15, 2019, or such later date as Bellatrix may determine in consultation with the Initial Consenting Noteholders, will also be entitled to receive additional consideration in exchange for their Convertible Debentures in the form of their pro rata share of a pool of New Common Shares representing approximately 5% of the aggregate issued and outstanding Common Shares immediately following the implementation of the Arrangement. The foregoing treatment of Convertible Debentures under the Arrangement shall be subject to the Corporation’s right, pursuant to the Arrangement, on or prior to the effective date of the Arrangement, to repay the Convertible Debentures in full with cash from proceeds of one or more equity issuances for up to 32.5% of the aggregate Common Shares issued and outstanding immediately following implementation of the Arrangement, and to the extent such equity issuances are for less than 32.5% of the aggregate Common Shares issued and outstanding immediately following implementation of the Arrangement, any such difference shall reduce the dilution in respect of the holders of the existing Common Shares. Such equity issuances would be subject to TSX approval and the Common Shares that may be issuable thereunder have not been approved for TSX listing.

Convertible Debentureholders may attend the Convertible Debentureholders’ Meeting in person or may appoint another person as proxyholder. The Convertible Debentureholder proxy nominates Charles Kraus, the Executive Vice President, General Counsel and Corporate Secretary of Bellatrix, or Maxwell Lof, the Chief Financial Officer of Bellatrix, and either one of them with full power of substitution as proxyholders. A Convertible Debentureholder may appoint another person as his, her or its proxyholder by contacting Kingsdale Advisors and following the instructions provided. Convertible Debentureholders requiring assistance should contact the Proxy and Information Agent. Persons appointed as proxyholders need not be Convertible Debentureholders.

Subject to any further order of the Court, the Convertible Debentureholders’ Arrangement Resolution must be passed by at least two-thirds (6623%) of the votes cast by the Convertible Debentureholders entitled to vote at the Convertible Debentureholders’ Meeting and present in person or represented by proxy, voting together as a single class, at the Convertible Debentureholders’ Meeting. The implementation of the Arrangement is subject to, among other things, the approval of the Arrangement by holders of Bellatrix’s Senior Unsecured Notes (as such term is defined in the Information Circular) at a separate meeting, other approvals as may be required by the Court and the TSX, any applicable regulatory approvals, the approval of the Court and the satisfaction or waiver of other applicable conditions to the Arrangement. The hearing to consider Court approval of the Arrangement is scheduled to be heard at the Court, located at 330 University Avenue, Toronto, Ontario, at 10:00 a.m. (EDT) on May 28, 2019.

 

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Dated at Calgary, Alberta, this 18th day of April, 2019.

 

BY ORDER OF THE BOARD OF DIRECTORS OF BELLATRIX EXPLORATION LTD.
(signed)     “Charles R. Kraus
Executive Vice President, General Counsel and Corporate Secretary

 

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BELLATRIX EXPLORATION LTD.

NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

NOTICE IS HEREBY GIVEN that, pursuant to an order (the “Interim Order”) of the Ontario Superior Court of Justice (Commercial List) (the “Court”) dated April 16, 2019, an annual and special meeting (the “Shareholders’ Meeting”) of the holders (the “Shareholders”) of the common shares (the “Common Shares”) of Bellatrix Exploration Ltd. (“Bellatrix” or the “Corporation”) will be held at the Gerwing Room at the Residence Inn by Marriott, 610 10 Ave. SW, Calgary, Alberta, T2R 1M3, on May 23, 2019 at 10:30 a.m. (MDT) for the following purposes:

 

  1.

consider and, if deemed advisable, to pass, with or without variation, a special resolution (the “Continuance Resolution”) approving the continuance of Bellatrix into the federal jurisdiction of Canada under the Canada Business Corporations Act (the “CBCA”) and the repeal and replacement of the existing by-laws of the Corporation with a new By-Law No. 1 upon completion of the continuance;

 

  2.

consider and, if deemed advisable, to pass, with or without variation, a special resolution (the “Stated Capital Reduction Resolution”) authorizing a reduction of the stated capital of the Common Shares, as more particularly described in the accompanying management information circular dated April 18, 2019 (the “Information Circular”);

 

  3.

consider and, if deemed advisable, to pass, with or without variation, a special resolution (the “Shareholders’ Arrangement Resolution”) approving an arrangement (the “Arrangement”) pursuant to Section 192 of the CBCA, which Arrangement is more particularly described in the Information Circular;

 

  4.

consider and, if deemed advisable, to pass, with or without variation, an ordinary resolution (the “Warrant Transactions Resolution” and, together with the Continuance Resolution, the Stated Capital Reduction Resolution and the Shareholders’ Arrangement Resolution, the “Special Meeting Resolutions”) approving an amendment to the exercise price of the Second Lien Exchange Warrants (as defined in the Information Circular) and the issuance of warrants on the same terms as the amended Second Lien Exchange Warrants, which is more particularly described in the Information Circular (collectively, the “Warrant Transactions”);

 

  5.

receive the financial statements of the Corporation for the year ended December 31, 2018, including the auditor’s report thereon;

 

  6.

fix the number of directors of the Corporation (the “Directors”) to be elected at the Shareholders’ Meeting at eight (8);

 

  7.

elect the Directors of the Corporation;

 

  8.

re-appoint the auditor of the Corporation for the ensuing year and authorize the Directors to fix the remuneration to be paid to the auditor;

 

  9.

consider and, if deemed advisable, to pass, with or without variation, an ordinary resolution approving all unallocated awards under the Corporation’s award plan as more particularly described in the Information Circular;

 

  10.

consider and, if deemed advisable, to pass, with or without variation, an ordinary resolution approving the Corporation’s approach to executive compensation (the “Say-on-Pay Resolution”); and

 

  11.

transact such further and other business as may properly come before the Shareholders’ Meeting or the reconvening of any adjournment or postponement thereof.

The full text of the resolutions set out in paragraphs 1 through 4, 9 and 10 above are set forth in Appendix C to the Information Circular.

Capitalized terms used herein, and not otherwise defined, have the meanings set forth in the Information Circular.

 

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Bellatrix reserves the right, in its sole discretion, to withdraw the Continuance Resolution, the Stated Capital Reduction Resolution, the Warrant Transactions Resolution and/or the Shareholders’ Arrangement Resolution from being put before the Shareholders’ Meeting.

Additional information on the above matters can be found in the Information Circular.

The record date for entitlement to notice of the Shareholders’ Meeting is April 16, 2019 (the “Record Date”). At the Shareholders’ Meeting, each Shareholder as of 5:00 p.m. (EDT) on the Record Date will have one vote for each Common Share held as at the Record Date.

Subject to any further order of the Court, the Court has set the quorum for the Shareholders’ Meeting with respect to the Special Meeting Resolutions at two or more persons entitled to vote at the Shareholders’ Meeting present in person or represented by proxy.

The Information Circular, this notice, the form of Shareholder proxy, the form of shareholder voting instruction form and a letter of transmittal (collectively, the “Shareholder Meeting Package”) are being mailed to Shareholders of record as at the Record Date and are available online under the Corporation’s profile on SEDAR at www.sedar.com and EDGAR at www.sec.gov. Shareholders are reminded to review the Shareholder Meeting Package before voting.

If you receive these materials through your broker, custodian, investment dealer, nominee, bank, trust company or other intermediary (an “Intermediary”), you should follow the instructions provided by such Intermediary in order to vote your Common Shares.

All Shareholders are requested to vote in accordance with the instructions provided on the appropriate proxy or voting instruction form, as applicable, using one of the available methods. In order to be effective, proxies and voting instruction forms must be received by the Corporation’s transfer agent at or prior to 5:00 p.m. (EDT) on May 21, 2019, or such later date as may be agreed by Bellatrix, in consultation with the Initial Consenting Noteholders in the event that the Shareholders’ Meeting is postponed or adjourned (the “Voting Deadline”) or such earlier deadline as an Intermediary may advise the applicable beneficial holder.

Registered holders of Common Shares can submit their proxy (i) by mail using the enclosed return envelope or one addressed to Computershare Trust Company of Canada, Proxy Department, 135 West Beaver Creek, P.O. Box 300, Richmond Hill, Ontario, L4B 4R5; (ii) by hand delivery to Computershare Trust Company of Canada, 8th Floor, 100 University Avenue, Toronto, Ontario, M5J 2Y1; or (iii) by facsimile to (416) 263- 9524 or 1-866-249-7775. If you vote through the internet, you may also appoint another person to be your proxyholder. Please go to www.investorvote.com and follow the instructions. You will require your 15-digit control number found on your proxy form.

If you receive more than one proxy form because you own Common Shares registered in different names or addresses, each proxy form should be completed and returned.

If you receive these materials through an Intermediary, please complete and sign the materials in accordance with the instructions provided to you by such Intermediary.

Registered holders of Common Shares may attend the Shareholders’ Meeting in person or may appoint another person as proxyholder. The form of proxy accompanying the Information Circular nominates Charles Kraus, the Executive Vice President, General Counsel and Corporate Secretary of Bellatrix, or Maxwell Lof, the Chief Financial Officer of Bellatrix, and either one of them with full power of substitution as proxyholders. A Shareholder may appoint another person as its proxyholder by inserting the name of such person in the space provided in the form of proxy, or by completing another valid form of proxy. Persons appointed as proxyholders need not be Shareholders.

The vote required to pass the Continuance Resolution, the Stated Capital Reduction Resolution and, subject to any further order of the Court, the Shareholders’ Arrangement Resolution, is at least two-thirds (6623%) of the votes cast by the Shareholders present in person or represented by proxy at the Shareholders’ Meeting and entitled to vote on each such resolution. The Warrant Transactions Resolution must be approved by a simple majority of all votes cast

 

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by Shareholders with respect to the Warrant Transactions Resolution, present in person or by proxy at the Shareholders’ Meeting. All other annual matters must be approved by a majority of the votes cast by the Shareholders present in person or represented by proxy at the Shareholders’ Meeting and entitled to vote on each such resolution. The Say-on-Pay Resolution is a non-binding advisory vote on the Board’s approach to executive compensation.

The TSX regulates the issuance of listed securities, such as the issuance of new shares by the Corporation, the issuance and amendment of warrants exercisable for such listed securities and the creation of new “control persons”. The TSX will require securityholder approval in a number of instances, including: (i) where an issuance of listed securities will “materially affect control”; (ii) where the issuance of listed securities would exceed 25% of the issued and outstanding securities and the price at which listed securities are to be issued is less than the Market Price of the listed securities; (iii) where the price per listed security will be lower than the discount to the Market Price permitted by the TSX; (iv) the amendment of warrants resulting in an exercise price that is less than the Market Price of the underlying security; and (v) the issuance of warrants to purchase listed securities with an exercise price that is less than the Market Price of the underlying security (collectively, the “TSX Approval Matters”). Such approvals are required under Sections 604(a)(i), 607(e), 607(g)(i), 607(i) and 608(a)(ii) of the TSX Company Manual. By voting in favour of the Shareholders’ Arrangement Resolution and the Warrant Transactions Resolution, as applicable, Shareholders will be voting with respect to the TSX Approval Matters that will be required as a result of the Common Shares to be issued pursuant to the Plan, as well as the Warrant Transactions. The policies of the TSX require that these resolutions must be approved by a simple majority of the votes cast by Shareholders represented in person or by proxy and voted at the Shareholders’ Meeting, excluding those Shareholders that hold Senior Unsecured Notes, Convertible Debentures or Second Lien Exchange Warrants. Shareholders that hold Senior Unsecured Notes, Convertible Debentures or Second Lien Exchange Warrants should contact Kingsdale Advisors, by: (i) telephone, toll-free in North America at 1-866-229-8874 or at 416-867-2272 outside of North America; or (ii) e-mail to corpaction@kingsdale.com. Based on the holdings information provided pursuant to the Support Agreements, no Initial Consenting Noteholders hold or control Common Shares and the Initial Consenting Debentureholder holds or controls 1,377,733 Common Shares, representing approximately 2% of the currently issued and outstanding Common Shares, which will be excluded for the purposes of calculating Shareholder approval with respect to the TSX Approval Matters.

The implementation of the Arrangement is subject to, among other things, the approval of the Arrangement by the Senior Unsecured Noteholders and Convertible Debentureholders at separate meetings, other approvals as may be required by the Court and the TSX, any applicable regulatory approvals, the approval of the Court and the satisfaction or waiver of other applicable conditions to the Arrangement. The hearing to consider Court approval of the Arrangement is scheduled to be heard at the Court, located at 330 University Avenue, Toronto, Ontario, at 10:00 a.m. (EDT) on May 28, 2019. Pursuant to the Interim Order, Bellatrix may seek Court approval of the Arrangement whether or not the Arrangement is approved by Shareholders at the Shareholders’ Meeting and notwithstanding whether the Shareholders’ Meeting is held.

Pursuant to Section 191 of the Business Corporations Act (Alberta), registered holders of Common Shares will have the right to dissent in respect of the Continuance Resolution and, if the Continuance becomes effective, to be paid by Bellatrix the fair value of the Common Shares in respect of which a registered Shareholder exercises such dissent right. If a registered Shareholder wishes to dissent, a written notice of dissent must be received by the Corporation at Suite 1900, 800 – 5th Avenue S.W., Calgary, Alberta T2P 3T6, Attention: Chuck Kraus, at or before the Shareholders’ Meeting. Details regarding the dissent right can be found in the accompanying Information Circular under “Description of the Recapitalization Transaction and Certain Related Matters – Continuance of Bellatrix from Alberta to Canada – Dissent Rights”. The Interim Order does not provide for any dissent rights with respect to the Shareholders’ Arrangement Resolution.

[signature page to follow.]

 

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Dated at Calgary, Alberta, this 18th day of April, 2019.

 

BY ORDER OF THE BOARD OF DIRECTORS OF BELLATRIX EXPLORATION LTD.
(signed)     “Charles R. Kraus
Executive Vice President, General Counsel and Corporate Secretary

 

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SUMMARY

This summary highlights selected information from this Information Circular to help Senior Unsecured Noteholders, Convertible Debentureholders and Shareholders understand the Recapitalization Transaction. Such parties should read this Information Circular carefully in its entirety to understand the terms of the Recapitalization Transaction as well as tax and other considerations that may be important to them in deciding whether to approve the Arrangement and certain related matters. Such parties should also pay special attention to the “Risk Factors” section of this Information Circular. The following summary is qualified in its entirety by reference to the detailed information contained or incorporated by reference in this Information Circular. Capitalized terms used herein, and not otherwise defined, have the meanings set forth under “Glossary of Terms”.

The Meetings

Pursuant to the Interim Order, Bellatrix has called the Senior Unsecured Debtholders’ Meeting and the Convertible Debentureholders’ Meeting to consider and, if deemed advisable, to pass, the Senior Unsecured Debtholders’ Arrangement Resolution and the Convertible Debentureholders’ Arrangement Resolution, respectively. Pursuant to the Interim Order, Bellatrix has called the Shareholders’ Meeting to, among other things, consider and, if deemed advisable, to pass, the Continuance Resolution, the Stated Capital Reduction Resolution, the Shareholders’ Arrangement Resolution and the Warrant Transactions Resolution. At the Shareholders’ Meeting, Shareholders will also be asked to consider certain annual matters. The Meetings will be held at the following places, dates and times:

 

Meeting

  

Location

  

Time & Date

  

Matters to be Considered

as set forth in

Senior Unsecured

Noteholders’ Meeting

  

Gerwing Room at the

Residence Inn by Marriott,

610 10 Ave. SW, Calgary, Alberta, T2R 1M3

   9:30 a.m. (MDT) on May 23, 2019   

Senior Unsecured

Noteholders’ Notice

     
Convertible Debentureholders’ Meeting    10:00 a.m. (MDT) on May 23, 2019   

Convertible

Debentureholders’ Notice

Shareholders’ Meeting       10:30 a.m. (MDT) on May 23, 2019    Shareholders’ Notice

Subject to any further Order of the Court, pursuant to the Interim Order: (i) quorum at each of the Senior Unsecured Noteholders’ Meeting and Convertible Debentureholders’ Meeting shall be two or more Persons entitled to vote at each such Meeting, as applicable, present in person or represented by proxies; and (ii) quorum at the Shareholders’ Meeting with respect to the Special Meeting Resolutions shall be two or more Persons entitled to vote at the Shareholders’ Meeting present in person or represented by proxies.

Voting at the Meetings

Subject to any further Order of the Court, pursuant to the Interim Order, those persons who are Senior Unsecured Noteholders on the Record Date are entitled to attend and vote at the Senior Unsecured Noteholders’ Meeting. Beneficial Senior Unsecured Noteholders shall be deemed to transfer their rights to vote on the Senior Unsecured Noteholders’ Arrangement Resolution and attend the Senior Unsecured Noteholders’ Meeting associated with their Senior Unsecured Notes upon the transfer of their beneficial ownership of such Senior Unsecured Notes to any transferee of such Senior Unsecured Notes on or prior to the Voting Deadline, or such earlier date as the applicable Intermediary may advise. Senior Unsecured Noteholders entitled to vote at the Senior Unsecured Noteholders’ Meeting will be entitled to one vote for each US$1,000 principal amount of Senior Unsecured Notes owed to such Senior Unsecured Noteholder as of the Record Date in respect of the Senior Unsecured Noteholders’ Arrangement Resolution and any other matters to be considered at the Senior Unsecured Noteholders’ Meeting.

Subject to any further Order of the Court, pursuant to the Interim Order, those persons who are Convertible Debentureholders on the Record Date are entitled to attend and vote at the Convertible Debentureholders’ Meeting. Beneficial Convertible Debentureholders shall be deemed to transfer their rights to vote on the Convertible Debentureholders’ Arrangement Resolution and attend the Convertible Debentureholders’ Meeting associated with



 

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their Convertible Debentures upon the transfer of their beneficial ownership of such Convertible Debentures to any transferee of such Convertible Debentures on or prior to the Voting Deadline, or such earlier date as its Intermediary may advise. Convertible Debentureholders entitled to vote at the Convertible Debentureholders’ Meeting will be entitled to one vote for each $1,000 principal amount of Convertible Debentures owed to such Convertible Debentureholder as of the Record Date in respect of the Convertible Debentureholders’ Arrangement Resolution and any other matters to be considered at the Convertible Debentureholders’ Meeting.

Registered Shareholders as of the Record Date are entitled to attend and vote at the Shareholders’ Meeting. Shareholders will be entitled to one vote for each Common Share held as at the Record Date.

See “Entitlement to Vote and Attend” and “Non-Registered Holders

Securityholder Approvals

Subject to any further Order of the Court, the Senior Unsecured Noteholders’ Arrangement Resolution must be passed by at least two-thirds (6623%) of the votes cast by the Senior Unsecured Noteholders present in person or represented by proxy that are entitled to vote on the Senior Unsecured Noteholders’ Arrangement Resolution.

Subject to any further Order of the Court, the Convertible Debentureholders’ Arrangement Resolution must be passed by at least two-thirds (6623%) of the votes cast by the Convertible Debentureholders present in person or represented by proxy that are entitled to vote on the Convertible Debentureholders’ Arrangement Resolution

The vote required to pass the Continuance Resolution, the Stated Capital Reduction Resolution and, subject to any further Order of the Court, the Shareholders’ Arrangement Resolution, is at least two-thirds (6623%) of the votes cast by the Shareholders present in person or represented by proxy at the Shareholders’ Meeting and entitled to vote on each such resolution. The Warrant Transactions Resolution must be approved by a simple majority of all votes cast by Shareholders with respect to the Warrant Transactions Resolution, present in person or by proxy at the Shareholders’ Meeting.

The Recapitalization Transaction is supported by holders of approximately 90% of the Senior Unsecured Notes and 50% of the Convertible Debentures. Such parties have entered into the Support Agreements pursuant to which they have agreed, among other things and subject to the terms of such agreements, to vote in favour of the Arrangement.

See “Quorum and Voting Requirements”, “Noteholder Support Agreement” and “Convertible Debentureholder Support Agreement”.

Required Approval for the Arrangement

The Arrangement requires approval by the Court. Prior to the mailing of this Information Circular, Bellatrix obtained the Interim Order providing for the calling and holding of the Senior Unsecured Noteholders’ Meeting, the Convertible Debentureholders’ Meeting and the Shareholders’ Meeting, and other procedural matters. A copy of the Interim Order is attached hereto as Appendix L and forms part of this Information Circular. The Notice of Application for the Final Order is attached hereto as Appendix K and forms part of this Information Circular.

The hearing in respect of the Final Order is currently scheduled to take place at 330 University Avenue, Toronto, Ontario at 10:00 a.m. (EDT) on May 28, 2019. Pursuant to the Interim Order and subject to any further Order of the Court, the only persons entitled to appear and be heard at such hearing shall be the Applicants, the CBCA Director, the Senior Unsecured Noteholders, the Convertible Debentureholders, the Trustees, the Shareholders, the First Lien Lenders, the Existing Second Lien Noteholders and any person who filed a Notice of Appearance in accordance with the Notice of Application, the Interim Order and the Rules of Civil Procedure, as well as their respective legal counsel.

At the hearing for the Final Order, the Court will consider, among other things, the procedural and substantive fairness and reasonableness of the Arrangement and the approval of: (i) the Senior Unsecured Noteholders’ Arrangement Resolution by the Senior Unsecured Noteholders at the Senior Unsecured Noteholders’ Meeting; (ii) the Convertible Debentureholders’ Arrangement Resolution by the Convertible Debentureholders at the Convertible Debentureholders’ Meeting; and (iii) the Shareholders’ Arrangement Resolution by the Shareholders at the Shareholders’ Meeting. Pursuant to the Interim Order, Bellatrix may seek the Final Order even if the Shareholders’



 

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Arrangement Resolution is not approved by the Shareholders at the Shareholders’ Meeting. The Interim Order does not provide for any dissent rights with respect to the Shareholders’ Arrangement Resolution.

The Court may approve the Arrangement in any manner the Court may direct, subject to compliance with such terms and conditions, if any, as the Court deems fit.

See “Description of the Recapitalization Transaction and Certain Related Matters Required Approvals for the Arrangement”.

Description of the Recapitalization Transaction

Continuance

Subject to Shareholder approval, prior to the hearing for the Final Order, it is anticipated that Bellatrix will continue from the jurisdiction of Alberta into the jurisdiction of Canada and be registered as a CBCA corporation. The Board believes that it is in the best interests of Bellatrix to continue into a CBCA corporation to effect the Plan pursuant to the CBCA.

At the Shareholders’ Meeting, Shareholders will be asked to consider and, if deemed advisable, approve the Continuance Resolution, the full text of which is set out in Appendix C. In order to become effective, the Continuance must be approved by at least two-thirds (6623%) of all votes cast with respect to the Continuance Resolution by Shareholders, present in person or by proxy at the Shareholders’ Meeting.

The ABCA and the CBCA permit Bellatrix to continue under the CBCA with the authority of a special resolution of the Shareholders, the consent of the Registrar of Corporations, Alberta and upon complying with certain procedures and filing certain forms. A Registered Shareholder has Dissent Rights, see “Continuance Right of Dissent”. Upon the completion of the Continuance, Bellatrix will be treated as if it had been incorporated under the CBCA.

If the Shareholders approve the Continuance, the Articles of Continuance will be filed with the Director subsequent to the Shareholders’ Meeting and prior to the filing of the Articles of Arrangement.

See “Description of the Recapitalization Transaction and Certain Related Matters – Continuance of Bellatrix from Alberta to Canada”.

Stated Capital Reduction

Subject to Shareholder approval, prior to the hearing for the Final Order, it is anticipated that Bellatrix will reduce the Corporation’s stated capital account of its Common Shares by $800,000,000, without any payment thereon.

See “Description of the Recapitalization Transaction and Certain Related Matters – Stated Capital Reduction”.

Plan

The Plan contemplates a series of steps leading to a realignment of Bellatrix’s capital structure. These steps include, among other things: (i) the Share Consolidation; (ii) the exchange of Senior Unsecured Notes in the aggregate principal amount of approximately US$145.8 million, plus the Exchange Interest Amount for (A) in the case of each Consenting Noteholder, New Second Lien Notes in a principal amount equal to its Consenting Noteholder New Second Lien Note Amount and its Consenting Noteholder Pro Rata Share of each of the New Third Lien Notes and the Senior Unsecured Noteholder New Common Share Pool (such pool representing approximately 51% of the Common Shares issued and outstanding immediately following implementation of the Recapitalization Transaction) and (B) in the case of each Senior Unsecured Noteholder that is not a Consenting Noteholder, its Non-Consenting Noteholder Pro Rata Share of each of the New Third Lien Notes and the Senior Unsecured Noteholder New Common Share Pool; (iii) the payment in cash of the Cash Interest Payment, provided that the Corporation and the Initial Consenting Noteholders will have the right to agree, prior to closing of the Recapitalization Transaction, that in lieu of paying the Cash Interest Payment in cash on the Effective Date, the Corporation will issue to the Senior Unsecured Noteholders Additional New Third Lien Notes in an aggregate principal amount equal to the amount of the Cash Interest Payment; (iv) the exchange of the Convertible Debentures in the aggregate principal amount of approximately $50 million, plus all accrued and unpaid interest thereon, for (A) in the case of each Consenting



 

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Debentureholder, its Consenting Debentureholder Pro Rata Share of the Consenting Debentureholder Early Consent New Common Share Pool (such pool representing approximately 5% of the Common Shares immediately following implementation of the Recapitalization Transaction) and its Convertible Debentureholder Pro Rata Share of the Convertible Debentureholder New Common Share Pool (such pool representing approximately 27.5% of the Common Shares immediately following implementation of the Recapitalization Transaction) and (B) in the case of each Convertible Debentureholder that is not a Consenting Debentureholder, its Convertible Debentureholder Pro Rata Share of the Convertible Debentureholder New Common Share Pool; and (v) the Corporation shall have the right, on or prior to the Effective Date, to repay the Convertible Debentures with cash from proceeds of one or more equity issuances for up to 32.5% of the aggregate Common Shares issued and outstanding immediately following implementation of the Recapitalization Transaction, and to the extent such equity issuances are for less than 32.5% of the aggregate Common Shares issued and outstanding immediately following implementation of the Recapitalization Transaction, any such difference shall reduce the dilution in respect of the existing Shareholders.

See “Description of the Recapitalization Transaction and Certain Related Matters – Plan”.

Share Consolidation

The Plan provides for the Share Consolidation, pursuant to which the issued and outstanding Common Shares will be consolidated on the basis of one Common Share for every 12 Common Shares outstanding immediately prior to the Effective Date. Based on 80,909,225 Common Shares issued and outstanding on April 15, 2019, the Share Consolidation will reduce the number of issued and outstanding Common Shares to approximately 6,742,435 Common Shares (prior to the issuance of the New Common Shares contemplated in the Recapitalization Transaction). No fractional Common Shares will be issued in connection with the Share Consolidation and, in the event that a Shareholder would otherwise be entitled to receive a fractional Common Share upon the Share Consolidation, such fraction will be rounded down to the nearest whole number of Common Shares. No compensation will be issued to Shareholders as a result of rounding down. No cash shall be paid for fractional shares. Any holders of 11 or fewer Common Shares prior to the date of the Share Consolidation will not receive any Common Shares as a result of the Share Consolidation.

Senior Unsecured Noteholders, Convertible Debentureholders and Shareholders are being asked to approve the Arrangement, which includes the Share Consolidation, at the various Meetings.

Registered Shareholders will be required to complete, execute and return a Letter of Transmittal to the Transfer Agent to receive their consolidated Common Shares following the Share Consolidation. The Letter of Transmittal must be accompanied by the certificate(s) representing your Common Shares and all other required documents. Following the Effective Date, the Transfer Agent will issue and deliver Common Shares in accordance with your instructions in the Letter of Transmittal. A copy of the Letter of Transmittal is enclosed with a copy of this Information Circular or may be obtained upon request from the Transfer Agent.

See “Description of the Recapitalization Transaction and Certain Related Matters – Share Consolidation”.

Treatment of Senior Unsecured Noteholders

Pursuant to the Plan, the Senior Unsecured Notes, in the aggregate principal amount of approximately US$145.8 million, plus the Exchanged Interest Amount, will be exchanged for: (i) in the case of each Consenting Noteholder, New Second Lien Notes in a principal amount equal to its Consenting Noteholder New Second Lien Note Amount and its Consenting Noteholder Pro Rata Share of each of the New Third Lien Notes and the Senior Unsecured Noteholder New Common Share Pool and (ii) in the case of each Senior Unsecured Noteholder that is not a Consenting Noteholder, its Non-Consenting Noteholder Pro Rata Share of each of the New Third Lien Notes and the Senior Unsecured Noteholder New Common Share Pool. The Cash Interest Payment will be paid to Senior Unsecured Noteholders in cash, provided that the Corporation and the Initial Consenting Noteholders will have the right to agree, prior to closing of the Recapitalization Transaction, that in lieu of paying the Cash Interest Payment in cash on the Effective Date, the Corporation will issue to the Senior Unsecured Noteholders Additional New Third Lien Notes in an aggregate principal amount equal to the amount of the Cash Interest Payment.

The aggregate principal amount of the New Second Lien Notes is US$50 million. The New Second Lien Notes will constitute Additional Notes under the Existing Second Lien Note Purchase Agreement (or the Second Lien Notes Indenture, if converted) which will rank equally in right of payment with the Exchange Notes and will rank behind



 

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in right of payment to the New Money Notes thereunder. The aggregate principal amount of the New Third Lien Notes is US$50 million. The Senior Unsecured Noteholder New Common Share Pool is comprised of New Common Shares representing approximately 51% of the aggregate issued and outstanding Common Shares immediately following the implementation of the Recapitalization Transaction.

The amount of New Second Lien Notes that each Consenting Noteholder shall be entitled to under the Plan and the amount of New Third Lien Notes and, if applicable, Additional New Third Lien Notes that each Senior Unsecured Noteholder shall be entitled to under the Plan shall in each case be rounded down to the nearest multiple of US$1,000 without compensation therefor.

Pursuant to the Plan, the Initial Consenting Noteholders will have the one-time right to designate nominees for the Board that will comprise such proportion of the Board upon implementation of the Recapitalization Transaction as agreed to by the Corporation and the Initial Consenting Noteholders, and the composition and size of the Board on the Effective Date shall be acceptable to the Initial Consenting Noteholders and the Corporation. The Plan does not prescribe a set proportion of the Board that must be comprised of nominees of the Initial Consenting Noteholders. All nominees of the Initial Consenting Noteholders will be subject to election at the next annual general meeting of Shareholders.

See “Description of the Recapitalization Transaction and Certain Related Matters – Treatment of Senior Unsecured Noteholders”.

Treatment of Convertible Debentureholders

Pursuant to the Plan, the Convertible Debentures, in the aggregate principal amount of approximately $50 million, plus all accrued and unpaid interest, will be exchanged for (i) in the case of each Convertible Debentureholder that is a Consenting Debentureholder, its Consenting Debentureholder Pro Rata Share of the Consenting Debentureholder Early Consent New Common Share Pool and its Convertible Debentureholder Pro Rata Share of the Convertible Debentureholder New Common Share Pool and (ii) in the case of each Convertible Debentureholder that is not a Consenting Debentureholder, its Convertible Debentureholder Pro Rata Share of the Convertible Debentureholder New Common Share Pool.

Assuming that 90% of the Convertible Debentures are Consent Debentures and taking into account accrued interest assuming an Effective Date of May 30, 2019, Consenting Debentureholders will receive approximately 258 Common Shares per $1,000 of principal and accrued interest owing to such holders in respect of the Convertible Debentures held by them as of the Distribution Record Date, representing approximately a 40% discount to the $6.50 Market Price per post-Share Consolidation Common Share as of the date of the Debentureholder Support Agreement. Convertible Debentureholders that are not Consenting Debentureholders will receive approximately 215 Common Shares per $1,000 of principal and accrued interest owing to such holders in respect of the Convertible Debentures held by them as of the Distribution Record Date, representing approximately a 28% discount to the $6.50 Market Price per post-Share Consolidation Common Share as of the date of the Debentureholder Support Agreement.

Pursuant to the Plan, the Corporation shall have the right, on or prior to the Effective Date, to repay the Convertible Debentures in full with cash from proceeds of one or more equity issuances for up to 32.5% of the aggregate Common Shares issued and outstanding immediately following implementation of the Recapitalization Transaction, and to the extent such equity issuances are for less than 32.5% of the aggregate Common Shares issued and outstanding immediately following implementation of the Recapitalization Transaction, any such difference shall reduce the dilution in respect of the holders of the existing Common Shares. Such equity issuances would be subject to TSX approval and the Common Shares that may be issuable thereunder have not been approved for TSX listing.

See “Description of the Recapitalization Transaction and Certain Related Matters – Treatment of Convertible Debentureholders”.

Treatment of Shareholders

Pursuant to the Plan, Shareholders will retain their Common Shares, subject to the Share Consolidation, the rounding down of fractional Common Shares and the dilution resulting from the issuance of New Common Shares pursuant to the Recapitalization Transaction, such that the existing Common Shares will represent



 

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approximately 16.5% of the issued and outstanding Common Shares immediately following the implementation of the Recapitalization Transaction.

The Plan provides that the Corporation shall have the right, on or prior to the Effective Date, to repay the Convertible Debentures in full with cash from proceeds of one or more equity issuances for up to 32.5% of the aggregate Common Shares issued and outstanding immediately following implementation of the Recapitalization Transaction, and to the extent such equity issuances are for less than 32.5% of the aggregate Common Shares issued and outstanding immediately following implementation of the Recapitalization Transaction, any such difference shall reduce the dilution in respect of the existing Shareholders. Such equity issuances would be subject to TSX approval and the Common Shares that may be issuable thereunder have not been approved for TSX listing.

See “Description of the Recapitalization Transaction and Certain Related Matters – Treatment of Shareholders”.

U.S. Debtholders and Transfer Restrictions

The New Common Shares, New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) have not been and will not be registered under 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. See “Certain Regulatory and Other Matters Relating to the Recapitalization Transaction – United States”.

Releases and Waivers

The Plan includes releases in connection with the implementation of the Recapitalization Transaction in favour of the Released Parties.

See “Description of the Recapitalization Transaction and Certain Related Matters – Releases and Waivers”.

Conditions Precedent to Implementation of the Plan

The implementation of the Plan is conditional upon the fulfilment, satisfaction or waiver of a number of conditions precedent.

See “Conditions Precedent to Implementation of the Plan of Arrangement”.

Background to and Reasons for the Recapitalization Transaction

The Information Circular contains a summary of events leading up to the development of the Recapitalization Transaction and the execution of the Support Agreements and the Consent Agreements.

As a result of the Recapitalization Transaction:

 

  (a)

the Corporation’s total debt will be reduced by approximately $110 million;

 

  (b)

the Corporation’s annual cash interest payments will be reduced by over $12 million annually until December 31, 2021;

 

  (c)

the Corporation will have no debt maturities in respect of non-revolving debt prior to 2023; and

 

  (d)

the existing Common Shares will remain outstanding and, subject to the Share Consolidation, the rounding down of fractional Common Shares and the dilution resulting from the issuance of New Common Shares pursuant to the Recapitalization Transaction, will represent approximately 16.5% of the issued and outstanding Common Shares immediately following implementation of the Recapitalization Transaction.

See “Background to and Reasons for the Recapitalization Transaction” and “Effect of the Recapitalization Transaction”.



 

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Peters & Co. Limited Opinions

Peters & Co. has provided the Special Committee and the Board with the Fairness Opinion and the CBCA Opinion. Copies of the Opinions are attached as Appendix J to this Information Circular.

In the Opinions, Peters & Co. concludes that, as of the date of the Opinions: (i) the Senior Unsecured Noteholders, the Convertible Debentureholders and the Shareholders would be in a better financial position, respectively, under the Recapitalization Transaction than if the Corporation were liquidated as, in each case, the estimated aggregate value of the consideration made available to Senior Unsecured Noteholders, Convertible Debentureholders and Shareholders, respectively, pursuant to the Recapitalization Transaction would exceed the estimated value the Senior Unsecured Noteholders, Convertible Debentureholders and Shareholders would receive in a liquidation, respectively; and (ii) the Recapitalization Transaction is fair, from a financial point of view, to the Corporation.

The Opinions describe the scope of the review undertaken by Peters & Co., the assumptions made by Peters & Co., the limitations on the use of the Opinions, and the basis of Peters & Co.’s fairness analysis for the purposes of the Opinions, among other matters. The summary of the Opinions set forth in this Information Circular is qualified in its entirety by reference to the full text of the Opinions. Peters & Co. has provided its written consent to the inclusion of the Opinions in this Information Circular.

See “Background to and Reasons for the Recapitalization Transaction – Peters  & Co. Limited Opinions”.

Recommendation of the Board of Directors

After careful consideration and based on several factors, including the Corporation’s current capital structure and financial position, the ongoing challenges in the Western Canadian oil and natural gas market, the Corporation’s review of potential alternatives, the lengthy and detailed consultation and negotiations with applicable debtholders, the advice of legal and financial advisors to the Corporation, the recommendation of the Special Committee and the Opinions, the Board unanimously determined that the proposed Recapitalization Transaction is the best available transaction for the Corporation in the circumstances and is in the best interests of the Corporation and its stakeholders, and approved the Plan and the Recapitalization Transaction contemplated thereby.

The Board also considered various factors discussed in the section entitled “Background to and Reasons for the Recapitalization Transaction”. Further, the Board took note of the fact that Senior Unsecured Noteholders holding approximately 90% of the Senior Unsecured Notes and a Convertible Debentureholder holding approximately 50% of the Convertible Debentures were supportive of the Recapitalization Transaction and would be entering into the Noteholder Support Agreement and the Debentureholder Support Agreement, respectively.

The Board unanimously recommends that the Senior Unsecured Noteholders, Convertible Debentureholders and Shareholders support and vote in favour of the Recapitalization Transaction.

See “Background to and Reasons for the Recapitalization Transaction – Recommendation of the Board of Directors”.

Support Agreements

In connection with the proposed Recapitalization Transaction, on March 28, 2019, the Corporation entered into (i) the Noteholder Support Agreement with the Initial Consenting Noteholders, collectively holding approximately 90% of the Corporation’s Senior Unsecured Notes (based on holdings of Senior Unsecured Notes disclosed to the Corporation in the Noteholder Support Agreement), and (ii) the Debentureholder Support Agreement with the Initial Consenting Debentureholder holding approximately 50% of the Corporation’s Convertible Debentures and approximately 2% of the Common Shares (based on holdings of Convertible Debentures and Common Shares disclosed to the Corporation in the Debentureholder Support Agreement). Pursuant to the Support Agreements, the Initial Consenting Noteholders and the Initial Consenting Debentureholder have agreed to, among other things, support the Recapitalization Transaction and vote in favour of the Plan, subject to the terms of the applicable Support Agreement.

For a summary of the Support Agreements, see “Noteholder Support Agreement” and “Convertible Debentureholder Support Agreement”.



 

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Consent Agreements

In connection with the proposed Recapitalization Transaction, on March 28, 2019, the Corporation entered into the Consent Agreements, pursuant to which the Existing Second Lien Noteholders and the First Lien Lenders have, among other things, agreed to waive potential defaults under the terms and conditions of the Existing Second Lien Notes and First Lien Credit Agreement, respectively, which may result from the Corporation’s commencement of proceedings under the CBCA, subject to the terms of the Consent Agreements.

For a summary of the Consent Agreements, see “Consent Agreements”.

TSX Matters

Pursuant to the Plan, a total of 34,120,808 New Common Shares (being post-Share Consolidation Common Shares), subject to adjustment in accordance with the Plan, representing approximately 83.5% of the aggregate issued and outstanding Common Shares immediately following the implementation of the Recapitalization Transaction are expected to be issued to Senior Unsecured Noteholders (which will be receiving a total of 20,840,254 New Common Shares, subject to adjustment in accordance with the Plan) and Convertible Debentureholders (which will be receiving a total of 13,280,554 New Common Shares, subject to adjustment in accordance with the Plan). Shareholders will retain their Common Shares, subject to the Share Consolidation, the rounding down of fractional Common Shares and the dilution resulting from the issuance of New Common Shares pursuant to the Recapitalization Transaction, such that the existing Common Shares will represent approximately 16.5% of the issued and outstanding Common Shares immediately following the implementation of the Recapitalization Transaction.

As of April 15, 2019, the Corporation has 80,909,225 issued and outstanding Common Shares. The Recapitalization Transaction would increase the currently issued and outstanding Common Shares equivalent to 490,358,939 pre- Share Consolidation Common Shares, representing an increase of approximately 506%. The New Common Shares to be issued to the Senior Unsecured Noteholders pursuant to the Plan would increase the currently issued and outstanding Common Shares equivalent by 250,083,059 pre-Share Consolidation Common Shares, representing an increase of approximately 309%. The New Common Shares to be issued to the Convertible Debentureholders pursuant to the Plan would increase the currently issued and outstanding Common Shares equivalent by 159,366,665 pre-Share Consolidation Common Shares, representing an increase of approximately 197%.

After completion of the Recapitalization Transaction, Loomis (based on its holdings of Senior Unsecured Notes as disclosed to the Corporation in the Noteholder Support Agreement and the terms of the Recapitalization Transaction) is expected to own approximately 10,211,725 post-Share Consolidation Common Shares (equivalent to 122,540,698 pre-Share Consolidation Common Shares), representing approximately 24.99% of the outstanding Common Shares. See “Bellatrix After the Recapitalization Transaction – Principal Shareholders”.

As a result of the Warrant Amendment and the Warrant Issuance, the Existing Second Lien Noteholders will hold warrants exercisable for Common Shares equal to approximately 5% of the Common Shares to be outstanding immediately following the implementation of the Recapitalization Transaction, which warrants will reflect an exercise price of $3.03 per Common Share (post-Share Consolidation).

By voting in favour of the Shareholders’ Arrangement Resolution and the Warrant Transactions Resolution, as applicable, Shareholders will be voting with respect to the TSX Approval Matters that will be required as a result of the New Common Shares to be issued pursuant to the Plan, as well as in respect of the Warrant Amendment and the Warrant Issuance. See “Quorum and Voting Requirements – Shareholders’ Meeting”. Such approvals are required under Sections 604(a)(i), 607(e), 607(g)(i), 607(i) and 608(a)(ii) of the TSX Company Manual. The policies of the TSX require that these resolutions must be approved by a simple majority of the votes cast by Shareholders represented in person or by proxy and voted at the Shareholders’ Meeting, excluding those Shareholders that hold Senior Unsecured Notes, Convertible Debentures or Second Lien Exchange Warrants. Shareholders that hold Senior Unsecured Notes, Convertible Debentures or Second Lien Exchange Warrants should contact Kingsdale Advisors, by: (i) telephone, toll-free in North America at 1-866-229-8874 or at 416-867-2272 outside of North America; or (ii) e-mail to corpaction@kingsdale.com. Based on the holdings information provided pursuant to the Support Agreements, no Initial Consenting Noteholders hold or control Common Shares and the Initial Consenting Debentureholder holds or controls 1,377,733 Common Shares, representing approximately 2% of the currently



 

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issued and outstanding Common Shares, which will be excluded for the purposes of calculating Shareholder approval with respect to the TSX Approval Matters.

Income Tax Considerations

Canadian Income Tax Considerations

For a detailed description of the Canadian income tax consequences resulting from the Recapitalization Transaction, please refer to “Income Tax Considerations – Certain Canadian Federal Income Tax Considerations”.

United States Income Tax Considerations

For a detailed description of the United States income tax considerations resulting from the Exchanges, please refer to “Income Tax Considerations – Certain United States Federal Income Tax Considerations”.

Risk Factors

Debtholders and Shareholders should carefully consider the risk factors concerning the Recapitalization Transaction, non-implementation of the Recapitalization Transaction, the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes, the business of Bellatrix and the Common Shares, as well as tax risks and other related matters, described under “Risk Factors”.



 

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INFORMATION CONCERNING THE MEETINGS

General

This Information Circular is furnished in connection with the solicitation of proxies by and on behalf of Management and the Board. No person has been authorized to give any information or to make any representations in connection with the Recapitalization Transaction other than those contained in this Information Circular and, if given or made, any such other information or representation should be considered as not having been authorized.

Meetings

 

Meeting

  

Location

  

Time & Date

  

Matters to be Considered

as set forth in

Senior Unsecured

Noteholders’ Meeting

  

Gerwing Room at the

Residence Inn by Marriott,

610 10 Ave. SW, Calgary, Alberta, T2R 1M3

   9:30 a.m. (MDT) on
May 23, 2019
  

Senior Unsecured

Noteholders’ Notice

     
Convertible Debentureholders’ Meeting    10:00 a.m. (MDT) on May 23, 2019   

Convertible

Debentureholders’ Notice

Shareholders’ Meeting       10:30 a.m. (MDT) on May 23, 2019    Shareholders’ Notice

SOLICITATION OF PROXIES

Management and the Board are soliciting proxies for use at the Meetings. Proxies will be solicited by mail and may also be solicited personally or by telephone, e-mail or other electronic means by the Proxy and Information Agent, and by the directors, officers and/or employees of Bellatrix. Directors, officers and employees of Bellatrix involved in the solicitation of proxies will not be specifically remunerated therefor.

Bellatrix has designated the individuals named on the enclosed form of proxy, Notices of Meeting, voting instruction form or request for voting instructions as persons whom Voting Parties may appoint as their proxyholders. If a Voting Party wishes to appoint an individual not named therein to represent such Voting Party at a Meeting that the Voting Party is entitled to attend, such Voting Party may do so by crossing out the names on the enclosed form and inserting the name of that other individual in the blank space provided on the enclosed form, or following such other instructions provided by their Intermediary. A Debtholder wishing to attend the meeting or appoint a proxy should contact the Proxy and Information Agent immediately to obtain the relevant form for appointment, which must be medallion stamped by the applicable Intermediary and returned to the Proxy and Information Agent ahead of the Voting Deadline. A proxyholder need not be a Voting Party. If the Voting Party is a corporation, its proxy must be executed by a duly authorized officer or properly appointed attorney.

Bellatrix has retained Kingsdale Advisors as the Proxy and Information Agent to solicit proxies from Voting Parties and provide other related services and has agreed to pay a fee of $120,000 plus a cost-per-call fee for proxy solicitation services and certain additional fees for other services provided in connection with the implementation of the Recapitalization Transaction. A Voting Party with any questions regarding the procedures for voting or making elections, or completing a proxy form, a voting instruction form, a voting instruction and election form or other form or request for voting instructions provided in connection with the Meetings or Arrangement should contact the Proxy and Information Agent, toll-free in North America at 1-866-229-8874 or collect call outside North America at 416-867-2272, or by email at contactus@kingsdaleadvisors.com.

Bellatrix has requested Intermediaries who hold Common Shares, Senior Unsecured Notes or Convertible Debentures in their names to furnish this Information Circular and accompanying materials to the Non-Registered Holders and to request authority to deliver a proxy. The Corporation will reimburse the Intermediaries for the reasonable costs incurred in obtaining authorization to execute forms of proxy from their Non-Registered Holders.

 

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APPOINTMENT OF PROXIES

The persons named in the enclosed form of proxy, voting instruction form or request for voting instructions provided by Intermediaries are directors and/or officers of the Corporation. Each Shareholder and Debtholder has the right to appoint a person, other than the persons designated by management in the forms of proxy or request for voting instructions, to represent such party at the applicable Meeting. A Shareholder giving a proxy can strike out the names of the management designees printed in the accompanying form of proxy and insert the name of another designated person in the space provided, or the Shareholder may complete another form of proxy appointment or follow such other instructions provided by their Intermediary. A Debtholder wishing to attend the meeting or appoint a proxy should contact the Proxy and Information Agent immediately to obtain the relevant form for appointment, which must be medallion stamped by the applicable Intermediary and returned to the Proxy and Information Agent ahead of the Voting Deadline. A proxy designee need not be a Shareholder or Debtholder of the Corporation.

SENIOR UNSECURED NOTEHOLDER PROXIES AND VIEFS

All Senior Unsecured Noteholders are requested to vote in accordance with the instructions provided on the form of proxy or Senior Unsecured Noteholder VIEF, as applicable. In order to cast a vote at the Senior Unsecured Noteholders’ Meeting, beneficial holders of the Senior Unsecured Notes must submit to their respective Intermediaries at or prior to the Voting Deadline, or such earlier deadline as an Intermediary may advise the applicable beneficial holder, their duly completed Senior Unsecured Noteholder VIEF (or such other documentation or information as the Intermediary may customarily request for purposes of obtaining voting instructions), in accordance with the instructions set forth in the Senior Unsecured Noteholder VIEF and any instructions provided by your Intermediary (following which Intermediaries will complete and submit to the Proxy and Information Agent a master proxy on your behalf prior to the Early Consent Date and again at the Voting Deadline).

CONVERTIBLE DEBENTUREHOLDER PROXIES AND VIEFS

All Convertible Debentureholders are requested to vote in accordance with the instructions provided on the form of proxy or Convertible Debentureholder VIEF, as applicable. In order to cast a vote at the Convertible Debentureholders’ Meeting, beneficial holders of the Convertible Debentures must submit to their respective Intermediaries at or prior to the Voting Deadline or such earlier deadline as an Intermediary may advise the applicable beneficial holder, their duly completed Convertible Debentureholder VIEF (or such other documentation or information as the Intermediary may customarily request for purposes of obtaining voting and election instructions), in accordance with the instructions set forth in the Convertible Debentureholder VIEF and any instructions provided by your Intermediary.

SHAREHOLDER PROXIES AND VOTING INSTRUCTION FORMS

All Shareholders are requested to vote in accordance with the instructions provided on the appropriate proxy or Shareholder voting instruction form, using one of the available methods. In order to be effective, proxies or voting instruction forms must be received by the Transfer Agent, prior to the Voting Deadline.

Registered holders of Common Shares can submit their proxy (i) by mail using the enclosed return envelope or one addressed to Computershare Trust Company of Canada, Proxy Department, 135 West Beaver Creek, P.O. Box 300, Richmond Hill, Ontario, L4B 4R5, (ii) by hand delivery to Computershare Trust Company of Canada, 8th Floor, 100 University Avenue, Toronto, Ontario, M5J 2Y1, or (iii) by facsimile to (416) 263- 9524 or 1-866-249-7775. If you vote through the internet, you may also appoint another person to be your proxyholder. Please go to www.investorvote.com and follow the instructions. You will require your 15-digit control number found on your proxy form.

Beneficial Shareholders may utilize the Broadridge QuickVote service to vote their Common Shares.

If you receive more than one proxy form because you own Common Shares registered in different names or addresses, then each proxy form should be completed and returned.

 

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ENTITLEMENT TO VOTE AND ATTEND

Subject to any further Order of the Court, pursuant to the Interim Order, those persons who are Senior Unsecured Noteholders on the Record Date are entitled to attend and vote at the Senior Unsecured Noteholders’ Meeting. Beneficial Senior Unsecured Noteholders shall be deemed to transfer their rights to vote on the Senior Unsecured Noteholders’ Arrangement Resolution and attend the Senior Unsecured Noteholders’ Meeting associated with their Senior Unsecured Notes upon the transfer of their beneficial ownership of such Senior Unsecured Notes to any transferee of such Senior Unsecured Notes on or prior to the Voting Deadline, or such earlier date as the applicable Intermediary may advise. Senior Unsecured Noteholders entitled to vote at the Senior Unsecured Noteholders’ Meeting will be entitled to one vote for each US$1,000 principal amount of Senior Unsecured Notes owed to such Senior Unsecured Noteholder as of the Record Date in respect of the Senior Unsecured Noteholders’ Arrangement Resolution and any other matters to be considered at the Senior Unsecured Noteholders’ Meeting.

Subject to any further Order of the Court, pursuant to the Interim Order, those persons who are Convertible Debentureholders on the Record Date are entitled to attend and vote at the Convertible Debentureholders’ Meeting. Beneficial Convertible Debentureholders shall be deemed to transfer their rights to vote on the Convertible Debentureholders’ Arrangement Resolution and attend the Convertible Debentureholders’ Meeting associated with their Convertible Debentures upon the transfer of their beneficial ownership of such Convertible Debentures to any transferee of such Convertible Debentures on or prior to the Voting Deadline, or such earlier date as its Intermediary may advise. Convertible Debentureholders entitled to vote at the Convertible Debentureholders’ Meeting will be entitled to one vote for each $1,000 principal amount of Convertible Debentures owed to such Convertible Debentureholder as of the Record Date in respect of the Convertible Debentureholders’ Arrangement Resolution and any other matters to be considered at the Convertible Debentureholders’ Meeting.

Registered Shareholders as of the Record Date are entitled to attend and vote at the Shareholders’ Meeting. Shareholders will be entitled to one vote for each Common Share held as at the Record Date.

REVOCATION OF PROXIES

Subject to the Support Agreements, Debtholders shall be entitled to revoke their proxies and a revocation of the vote will be deemed to be made upon: (i) in respect of a change in vote by a beneficial Debtholder, providing new instructions to such beneficial Debtholder’s Intermediary at any time up to the Voting Deadline, which the Intermediary must then deliver to the Proxy and Information Agent prior to the Voting Deadline (or as soon as reasonably practicable thereafter); (ii) in respect of a withdrawal of a vote (meaning a switch to no vote made and no action taken) by a beneficial Debtholder, a written statement from such Debtholder indicating that it wishes to have its voting instructions revoked, which written statement must be included in the master proxy (if applicable) submitted by the applicable Intermediary pursuant to the Interim Order and received by the Proxy and Information Agent at any time up to the Voting Deadline and which withdrawal shall be forwarded to the Applicants upon receipt; and (iii) in any other manner permitted by the Applicants, each acting reasonably. Any Debtholder revoking a proxy after the Early Consent Date shall not be treated as a Consenting Noteholder under the Plan and shall forfeit entitlement to Debentureholder Early Consent Consideration, as applicable. Any Registered Shareholder shall be entitled to revoke their proxies in any manner permitted by law.

VOTING OF PROXIES

The Common Shares and Debt represented by any valid proxy, Shareholder voting instruction form, Senior Unsecured Noteholder VIEF or Convertible Debentureholder VIEF, as applicable, will be voted for, against or withheld from voting, as the case may be, in accordance with the specific instructions made by the Shareholder or Debtholder on any ballot that may be called for with respect to the applicable resolutions. In the absence of any such specific instructions, such Common Shares and Debt will be voted by the designated persons named by Management in the accompanying form of proxy, where applicable:

 

  1.

FOR fixing the number of Directors to be elected at the Shareholders’ Meeting at eight (8);

 

  2.

FOR the election of the Directors named in this Information Circular;

 

  3.

FOR the appointment of KPMG LLP, Chartered Professional Accountants as auditor of the Corporation and the authorization of the Directors to fix such auditor’s remuneration;

 

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  4.

FOR the approval of the Unallocated Award Resolution;

 

  5.

FOR the approval of Say-on-Pay Resolution;

 

  6.

FOR the approval of the Continuance Resolution;

 

  7.

FOR the approval of the Stated Capital Reduction Resolution;

 

  8.

FOR the approval of the Shareholders’ Arrangement Resolution;

 

  9.

FOR the approval of the Warrant Transactions Resolution;

 

  10.

FOR the approval of the Senior Unsecured Noteholders’ Arrangement Resolution; and

 

  11.

FOR the approval of the Convertible Debentureholders’ Arrangement Resolution.

The accompanying forms of proxy, Shareholder voting instruction form or request for voting instructions provided by your Intermediary, as applicable, confer discretionary authority upon the persons named therein with respect to amendments or variations to matters identified in each of the Notices of Meetings and with respect to such other business or matters which may properly come before the Meetings or the reconvening of any adjournment(s) or postponement(s) thereof. As of the date of this Information Circular, the Corporation is not aware of any such amendments or variations or any other matters to be addressed at any of the Meetings.

NON-REGISTERED HOLDERS

Non-Registered Holders’ Common Shares and Debt are registered either:

 

  (a)

in the name of an Intermediary that the Non-Registered Holder deals with in respect of the Common Shares or Debt, as applicable (Intermediaries include banks, trust companies, securities dealers or brokers, and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans); or

 

  (b)

in the name of a depository such as DTC or CDS.

In accordance with Canadian Securities Laws and the Interim Order, Bellatrix has caused to be distributed copies of the Senior Unsecured Noteholder Meeting Package, the Convertible Debentureholder Meeting Package and the Shareholder Meeting Package to DTC, CDS and Intermediaries for onward distribution to Non-Registered Holders. Intermediaries are required to forward these packages to Non-Registered Holders unless a Non-Registered Holder has waived the right to receive them.

These securityholder materials are being sent to both registered holders of Senior Unsecured Notes, Convertible Debentures and Common Shares, as well as Non-Registered Holders. If you are a Non-Registered Holder and Bellatrix or its agent has sent these materials directly to you, your name and address and information about your holdings of securities have been obtained in accordance with applicable securities regulatory requirements from the Intermediary holding on your behalf.

Intermediaries will typically use a service company to forward the Senior Unsecured Noteholder Meeting Package, the Convertible Debentureholder Meeting Package and the Shareholder Meeting Package. The majority of Intermediaries now delegate responsibility for obtaining securityholder instructions from clients to Broadridge. Broadridge typically mails a voting instruction form or voting information and election form in lieu of the form of proxy. Non-Registered Holders are requested to vote in accordance with the instructions set forth in the voting instruction form or voting information and election form, as applicable. Broadridge will provide aggregate Shareholder voting instructions to the Transfer Agent, which will tabulate the results for the Shareholders’ Meeting and provide appropriate instructions respecting the voting of Common Shares to be represented at the Shareholders’ Meeting or the reconvening of any adjournment(s) or postponement(s) thereof. Intermediaries will provide aggregate voting instructions for applicable Debtholders to the Proxy and Information Agent, which will tabulate the results for the Senior Unsecured Noteholders’ Meeting and the Convertible Debentureholders’ Meeting and provide appropriate instructions respecting the voting of Debt to be represented at such Meetings or the reconvening of any

 

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adjournment(s) or postponement(s) thereof. Intermediaries will provide aggregate Senior Unsecured Noteholder voting instructions to the Proxy and Information Agent through the submission of master proxies, which will tabulate the results for the Senior Unsecured Noteholders’ Meeting and provide appropriate instructions respecting the voting of Senior Unsecured Notes to be represented at the Senior Unsecured Noteholders’ Meeting or the reconvening of any adjournment or postponement thereof.

Applicable securities regulatory policy requires Intermediaries, on receipt of materials that seek voting instructions from Non-Registered Holders indirectly, to seek voting instructions from Non-Registered Holders in advance of meetings of securityholders on Form 54-101F7 – Request for Voting Instructions Made by Intermediary (“Form 54- 101F7”). Every Intermediary has its own mailing procedures and provides its own return instructions, which should be carefully followed by Non-Registered Holders in order to ensure that their Common Shares or Debt, as applicable, are voted at the applicable Meeting or the reconvening of or any adjournment(s) or postponement(s) thereof. Often, the form of proxy supplied to a Non-Registered Holder by its broker is identical to the form of proxy provided to Registered Shareholders and Registered Debtholders; however, its purpose is limited to instructing the Registered Shareholder or Registered Debtholders how to vote on behalf of the Non-Registered Holder.

Concurrent with the distribution of the Senior Unsecured Noteholder Meeting Package, DTC has caused to be delivered to its participant Intermediaries instructions related to aggregation of Senior Unsecured Noteholder VIEFs. Additionally, DTC, in accordance with its customary procedures, established a voluntary corporate action pursuant to ATOP or a similar program, which provides beneficial Senior Unsecured Noteholders with the opportunity to elect to receive New Second Lien Notes, subject to the terms of the Plan. Early consent elections for less than US$2,000 principal amount of Senior Unsecured Notes will not be accepted by ATOP. An election in ATOP or any similar program will not constitute a vote to be counted by the Proxy and Information Agent. As described in further detail under the heading “Description of the Recapitalization Transaction and Certain Related Matters – Procedures”, in order for a Debtholder to be considered a Consenting Noteholder under the Plan and/or be eligible to receive Debentureholder Early Consent Consideration, as applicable, a Debtholder must: (i) submit an instruction to vote its Debt in favour of the Senior Unsecured Noteholders’ Arrangement Resolution or Convertible Debentureholders’ Arrangement Resolution, as applicable, prior to the applicable deadline; and (ii) not have withdrawn or changed such instructions prior to the Effective Date. A beneficial Senior Unsecured Noteholder that wishes to be considered a Consenting Noteholder under the Plan must provide its voting and election instructions to its Intermediary in accordance with the instructions provided by their Intermediary (or its agent) and must also instruct its Intermediary to make the appropriate early consent election through ATOP or similar program utilized by such Intermediary prior to the Early Consent Date. SENIOR UNSECURED NOTES IN RESPECT OF WHICH SUCH AN ELECTION HAS BEEN MADE THROUGH ATOP OR SIMILAR PROGRAM WILL NO LONGER BE TRANSFERABLE BY THE SENIOR UNSECURED NOTEHOLDER MAKING SUCH AN ELECTION UNLESS THE ELECTION IS WITHDRAWN. Withdrawals will only be accepted prior to the Early Consent Date. A beneficial Convertible Debentureholder must provide its voting instructions to its Intermediary (or its agent) in order to permit their Intermediary (or its agent) sufficient time to submit the information to CDS prior to the Early Consent Date. CONVERTIBLE DEBENTURES IN RESPECT OF WHICH SUCH VOTING INSTRUCTIONS HAVE BEEN SUBMITTED THROUGH CDS WILL NO LONGER BE TRANSFERABLE BY THE CONVERTIBLE DEBENTUREHOLDER SUBMITTING SUCH INSTRUCTIONS UNLESS THE VOTING INSTRUCTIONS HAVE BEEN WITHDRAWN PRIOR TO THE EARLY CONSENT DATE.

Non-Registered Holders who wish to vote in person at the applicable Meeting (an “In-Person Holder”) should be appointed as their own representatives for such Meeting in accordance with the directions of their Intermediaries and Form 54-101F7. By choosing to vote at a Meeting in person or appointing a proxyholder to attend in its place, an In- Person Holder’s votes will not be tabulated until the applicable Meeting. Accordingly, such In-Person Holder’s votes will not have been properly delivered prior to the Early Consent Date and such In-Person Holder will NOT be considered a Consenting Noteholder under the Plan and/or be eligible to receive Debentureholder Early Consent Consideration, as applicable. If, your intention is to support the Senior Unsecured Noteholders’ Arrangement Resolution or the Convertible Debentureholders’ Arrangement Resolution, as applicable, and be considered a Consenting Noteholder and/or qualify for receipt of Debentureholder Early Consent Consideration, please provide your voting instructions well ahead of the Early Consent Date.

Beneficial Debtholders who wish to appoint themselves or another person to attend the applicable Meeting on their behalf should follow the instructions included in the request for voting instructions provided by their Intermediary to ensure receipt by Kingsdale Advisors, the Proxy and Information Agent, prior to the applicable deadline. A

 

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Debtholder wishing to attend the meeting or appoint a proxy should contact the Proxy and Information Agent immediately to obtain the relevant form for appointment, which must be medallion stamped by the applicable Intermediary and returned to the Proxy and Information Agent ahead of the Voting Deadline. Debtholders and Shareholders who require assistance should contact the Proxy and Information Agent toll-free in North America at 1-866-229-8874 or collect call outside North America at 416-867-2272, or by email at contactus@kingsdaleadvisors.com to request the necessary documentation required.

Beneficial Shareholders can write the name of someone else whom they wish to vote on their behalf at the Shareholders’ Meeting. Unless prohibited by law, the person whose name is written in the space provided in Form 54-101F7 will have authority to vote on all matters that are presented at the Shareholders’ Meeting, even if those matters are not set out in Form 54-101F7 or this Information Circular.

QUORUM AND VOTING REQUIREMENTS

Senior Unsecured Noteholders’ Meeting

As at April 15, 2019, the aggregate principal amount of Senior Unsecured Notes outstanding is approximately US$145.8 million.

Subject to any further Order of the Court, pursuant to the Interim Order, those persons who are Senior Unsecured Noteholders of record on the Record Date are entitled to attend and vote at the Senior Unsecured Noteholders’ Meeting; provided that beneficial Senior Unsecured Noteholders shall be deemed to transfer their rights to vote on the Senior Unsecured Noteholders’ Arrangement Resolution and attend the Senior Unsecured Noteholders’ Meeting associated with their Senior Unsecured Notes upon the transfer of beneficial ownership of such Senior Unsecured Notes to any transferee of such Senior Unsecured Notes on or prior to the Voting Deadline, or such earlier date as the applicable Intermediary may advise. Senior Unsecured Noteholders entitled to vote at the Senior Unsecured Noteholders’ Meeting will be entitled to one vote for each US$1,000 principal amount of Senior Unsecured Notes owed to such Senior Unsecured Noteholder as of the Record Date in respect of the Senior Unsecured Noteholders’ Arrangement Resolution and any other matters to be considered at the Senior Unsecured Noteholders’ Meeting.

Subject to any further Order of the Court, pursuant to the Interim Order, a quorum at the Senior Unsecured Noteholders’ Meeting shall be two or more Senior Unsecured Noteholders entitled to vote at the Senior Unsecured Noteholders’ Meeting and present in person or represented by proxies.

Subject to any further Order of the Court, the Senior Unsecured Noteholders’ Arrangement Resolution must be passed by at least two-thirds (6623%) of the votes cast by the Senior Unsecured Noteholders present in person or represented by proxy that are entitled to vote on the Senior Unsecured Noteholders’ Arrangement Resolution.

On March 28, 2019, Bellatrix entered into the Noteholder Support Agreement with the Initial Consenting Noteholders, which hold in the aggregate US$130,610,000 of Senior Unsecured Notes (based on holdings of Senior Unsecured Notes disclosed to the Corporation in the Noteholder Support Agreement), representing approximately 90% of the Senior Unsecured Notes. One of the Initial Consenting Noteholders, Loomis, holds or controls approximately 54% of the Senior Unsecured Notes. Pursuant to the Noteholder Support Agreement, the Initial Consenting Noteholders have agreed, among other things and subject to the terms of the Noteholder Support Agreement, to vote in favour of the Arrangement. See “Noteholder Support Agreement”.

Convertible Debentureholders’ Meeting

As at April 15, 2019 the aggregate principal amount of Convertible Debentures outstanding is $50,000,000.

Subject to any further Order of the Court, pursuant to the Interim Order, those persons who are Convertible Debentureholders of record on the Record Date are entitled to attend and vote at the Convertible Debentureholders’ Meeting; provided that beneficial Convertible Debentureholders shall be deemed to transfer their rights to vote on the Convertible Debentureholders’ Arrangement Resolution and attend the Convertible Debentureholders’ Meeting associated with their Convertible Debentures upon the transfer of beneficial ownership of such Convertible Debentures to any transferee of such Convertible Debentures on or prior to the Voting Deadline, or such earlier date as its Intermediary may advise. Convertible Debentureholders entitled to vote at the Convertible Debentureholders’ Meeting will be entitled to one vote for each $1,000 principal amount of Convertible Debentures owed to such

 

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Convertible Debentureholder as of the Record Date in respect of the Convertible Debentureholders’ Arrangement Resolution and any other matters to be considered at the Convertible Debentureholders’ Meeting.

Subject to any further Order of the Court, pursuant to the Interim Order, a quorum at the Convertible Debentureholders’ Meeting shall be two or more Convertible Debentureholders entitled to vote at the Convertible Debentureholders’ Meeting and present in person or represented by proxies.

Subject to any further Order of the Court, the Convertible Debentureholders’ Arrangement Resolution must be passed by at least two-thirds (6623%) of the votes cast by the Convertible Debentureholders present in person or represented by proxy that are entitled to vote on the Convertible Debentureholders’ Arrangement Resolution.

On March 28, 2019, Bellatrix entered into the Debentureholder Support Agreement with the Initial Consenting Debentureholder, which holds $25,027,000 of Convertible Debentures (based on holdings of Convertible Debentures and Common Shares disclosed to the Corporation in the Debentureholder Support Agreement), representing approximately 50% of the Convertible Debentures. Pursuant to the Debentureholder Support Agreement, the Initial Consenting Debentureholder has agreed, among other things and subject to the terms of the Debentureholder Support Agreement, to vote in favour of the Arrangement. See “Convertible Debentureholder Support Agreement”.

Shareholders’ Meeting

Subject to any further Order of the Court, pursuant to the Interim Order, a quorum at the Shareholders’ Meeting with respect to the Special Meeting Resolutions is two or more holders of Common Shares present in person or represented by proxies.

The vote required to pass the Continuance Resolution, the Stated Capital Reduction Resolution and, subject to any further Order of the Court, the Shareholders’ Arrangement Resolution, is at least two-thirds (6623%) of the votes cast by the Shareholders present in person or represented by proxy at the Shareholders’ Meeting and entitled to vote on each such resolution. The Warrant Transactions Resolution must be approved by a simple majority of all votes cast by Shareholders with respect to the Warrant Transactions Resolution, present in person or by proxy at the Shareholders’ Meeting.

The TSX regulates the issuance of listed securities, such as the issuance of new shares by the Corporation, the issuance and amendment of warrants exercisable for such listed securities and the creation of new “control persons”. The TSX will require securityholder approval in a number of instances, including: (i) where an issuance of listed securities will “materially affect control”; (ii) where the issuance of listed securities would exceed 25% of the issued and outstanding securities and the price at which listed securities are to be issued is less than the Market Price of the listed securities; (iii) where the price per listed security will be lower than the discount to the Market Price permitted by the TSX; (iv) the amendment of warrants resulting in an exercise price that is less than the Market Price of the underlying security; and (v) the issuance of warrants to purchase listed securities with an exercise price that is less than the Market Price of the underlying security (collectively, the “TSX Approval Matters”). Such approvals are required under Sections 604(a)(i), 607(e), 607(g)(i), 607(i) and 608(a)(ii) of the TSX Company Manual. By voting in favour of the Shareholders’ Arrangement Resolution and the Warrant Transactions Resolution, as applicable, Shareholders will be voting with respect to the TSX Approval Matters that will be required as a result of the New Common Shares to be issued pursuant to the Plan, as well as the Warrant Transactions. The policies of the TSX require that these resolutions must be approved by a simple majority of the votes cast by Shareholders represented in person or by proxy and voted at the Shareholders’ Meeting, excluding those Shareholders that hold Senior Unsecured Notes, Convertible Debentures or Second Lien Exchange Warrants. Shareholders that hold Senior Unsecured Notes, Convertible Debentures or Second Lien Exchange Warrants should contact Kingsdale Advisors, by: (i) telephone, toll-free in North America at 1-866-229-8874 or at 416-867-2272 outside of North America; or (ii) e-mail to corpaction@kingsdale.com. Based on the holdings information provided pursuant to the Support Agreements, no Initial Consenting Noteholders hold or control Common Shares and the Initial Consenting Debentureholder holds or controls 1,377,733 Common Shares, representing approximately 2% of the currently issued and outstanding Common Shares, which will be excluded for the purposes of calculating Shareholder approval with respect to the TSX Approval Matters.

The implementation of the Arrangement is subject to, among other things, the approval of the Arrangement by holders of Senior Unsecured Notes and Convertible Debentures at separate meetings, other approvals as may be

 

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required by the Court and the TSX, any applicable regulatory approvals, the approval of the Court and the satisfaction or waiver of other applicable conditions to the Arrangement. Pursuant to the Interim Order, Bellatrix may seek Court approval of the Plan whether or not the Shareholders’ Arrangement Resolution is passed by Shareholders at the Shareholders’ Meeting and whether or not the Shareholders’ Meeting is held.

VOTING SHARES AND PRINCIPAL HOLDERS THEREOF

As at April 15, 2019 the Corporation’s issued and outstanding voting shares consist of 80,909,225 Common Shares. Holders of Common Shares are entitled to one vote for each Common Share held on all matters to be considered and acted upon at the Shareholders’ Meeting or any adjournments or postponements thereof.

The Record Date is April 16, 2019. The Transfer Agent will prepare a list of Registered Shareholders of record at such time. Registered Shareholders on that list will be entitled to vote their Common Shares at the Shareholders’ Meeting.

To the knowledge of the directors and executive officers of the Corporation, there is no person or company that beneficially owns, or controls or directs, directly or indirectly, voting securities carrying 10% or more of the voting rights attached to any class of issued and outstanding voting securities of the Corporation as at April 15, 2019.

See “Bellatrix After the Recapitalization Transaction – Principal Shareholders”.

INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

Other than otherwise described herein, there were no material interests, direct or indirect, of our directors or executive officers, or any person who beneficially owns, directly or indirectly, or exercises control or direction over, more than 10% of the voting rights attached to all our outstanding voting rights, or any other Informed Person (as defined in National Instrument 51-102 Continuous Disclosure Obligations) or any known associate or affiliate of such persons, in any transaction since January 1, 2018, or in any proposed transaction or in connection with the Recapitalization Transaction, which in either case has materially affected or would materially affect the Corporation or any of its subsidiaries.

QUESTIONS AND OTHER ASSISTANCE

If you are a Shareholder or Debtholder and you have any questions about the information contained in this Information Circular or require assistance in completing your form of proxy, please contact our Proxy and Information Agent, Kingsdale Advisors, using the contact details listed on the back page of this Information Circular.

SPECIAL BUSINESS OF THE SHAREHOLDERS’ MEETING

Shareholders will be asked to consider and, if deemed advisable, to pass, with or without variation, the Continuance Resolution, the Stated Capital Reduction Resolution, the Shareholders’ Arrangement Resolution and the Warrant Transactions Resolution, in addition to certain annual matters. See “Annual Business of the Shareholders’ Meeting” for information on the annual matters to be considered.

Prior to the hearing for the Final Order, it is anticipated that Bellatrix will continue into the federal jurisdiction of Canada under the CBCA and then complete the Stated Capital Reduction. Thereafter, the Recapitalization Transaction will be effected pursuant to the steps contained in the Plan and the Corporation will complete certain other related transactions as described herein. See “Description of the Recapitalization Transaction and Certain Related Matters – Plan”.

Bellatrix reserves the right, in its sole discretion, to withdraw the Continuance Resolution, the Stated Capital Reduction Resolution, the Shareholders’ Arrangement Resolution and/or the Warrant Transactions Resolution from being put before the Shareholders’ Meeting. Pursuant to the Interim Order, Bellatrix may seek Court approval of the Plan whether or not the Shareholders’ Arrangement Resolution is passed by Shareholders at the Shareholders’ Meeting and whether or not the Shareholders’ Meeting is held. The Interim Order does not provide for any dissent rights with respect to the Shareholders’ Arrangement Resolution.

 

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DESCRIPTION OF THE RECAPITALIZATION TRANSACTION & CERTAIN RELATED MATTERS

Continuance of Bellatrix from Alberta to Canada

Subject to Shareholder approval, prior to the hearing for the Final Order, it is anticipated that Bellatrix will continue from the jurisdiction of Alberta into the jurisdiction of Canada and be registered as a CBCA corporation. The Board believes that it is in the best interests of Bellatrix to continue into a CBCA corporation to effect the Plan pursuant to the CBCA.

At the Shareholders’ Meeting, Shareholders will be asked to consider and, if deemed advisable, approve the Continuance Resolution, the full text of which is set out in Appendix C. In order to become effective, the Continuance must be approved by at least two-thirds (6623%) of all votes cast with respect to the Continuance Resolution by Shareholders, present in person or by proxy at the Shareholders’ Meeting.

The ABCA and the CBCA permit Bellatrix to continue under the CBCA with the authority of a special resolution of the Shareholders, the consent of the Registrar of Corporations, Alberta and upon complying with certain procedures and filing certain forms. A Registered Shareholder has Dissent Rights, see “Continuance Right of Dissent” below. Upon the completion of the Continuance, Bellatrix will be treated as if it had been incorporated under the CBCA.

If the Shareholders approve the Continuance, the Articles of Continuance will be filed with the Director subsequent to the Shareholders’ Meeting and prior to the filing of the Articles of Arrangement.

The Board may determine not to proceed with the Continuance at any time before the Shareholders’ Meeting or after receiving approval of the Continuance Resolution at the Shareholders’ Meeting but prior to the issuance of a certificate of continuance, without further action on the part of Shareholders.

Continuance under the CBCA will not affect the application to Bellatrix of the securities laws, regulations, rules and policies that presently apply. There will, however, be some changes to the rights of Shareholders under corporate law. Appendix F contains a comparison of the material differences that exist between the ABCA and the CBCA. For further information regarding the similarities and differences between the CBCA and the ABCA, Shareholders should consult their legal advisors and refer to the statutes.

Articles of Continuance and New By-Laws

The proposed articles of continuance (the “Articles of Continuance”) to be filed under the CBCA to effect a continuance out of the jurisdiction of Alberta and into the jurisdiction of Canada are attached as Appendix D to this Information Circular.

As a result of the Continuance it will be necessary for Bellatrix to adopt new by-laws to govern the administration of the Corporation. The rights of the shareholders of the Corporation are currently governed, as to matters of corporate law, by the ABCA. At the effective time of the Continuance, the ABCA will cease to apply to the Corporation and the rights of the Shareholders, as to matters of corporate law, will be governed by the CBCA. Accordingly, as part of the Continuance Resolution, Shareholders are being asked to approve the repeal and replacement of Bellatrix’s current by-laws (Amended and Restated by-law No. 1 and its advance notice by-law (the “Advance Notice By- Law”)) made pursuant to the ABCA with the New By-Laws, which are consistent with the provisions of the CBCA. If the Continuance Resolution is approved, the New By-Laws will be effective upon completion of the Continuance.

In addition to the changes noted above, the New By-Laws, among other things, incorporate the advanced notice provisions previously contained in the Advance-Notice By-Law with revisions to better align the policy with recent guidance provided by proxy advisory firms as well as the TSX. Among other things, the New By-Laws:

 

  1.

remove the requirement that Shareholders wishing to nominate a candidate for election as a director of the Corporation at an annual meeting of Shareholders provide notice to the Corporate Secretary of the Corporation not more than 65 days prior to the date of the annual meeting;

 

  2.

permit the time period, by which Shareholders wishing to nominate a candidate are required to provide written notice to the Corporate Secretary of the Corporation, to renew upon the adjournment or postponement of an annual or special meeting of Shareholders; and

 

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  3.

reduces the disclosure and information required to be provided by Shareholders wishing to nominate a candidate and by the proposed candidate.

The New By-Laws are attached as Appendix E to this Information Circular

Prior to the Effective Date, Bellatrix’s legal domicile will be Canada, and Bellatrix will no longer be subject to the provisions of the ABCA.

By operation of law under the CBCA, all of the assets, property, rights, liabilities and obligations of Bellatrix immediately prior to the Continuance will continue to be the assets, property, rights, liabilities and obligations of Bellatrix after the Continuance.

The following description of the rights of Dissenting Shareholders is not a comprehensive statement of the procedures to be followed by a Dissenting Shareholder who seeks payment of the fair value of such holder’s Common Shares and is qualified in its entirety by the reference to the text of Section 191 of the ABCA, which is attached to this Information Circular as Appendix G. A Dissenting Shareholder who intends to exercise the Dissent Rights should carefully consider and comply with the provisions of Section 191 of the ABCA. Failure to comply with the provisions of that section and to adhere to the procedures established therein may result in the loss of all rights thereunder.

A Registered Shareholder is entitled, in addition to any other rights the holder may have, to dissent and to be paid by Bellatrix the fair value of the Common Shares held by the holder in respect of which the holder dissents, determined as of the close of business on the last Business Day before the day on which Continuance Resolution was adopted.

Only Registered Shareholders may dissent. Persons who are beneficial Shareholders who wish to dissent should be aware that they may only do so through the Registered Shareholder. Accordingly, a beneficial Shareholder desiring to exercise Dissent Rights must make arrangements for the Common Shares beneficially owned by such beneficial Shareholder to be registered in the name of such beneficial Shareholder prior to the time the written objection to the Continuance Resolution is required to be received by Bellatrix or, alternatively, make arrangements for the Registered Shareholder to dissent on behalf of the beneficial Shareholder.

A Dissenting Shareholder must send to Bellatrix a written objection to the Continuance Resolution (a “Dissent Notice”), which Dissent Notice must be received by Bellatrix, Suite 1900, 800 – 5th Avenue S.W., Calgary, Alberta T2P 3T6, Attention: Chuck Kraus, at or before the Shareholders’ Meeting. The ABCA does not provide, and Bellatrix will not assume, that a vote against the Continuance Resolution constitutes a Dissent Notice. A Registered Shareholder may not exercise the right to dissent in respect of only a portion of such holder’s Common Shares, but may dissent only with respect to all of the Common Shares held by the holder.

An application may be made to the Court by Bellatrix or by a Dissenting Shareholder after adoption of the Continuance Resolution to fix the fair value of the Dissenting Shareholder’s Common Shares. If such an application to the Court is made by either Bellatrix or a Dissenting Shareholder, Bellatrix must, unless the Court otherwise orders, send to each Dissenting Shareholder a written offer to pay such Person an amount considered by the Board to be the fair value of the Common Shares held by such Dissenting Shareholder. The offer, unless the Court otherwise orders, will be sent to each Dissenting Shareholder at least 10 days before the date on which the application is returnable, if Bellatrix is the applicant, or within 10 days after Bellatrix is served with notice of the application, if a Dissenting Shareholder is the applicant. The offer will be made on the same terms to each Dissenting Shareholder and will be accompanied by a statement showing how the fair value was determined.

A Dissenting Shareholder may make an agreement with Bellatrix for the purchase of such Dissenting Shareholder’s Common Shares in the amount of Bellatrix’s offer (or otherwise) at any time before the Court pronounces an Order fixing the fair value of the Common Shares.

A Dissenting Shareholder is not required to give security for costs in respect of an application and, except in special circumstances, will not be required to pay the costs of the application and appraisal. On the application, the Court will make an Order fixing the fair value of the Common Shares of all Dissenting Shareholders who are parties to the application, giving judgment in that amount against Bellatrix and in favour of each of those Dissenting

 

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Shareholders, and fixing the time within which Bellatrix must pay that amount payable to the Dissenting Shareholders. The Court may in its discretion allow a reasonable rate of interest on the amount payable to each Dissenting Shareholder calculated from the date on which the Dissenting Shareholder ceases to have any rights as a Shareholder until the date of payment.

On the Continuance becoming effective, or upon the making of an agreement between Bellatrix and the Dissenting Shareholder as to the payment to be made by Bellatrix to the Dissenting Shareholder, or the pronouncement of a Court Order, whichever first occurs, the Dissenting Shareholder will cease to have any rights as a Shareholder other than the right to be paid the fair value of such Dissenting Shareholder’s Common Shares in the amount agreed to between Bellatrix and the Dissenting Shareholder or in the amount of the judgment, as the case may be. Until one of these events occurs, the Dissenting Shareholder may withdraw such holder’s dissent, or if the Continuance has not yet become effective Bellatrix may rescind the Continuance Resolution, and, in either event, the dissent and appraisal proceedings in respect of that Dissenting Shareholder will be discontinued.

Bellatrix shall not make a payment to a Dissenting Shareholder under Section 191 if there are reasonable grounds for believing that Bellatrix is or would after the payment be unable to pay its liabilities as they become due, or that the realizable value of the assets of Bellatrix would thereby be less than the aggregate of its liabilities. In such event, Bellatrix shall notify each Dissenting Shareholder that it is lawfully unable to pay Dissenting Shareholders for their Common Shares in which case the Dissenting Shareholder may, by written notice to Bellatrix within 30 days after receipt of such notice, withdraw such holder’s written objection, in which case such Dissenting Shareholder shall be deemed to have participated in the Continuance as a Shareholder. If the Dissenting Shareholder does not withdraw such holder’s written objection such Dissenting Shareholder retains status as a claimant against Bellatrix to be paid as soon as Bellatrix is lawfully entitled to do so or, in a liquidation, to be ranked subordinate to creditors but prior to its shareholders.

All Common Shares held by Shareholders who exercise their Dissent Rights will, if the holders are ultimately entitled to be paid the fair value thereof, be deemed to be transferred to Bellatrix on the effective date of the Continuance in exchange for the fair value as of the close of business on the last Business Day before the Continuance Resolution is approved by holders of Common Shares. If such Dissenting Shareholders ultimately are not entitled to be paid the fair value for the Common Shares, such Dissenting Shareholders will be deemed to have participated in the Continuance on the same basis as a non-dissenting holder of Common Shares notwithstanding the provisions of Section 191 of the ABCA.

The above summary does not purport to provide a comprehensive statement of the procedures to be followed by a Dissenting Shareholder who seeks payment of the fair value of their Common Shares. Section 191 of the ABCA requires adherence to the procedures established therein and failure to do so may result in the loss of all rights thereunder. Accordingly, each Dissenting Shareholder who is considering the right to dissent and appraisal should carefully consider and comply with the provisions of that section, the full text of which is set out in Appendix G, to this Information Circular and consult their own legal advisor. It is strongly encouraged that any Shareholder wishing to dissent seek independent legal advice, as the failure to strictly comply with the provisions of the ABCA, may prejudice such Shareholder’s right to dissent.

Stated Capital Reduction

Subject to Shareholder approval, prior to the hearing for the Final Order, it is anticipated that Bellatrix will reduce the Corporation’s stated capital account of its Common Shares by $800,000,000, without any payment thereon (the “Stated Capital Reduction”). The Board believes that it is in the best interests of Bellatrix to complete the Stated Capital Reduction in connection with implementing the Arrangement and the Plan.

At the Shareholders’ Meeting, Shareholders will be asked to consider and, if deemed advisable, approve the Stated Capital Reduction Resolution, the full text of which is set out in Appendix C. In order to become effective, the Stated Capital Reduction must be approved by at least two-thirds (6623%) of all votes cast with respect to the Stated Capital Reduction Resolution by Shareholders, present in person or by proxy at the Shareholders’ Meeting.

Arrangement

The Plan contemplates a series of steps leading to a realignment of Bellatrix’s capital structure. These steps include, among other things: (i) the Share Consolidation; (ii) the exchange of Senior Unsecured Notes in the aggregate principal amount of approximately US$145.8 million, plus US$2 million of accrued and unpaid interest thereon (the

 

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Exchanged Interest Amount”) for (A) in the case of each Consenting Noteholder, New Second Lien Notes in a principal amount equal to its Consenting Noteholder New Second Lien Note Amount and its Consenting Noteholder Pro Rata Share of each of the New Third Lien Notes and the Senior Unsecured Noteholder New Common Share Pool (such pool representing approximately 51% of the Common Shares issued and outstanding immediately following implementation of the Recapitalization Transaction) and (B) in the case of each Senior Unsecured Noteholder that is not a Consenting Noteholder, its Non-Consenting Noteholder Pro Rata Share of each of the New Third Lien Notes and the Senior Unsecured Noteholder New Common Share Pool; (iii) the payment in cash of all accrued and unpaid interest in respect of the Senior Unsecured Notes outstanding on the Effective Date, less the Exchanged Interest Amount (the “Cash Interest Payment”), provided that the Corporation and the Initial Consenting Noteholders will have the right to agree, prior to closing of the Recapitalization Transaction, that in lieu of paying the Cash Interest Payment in cash on the Effective Date, the Corporation will issue to the Senior Unsecured Noteholders Additional New Third Lien Notes in an aggregate principal amount equal to the amount of the Cash Interest Payment; (iv) the exchange of the Convertible Debentures in the aggregate principal amount of approximately $50 million, plus all accrued and unpaid interest thereon, for (A) in the case of each Consenting Debentureholder, its Consenting Debentureholder Pro Rata Share of the Consenting Debentureholder Early Consent New Common Share Pool (such pool representing approximately 5% of the Common Shares immediately following implementation of the Recapitalization Transaction) and its Convertible Debentureholder Pro Rata Share of the Convertible Debentureholder New Common Share Pool (such pool representing approximately 27.5% of the Common Shares immediately following implementation of the Recapitalization Transaction) and (B) in the case of each Convertible Debentureholder that is not a Consenting Debentureholder, its Convertible Debentureholder Pro Rata Share of the Convertible Debentureholder New Common Share Pool; and (v) the Corporation shall have the right, on or prior to the Effective Date, to repay the Convertible Debentures with cash from proceeds of one or more equity issuances for up to 32.5% of the aggregate Common Shares issued and outstanding immediately following implementation of the Recapitalization Transaction, and to the extent such equity issuances are for less than 32.5% of the aggregate Common Shares issued and outstanding immediately following implementation of the Recapitalization Transaction, any such difference shall reduce the dilution in respect of the existing Shareholders.

Share Consolidation

The Plan provides for the Share Consolidation, pursuant to which the issued and outstanding Common Shares will be consolidated on the basis of one Common Share for every 12 Common Shares outstanding immediately prior to the Effective Date. Based on 80,909,225 Common Shares issued and outstanding on April 15, 2019, the Share Consolidation will reduce the number of issued and outstanding Common Shares to approximately 6,742,435 Common Shares (prior to the issuance of the New Common Shares contemplated in the Recapitalization Transaction). No fractional Common Shares will be issued in connection with the Share Consolidation and, in the event that a Shareholder would otherwise be entitled to receive a fractional Common Share upon the Share Consolidation, such fraction will be rounded down to the nearest whole number of Common Shares. No compensation will be issued to Shareholders as a result of rounding down. No cash shall be paid for fractional shares. Any holders of 11 or fewer Common Shares prior to the date of the Share Consolidation will not receive any Common Shares as a result of the Share Consolidation.

Senior Unsecured Noteholders, Convertible Debentureholders and Shareholders are being asked to approve the Arrangement, which includes the Share Consolidation, at the various Meetings.

The Share Consolidation will (by itself) cause no change in the stated capital attributable to the Common Shares and will not materially affect the percentage ownership in Bellatrix by the Shareholders, subject to dilution based on the New Common Shares to be issued in connection with the Recapitalization Transaction, even though such ownership would be represented by a lesser number of Common Shares on a post-Share Consolidation basis.

No assurances can be given as to the effect of the Share Consolidation on the trading price of the Common Shares. Specifically, no assurance can be given that if the Recapitalization Transaction is effected, the trading price of the Common Shares will increase by the same multiple as the Share Consolidation ratio or result in a permanent increase in the trading price, which possible results are dependent on various factors, many of which are beyond the control of Bellatrix.

Registered Shareholders will be required to complete, execute and return a Letter of Transmittal to the Transfer Agent to receive their consolidated Common Shares following the Share Consolidation. The Letter of Transmittal must be accompanied by the certificate(s) representing your Common Shares and all other required documents.

 

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Following the Effective Date, the Transfer Agent will issue and deliver Common Shares in accordance with your instructions in the Letter of Transmittal. A copy of the Letter of Transmittal is enclosed with a copy of this Information Circular or may be obtained upon request from the Transfer Agent. See “Description of the Recapitalization Transaction and Certain Related Matters – Procedures”.

Beneficial Shareholders do not have to take any action to receive their consolidated Common Shares following the Share Consolidation.

Treatment of Senior Unsecured Noteholders

Pursuant to the Plan, the Senior Unsecured Notes, in the aggregate principal amount of approximately US$145.8 million, plus the Exchanged Interest Amount, will be exchanged for: (i) in the case of each Consenting Noteholder, New Second Lien Notes in a principal amount equal to its Consenting Noteholder New Second Lien Note Amount and its Consenting Noteholder Pro Rata Share of each of the New Third Lien Notes and the Senior Unsecured Noteholder New Common Share Pool and (ii) in the case of each Senior Unsecured Noteholder that is not a Consenting Noteholder, its Non-Consenting Noteholder Pro Rata Share of each of the New Third Lien Notes and the Senior Unsecured Noteholder New Common Share Pool. The Cash Interest Payment will be paid to Senior Unsecured Noteholders in cash, provided that the Corporation and the Initial Consenting Noteholders will have the right to agree, prior to closing of the Recapitalization Transaction, that in lieu of paying the Cash Interest Payment in cash on the Effective Date, the Corporation will issue to the Senior Unsecured Noteholders Additional New Third Lien Notes in an aggregate principal amount equal to the amount of the Cash Interest Payment.

The aggregate principal amount of the New Second Lien Notes is US$50 million. The New Second Lien Notes will constitute Additional Notes under the Existing Second Lien Note Purchase Agreement (or the Second Lien Notes Indenture, if converted) which will rank equally in right of payment with the Exchange Notes and will rank behind in right of payment to the New Money Notes thereunder. The aggregate principal amount of the New Third Lien Notes is US$50 million. The Senior Unsecured Noteholder New Common Share Pool is comprised of New Common Shares representing approximately 51% of the aggregate issued and outstanding Common Shares immediately following the implementation of the Recapitalization Transaction.

It is expected that the Existing Second Lien Note Purchase Agreement will be converted into the Second Lien Notes Indenture as part of implementation of the Plan. In such event, the Second Lien Notes Indenture will be entered into on the Effective Date by Bellatrix and the Second Lien Notes Trustee on terms substantially the same as the Existing Second Lien Note Purchase Agreement, subject to the amendments and modifications described in the Second Lien Consent Agreement and such additional amendments and modifications as may be agreed by Bellatrix, the Existing Second Lien Noteholders and the Initial Consenting Noteholders. The New Third Lien Notes Indenture will be entered into on the Effective Date by Bellatrix and the New Third Lien Notes Trustee on terms substantially similar to the Senior Unsecured Notes Indenture, subject to modifications to reflect the maturity date, the applicable interest rate, the security granted therefore, the ability to prepay the New Third Lien Notes and the Additional New Third Lien Notes (if any) from time to time (in full or in part, without any premium or penalty) and such additional amendments and modifications as may be agreed by Bellatrix and the Initial Consenting Noteholders, each acting reasonably.

Copies of the amended Existing Second Lien Note Purchase Agreement or the Second Lien Notes Indenture, as applicable, and the New Third Lien Notes Indenture in substantially final form will be posted under the Corporation’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov when available. Bellatrix will issue a press release once the amended Existing Second Lien Note Purchase Agreement or the Second Lien Notes Indenture, as applicable, and the New Third Lien Notes Indenture have been posted for viewing.

Pursuant to the Plan, if a Senior Unsecured Noteholder Group would otherwise own (or would otherwise be deemed to own), in the aggregate, 25% or more of the aggregate issued and outstanding Common Shares immediately following implementation of the Plan, such Senior Unsecured Noteholder Group shall only be entitled to receive such number of New Common Shares pursuant to the Plan such that immediately following implementation of the Plan such Senior Unsecured Noteholder Group shall own, in the aggregate, approximately 24.99% (and in any event less than 25%) of the aggregate issued and outstanding Common Shares, and any New Common Shares that such Senior Unsecured Noteholder Group would have otherwise been entitled to receive pursuant to the Plan shall be allocated and issued instead to the Senior Unsecured Noteholders that are not part of such Senior Unsecured Noteholder Group on a pro rata basis pursuant to the Plan (on the same basis as the Senior Unsecured Noteholder

 

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New Common Share Pool, taking into account the removal of the Senior Unsecured Notes held by the Senior Unsecured Noteholder Group as part of such pro rata calculations) (collectively, the “Alternative Senior Unsecured Noteholder Group Equity Allocation”). The Alternative Senior Unsecured Noteholder Group Equity Allocation Conditions set out in the Plan shall be satisfied in connection with the implementation of any Alternative Senior Unsecured Noteholder Group Equity Allocation. Pursuant to the Plan, the Applicants shall be entitled to make such amendments to the Plan as are necessary or desirable to reflect the implementation of any Alternative Senior Unsecured Noteholder Group Equity Allocation, provided that any such amendments are acceptable to the Initial Consenting Noteholders and the Majority Consenting Debentureholders, each acting reasonably.

As the interest in respect of the Senior Unsecured Notes which has accrued since the last interest payment made by the Corporation on November 15, 2018 will be addressed pursuant to the Plan, as described herein, the Corporation does not anticipate making its next scheduled interest payment in respect of the Senior Unsecured Notes when due on May 15, 2019. The Initial Consenting Noteholders holding approximately 90% of the Senior Unsecured Notes have, subject to the terms of the Noteholder Support Agreement, agreed not to take any steps or action in respect of such non-payment while the Noteholder Support Agreement is in effect.

The amount of New Second Lien Notes that each Consenting Noteholder shall be entitled to under the Plan and the amount of New Third Lien Notes and, if applicable, Additional New Third Lien Notes that each Senior Unsecured Noteholder shall be entitled to under the Plan shall in each case be rounded down to the nearest multiple of US$1,000 without compensation therefor.

No fractional Common Shares will be issued under the Plan and fractional share interests will not entitle the owner thereof to vote or to any rights of a holder of Common Shares. Any legal, equitable, contractual and any other rights or claims (whether actual or contingent, and whether or not previously asserted) of any Person with respect to fractional Common Shares pursuant to the Plan will be rounded down to the nearest whole number of Common Shares without compensation therefor.

Pursuant to the Plan, the Initial Consenting Noteholders will have the one-time right to designate nominees for the Board that will comprise such proportion of the Board upon implementation of the Recapitalization Transaction as agreed to by the Corporation and the Initial Consenting Noteholders, and the composition and size of the Board on the Effective Date shall be acceptable to the Initial Consenting Noteholders and the Corporation. The Plan does not prescribe a set proportion of the Board that must be comprised of nominees of the Initial Consenting Noteholders. All nominees of the Initial Consenting Noteholders will be subject to election at the next annual general meeting of Shareholders. Pursuant to the Noteholder Support Agreement, the Corporation has agreed to enter into a registration rights agreement reasonably satisfactory to the Initial Consenting Noteholders and the Corporation, each acting reasonably. See “Noteholder Support Agreement”.

Treatment of Convertible Debentureholders

Pursuant to the Plan, the Convertible Debentures, in the aggregate principal amount of approximately $50 million, plus all accrued and unpaid interest, will be exchanged for (i) in the case of each Convertible Debentureholder that is a Consenting Debentureholder, its Consenting Debentureholder Pro Rata Share of the Consenting Debentureholder Early Consent New Common Share Pool (the “Debentureholder Early Consent Consideration”) and its Convertible Debentureholder Pro Rata Share of the Convertible Debentureholder New Common Share Pool and (ii) in the case of each Convertible Debentureholder that is not a Consenting Debentureholder, its Convertible Debentureholder Pro Rata Share of the Convertible Debentureholder New Common Share Pool.

Assuming that 90% of the Convertible Debentures are Consent Debentures and taking into account accrued interest assuming an Effective Date of May 30, 2019, Consenting Debentureholders will receive approximately 258 Common Shares per $1,000 of principal and accrued interest owing to such holders in respect of the Convertible Debentures held by them as of the Distribution Record Date, representing approximately a 40% discount to the $6.50 Market Price per post-Share Consolidation Common Share as of the date of the Debentureholder Support Agreement. Convertible Debentureholders that are not Consenting Debentureholders will receive approximately 215 Common Shares per $1,000 of principal and accrued interest owing to such holders in respect of the Convertible Debentures held by them as of the Distribution Record Date, representing approximately a 28% discount to the $6.50 Market Price per post-Share Consolidation Common Share as of the date of the Debentureholder Support Agreement.

 

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Pursuant to the Plan, the Corporation shall have the right, on or prior to the Effective Date, to repay the Convertible Debentures in full with cash from proceeds of one or more equity issuances for up to 32.5% of the aggregate Common Shares issued and outstanding immediately following implementation of the Recapitalization Transaction, and to the extent such equity issuances are for less than 32.5% of the aggregate Common Shares issued and outstanding immediately following implementation of the Recapitalization Transaction, any such difference shall reduce the dilution in respect of the holders of the existing Common Shares. Such equity issuances would be subject to TSX approval and the Common Shares that may be issuable thereunder have not been approved for TSX listing.

The Corporation did not make its interest payment in respect of the Convertible Debentures due March 31, 2019, as all interest which accrued since the last interest payment made by the Corporation in respect of the Convertible Debentures on September 30, 2018 is to be addressed as part of the exchange of Convertible Debentures under the Plan. The Initial Consenting Debentureholder holding approximately 50% of the Convertible Debentures has, subject to the terms of the Debentureholder Support Agreement, consented to such non-payment while the Debentureholder Support Agreement is in effect.

No fractional Common Shares will be issued under the Plan and fractional share interests will not entitle the owner thereof to vote or to any rights of a holder of Common Shares. Any legal, equitable, contractual and any other rights or claims (whether actual or contingent, and whether or not previously asserted) of any Person with respect to fractional Common Shares pursuant to the Plan will be rounded down to the nearest whole number of Common Shares without compensation therefor.

Treatment of Shareholders

Pursuant to the Plan, Shareholders will retain their Common Shares, subject to the Share Consolidation, the rounding down of fractional Common Shares and the dilution resulting from the issuance of New Common Shares pursuant to the Recapitalization Transaction, such that the existing Common Shares will represent approximately 16.5% of the issued and outstanding Common Shares immediately following the implementation of the Recapitalization Transaction.

The Plan provides that the Corporation shall have the right, on or prior to the Effective Date, to repay the Convertible Debentures in full with cash from proceeds of one or more equity issuances for up to 32.5% of the aggregate Common Shares issued and outstanding immediately following implementation of the Recapitalization Transaction, and to the extent such equity issuances are for less than 32.5% of the aggregate Common Shares issued and outstanding immediately following implementation of the Recapitalization Transaction, any such difference shall reduce the dilution in respect of the existing Shareholders. Such equity issuances would be subject to TSX approval and the Common Shares that may be issuable thereunder have not been approved for TSX listing.

No fractional Common Shares will be issued in connection with the Share Consolidation and, in the event that a Shareholder would otherwise be entitled to receive a fractional Common Share upon the Share Consolidation, such fraction will be rounded down to the nearest whole number of Common Shares. No compensation will be issued to Shareholders as a result of rounding down. No cash shall be paid for fractional shares. Any holders of 11 or fewer Common Shares prior to the date of the Share Consolidation will not receive any Common Shares as a result of the Share Consolidation.

U.S. Debtholders and Transfer Restrictions

The New Common Shares, New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) have not been and will not be registered under 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. See “Certain Regulatory and Other Matters Relating to the Recapitalization Transaction – United States”.

Releases and Waivers

The Plan includes releases in connection with the implementation of the Recapitalization Transaction in favour of the Applicants and each of their respective current and former directors, officers, employees, financial and other advisors, legal counsel and agents, including the Proxy and Information Agent, each in their capacity as such (collectively, the “Company Released Parties”) and the Consenting Noteholders, the Senior Unsecured Notes

 

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Trustee, the Consenting Debentureholders, the Convertible Debenture Trustee, the Existing Second Lien Noteholders, the Existing Second Lien Notes Agent, and each of the foregoing parties’ respective current and former officers, directors, principals, members, affiliates, limited partners, general partners, managed accounts or funds, fund advisors, employees, financial and other advisors, legal counsel and agents, each in their capacity as such (collectively, the “Securityholder Released Parties” and, together with the Company Released Parties, the “Released Parties”).

Pursuant to the Plan, the Released Parties will be released and discharged from all present and future actions, causes of action, damages, judgments, executions, obligations, liabilities and Claims of any kind or nature whatsoever arising on or prior to the Effective Date in connection with the Debt, the Debt Documents, the Senior Unsecured Notes Exchange Transaction, the Support Agreements, the Arrangement, the Arrangement Agreement, the Plan, the CBCA Proceedings and any other proceedings commenced with respect to or in connection with the Plan, the transactions contemplated hereunder, and any other actions or matters related directly or indirectly to the foregoing, provided that nothing in the Plan will release or discharge (i) any of the Released Parties from or in respect of their respective obligations under the Plan, the New Second Lien Notes, the New Third Lien Notes or any Order or document ancillary to any of the foregoing, or (ii) any Released Party from liabilities or claims attributable to such Released Party’s fraud, gross negligence or wilful misconduct, as determined by the final, non-appealable judgment of a court of competent jurisdiction. The releases contemplated in the Plan shall not be construed to prohibit a party in interest from seeking to enforce the terms of the Plan or any contract or agreement entered into pursuant to, in connection with or contemplated by, the Plan.

The Plan provides that, from and after the Effective Time, all Persons named or referred to therein shall be deemed to have consented and agreed to all of the provisions of the Plan in its entirety. Without limiting the foregoing, pursuant to the Plan, from and after the Effective Date all Persons shall be deemed to have waived any and all defaults or events of default, third-party change of control rights or any non-compliance with any covenant, warranty, representation, term, provision, condition or obligation, expressed or implied, in any contract, instrument, credit document, lease, licence, guarantee, agreement for sale or other agreement, written or oral, in each case relating to, arising out of, or in connection with, the Debt, the Debt Documents, the Support Agreements, the Arrangement, the Arrangement Agreement, the Plan, the transactions contemplated thereunder, the CBCA Proceedings and any other proceedings commenced with respect to or in connection with the Plan and any and all amendments or supplements thereto. Pursuant to the Plan, from and after the Effective Date any and all notices of default and demands for payment or any step or proceeding taken or commenced in connection with any of the foregoing will be deemed to have been rescinded and of no further force or effect, provided that nothing will be deemed to excuse the Applicants and their respective successors and assigns from performing their obligations under the Plan or any contract or agreement entered into pursuant to, in connection with or contemplated by, the Plan.

Furthermore, the Plan provides that all Persons shall be deemed to have agreed that, if there is any conflict between the provisions of any agreement or other arrangement, written or oral, existing between such Person and any of the Applicants prior to the Effective Date (excluding the First Lien Credit Agreement or the Loan Documents (as defined in the First Lien Credit Agreement)) and the provisions of the Plan, then the provisions of the Plan take precedence and priority and the provisions of such agreement or other arrangement are deemed to be amended accordingly.

Required Approvals for the Arrangement

The Arrangement requires approval by the Court. Prior to the mailing of this Information Circular, Bellatrix obtained the Interim Order providing for the calling and holding of the Senior Unsecured Noteholders’ Meeting, the Convertible Debentureholders’ Meeting and the Shareholders’ Meeting, and other procedural matters. A copy of the Interim Order is attached hereto as Appendix L and forms part of this Information Circular. The Notice of Application for the Final Order is attached hereto as Appendix K and forms part of this Information Circular.

The hearing in respect of the Final Order is currently scheduled to take place at 330 University Avenue, Toronto, Ontario at 10:00 a.m. (EDT) on May 28, 2019. Pursuant to the Interim Order and subject to any further Order of the Court, the only persons entitled to appear and be heard at such hearing shall be the Applicants, the CBCA Director, the Senior Unsecured Noteholders, the Convertible Debentureholders, the Trustees, the Shareholders, the First Lien Lenders, the Existing Second Lien Noteholders and any person who filed a Notice of Appearance in accordance with the Notice of Application, the Interim Order and the Rules of Civil Procedure, as well as their respective legal counsel.

 

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At the hearing for the Final Order, the Court will consider, among other things, the procedural and substantive fairness and reasonableness of the Arrangement and the approval of: (i) the Senior Unsecured Noteholders’ Arrangement Resolution by the Senior Unsecured Noteholders at the Senior Unsecured Noteholders’ Meeting; (ii) the Convertible Debentureholders’ Arrangement Resolution by the Convertible Debentureholders at the Convertible Debentureholders’ Meeting; and (iii) the Shareholders’ Arrangement Resolution by the Shareholders at the Shareholders’ Meeting. Pursuant to the Interim Order, Bellatrix may seek the Final Order even if the Shareholders’ Arrangement Resolution is not approved by the Shareholders at the Shareholders’ Meeting. The Interim Order does not provide for any dissent rights with respect to the Shareholders’ Arrangement Resolution.

The Court may approve the Arrangement in any manner the Court may direct, subject to compliance with such terms and conditions, if any, as the Court deems fit.

Bellatrix has advised the Court that the New Common Shares, the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) will be issued in reliance upon the exemption from registration under the 1933 Act provided by Section 3(a)(10) thereunder, upon the Court’s approval of the Arrangement. The Final Order, if granted, will constitute the basis for the exemption from the registration requirements of the 1933 Act pursuant to Section 3(a)(10) thereof, with respect to the offer and sale of: (i) the applicable New Common Shares to be issued to the Senior Unsecured Noteholders and the Convertible Debentureholders; and (ii) the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) to be issued to Senior Unsecured Noteholders, as applicable, in each case pursuant to the Plan. In order to rely on the exemption from the registration requirements of the 1933 Act provided by Section 3(a)(10) thereof, the Court must determine, prior to approving the Final Order, that the terms and conditions of the exchange of: (i) the applicable New Common Shares for the applicable portion of Senior Unsecured Notes and the Convertible Debentures are fair to the Senior Unsecured Noteholders and the Convertible Debentureholders, as applicable; (ii) the New Second Lien Notes for a portion of the applicable Senior Unsecured Notes is fair to the applicable Senior Unsecured Noteholders; and (iii) the New Third Lien Notes and the Additional New Third Lien Notes (if any) for a portion of the Senior Unsecured Notes is fair to the Senior Unsecured Noteholders. See “Certain Regulatory and Other Matters Relating to the Recapitalization Transaction – United States”.

Assuming the Final Order is granted and the other conditions to closing contained in the Plan are satisfied or waived, it is anticipated that the following will occur substantially simultaneously: (i) the various documents necessary to consummate the Recapitalization Transaction will be executed and delivered; (ii) Articles of Arrangement will be filed with the CBCA Director to give effect to the Plan; and (iii) the transactions provided for in the Plan and the Recapitalization Transaction will occur in the order and at the times indicated. See “Conditions Precedent to the Implementation of the Plan”. The Recapitalization Transaction is also subject to the approval of the TSX. See “Certain Regulatory and Other Matters Relating to the Recapitalization Transaction – Stock Exchange Listing”.

The Corporation has filed with the SEC applications on Form T-3 for qualification of the indentures for the New Second Lien Notes and New Third Lien Notes under the Trust Indenture Act. Forms of the Second Lien Notes Indenture, if applicable, and the New Third Lien Notes Indenture will be filed as exhibits to the Form T-3. No exchanges will be consummated, and no New Second Lien Notes nor New Third Lien Notes will be issued, before these indentures have been so qualified.

Subject to the foregoing, it is expected that the Effective Time will occur as soon as practicable after the requisite approvals have been obtained. Subject to the satisfaction or waiver of applicable conditions, the Corporation is working to complete the Recapitalization Transaction by the end of May 2019.

Certain U.S. Securities Laws Matters

It is intended that the Arrangement shall be carried out such that the issuance and distribution of the New Common Shares, the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) to the applicable Debtholders under the Plan qualifies in the United States for the exemption from the registration requirements of the 1933 Act provided by Section 3(a)(10) thereof and applicable state securities laws in reliance upon similar exemptions under applicable state securities laws. In order to ensure the availability of the Section 3(a)(10) exemption, the Arrangement will be carried out on the following basis:

 

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  (a)

the Arrangement (including the exchange of Senior Unsecured Notes and Convertible Debentures for New Common Shares, New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any), as applicable) will be subject to the approval of the Court;

 

  (b)

the Court will be advised as to the intention to rely on the Section 3(a)(10) exemption based on the Court’s approval of the Arrangement prior to the Court hearing at which the Final Order will be sought;

 

  (c)

the Court will be required to satisfy itself as to the fairness of the Arrangement;

 

  (d)

the Final Order will address the Arrangement being approved by the Court as being fair to the Senior Unsecured Noteholders and the Convertible Debentureholders;

 

  (e)

each Person to whom the New Common Shares, the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) shall be issued pursuant to the Arrangement shall be advised that such New Common Shares, New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) have not been registered under the 1933 Act and shall be issued by the Corporation in reliance upon Section 3(a)(10) of the 1933 Act and, in the case of “affiliates” of the Corporation, shall be subject to certain restrictions on resale under U.S. Securities Laws, including Rule 144 under the 1933 Act;

 

  (f)

the Final Order shall include a statement in the preamble to substantially the following effect:

“This Order is granted by the Court upon being advised that the Order shall serve as the basis for reliance on the exemption provided by Section 3(a)(10) of the United States Securities Act of 1933, as amended, from the registration requirements otherwise imposed by that act, regarding the distribution of the New Common Shares, the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) of the Corporation pursuant to the Plan of Arrangement.”;

 

  (g)

each Senior Unsecured Noteholder and Convertible Debentureholder will be given adequate notice, as set out in the Interim Order, advising them of their right to attend the Court hearing and providing them with sufficient information necessary for them to exercise that right;

 

  (h)

there will be no improper impediments to the appearance by the Senior Unsecured Noteholders and the Convertible Debentureholders at the Court hearing; and

 

  (i)

the Interim Order specifies that each Senior Unsecured Noteholder and Convertible Debentureholder will have the right to appear before the Court at the hearing on the Final Order.

Procedures

Registered Shareholders

A Letter of Transmittal for Registered Shareholders accompanies this Information Circular. If the Share Consolidation occurs, Registered Shareholders must properly complete, execute and return the Letter of Transmittal, together with the certificate(s) representing their pre-Share Consolidation Common Shares and any other relevant documents required by the instructions set out in the Letter of Transmittal, to the Transfer Agent at one of the offices specified in the Letter of Transmittal, which documents must actually be received by the Transfer Agent in order to receive post-Share Consolidation Common Shares. Except as otherwise provided by the instructions in the Letter of Transmittal, the signature on the Letter of Transmittal must be guaranteed by an eligible institution as defined and set out in the Letter of Transmittal. If a Letter of Transmittal is executed by a person other than the registered holder of the certificate(s) deposited therewith, the certificate(s) must be endorsed or be accompanied by an appropriate securities transfer power of attorney duly and properly completed by the Registered holder, with the signature on the endorsement panel or securities transfer power of attorney guaranteed by the eligible institution. All questions as to form, validity and acceptance of any Common Shares certificates deposited pursuant to the Share Consolidation will be determined by Bellatrix in its sole discretion. Registered Shareholders depositing Common Shares agree that such determination shall be final and binding.

 

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Bellatrix reserves the absolute right to reject any and all deposits which Bellatrix determines not to be in proper form or which may be unlawful for it to accept under the laws of any jurisdiction. Bellatrix reserves the absolute right to waive any defect or irregularity in the deposit of any Common Share certificates. There shall be no duty or obligation on Bellatrix, the Transfer Agent or any other person to give notice of any defect or irregularity in any deposit of Common Shares and no liability shall be incurred by any of them for failure to give such notice. Bellatrix reserves the right to permit the procedure for the exchange of Common Shares pursuant to the Share Consolidation to be completed other than that as set out above. Unless otherwise directed in the Letter of Transmittal, a direct registration statement (“DRS Statement”) representing the post-Share Consolidation Common Shares to be issued in exchange for the pre-Share Consolidation Common Shares will be issued in the name of the Registered Shareholder so deposited. Unless the person who deposits Common Shares instructs the Transfer Agent to hold the DRS Statement to be issued in exchange for the pre-Share Consolidation Common Shares for pick-up by checking the appropriate box in the Letter of Transmittal, DRS Statements representing the Common Shares to be issued in exchange for the pre-Share Consolidation Common Shares will be forwarded by first class insured mail to the address supplied in the Letter of Transmittal. If no address is provided, DRS Statements will be forwarded to the address of the person as shown on the applicable register of Bellatrix.

If the Share Consolidation occurs, certificates formerly representing pre-Share Consolidation Common Shares will represent post-Share Consolidation Common Shares prior to the exchange of such certificates in accordance with a duly completed Letter of Transmittal.

Registered Shareholders who do not forward to the Transfer Agent properly completed Letters of Transmittal (together with certificate(s) representing their post-Share Consolidation Common Shares and all other required documents) will not receive the DRS Statements representing the Common Shares which they are otherwise entitled and also will not be recorded on the registers of Common Shares until proper delivery is made.

Where a certificate representing Common Shares has been destroyed, lost or mislaid, the Registered holder of that certificate should immediately complete the Letter of Transmittal as fully as possible and deliver it together with a letter describing the loss to the Transfer Agent in accordance with instructions in the Letter of Transmittal.

Any use of the mail to transmit a certificate representing Common Shares and a related Letter of Transmittal is at the risk of the Shareholder. If these documents are mailed, it is recommended that registered mail, with (if applicable) return receipt requested, properly insured, be used. If required approvals of the Arrangement are not obtained, or if the Recapitalization Transaction is not otherwise completed, the certificates representing Common Shares received by the Transfer Agent will be returned to the appropriate Shareholders.

Beneficial Shareholders

Shareholders who hold their interests in Common Shares through CDS or DTC will receive their post-Share Consolidation Common Shares through the facilities of CDS or DTC, as applicable. Delivery of post-Share Consolidation Common Shares will be made through the facilities of CDS and DTC to CDS and DTC participants, as applicable, who in turn will deliver post-Share Consolidation Common Shares to the beneficial holders thereof pursuant to standing instructions and customary practices.

Beneficial Holders should contact that Intermediary for instructions and assistance in providing details of registration and delivery of pre-Share Consolidation Common Shares.

Surrender and Cancellation of Debt

The Senior Unsecured Notes are held by DTC (or its nominee) (as sole Registered Senior Unsecured Noteholder on behalf of the beneficial Senior Unsecured Noteholders, subject to any Senior Unsecured Notes which may be withdrawn from DTC and held in registered form by a Senior Unsecured Noteholder). On the Effective Date, DTC (or its nominee) (as Registered Senior Unsecured Noteholder on behalf of the beneficial Senior Unsecured Noteholders) and each other Person who holds Senior Unsecured Notes in registered form on the Effective Date will surrender, or cause the surrender of, the certificate(s) representing the Senior Unsecured Notes to the Senior Unsecured Notes Trustee for cancellation in exchange for the consideration payable to Senior Unsecured Noteholders pursuant to the Plan.

 

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The Convertible Debentures are held by CDS (or its nominee) (as sole Registered Convertible Debentureholder on behalf of the beneficial Convertible Debentureholders, subject to any Convertible Debentures which may be withdrawn from CDS and held in registered form by a Convertible Debentureholder). On the Effective Date, CDS (or its nominee) (as Registered Convertible Debentureholder on behalf of the beneficial Convertible Debentureholders) and each other Person who holds Convertible Debentures in registered form on the Effective Date will surrender, or cause the surrender of, the certificate(s) representing the Convertible Debentures to the Convertible Debenture Trustee for cancellation in exchange for the consideration payable to Convertible Debentureholders pursuant to the Plan.

Issuances and Distributions to Debtholders

The issuances and distributions to Debtholders contemplated in the Plan will be made as follows:

 

  (a)

The payment by Bellatrix on the Effective Date of the Cash Interest Payment (to the extent payable in cash pursuant to the Plan) shall be effected through the delivery of cash in the applicable amount of the Cash Interest Payment to the Senior Unsecured Notes Trustee for distribution to the Senior Unsecured Noteholders as of the Distribution Record Date in accordance with the Senior Unsecured Notes Indenture and customary practices;

 

  (b)

The delivery of the New Second Lien Notes issued pursuant to the Plan shall be made, as determined by the Applicants in advance of the Effective Date, with the consent of the Initial Consenting Noteholders, acting reasonably, by way of either:

 

  (i)

(A) issuance on the Effective Date of a global note (which global note may also reflect some or all of the Existing Second Lien Notes) in the name of DTC (or its nominee) in respect of the New Second Lien Notes to be issued to Consenting Noteholders that are entitled to receive New Second Lien Notes under the Plan and that are able to receive such New Second Lien Notes through DTC as of the Distribution Record Date, and (B) if applicable, delivery on the Effective Date, or as soon as practicable thereafter, of New Second Lien Notes in certificated form, substantially in the form of Exhibit 6 to the Existing Second Lien Note Purchase Agreement, or in book form (as determined by the Applicants in consultation with the Second Lien Notes Trustee) to any Consenting Noteholder that has withdrawn its Senior Unsecured Notes from DTC and holds such Senior Unsecured Notes in registered form, pursuant to the registration and delivery instructions provided by each such Consenting Noteholder; or

 

  (ii)

delivery on the Effective Date, or as soon as practicable thereafter, of the New Second Lien Notes in certificated form, substantially in the form of Exhibit 6 to the Existing Second Lien Note Purchase Agreement, or in book form (as determined by the Applicants in consultation with the Existing Second Lien Notes Agent) to all Consenting Noteholders that are entitled to receive New Second Lien Notes under the Plan, pursuant to the registration and delivery instructions provided by each such Consenting Noteholder.

 

  (c)

Each Consenting Noteholder entitled to receive New Second Lien Notes under the Plan shall be required to provide registration details for the issuance and delivery of its New Second Lien Notes in certificated form or book form to the Proxy and Information Agent by the Early Consent Date (or such later date as agreed to by the Applicants, acting reasonably). If a Consenting Noteholder that is to receive its New Second Lien Notes in certificated form or book form pursuant to the Plan has not provided the required registration details to the Proxy and Information Agent by the Early Consent Date (or such later date as agreed to by the Applicants, acting reasonably), such Consenting Noteholder’s New Second Lien Notes shall be issued in certificated form (or such other form as agreed to with the Existing Second Lien Notes Agent or, if applicable, the Second Lien Notes Trustee) to the Proxy and Information Agent for the benefit of the Consenting Noteholder until such time as the Consenting Noteholder provides the required registration details.

 

  (d)

The delivery of the New Third Lien Notes issued pursuant to the Plan shall be made by way of (i) issuance on the Effective Date of a global note in the name of DTC (or its nominee) in respect of

 

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  the New Third Lien Notes to be issued to the Senior Unsecured Noteholders that are entitled to receive New Third Lien Notes under the Plan and who are able to receive the New Third Lien Notes through DTC as of the Distribution Record Date, and (ii) if applicable, delivery on the Effective Date, or as soon as practicable thereafter, of New Third Lien Notes in certificated form or in book form (as determined by the Applicants in consultation with the New Third Lien Notes Trustee) to any Senior Unsecured Noteholder that is entitled to receive New Third Lien Notes under the Plan, has withdrawn its Senior Unsecured Notes from DTC and holds such Senior Unsecured Notes in registered form, pursuant to the registration and delivery instructions provided by each such Senior Unsecured Noteholder.

 

  (e)

Any Senior Unsecured Noteholder that has withdrawn its Senior Unsecured Notes from DTC and holds such Senior Unsecured Notes in registered form shall be required to provide registration details for the issuance and delivery of its New Third Lien Notes in certificated form or book form to the Proxy and Information Agent by the Early Consent Date (or such later date as agreed to by the Applicants, acting reasonably). If a Senior Unsecured Noteholder that is to receive its New Third Lien Notes in certificated form or book form pursuant to the Plan has not provided the required registration details to the Proxy and Information Agent by the Early Consent Date (or such later date as agreed to by the Applicants, acting reasonably), such Senior Unsecured Noteholder’s New Third Lien Notes shall be issued to the Proxy and Information Agent in the form of a separate global note (or such other form as agreed to with the New Third Lien Notes Trustee) to the Proxy and Information Agent for the benefit of the Senior Unsecured Noteholder until such time as the Senior Unsecured Noteholder provides the required registration details.

 

  (f)

The delivery of New Common Shares issued pursuant to the Plan shall be made (i) in respect of Senior Unsecured Noteholders and Convertible Debentureholders that are entitled to receive New Common Shares under the Plan and who are able to receive New Common Shares though DTC or CDS, as applicable, as of the Record Date, through the facilities of DTC or CDS, as applicable, to Intermediaries who, in turn, will make delivery of the New Common Shares to the ultimate beneficial recipients thereof pursuant to standing instructions and customary practices of DTC or CDS, as applicable, or (ii) in respect of any Senior Unsecured Noteholder or Convertible Debentureholder that is entitled to receive New Common Shares under the Plan, has withdrawn its Senior Unsecured Notes from DTC or its Convertible Debentures from CDS, as applicable, and holds such Senior Unsecured Notes or Convertible Debentures, as applicable, in registered form, by providing either (A) DRS Statements or (B) certificated shares, as elected by such holder in consultation with Bellatrix, in the name of the applicable recipient thereof (or its Intermediary) and registered electronically in Bellatrix’s records which will be maintained by the Transfer Agent.

 

  (g)

The Applicants and the Initial Consenting Noteholders, each acting reasonably, may agree on any additional or alternative delivery method that may be necessary or desirable in respect of any Alternative Senior Unsecured Noteholder Group Equity Allocation, and no further amendments to the Plan or approvals in respect thereof shall be required.

New Second Lien Notes

In order to be eligible to receive New Second Lien Notes, Senior Unsecured Noteholders must:

 

  (a)

submit to their Intermediaries on or prior to the Early Consent Date, or such earlier deadline as the Intermediaries may advise the applicable beneficial Senior Unsecured Noteholders, their duly completed Senior Unsecured Noteholder VIEF (or such other documentation or information as the Intermediary may customarily request from a beneficial Senior Unsecured Noteholder for purposes of properly obtaining its voting and election instructions), to permit their respective Intermediaries to duly complete and submit in a timely manner through a master proxy submitted to the Proxy and Information Agent, the beneficial Senior Unsecured Noteholder’s voting preferences, as applicable, by the Early Consent Date, and such Senior Unsecured Noteholder VIEFs must all instruct a vote in favour of the Senior Unsecured Noteholders’ Arrangement Resolution;

 

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  (b)

instruct their Intermediaries to make the appropriate election to consent early through ATOP or any similar program prior to the Early Consent Date (which, for the avoidance of doubt, will not constitute a vote); and

 

  (c)

not have withdrawn or changed such ATOP election and such vote such in favour of the Senior Unsecured Noteholders’ Arrangement Resolution prior to the Effective Date,

and in each case must continue to hold their Consent Notes on the Effective Date.

Consenting Debentureholder Early Consent New Common Share Pool

In order to be eligible to receive a Consenting Debentureholder Pro Rata Share of the Consenting Debentureholder Early Consent New Common Share Pool, Convertible Debentureholders must:

 

  (a)

submit to their Intermediaries on or prior to the Early Consent Date, or such earlier deadline as the Intermediaries may advise the applicable beneficial Convertible Debentureholders, their duly completed Convertible Debentureholder VIEF (or such other documentation or information as the Intermediary may customarily request from a beneficial Convertible Debentureholders for purposes of properly obtaining its voting and election instructions), to permit their respective Intermediaries to duly complete and submit in a timely manner the beneficial Convertible Debentureholder’s voting and election instructions through CDSX or any similar program, by the Early Consent Date, and such Convertible Debentureholder VIEFs must all instruct a vote in favour of the Convertible Debentureholders’ Arrangement Resolution; and

 

  (b)

not have withdrawn or changed such election and such vote in favour of the Convertible Debentureholders’ Arrangement Resolution prior to the Effective Date,

and in each case must continue to hold their Consent Debentures on the Effective Date.

Strict compliance with the requirements set forth under “Description of the Recapitalization Transaction and Certain Related Matters – Procedures” concerning, among other things, the deposit and delivery of New Common Shares and the delivery of New Third Lien Notes and New Second Lien Notes, as applicable, and requirements for ensuring Senior Unsecured Noteholders and Convertible Debentureholders are eligible to receive New Second Lien Notes and a Consenting Debentureholder Pro Rata Share of the Consenting Debentureholder Early Consent New Common Share Pool, respectively, will be necessary.

ARRANGEMENT STEPS

Pursuant to the Plan, commencing at the Effective Time, the following events or transactions will occur, or be deemed to have occurred and be taken and effected, in the following order in five minute increments (unless otherwise indicated) and at the times set out in the Plan (or in such other manner or order or at such other time or times as the Applicants, the Initial Consenting Noteholders and the Majority Consenting Debentureholders may agree, each acting reasonably), without any further act or formality required on the part of any Person, except as may be expressly provided in the Plan:

 

  (a)

The existing Common Shares shall be, and shall be deemed to be, consolidated (the “Share Consolidation”) on the basis of one Common Share for every 12 Common Shares outstanding immediately prior to the Effective Time. Any fractional interests in the consolidated Common Shares will, without any further act or formality, be cancelled without payment of any consideration therefor. Notwithstanding any provision of the CBCA, immediately following the completion of the Share Consolidation, the stated capital of the Common Shares shall be equal to the stated capital of the Common Shares immediately prior to the Share Consolidation.

 

  (b)

The following shall occur concurrently:

 

  (i)

As determined by Bellatrix, prior to the Effective Date, with the consent of the Initial Consenting Noteholders, acting reasonably, either (A) Bellatrix, the Existing Second Lien Notes Agent and the Existing Second Lien Noteholders shall enter into the Existing

 

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  Second Lien Note Purchase Agreement Amendment and all holders of New Second Lien Notes shall be deemed to have executed such Existing Second Lien Note Purchase Agreement Amendment, or (B) Bellatrix and the Second Lien Notes Trustee shall enter into the Second Lien Notes Indenture, in each case together with all related documentation (including any applicable security documentation) as agreed by Bellatrix and the Initial Consenting Noteholders, each acting reasonably;

 

  (ii)

Bellatrix and the New Third Lien Notes Trustee shall enter into the New Third Lien Notes Indenture together with all related documentation (including applicable security documentation) as agreed by Bellatrix and the Initial Consenting Noteholders, each acting reasonably; and

 

  (iii)

in exchange for the Senior Unsecured Notes, and in full and final settlement of the Senior Unsecured Noteholder Claims, Bellatrix shall issue to each Senior Unsecured Noteholder:

 

  (A)

its Noteholder Interest Pro Rata Share of either:

 

  (1)

the Cash Interest Payment paid in cash; or

 

  (2)

if the Applicants and Initial Consenting Noteholders agree prior to the Effective Date, the Additional New Third Lien Notes;

 

  (B)

if such Senior Unsecured Noteholder is a Consenting Noteholder (and subject to the applicable terms of the Plan):

 

  (1)

New Second Lien Notes having an aggregate principal amount equal to its Consenting Noteholder New Second Lien Note Amount;

 

  (2)

its Consenting Noteholder Pro Rata Share of the New Third Lien Notes; and

 

  (3)

its Consenting Noteholder Pro Rata Share of the Senior Unsecured Noteholder New Common Share Pool; and

 

  (C)

if such Senior Unsecured Noteholder is not a Consenting Noteholder (and subject to the applicable terms of the Plan):

 

  (1)

its Non-Consenting Noteholder Pro Rata Share of the New Third Lien Notes; and

 

  (2)

its Non-Consenting Noteholder Pro Rata Share of the Senior Unsecured Noteholder New Common Share Pool,

and Bellatrix shall add an amount to the stated capital account maintained in respect of the New Common Shares equal to the lesser of (i) the fair market value on the Effective Date of the Senior Unsecured Noteholder New Common Share Pool issued to Senior Unsecured Noteholders pursuant to Section 4.3(b) of the Plan, and (ii) the aggregate principal amount and accrued interest of the Senior Unsecured Notes less the Cash Interest Payment and the aggregate principal amount of the New Second Lien Notes and New Third Lien Notes issued to Senior Unsecured Noteholders, and the price for which the Senior Unsecured Notes are exchanged under the Plan shall be equal to the aggregate principal amount of the New Second Lien Notes and New Third Lien Notes and the amount added to the stated capital account in respect of the issuance of the Senior Unsecured Noteholder New Common Share Pool.

 

  (c)

Concurrently with the transactions contemplated above:

 

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  (i)

the Senior Unsecured Noteholder Claims shall, and shall be deemed to be, irrevocably and finally extinguished and the Senior Unsecured Noteholders shall have no further right, title or interest in and to the Senior Unsecured Notes or their respective Senior Unsecured Noteholder Claims; and

 

  (ii)

the Senior Unsecured Notes, the Senior Unsecured Notes Indenture and any and all other related Debt Documents shall be cancelled, provided that the Senior Unsecured Notes Indenture shall remain in effect solely to allow the Senior Unsecured Notes Trustee to make the distributions set forth in the Plan.

 

  (d)

Concurrently with the steps set forth above, in exchange for the Convertible Debentures, and in full and final settlement of the Convertible Debentureholder Claims, Bellatrix shall issue to each Convertible Debentureholder:

 

  (i)

if such Convertible Debentureholder is a Consenting Debentureholder:

 

  (A)

its Consenting Debentureholder Pro Rata Share of the Consenting Debentureholder Early Consent New Common Share Pool; and

 

  (B)

its Convertible Debentureholder Pro Rata Share of the Convertible Debentureholder New Common Share Pool; and

 

  (ii)

if such Convertible Debentureholder is not a Consenting Debentureholder, its Convertible Debentureholder Pro Rata Share of the Convertible Debentureholder New Common Share Pool,

and Bellatrix shall add an amount to the stated capital account maintained in respect of the New Common Shares equal to the lesser of (i) the fair market value on the Effective Date of the Consenting Debentureholder Early Consent New Common Share Pool and the Convertible Debentureholder New Common Share Pool issued to Convertible Debentureholders pursuant to Section 4.3(d) of the Plan, and (ii) the aggregate principal amount and accrued interest of the Convertible Debentures.

 

  (e)

Concurrently with the issuance of the New Common Shares as contemplated above:

 

  (i)

the Convertible Debentureholder Claims shall, and shall be deemed to be, irrevocably and finally extinguished and the Convertible Debentureholders shall have no further right, title or interest in and to the Convertible Debentures or their respective Convertible Debentureholder Claims; and

 

  (ii)

the Convertible Debentures, the Convertible Debenture Indenture and any and all other related Debt Documents shall be cancelled, provided that the Convertible Debenture Indenture shall remain in effect solely to allow the Convertible Debenture Trustee to make the distributions set forth in the Plan.

 

  (f)

The releases shall become effective.

 

  (g)

Unless otherwise agreed by Bellatrix and the Initial Consenting Noteholders, such number of the directors of Bellatrix immediately prior to the Effective Time as agreed to by Bellatrix and the Initial Consenting Noteholders shall have resigned or be deemed to have resigned and the New Directors shall be deemed to have been appointed.

 

  (h)

One hour after the steps set forth above, Bellatrix and the Bellatrix Subsidiary shall be, and shall be deemed to be, amalgamated and continued as one corporation (“Amalgamated Bellatrix”) under the CBCA in accordance with the following:

 

  (i)

Name. The name of Amalgamated Bellatrix shall be “Bellatrix Exploration Ltd.”;

 

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  (ii)

Registered Office. The registered office of Amalgamated Bellatrix shall be located in the City of Calgary in the Province of Alberta. The address of the registered office of Amalgamated Bellatrix shall be 1920, 800 - 5th Avenue S.W., Calgary, Alberta T2P 3T6;

 

  (iii)

Restrictions on Business. There shall be no restrictions on the business that Amalgamated Bellatrix may carry on;

 

  (iv)

Articles. The articles of Bellatrix, as in effect immediately prior to the Amalgamation, shall be deemed to be the articles of Amalgamated Bellatrix;

 

  (v)

Directors. Amalgamated Bellatrix shall have a minimum of 1 director and a maximum of 15 directors, until changed in accordance with the CBCA. Until changed by shareholders of Amalgamated Bellatrix, or by the directors of Amalgamated Bellatrix in accordance with the CBCA, the directors of Bellatrix, as in effect immediately prior to the Amalgamation, shall be deemed to be the directors of Amalgamated Bellatrix;

 

  (vi)

Shares. All shares of the Bellatrix Subsidiary shall be cancelled without any repayment of capital in respect thereof; no shares will be issued by Amalgamated Bellatrix in connection with the Amalgamation and all shares of Bellatrix prior to the Amalgamation shall be unaffected and shall continue as shares of Amalgamated Bellatrix;

 

  (vii)

Stated Capital. The stated capital account of the shares of Amalgamated Bellatrix will be equal to the stated capital account in respect of the Common Shares immediately prior to the Amalgamation;

 

  (viii)

By-laws. The by-laws of Bellatrix, as in effect immediately prior to the Amalgamation, shall be deemed to be the by-laws of Amalgamated Bellatrix;

 

  (ix)

Effect of Amalgamation. The provisions of subsection 186(a) to (g) of the CBCA shall apply to the Amalgamation with the result that:

 

  a)

the amalgamation of the amalgamating corporations and their continuance as one corporation becomes effective;

 

  b)

the property of each amalgamating corporation continues to be the property of Amalgamated Bellatrix;

 

  c)

Amalgamated Bellatrix continues to be liable for the obligations of each amalgamating corporation;

 

  d)

an existing cause of action, claim or liability to prosecution is unaffected;

 

  e)

a civil, criminal or administrative action or proceeding pending by or against an amalgamating corporation may be continued to be prosecuted by or against Amalgamated Bellatrix;

 

  f)

a conviction against, or ruling, order or judgment in favour of or against, an amalgamating corporation may be enforced by or against Amalgamated Bellatrix; and

 

  (i)

the Articles of Arrangement are deemed to be the articles of incorporation of Amalgamated Bellatrix and the Certificate of Arrangement is deemed to be the certificate of incorporation of Amalgamated Bellatrix.

 

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CONDITIONS PRECEDENT TO THE IMPLEMENTATION OF THE PLAN

The implementation of the Plan is conditional upon the fulfillment, satisfaction or waiver (to the extent permitted under the Plan) of the following conditions:

 

  (a)

The Court shall have granted the Final Order, the implementation, operation or effect of which shall not have been stayed, varied in a manner not acceptable to the Applicants, the Initial Consenting Noteholder and the Majority Consenting Debentureholders, vacated or subject to pending appeal;

 

  (b)

No Law shall have been passed and become effective, the effect of which makes the consummation of the Plan illegal or otherwise prohibited;

 

  (c)

Any steps, actions or resolutions that may be required in order to proportionately adjust Bellatrix’s outstanding stock options, restricted share units, performance share units, deferred share units and any other equity or equity-linked securities of Bellatrix to reflect the Share Consolidation shall be completed, effective concurrently with the applicable step of the Plan, in form and substance satisfactory to Bellatrix and the Initial Consenting Noteholders, each acting reasonably;

 

  (d)

All conditions to implementation of the Plan set out in the Noteholder Support Agreement shall have been satisfied or waived in accordance with their terms; and

 

  (e)

All conditions to implementation of the Plan set out in the Debentureholder Support Agreement shall have been satisfied or waived in accordance with their terms.

FAILURE TO IMPLEMENT THE RECAPITALIZATION TRANSACTION

In the event the Recapitalization Transaction is not successful, the Corporation will need to evaluate all of its options and alternatives related to any future Court proceedings or other alternatives to address key liquidity and debt leverage matters which exist today. In the event the Recapitalization Transaction is not successful, the value available to stakeholders may be significantly less and there is a risk that any proceeds available for distribution to stakeholders would be paid in priority to the First Lien Lenders, Existing Second Lien Noteholders, Senior Unsecured Noteholders and Convertible Debentureholders, with the remaining proceeds, if any, paid to the Shareholders. There is significant risk that there may be no recovery of any kind, or amount available for, those parties which are lower in the priority waterfall in such circumstances.

ALTERNATIVE IMPLEMENTATION PROCESS

Should the Recapitalization Transaction not be implemented pursuant to the Plan for any reason, the Corporation may determine, with the prior written consent of the Initial Consenting Noteholders and the Initial Consenting Debentureholder and subject to further order of the Court, to proceed with the Recapitalization Transaction on substantially the same terms as described in this Information Circular pursuant to proceedings under the CCAA. Subject to the prior written consent of the Initial Consenting Noteholders and the Initial Consenting Debentureholder and further order of the Court, the Corporation may in such circumstances seek to count any votes cast in favour of the Senior Unsecured Noteholders’ Arrangement Resolution or the Convertible Debentureholders’ Arrangement Resolution approving the Arrangement in favour of resolutions of the Senior Unsecured Noteholders or Convertible Debentureholders, as applicable, approving the Arrangement under a proceeding pursuant to the CCAA.

There is significant risk that one or more of the First Lien Lenders, the Existing Second Lien Noteholders, the Initial Consenting Noteholders or the Initial Consenting Debentureholder will not agree to implement the Plan terms in any CCAA proceedings. The foregoing parties are not required to implement the Recapitalization Transaction under the CCAA.

BACKGROUND TO AND REASONS FOR THE RECAPITALIZATION TRANSACTION

As previously announced, in connection with its key strategic priority of maintaining financial strength and liquidity, the Corporation has, for a significant period of time, been reviewing and evaluating potential options and

 

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alternatives to improve its capital structure, improve liquidity and maximize value for all stakeholders. As also previously announced, Bellatrix has been engaged in extended discussions with parties across our capital structure in connection with advancing potential transaction alternatives.

Senior Unsecured Notes for Equity Exchanges

In connection with Bellatrix’s efforts to, among other things, reduce its debt levels and improve liquidity, the Corporation entered into certain transactions in 2018 to exchange portions of its Senior Unsecured Notes for Common Shares (collectively, the “Senior Unsecured Notes For Equity Exchanges”). The Senior Unsecured Notes For Equity Exchanges collectively resulted in a reduction in the principal amount of Senior Unsecured Notes by US$24,115,000 and approximately US$2 million of annualized interest savings in the aggregate.

Senior Unsecured Notes Exchange Transaction

On July 25, 2018, the Corporation entered into the Existing Second Lien Note Purchase Agreement with the Existing Second Lien Noteholders, pursuant to which on September 11, 2018, it completed a series of transactions (collectively, the “Senior Unsecured Notes Exchange Transaction”) involving, among other things, the following key elements:

 

  (a)

an exchange of US$80.12 million of Senior Unsecured Notes for US$72.108 million of Existing Second Lien Notes;

 

  (b)

a new money commitment by the Existing Second Lien Noteholders of US$30 million to US$40 million through the purchase of New Money Notes for future capital expenditures, development capital and/or subsequent Senior Unsecured Note exchanges;

 

  (c)

the creation of a basket of New Second Lien Notes for subsequent Senior Unsecured Note exchanges on or before December 31, 2018 (the “New Second Lien Notes Basket Deadline”), provided that if any of the incremental US$50 million of New Second Lien Notes capacity is utilized, then the New Money Notes would be limited to US$30 million; and

 

  (d)

the Corporation issuing to the Existing Second Lien Noteholders warrants to purchase 3,088,205 Common Shares (the “Second Lien Exchange Warrants”), representing approximately 5% of Bellatrix’s issued and outstanding Common Shares at such time. The Second Lien Exchange Warrants reflect an exercise price of $1.30 per Common Share and expire on September 11, 2023 (five years from the issuance date). The Second Lien Exchange Warrants only vest and become exercisable if New Second Lien Notes are issued.

The Senior Unsecured Notes Exchange Transaction had the effect of extending the maturity of over one-third of the then outstanding Senior Unsecured Notes by three years, reducing outstanding debt by US$8 million, maintaining the cash interest rate at 8.5%, providing access to additional liquidity by way of the New Money Notes and providing a framework for effecting additional exchanges of Senior Unsecured Notes for New Second Lien Notes. The Senior Unsecured Notes Exchange Transaction was the result of discussions that occurred over several months with holders of a majority of the Corporation’s then outstanding Senior Unsecured Notes, discussions with the First Lien Lenders, and the consideration by the Board and the Special Committee of a variety of financing and strategic alternatives.

Concurrently with the closing of the Senior Unsecured Notes Exchange Transaction, the Existing Second Lien Noteholders purchased, and the Corporation issued to the Existing Second Lien Noteholders, US$15 million of the New Money Notes for US$15 million of new capital funded by the Existing Second Lien Noteholders, and on December 11, 2018, the Existing Second Lien Noteholders purchased, and the Corporation issued to the Existing Second Lien Noteholders, an additional US$15 million of the New Money Notes.

The Existing Second Lien Note Purchase Agreement was subsequently amended to, among other things, extend the New Second Lien Notes Basket Deadline to February 28, 2019, and pursuant to the Second Lien Consent Agreement, the Existing Second Lien Noteholders have agreed to, among other things, further extend the New Second Lien Notes Basket Deadline to June 30, 2019 as part of the implementation of the Recapitalization Transaction, subject to the terms and conditions of the Second Lien Consent Agreement. See “Consent Agreements”.

 

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Development of Recapitalization Transaction

Bellatrix continued its efforts through the fall of 2018 to explore further alternatives or transactions available to the Corporation, including potential comprehensive solutions to address the Corporation’s capital structure, certain upcoming debt maturities and its liquidity position. The Corporation engaged National Bank Financial Inc., as financial advisor, and Goodmans LLP, as legal counsel, in connection with advancing its strategic review efforts.

In September 2018, the Corporation entered into confidentiality agreements with the Initial Consenting Noteholders and their advisors, and provided such parties with confidential information regarding the Corporation and access to a data room. In December 2018, the Corporation also entered into a confidentiality agreement with the Initial Consenting Debentureholder in connection with advancing a potential transaction involving the Convertible Debentures.

The Corporation, with the assistance of its legal and financial advisors, engaged in extended and detailed discussions and due diligence efforts with the Initial Consenting Noteholders and the Initial Consenting Debentureholder, with a view to achieving a consensual comprehensive transaction to deleverage the Corporation’s capital structure, reduce its annual cash interest payments and provide stability and flexibility to the Corporation’s financial position in light of evolving industry conditions.

Following its strategic review efforts and detailed consultation and negotiations undertaken with key stakeholders with the aim of developing and executing a comprehensive recapitalization transaction to address Bellatrix’s capital structure for the benefit of the Corporation and its various stakeholders, the Board unanimously determined that the proposed Recapitalization Transaction is the best available transaction for the Corporation in the circumstances and is in the best interests of the Corporation and its stakeholders and authorized the Corporation to seek to implement the Recapitalization Transaction and the Arrangement.

In connection with the proposed Recapitalization Transaction, on March 28, 2019, the Corporation entered into (i) the Noteholder Support Agreement with the Initial Consenting Noteholders, collectively holding approximately 90% of the Corporation’s Senior Unsecured Notes (based on holdings of Senior Unsecured Notes disclosed to the Corporation in the Noteholder Support Agreement), and (ii) the Debentureholder Support Agreement with the Initial Consenting Debentureholder holding approximately 50% of the Corporation’s Convertible Debentures and approximately 2% of the Common Shares (based on holdings of Convertible Debentures and Common Shares disclosed to the Corporation in the Debentureholder Support Agreement). Pursuant to the Support Agreements, the Initial Consenting Noteholders and the Initial Consenting Debentureholder have agreed to, among other things, support the Recapitalization Transaction and vote in favour of the Plan, subject to the terms of the applicable Support Agreement

In addition, the Corporation has also entered into the Consent Agreements, pursuant to which the Existing Second Lien Noteholders and the First Lien Lenders have, among other things, agreed to waive potential defaults under the terms and conditions of the Existing Second Lien Notes and First Lien Credit Agreement, respectively, which may result from the Corporation’s commencement of proceedings under the CBCA, subject to the terms of the Consent Agreements.

The following is a summary of certain factors, among others, which the Board reviewed and considered in relation to the Recapitalization Transaction:

 

  (a)

the Corporation’s current capital structure and financial position;

 

  (b)

the ongoing challenges in the Western Canadian oil and natural gas market;

 

  (c)

the Corporation’s review of potential alternatives;

 

  (d)

the lengthy and detailed consultation and negotiations with applicable debtholders;

 

  (e)

the advice of legal and financial advisors to the Corporation;

 

  (f)

the recommendation of the Special Committee;

 

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  (g)

the Opinions; and

 

  (h)

Senior Unsecured Noteholders holding approximately 90% of the Senior Unsecured Notes and a Convertible Debentureholder holding approximately 50% of the Convertible Debentures were supportive of the Recapitalization Transaction and would be entering into the Noteholder Support Agreement and the Debentureholder Support Agreement, respectively.

After careful consideration of the above-noted factors and other factors following consultation with its financial advisors and outside legal counsel, Management and the Board believe that the Recapitalization Transaction, if implemented will have the following benefits to Bellatrix and its stakeholders:

 

  (a)

the Corporation’s total debt will be reduced by approximately $110 million;

 

  (a)

the Corporation’s annual cash interest payments will be reduced by over $12 million annually until December 31, 2021;

 

  (b)

the Corporation will have no debt maturities in respect of non-revolving debt prior to 2023;

 

  (c)

the existing Common Shares will remain outstanding and, subject to the Share Consolidation, the rounding down of fractional Common Shares and the dilution resulting from the issuance of New Common Shares pursuant to the Recapitalization Transaction, will represent approximately 16.5% of the issued and outstanding Common Shares immediately following implementation of the Recapitalization Transaction; and

 

  (d)

the Corporation will continue to satisfy its obligations to employees, suppliers, customers and governmental authorities will continue to be satisfied in the ordinary course of business.

Peters & Co. Limited Opinions

Peters & Co. Limited (“Peters & Co.”) has provided the Special Committee and the Board with: (i) a fairness opinion in respect of the Recapitalization Transaction (the “Fairness Opinion”); and (ii) an opinion (the “CBCA Opinion”, together with the Fairness Opinion, the “Opinions”) in the form described in paragraph 4.04 of Industry Canada’s Policy Statement 15-1 – Policy Concerning Arrangements under Section 192 of the CBCA dated January 4, 2010. Copies of the Opinions are attached as Appendix J to this Information Circular.

In the Opinions, Peters & Co. concludes that, as of the date of the Opinions: (i) the Senior Unsecured Noteholders, the Convertible Debentureholders and the Shareholders would be in a better financial position, respectively, under the Recapitalization Transaction than if the Corporation were liquidated as, in each case, the estimated aggregate value of the consideration made available to Senior Unsecured Noteholders, Convertible Debentureholders and Shareholders, respectively, pursuant to the Recapitalization Transaction would exceed the estimated value the Senior Unsecured Noteholders, Convertible Debentureholders and Shareholders would receive in a liquidation, respectively; and (ii) the Recapitalization Transaction is fair, from a financial point of view, to the Corporation.

The Opinions describe the scope of the review undertaken by Peters & Co., the assumptions made by Peters & Co., the limitations on the use of the Opinions, and the basis of Peters & Co.’s fairness analysis for the purposes of the Opinions, among other matters. The summary of the Opinions set forth in this Information Circular is qualified in its entirety by reference to the full text of the Opinions. Peters & Co. has provided its written consent to the inclusion of the Opinions in this Information Circular.

Assumptions

The Opinions rely on various assumptions, including the accuracy, completeness and fair presentation of all of the financial and other information, data, advice, other materials, representations and opinions obtained by Peters & Co. from public sources or received from Bellatrix or its consultants or advisors or otherwise pursuant to its engagement, and is conditional upon such completeness, accuracy and fairness.

The Opinions were rendered on the basis of securities market, economic and general business and financial conditions prevailing as at the date thereof and the condition and prospects, financial and otherwise, of Bellatrix as

 

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reflected in the information and documents reviewed by Peters & Co. and as represented to Peters & Co. in its discussions with the senior management of Bellatrix. In its analyses, numerous assumptions were made with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of any party involved.

Limitations

Peters & Co. has performed such financial analyses as it considered to be appropriate and necessary in the circumstances to support the conclusions reached in the Opinions. However, Peters & Co. has not been engaged to prepare a formal valuation of any of the assets, shares, liabilities or other securities involved in the Arrangement and the Opinions should not be construed as such. In particular, Peters & Co. has not provided, and the Opinions should not be construed as:

 

  (a)

an opinion as to the fairness of the Recapitalization Transaction to the Senior Unsecured Noteholders, Convertible Debentureholders and/or Shareholders;

 

  (b)

an opinion as to the relative fairness of the Recapitalization Transaction among and between the Senior Unsecured Noteholders, Convertible Debentureholders and Shareholders;

 

  (c)

an opinion as to the fairness of the process underlying the Recapitalization Transaction;

 

  (d)

a formal valuation or appraisal of Bellatrix or any of its securities or assets or the securities or assets of Bellatrix’s associates or affiliates;

 

  (e)

an opinion concerning the future trading price of any of the securities of Bellatrix, or of securities of its associates or affiliates following the completion of the Recapitalization Transaction;

 

  (f)

an opinion as to the ability of Bellatrix after the implementation of the Recapitalization Transaction to repay (or refinance) the principal amount of its indebtedness (after giving effect to the Recapitalization Transaction); or

 

  (g)

a recommendation to any Senior Unsecured Noteholders, Convertible Debentureholders or Shareholders as to whether or not such Senior Unsecured Notes, Convertible Debentures or Common Shares should be held, or sold or to use the voting rights provided in respect of the Recapitalization Transaction to vote for or against the Arrangement or to vote for or against certain steps necessary to implement the Recapitalization Transaction.

Considerations - Fairness Opinion

For the purposes of the Fairness Opinion, Peters & Co. considered that the Recapitalization Transaction would be fair, from a financial point of view, to Bellatrix, if it:

 

  (a)

provides Bellatrix with a more appropriate capital structure, by reducing the total amount of debt outstanding;

 

  (b)

reduces the risk that Bellatrix’s cash flow from operations and available liquidity would be insufficient to provide adequate funds to finance operating and capital expenditures and continue to service its debt; and

 

  (c)

is better than other known, feasible alternatives, based on the above criteria.

In preparing the Fairness Opinion, Peters & Co. relied upon the discussions, documents and materials referred to under the “Scope of Review” in the Fairness Opinion, reviewed with Bellatrix’s management known, feasible alternative transactions available to Bellatrix, and considered a number of factors including, but not limited to:

 

  (a)

Bellatrix, with its current capital structure and the current natural gas outlook, is unable to execute its business plan and service its debt;

 

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  (b)

the Recapitalization Transaction would restructure and extinguish a portion of the Senior Unsecured Notes and extinguish in their entirety the outstanding Convertible Debentures, reducing Bellatrix’s total outstanding debt;

 

  (c)

the Recapitalization Transaction would reduce Bellatrix’s annual cash interest payments;

 

  (d)

Bellatrix has the opportunity, at this time, to effect a Recapitalization Transaction with the approval of a majority of each of the Senior Unsecured Noteholders and Convertible Debentureholders and in accordance with applicable law; and

 

  (e)

Peters & Co. and Bellatrix are not aware of any feasible alternative transactions that are better than the Recapitalization Transaction.

Considerations - CBCA Opinion

For the purposes of the CBCA Opinion, Peters & Co. considered that the Senior Unsecured Noteholders, Convertible Debentureholders and Shareholders would be in a better financial position under the Recapitalization Transaction than if Bellatrix were liquidated, if the estimated aggregate value of the consideration made available to the Senior Unsecured Noteholders, Convertible Debentureholders and Shareholders, respectively, pursuant to the Recapitalization Transaction, exceeds the estimated value the Senior Unsecured Noteholders, Convertible Debentureholders and Shareholders would receive in a liquidation, respectively.

In preparing the CBCA Opinion, Peters & Co. relied upon the discussions, information, documents and materials referred to under the “Scope of Review” in the CBCA Opinion, reviewed with Bellatrix’s management the alternatives reasonably available to Bellatrix, and considered, among other things, the following matters:

 

  (a)

in a liquidation process, prospective buyers will be aware that the vendor is compelled to sell its assets, which may have a negative impact on the value realized;

 

  (b)

a liquidation process is likely to have a negative impact on the value of Bellatrix’s business as customers, suppliers and employees react to protect their interests;

 

  (c)

a liquidation process may give rise to significant incremental costs, including senior secured debtor in possession financing, and additional legal and financial advisory costs which would be incurred to implement the liquidation and address the associated legal proceedings. These costs would be recovered out of the sale proceeds that could otherwise be available to the Shareholders, Senior Unsecured Noteholders and Convertible Debentureholders;

 

  (d)

the current weak conditions in the Canadian energy capital markets and the Canadian oil and natural gas industry; current investor sentiment respecting, and support for, the energy industry; which factors would likely reduce the field of prospective bidders and constrain the bidding of participants in a liquidation process;

 

  (e)

the Recapitalization Transaction would reduce the total amount of debt outstanding, reducing the risk that Bellatrix’s cash flow from operations and available liquidity would be insufficient to provide adequate funds to finance the operating and capital expenditures and service its debt; and

 

  (f)

following the Recapitalization Transaction, Bellatrix has the opportunity to generate incremental value by benefiting from any recovery in the oil and natural gas industry.

Independence of Peters & Co.

Pursuant to an engagement letter dated February 22, 2019, Peters & Co. was engaged by Bellatrix to provide the Opinions and will receive fees for its services. Bellatrix has agreed to indemnify Peters & Co. in respect of certain matters relating to its engagement and Peters & Co. will be reimbursed for its reasonable out of pocket expenses. No portion of Peters & Co.’s fees is contingent upon the successful completion of the Arrangement. Peters & Co.’s engagement as independent financial advisor to the Special Committee and the Board provides for a fixed flat fee for providing the Opinions. Neither Peters & Co. nor any of its affiliated entities is an associated entity or affiliated

 

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entity or insider of Bellatrix, or its respective associates or affiliates. Peters & Co. is also independent of the parties who have entered into the Support Agreements with Bellatrix as of the date of the public announcement of the Support Agreements, as such parties have been identified to Peters & Co. by Goodmans LLP, counsel to Bellatrix.

Peters & Co. is an independent investment dealer headquartered in Calgary, Alberta, Canada. Neither Peters & Co. nor any of its affiliates or associates is an insider, associate or affiliate (as those terms are defined in the Securities Act (Alberta)) of Bellatrix. Further, neither Peters & Co. nor any of its affiliates is acting as an advisor to Bellatrix or any Senior Unsecured Noteholder, Convertible Debentureholder or existing Shareholder in connection with any matter, other than pursuant to Peter & Co.’s engagement as independent financial advisor to the Special Committee and the Board. There are also no understandings, agreements or commitments between Peters & Co. and the Corporation with respect to future business dealings.

Peters & Co. acts as a trader and dealer, both as principal and as agent, in all major Canadian financial markets and as such has had, or may have, positions in the securities of Bellatrix from time to time and has executed, or may execute, transactions in the securities of Bellatrix for which it receives compensation. In addition, as an investment dealer, Peters & Co. conducts research on securities and may, in the ordinary course of its business, be expected to provide investment advice to its clients on investment matters, including in respect of Bellatrix and/or the Recapitalization Transaction.

Recommendation of the Board of DirectorsAfter careful consideration and based on several factors, including the Corporation’s current capital structure and financial position, the ongoing challenges in the Western Canadian oil and natural gas market, the Corporation’s review of potential alternatives, the lengthy and detailed consultation and negotiations with applicable debtholders, the advice of legal and financial advisors to the Corporation, the recommendation of the Special Committee and the Opinions, the Board unanimously determined that the proposed Recapitalization Transaction is the best available transaction for the Corporation in the circumstances and is in the best interests of the Corporation and its stakeholders, and approved the Plan and the Recapitalization Transaction contemplated thereby.

The Board also considered various factors discussed in the foregoing section entitled “Background to and Reasons for the Recapitalization Transaction”. Further, the Board took note of the fact that Senior Unsecured Noteholders holding approximately 90% of the Senior Unsecured Notes and a Convertible Debentureholder holding approximately 50% of the Convertible Debentures were supportive of the Recapitalization Transaction and would be entering into the Noteholder Support Agreement and the Debentureholder Support Agreement, respectively.

The Board unanimously recommends that the Senior Unsecured Noteholders, Convertible Debentureholders and Shareholders support and vote in favour of the Recapitalization Transaction

EFFECT OF THE RECAPITALIZATION TRANSACTION

The Recapitalization Transaction is expected to substantially improve and strengthen the Corporation’s overall financial position by reducing the Corporation’s outstanding indebtedness by approximately $110 million, reduce annual cash interest payments by over $12 million annually until December 31, 2021 and address certain of the Corporation’s debt maturities such that the Corporation will have no debt maturities in respect of non-revolving debt prior to 2023, and improving the Corporation’s overall capital structure and liquidity. Deleveraging the Corporation and improving its capital structure will also provide greater financial flexibility for the Corporation to strengthen its operational and financial performance going forward.

The following unaudited pro forma financial information is presented for illustrative purposes only to show the effect of the Recapitalization Transaction on Bellatrix’s capital structure. It is not necessarily indicative of the Corporation’s financial position that would have occurred had the Recapitalization Transaction occurred on the dates presented in the unaudited pro forma financial information, or of the results expected in future periods. As a result of the Recapitalization Transaction, Bellatrix’s debt obligations upon implementation of the Recapitalization Transaction would be as follows:

 

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     Current Debt(1)      Pro Forma Debt  

First Lien Credit Facilities(2)

   $ 61.7 million      $ 61.7 million  

Second Lien Notes

   $ 134.8 million      $ 200.8 million  

New Third Lien Notes

   $ 0      $ 66 million (3) 

Senior Unsecured Notes

   $ 192.4 million      $ 0  

Convertible Debentures

   $ 50 million      $ 0  
  

 

 

    

 

 

 

Total

   $ 438.9 million      $ 328.5 million  
  

 

 

    

 

 

 

 

(1)

Obligations in U.S. dollars converted at an exchange rate of 1.320 U.S./Canadian dollars.

(2)

Drawn Credit Facility as at December 31, 2018, including $13.9 million of letters of credit. Pro forma debt does not include any transaction costs associated with the Recapitalization Transaction.

(3)

The aggregate amount of New Third Lien Notes assumes that the Cash Interest Payment is paid in cash on the Effective Date rather than by way of the issuance of Additional New Third Lien Notes.

NOTEHOLDER SUPPORT AGREEMENT

On March 28, 2019, Bellatrix entered into the Noteholder Support Agreement with the Initial Consenting Noteholders, which hold in the aggregate US$130,610,000 of Senior Unsecured Notes (based on holdings of Senior Unsecured Notes disclosed to the Corporation in the Noteholder Support Agreement), representing approximately 90% of the Senior Unsecured Notes. The following is a summary of the principal terms of the Noteholder Support Agreement. This summary does not purport to be complete and is qualified in its entirety by reference to the Noteholder Support Agreement, a copy of which, subject to applicable redactions, is available under the Corporation’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

Consenting Noteholder Covenants

Pursuant to the Noteholder Support Agreement, and subject to the terms and conditions thereof, each Initial Consenting Noteholders agreed, among other things:

 

  (a)

to vote (or cause to be voted) all of its Debt and Common Shares, as applicable, (i) by the Early Consent Date, in favour of the approval, consent, ratification and adoption of the Plan in accordance with the terms therein; and (ii) against the approval, consent, ratification and adoption of any matter or transaction for the Corporation that, if approved, consented to, ratified or adopted could reasonably be expected to delay, challenge, frustrate or hinder the consummation of the Recapitalization Transaction and/or the Plan, as applicable;

 

  (b)

not to, directly or indirectly sell, assign, lend, pledge, mortgage or hypothecate, dispose or otherwise transfer any of its Debt or Common Shares, or any rights or interests therein, deposit any of its Debt or Common Shares into a voting trust, or grant (or permit to be granted) any proxies or powers of attorney or attorney in fact, or enter into a voting agreement, understanding or arrangement, with respect to the voting of its Debt or Common Shares if such trust, grant, agreement, understanding or arrangement would be reasonably expected to adversely impact the ability of the Consenting Noteholder to comply with its obligations under the Noteholder Support Agreement, in each case subject to the exceptions contained in the Noteholder Support Agreement;

 

  (c)

not to take any action, directly or indirectly, that is inconsistent with its obligations under the Noteholder Support Agreement or that would frustrate, hinder or delay the consummation of the Recapitalization Transaction;

 

  (d)

not to propose, file, solicit, vote for (or cause to vote for), agree to or otherwise support any alternative offer, transaction (including exchange transaction), restructuring, liquidation, workout or plan of compromise or arrangement or reorganization of or for the Corporation, including,

 

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  without limitation, any proceeding or plan of arrangement under the CBCA, other legislation or otherwise, or note exchange transaction pursuant to an exchange offer or otherwise, that is inconsistent with the Recapitalization Transaction or the Noteholder Support Agreement; and

 

  (e)

to use its commercially reasonable efforts to support, and to instruct the Initial Consenting Noteholder Advisors to support, all motions filed by the Corporation in the CBCA Proceedings that are consistent with and in furtherance of the Noteholder Support Agreement, the Recapitalization Transaction and the Plan.

Pursuant to the Noteholder Support Agreement, and subject to the terms and conditions thereof, Bellatrix agreed to, among other things, take all reasonable actions necessary to implement the Recapitalization Transaction in accordance with the terms of the Noteholder Support Agreement, file the Plan on a timely basis consistent with the terms and conditions of the Noteholder Support Agreement, recommend that any Person entitled to vote on the Plan vote in favour of the Plan, take all commercially reasonable actions necessary to obtain any regulatory approvals required to implement the Recapitalization Transaction and to achieve the following timeline:

 

  (a)

filing the application in the CBCA Proceedings seeking the Interim Order by no later than April 18, 2019;

 

  (b)

obtain approval of the Interim Order by the Court by no later than April 18, 2019;

 

  (c)

obtain approval of the Final Order by the Court by no later than June 12, 2019; and

 

  (d)

implement the Recapitalization Transaction pursuant to the Plan on or prior to the Outside Date, or such other date as the parties to the Noteholder Support Agreement may agree.

Representations and Warranties

The parties to the Noteholder Support Agreement made a number of customary representations and warranties regarding themselves and the Noteholder Support Agreement.

Superior Proposal

The Noteholder Support Agreement provides that, in the event the Corporation receives a bona fide unsolicited proposal, the Corporation is permitted to negotiate and enter into a transaction in respect of any such proposal if, following receipt of advice from outside legal and financial advisors, the Board believes in good faith, in the exercise of its fiduciary duties, that such proposal could reasonably be expected to result in a transaction more favourable to the Corporation and its stakeholders than the Recapitalization Transaction (a “Noteholder Support Agreement Superior Proposal”); provided that if the Corporation receives a Noteholder Support Agreement Superior Proposal, it shall disclose to the Initial Consenting Noteholder Advisors within three Business Days of the receipt of such Noteholder Support Agreement Superior Proposal: (i) the receipt thereof; (ii) the identity of the Person or group of Persons involved; and (iii) the material terms of such Noteholder Support Agreement Superior Proposal and copies of all material documents received in respect of such Noteholder Support Agreement Superior Proposal from or on behalf of such Person, in each case subject to any confidentiality restrictions and provided that the Initial Consenting Noteholder Advisors and the Initial Consenting Noteholders shall agree to keep such information confidential.

Conditions

The Noteholder Support Agreement stipulates that the following conditions, among others, must be satisfied or waived in accordance with the terms therein prior to implementation of the Recapitalization Transaction:

 

  a)

the Plan shall have been approved by the Court and the requisite majority of affected stakeholders as and to the extent required by the Court and shall have been implemented by the Outside Date, or such other date as the parties to the Noteholder Support Agreement may agree;

 

  b)

the Corporation shall have received any and all required consents and approvals from required third parties, unless otherwise addressed pursuant to the Final Order;

 

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  c)

the Plan and the Definitive Documents (as defined in the Noteholder Support Agreement) shall be on terms consistent with the Noteholder Support Agreement and shall be in form and substance satisfactory to the Corporation and the Initial Consenting Noteholders, each acting reasonably;

 

  d)

all filings that are required under applicable Laws in connection with the Recapitalization Transaction shall have been made and any material third party and regulatory consents or approvals that are required in connection with the Recapitalization Transaction shall have been obtained on terms satisfactory to the Corporation and the Initial Consenting Noteholders, each acting reasonably and, in the case of waiting or suspensory periods, such waiting or suspensory periods shall have expired or been terminated;

 

  e)

there shall not be in effect any preliminary or final decision, order or decree by a Governmental Entity, no application shall have been made to any Governmental Entity, and no action or investigation shall have been announced, threatened or commenced by any Governmental Entity, in consequence of or in connection with the Recapitalization Transaction or the Plan that restrains, prohibits or materially impedes the Recapitalization Transaction or the Plan, or requires or purports to require a material variation of the Recapitalization Transaction Terms that is not acceptable to the Corporation and the Initial Consenting Noteholders, each acting reasonably;

 

  f)

there shall be no proceeding, claim or investigation pending or threatened before any Governmental Entity in connection with the Recapitalization Transaction that would reasonably be expected to restrain, prohibit or materially impede the Recapitalization Transaction or the Plan;

 

  g)

the Corporation shall not have made any amendments or modifications to, grant any awards under or made any Board determinations that the implementation of the Recapitalization Transaction is deemed to result in a change of control under, its existing equity incentive plans, and shall not have implemented any new or additional equity incentive plans or similar arrangements, in each case on or prior to the implementation of the Recapitalization Transaction, without the consent of the Initial Consenting Noteholders;

 

  h)

the director appointed pursuant to section 260 of the CBCA shall have issued a certificate of arrangement giving effect to the articles of arrangement in respect of the Plan; and

 

  i)

the Effective Date shall occur by the Outside Date, or such other date as the parties to the Noteholder Support Agreement may agree.

The obligations of the Consenting Noteholders to complete the Recapitalization Transaction are subject to the satisfaction of the following conditions, among others, prior to or on the Effective Date, each of which is for the exclusive benefit of the Consenting Noteholders and may be waived, in whole or in part, solely by the Initial Consenting Noteholders:

 

  a)

the Corporation shall have (i) achieved the milestones required by the Noteholder Support Agreement on or before the applicable dates set forth therein, and (ii) complied in all material respects with its covenants and obligations in the Noteholder Support Agreement that are to be performed on or before the Effective Date;

 

  b)

the composition and size of the Board as of the Effective Date shall be satisfactory to the Initial Consenting Noteholders and the Corporation, each acting reasonably, and the Corporation shall have entered into a registration rights agreement reasonably satisfactory to the Initial Consenting Noteholders and the Corporation, each acting reasonably;

 

  c)

all securities of the Corporation to be issued in connection with the Recapitalization Transaction, when issued and delivered, shall be duly authorized, validly issued and, with respect to the New Common Shares, fully paid and non-assessable;

 

  d)

all Common Shares, including the New Common Shares, shall be listed and conditionally approved for trading on the TSX, subject only to the receipt of customary final documentation;

 

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  e)

immediately following implementation of the Recapitalization Transaction, the aggregate principal amount of the Corporation’s secured and unsecured debt obligations for borrowed money shall consist of only: (i) up to $100 million of the Corporation’s First Lien Credit Facilities; and (ii) up to US$202.2 million of secured and unsecured notes (plus such amount of additional notes as may be issued to holders of Senior Unsecured Notes as payment for accrued and outstanding interest in respect of the Senior Unsecured Notes on implementation of the Plan), or such other amount(s) acceptable to the Corporation and the Initial Consenting Noteholders;

 

  f)

the Corporation shall not have made any cash payment of principal or interest to any holder of, or on account of, the Convertible Debentures while the Noteholder Support Agreement is in effect;

 

  g)

all of the Convertible Debentures shall have been exchanged in accordance with the term sheet attached as a schedule to the Noteholder Support Agreement and all claims with respect to the Convertible Debentures shall be irrevocably and finally extinguished, discharged and released;

 

  h)

the Revolving Credit Facility shall have been extended for a one-year term on substantially similar terms as the current Revolving Credit Facility, and/or with such other terms as are acceptable to the Corporation and the Initial Consenting Noteholders, each acting reasonably;

 

  i)

the Existing Second Lien Note Purchase Agreement shall have been amended to reflect the terms of and allow for the implementation of the Recapitalization Transaction in accordance with the term sheet attached as a schedule to the Noteholder Support Agreement in form and substance acceptable to the Corporation and the Initial Consenting Noteholders, each acting reasonably; and

 

  j)

each of the applicable parties shall have executed and delivered an intercreditor agreement to reflect the lien subordination of the New Third Lien Notes to the Revolving Credit Facility, the Existing Second Lien Notes and New Second Lien Notes, in form and substance acceptable to the Corporation and the Initial Consenting Noteholders, each acting reasonably.

Termination

The Noteholder Support Agreement may be terminated by the Initial Consenting Noteholders by providing written notice to the Corporation upon the occurrence of, among other things: (i) the Corporation failing to meet any of the milestones required by the Noteholder Support Agreement; or (ii) the Corporation entering into a written agreement, or publicly supporting or announces its intention, to pursue a Noteholder Support Agreement Superior Proposal.

The Noteholder Support Agreement may be terminated by the Corporation by providing written notice to the Consenting Noteholders upon the occurrence of, among other things: (i) if at any time the Consenting Noteholders that are party to the Noteholder Support Agreement hold in aggregate less than 66 2/3% of the principal amount of outstanding Senior Unsecured Notes; (ii) the Corporation entering into a written agreement, or publicly announcing its intention to pursue a Noteholder Support Agreement Superior Proposal; or (iii) the Senior Unsecured Notes are repaid in cash in full prior to the Effective Date.

The Noteholder Support Agreement will terminate automatically as to all parties thereto on the Effective Date upon the implementation of the Recapitalization Transaction.

In addition, the Noteholder Support Agreement may be terminated by mutual consent of the Corporation and the Initial Consenting Noteholders.

Loomis

Based on the holdings information provided in the Noteholder Support Agreement, Loomis, one of the Initial Consenting Noteholders, holds or controls US$79,060,000 of Senior Unsecured Notes (representing approximately 54% of the Senior Unsecured Notes) and does not hold or control any Common Shares or Convertible Debentures. Based on such holdings and subject to the terms of the Plan in respect of the Alternative Senior Unsecured Noteholder Group Equity Allocation, it is anticipated that Loomis will hold or control 10,211,725 post-Share Consolidation Common Shares upon completion of the Recapitalization Transaction, representing

 

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24.99% of the Common Shares issued and outstanding immediately following the implementation of the Recapitalization Transaction.

DEBENTUREHOLDER SUPPORT AGREEMENT

On March 28, 2019, Bellatrix entered into the Debentureholder Support Agreement with the Initial Consenting Debentureholder that holds $25,027,000 of Convertible Debentures (based on holdings of Convertible Debentures and Common Shares disclosed to the Corporation in the Debentureholder Support Agreement), representing approximately 50% of the Convertible Debentures. The following is a summary of the principal terms of the Debentureholder Support Agreement. This summary does not purport to be complete and is qualified in its entirety by reference to the Debentureholder Support Agreement, a copy of which, subject to applicable redactions, is available under the Corporation’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

Consenting Debentureholder Covenants

Pursuant to the Debentureholder Support Agreement and subject to the terms and conditions thereof, the Initial Consenting Debentureholder agreed, among other things:

 

  a)

to vote (or cause to be voted) all of its Debt and Common Shares, as applicable (i) by the Early Consent Date, in favour of the approval, consent, ratification and adoption of the Plan (and any actions required in furtherance thereof) in accordance with the terms therein; and (ii) against the approval, consent, ratification and adoption of any matter or transaction that, if approved, consented to, ratified or adopted could reasonably be expected to delay, challenge, frustrate or hinder the consummation of the Recapitalization Transaction and/or the Plan, as applicable;

 

  (a)

not to, directly or indirectly sell, assign, lend, pledge, mortgage or hypothecate, dispose or otherwise transfer any of its Debt or Common Shares, or any rights or interests therein, or deposit any of its Debt or Common Shares into a voting trust, or grant (or permit to be granted) any proxies or powers of attorney or attorney in fact, or enter into a voting agreement, understanding or arrangement, with respect to the voting of its Debt or Common Shares if such trust, grant, agreement, understanding or arrangement would in any manner restrict the ability of the Consenting Debentureholder to comply with its obligations under the Debentureholder Support Agreement, in each case subject to the exceptions contained in the Debentureholder Support Agreement;

 

  (b)

not to take any action, directly or indirectly, that is inconsistent with its obligations under the Debentureholder Support Agreement or that would frustrate, hinder or delay the consummation of the Recapitalization Transaction;

 

  (c)

not to propose, file, solicit, vote for (or cause to vote for), agree to or otherwise support any alternative offer, transaction (including exchange transaction), restructuring, liquidation, workout or plan of compromise or arrangement or reorganization of or for the Corporation, including, without limitation, any proceeding or plan of arrangement under the CBCA, other legislation or otherwise, any exchange transaction pursuant to an exchange offer or otherwise, or any debenture amendment that is inconsistent with the Recapitalization Transaction or the Debentureholder Support Agreement; and

 

  (d)

to support, and to instruct its advisors to support all motions filed by the Corporation in the CBCA Proceedings that are consistent with and in furtherance of the Recapitalization Transaction and the Plan.

Pursuant to the Debentureholder Support Agreement, and subject to the terms and conditions thereof, Bellatrix agreed, among other things, to take all reasonable actions necessary to implement the Recapitalization Transaction and use commercially reasonable efforts to achieve the following timeline:

 

  (a)

if, at the election of the Corporation, the Recapitalization Transaction is to be implemented pursuant to a Plan:

 

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  (i)

filing the application in the CBCA Proceedings seeking the Interim Order by no later than April 18, 2019; and

 

  (ii)

implementing the Recapitalization Transaction pursuant to the Plan on or prior to the Outside Date, or such other date as the parties to the Debentureholder Support Agreement may agree; or

 

  (b)

if, at the election of the Corporation, the Recapitalization Transaction is to be implemented pursuant to an amendment to the Convertible Debenture Indenture, implementing the Recapitalization Transaction pursuant to the Debenture Amendment on or prior to the Outside Date, or such other date as the parties to the Debentureholder Support Agreement may agree.

Representations and Warranties

The parties to the Debentureholder Support Agreement made a number of customary representations and warranties regarding themselves and the Debentureholder Support Agreement.

Superior Proposal

In the event the Corporation receives a bona fide unsolicited proposal, the Corporation is permitted to negotiate, advance, facilitate and enter into a transaction in respect of any such proposal if, following receipt of advice from outside legal and financial advisors, the Board believes in good faith, in the exercise of its fiduciary duties, that such proposal could reasonably be expected to result in a transaction more favourable to the Corporation and its stakeholders than the Recapitalization Transaction (a “Debentureholder Support Agreement Superior Proposal”).

Conditions

The Debentureholder Support Agreement stipulates that the Recapitalization Transaction is subject to the reasonable satisfaction of the following conditions, among others, prior to or on the Effective Date, each of which is for the benefit of the Corporation and the Consenting Debentureholders and may be waived in whole or in part by the Corporation and the Majority Consenting Debentureholders:

 

  (a)

the Plan shall have been approved by the Court and the requisite majority of affected stakeholders as and to the extent required by the Court;

 

  (b)

the Final Order shall have been granted by the Court, and the implementation, operation or effect of the Final Order shall not have been stayed, varied in a manner not acceptable to the Corporation or the Majority Consenting Debentureholders, each acting reasonably, vacated or be subject to pending appeal;

 

  (c)

the Plan and the Definitive Documents (as defined in the Debentureholder Support Agreement) shall be on terms consistent with the Debentureholder Support Agreement;

 

  (d)

all filings that are required under applicable Laws in connection with the Recapitalization Transaction shall have been made and any material third party and regulatory consents or approvals that are required in connection with the Recapitalization Transaction shall have been obtained and, in the case of waiting or suspensory periods, such waiting or suspensory periods shall have expired or been terminated;

 

  (e)

there shall not be in effect any preliminary or final decision, order or decree by a Governmental Entity, no application shall have been made to any Governmental Entity, and no action or investigation shall have been announced, threatened or commenced by any Governmental Entity, in consequence of or in connection with the Recapitalization Transaction or the Plan that restrains, prohibits or materially impedes, the Recapitalization Transaction or the Plan, or requires or purports to require a material variation of the Recapitalization Transaction Terms that is not acceptable to the Corporation and the Majority Consenting Debentureholders, each acting reasonably;

 

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  (f)

there shall be no proceeding, claim or investigation pending or threatened before any Governmental Entity in connection with the Recapitalization Transaction that would reasonably be expected to restrain, prohibit or materially impede the Recapitalization Transaction or the Plan;

 

  (g)

the Director appointed pursuant to section 260 of the CBCA shall have issued a certificate of arrangement giving effect to the articles of arrangement in respect of the Plan; and

 

  (h)

the Effective Date shall occur by the Outside Date, or such other date as the parties to the Debentureholder Support Agreement may agree.

The obligations of the Consenting Debentureholders to complete the Recapitalization Transaction are subject to the satisfaction of the following conditions, among others, prior to or on the Effective Date, each of which is for the exclusive benefit of the Consenting Debentureholders and may be waived, in whole or in part, solely by the Majority Consenting Debentureholders:

 

  (a)

all common shares of the Corporation, including the New Common Shares, shall be listed and conditionally approved for trading on the TSX, subject only to the receipt of customary final documentation; and

 

  (b)

immediately following implementation of the Recapitalization Transaction, the aggregate principal amount of the Corporation’s secured and unsecured debt obligations for borrowed money shall consist of only: (a) up to $100 million of the Corporation’s First Lien Credit Facilities; and (b) up to US$202.2 million of secured and unsecured notes, or such other amount(s) acceptable to the Corporation and the Majority Consenting Debentureholders.

Termination

The Debentureholder Support Agreement may be terminated by the Majority Consenting Debentureholders (provided that the Convertible Debentures held by any breaching Consenting Debentureholder shall be excluded when determining whether the Majority Consenting Debentureholders are entitled to terminate the Debentureholder Support Agreement) by providing written notice to the Corporation upon the occurrence of, among other things: (i) the Corporation failing to meet any of the milestones required by the Debentureholder Support Agreement; or (ii) the Corporation entering into a written agreement, or publicly supporting, or announcing its intention, to pursue a Debentureholder Support Agreement Superior Proposal.

The Debentureholder Support Agreement may be terminated by the Corporation by providing written notice to the Consenting Debentureholders upon the occurrence of, among other things: (i) if at any time the Consenting Debentureholders that are party to the Debentureholder Support Agreement holding in aggregate less than 50% of the principal amount of outstanding Convertible Debentures; (ii) the Corporation entering into a written agreement, or publicly announcing its intention, to pursue a Debentureholder Support Agreement Superior Proposal; or (iii) the Convertible Debentures being repaid in cash in full on or prior to the Effective Date.

The Debentureholder Support Agreement will terminate automatically as to all parties thereto on the Effective Date upon the implementation of the Recapitalization Transaction.

In addition, the Debentureholder Support Agreement may be terminated by mutual consent of the Corporation and the Majority Consenting Debentureholders.

Polar

Based on the holdings information disclosed to the Corporation in the Debentureholder Support Agreement, Polar, the Initial Consenting Debentureholder, holds or controls $25,027,000 of Convertible Debentures (representing approximately 50% of the Convertible Debentures) and holds or controls 1,377,733 Common Shares, representing approximately 2% of the currently issued and outstanding Common Shares. Based on such holdings, subject to the terms of the Plan and assuming 90% of the Convertible Debentures are Consent Debentures, it is anticipated that Polar will hold or control 6,875,891 post-Share Consolidation Common Shares upon completion of the Recapitalization Transaction, representing 16.83% of the Common Shares issued and outstanding immediately following the implementation of the Recapitalization Transaction. Based on the foregoing and taking into account

 

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accrued interest assuming an Effective Date of May 30, 2019, Polar will be receiving approximately 258 Common Shares per $1,000 of principal and accrued interest owing to Polar in respect of the Convertible Debentures (for a total of 6,761,080 Common Shares). The 1,377,733 Common Shares held or controlled by Polar will be consolidated into 114,811 Common Shares.

CONSENT AGREEMENTS

On March 28, 2019, Bellatrix entered into the First Lien Consent Agreement with the First Lien Lenders and the First Lien Agent, and the Second Lien Consent Agreement with the Existing Second Lien Noteholders and the Existing Second Lien Notes Agent. The following is a summary of the principal terms of the Consent Agreements. This summary does not purport to be complete and is qualified in its entirety by reference to the Consent Agreements, copies of which are available, subject to applicable redactions, under the Corporation’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

First Lien Consent Agreement

Waiver and Consent

Pursuant to the First Lien Consent Agreement and subject to the terms and conditions contained therein, the First Lien Lenders agreed to: (i) consent to the Corporation’s proceedings under the CBCA and waive the Relevant Defaults (as defined in the First Lien Consent Agreement) and the rights of the First Lien Agent and the First Lien Lenders in respect of such Relevant Defaults; and (ii) upon the closing of the Recapitalization Transaction, consent to the incurrence by Bellatrix, in connection with the Recapitalization Transaction, of applicable new debt and the related liens.

Covenants

Pursuant to the First Lien Consent Agreement and subject to the terms and conditions thereof, the Corporation agreed, among other things:

 

  a)

to provide monthly cash flow projections;

 

  b)

to provide notices of certain material events relating to the Recapitalization Transaction, including the termination of the CBCA Proceedings or any orders issued thereunder;

 

  c)

not to amend the Support Agreements or the Second Lien Consent Agreement in any manner materially adverse to the First Lien Lenders; and

 

  d)

not to pay any fee or other consideration to the Existing Second Lien Noteholders, the Senior Unsecured Noteholders or the Convertible Debentureholders, except as explicitly set out in the Second Lien Consent Agreement and the Support Agreements.

Conditions

The consents provided for in the First Lien Consent Agreement are subject to various conditions, including the following:

 

  a)

the Senior Unsecured Noteholders and the Convertible Debentureholders must be prevented from exercising the right to cause the Senior Unsecured Notes or the Convertible Debentures, as applicable, to become due or to be repurchased, prepaid, defeased or redeemed, or to cause to be made or received an offer to repurchase, prepay, defease or redeem the Unsecured Notes or the Convertible Debentures, as applicable, prior to their stated maturity, in each case to the extent such right arises or results from the commencement and pursuit of the CBCA Proceedings or the transactions contemplated by the Recapitalization Transaction or the failure to make interests payments when due;

 

  b)

the First Lien Lenders must be “unaffected creditors” for the purposes of the CBCA Proceedings; and

 

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  c)

the Corporation must have obtained applicable approvals, consents and waivers in respect of the Recapitalization Transaction and the Recapitalization Transaction must occur before the Outside Date.

Termination

The waivers and consents provided for in the First Lien Consent Agreement shall terminate upon the occurrence of certain events, including the following:

 

  a)

the termination of the Second Lien Consent Agreement;

 

  b)

the termination or unenforceability of either of the Support Agreements;

 

  c)

the termination of the CBCA Proceedings; and

 

  d)

the making of any payment to the Senior Unsecured Noteholders or the Convertible Debentureholders, subject to certain exceptions as set out in the First Lien Consent Agreement,

provided that the waiver in respect of the CBCA Proceedings shall remain in full force and effect notwithstanding the termination of the First Lien Consent Agreement, subject to the satisfaction of certain conditions set out in the First Lien Consent Agreement.

Second Lien Consent Agreement

Waiver and Consent

Pursuant to the Second Lien Consent Agreement, the Existing Second Lien Noteholders agreed to, among other things (and subject to certain exceptions set forth therein):

 

  a)

with respect to potential applicable defaults: (i) to the extent that the CBCA Proceedings in respect of the Recapitalization Transaction constitute a default or event of default: (A) waive such default and/or event of default, and (B) waive and rescind any automatic acceleration in connection therewith, and (ii) to the extent that any default under the Senior Unsecured Notes and the Convertible Debentures in existence during the pendency of the CBCA Proceedings solely on account of the non-payment of interest would constitute a default or event of default under the Existing Second Lien Note Purchase Agreement, waive such default and/or event of default;

 

  b)

upon the closing of the Recapitalization Transaction, consent to the incurrence by Bellatrix, in connection with the Recapitalization Transaction, of applicable new debt and the related liens, subject to the conditions set out in the Second Lien Consent Agreement; and

 

  c)

make certain technical amendments to facilitate the implementation of the Recapitalization Transaction, including the extension of the New Second Lien Notes Basket Deadline.

Covenants

Pursuant to the Second Lien Consent Agreement and subject to the terms and conditions thereof, the Corporation agreed, among other things:

 

  a)

to provide to the Existing Second Lien Noteholders reporting substantially the same as that provided to the First Lien Lenders under the First Lien Consent Agreement;

 

  b)

not to amend the Support Agreements or the Second Lien Consent Agreement in any manner materially adverse to the First Lien Lenders; and

 

  c)

upon implementation of the Recapitalization Transaction, not to make any cash payments in respect of the New Third Lien Notes in excess of interest at a rate of up to of 4.75% per annum prior to June 30, 2021.

 

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Conditions

The effectiveness of the terms of the Second Lien Consent Agreement that provide for the amendments described above required to implement the Recapitalization Transaction are subject to certain conditions, including, among others things:

 

  a)

the Plan giving effect to the Recapitalization Transaction shall have been approved by the Court and implemented on or prior to the Outside Date;

 

  b)

the terms of the Plan and the Recapitalization shall not have any deviations from the terms contemplated in the Second Lien Consent Agreement that are adverse to the Existing Second Lien Noteholders;

 

  c)

the execution of a satisfactory amended intercreditor agreement with respect to the New Third Lien Notes; and

 

  d)

the Warrant Transactions shall have been implemented.

CERTAIN REGULATORY AND OTHER MATTERS RELATING TO THE RECAPITALIZATION TRANSACTION

United States

The following discussion is a general overview of certain requirements of U.S. federal securities laws that may be applicable to Debtholders in the United States in respect of New Common Shares, New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) received pursuant to the Arrangement. All Debtholders are urged to consult with their own legal counsel to ensure that any subsequent resale of securities issued to them in connection with the Arrangement complies with applicable securities legislation.

The following discussion does not address the Canadian Securities Laws that will apply to the issuance to or the resale by Debtholders within Canada of securities of Bellatrix. Debtholders reselling their securities in Canada must comply with Canadian Securities Laws, as outlined below under “Certain Regulatory and Other Matters Relating to the Recapitalization Transaction – Canada”.

Exemption from the Registration Requirements of the 1933 Act

The issuance and distribution of the New Second Lien Notes, the New Third Lien Notes, the Additional New Third Lien Notes (if any) and the New Common Shares under the Plan have not been registered under the 1933 Act and the New Second Lien Notes, New Third Lien Notes, Additional New Third Lien Notes (if any) and New Common Shares may not be offered or sold within the United States except pursuant to an exemption from the registration requirements of the 1933 Act. The New Second Lien Notes, the New Third Lien Notes, the Additional New Third Lien Notes (if any) and the New Common Shares are being issued in reliance on the Section (3)(a)(10) exemption from registration on the basis of the approval of the Court, which will consider, among other things, the fairness of the Arrangement to the persons affected, and exemptions provided under the securities laws of each state of the United States in which applicable Senior Unsecured Noteholders and Convertible Debentureholders reside. The Section 3(a)(10) exemption exempts from registration the distribution of a security that is issued in exchange for outstanding securities, claims or property interests where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange have the right to appear, by a court or by a governmental authority expressly authorized by law to grant such approval. Accordingly, the Final Order will, if granted, constitute a basis for the exemption from the registration requirements of the 1933 Act with respect to the New Second Lien Notes, the New Third Lien Notes, the Additional New Third Lien Notes (if any) and the New Common Shares issued in connection with the Recapitalization Transaction.

Resales of New Second Lien Notes, New Third Lien Notes, Additional New Third Lien Notes (if any) and New Common Shares within the United States after the completion of the Arrangement

Persons who are not affiliates of Bellatrix after the Arrangement and who have not been affiliates of Bellatrix within 90 days of the Effective Date may resell the New Second Lien Notes, the New Third Lien Notes, the Additional

 

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New Third Lien Notes (if any) and New Common Shares that they receive in connection with the Arrangement in the United States without restriction under the 1933 Act. A Person who will be an “affiliate” of Bellatrix after the Arrangement will be subject to certain restrictions on resale imposed by the 1933 Act. As defined in Rule 144 under the 1933 Act, an “affiliate” of an issuer is a person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the issuer and may include certain officers and directors of such issuer as well as principal shareholders of such issuer.

Persons who are affiliates of Bellatrix after the Arrangement may not resell New Second Lien Notes, the New Third Lien Notes, the Additional New Third Lien Notes (if any) or New Common Shares that they receive in connection with the Arrangement in the absence of registration under the 1933 Act, unless an exemption from registration is available, such as the exemptions contained in Rule 144 or Rule 904 of Regulation S under the 1933 Act.

In general, under Rule 144, persons who are affiliates of Bellatrix after the Arrangement will be entitled to sell in the United States, the New Second Lien Notes, the New Third Lien Notes, the Additional New Third Lien Notes (if any) or New Common Shares that they receive in connection with the Arrangement, provided that the number of such securities sold does not exceed, during any three-month period, the greater of one percent of the then outstanding securities of such class or, if such securities are listed on a United States securities exchange and/or reported through the automated quotation system of a U.S. registered securities association, the average weekly trading volume of such securities during the four calendar week period preceding the date of sale, subject to specified requirements, restrictions on manner of sale, aggregation rules and the availability of current public information about Bellatrix. Persons who are affiliates of Bellatrix after the Arrangement will continue to be subject to the resale restrictions described in this paragraph for so long as they continue to be affiliates of Bellatrix.

In general, under Regulation S, persons who are affiliates of Bellatrix solely by virtue of their status as an officer or director of Bellatrix may sell their New Second Lien Notes, the New Third Lien Notes, the Additional New Third Lien Notes (if any) or New Common Shares received in connection with the Arrangement outside the United States in an “offshore transaction” if neither the seller, an affiliate nor any person acting on its behalf engages in “directed selling efforts” in the United States and provided that no selling commission, fee or other remuneration is paid in connection with such sale other than the usual and customary broker’s commission that would be received by a person executing such transaction as agent. For purposes of Regulation S, “directed selling efforts” means “any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of the securities being offered”. Also, under Regulation S, an “offshore transaction” includes an offer that is not made to a person in the United States where either (i) at the time the buy order is originated, the buyer is outside the United States or the seller reasonably believes that the buyer is outside of the United States; or (ii) the transaction is executed in, on or through the facilities of a Designated Offshore Securities Market (which would include a sale through the TSX if applicable). Certain additional restrictions, set forth in Rule 903 of Regulation S, are applicable to a holder of such securities who is an affiliate of Bellatrix after the Arrangement other than by virtue of his or her status as an officer or director of Bellatrix.

Canada

The issuance of the New Second Lien Notes, the New Third Lien Notes, the Additional New Third Lien Notes (if any) and the New Common Shares will be exempt from the prospectus and registration requirements under Canadian Securities Laws. As a consequence of these exemptions, certain protections, rights and remedies provided by Canadian Securities Laws, including statutory rights of rescission or damages, will not be available in respect of such new securities to be issued pursuant to the Recapitalization Transaction. The New Second Lien Notes, the New Third Lien Notes, the Additional New Third Lien Notes (if any) and the New Common Shares issued pursuant to the Recapitalization Transaction will generally be “freely tradeable” under Canadian Securities Laws in force in Canada if the following conditions (as specified in NI 45-102) are satisfied: (i) the trade is not a “control distribution” (as defined in NI 45-102); (ii) no unusual effort is made to prepare the market or to create a demand for the shares that are the subject of the trade; (iii) no extraordinary commission or consideration is paid to a person or company in respect of the trade; and (iv) if the selling securityholder is an Insider or officer of the issuer, the selling securityholder has no reasonable grounds to believe that the issuer is in default of securities legislation.

Stock Exchange Listing

The Common Shares are currently listed on the TSX. On July 23, 2018, the Corporation received a continued listing standard notice from the NYSE as the average closing price of Bellatrix’s common shares was less than US$1.00 per

 

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share over a period of 30 consecutive trading days. In accordance with the NYSE rules, Bellatrix had six months following receipt of the notification to regain compliance with the minimum share price requirement. On January 22, 2019, the Corporation announced that it had determined to commence procedures for the voluntary delisting of the Common Shares from the NYSE. The delisting from the NYSE became effective on February 12, 2019.

Expenses

The estimated fees, costs and expenses payable by Bellatrix in connection with the completion of the Recapitalization Transaction including, without limitation, financial advisory fees, filing fees, legal and accounting fees and printing and mailing costs are anticipated to be approximately $11.7 million.

UNAUDITED PRO FORMA BALANCE SHEET

The following unaudited pro forma balance sheet is presented for illustrative purposes only to show the effect of the Recapitalization Transaction on Bellatrix’s capital structure. It is not necessarily indicative of the operating or financial results that would have occurred had the Recapitalization Transaction occurred on the dates presented in the unaudited pro forma balance sheet shown below, or of the results expected in future periods.

 

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Bellatrix Exploration Ltd.

Unaudited Pro Forma Balance Sheet

As at December 31, 2018

(in thousands of dollars)(1)(2)

 

     Audited as at
Dec 31, 2018
    Adjustment for
Recapitalization
Transaction
    Pro forma as at
Dec 31, 2018
 

ASSETS

      

Current assets

      

Accounts receivable

   $ 36,955       —       $ 36,955  

Deposits and prepaid expenses

     3,516       —         3,516  

Current portion of risk management asset

     9,852       —         9,852  
  

 

 

   

 

 

   

 

 

 
     50,323       —         50,323  

Risk management asset

     3,291       —         3,291  

Exploration and evaluation assets

     17,707       —         17,707  

Property, plant and equipment

     1,164,422       —         1,164,422  
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,235,743       —       $ 1,235,743  
  

 

 

   

 

 

   

 

 

 

LIABILITIES

      

Current liabilities

      

Accounts payable and accrued liabilities(7)

   $ 61,211       (3,020   $ 58,191  

Current portion of other deferred liabilities

     1,909       —         1,909  

Current portion of risk management liability

     917       —         917  

Current portion of Credit Facilities

     47,763       (47,763     —    

Current portion of decommissioning liability

     2,387       —         2,387  
  

 

 

   

 

 

   

 

 

 
     114,187       (50,783     63,404  

First Lien Credit Facilities(3)

     —         58,186       58,186  

Second Lien Notes(4)

     137,097       65,184       202,281  

New Third Lien Notes(5)

     —         65,184       65,184  

Senior Unsecured Notes

     196,000       (196,000     —    

Convertible Debentures (liability component)

     41,732       (41,732     —    

Risk management liability

     1,652       —         1,652  

Other deferred liabilities

     10,863       —         10,863  

Decommissioning liabilities

     61,487       —         61,487  
  

 

 

   

 

 

   

 

 

 

Total liabilities

     563,018       (99,961     463,057  

SHAREHOLDERS’ EQUITY

      

Shareholders’ capital(6)

     1,112,619       121,264       1,233,883  

Warrants

     1,652       —         1,652  

Convertible Debentures (equity component)

     7,818       (7,818     —    

Contributed surplus

     56,499       —         56,499  

Retained earnings (deficit)

     (505,863     (13,485     (519,348
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     672,725       99,961       772,686  
  

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,235,743       —       $ 1,235,743  
  

 

 

   

 

 

   

 

 

 

 

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Notes to the Unaudited Pro Forma Balance Sheet as at December 31, 2018:

1. Basis of presentation

The unaudited pro forma balance sheet of Bellatrix is derived from the audited annual balance sheet of Bellatrix as at December 31, 2018. The unaudited pro forma balance sheet is intended to represent the financial position of the Corporation at December 31, 2018 as if the Plan, including the corporate and capital reorganization and distributions under the Plan as discussed in note 2, below, had occurred.

Other than the aforementioned transactions, the unaudited pro forma balance sheet does not give effect to transactions occurring after December 31, 2018.

All references to U.S. dollar equivalents of Canadian dollar amounts are based on a December 31, 2018 exchange rate of US$1.00 = $1.3646.

The Plan is subject to, among other things, approval by Senior Unsecured Noteholders and Convertible Debentureholders, and approval by the Court. If the Plan is approved and all the various conditions required to implement the Recapitalization Transaction are met, the events and transactions will be accounted for on the basis of events and circumstances at the Effective Date. The unaudited pro forma balance sheet is based on currently available information and on certain assumptions that the Corporation’s management believes are reasonable under the circumstances. Some assumptions may not materialize and events and circumstances occurring subsequent to December 31, 2018 may be different from those assumed or anticipated, which may materially affect amounts disclosed in the unaudited pro forma balance sheet. Additionally, the unaudited pro forma balance sheet does not purport to represent what the Corporation’s actual financial position will be upon completion of the Plan or represent the fair value of the Corporation’s assets or liabilities at the actual Effective Date.

2. The Plan

At December 31, 2018, the book value of the Senior Unsecured Notes was $196,000,000. The unaudited pro forma balance sheet reflects the Recapitalization Transaction on the Senior Unsecured Notes to reflect the extinguishment of the Senior Unsecured Notes on the terms set forth in the Plan. At December 31, 2018, the book value of the Convertible Debentures (liability component) was $41,732,000 and the Convertible Debentures (equity component) was $7,818,000. The unaudited pro forma balance sheet reflects the Recapitalization Transaction on the Convertible Debentures to reflect the extinguishment of the Convertible Debentures on the terms set forth in the Plan.

3. First Lien Credit Facilities

Pursuant to the Noteholder Support Agreement, the Revolving Credit Facility must be extended for a one-year term on substantially similar terms as the current Revolving Credit Facility, and/or with such other terms as are acceptable to the Corporation and the Initial Consenting Noteholders, each acting reasonably. The unaudited pro forma balance sheet reflects the recognition of the First Lien Credit Facilities as ‘long term debt’ and is increased by $10.4 million to reflect transaction costs of the Recapitalization Transaction.

4. The New Second Lien Notes

Pursuant to the Plan, Consenting Noteholders will be entitled to New Second Lien Notes. The unaudited pro forma balance sheet reflects the issuance of US$50,000,000 principal amount of New Second Lien Notes, net of transaction costs of approximately $3 million.

5. The New Third Lien Notes

Pursuant to the Plan, Consenting Noteholders will be entitled to New Third Lien Notes. The unaudited pro forma balance sheet reflects the issuance of the US$50,000,000 principal amount of New Third Lien Notes, net of transaction costs of approximately $3 million. The unaudited pro forma balance sheet is based on the Cash Interest Payment being paid in cash and does not reflect the issuance of any Additional New Third Lien Notes.

6. Gain on the Extinguishment of the Senior Unsecured Notes and Convertible Debentures

 

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In the unaudited pro forma balance sheet, shareholders’ capital increased $121.3 million, which is the estimated fair value of the shares at December 31, 2018 net of $5.7 million of transaction costs, with the $14.8 million difference between the book value and fair value of both the Senior Unsecured Notes and Convertible Debentures being debited to retained earnings (deficit). The fair value was estimated by the Corporation taking into account the Corporation’s closing share price of $0.31 on April 10, 2019. A 10% change in the Common Shares price would represent a change in the fair value of $12.7 million. The actual New Common Shares price used to account for the Recapitalization Transaction will be determined using a New Common Shares price valuation at the Effective Date. The retained earnings (deficit) impact is net of an estimated $1.3 million of transaction costs expensed in 2018.

7. Accounts Payable and Accrued Liabilities

In the unaudited pro forma balance sheet, accounts payable and accrued liabilities was reduced by approximately $3 million of accrued interest on the Senior Unsecured Notes and the Convertible Debentures, which will be extinguished through the Recapitalization Transaction.

BELLATRIX AFTER THE RECAPITALIZATION TRANSACTION

Share Capital

After the Recapitalization Transaction is implemented, the authorized capital of Bellatrix will consist of an unlimited number of Common Shares and up to 95,978,621 preferred shares. On the Effective Date, approximately 40,863,243 Common Shares and 0 preferred shares are expected to be outstanding.

Principal Shareholders

To the knowledge of Management, after giving effect to the Recapitalization Transaction there will be no Persons who will beneficially own or exercise control or direction over, directly or indirectly, voting shares of the Corporation carrying more than 10% of the voting rights attached to all outstanding voting shares of the Corporation, other than as indicated in the table below.

 

Name of Shareholder

   Common Shares as at the Effective
Date upon Completion of the
Arrangement
  Percentage of Common Shares as at
the Effective Date upon Completion of
the Arrangement
 

Loomis

   10,211,725(1)     24.99
   (equivalent to 122,540,698
pre-Share Consolidation
Common Shares)
 

Polar

   6,875,891(2)     16.83
   (equivalent to 82,510,697
pre-Share Consolidation
Common Shares)
 

 

(1)

This figure is based on holdings disclosed to the Corporation in the Noteholder Support Agreement and subject to the terms of the Plan in respect of the Alternative Senior Unsecured Noteholder Group Equity Allocation.

(2)

This figure is based on holdings information disclosed to the Corporation in the Debentureholder Support Agreement and assumes 90% of the Convertible Debentures are Consent Debentures.

PRICE RANGE AND TRADING VOLUME FOR THE COMMON SHARES

The following table shows the high and low sale prices of, and trading volumes for, the Common Shares as reported on the TSX for the periods indicated:

 

2018

   High ($)      Low ($)      Volume  

April

     1.96        1.35        5698419  

May

     2.17        1.34        17757790  

 

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2018

   High ($)      Low ($)      Volume  

June

     1.55        1.28        9027833  

July

     1.34        1.16        4929024  

August

     1.3        1.07        6802189  

September

     1.35        1.14        3781048  

October

     1.6        1.08        8393332  

November

     1.25        0.99        7768573  

December

     1.06        0.6        7001393  

2019

                    

January

     0.74        0.475        11655840  

February

     0.72        0.58        3055624  

March

     0.69        0.4        6749720  

April (to April 17)

     0.38        0.26        9660675  

The following table shows the high and low sale prices of, and trading volumes for, the Common Shares as reported on the NYSE for the periods indicated:

 

2018

   High ($)      Low ($)      Volume  

April

     1.52        1.05        513191  

May

     1.68        1.05        696307  

June

     1.18        0.96        510854  

July

     1.02        0.8886        634306  

August

     1.01        0.8399        210484  

September

     1.05        0.87        96850  

October

     1.24        0.8399        555531  

November

     0.96        0.7425        214161  

December

     0.79        0.4525        338802  

2019

 

January

     0.5461        0.3528        533471  

February (to February 11)(1)

     0.5500        0.4512        54452  

 

(1)

Bellatrix voluntarily delisted the Common Shares from the NYSE effective February 11, 2019.

WARRANT TRANSACTIONS

Pursuant to the terms of the Second Lien Consent Agreement, Bellatrix agreed to, in connection with the implementation of the Recapitalization Transaction, amend the exercise price of the Second Lien Exchange Warrants to $3.03 per Common Share (post-Share Consolidation) (the “Warrant Amendment”) and issue to holders of Existing Second Lien Notes additional warrants exercisable for 1,785,812 post-Share Consolidation Common Shares (equivalent to warrants exercisable for 21,429,742 pre-Share Consolidation Common Shares) on the same terms as the amended Second Lien Exchange Warrants (the “Warrant Issuance”), which, together with the current outstanding Second Lien Exchange Warrants (which are exercisable for 3,088,205 pre-Share Consolidation Common Shares, equivalent to 257,350 post-Share Consolidation Common Shares), will be

 

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exercisable for 2,043,162 post-Share Consolidation Common Shares, equal to approximately 5% of the Common Shares to be outstanding immediately following the implementation of the Recapitalization Transaction. A warrant exercise price of $3.03 per Common Share (post-Share Consolidation) represents a discount of approximately 53% to the Market Price of $6.50 per Common Share (post-Share Consolidation) as of the date the Second Lien Consent Agreement was executed.

The Warrant Amendment and the Warrant Issuance were negotiated at arm’s length.

At the Shareholders’ Meeting, Shareholders will be asked to consider and, if deemed advisable, approve the Warrant Transactions Resolution, the full text of which is set out in Appendix C. In order to become effective, the Warrant Transactions Resolution must be approved by a simple majority of all votes cast by Shareholders with respect to the Warrant Transactions Resolution, present in person or by proxy at the Shareholders’ Meeting. To the knowledge of Management, the holders of Existing Second Lien Notes do not own any Common Shares. See “TSX Matters”.

TSX MATTERS

Pursuant to the Plan, a total of 34,120,808 New Common Shares (being post-Share Consolidation Common Shares), subject to adjustment in accordance with the Plan, representing approximately 83.5% of the aggregate issued and outstanding Common Shares immediately following the implementation of the Recapitalization Transaction are expected to be issued to Senior Unsecured Noteholders (which will be receiving a total of 20,840,254 New Common Shares, subject to adjustment in accordance with the Plan) and Convertible Debentureholders (which will be receiving a total of 13,280,554 New Common Shares, subject to adjustment in accordance with the Plan). Shareholders will retain their Common Shares, subject to the Share Consolidation, the rounding down of fractional Common Shares and the dilution resulting from the issuance of New Common Shares pursuant to the Recapitalization Transaction, such that the existing Common Shares will represent approximately 16.5% of the issued and outstanding Common Shares immediately following the implementation of the Recapitalization Transaction.

As of April 15, 2019, the Corporation has 80,909,225 issued and outstanding Common Shares. The Recapitalization Transaction would increase the currently issued and outstanding Common Shares equivalent to 490,358,939 pre- Share Consolidation Common Shares, representing an increase of approximately 506%. The New Common Shares to be issued to the Senior Unsecured Noteholders pursuant to the Plan would increase the currently issued and outstanding Common Shares equivalent by 250,083,059 pre-Share Consolidation Common Shares, representing an increase of approximately 309%. The New Common Shares to be issued to the Convertible Debentureholders pursuant to the Plan would increase the currently issued and outstanding Common Shares equivalent by 159,366,665 pre-Share Consolidation Common Shares, representing an increase of approximately 197%.

After completion of the Recapitalization Transaction, Loomis (based on its holdings of Senior Unsecured Notes disclosed to the Corporation in the Noteholder Support Agreement and the terms of the Recapitalization Transaction) is expected to own approximately 10,211,725 post-Share Consolidation Common Shares (equivalent to 122,540,698 pre-Share Consolidation Common Shares), representing approximately 24.99% of the outstanding Common Shares. See “Bellatrix After the Recapitalization Transaction – Principal Shareholders”.

As a result of the Warrant Amendment and the Warrant Issuance, the Existing Second Lien Noteholders will hold warrants exercisable for Common Shares equal to approximately 5% of the Common Shares to be outstanding immediately following the implementation of the Recapitalization Transaction, which warrants will reflect an exercise price of $3.03 per Common Share (post-Share Consolidation).

By voting in favour of the Shareholders’ Arrangement Resolution and the Warrant Transactions Resolution, as applicable, Shareholders will be voting with respect to the TSX Approval Matters that will be required as a result of the New Common Shares to be issued pursuant to the Plan, as well as in respect of the Warrant Amendment and the Warrant Issuance. See “Quorum and Voting Requirements – Shareholders’ Meeting”. Such approvals are required under Sections 604(a)(i), 607(e), 607(g)(i), 607(i) and 608(a)(ii) of the TSX Company Manual. The policies of the TSX require that these resolutions must be approved by a simple majority of the votes cast by Shareholders represented in person or by proxy and voted at the Shareholders’ Meeting, excluding those Shareholders that hold Senior Unsecured Notes, Convertible Debentures or Second Lien Exchange Warrants. Shareholders that hold Senior Unsecured Notes, Convertible Debentures or Second Lien Exchange Warrants should contact Kingsdale Advisors, by: (i) telephone, toll-free in North America at 1-866-229-8874 or at 416-867-2272 outside of North America; or (ii)

 

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e-mail to corpaction@kingsdale.com. Based on the holdings information provided pursuant to the Support Agreements, no Initial Consenting Noteholders hold or control Common Shares and the Initial Consenting Debentureholder holds or controls 1,377,733 Common Shares, representing approximately 2% of the currently issued and outstanding Common Shares, which will be excluded for the purposes of calculating Shareholder approval with respect to the TSX Approval Matters.

LEGAL PROCEEDINGS

The Corporation is involved in various claims and litigation arising in the normal course of business. While the outcome of these matters is uncertain and there can be no assurance that such matters will be resolved in the Corporation’s favor, the Corporation does not currently believe that the outcome of adverse decisions in any pending or threatened proceeding related to these and other matters or any amount which it may be required to pay by reason thereof would have a material adverse impact on its financial position or results of operations.

INCOME TAX CONSIDERATIONS

The following summaries are of a general nature only, based on relevant law, published administrative rules and pronouncements, all as in effect as of the date hereof, and all of which are subject to change or differing interpretations, possibly with retroactive effect, and are not intended to be, nor should they be construed to be, legal or tax advice to any particular Voting Party. Consequently, Voting Parties are urged to consult a tax advisor for advice as to the tax considerations in respect of the Recapitalization Transaction having regard to their particular circumstances.

CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of the principal Canadian federal income tax considerations arising in connection with the Recapitalization Transaction generally applicable to Debtholders and Shareholders (“Holders”) who, at all relevant times, for the purposes of the Tax Act: (i) deal at arm’s length with and are not affiliated with the Corporation; (ii) beneficially own their Debt and Common Shares (as applicable) including all entitlements to payments thereunder, and will beneficially own their Common Shares, New Second Lien Notes and/or New Third Lien Notes (as applicable) including all entitlements to payments thereunder; (iii) hold their Debt and Common Shares (as applicable) and will hold their Common Shares, New Second Lien Notes and/or New Third Lien Notes (as applicable) as capital property; and (iv) have not entered into or will not enter into, in respect of the Debt, Common Shares, New Second Lien Notes or New Third Lien Notes, as the case may be, a “synthetic disposition arrangement” or a “derivative forward agreement” for purposes of the Tax Act. The Debt, Common Shares, New Second Lien Notes or New Third Lien Notes will generally be considered to be capital property of a Holder unless either the Holder holds (or will hold) such Debt, Common Shares, New Second Lien Notes or New Third Lien Notes in the course of carrying on a business or the Holder has acquired such Debt, Common Shares, New Second Lien Notes or New Third Lien Notes in a transaction or transactions considered to be an adventure or concern in the nature of trade. Where applicable, a reference in this summary to New Third Lien Notes includes a reference to Additional New Third Lien Notes.

This summary is based upon the current provisions of the Tax Act, the current regulations thereto (the “Regulations”) and counsel’s understanding of the current published administrative practices and policies of the Canada Revenue Agency. The summary also takes into account all specific proposals to amend the Tax Act and the Regulations that have been publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Tax Proposals”), and assumes that all such Tax Proposals will be enacted as proposed. This summary does not otherwise take into account or anticipate any changes in Law, whether by way of legislative, judicial or administrative action or interpretation, nor does it address any provincial, territorial or foreign tax considerations. No assurance can be given that the Tax Proposals will be enacted in the form proposed or at all.

For purposes of the Tax Act, all amounts relevant in computing the income, taxable income and taxes payable by a Holder, including the cost and adjusted cost base of Debt, Common Shares, New Second Lien Notes and New Third Lien Notes must be determined in Canadian dollars based on the exchange rate quoted by the Bank of Canada on the date the amount arose (or, if there is no such rate quoted for the relevant date, the closest preceding date for which such a rate is quoted) or such other rate of exchange that is acceptable to the Minister of National Revenue.

 

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This summary is not intended to be, nor should it be construed as, legal or tax advice to any particular Holder. Holders are urged to consult a tax advisor concerning the tax consequences to them of the Recapitalization Transaction.

Stated Capital Reduction

Generally, there will be no immediate Canadian income tax consequences under the Tax Act to any Shareholder as a consequence of the Stated Capital Reduction, nor will the Stated Capital Reduction affect a Shareholder’s adjusted cost base of the Common Shares for purposes of the Tax Act. However, the Stated Capital Reduction will result in the reduction of paid-up capital (as defined in the Tax Act) (“PUC”) of the Common Shares by an amount equal to the Stated Capital Reduction. PUC is generally the aggregate of all amounts received by a corporation upon the issuance of its shares (by class), adjusted in certain circumstances in accordance with the Tax Act.

The Stated Capital Reduction may have an effect in the future, in certain circumstances, including if the Corporation makes a distribution to Shareholders or is wound-up, or if the Corporation repurchases any Common Shares. Generally, upon such transactions, the Shareholder will be deemed to have received a dividend to the extent that the amount paid or distributed by the Corporation exceeds the PUC of the Common Shares.

Holders Resident in Canada

The following discussion applies to a Holder who, for the purposes of the Tax Act, and at all relevant times, is or is deemed to be a resident of Canada (a “Canadian Holder”). Certain Canadian Holders whose Debt, Common Shares, New Second Lien Notes or New Third Lien Notes might not otherwise qualify as capital property may, in certain circumstances, treat such Debt, Common Shares, New Second Lien Notes or New Third Lien Notes (and all other “Canadian securities” as defined in the Tax Act) as capital property by making an irrevocable election pursuant to subsection 39(4) of the Tax Act.

This portion of the summary is not applicable to a Holder: (i) that is a “financial institution” (as defined in the Tax Act) for purposes of the “mark-to-market rules”; (ii) that is a “specified financial institution” (as defined in the Tax Act); (iii) an interest in which is a “tax shelter investment” for the purposes of the Tax Act; or (iv) that has made a functional currency reporting election under the Tax Act. Such Holders should consult a tax advisor having regard to their particular circumstances.

Continuance

As part of the Recapitalization Transaction, the Corporation is expected to continue from the ABCA to the CBCA. The Continuance will not give rise to a disposition of Common Shares or Debt for purposes of the Tax Act and no tax will be payable by a Canadian Holder on the Continuance.

Share Consolidation

A Canadian Holder of Common Shares will not generally realize a capital gain or a capital loss as a result of the Share Consolidation, and the aggregate adjusted cost base of the Common Shares received by a Canadian Holder on the Share Consolidation will be equal to the aggregate adjusted cost base of the Common Shares held by such Canadian Holder immediately prior to the Share Consolidation. Notwithstanding the foregoing, a Canadian Holder who does not receive any Common Shares or other consideration on the Share Consolidation will realize a capital loss equal to the adjusted cost base of such Canadian Holder’s Common Shares immediately prior to the Share Consolidation. If the Canadian Holder is a corporation, the amount of any capital loss realized on the Share Consolidation may be reduced by the amount of dividends received or deemed to have been received by it on such share (or on a share for which the share has been substituted). See “Taxation of Capital Gains and Capital Losses” below.

Exchange of Convertible Debentures

A Canadian Holder of Convertible Debentures will be considered to have disposed of its Convertible Debentures on the Effective Date in consideration for its share of the Convertible Debentureholder New Common Share Pool and, if such Holder is a Consenting Debentureholder, its share of the Consenting Debentureholder Early Consent New Common Share Pool.

 

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Any Canadian Holder that is a corporation, partnership, unit trust or any trust of which a corporation or partnership is a beneficiary will generally be required to include in its income for a taxation year the amount of interest accrued or deemed to accrue on the Convertible Debentures up to the Effective Date or that becomes receivable or was received by it on or before the Effective Date (except to the extent that such interest was otherwise included in computing income for the year or a preceding year). Any other Canadian Holder (including an individual) will be required to include in income for a taxation year any interest on the Convertible Debentures received or receivable by such Canadian Holder in the year (depending upon the method regularly followed by the Canadian Holder in computing income) except to the extent that such interest was otherwise included in its income for the year or a preceding year. Where a Canadian Holder is required to include an amount in income on account of interest on the Convertible Debentures that accrues in respect of the period prior to the date of acquisition by such Canadian Holder, the Canadian Holder should be entitled to a deduction of an equivalent amount in computing income. Where a Canadian Holder is required to include an amount in income on account of interest on the Convertible Debentures, the Canadian Holder should be entitled to a deduction of an equivalent amount in computing income to the extent that such amount is forgiven and is not paid.

A Canadian Holder’s Convertible Debentures will be exchanged for the Common Shares to which the Canadian Holder is entitled under the Plan. In general terms, a Canadian Holder will realize a capital gain (or capital loss) equal to the amount by which the Canadian Holder’s proceeds of disposition, less any reasonable costs of disposition, exceed (or are less than) the adjusted cost base to the Canadian Holder of its Convertible Debentures. A Canadian Holder’s proceeds of disposition of its Convertible Debentures upon the exchange for its share of the Convertible Debentureholder New Common Share Pool and (if applicable) the Consenting Debentureholder Early Consent New Common Share Pool will be an amount equal to the fair market value (at the time of the exchange) of the Common Shares received by the Canadian Holder on the exchange, less the fair market value of any Common Shares received in respect of the payment of interest. The income tax treatment of capital gains (and capital losses) is generally described below under “Taxation of Capital Gains and Capital Losses”.

A Canadian Holder will be considered to have acquired the Common Shares on the exchange at a cost equal to the fair market value of such Common Shares at the time of the exchange. The adjusted cost base to a Canadian Holder of Common Shares at a particular time will generally be determined by averaging the cost of such Common Shares with the adjusted cost base of any other Common Shares held by such Canadian Holder as capital property at that time.

Exchange of Senior Unsecured Notes

A Canadian Holder of Senior Unsecured Notes will be considered to have disposed of its Senior Unsecured Notes on the Effective Date in consideration for its share of the New Third Lien Notes and Senior Unsecured Noteholder New Common Share Pool and, if such Holder is a Consenting Noteholder, its Consenting Noteholder New Second Lien Note Amount.

Any Canadian Holder that is a corporation, partnership, unit trust or any trust of which a corporation or partnership is a beneficiary will generally be required to include in its income for a taxation year the amount of interest accrued or deemed to accrue on the Senior Unsecured Notes up to the Effective Date or that becomes receivable or was received by it on or before the Effective Date (except to the extent that such interest was otherwise included in computing income for the year or a preceding year). Any other Canadian Holder (including an individual) will be required to include in income for a taxation year any interest on the Senior Unsecured Notes received or receivable by such Canadian Holder in the year (depending upon the method regularly followed by the Canadian Holder in computing income) except to the extent that such interest was otherwise included in its income for the year or a preceding year. Where a Canadian Holder is required to include an amount in income on account of interest on the Senior Unsecured Notes that accrues in respect of the period prior to the date of acquisition by such Canadian Holder, the Canadian Holder should be entitled to a deduction of an equivalent amount in computing income. Where a Canadian Holder is required to include an amount in income on account of interest on the Senior Unsecured Notes, the Canadian Holder should be entitled to a deduction of an equivalent amount in computing income to the extent that such amount is forgiven and is not paid.

A Canadian Holder’s Senior Unsecured Notes will be exchanged for the Common Shares, New Second Lien Notes and New Third Lien Notes to which the Canadian Holder is entitled under the Plan. In general terms, a Canadian Holder will realize a capital gain (or capital loss) equal to the amount by which the Canadian Holder’s proceeds of disposition, less any reasonable costs of disposition, exceed (or are less than) the adjusted cost base to the Canadian

 

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Holder of its Senior Unsecured Notes. A Canadian Holder’s proceeds of disposition of its Senior Unsecured Notes upon the exchange for its share of the New Third Lien Notes, the Senior Unsecured Noteholder New Common Share Pool and (if applicable) the Consenting Noteholder New Second Lien Note Amount will be an amount equal to the aggregate of the fair market value (at the time of the exchange) of the Common Shares, New Second Lien Notes and New Third Lien Notes received by the Canadian Holder on the exchange, less the fair market value of any Common Shares, New Second Lien Notes and New Third Lien Notes received in respect of the payment of interest. Generally, a portion of any capital loss realized on the exchange of Senior Unsecured Notes may be denied, equal to the loss otherwise determined multiplied by the portion that the fair market value of the New Second Lien Notes and New Third Lien Notes received is of the aggregate of the fair market value of the Common Shares, New Second Lien Notes and New Third Lien Notes received. Senior Unsecured Noteholders should consult a tax advisor with respect to any potential loss denial. The income tax treatment of capital gains (and capital losses) is generally described below under “Taxation of Capital Gains and Capital Losses”.

A Canadian Holder will be considered to have acquired the Common Shares on the exchange at a cost equal to the fair market value of such Common Shares at the time of the exchange. The adjusted cost base to a Canadian Holder of Common Shares at a particular time will generally be determined by averaging the cost of such Common Shares with the adjusted cost base of any other Common Shares held by such Canadian Holder as capital property at that time.

A Canadian Holder will be considered to have acquired the New Second Lien Notes on the exchange at a cost equal to the fair market value of such New Second Lien Notes at the time of the exchange, plus the portion of any denied loss realized on the disposition of the Senior Unsecured Notes as described above attributable to the New Second Lien Notes, calculated by multiplying the amount of any denied loss on the disposition of the Senior Unsecured Notes by the portion that the aggregate principal amount of the New Second Lien Notes received by the Canadian Holder is of the aggregate principal amount of the New Second Lien Notes and New Third Lien Notes received by such Canadian Holder. The adjusted cost base to a Canadian Holder of New Second Lien Notes at a particular time will generally be determined by averaging the cost of such New Second Lien Notes with the adjusted cost base of any other Second Lien Notes held by such Canadian Holder as capital property at that time.

A Canadian Holder will be considered to have acquired the New Third Lien Notes on the exchange at a cost equal to the fair market value of such New Third Lien Notes at the time of the exchange, plus the portion of any denied loss realized on the disposition of the Senior Unsecured Notes as described above attributable to the New Third Lien Notes, calculated by multiplying the amount of any denied loss on the disposition of the Senior Unsecured Notes by the portion that the aggregate principal amount of the New Third Lien Notes received by the Canadian Holder is of the aggregate principal amount of the New Second Lien Notes and New Third Lien Notes received by such Canadian Holder.

Interest on New Second Lien Notes and/or New Third Lien Notes

A Canadian Holder that is a corporation, partnership, unit trust or any trust of which a corporation or partnership is a beneficiary will generally be required to include in its income for a taxation year the amount of interest (whether paid in cash or in kind) accrued or deemed to accrue on the New Second Lien Notes and/or New Third Lien Notes or that became receivable or was received by it before the end of the year (except to the extent that such interest was otherwise included in computing income for the year or a preceding year). Any other Canadian Holder (including an individual) will be required to include in income for a taxation year any interest on the New Second Lien Notes and/or New Third Lien Notes received or receivable by such Canadian Holder in the year (depending upon the method regularly followed by the Canadian Holder in computing income) except to the extent that such interest was otherwise included in its income for the year or a preceding year. Such other Canadian Holders will also be required to include in income for a taxation year any interest that accrues on the New Second Lien Notes and/or New Third Lien Notes up to any “anniversary day” (as defined in the Tax Act) of the New Second Lien Notes or New Third Lien Notes, as the case may be, in the year except to the extent that such interest was otherwise included in such Canadian Holder’s income for the year or a preceding year.

It is possible that the New Third Lien Notes may be “prescribed debt obligations” for purposes of the Tax Act. If so, Canadian Holders (whether individuals, corporations or other holders referenced above) would generally be required to include in income for each taxation year certain amounts deemed to accrue as interest income. These rules could require Canadian Holders to include in income on an accrual basis up to the maximum possible interest applicable to New Third Lien Notes for each taxation year even if such maximum amount is not actually received or receivable in

 

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the taxation year, and to deem certain amounts received on a disposition or deemed disposition of the New Third Lien Notes to be interest. Canadian Holders are advised to consult their own tax advisors with respect to interest accrual under the prescribed debt obligation rules.

Disposition of New Second Lien Notes and/or New Third Lien Notes

On a disposition or deemed disposition of New Second Lien Notes and/or New Third Lien Notes (including on redemption, repurchase for cancellation or repayment on maturity), a Canadian Holder will generally be required to include in computing income for the taxation year in which the disposition occurs the amount of any interest accrued or deemed to accrue to the date of such disposition or deemed disposition, or that becomes receivable or is received on or before the date of disposition, except to the extent that such interest has already been included in computing the Canadian Holder’s income for the year or a preceding year. Where the Canadian Holder has disposed of the New Second Lien Notes and/or New Third Lien Notes for consideration equal to its fair market value, the Canadian Holder may be entitled to a deduction to the extent that the aggregate amount of interest included in computing the Canadian Holder’s income for the year of disposition or a previous year, exceeds amounts received or receivable in respect of such interest. Canadian Holders are advised to consult with a tax advisor in these circumstances.

In general terms, a disposition or deemed disposition of New Second Lien Notes and/or New Third Lien Notes will result in a capital gain (or capital loss) equal to the amount, if any, by which the proceeds of disposition, net of any amount included in the Canadian Holder’s income as interest and any reasonable costs of disposition, exceed (or are less than) the adjusted cost base to the Canadian Holder of the New Second Lien Notes and/or New Third Lien Notes immediately before the disposition. The income tax treatment of any such capital gain (or capital loss) is described below under “Taxation of Capital Gains and Capital Losses”.

Dividends on Common Shares

Dividends and deemed dividends received on the Common Shares will be included in a Canadian Holder’s income for purposes of the Tax Act. Dividends received by a Canadian Holder that is an individual (other than certain trusts) will be subject to the gross-up and dividend tax credit rules provided for under the Tax Act. The Corporation may for these purposes designate all or a portion of such dividends as “eligible dividends”, which entitle the recipient to the enhanced dividend tax credit. A Canadian Holder that is a corporation will include such dividends received by it in computing its income and will generally be entitled to deduct the amount of such dividends in computing its taxable income. A Canadian Holder that is a “private corporation” or a “subject corporation” (as such terms are defined in the Tax Act) is generally liable under Part IV of the Tax Act to pay a refundable tax on dividends received or deemed to be received on the Common Shares to the extent such dividends are deductible in computing the Canadian Holder’s taxable income.

In certain circumstances, a taxable dividend received or deemed to be received by a Canadian Holder that is a corporation will be taxable as proceeds of disposition or a capital gain, rather than as a dividend. Canadian Holders that are corporations are advised to consult with a tax advisor.

Disposition of Common Shares

Generally, a Canadian Holder will realize a capital gain (or capital loss) on a disposition or deemed disposition of Common Shares equal to the amount by which the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base to the Canadian Holder of such Common Shares. The tax treatment of any such capital gain (or capital loss) is described below under “Taxation of Capital Gains and Capital Losses”.

Taxation of Capital Gains and Capital Losses

In general, one-half of any capital gain (a “taxable capital gain”) realized by a Canadian Holder in a taxation year will be included in the Canadian Holder’s income in the year and one-half of the amount of any capital loss (an “allowable capital loss”) realized by a Canadian Holder in a taxation year is required to be deducted from taxable capital gains realized by the Canadian Holder in the year. Allowable capital losses in excess of taxable capital gains for a taxation year may be carried back three years or forward indefinitely and deducted against net taxable capital gains realized in such years, to the extent and under the circumstances provided in the Tax Act.

 

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If the Canadian Holder is a corporation, the amount of any capital loss arising from a disposition or deemed disposition of a share may be reduced by the amount of dividends received or deemed to have been received by it on such share (or on a share for which the share has been substituted) to the extent and under the circumstances prescribed by the Tax Act. Similar rules may apply where a corporation is a member of a partnership or a beneficiary of a trust that owns shares, or where a trust or partnership of which a corporation is a beneficiary or is a member of a partnership or a beneficiary of a trust that owns any such shares. Canadian Holders to which these rules may be relevant should consult their own tax advisors.

Additional Refundable Tax

A Canadian Holder that is throughout the taxation year a “Canadian-controlled private corporation” (as defined in the Tax Act) may be liable to pay a tax, a portion of which may be refundable, on certain investment income including amounts in respect of interest and taxable capital gains.

Alternative Minimum Tax

A Canadian Holder that is an individual (other than certain trusts) may be subject to alternative minimum tax under the Tax Act if the Canadian Holder realizes capital gains or receives dividends on Common Shares.

Eligibility for Investment

Provided that they are listed on a designated stock exchange (which includes the TSX) at the relevant time, the Common Shares will be qualified investments under the Tax Act for trusts governed by a registered retirement savings plan (“RRSP”), registered retirement income fund (“RRIF”), deferred profit sharing plan, registered disability savings plan (“RDSP”), registered education savings plan (“RESP”) and tax-free savings account (“TFSA”).

Notwithstanding that the Common Shares may be a qualified investment for a trust governed by a RRSP, RRIF, RDSP, RESP or TFSA, the holder or subscriber of or annuitant under such plan will be subject to a penalty tax if such Common Shares are a “prohibited investment” under the Tax Act for such RRSP, RRIF, RDSP, RESP or TFSA. The Common Shares will generally not be a “prohibited investment” for a RRSP, RRIF, RDSP, RESP or TFSA unless the holder or subscriber of or annuitant under such plan has a “significant interest” (as defined in the Tax Act) in the Corporation. In addition, the Common Shares will generally not be a “prohibited investment” if they are “excluded property” as defined in the Tax Act. Canadian Holders who intend to hold Common Shares in a RRSP, RRIF, RDSP, RESP or TFSA should consult their own tax advisors regarding their particular circumstances.

Holders Not Resident in Canada

The following discussion applies to a Holder who, for the purposes of the Tax Act and any applicable income tax treaty or convention, and at all relevant times: (i) is not and is not deemed to be a resident of Canada; (ii) does not use or hold any Debt or Common Shares, and will not use or hold any Common Shares, New Second Lien Notes and/or New Third Lien Notes in carrying on a business in Canada; (iii) deals at arm’s length with any transferee resident (or deemed to be resident) in Canada to which the Holder disposes of Debt, New Second Lien Notes or New Third Lien Notes; and (iv) is not an insurer who carries on an insurance business in Canada and elsewhere or an authorized foreign bank that carries on a Canadian banking business (each, a “Non-Resident Holder”).

The following discussion is not applicable to a Non-Resident Holder that is a “specified shareholder” (as defined in subsection 18(5) the Tax Act) of the Corporation or that does not deal at arm’s length for purposes of the Tax Act with a “specified shareholder” of the Corporation. Generally, for this purpose, a “specified shareholder” of a corporation is a shareholder that owns or is deemed to own, either alone or together with persons with which the shareholder does not deal at arm’s length for purposes of the Tax Act, shares of the capital stock of the corporation that either: (i) give such holders 25% or more of the votes that could be cast at an annual meeting of the shareholders; or (ii) have a fair market value equal to 25% or more of the fair market value of all of the issued and outstanding shares of the corporation’s capital stock. Such Non-Resident Holders should consult a tax advisor.

 

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Continuance

As part of the Recapitalization Transaction, the Corporation is expected to continue from the ABCA to the CBCA. No tax will be payable by a Non-Resident Holder on the Continuance.

Share Consolidation

A Non-Resident Holder of Common Shares will generally not realize a capital gain or a capital loss for Canadian tax purposes as a result of the Share Consolidation, and the aggregate adjusted cost base of the Common Shares received by a Non-Resident Holder on the Share Consolidation will be equal to the aggregate adjusted cost base of the Common Shares held by such Non-Resident Holder immediately prior to the Share Consolidation. Notwithstanding the foregoing, a Non-Resident Holder who does not receive any Common Shares or other consideration on the Share Consolidation may realize a capital loss equal to the adjusted cost base of such Non- Resident Holder’s Common Shares immediately prior to the Share Consolidation. A Non-Resident Holder will generally not be able to deduct the allowable portion of any capital loss realized on the Share Consolidation unless the Non-Resident Holder’s Common Shares constitute “taxable Canadian property” (as defined in the Tax Act) to the Non-Resident Holder at the time of the Share Consolidation. See the section below entitled “Taxable Canadian Property”.

Exchange of Convertible Debentures

A Non-Resident Holder of Convertible Debentures will be considered to have disposed of its Convertible Debentures on the Effective Date in consideration for its share of the Convertible Debentureholder New Common Share Pool and, if such Holder is a Consenting Debentureholder, its share of the Consenting Debentureholder Early Consent New Common Share Pool.

In general, a Non-Resident Holder will not be subject to tax under the Tax Act in respect of any capital gain and will not be able to deduct the allowable portion of any capital loss realized by such Non-Resident Holder on the disposition of its Convertible Debentures, unless the Non-Resident Holder’s Convertible Debentures constitute “taxable Canadian property” (as defined in the Tax Act) to the Non-Resident Holder at the time of the disposition, and relief from taxation is not available under an applicable income tax treaty or convention between Canada and a country in which the Non-Resident Holder is resident. See the section below entitled “Taxable Canadian Property”.

A Non-Resident Holder will generally not be subject to Canadian withholding tax under the Tax Act in respect of the accrued and unpaid interest that is paid in respect of the Convertible Debentures or otherwise on such proceeds received on the exchange of Convertible Debentures.

A Non-Resident Holder will be considered to have acquired the Common Shares on the exchange at a cost equal to the fair market value of such Common Shares at the time of the exchange. The adjusted cost base to a Non-Resident Holder of Common Shares at a particular time will generally be determined by averaging the cost of such Common Shares with the adjusted cost base of any other Common Shares held by such Non-Resident Holder as capital property at that time.

Exchange of Senior Unsecured Notes

A Non-Resident Holder of Senior Unsecured Notes will be considered to have disposed of its Senior Unsecured Notes on the Effective Date in consideration for its share of the New Third Lien Notes and Senior Unsecured Noteholder New Common Share Pool and, if such Holder is a Consenting Noteholder, its Consenting Noteholder New Second Lien Note Amount.

A Non-Resident Holder will not be subject to tax under the Tax Act in respect of any capital gain and will not be able to deduct the allowable portion of any capital loss realized by such Non-Resident Holder on the disposition of its Senior Unsecured Notes, unless the Non-Resident’s Senior Unsecured Notes constitute “taxable Canadian property” (as defined in the Tax Act) to the Non-Resident Holder at the time of the disposition, and relief from taxation is not available under an applicable income tax treaty or convention between Canada and a country in which the Non-Resident Holder is resident. The Senior Unsecured Notes will generally not constitute taxable Canadian property to a Non-Resident Holder.

 

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A Non-Resident Holder will not be subject to Canadian withholding tax under the Tax Act in respect of the accrued and unpaid interest that is paid in respect of the Senior Unsecured Notes.

A Non-Resident Holder will be considered to have acquired any Common Shares at a cost equal to the fair market value of such Common Shares at the time of the exchange. The adjusted cost base to a Non-Resident Holder of Common Shares at a particular time will generally be determined by averaging the cost of such Common Shares with the adjusted cost base of any other Common Shares held by such Non-Resident Holder as capital property at that time.

Interest on New Second Lien Notes and/or New Third Lien Notes

A Non-Resident Holder should not be subject to Canadian withholding tax under the Tax Act in respect of amounts paid or credited, or deemed to have been paid or credited, by the Corporation as, on account or in lieu of, or in satisfaction of, interest on the New Second Lien Notes and/or New Third Lien Notes.

Disposition of New Second Lien Notes and/or New Third Lien Notes

On a disposition or deemed disposition of New Second Lien Notes and/or New Third Lien Notes (including on redemption or repurchase for cancellation or repayment on maturity), a Non-Resident Holder will not be subject to tax under the Tax Act.

Dividends on Common Shares

Dividends paid or credited or deemed to be paid or credited on the Common Shares will be subject to non-resident withholding tax under the Tax Act at the rate of 25%, unless such rate is reduced under the provisions of an applicable income tax treaty or convention between Canada and a country in which the Non-Resident Holder is resident.

Disposition of Common Shares

A disposition by a Non-Resident Holder of Common Shares will not be subject to tax under the Tax Act unless such Common Shares constitute “taxable Canadian property” (as defined in the Tax Act) to the Non-Resident Holder at the time of the disposition, and relief from taxation is not available under an applicable income tax treaty or convention between Canada and a country in which the Non-Resident Holder is resident. See the section below entitled “Taxable Canadian Property”.

Taxable Canadian Property

Provided that the Common Shares are listed on a designated stock exchange (which currently includes the TSX) at the time of disposition, the Convertible Debentures and the Common Shares generally will not constitute taxable Canadian property of a Non-Resident Holder, unless, at any time during the 60-month period preceding the disposition, (i) the Non-Resident Holder, persons not dealing at arm’s length with such Non-Resident Holder, partnerships in which the Non-Resident Holder or any such person holds an interest directly by or through one or more partnerships, or the Non-Resident together with all such persons and partnerships, owned 25% or more of the issued shares of any class or series of the capital stock of the Corporation and (ii) more than 50% of the fair market value of the Common Shares was derived directly or indirectly from one or any combination of: (a) real or immovable property situated in Canada; (b) “Canadian resource properties”; (c) “timber resource properties”; and (d) options in respect of, or interests in or rights in property described in (a) to (c) (as such terms are defined in the Tax Act).

Notwithstanding the foregoing, in certain circumstances set out in the Tax Act, Convertible Debentures and Common Shares which are not otherwise taxable Canadian property could be deemed to be taxable Canadian property. Non-Resident Holders whose Convertible Debentures and/or Common Shares may constitute “taxable Canadian property” to them should consult their own tax advisors regarding their particular circumstances.

 

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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of certain U.S. federal income tax considerations applicable to U.S. Holders (as defined below) relating to the exchange of the Senior Unsecured Notes for the New Second Lien Notes, the New Third Lien Notes (together with the New Second Lien Notes, the “New Notes”) and the New Common Shares (the “Senior Note Exchange”), the exchange of the Convertible Debentures (together with the Senior Unsecured Notes, the “Old Notes”) for the New Common Shares (the “Convertible Debentures Exchange” and together with the Senior Notes Exchange, the “Exchanges” and each individually, an “Exchange”) and the ownership and disposition of the New Notes and the New Common Shares (the “New Assets”) acquired pursuant to the Exchanges. It is not a complete analysis of all the potential tax considerations relating to the Exchanges and the ownership of the New Assets and does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, any U.S. federal estate or gift tax laws or the Medicare tax on net investment income. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, administrative rulings and pronouncements and judicial decisions, all as in effect on the date of this management information circular and all of which are subject to change or differing interpretations, possibly with retroactive effect so as to result in U.S. federal income tax consequences different from those set forth below. We cannot assure you that the Internal Revenue Service (the “IRS”) will not challenge one or more of the tax consequences described in this discussion, and we have not obtained, nor do we intend to obtain, a ruling from the IRS or an opinion of counsel with respect to the U.S. federal income tax consequences of the Exchanges or of owning and disposing of the New Assets.

This discussion applies only to beneficial owners who acquire the New Assets pursuant to an Exchange and who hold the Old Notes and will hold the New Assets as “capital assets” within the meaning of Section 1221 of the Code for U.S. federal income tax purposes (generally, property held for investment). In addition, this discussion does not address all tax considerations that may be applicable to investors’ particular circumstances or to investors that may be subject to special tax rules, such as, for example:

 

   

persons subject to the alternative minimum tax;

 

   

banks, insurance companies, or other financial institutions;

 

   

regulated investment companies;

 

   

real estate investment trusts;

 

   

tax-exempt organizations;

 

   

brokers and dealers in securities;

 

   

certain former citizens or long-term residents of the United States;

 

   

traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;

 

   

persons that hold the Old Notes or that will hold any of the New Assets as a position in a straddle, conversion transaction or other risk reduction transaction;

 

   

persons subject to special tax accounting rules as a result of any item of gross income with respect to the Old Notes or the New Notes being taken into account in an applicable financial statement; and

 

   

persons that own (or are related to persons who own), actually or constructively, 10% or more of the total combined voting power of all classes of our stock entitled to vote or 10% or more of the total value of all classes of our stock before or after the Exchanges;

 

   

persons that have a functional currency other than the U.S. dollar; and

 

   

entities or arrangements classified as partnerships for U.S. federal income tax purposes or other pass- through entities, or investors in such entities.

 

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If an entity or arrangement treated as a partnership for U.S. federal income tax purposes participates in an Exchange, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding the Old Notes and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them of participating in an Exchange and of owning and disposing of the New Assets received in an Exchange.

It is assumed for purposes of this summary that the Corporation is not, has not at any time been, and will not be following the consummation of the Exchanges a “controlled foreign corporation” as defined in section 957(a) of the Code.

THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS TAX ADVICE. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER    OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER THE LAWS OF ANY STATE, LOCAL OR NON- U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.

For purposes of the discussion below, a U.S. Holder is a beneficial owner of the Old Notes or the New Assets received in an Exchange that is, for U.S. federal income tax purposes:

 

   

an individual who is a citizen or resident of the United States;

 

   

a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;

 

   

an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

 

   

a trust (i) if a court within the United States can exercise primary supervision over its administration, and one or more “United States persons” (within the meaning of the Code) have the authority to control all of the substantial decisions of that trust or (ii) that has a valid election in effect under applicable Treasury Regulations to be treated as a “United States person” for U.S. federal income tax purposes.

Tax Treatment of the Exchanges

The Corporation intends to take the position, and the rest of this discussion assumes, that the Exchanges will be treated as exchanges of the Senior Unsecured Notes for the New Assets and of the Convertible Debentures for the New Common Shares for U.S. federal income tax purposes. As a result, the tax treatment of the exchange of (i) the Senior Unsecured Notes for the New Assets pursuant to the Senior Note Exchange and (ii) the Convertible Debentures for the New Common Shares pursuant to the Convertible Debentures Exchange will depend upon whether each Exchange qualifies as a recapitalization for U.S. federal income tax purposes.

Recapitalization Treatment

An exchange of the Senior Unsecured Notes for the New Assets or an exchange of the Convertible Debentures for the New Common Shares would qualify as a recapitalization if the Old Notes qualify as “securities” for U.S. federal income tax purposes. Neither the Code nor the Treasury Regulations define the term “security” for this purpose, and the term has not been clearly defined by judicial decisions. Rather, whether a debt instrument is a security is based on all of the facts and circumstances, including the degree of participation and continuing interest in the affairs of the business and the extent of the proprietary interest of the debt instrument in the corporate assets. Most authorities have held that the term to maturity of the debt instrument is one of the most significant factors in determining whether a debt instrument is a security. In this regard, debt instruments with a term of ten years or more generally qualify as securities, debt instruments with a term between five and ten years may qualify as securities, and debt instruments with a term of less than five years generally do not qualify as securities.

The U.S. federal income tax treatment of the Senior Note Exchange is uncertain, as the term of the Senior Unsecured Notes is just under five years. If the Senior Unsecured Notes constitute securities of the Corporation, the Senior Notes Exchange should be treated as a recapitalization for U.S. federal income tax purposes with the

 

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consequences determined below under “Senior Unsecured Notes – Recapitalization Treatment.” If, on the other hand, the Senior Unsecured Notes do not constitute securities of the Corporation then the Senior Note Exchange should be a taxable transaction with the consequences described below under “Senior Unsecured Notes – Fully Taxable Exchange.” Although not free from doubt, the Corporation intends to take the position the Senior Note Exchange is a fully taxable exchange for U.S. federal income tax purposes.

The U.S. federal income tax treatment of the Convertible Debentures Exchange is uncertain, as the term of the Convertible Debentures is just over five years, taking into account an automatic extension that occurred upon the satisfaction of certain conditions. If the Convertible Debentures constitute securities of the Corporation, the Convertible Debentures Exchange should be treated as a recapitalization for U.S. federal income tax purposes with the consequences determined below under “Convertible Debentures – Recapitalization Treatment.” If, on the other hand, the Convertible Debentures do not constitute securities of the Corporation then the Convertible Debentures Exchange should be a taxable transaction with the consequences described below under “Convertible Debentures – Fully Taxable Exchange.” Although not free from doubt, the Corporation intends to take the position the Convertible Debentures Exchange qualifies as a recapitalization for U.S. federal income tax purposes.

U.S. HOLDERS OF OLD NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE STATUS OF THE OLD NOTES AS SECURITIES FOR U.S. FEDERAL INCOME TAX PURPOSES.

Senior Unsecured Notes – Recapitalization Treatment.

The discussion below assumes that the Senior Unsecured Notes are securities for U.S. federal income tax purposes, and therefore, the Senior Note Exchange qualifies as a recapitalization for U.S. federal income tax purposes.

The application of recapitalization rules to the Senior Note Exchange depends on the U.S. federal income tax treatment of the New Notes. The U.S. federal income tax treatment of the Senior Note Exchange is uncertain, as the term of each of the New Notes is between four and five years. If the New Notes both constitute securities of the Corporation, the Senior Note Exchange should be treated as a recapitalization without cash or other property that is not a security or stock (“boot”) for U.S. federal income tax purposes. If, on the other hand, either of the New Notes does not constitute a security of the Corporation, the Senior Note Exchange should be treated as a recapitalization with boot.

To the extent the New Notes are securities of the Corporation and the exchange of the Senior Unsecured Notes for the New Assets (including the amount of any New Second Lien Notes received, if treated as additional consideration, as discussed below) pursuant to the Senior Note Exchange qualifies as a recapitalization under the Code, a U.S. Holder should not recognize loss and should not recognize gain with respect to New Assets received (other than any amounts attributable to accrued and unpaid interest (including accrued original issue discount (“OID”)) with respect to the Senior Unsecured Notes on the date of the Senior Notes Exchange (the “Senior Notes Accrued Interest”)), which will be treated as described below under “Accrued Interest”) in the Senior Note Exchange, and its tax basis in the New Assets received in the Senior Note Exchange should be equal to the tax basis in the Senior Unsecured Notes exchanged therefor increased by any gain recognized by such U.S. Holder on the Senior Notes Exchange. The holding period for such New Assets should include the period during which the Senior Unsecured Notes surrendered in the Senior Note Exchange were held (except to the extent any New Assets are allocable to Senior Notes Accrued Interest, in which case its holding period should begin on the day following the Senior Note Exchange).

However, if either or both of the New Notes do not constitute securities of the Corporation, the exchange of the Senior Unsecured Notes for the New Assets (including the amount of any New Second Lien Notes received, if treated as additional consideration, as discussed below) pursuant to the Senior Note Exchange should be treated as a recapitalization with “boot” for U.S. federal income tax purposes. If treated as a recapitalization with boot, no loss should be recognized by a U.S. Holder on the exchange of the Senior Unsecured Notes for the New Assets, but gain, if any, realized should be recognized to the extent of the issue price (described below) of each New Note that does not constitute a security for tax purposes. The amount of gain realized on such exchange should equal the excess, if any, of the total consideration received (i.e., the sum of the fair market value of New Common Shares and the issue price of the New Notes received on such exchange) over the U.S. Holder’s adjusted tax basis in the Senior Unsecured Notes. As described below under “Market Discount”, any gain attributable to accrued but unrecognized market discount on the Senior Unsecured Notes would be subject to tax as ordinary income.

 

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If neither of the New Notes constitutes a security in the Corporation, a U.S. Holder’s tax basis in New Common Shares would equal its tax basis in the Senior Unsecured Notes exchanged, increased by the amount of gain recognized and reduced by the issue price of the New Notes, and the holding period for such New Common Shares would include the period during which the Senior Unsecured Notes were held. A U.S. Holder’s tax basis in New Notes will equal the issue price of the New Notes and its holding period would begin the day after the Senior Note Exchange.

If only the New Second Lien Notes or the New Third Lien Notes, but not both, constitute securities in the Corporation (such New Notes constituting securities, the “New Securities” and such other New Notes not constituting securities, the “Other New Notes”), a U.S. Holder’s tax basis in New Common Shares and the New Securities should equal its tax basis in the Senior Unsecured Notes exchanged, increased by the amount of gain recognized and reduced by the issue price of the Other New Notes. The holding period for such New Common Shares and the New Securities would include the period during which the Senior Unsecured Notes were held. A U.S. Holder’s tax basis in the Other New Notes will equal the issue price of the Other New Notes and its holding period for the Other New Notes would begin on the day after the Senior Note Exchange.

Senior Unsecured Notes – Fully Taxable Exchange

The discussion below assumes that the Senior Unsecured Notes are not securities for U.S. federal income tax purposes, and therefore, the Senior Notes Exchange does not qualify as a recapitalization for U.S. federal income tax purposes.

A U.S. Holder exchanging the Senior Unsecured Notes for the New Assets pursuant to an Exchange generally should recognize gain or loss (subject to the possible application of the wash sale rules), if any, in an amount equal to the difference between (i) the sum of (A) the issue price (as determined below under “Issue Price of the New Notes”) of the New Second Lien Notes and New Third Lien Notes received in the Senior Note Exchange (including the amount of any New Second Lien Notes received, if treated as additional consideration (as discussed below)) and (B) the fair market value of the New Common Shares received, but excluding in the case of (A) and (B), any amounts attributable to the Senior Notes Accrued Interest, and (ii) the U.S. Holder’s adjusted tax basis in the Senior Unsecured Notes. A U.S. Holder’s adjusted tax basis in a Senior Unsecured Note generally will equal the U.S. Holder’s initial cost of the Senior Unsecured Note, increased by the amount of OID and any market discount previously included in income by the U.S. Holder, and decreased by the amount of any amortizable bond premium previously amortized by the U.S. Holder. Amortizable bond premium is generally defined as the excess of a U.S. Holder’s tax basis in the Senior Unsecured Note immediately after its acquisition by such U.S. Holder over the principal amount of the Senior Unsecured Note. Subject to the discussion below under “Market Discount” and the treatment of the New Second Lien Notes discussed below under “Early Consent Consideration”, such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if such U.S. Holder has held such Senior Unsecured Notes for more than one year. Such gain or loss generally will be U.S. source income or loss for purposes of computing a U.S. Holder’s foreign tax credit limitation. Long-term capital gains of non-corporate U.S. Holders are generally eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. A U.S. Holder’s initial tax basis in any New Notes received pursuant to the Exchange will equal the issue price of such New Notes (determined as discussed below under “Issue Price of the New Notes”) and a U.S. Holder’s initial tax basis in any New Common Shares received would equal the fair market value of the New Common Shares. The holding period of the New Assets will begin on the day after the Senior Note Exchange.

Convertible Debentures – Recapitalization Treatment.

The discussion below assumes that the Convertible Debentures are securities for U.S. federal income tax purposes, and therefore, the Convertible Debentures Exchange qualifies as a recapitalization for U.S. federal income tax purposes.

To the extent the exchange of the Convertible Debentures for New Common Shares (including the amount of any New Common Shares received as Debentureholder Early Consent Consideration, if treated as additional consideration, as discussed below) pursuant to the Convertible Debentures Exchange qualifies as a recapitalization under the Code, a U.S. Holder should not recognize loss and should not recognize gain (other than with respect to New Common Shares received attributable to accrued but unpaid interest with respect to the Convertible Debentures on the date of the Convertible Debentures Exchange (the “Convertible Debentures Accrued Interest” and together with the Senior Notes Accrued Interest, the “Accrued Interest”), which will be treated as described below under

 

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Accrued Interest”) on the Convertible Debentures Exchange, its tax basis in the New Common Shares received in the Convertible Debentures Exchange should be equal to the tax basis in the Convertible Debentures exchanged therefor increased by any gain recognized by such U.S. Holder on the Convertible Debentures Exchange, and the holding period for such New Common Shares should include the period during which the Convertible Debentures surrendered in the Convertible Debentures Exchange were held (except to the extent any New Common Shares are allocable to Accrued Interest, in which case its holding period should begin on the day following the Convertible Debentures Exchange). Notwithstanding the foregoing, a U.S. Holder of the Convertible Debentures may recognize foreign currency gain or loss that is attributable to fluctuations in currency exchange rates with respect to the principal amount of the Convertible Debentures pursuant to the Convertible Debentures Exchange. Such rules are complex and depend on a U.S. Holder’s particular circumstances and U.S. Holders should consult their own tax advisors regarding these rules.

Convertible Debentures – Fully Taxable Exchange

The discussion below assumes that the Convertible Debentures are not securities for U.S. federal income tax purposes, and therefore, the Convertible Debentures Exchange does not qualify as a recapitalization for U.S. federal income tax purposes.

If the Convertible Debentures Exchange does not qualify as a recapitalization, a U.S. Holder exchanging Convertible Debentures for New Common Shares pursuant to the Convertible Debentures Exchange generally should recognize gain or loss (subject to the possible application of the wash sale rules), if any, in an amount equal to the difference between (i) the fair market value of the New Common Shares received in the Convertible Debentures Exchange (including any additional New Common Shares (or portions thereof) received as Debentureholder Early Consent Consideration, if treated as additional consideration (as discussed below), but excluding any amounts attributable to Accrued Interest), and (ii) the U.S. Holder’s adjusted tax basis in the Convertible Debentures. A U.S. Holder’s adjusted tax basis in a Convertible Debenture generally will equal the U.S. Holder’s initial cost of the Convertible Debenture, increased by any market discount previously included in income by the U.S. Holder, and decreased by the amount of any bond premium previously amortized by the U.S. Holder. Subject to the discussion below under “Market Discount” and the treatment of the Debentureholder Early Consent Consideration discussed below, such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if such U.S. Holder has held such Convertible Debenture for more than one year. Such gain or loss generally will be U.S. source income or loss for purposes of computing a U.S. Holder’s foreign tax credit limitation. Long-term capital gains of non-corporate U.S. Holders are generally eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. If the Convertible Debentures Exchange does not qualify as a recapitalization, a U.S. Holder’s initial tax basis in any New Common Shares received pursuant to the Exchange should equal the fair market value of the New Common Shares, and the holding period of the New Common Shares should begin on the day after the Convertible Debentures Exchange.

BECAUSE OF THE UNCERTAINTY OF WHETHER A DEBT INSTRUMENT QUALIFIES AS A SECURITY FOR U.S. FEDERAL INCOME TAX PURPOSES AND WHETHER AN EXCHANGE QUALIFIES AS A RECAPITALIZATION, U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM OF THE EXCHANGES.

Regardless of whether an Exchange qualifies as a recapitalization or is treated as a taxable exchange, the issue price of the New Notes will be determined as described below (see “Issue Price of the New Notes”) and the New Notes will be subject to the tax considerations described below under “Ownership and Disposition of the New Notes”). The New Common Shares will be subject to the tax considerations described below under “Ownership and Disposition of the New Common Shares”.

Accrued Interest

Regardless of whether an Exchange qualifies as a recapitalization or is treated as a taxable transaction, any amount received by a U.S. Holder pursuant to an Exchange attributable to Accrued Interest on an Old Note will be includible in gross income as ordinary interest income if such accrued interest has not been included previously in gross income by the U.S. Holder for U.S. federal income tax purposes. Conversely, a U.S. Holder may be able to recognize a deductible loss to the extent that any Accrued Interest was previously included in such U.S. Holder’s gross income but was not paid in full by the Corporation. Such loss may be ordinary, but the tax law is unclear on this point.

 

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If the fair market value of the consideration is not sufficient to satisfy all principal and interest on the Old Notes, the extent to which such consideration will be attributable to Accrued Interest is unclear. The Plan of Arrangement provides that (i) the Cash Interest Payment (or any of the New Third Lien Notes issued in lieu of the Cash Interest Payment) will be allocated to Accrued Interest on the Senior Unsecured Notes and (ii) all other consideration issued under this Plan of Arrangement will be allocated first, to the principal amount of the Old Notes and second, to the Accrued Interest on the Old Notes. The IRS could take the position that the consideration received by a U.S. Holder of an Old Note should be allocated in a manner other than as provided for in the Plan of Arrangement. U.S. Holders should consult their own tax advisors regarding the allocation of consideration received in satisfaction of the Old Notes and the U.S. federal income tax treatment of Accrued Interest.

Market Discount

Any gain recognized by a U.S. Holder in an Exchange will be treated as ordinary income to the extent of any market discount on the Old Notes that accrued during the period that the U.S. Holder held the Old Notes and that has not been previously included in income by the U.S. Holder. An Old Note generally will be considered to have been acquired with market discount if the initial tax basis of the Old Note in the hands of the U.S. Holder immediately subsequent to its acquisition was less than the Old Note’s issue price and the aggregate amount of any OID that accrued before the U.S. Holder acquired the Note unless this difference is less than a specified de minimis amount. Market discount accrues on a ratable basis, unless the U.S. Holder elects to accrue the market discount on a constant-yield method. U.S. Holders should consult their own tax advisors as to the portion of any gain that could be taxable as ordinary income under the market discount rules.

Early Consent Consideration

In the Exchanges, Consenting Noteholders will receive the New Second Lien Notes and Consenting Debentureholders will receive the Debentureholder Early Consent Consideration. The U.S. federal income tax treatment of such items is uncertain because there are no authorities that directly address the U.S. federal income tax consequences of their receipt. Under the Code, any amount received by a holder in retirement of a debt instrument generally is treated as being received in exchange for the debt instrument.

If the New Second Lien Notes or Debentureholder Early Consent Consideration is treated as additional consideration for the Old Notes, it would be treated as part of the amount realized by a U.S. Holder in the exchange of the Old Notes for New Assets pursuant to an Exchange and would be taken into account in the manner discussed above. Alternatively, the New Second Lien Notes and Debentureholder Early Consent Consideration might be treated as interest or as a separate fee that in either case would be subject to tax as ordinary income. U.S. Holders should consult their own tax advisors regarding the tax treatment of the New Second Lien Notes and the Debentureholder Early Consent Consideration.

Issue Price of the New Notes

The issue price of the New Notes would be determined based on whether the New Notes or the Senior Unsecured Notes are considered to be publicly traded under the applicable provisions of the Code and Treasury Regulations. A debt instrument is not treated as publicly traded if the stated principal amount of the issue that includes the debt instrument does not exceed US$100 million (the “Small Issue Exception”). Both the New Second Lien Notes and the New Third Lien Notes issued pursuant to the Senior Note Exchange have a stated principal amount of US$50 million and, therefore, we believe that the New Notes should not be considered to be publicly traded based on the Small Issue Exception. If the Senior Unsecured Notes are considered to be publicly traded, the “issue price” of each of the New Second Lien Notes and the New Third Lien Notes should be determined based on the fair market value of the Senior Unsecured Notes (as of the date of the Senior Note Exchange) exchanged for such New Second Lien Notes and New Third Lien Notes. If neither the Senior Unsecured Notes nor the New Notes are publicly traded, the issue price of New Notes should equal their stated principal amount. We expect that the Senior Unsecured Notes should be considered to be publicly traded and that accordingly the issue price of the New Notes will be determined based on the fair market value of the Senior Unsecured Notes exchanged for such New Notes.

 

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Ownership and Disposition of the New Notes

Stated Interest and OID on the New Notes

Stated interest on the New Notes (including any additional amounts paid in respect of Canadian withholding taxes and without reduction for any amounts withheld) will be taxed as ordinary interest income at the time it is received or accrued in accordance with a U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.

If the stated redemption price at maturity of any issue of New Notes exceeds its issue price, as determined above (see “Issue Price of the New Notes”), by an amount equal to or greater than a specified de minimis amount, then such issue of New Notes will be treated as issued with OID for U.S. federal income tax purposes. The stated redemption price at maturity of a New Note will include all payments to be made on the New Note other than payments of qualified stated interest. Interest that is payable in kind (by either increasing the principal amount of a New Note or by issuing “PIK New Notes”) will not be treated as qualified stated interest and thus will be added to the stated redemption price at maturity. A portion of the interest payable on the New Third Lien Notes may be paid in kind.

If any issue of New Notes is treated as issued with OID, then U.S. Holders generally will be required to include such OID in gross income as it accrues over the term of the New Notes at a constant yield without regard to their regular method of accounting for U.S. federal income tax purposes and in advance of the receipt of cash payments attributable to that income. The amount of OID that will be included in income generally will equal the sum of the “daily portions” of OID with respect to the New Note for each day during the taxable year or portion of the taxable year in which such New Note was held. The daily portion is determined by allocating to each day in any “accrual period” a pro rata portion of the OID allocable to that accrual period. The “accrual period” for a note may be of any length and may vary in length over the term of the New Note, provided that each accrual period is no longer than one year and each scheduled payment of principal and interest occurs on the first day or the final day of an accrual period. The amount of OID allocable to any accrual period other than the final accrual period is an amount equal to the excess, if any, of (a) the product of (x) the New Note’s adjusted issue price at the beginning of such accrual period and (y) its yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) over (b) the aggregate of all stated interest allocable to the accrual period. OID allocable to a final accrual period is the difference between the amount payable at maturity (other than a payment of stated interest) and the adjusted issue price of the New Note at the beginning of the final accrual period. The “adjusted issue price” of a New Note at the beginning of any accrual period is generally equal to its issue price increased by the accrued OID for each prior accrual period.

A U.S. Holder may elect to treat all interest on a New Note as OID and calculate the amount includible in gross income under the constant yield method described above. The election is to be made for the taxable year in which the New Note was acquired, and may not be revoked without the consent of the IRS. U.S. Holders should consult their own tax advisors about this election.

U.S. Holders would be subject to special rules relating to foreign currency transactions if the Corporation were to make interest payments in a currency other than in U.S. dollars (see “Foreign Currency Considerations”).

Amortizable Bond Premium

If a U.S. Holder’s adjusted tax basis in a New Note immediately after the exchange of a Senior Unsecured Note for such New Note is greater than the sum of all amounts payable on the New Note (other than payments of stated interest), the U.S. Holder will be considered to have acquired the New Note with amortizable bond premium, in an amount equal to such excess (any such New Note, a “Bond Premium Note”). A U.S. Holder’s initial tax basis in the New Notes acquired pursuant to the Senior Note Exchange will be determined as described above (see “Tax Treatment of the Exchanges”). A U.S. Holder may elect to amortize this bond premium, using a constant-yield method, over the remaining term of such Bond Premium Note. Subject to the discussion in the following paragraph, a U.S. Holder generally may use the amortizable bond premium allocable to an accrual period to offset stated interest otherwise required to be included in income with respect to the Bond Premium Note in that accrual period. An election to amortize bond premium applies to all taxable debt obligations then owned or thereafter acquired and may be revoked only with the consent of the IRS. U.S. Holders should consult their own tax advisors regarding the amortization of any amortizable bond premium.

Acquisition Premium

If a U.S. Holder’s adjusted basis in a New Note immediately after the exchange of a Senior Unsecured Note for a New Note is greater than the issue price of the New Note but less than or equal to the sum of all amounts payable on

 

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the New Note (other than payments of stated interest), the U.S. Holder will be considered to have acquired the New Note at an acquisition premium. Under the acquisition premium rules, the amount of any OID that the U.S. Holder must include in gross income with respect to the New Note for any taxable year will be reduced by the portion of the acquisition premium properly allocable to that year.

Market Discount

If a U.S. Holder’s tax basis in a New Note received in an exchange is less than the issue price of the New Note, the amount of the difference will be treated as market discount for U.S. federal income tax purposes, unless this difference is less than a specified de minimis amount. If a New Note has market discount, a U.S. Holder generally will be required to treat any principal payment, any payment that is not stated interest, or any gain on the sale or other taxable disposition of the New Note as ordinary income to the extent of the market discount accrued on the New Note at the time of the payment or disposition unless the U.S. Holder has previously included this market discount in income.

Foreign Tax Credit

A U.S. Holder may be able to claim a credit (or at such holder’s election, a deduction in lieu of such credit) with respect to any non-U.S. withholding taxes deducted from a payment on the New Notes, in computing such holder’s U.S. federal income tax liability. Stated interest income and OID on the New Notes generally will constitute foreign source income, which is relevant in calculating the U.S. Holder’s foreign tax credit. There are significant complex limitations on a U.S. Holder’s ability to claim foreign tax credits. U.S. Holders should consult their own tax advisors regarding the availability of foreign tax credits in their particular situation.

Sale, Exchange or Other Taxable Disposition of New Notes

Upon the sale, exchange, redemption, retirement or other taxable disposition of a New Note, a U.S. Holder will recognize taxable gain or loss equal to the difference between the amount realized on such disposition (except to the extent any amount realized is attributable to accrued but unpaid interest, which amount will be taxed as ordinary income to the extent not previously included in income) and the U.S. Holder’s adjusted tax basis in the New Note, as applicable. A U.S. Holder’s initial tax basis in a New Note will be determined, as described above (see “Tax Treatment of the Exchanges”). A U.S. Holder’s adjusted tax basis in a New Note will be its initial tax basis, increased by the amount of any accrued OID on such New Note previously included in income by the U.S. Holder. Any capital gain or loss on the disposition of a New Note will be long-term capital gain or loss if, at the time of such disposition, the U.S. Holder’s holding period in the New Note is more than one year. Long-term capital gains of non-corporate taxpayers are generally eligible for preferential rates of taxation. The deductibility of capital losses is subject to certain limitations. Such gain or loss will generally be U.S. source income or loss for purposes of computing your foreign tax credit limitation. Special considerations may apply to a U.S. Holder who receives foreign currency in connection with a sale or other taxable disposition of New Notes (see “Foreign Currency Considerations”).

THE PRECEDING SUMMARY OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT LEGAL OR TAX ADVICE. ACCORDINGLY, U.S. HOLDERS OF OLD NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSIDERATIONS RELATING TO THE EXCHANGE AND THE OWNERSHIP AND DISPOSITION OF THE NEW NOTES ACQUIRED PURSUANT TO THE EXCHANGES.

Ownership and Disposition of the New Common Shares

Distributions on the New Common Shares

Subject to the discussion under “PFIC Considerations” below, the gross amount of a distribution paid with respect to the New Common Shares, including the full amount of any Canadian withholding tax on such amount, will be a dividend for U.S. federal income tax purposes to the extent of the Corporation’s current-year or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Distributions in excess of the Corporation’s current-year and accumulated earnings and profits will be treated first as a tax-free return of capital to the extent of the U.S. Holder’s tax basis in the New Common Shares and will reduce (but not below zero) such

 

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basis. A distribution in excess of the Corporation’s current-year and accumulated earnings and profits and the U.S. Holder’s tax basis in the New Common Shares will be treated as capital gain realized on the sale or exchange of such New Common Shares. However, the Corporation does not intend to calculate its earnings and profits for U.S. federal income tax purposes, and the Corporation will be required to report the entire amount of such distribution as a dividend. U.S. Holders that are corporations generally will not be entitled to claim a dividends received deduction with respect to distributions received from the Corporation.

In general, dividends paid with respect to the New Common Shares to a non-corporate U.S. Holder will be treated as “qualified dividend income,” which is taxable to such U.S. Holder at preferential capital gain tax rates provided that (i) the New Common Shares are regularly traded on an established securities market in the United States or the Corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the IRS has determined is satisfactory and that includes an exchange of information program (such as the United States-Canada Income Tax Convention), (ii) the Corporation is not a PFIC (as defined below) for the taxable year during which the dividend is paid or the immediately preceding taxable year (which the Corporation does not believe it has been or will be, as discussed below in “PFIC Considerations”), and (iii) certain holding period and other requirements are satisfied. For purposes of clause (i) above, the Corporation believes it is eligible for the benefits of the United States- Canada Income Tax Convention. Thus, provided the requirements in clause (iii) above are met, dividends paid with respect to the New Common Shares are expected to be treated as “qualified dividend income”. Any dividends paid with respect to the New Common Shares not eligible for those preferential rates will be taxed as ordinary income to a non-corporate U.S. Holder.

U.S. Holders would be subject to special rules relating to foreign currency transactions if the Corporation were to make distributions in a currency other than in U.S. dollars (see “Foreign Currency Considerations”).

Foreign Tax Credit

In general, dividends paid with respect to the New Common Shares will constitute foreign source income for purposes of computing the foreign tax credit allowable to U.S. Holders. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will generally be limited to the gross amount of the dividend, multiplied by the reduced tax rate applicable to qualified dividend income and divided by the highest tax rate normally applicable to dividends. However, if the Corporation is a “United States-owned foreign corporation” (generally, a foreign corporation 50 percent or more of the stock of which, by vote and value, is held directly, indirectly or under applicable constructive ownership rules, by United States persons), at least a portion of the dividends paid with respect to the New Common Shares will be U.S. source income for foreign tax credit purposes if and to the extent that more than a de minimis amount of the earnings and profits out of which the dividends are paid is from sources within the United States. We do not expect the Corporation to maintain calculations with respect to the source of its earnings and profits under U.S. federal income tax principles. Canadian tax, if any, withheld on distributions to a U.S. Holder may be eligible for foreign tax credits (or deduction in lieu of such credits) for U.S. federal income tax purposes, subject to special limitations. The calculation of foreign tax credits involves the application of complex rules that depend on a U.S. Holder’s particular circumstances. U.S. Holders should consult their own tax advisors regarding the availability of foreign tax credits.

Sale, Exchange, or Other Taxable Disposition of the New Common Shares

Subject to the discussion under “PFIC Considerations” below, in general, the sale, exchange, or other disposition of New Common Shares will result in taxable gain or loss to a U.S. Holder equal to the difference between (i) the amount of cash plus the fair market value of any other property received by such U.S. Holder in the sale, exchange, or other disposition and (ii) such U.S. Holder’s adjusted basis in the New Common Shares. Gain or loss recognized on the sale, exchange, or other disposition of New Common Shares will generally be capital gain or loss and will be long-term capital gain or loss if the New Common Shares have a holding period of more than one year at the time of the sale, exchange, or other disposition. Long-term capital gains of non-corporate U.S. Holders (including individuals) generally are subject to tax at preferential U.S. federal income tax rates. The deductibility of capital losses is subject to limitations. Any such gain or loss recognized will generally be treated as U.S. source income or loss for purposes of computing a U.S. Holder’s foreign tax credit for U.S. federal income tax purposes. Special considerations may apply to a U.S. Holder who receives foreign currency in connection with a sale or other taxable disposition of New Common Shares below (see “Foreign Currency Considerations”).

 

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PFIC Considerations

Certain adverse U.S. federal income tax rules apply to U.S. Holders owning stock of a passive foreign investment company (“PFIC”). A non-U.S. corporation will be a PFIC in any taxable year in which, (i) at least 75% of its gross income (including its proportionate share of the gross income of any other corporation in which it owns, directly or indirectly, 25% or more (by value) of such corporation’s stock) for such taxable year consists of certain types of passive income (e.g., dividends, interest, capital gains, royalties and, the excess of gains over losses from sales of commodities); or (ii) at least 50% of the average value of its assets (including its proportionate share of the assets of any other corporation in which it owns, directly or indirectly, 25% or more (by value) of such corporation’s stock) is attributable to assets that produce, or are held for the production of, passive income. Based on estimates of our gross income, the nature and value of our assets, the manner in which we conduct our business and our expectation for the manner in which such business will be conducted in the future, we do not believe that we were a PFIC for our 2018 taxable year and do not expect to be treated as a PFIC in the current taxable year or any future taxable year. However, PFIC status is determined on a year-by-year basis and the determination is very fact specific. As a result, there can be no assurance as to the Corporation’s PFIC status in the current year or in any future year. U.S. Holders should consult their own tax advisors regarding the adverse tax consequences of owning the common stock were the Corporation to be a PFIC, certain elections that may be made that are designed to lessen the adverse tax consequences and reporting requirements that are applicable to U.S. Holders of stock of a PFIC.

Foreign Currency Considerations

The amount of any distribution, interest or proceeds paid in non-U.S. currency to a U.S. Holder in connection with the ownership of the New Assets, or on the sale, exchange or other taxable disposition of the New Assets, or any Canadian dollars received in connection with the Exchanges will generally be included in the gross income of a U.S. Holder as translated into U.S. dollars as described above. If the Canadian dollars (or other non-U.S. currency) received are not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the Canadian dollars or other non-U.S. currency equal to the U.S. dollar value thereof on the date of receipt. Any U.S. Holder that receives payment in Canadian dollars or other non-U.S. currency and engages in a subsequent conversion or other disposition of the Canadian dollars or other non-U.S. currency may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally would be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders that use the accrual method. U.S. Holders should consult their own tax advisors regarding the U.S. federal income tax consequences of receiving, owning, and disposing of Canadian dollars or other non-U.S. currency.

Foreign Financial Asset Reporting

Individuals that own “specified foreign financial assets” with an aggregate value in excess of certain thresholds generally are required to file an information report (IRS Form 8938) with respect to such assets with their tax returns. The New Assets generally will constitute specified foreign financial assets subject to these reporting requirements, unless the New Assets are held in an account at certain financial institutions. Under certain circumstances, an entity may be treated as an individual for purposes of these rules. Substantial penalties may apply if the U.S. Holder fails to provide the required information. U.S. Holders should consult their own tax advisors regarding these reporting requirements.

Backup Withholding and Information Reporting

Payments of interest on the New Notes, dividends on the New Common Shares and/or the proceeds of a sale of the New Assets received in the United States or through certain U.S.-related financial intermediaries may be subject to information reporting and backup withholding unless the U.S. Holder provides proof of an applicable exemption or furnishes its taxpayer identification number and otherwise complies with all applicable requirements under the backup withholding rules. Any amounts withheld under the backup withholding rules are not an additional tax and may be allowed as a refund or credit against the Non-U.S. Holder’s U.S. federal income tax liability, provided that the required information is timely furnished to the IRS.

 

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RISK FACTORS

In addition to the other information set forth and incorporated by reference in this Information Circular, Voting Parties should carefully review the following risk factors before deciding whether to approve the Recapitalization Transaction.

Risks Relating to the Recapitalization Transaction

The completion of the Recapitalization Transaction may not occur.

The Corporation will not complete the Recapitalization Transaction unless and until all conditions precedent to the Arrangement are satisfied or waived. These conditions include certain items that are outside of Bellatrix’s control, such as the requirement that the Revolving Credit Facility be extended for a one-year term on substantially similar terms as the current Revolving Credit Facility, and/or with such other terms as are acceptable to the Corporation and the Initial Consenting Noteholders, each acting reasonably, and applicable stakeholder approvals. See “Conditions Precedent to the Implementation of the Plan.

In the event the Recapitalization Transaction is not successful, the Corporation will need to evaluate all of its options and alternatives related to any future Court proceedings or other alternatives to address key liquidity and debt leverage matters which exist today. In the event the Recapitalization Transaction is not successful, the value available to stakeholders may be significantly less and there is a risk that any proceeds available for distribution to stakeholders would be paid in priority to the First Lien Lenders, Existing Second Lien Noteholders, Senior Unsecured Noteholders and Convertible Debentureholders, with the remaining proceeds, if any, paid to the Shareholders. There is significant risk that there may be no recovery of any kind, or amount available for, those parties which are lower in the priority waterfall in such circumstances. See “Failure to Implement the Recapitalization Transaction”.

Should the Recapitalization Transaction not be implemented pursuant to the Plan for any reason, the Corporation may determine, with the prior written consent of the Initial Consenting Noteholders and the Initial Consenting Debentureholder and subject to further order of the Court, to proceed with the Recapitalization Transaction on substantially the same terms as described in this Information Circular pursuant to proceedings under the CCAA. See “Alternative Implementation Process”.

Even if the Recapitalization Transaction is completed, it may not be completed on the schedule described in this Information Circular. Accordingly, Debtholders participating in the Recapitalization Transaction may have to wait longer than expected to receive their entitlements under the Plan. In addition, if the Recapitalization Transaction is not completed on the schedule described in this Information Circular, the Corporation may incur additional expenses.

The Recapitalization Transaction may not improve the financial condition of Bellatrix’s business.

Management believes that the Recapitalization Transaction will enhance Bellatrix’s liquidity and provide it with continued operating flexibility. However, such belief is based on certain assumptions, including, without limitation, that Bellatrix’s product sales, suppliers, customers, purchasers and contractors will not be materially adversely affected while the Recapitalization Transaction is underway and that such sales and/or relationships will be stable or will improve following the completion of the Recapitalization Transaction in the competitive marketplace in which Bellatrix operates, that general economic conditions and the markets for Bellatrix’s products will remain stable or improve, as well as Bellatrix’s continued ability to manage costs. Should any of those assumptions prove false, the financial position of Bellatrix may be materially adversely affected and Bellatrix may not be able to pay its debts as they become due.

Parties may make claims against the Bellatrix Entities despite the releases and waivers provided for in the Plan.

The Plan includes certain releases that become effective upon the implementation of the Recapitalization Transactions in favour of the Released Parties, as set out in the Plan. Furthermore, the Plan also provides that, from and after the Effective Time, all Persons shall be deemed to have consented and agreed to all of the provisions of the Plan in its entirety. Without limiting the foregoing, pursuant to the Plan, the Released Parties shall be released and discharged from all present and future actions, causes of action, damages, judgments, executions, obligations,

 

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liabilities and Claims of any kind or nature whatsoever arising on or prior to the Effective Date in connection with the Debt, the Debt Documents, the Senior Unsecured Notes Exchange Transaction, the Support Agreements, the Arrangement, the Arrangement Agreement, the Plan, the CBCA Proceedings and any other proceedings commenced with respect to or in connection with the Plan, the transactions contemplated thereunder, and any other actions or matters related directly or indirectly to the foregoing, subject to applicable exceptions. Notwithstanding the foregoing, the Corporation may still be subject to legal actions with regards to such released claims and related matters. Such legal actions may be costly and could require the Corporation to defend such potential claims without recourse for legal costs incurred, even if the Corporation is successful.

Potential effect of the Recapitalization Transaction.

There can be no assurance as to the effect of the announcement of the Recapitalization Transaction on Bellatrix’s relationships with its suppliers, customers, purchasers, contractors or lenders, nor can there be any assurance as to the effect on such relationships of any delay in the completion of the Recapitalization Transaction, or the effect of the Recapitalization Transaction being completed under the CBCA. To the extent that any of these events result in the tightening of payment or credit terms, increases in the price of supplied goods, or the loss of a major supplier, customer, purchaser, contractor or lender, or of multiple other suppliers, customers, purchasers, contractors or lenders, this could have a material adverse effect on Bellatrix’s business, financial condition, liquidity and results of operations. Similarly, current and prospective employees of the Corporation may experience uncertainty about their future roles with the Corporation until the Corporation’s strategies with respect to such employees are determined and announced. This may adversely affect the Corporation’s ability to attract or retain key employees in the period until the Arrangement is completed or thereafter. The risk, and material adverse effect, of such disruptions could be exacerbated by any delay in the consummation of the Arrangement or termination of the Support Agreements.

The Debtholders receiving New Second Lien Notes, New Third Lien Notes, Additional New Third Lien Notes (if any) and New Common Shares through the Plan might have difficulty enforcing civil liabilities against the Corporation in the United States.

The enforcement by the Debtholders of civil liabilities under U.S. Securities Laws may be affected adversely by the fact that Bellatrix is incorporated outside the United States, that some or all of its officers and directors and the experts named herein are residents of a foreign country, and that a substantial portion of the assets of the Corporation and said persons are located outside the United States. As a result, it may be difficult or impossible for Debtholders in the United States to effect service of process within the United States upon Bellatrix and their officers and directors and the experts named herein, or to realize, against them, upon judgments of courts of the United States predicated upon civil liabilities under U.S. Securities Laws or “blue sky” laws of any state within the United States. In addition, the Debtholders in the United States should not assume that the courts of Canada or any other non-U.S. jurisdiction: (i) would enforce judgments of United States courts obtained in actions against such persons predicated upon civil liabilities under U.S. Securities Laws or “blue sky” laws of any state within the United States; or (ii) would enforce, in original actions, liabilities against such persons predicated upon civil liabilities under U.S. Securities Laws or “blue sky” laws of any state within the United States. In addition, awards of punitive damages in actions brought in Canada or elsewhere may be unenforceable in the U.S.

The Corporation will incur significant transaction-related costs in connection with the Arrangement, and the Corporation may have to pay various expenses even if the Arrangement is not completed.

The Corporation expects to incur a number of non-recurring costs associated with the Arrangement before, at, and after its closing. The Corporation will also incur transaction fees and costs. Certain costs related to the Arrangement, such as legal, accounting and certain financial advisor fees, must be paid by the Corporation even if the Arrangement is not completed. If the Arrangement is not consummated, the Corporation will bear some or all of these costs without recognizing any of the anticipated benefits of the Arrangement.

The pending Arrangement may divert the attention of the Corporation’s management.

The pendency of the Arrangement could cause the attention of the Corporation’s management to be diverted from the day-to-day operations and customers or suppliers may seek to modify or terminate their business relationships with the Corporation. These disruptions could be exacerbated by a delay in the completion of the Arrangement and could have an adverse effect on the business, operating results or prospects of the Corporation regardless of whether the Arrangement is ultimately completed.

 

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Following completion of the Arrangement, the Corporation may issue additional equity or debt securities, which could dilute the ownership in the Corporation of holders of Common Shares.

In the future the Corporation may issue additional securities to raise capital. The Corporation may also acquire interests in other companies by using a combination of cash and Common Shares or just Common Shares. The Corporation may also issue securities convertible into Common Shares.

The Corporation may also attempt to increase its capital resources by making additional offerings of debt, including senior or subordinated notes. Because the Corporation’s decision to issue securities in any future offering will depend on market conditions and other factors beyond its control, the Corporation cannot predict or estimate the amount, timing or nature of future offerings. Thus, holders of Common Shares bear the risk of future offerings reducing the market value of Common Shares.

The Recapitalization Transactions will result in substantial dilution to Shareholders and certain existing Shareholders will no longer hold securities of Bellatrix following the Recapitalization Transaction.

The Recapitalization Transaction will result in the current holders of Common Shares holding approximately 16.5% of the Common Shares anticipated to be issued and outstanding immediately following the implementation of the Recapitalization Transaction. As a result of the Share Consolidation and the rounding down of fractional Common Shares, an existing holder of 11 or fewer Common Shares will no longer hold any Common Shares following the completion of the Recapitalization Transaction and will not receive any consideration therefor.

The Corporation will have new significant Shareholders upon completion of the Recapitalization Transaction.

Upon completion of the Recapitalization Transaction, it is expected that Loomis and Polar will hold approximately 24.99% and 16.83% of the Common Shares, respectively (based on holdings information provided pursuant to the Support Agreements, subject to the terms of the Plan, including in respect of the Alternative Senior Unsecured Noteholder Group Equity Allocation, and assuming 90% of the Convertible Debentures are Consent Debentures). Loomis and Polar may be able to significantly affect the outcome of important matters affecting Bellatrix that require Shareholder approval, including business combinations or other transactions that have been recommended for acceptance by Shareholders by the Board. It is possible that the interests of Loomis and/or Polar may in some circumstances conflict with the Corporation’s interests and the interests of other Shareholders. In addition, Loomis and Polar are in the business of making investments in other companies and may hold securities of, and may from time to time in the future acquire interests in, businesses that directly or indirectly compete with all or a portion of the Corporation’s business or the businesses of its suppliers. Loomis and Polar have not entered into a non-competition agreement with the Corporation, or provided any covenants not to compete with the Corporation under any agreement. In addition, the significant holdings of Loomis and Polar may reduce the liquidity of the Common Shares.

Risks Relating to the Non-Implementation of the Recapitalization Transaction

Future liquidity and operations of the Corporation are dependent on the ability of the Corporation to restructure its debt obligations and to generate sufficient operating cash flows to fund its on-going operations. If the Corporation does not complete the realignment of its capital structure through the CBCA process described above, it will be necessary to pursue other restructuring strategies that could have a more negative effect on the Corporation.

In the event that the Recapitalization Transaction is not implemented, the Corporation’s total debt may not be reduced by approximately $110 million and the associated reduction in debt service costs may not be achieved.

The financial statements incorporated by reference in this Information Circular have been prepared on a going concern basis, which asserts the Corporation has the ability in the near term to continue to realize its assets and discharge its liabilities and commitments in a planned manner giving consideration to the expected possible outcomes set forth in such financial statements. Conversely, if the going concern assumption is not appropriate, adjustments to the carrying amounts of Bellatrix’s assets, liabilities, revenues, expenses and balance sheet classifications may be necessary.

 

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Risk Factors Related to the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes

Due to many factors beyond Bellatrix’s control, Bellatrix may not be able to generate sufficient cash to service all of its indebtedness and meet its other ongoing liquidity needs, and Bellatrix may be forced to take other actions to satisfy its obligations under its debt agreements, which actions may not be successful.

Bellatrix’s ability to make payments on, and to refinance, its indebtedness, and to fund planned capital expenditures will depend on Bellatrix’s ability to generate cash in the future. This is subject to general economic, financial, competitive, legislative, regulatory and other factors, many of which are beyond Bellatrix’s control. Bellatrix’s business may not generate sufficient cash flow from operations and Bellatrix’s subsidiaries may not be able to, or may not be permitted to, make distributions to enable it to make payments in respect of its indebtedness. Furthermore, Bellatrix may not have future borrowings available in an amount sufficient to enable it to pay indebtedness, including the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any), or to fund Bellatrix’s other liquidity needs.

In these circumstances, Bellatrix may need to refinance all or a portion of its indebtedness, including the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any), on or before maturity. Any refinancing of its debt could be at higher interest rates and may require Bellatrix to comply with more onerous covenants, which could further restrict Bellatrix’s business operations. Bellatrix’s ability to refinance Bellatrix’s indebtedness or obtain additional financing will depend on, among other things:

 

   

Bellatrix’s financial condition at the time;

 

   

restrictions governing Bellatrix’s indebtedness, including those contained in the First Lien Credit Agreement, the Existing Second Lien Note Purchase Agreement or the Second Lien Notes Indenture (as applicable) and the New Third Lien Notes Indenture;

 

   

Bellatrix’s credit rating; and

 

   

the condition of the financial markets and the industry in which Bellatrix operates.

As a result, Bellatrix may not be able to refinance any of its indebtedness on commercially reasonable terms or at all. Without this refinancing, Bellatrix could be forced to sell assets, reduce or delay capital expenditures or seek additional equity capital to make up for any shortfall in Bellatrix’s payment obligations under unfavorable circumstances. In addition, Bellatrix may not be able to sell assets quickly enough or for sufficient amounts to enable Bellatrix to meet its obligations. Any failure to make scheduled payments of interest and principal on Bellatrix’s outstanding indebtedness when due would permit the holders of such indebtedness to declare an event of default and accelerate the indebtedness. This could result in the lenders enforcing against the assets securing the borrowings, and Bellatrix could be forced into bankruptcy or other insolvency proceedings. In addition, any failure to make payments of interest and principal on Bellatrix’s outstanding debt on a timely basis would likely result in a reduction of Bellatrix’s credit rating, which could harm Bellatrix’s ability to incur additional debt on acceptable terms and may materially adversely affect the price of Bellatrix’s debt securities.

Canadian insolvency laws may impair the enforcement of remedies under the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes.

The rights of holders of New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) may be significantly impaired by the provisions of applicable Canadian bankruptcy, insolvency, corporate and other similar legislation. In Canada, insolvency proceedings are governed by three federal statutes, the principal two being the CCAA and the BIA. The federal insolvency laws in Canada apply across the country and allow for either a liquidation type proceeding or a restructuring type proceeding. In addition, under federal insolvency laws and provincial rules of court (other than Quebec), secured creditors may appoint what is known as a “receiver” over the collateral of the debtor, in order to sell the debtor’s assets or manage the debtor’s business or otherwise realize on collateral. Notwithstanding that insolvency proceedings in Canada are governed by federal statute, in certain circumstances provincial and territorial laws will affect those proceedings (e.g., security laws, landlord rights, etc.). In addition, secured creditors may have recourse to self-help or court-supervised proceedings.

 

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The powers of the court under Canadian insolvency laws have been exercised broadly to protect an insolvent debtor from actions taken by creditors and other parties. Accordingly, if Bellatrix were to become subject to proceedings pursuant to such Canadian insolvency legislation, following commencement and/or during such a proceeding, payments of the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) may be stayed or discontinued and holders of New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) may be unable to exercise their rights under the Existing Second Lien Note Purchase Agreement, the Second Lien Notes Indenture (if applicable) and the Third Lien Notes Indenture, as applicable, and holders of the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) may not be compensated for any delays in payments, if any, of principal, interest and costs. Claims of creditors may also be compromised pursuant to the terms of a restructuring plan approved by the requisite majorities of creditors.

In the context of a proceeding under the BIA or the CCAA, a trustee or monitor, as applicable, is also required to review asset transfers and transactions undertaken by the bankrupt or debtor, as applicable, within specified time periods prior to the initiation of the proceeding to determine if the bankrupt or debtor, as applicable, was engaged in any transfers at undervalue or preferences. In the case of transfers at undervalue, the review period is one year from the date of the initial bankruptcy event (or five years for non-arm’s length parties) and preferences are subject to review if they occurred within three months of the date of the initial bankruptcy event (or twelve months for non- arm’s length parties). Trustees or monitors, as applicable, creditors and other qualified stakeholders may also seek to void, set aside or otherwise challenge transactions under provincial and other federal legislation. The circumstances in which this may occur varies by Canadian jurisdiction and legislation, but generally the circumstances include situations where the transactions were undertaken (i) for conspicuously less than fair value, or (ii) with the intent to defeat, delay or hinder creditors or others, or (iii) at a time when the transferor was insolvent or rendered insolvent by the transaction, or (iv) where the transferor unfairly disregarded the interests of creditors or other applicable stakeholders. In the event that such a transaction is determined to have occurred, the trustee or monitor, as applicable, or such creditor or other qualifying stakeholder may take steps to void or set aside the transaction and/or assert claims against the recipient of the assets.

Future pledges of collateral or guarantees might be avoided by a trustee in bankruptcy.

The Existing Second Lien Note Purchase Agreement, the Second Lien Notes Indenture (if applicable), the Third Lien Notes Indenture and the related security documents will require Bellatrix to grant liens on certain assets that Bellatrix acquires after the Effective Date. Any future guarantee or additional lien in favor of the Second Lien Notes Trustee or the New Third Lien Notes Trustee might be avoidable by the grantor (as debtor-in possession) or by its trustee in bankruptcy or other third parties if certain events or circumstances exist or occur.

There are circumstances other than repayment or discharge of the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any) under which the collateral securing the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) will be released automatically, without debtholder consent.

Under various circumstances, collateral securing the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) will be released automatically, including, among other circumstances:

 

   

upon satisfaction and discharge of the Existing Second Lien Note Purchase Agreement or the Second Lien Notes Indenture (whichever is applicable) and the New Third Lien Note Indenture, as applicable;

 

   

upon a legal defeasance or covenant defeasance under the Second Lien Notes Indenture (if applicable) or the New Third Lien Note Indenture, as applicable;

 

   

a sale, transfer or other disposal of such collateral in a transaction not prohibited under the Existing Second Lien Note Purchase Agreement or the Second Lien Note Indenture, as applicable, and the New Third Lien Note Indenture;

 

   

with respect to proceeds from an asset disposition, upon the application of such proceeds for any one or more purposes permitted by the New Third Lien Note Indenture; and

 

   

in accordance with the applicable provisions of the intercreditor agreement to be entered into in connection with the Recapitalization Transaction, including in connection with the release by the First

 

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Lien Agent and, in the case of the New Third Lien Notes and the Additional New Third Lien Notes (if any), the Existing Second Lien Notes Agent or the Second Lien Notes Trustee, as applicable.

It may be difficult to realize the value of the collateral securing the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any).

No appraisal of the collateral has been made and the value of the collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers. By their nature, some or all of the pledged assets may be illiquid and may have no readily ascertainable market value. Bellatrix cannot assure debtholders that the fair market value of the collateral as of the date of this Information Circular exceeds the principal amount of the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) secured thereby. The value of the assets pledged as collateral for the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) and the guarantees could be impaired in the future as a result of changing economic conditions, Bellatrix’s failure to implement Bellatrix’s business strategy, competition, unforeseen liabilities and other future events. Accordingly, there may not be sufficient collateral to pay all or any of the amounts due on the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any). Any claim for the difference between the amount, if any, realized by holders of the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any) from the sale of the collateral securing the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any) and the guarantees and the obligations under the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any) will rank equally in right of payment with all of Bellatrix’s other unsecured unsubordinated indebtedness and other obligations, including trade payables. Additionally, in the event that a bankruptcy or insolvency proceeding is commenced by or against Bellatrix, if the value of the collateral is less than the amount of principal and accrued and unpaid interest on the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any) and any other senior secured obligations, interest may cease to accrue on the New Second Lien Notes, the New Third Lien Notes and/or the Additional New Third Lien Notes (if any) from and after the date such proceeding is commenced or initiated. Also, any attempt to repossess, or any other disposition of the collateral during a bankruptcy or insolvency proceeding would also require approval from the bankruptcy court (which may not be given under the circumstances or which the approval for could be delayed).

Rights of the holders of the New Second Lien Notes, the New Third Lien Notes and/or the Additional New Third Lien Notes (if any) in the collateral may be adversely affected by the failure to perfect liens on certain collateral acquired in the future.

Applicable law requires that certain property and rights acquired after the grant of a general security interest, such as real property, equipment subject to a certificate and certain proceeds, can only be perfected at the time such property and rights are acquired and identified. The Second Lien Notes Trustee and the New Third Lien Notes Trustee may not monitor, or Bellatrix may not inform the Second Lien Notes Trustee or the New Third Lien Notes Trustee of, the future acquisitions of property and rights that constitute collateral, and necessary action may not be taken to properly perfect the security interest in such after acquired collateral. The Second Lien Notes Trustee and the New Third Lien Notes Trustee do not have an obligation to monitor the acquisition of additional property or rights that constitute collateral or the perfection of any security interest with respect to the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any), as applicable, against third parties. In addition, as described further herein, even if the liens on collateral acquired in the future are properly perfected, such liens may potentially be avoidable as a preference in any bankruptcy or insolvency proceeding if such perfection occurs beyond certain prescribed period and under certain circumstances. See “Future pledges of collateral or guarantees might be avoided by a trustee in bankruptcy”.

The collateral is subject to casualty risks.

Although Bellatrix maintains insurance policies to insure against losses, there are certain losses that may be either uninsurable or not economically insurable, in whole or in part. As a result, it is possible that the insurance proceeds will not compensate Bellatrix fully for Bellatrix’s losses in the event of a catastrophic loss. If there is a total or partial loss of any of the pledged collateral, Bellatrix cannot assure debtholders that any insurance proceeds received by Bellatrix will be sufficient to satisfy all the secured obligations, including the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any).

 

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Bellatrix will in most cases have control over the collateral, and the sale of particular assets by Bellatrix could reduce the pool of assets securing the New Second Lien Notes, the New Third Lien Notes, the Additional New Third Lien Notes (if any) and any future guarantees.

The security documents allow Bellatrix to remain in possession of, retain exclusive control over, freely operate, and collect, invest and dispose of any income from, the collateral securing the New Second Lien Notes, the New Third Lien Notes, the Additional New Third Lien Notes (if any) and any future guarantees. For example, Bellatrix may, among other things, without any release or consent by the holders of New Second Lien Notes or the Second Lien Notes Trustee, and/or the holders of New Third Lien Notes, the Additional New Third Lien Notes (if any) or the New Third Lien Notes Trustee, conduct ordinary course activities with respect to collateral, such as selling, factoring, abandoning or otherwise disposing of collateral and making ordinary course cash payments (including repayments of indebtedness).

Lien searches may not reveal all existing liens on the collateral.

Bellatrix cannot guarantee that the lien searches conducted on the collateral securing the New Second Lien Notes or the guarantees will reveal all existing liens on such collateral. Any existing undiscovered lien could be significant, could be prior in ranking to the liens securing the New Second Lien Notes, the New Third Lien Notes, the Additional New Third Lien Notes (if any) or the guarantees and could have an adverse effect on the ability of the Second Lien Notes Trustee and/or New Third Lien Notes Trustee to realize or foreclose upon such collateral. Certain statutory priority liens may also exist that cannot be discovered by lien searches.

Rights of the holders of the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) in the collateral securing the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any), as applicable, may be adversely affected by bankruptcy and insolvency proceedings and the holders of the New Second Lien Notes, New Third Lien Notes or Additional New Third Lien Notes (if any) may not be entitled to post-petition interest, premium, fees, or expenses in any bankruptcy or insolvency proceeding.

In Canada, the right of the Second Lien Notes Trustee and New Third Lien Notes Trustee to repossess and dispose of the collateral securing the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any), as applicable, upon acceleration is likely to be significantly impaired by Canadian bankruptcy and insolvency law if such proceedings are commenced by or against Bellatrix prior to or possibly even after either such party has repossessed and disposed of the collateral. Pursuant to the stay imposed in certain Canadian bankruptcy and insolvency proceedings, a secured creditor, such as a holder of New Second Lien Notes, New Third Lien Notes or Additional New Third Lien Notes (if any), is prohibited from repossessing its security from a debtor, or from disposing of security from a debtor, without court approval. Moreover, certain Canadian bankruptcy and insolvency proceedings permit the debtor (or its trustee, receiver or similar representative) to continue to retain and to use collateral, and the proceeds, products, rents or profits of the collateral, even though the debtor is in default under the applicable debt instruments. In view of the broad discretionary powers of the court in such proceedings, it is impossible to predict how long payments under the New Second Lien Notes, New Third Lien Notes or Additional New Third Lien Notes (if any) could be delayed following the commencement of such a proceeding, whether or when the collateral agent would repossess or dispose of the collateral, or whether or to what extent the holders of the New Second Lien Notes, New Third Lien Notes or Additional New Third Lien Notes (if any) would be compensated for any delay in payment or loss of value of the collateral or would recover the full amount owing to them. The payment or accrual of post-petition interest, fees, premiums, costs and attorneys’ fees during the debtor’s bankruptcy or insolvency proceedings may not be permitted by the court.

There is currently no public market for the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any), and an active trading market may not develop for such notes. The failure of a market to develop for the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) could affect the liquidity and value of such notes.

The issuance of the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) will be a new issue of securities, and there is no existing market for the New Second Lien Notes, the New Third Lien Notes or Additional New Third Lien Notes (if any). An active market may not develop for the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any), and there can be no assurance as to the liquidity of any market that may develop for the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any). If an active market does not develop, the trading price and

 

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liquidity of the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) may be adversely affected.

The liquidity of the trading market, if any, and future trading prices of the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) will depend on many factors, including, among other things, the number of holders thereof, prevailing interest rates, Bellatrix’s operating results, financial performance and prospects, the interest of securities dealers in making a market in the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any), the market for similar securities and the overall securities market, and may be adversely affected by unfavorable changes in these factors. Historically, the market for high-yield debt has been subject to disruptions that have caused substantial fluctuations in the prices of these securities. The market for the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) may be subject to similar disruptions that may adversely affect the value of the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any). In addition to the foregoing, subsequent to their initial issuance, the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) may trade at a discount depending on other factors that include, without limitation, prevailing interest rates, the market for similar securities, and Bellatrix’s performance.

The issuance of the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) has not been, and will not be, registered under applicable federal, provincial and state securities laws and accordingly the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) are not freely transferable.

The issuance of the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) has not been, and will not be, registered under Canadian Securities Laws or U.S. Securities Laws. Unless the issuance of the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) is so registered, they may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Canadian Securities Laws or U.S. Securities Laws. Bellatrix is relying on exemptions from the registration and/or prospectus qualification requirements under the laws of other jurisdictions where the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) are being offered and sold and, therefore, the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) may be transferred or resold by or to purchasers resident in or otherwise subject to the laws of those jurisdictions only in compliance with the laws of those jurisdictions, to the extent applicable.

Bellatrix may be unable to repay the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) at maturity.

At maturity, the entire outstanding principal amount of the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) together with accrued and unpaid interest, will become due and payable. Bellatrix may not have the funds to fulfill these obligations or the ability to renegotiate these obligations. If, upon the applicable maturity dates, other arrangements prohibit Bellatrix from repaying the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any), Bellatrix could try to obtain waivers of such prohibitions from the holders under those arrangements, or Bellatrix could attempt to refinance the borrowings that contain the restrictions. In these circumstances, if Bellatrix was not able to obtain such waivers or refinance these borrowings, Bellatrix would be unable to repay the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any), as applicable.

The New Money Notes will rank prior in right of payment to the Exchange Notes and the New Second Lien Notes under the Existing Second Lien Note Purchase Agreement (or, if applicable, the New Second Lien Notes Indenture)

Pursuant to the terms of the Existing Second Lien Note Purchase Agreement (or, if applicable, the New Second Lien Notes Indenture) any payments made thereunder or proceeds received shall be applied first to the payment of any outstanding obligations in respect of the New Money Notes (including any fees, interest and premium thereon) prior to any application thereof in respect of any obligations under the Exchange Notes and the New Second Lien Notes.

 

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The New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) may be held in book-entry form and, if so, holders must rely on the procedures of the relevant clearing systems to exercise their rights and remedies.

Unless and until certificated New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) are issued in exchange for book-entry interests in the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any), owners of the book-entry interests will not be considered owners or holders of the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes. Instead, DTC, or its nominee, will be the sole holder of the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any). Payments of distributions and other amounts on or in respect of the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) in global form will be made to the paying agent, which will make payments to DTC. Thereafter, such payments will be credited to DTC participants’ accounts that hold book-entry interests in the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) in global form and credited by such participants to indirect participants. Unlike holders of the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) themselves, owners of book-entry interests will not have the direct right to act upon Bellatrix’s solicitations for consents or requests for waivers or other actions from holders of the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any). Instead, if a holder owns a book-entry interest, such holder will be permitted to act only to the extent such holder has received appropriate proxies to do so from DTC or, if applicable, a participant. Bellatrix cannot assure holders that the procedures implemented for the granting of such proxies will be sufficient to enable holders to vote on any requested actions on a timely basis.

The New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) will be issued in U.S. Dollars and there is no guarantee that Bellatrix will be able to effectively hedge the arising exchange rate risk.

The New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) will be issued in U.S. Dollars and therefore Bellatrix will be exposed to fluctuations in the exchange rate between U.S. and Canadian dollars. Fluctuations in exchange rates may significantly increase or decrease the amount of debt recorded on the Corporation’s financial statements. There is no guarantee that Bellatrix will be able to effectively hedge against any exchange rate risks associated with the foregoing.

The New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) will Rank Behind the First Lien Credit Facilities and in the case of the New Third Lien Notes and the Additional New Third Lien Notes (if any) behind the Existing Second Lien Notes and the New Second Lien Notes.

Substantially all of Bellatrix’s owned assets on the issue date of the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any), along with assets thereafter acquired and proceeds therefrom, will be subject to a first-priority lien in favour of the First Lien Lenders. The New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) will have a second and third ranking lien, respectively, behind the First Lien Credit Facilities, on such collateral, provided that the New Second Lien Notes and the Exchange Notes shall rank behind the New Money Notes pursuant to the terms of the Existing Second Lien Note Purchase Agreement or the Second Lien Notes Indenture, as applicable. In the event that Bellatrix is declared bankrupt, becomes insolvent or is liquidated or reorganized, its obligations in respect of the First Lien Credit Facilities and holders of the New Money Notes will be entitled to be paid in full from the Corporation’s assets pledged as security for such obligations before any payment from such assets or the proceeds thereof may be made with respect to the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any). Holders of the Exchange Notes and the New Second Lien Notes would then participate ratably in the remaining assets pledged as collateral in accordance with their priority ranking, following which holders of the New Third Lien Notes and the Additional New Third Lien Notes (if any) would participate ratably in any remaining assets pledged as collateral thereafter. Such rateable participation in assets would be shared with any holders of indebtedness that are deemed to rank equally with either of the holders of the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any), as applicable, based upon the respective amount owed to each creditor.

The terms of the First Lien Credit Agreement, the Existing Second Lien Note Purchase Agreement or the Second Lien Notes Indenture, as applicable, and the New Third Lien Notes Indenture may restrict the Corporation’s current and future operations, particularly Bellatrix’s ability to respond to changes or to take certain actions.

 

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The First Lien Credit Agreement, the Existing Second Lien Note Purchase Agreement or Second Lien Notes Indenture (as applicable) and the New Third Lien Notes Indenture will contain a number of restrictive covenants that impose significant operating and financial restrictions on the Corporation and may limit its ability to engage in acts that may be in its long-term best interests, including, among other things, restrictions on the Corporation’s ability to:

 

   

incur additional indebtedness;

 

   

pay dividends or make other distributions or repurchase or redeem certain indebtedness;

 

   

make loans and investments;

 

   

sell assets;

 

   

incur certain liens;

 

   

enter into transactions with affiliates;

 

   

alter the businesses the Corporation conducts; and

 

   

consolidate, merge or sell all or substantially all of the Corporation’s assets.

While the Corporation is permitted to incur certain additional indebtedness, there is no guarantee that it will be able to obtain such indebtedness or that the amount of such indebtedness permitted to be incurred thereunder will be sufficient to meet the Corporation’s capital needs.

A breach of the covenants under the First Lien Credit Agreement, the Existing Second Lien Note Purchase Agreement or the Second Lien Notes Indenture (as applicable) or the New Third Lien Notes Indenture could result in an event of default under the applicable indebtedness. Such default may allow creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. If the Corporation is unable to repay the amounts due and payable under the First Lien Credit Agreement, the New Second Lien Notes, the New Third Lien Notes, the Additional New Third Lien Notes (if any) or any other secured indebtedness, the applicable noteholders and/or lenders could proceed against the collateral granted securing such. In the event that the Corporation’s noteholders and/or lenders accelerate the repayment of the outstanding debt, the Corporation cannot provide assurance that it would have sufficient assets to repay such indebtedness. As a result of these restrictions, Bellatrix may be:

 

   

limited in how it conducts its business;

 

   

unable to raise additional debt or equity financing to operate during general economic or business downturns; or

 

   

unable to compete effectively or to take advantage of new business opportunities.

These restrictions may affect the Corporation’s ability to grow in accordance with its plans.

Bellatrix may not be able to obtain ratings of the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any) and a lowering or withdrawal of any ratings assigned to the New Second Lien Notes, New Third Lien Notes or Additional New Third Lien Notes (if any) may affect the market value of the New Second Lien Notes, New Third Lien Notes and Additional New Third Lien Notes (if any).

The Corporation will use commercially reasonable efforts in order to obtain ratings of the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) from two credit rating agencies, however, the Corporation is unsure that credit rating agencies will provide the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any) with any such rating. In the event that the Corporation is able to obtain ratings of the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any), there can be no assurance that any such rating will not be revised or withdrawn entirely by a rating agency in the future if, in the judgement of any such rating agency, circumstances warrant. Any

 

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real or anticipated changes in any such credit rating of the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any) will generally affect the market value of the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any), as applicable.

Holders of the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) may not be able to determine when a change of control giving rise to their right to have the New Second Lien Notes, the New Third Lien Notes and the Additional New Third Lien Notes (if any) repurchased has occurred following a sale of “substantially all” of the Corporation’s properties and assets.

The definition of change of control in the Existing Second Lien Note Purchase Agreement and the New Third Lien Notes Indenture includes a phrase relating to the sale of “all or substantially all” of our assets. There is no precise established definition of the phrase “substantially all” under applicable Law. Accordingly, the ability of a holder of the New Second Lien Notes, the New Third Lien Notes or the Additional New Third Lien Notes (if any) to require the Corporation to repurchase its notes as a result of a sale of less than all its assets to another person may be uncertain.

Risk Factors Related to the Business and the Common Shares

Certain risk factors relating to the business of the Corporation are contained in the AIF under the headings “Risk” (pages 55 through 76). The AIF is incorporated by reference in this Information Circular and has been publicly filed on the Corporation’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. Voting Parties should review and carefully consider the risk factors set forth in the AIF and consider all other information contained therein and herein and in the Corporation’s other public filings before determining whether to vote in favour of the resolutions brought before the applicable Meeting(s).

By exchanging or converting Debt for Common Shares pursuant to the Recapitalization Transaction, Debtholders will be changing the nature of their investment from debt to equity. Equity carries certain risks that are not applicable to debt. Debtholders are provided a variety of contractual rights and remedies under the Debt Documents. These rights will not be available to Debtholders that become holders of Common Shares (in such capacity) upon the Effective Date. Claims of Shareholders will be subordinated in priority to the claims of creditors in the event of an insolvency, winding up, or other distribution of the assets of Bellatrix.

Sales of a Significant Number of Equity Securities in the Public Markets, or the Perception of Such Sales, and the Holding of a Significant Number of Common Shares by Loomis and Polar, Could Depress the Market Price of the New Common Shares

Sales of a significant number of Common Shares or other equity-related securities in the public markets by Bellatrix or by Bellatrix’s significant Shareholders could depress the trading price of the Common Shares. Additionally, the presence of a large “control block” shareholding by Loomis could create an overhang in the market and adversely affect the trading price of the Common Shares. In addition, with any sale or issuance of equity securities by Bellatrix, investors will suffer dilution of their voting power and Bellatrix may experience dilution in our earnings per share. The Corporation cannot predict the effect that future sales of the Common Shares or other equity-related securities would have on the trading price of the Common Shares. The price of the Common Shares could be affected by possible sales of Common Shares or by hedging or arbitrage trading activity.

Tax Risks

The tax laws of any applicable country, province, state or territory (including Canadian and United States federal income tax laws), and the administrative application and interpretation of such laws, are subject to change. Any change in the tax laws that are applicable to Bellatrix or the interests held by a Voting Party in Bellatrix, or the administrative application or interpretation of such laws, could have an adverse impact on such Voting Party’s interests in Bellatrix.

While Bellatrix is confident in its tax filing positions in connection with the Recapitalization Transaction, it has not sought or obtained from any tax authority advance confirmation of such positions, therefore it is possible that such positions may be successfully challenged by tax authorities, which could result in materially different tax consequences than anticipated. It is possible that the Canadian and/or United States tax authorities could take

 

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positions or adopt interpretations regarding the applicable tax consequences to securityholders that differ from those set out in this Information Circular. Securityholders should consult their own tax advisors.

ANNUAL BUSINESS OF THE SHAREHOLDERS’ MEETING

Election of Directors

The Board presently consists of ten members. Mr. Murray L. Cobbe, who has been a director of Bellatrix since 2006, and Mr. Steven J. Pully, who has been a director of Bellatrix since 2015, are not standing for re-election at the Shareholders’ Meeting. At the Shareholders’ Meeting, Shareholders will be asked to pass a resolution to fix the number of directors of the Corporation to be elected at the Shareholders’ Meeting at eight members and to elect eight directors to hold office until the next annual meeting or until their successors are elected or appointed.

Management is soliciting proxies, in the accompanying form of proxy, in favour of an ordinary resolution to fix the number of directors of the Corporation at eight members. In addition, management is soliciting proxies in favour of electing each of the following nine nominees as members of the Board:

 

Brent A. Eshleman    John H. Cuthbertson    W.C. (Mickey) Dunn
Thomas E. MacInnis    Lynn Kis    Keith E. Macdonald
Keith S. Turnbull    Murray B. Todd   

Pursuant to the Plan, the Initial Consenting Noteholders will have the right to designate nominees for the Board that will comprise such proportion of the Board upon implementation of the Recapitalization Transaction as agreed to by the Corporation and the Initial Consenting Noteholders, and the composition and size of the Board on the Effective Date shall be acceptable to the Initial Consenting Noteholders and the Corporation. As a result, the Board composition may change following the Shareholders’ Meeting. See “Description of the Recapitalization Transaction and Certain Related Matters – Arrangement – Treatment of Senior Unsecured Noteholders”.

Majority Voting Policy

The Board has adopted a majority voting policy with respect to the election of directors. A copy of the Majority Voting Policy is attached as Appendix M to this Information Circular.

Advance Notice By-Law

The Corporation’s Advance Notice By-Law, which was approved by the Shareholders at the annual and special meeting of Shareholders held on May 21, 2014, will apply to nominations of directors at the Shareholders’ Meeting. The purpose of the Advance Notice By-Law is to provide Shareholders, the Board and management of the Corporation with a clear framework for director nominations to help ensure orderly business at Shareholder meetings.

Among other things, the Advance Notice By-Law requires that a Shareholder wishing to nominate a candidate for election as a director of the Corporation at an annual meeting of Shareholders must provide notice to the Corporate Secretary of the Corporation not less than 30 and not more than 65 days prior to the date of the annual meeting; provided, however, that in the event that the annual meeting is to be held on a date that is less than fifty days after the date on which the first public announcement of the date of the annual meeting was made, notice may be made not later than the close of business on the 10th day following such public announcement. In the case of a special meeting of Shareholders (which is not also an annual meeting), notice to the Corporation must be made not later than the close of business on the 15th day following the day on which the first public announcement of the date of the special meeting was made.

The Advance Notice By-Law also specifies the information and accompanying documentation that a nominating Shareholder must provide with respect to the nominating Shareholder and the nominee for the notice to be effective. No person nominated by a Shareholder will be eligible for election as a director of the Corporation unless nominated in accordance with the provisions of the Advance Notice By-law. The Board may, in its sole discretion, waive any requirement of the Advance Notice By-law. A copy of the Advance Notice By-Law is available on the Corporation’s SEDAR profile at www.sedar.com.

In connection with the Continuance, Shareholders will be asked to approve the Continuance Resolution which also approves the adoption of the New By-Laws. The New By-Laws contain a number of revisions to the terms and

 

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provisions currently provided for in the Advance Notice By-Laws. See “Description of Recapitalization Transaction – Continuance of Bellatrix from Alberta to Canada – Articles of Continuance and New By-Laws” for a description of the principal revisions.

Directors Nominees

The names and provinces or states of residence of all of the persons nominated for election as directors, their age (as at December 31, 2018) and principal occupations for the past five years, the date in which they became directors of the Corporation and the number of Common Shares and DSUs beneficially owned, or controlled or directed, directly or indirectly, by each of them, is set forth below:

 

Name, Province/State

of Residence and Age(1)

  

Principal Occupation

  

Director

Since

  

Number of Common

Shares and DSUs

Beneficially Owned,

Controlled or

Directed(7)

Brent A. Eshleman, P. Eng.

Alberta, Canada

Age: 54

   President and Chief Executive Officer of Bellatrix since February 15, 2017; Interim President and Chief Executive Officer of Bellatrix since November 25, 2016; Chief Operating Officer of Bellatrix since September 1, 2014.    February 15, 2017   

115,086 Common Shares

Nil DSUs

John H. Cuthbertson, Q.C.(4)(5)

Alberta, Canada

Age: 68

   Partner, Burnet, Duckworth & Palmer LLP.    August 31, 2000(6)   

48,894 Common Shares

99,402 DSUs

W.C. (Mickey) Dunn(4)(5)

Alberta, Canada

Age: 65

   Chairman of Bellatrix and prior to November 1, 2009 of True Energy Inc. (as administrator of True Energy Trust).    August 31, 2000(6)   

227,258 Common Shares

99,402 DSUs

Lynn Kis, P. Eng.(3)

Alberta, Canada

Age: 68

   Independent businesswoman; previously Senior Vice President and Manager of Ryder Scott Company, an oil and gas consulting firm, from 2013 to 2015.    August 9, 2017   

6,083 Common Shares

66,571 DSUs

Keith E. Macdonald, CPA, CA(2)(4)

Alberta, Canada

Age: 62

   President of Bamako Investment Management Ltd., a private holding and financial consulting company, since July 1994.    April 26, 2007(6)   

18,000 Common Shares

99,402 DSUs

Thomas E. MacInnis(2)(5)

Alberta, Canada

Age: 47

   Independent businessman; previously Head of Financial Markets for National Bank Financial, Calgary from 2009 to 2017.    February 6, 2017   

45,000 Common Shares

79,560 DSUs

Murray B. Todd, B.Sc., P.Eng.(3)

Alberta, Canada

Age: 83

   Independent businessman; previously President and CEO of Canada Hibernia Holding Corporation from 1996 to 2017.    November 2, 2005(6)   

8,084 Common Shares

99,402 DSUs

 

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Name, Province/State
of Residence and Age(1)

  

Principal Occupation

  

Director
Since

  

Number of Common
Shares and DSUs
Beneficially Owned,
Controlled or
Directed(7)

Keith S. Turnbull, B. Sc. CPA, CA(2)

Alberta, Canada

Age: 69

   Business consultant since January 1, 2010; previously, Partner at KPMG LLP.    January 1, 2014    11,891 Common Shares 89,364 DSUs

Notes:

 

(1)

Pursuant to the Plan, the Initial Consenting Noteholders will have the right to designate nominees for the Board that will comprise such proportion of the Board upon implementation of the Recapitalization Transaction as agreed to by the Corporation and the Initial Consenting Noteholders, and the composition and size of the Board on the Effective Date shall be acceptable to the Initial Consenting Noteholders and the Corporation. As a result, the Board composition may change following the Shareholders’ Meeting.

(2)

Member of our Audit Committee. For Audit Committee information, please see the section entitled “Audit Committee Information’ in the AIF, a copy of which is filed on SEDAR at www.sedar.com.

(3)

Member of our Reserves, Safety and Environment Committee. Murray Cobbe, who is not standing for re- election at the Shareholders’ Meeting, is currently a member of the Reserves, Safety and Environment Committee. Following the Shareholders’ Meeting, the composition of the Reserves, Safety and Environment Committee is expected to be reconstituted to ensure such committee has a minimum of three members.

(4)

Member of our C&G Committee.

(5)

Member of our Special Committee.

(6)

To the extent the date of election or appointment is prior to November 1, 2009, such date reflects the date of first election or appointment as a director of True Energy Inc., the administrator of True Energy Trust, the predecessor to the Corporation.

(7)

The information as to Common Shares and DSUs beneficially owned, or controlled or directed, directly or indirectly, is based upon information furnished to the Corporation by the nominees as of the Record Date. Mr. Eshleman, as President and Chief Executive Officer of the Corporation, is not entitled to receive DSUs under the DSU Plan.

Cease Trade Orders, Bankruptcies, Penalties and Sanctions

Other than as described below, no proposed director is, or has been:

 

  (a)

within 10 years of the date hereof, a director or chief executive officer or chief financial officer of any company, including the Corporation, that:

 

  (i)

while that person was acting in that capacity, was the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation, for a period of more than 30 consecutive days;

 

  (ii)

was subject to an event that resulted in the company, after the director or executive officer ceased to be a director chief executive officer or chief financial officer of the company, being the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation, for a period of more than 30 consecutive days and which resulted from an event that occurred while that person was acting in the capacity as a director, chief executive officer or chief financial officer, or

 

  (b)

within 10 years of the date hereof, a director or executive officer of any company, including the Corporation, that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or became subject to or instituted any proceedings, arrangement or

 

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  compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold its assets; or

 

  (c)

has, within the 10 years before the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceeding, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director.

W.C. (Mickey) Dunn was a director of The Cash Store Financial Services Inc. from May 1, 2003 until his resignation on January 2, 2014. On April 14, 2014, Cash Store Financial, The Cash Store Inc., TCS Cash Store Inc., Instaloans Inc., 7252331 Canada Inc., 5515433 Manitoba Inc., 1693926 Alberta Ltd. doing business as “The Title Store” obtained an Initial Order under the CCAA. The applicants sought and were granted the stay of proceedings and other relief provided under the CCAA. On January 4, 2016, 1511419 Ontario Inc., formally known as Cash Store Financial and applicants announced that it had successfully implemented its plan of compromise and arrangement pursuant to the CCAA with an implementation date of December 31, 2015. On November 16, 2016, 1511419 Ontario Inc. was granted a stay extension until November 18, 2018. Following the resignation of W.C. (Mickey) Dunn from the board of directors of Cash Store Financial on January 2, 2014, the company announced that a cease trade order was issued on May 30, 2014 by the Alberta Securities Commission (and subsequently on June 18, 2014 by the Ontario Securities Commission) due to Cash Store Financial failing to file interim financial statements for the six month period ended March 31, 2014.

Keith Macdonald served on the board of directors of Mountainview until March 15, 2017. On May 5, 2016, the Alberta Securities Commission issued a cease trade order against Mountainview for failure to file annual audited financial statements, an annual management discussion and analysis and certification of the annual filing for the fiscal period ended December 31, 2015. As of the date hereof, the order remains in effect. On October 14, 2016, a wholly-owned entity of Mountainview, Mountainview Divide LLC which owned key assets in North Dakota, filed a voluntary petition under chapter 11 of the United States Bankruptcy Code. A plan of reorganization was filed on September 22, 2017 and amended on October 16, 2017 to sell the company’s oil and gas assets (and related abandonment/environmental obligations) in a settlement of outstanding liabilities.

No proposed director has been subject to: (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority, or (ii) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable security holder in deciding whether to vote for a proposed director.

Director Share Ownership Guidelines

Bellatrix implemented share ownership guidelines for non-management directors with a view to aligning the long- term interests of Bellatrix’s non-management directors with those of Shareholders.

Pursuant to the non-management director share ownership guidelines, non-management directors are required to hold Common Shares and/or DSUs with a combined value of not less than six times the annual fixed retainer paid to such directors and such directors are expected to achieve this level within three years of their election or appointment to the Board. If a director’s annual retainer increases and as a result the director no longer meets the requirements of the share ownership guidelines, the director will have until March 15 of the following year to achieve the required ownership level.

Common Shares and/or DSUs are valued at the greater of the grant date fair value (or purchase price, as applicable) or market value of such Common Shares or DSUs. If any director previously satisfied the share ownership guidelines but as a result of a drop in the market value of the Common Shares ceased to satisfy the share ownership guidelines and the director’s aggregate ownership of Common Shares or DSUs has not decreased, the director will have until March 15 of the following year to re-achieve the required ownership levels. The following table sets out the applicable equity ownership guideline and equity ownership for each non-management director nominee.

 

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     Equity Ownership Guideline      Equity Ownership       

Name

   Multipl
e of
Retainer
   Amount
of
Retainer

($)
     Total
Value of
Equity
Ownership
Required
($)
     Common
Shares(1)
(#)
     DSUs
(#)
     Value of
Equity
Ownership(2)
($)
     Meets Share
Ownership
Requirement

John H. Cuthbertson

   6x      54,000        324,000        48,894        99,402        1,700,737      Yes

W.C. (Mickey) Dunn

   6x      135,000        810,000        227,258        99,402        2,405,664      Yes

Lynn Kis(3)

   6x      54,000        324,000        6,083        66,571        156,751      N/A

Keith E. Macdonald

   6x      54,000        324,000        18,000        99,402        919,677      Yes

Thomas MacInnis

   6x      54,000        324,000        45,000        79,560        762,700      Yes

Murray B. Todd

   6x      54,000        324,000        8,084        99,402        1,043,151      Yes

Keith S. Turnbull

   6x      54,000        324,000        11,891        89,364        641,022      Yes

Notes:

 

(1)

Share ownership is determined as at March 15, 2019. For the purposes of determining Common Share ownership of a particular director, Common Shares owned directly by such director, such director’s spouse or children or through any holding company wholly owned and controlled by such director are treated as Common Shares owned by such director.

(2)

The “Value of Equity Ownership” amount of the Common Shares and DSUs held by each director is based on the greater of: (i) grant date fair value or purchase price, as applicable, and (ii) the closing price of the Common Shares on the TSX on March 15, 2019 being $0.54 per Common Share.

(3)

Ms. Kis was appointed to the Board on August 9, 2017 and has until August 9, 2020 to meet the share ownership requirements.

Appointment of Auditors

Management is soliciting proxies, in the accompanying form of proxy, in favour of the appointment of the firm of KPMG LLP, Chartered Professional Accountants, as the auditors of the Corporation, to hold office until the next annual meeting of the Shareholders and to authorize the directors to fix their remuneration as such. KPMG LLP has been the Corporation’s auditors since formation.

Approval of Unallocated Awards Pursuant to the Award Plan

The Corporation’s Award Plan is described under “Statement of Executive Compensation – Summary Compensation Table – Award Plan” and is an integral component of compensation arrangements for the Corporation’s officers, employees, consultants and other service providers of the Corporation. Non-management directors are not eligible to participate in the Award Plan. The principal purposes of the Award Plan are to: (i) retain and attract qualifying Eligible Participants; (ii) promote a proprietary interest in the Corporation by such Eligible Participants; (iii) encourage such persons to remain in the employ or service of Bellatrix and its subsidiaries and put forth maximum effort for the success of the business of Bellatrix and its subsidiaries; and (iv) focus management of Bellatrix and its subsidiaries on operating and financial performance and long-term total shareholder value.

The Award Plan currently provides for the settlement of any Award by any of the following methods or a by a combination of such methods: (i) payment in cash; (ii) payment by Common Shares purchased by the Corporation through the facilities of the TSX; or (iii) payment by the issuance of Common Shares from the treasury of the Corporation.

The Award Plan is a “rolling plan” whereby the Corporation is entitled to issue Awards in respect of a maximum number of Common Shares which shall not exceed the lesser of: (i) 5% of the aggregate number of issued and outstanding Common Shares; and (ii) 10% of the aggregate number of issued and outstanding Common Shares less the aggregate number of Common Shares reserved for issuance under outstanding awards, rights or options under any other security based compensation arrangements of the Corporation, including Options granted under the Option Plan. Following the settlement, expiration, cancellation or other termination of any Award under the Award Plan, a number of Common Shares underlying the Awards so settled, expired, cancelled or terminated shall automatically

 

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become available for issuance in respect of any Award that may subsequently be granted under the Award Plan. Pursuant to the rules of the TSX, every three years all Common Shares issuable pursuant to unallocated Awards under the Award Plan must be approved by a majority of the Corporation’s directors and the Shareholders.

Based on 80,909,225 issued and outstanding Common Shares at April 15, 2019, the number of Awards that may be issued under the Award Plan is currently limited to 4,045,461 of which 1,135,409 Restricted Awards and 739,546 Performance Awards are outstanding, leaving 2,170,506 unallocated Common Shares available for future Award grants (assuming in all cases a maximum 2.0x multiplier is applied to all Performance Awards resulting in the issuance of 1,479,092 Common Shares upon vesting of the outstanding 739,546 Performance Awards). At the Shareholders’ Meeting, Shareholders will be asked to consider and if deemed advisable, to pass an ordinary resolution (the “Unallocated Award Resolution”), with or without variation, relating to the approval of Common Shares issuable pursuant to unallocated Awards under the Awards Plan, a copy of which is attached as Appendix “C” to the management information circular and proxy statement dated April 4, 2016 for the annual and special meeting of Shareholders held on May 18, 2016, which was filed on SEDAR at www.sedar.com on April 12, 2016 and is also available on EDGAR at www.sec.gov.

The directors unanimously approved all Common Shares issuable pursuant to unallocated Awards under the Award Plan on April 15, 2019. The Unallocated Award Resolution must also be approved by an ordinary resolution of the Shareholders, being a simple majority of votes cast by the Shareholders who vote in person or by proxy at the Shareholders’ Meeting in favour of the Unallocated Award Resolution. If at the Shareholders’ Meeting, the Shareholders do not approve the Unallocated Award Resolution, all currently outstanding Awards will be unaffected; however, the Corporation will not be entitled to settle any future Award grants through the issuance of Common Shares through treasury. In the absence of approval by the Shareholders at the Shareholders’ Meeting, the Corporation will be forced to settle Awards granted in the future under our Award Plan either in cash or by purchasing Common Shares on the TSX. In either event, if Bellatrix is required to settle such Awards in this fashion, its cash flow would be negatively impacted and unavailable for value-creating activities such as funding its ongoing capital expenditure program or for reducing debt.

Unless otherwise directed, the persons named in the enclosed form of proxy, if named as proxy, intend to vote for the approval of the Unallocated Award Resolution.

Shareholder Advisory Vote on Executive Compensation

The Board believes that Shareholders should have the opportunity to receive information to assist them in understanding the objectives, philosophy and principles used in its approach to executive compensation and to provide feedback to the Board on such matters. As such, the Board determined to include a shareholder advisory vote (the “Say on Pay Vote”) on executive compensation at the Shareholders’ Meeting. The Say on Pay Vote is a non-binding advisory vote on the Board’s approach to executive compensation. The purpose of the Say on Pay Vote is to provide Board accountability to the Shareholders for the Boards compensation decisions by giving Shareholders a formal opportunity to provide their views on the disclosed objectives of the executive compensation plans, and on the plans themselves.

Shareholders will be asked at the Shareholders’ Meeting to vote, on an advisory basis, on the acceptance of Bellatrix’s approach to executive compensation as set forth in the “Statement of Executive Compensation” section of this Information Circular. Shareholders are encouraged to carefully review the information set forth in that section before voting on this matter. The “Statement of Executive Compensation” section discusses our compensation philosophy, the objectives of the different elements of our compensation programs and the way the Board assesses performance and makes decisions. It explains how our compensation programs are centered on a pay-for- performance culture and are aligned with the long-term development strategy of our business in the interest of our Shareholders.

As this is an advisory vote, the results will not be binding upon the Board, however, the Board will take the results of the vote into account, as appropriate, when considering future compensation policies, procedures and decisions. The Corporation will disclose the results of the shareholder advisory vote as a part of its report on voting results for the Shareholders’ Meeting.

In the event that the advisory resolution is not approved by a majority of the votes cast at the Shareholders’ Meeting, the Board will consult with its Shareholders (particularly those who are known to have voted against it) to understand their concerns and will review the Board’s approach to compensation in the context of those concerns.

 

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Results from the Board’s review, if necessary, will be discussed in the Corporation’s management information circular for the annual meeting of Shareholders to be held in 2020. Shareholders may contact the Corporate Secretary of the Corporation by mail at the Corporation’s head and registered office at Suite 1920, 800-5th Avenue SW, Calgary, Alberta, T2P 3T6, if they wish to share their view on executive compensation with the Board.

At the Shareholders’ Meeting, Shareholders will be asked to approve the ordinary resolution approving the Corporation’s approach to executive compensation (the “Say on Pay Resolution”), of which is set forth in Appendix C to this Information Circular.

Unless otherwise directed, the persons named in the enclosed form of proxy, if named as proxy, intend to vote for approval of the Say on Pay Resolution.

STATEMENT OF EXECUTIVE COMPENSATION

Compensation Governance

C&G Committee Mandate

The Board has adopted a mandate for the C&G Committee of the Board which provides that it is the C&G Committee’s responsibility to formulate and make recommendations to the Board in respect of compensation issues relating to directors, officers and employees of the Corporation and its subsidiaries, as applicable. In May 2018, the compensation committee and governance committee were reconstituted as the C&G Committee. References in this “Statement of Executive Compensation” to the C&G Committee shall, in certain circumstances, be a reference to the compensation committee prior to the establishment of the C&G Committee. Without limiting the generality of the foregoing, the C&G Committee has the following duties:

 

  1.

reviewing the Corporation’s compensation philosophy and practices, including the risks associated therewith, with a view to optimizing the Corporation’s ability to recruit, retain, and motivate the employees necessary to execute the Corporation’s business strategy;

 

  2.

reviewing and approving corporate goals and objectives relevant to CEO compensation, evaluate the CEO’s performance in light of those goals and objectives and determine and approve the CEO’s compensation level based on this evaluation;

 

  3.

reviewing and approving the annual base salaries and annual incentive opportunities of the executive officers of the Corporation;

 

  4.

to periodically and as and when appropriate, reviewing and approving the following as they affect the executive officers of the Corporation: (i) all other incentive awards and opportunities, including both cash-based and equity-based awards and opportunities; (ii) any employment agreements and severance arrangements; (iii) any change in control agreements and severance protection plans and change in control provisions affecting any elements of compensation and benefits; and (iv) any special or supplemental compensation and benefits for such executive officers;

 

  5.

administering the Corporation’s annual incentive plan, including determining the relevant performance measures and targets thereunder, and evaluate performance based on those measures and targets for purposes of recommending to the Board bonuses to be paid to executive officers thereunder;

 

  6.

administering the Option Plan, Award Plan, DSU Plan and other equity incentive plans approved by the Board (and shareholders, as applicable) in accordance with their terms, including recommending to the Board (and if delegated authority thereunder, approve) the grant of equity compensation thereunder;

 

  7.

reviewing and discussing the Compensation Discussion and Analysis (the “CD&A”) required to be included in any information circular with management, and, based on such review and discussion, determine whether or not to recommend to the Board that the CD&A be so included;

 

  8.

overseeing the Corporation’s compliance with applicable securities laws regarding shareholder approval of certain executive compensation matters, including advisory votes on executive compensation and the

 

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  frequency of such votes, and the requirement under applicable stock exchange rules that, with limited exceptions, shareholders approve equity compensation plans;

 

  9.

determining the qualifications, qualities, skills and other expertise required to be a director of the Corporation, and develop criteria to be considered in selecting nominees for director;

 

  10.

actively identifying and screening individuals qualified to become directors for recommendation to the Board, consistent with criteria identified by the Board;

 

  11.

seeking to complete customary vetting procedures and background checks with respect to individuals suggested for potential Board membership by shareholders of the Corporation or other sources;

 

  12.

developing and overseeing an orientation program for new directors and a continuing education program for current directors, and periodically review these programs and update them as necessary;

 

  13.

reviewing and making recommendations to the Board with respect to the compensation and benefits of directors, including under any incentive compensation plans and equity-based compensation plans;

 

  14.

developing a process for an annual assessment of effectiveness of the Board, its committees, and the contribution of individual directors, and oversee the conduct of this annual assessment;

 

  15.

annually, or more frequently as it deems appropriate, reviewing and reassessing the Corporation’s corporate governance practices, including a review of the Board’s committee structure, and annually recommend to the Board a statement of corporate governance practices to be included in the Corporation’s annual report or information circular as required by the TSX and any other regulatory authority;

 

  16.

annually reviewing the mandates of the Board and its committees, including the mandate of this committee, and recommend to the Board such amendments to those mandates as the committee believes are necessary or desirable;

 

  17.

monitoring compliance with the Corporation’s code of business conduct and ethics (the “Code of Business Conduct”), investigate any alleged breach or violation of the Code of Business Conduct, enforce the provisions of the Code of Business Conduct, and review the Code of Business Conduct periodically and recommend any changes to the Board; and

 

  18.

annually, or more frequently as it deems appropriate, reviewing the succession planning for the Board and the Corporation’s executive officers.

The C&G Committee will be comprised of three (3) or more directors, each of whom shall qualify as independent for purposes of NI-58-101.

Composition of the C&G Committee

The C&G Committee is currently comprised of Keith E. Macdonald (Chair), W.C. (Mickey) Dunn, John H. Cuthbertson and Murray Cobbe, all of whom are independent directors. As described under the heading “Annual Business of the Shareholders’ Meeting - Election of Directors”, Mr. Cobbe is not standing for re-election at the Shareholders’ Meeting. Each of Messrs. Macdonald, Dunn and Cuthbertson have held senior executive management or leadership positions in various entities and in such roles have been involved in human resources and compensation issues. Messrs. Macdonald, Dunn and Cuthbertson have gained substantial experience and a thorough understanding of compensation, benefit pension programs and related issues as a result of their senior executive management or leadership experience. This includes a specific understanding of executive compensation programs including base pay, equity and other incentives programs. In addition, each of Messrs. Macdonald, Dunn and Cuthbertson have acted and continue to act as directors of public and/or private companies and have therefore been involved in compensation issues for such companies. The skills and experience possessed by members of the C&G Committee acquired as a result of their lengthy and extensive business careers and e