`
`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`
`Case No. _____________
`
`
`COMPLAINT FOR VIOLATIONS
`OF THE FEDERAL SECURITIES
`LAWS
`
`
`
`JURY TRIAL DEMANDED
`
`
`BRIAN JONES,
`
`Plaintiff,
`
`v.
`
`
`U.S. WELL SERVICES, INC., JOEL
`BROUSSARD, DAVID L. TREADWELL,
`RICHARD BURNETT, RYAN CARROLL,
`STEVE S. HABACHY, ADAM KLEIN, DAVID
`J. MATLIN, KYLE O’NEILL, and EDDIE
`WATSON,
`
`
`Defendants.
`
`
`
`
`
`
`
`Plaintiff Brian Jones (“Plaintiff”), by and through his undersigned counsel, for his
`
`complaint against defendants, alleges upon personal knowledge with respect to himself, and upon
`
`information and belief based upon, inter alia, the investigation of counsel as to all other allegations
`
`herein, as follows:
`
`NATURE AND SUMMARY OF THE ACTION
`
`This is a stockholder action brought by Plaintiff against U.S. Well Services, Inc.
`
`1.
`
`(“USWS” or the “Company”) and the members of USWS’ Board of Directors (the “Board” or the
`
`“Individual Defendants”) for their violations of Sections 14(a) and 20(a) of the Securities
`
`Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78n(a), 78t(a), and U.S. Securities and
`
`Exchange Commission (“SEC”) Rule 14a-9, 17 C.F.R. §240.14a-9 (“Rule 14a-9”), in connection
`
`with the Board’s attempt to sell USWS to ProFrac Holding Corp. (“ProFrac”) (the “Proposed
`
`Transaction”).
`
`
`
`Case 1:22-cv-08625 Document 1 Filed 10/11/22 Page 2 of 13
`
`2.
`
`On June 21, 2022, USWS entered into an Agreement and Plan of Merger with
`
`ProFrac and Thunderclap Merger Sub I, Inc. (“Merger Sub”) (the “Merger Agreement”). Pursuant
`
`to the terms of the Merger Agreement, ProFrac will acquire USWS, with USWS shareholders
`
`receiving 0.3366 shares of ProFrac Class A common stock for each USWS common share.
`
`3.
`
`On September 28, 2022, the Board authorized the filing of the materially
`
`incomplete and misleading Schedule 14A Definitive Proxy Statement (the “Proxy Statement”)
`
`with the SEC. Specifically, the Proxy Statement, which recommends that USWS stockholders
`
`vote their shares in favor of the Proposed Transaction, contains materially incomplete and
`
`misleading information concerning, among other things: (i) the Company’s financial projections
`
`for USWS and ProFrac; (ii) the financial analyses that support the fairness opinion provided by
`
`the financial advisor to the special committee of the Board (“Special Committee”), Piper Sandler
`
`& Co. (“Piper”); (iii) the background of the Proposed Transaction; and (iv) potential conflicts of
`
`interest faced by Piper and Company insiders.
`
`4.
`
`The failure to adequately disclose such material information constitutes a violation
`
`of Sections 14(a) and 20(a) of the Exchange Act as USWS stockholders need such information in
`
`order to make a fully informed decision in connection with the Proposed Transaction.
`
`5.
`
`The special meeting for USWS stockholders to vote on the Proposed Transaction
`
`is currently scheduled for October 31, 2022. It is imperative that such Exchange Act violations
`
`are promptly cured to enable Plaintiff and USWS’ other shareholders to make an informed
`
`decision whether to vote their shares in favor of the Proposed Transaction. Therefore, Plaintiff
`
`seeks to enjoin the stockholder vote unless and until such Exchange Act violations are cured.
`
`JURISDICTION AND VENUE
`
` 2
`
`
`
`Case 1:22-cv-08625 Document 1 Filed 10/11/22 Page 3 of 13
`
`6.
`
`This Court has jurisdiction over the claims asserted herein for violations of Sections
`
`14(a) and 20(a) of the Exchange Act and SEC Rule 14a-9 promulgated thereunder pursuant to
`
`Section 27 of the Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1331 (federal question
`
`jurisdiction).
`
`7.
`
`Personal jurisdiction exists over the defendants because each defendant either
`
`conducts business in or maintains operations within this District, or is an individual with sufficient
`
`minimum contacts with this District so as to make the exercise of jurisdiction by this Court
`
`permissible under traditional notions of fair play and substantial justice.
`
`8.
`
`Venue is proper in this District pursuant to 28 U.S.C. § 1391 because defendants
`
`are found or are inhabitants or transact business in this District. USWS’ common stock trades on
`
`the Nasdaq Capital Market, which is headquartered in this District, rendering venue in this District
`
`appropriate.
`
`THE PARTIES
`
`9.
`
`Plaintiff is, and has been at all relevant times, the owner of shares of USWS
`
`common stock.
`
`10.
`
`Defendant USWS is a Delaware corporation, with its principal executive offices
`
`located at 1360 Post Oak Boulevard, Suite 1800, Houston, TX 7705. USWS’ shares trade on the
`
`Nasdaq Capital Market under the ticker symbol “USWS.”
`
`11.
`
`Defendant Joel Broussard has been Chairman of the Board and a director of the
`
`Company at all relevant times.
`
`12.
`
`Defendant David L. Treadwell has been Lead Independent Director and a director
`
`of the Company at all relevant times.
`
`13.
`
`Defendant Richard Burnett has been a director of the Company at all relevant times.
`
` 3
`
`
`
`Case 1:22-cv-08625 Document 1 Filed 10/11/22 Page 4 of 13
`
`times.
`
`14.
`
`15.
`
`16.
`
`17.
`
`18.
`
`Defendant Ryan Carroll has been a director of the Company at all relevant times.
`
`Defendant Steve S. Habachy has been a director of the Company at all relevant
`
`Defendant Adam Klein has been a director of the Company at all relevant times.
`
`Defendant David J. Matlin has been a director of the Company at all relevant times.
`
`Defendant Kyle O’Neill has been President, Chief Executive Officer and a director
`
`of the Company at all relevant times.
`
`19.
`
`20.
`
`Defendant Eddie Watson has been a director of the Company at all relevant times.
`
`Defendants identified in paragraphs 11-19 are collectively referred to herein as the
`
`“Board” or the “Individual Defendants.”
`
`SUBSTANTIVE ALLEGATIONS
`
`Background of the Company
`
`21.
`
`USWS is a leading provider of hydraulic fracturing services and a market leader in
`
`electric fracture stimulation. USWS’ patented electric frac technology provides one of the first
`
`fully electric, mobile well stimulation systems powered by locally supplied natural gas, including
`
`field gas sourced directly from the wellhead. According to the Company, its electric frac
`
`technology dramatically decreases emissions and sound pollution while generating exceptional
`
`operational efficiencies, including significant customer fuel cost savings versus conventional
`
`diesel fleets.
`
`The Proposed Transaction
`
`22.
`
`On June 21, 2022, USWS announced that it had entered into the Proposed
`
`Transaction, stating, in relevant part:
`
`WILLOW PARK, Texas and HOUSTON, June 21, 2022 /PRNewswire/ -- ProFrac
`Holding Corp. (NASDAQ: PFHC) (“ProFrac” or the “Company”) announced today
`
` 4
`
`
`
`Case 1:22-cv-08625 Document 1 Filed 10/11/22 Page 5 of 13
`
`that it has reached an agreement to acquire U.S. Well Services, Inc.
`(NASDAQ: USWS) (“USWS”) in a stock-for-stock transaction with an exchange
`ratio of 0.0561 shares of ProFrac Class A common stock for each share of USWS
`Class A common stock. The acquisition is expected to be completed in the fourth
`quarter of 2022, subject to the satisfaction of customary closing conditions,
`including the approval of USWS stockholders.
`
`The combination creates a market leader in NextGen frac solutions and a combined
`company with an expected 44 active fleets by the end of 2022:
`
`
`• Transaction expected to expand ProFrac’s fleet to 44 active fleets by year
`end, including 12 electric fleets, 13 Tier IV dual fuel fleets, and 3 Tier IV
`diesel fleets
`• Combined company expected to be the largest provider of electric frac
`services with 12 electric fleets
`• Accelerates ProFrac’s ESG strategy of reducing fuel costs and minimizing
`its emissions footprint
`• Marries leading edge efficiency and cost structure from ProFrac with the
`largest electric fleet platform in the industry to deliver exceptional value for
`the combined company and substantial cost savings to customers
`• ProFrac would acquire USWS’ industry leading intellectual property
`portfolio that gave rise to electric frac technology with the market’s first e-
`fleet deployment in 2014, which includes over 110 patents
`• USWS Convertible Senior Notes and Series A Redeemable Preferred
`Shares to be converted into shares of ProFrac Class A common stock at
`closing
`• Combined company expected to maintain a conservative balance sheet;
`ProFrac expects to separately finance remaining USWS debt at closing
`• Expected to result in approximately $35 million of annual cost synergies
`and eliminate ProFrac’s expected
`license
`fees
`to USWS of
`approximately $22.5 million per year over the next four years
`• Expected to be accretive to 2023 Adjusted EBITDA
`
`Matt Wilks, ProFrac’s Executive Chairman, commented, “The acquisition of U.S.
`Well Services solidifies ProFrac’s position as an industry leader in electric
`hydraulic fracturing, which we believe represents the future of the industry. In
`today’s environment, we believe electric frac fleets provide improved efficiency,
`lower R&M costs, greater value, and a lower overall cost of completion to our
`customer. It is a true win-win scenario for us, our customers, the environment and
`the communities in which we operate.”
`
`Ladd Wilks, ProFrac’s Chief Executive Officer, said, “We are excited to welcome
`the U.S. Well Services team to the ProFrac family. We recognize the hard work of
`everyone to get to this point and I am excited to join forces and build upon the
`foundation this team has established. By leveraging our scale and capabilities along
`
` 5
`
`
`
`Case 1:22-cv-08625 Document 1 Filed 10/11/22 Page 6 of 13
`
`with U.S. Well Services’ Clean Fleet® technology, we intend to make ProFrac
`THE electric fleet provider in the U.S.”
`
`Kyle O’Neill, U.S. Well Services’ President and CEO, added, “We are thrilled to
`join forces with ProFrac. ProFrac is a best-in-class operator, and we believe the
`combined company will be well positioned to capitalize on the growing opportunity
`for electric fracturing services. This combination provides value for U.S. Well
`Services shareholders, employees and customers, and we look forward to working
`with the ProFrac team to realize our shared vision for the business.”
`
`The Materially Incomplete and Misleading Proxy Statement
`
`23.
`
`On September 28, 2022, the Board caused to be filed a materially incomplete and
`
`misleading Proxy Statement with the SEC. The Proxy Statement, which recommends that USWS
`
`stockholders vote their shares in favor of the Proposed Transaction, fails to disclose material
`
`information to Company stockholders, or provides them with materially misleading information,
`
`concerning: (i) the Company’s financial projections for USWS and ProFrac; (ii) the financial
`
`analyses that support the fairness opinion provided by the Special Committee’s financial advisor
`
`Piper; (iii) the background of the Proposed Transaction; and (iv) potential conflicts of interest
`
`faced by Piper and Company insiders.
`
`Material Misrepresentations and/or Omissions Concerning USWS’ and ProFrac’s Financial
`Projections
`
`
`24.
`
`The Proxy Statement fails to disclose material information concerning the financial
`
`projections for the Company and ProFrac.
`
`25.
`
`For example, according to the Proxy Statement, in connection with its Discounted
`
`Cash Flow Analysis, Piper utilized “unlevered, after-tax free cash flows that USWS and ProFrac
`
`were projected to generate from July 1, 2022 through December 31, 2026, in each case, based on
`
`the USWS management base case and downside case projections for USWS and the USWS
`
`management projections for ProFrac.” Proxy Statement at 120-21. Yet, the Proxy Statement fails
`
`to disclose the USWS unlevered free cash flows for each of the base case and downside case, as
`
` 6
`
`
`
`Case 1:22-cv-08625 Document 1 Filed 10/11/22 Page 7 of 13
`
`well as USWS management’s projected unlevered free cash flows for ProFrac. The Proxy
`
`Statement further fails to disclose how unlevered free cash flows were calculated and the
`
`underlying line items.
`
`26. Moreover, the Proxy Statement wholly fails to disclose USWS management’s
`
`projections for ProFrac which were relied upon by the Special Committee’s financial advisor in
`
`connection with its financial analyses. See id.
`
`27.
`
`In addition, with respect to the Company’s base case and downside case, the Proxy
`
`Statement fails to disclose the line items underlying the calculation of: (i) Adjusted EBITDA; and
`
`(ii) Total Free Cash Flows.
`
`Material Misrepresentations and/or Omissions Concerning Piper’s Financial Analyses
`
`
`28.
`
`The Proxy Statement fails to disclose material information concerning Piper’s
`
`financial analyses.
`
`29. With respect to Piper’s Discounted Cash Flow Analysis, in addition to the
`
`respective unlevered free cash flows utilized in the analysis, the Proxy Statement fails to disclose
`
`a quantification of: (i) the terminal year projected EBITDA for USWS and ProFrac; (ii) the inputs
`
`and assumptions underlying the discount rate range of 20.0% to 25.0% for USWS and 10.0% to
`
`15.0% for ProFrac; and (iii) the potential value of the Company’s NOLs utilized in the analysis.
`
`30. With respect to Piper’s Select Comparable Company Analyses and Select
`
`Comparable Transaction Analyses, the Proxy Statement fails to disclose the individual multiples
`
`and financial metrics for each of the selected companies and transactions analyzed by Piper,
`
`respectively.
`
` 7
`
`
`
`Case 1:22-cv-08625 Document 1 Filed 10/11/22 Page 8 of 13
`
`31. With respect to Piper’s premiums paid analysis, the Proxy Statement fails to
`
`disclose: (i) the transactions analyzed; and (ii) the individual premiums observed for each
`
`transaction.
`
`Material Misrepresentations and/or Omissions Concerning the Background of the Proposed
`Transaction
`
`
`32.
`
`The Proxy Statement fails to disclose material information concerning the
`
`background of the Proposed Transaction.
`
`33.
`
`Specifically, the Proxy Statement fails to disclose the terms of the confidentiality
`
`agreements the Company entered into with Company A and Company B during the process leading
`
`up to the Proposed Transaction, including whether the confidentiality agreements contain a “don’t-
`
`ask, don’t-waive” standstill provision that is still in effect and presently precluding either party
`
`from submitting a topping bid for the Company.
`
`Material Misrepresentations and/or Omissions Concerning Piper’s and Company Insiders’
`Potential Conflicts of Interest
`
`
`34.
`
`The Proxy Statement fails to disclose material information concerning Piper’s
`
`potential conflicts of interest.
`
`35.
`
`For example, the Proxy Statement fails to disclose the details of any services Piper
`
`or its affiliates have provided to USWS or its affiliates in the two years prior to the delivery of its
`
`fairness opinion, and any compensation Piper or its affiliates have received for such services
`
`provided. Moreover, in its Opinion of Piper Sandler & Co. fairness opinion letter to the Special
`
`Committee, Piper stated:
`
`We are currently engaged by the Acquiror (i) as its financial advisor in connection
`with its acquisition of Signal Peak Silica’s Monahans sand mine, which acquisition
`was announced by Acquiror on June 21, 2022 (see footnote 1) and (ii) as its
`placement agent to upsize its existing term loan and evaluate further debt
`refinancing options. We are also currently separately engaged by two entities, in
`each of which the Acquiror has an equity interest, to evaluate strategic options and
`
` 8
`
`
`
`Case 1:22-cv-08625 Document 1 Filed 10/11/22 Page 9 of 13
`
`capital-raising options, and with respect to the engagement that includes capital-
`raising options, Acquiror is a potential investor.
`
`
`Proxy Statement, Annex D at D-3. The Proxy Statement fails, however, to disclose the amount of
`
`compensation Piper expects to receive in connection with such services.
`
`36.
`
`The Proxy Statement fails to disclose material information concerning potential
`
`conflicts of interest faced by Company insiders.
`
`37.
`
`Specifically, the Proxy Statement fails to disclose whether any members of
`
`Company management have secured positions with the combined company. The Proxy Statement
`
`further fails to disclose the details of any employment and retention-related discussions and
`
`negotiations that occurred between ProFrac and USWS’ executive officers, including who
`
`participated in all such communications, when they occurred and their content. Moreover, the
`
`Proxy Statement fails to disclose whether any of ProFrac’s proposals or indications of interest
`
`mentioned management retention in the combined company following the Proposed Transaction
`
`or the purchase of or participation in the equity of the surviving corporation.
`
`38.
`
`In sum, the omission of the above-referenced information renders statements in the
`
`“USWS Prospective Financial Information,” “Opinion of the Financial Advisors to the USWS
`
`Special Committee,” “Background of the Merger,” and “Interests of USWS Executive Officers
`
`and Directors in the Merger” sections of the Proxy Statement materially incomplete and misleading
`
`in contravention of the Exchange Act. Absent disclosure of the foregoing material information
`
`prior to the stockholder vote, Plaintiff and the other stockholders of USWS will be unable to make
`
`a sufficiently informed decision in connection with the Proposed Transaction and are thus
`
`threatened with irreparable harm warranting the injunctive relief sought herein.
`
`CLAIMS FOR RELIEF
`
`COUNT I
`
` 9
`
`
`
`Case 1:22-cv-08625 Document 1 Filed 10/11/22 Page 10 of 13
`
`Claims for Violation of Section 14(a) of the Exchange Act and Rule 14a-9 Promulgated
`Thereunder Against the Individual Defendants and USWS
`
`39.
`
`40.
`
`Plaintiff repeats and realleges the preceding allegations as if fully set forth herein.
`
`The Individual Defendants disseminated the false and misleading Proxy Statement,
`
`which contained statements that, in light of the circumstances under which they were made,
`
`omitted to state material facts necessary to make the statements therein not materially misleading,
`
`in violation of Section 14(a) of the Exchange Act and Rule 14a-9. USWS is liable as the issuer of
`
`these statements.
`
`41.
`
`The Proxy Statement was prepared, reviewed, and/or disseminated by the
`
`Individual Defendants. By virtue of their positions within the Company, the Individual Defendants
`
`were aware of this information and their duty to disclose this information in the Proxy Statement.
`
`42.
`
`The Individual Defendants were at least negligent in filing the Proxy Statement
`
`with these materially false and misleading statements.
`
`43.
`
`The omissions and false and misleading statements in the Proxy Statement are
`
`material in that a reasonable stockholder will consider them important in deciding how to vote on
`
`the Proposed Transaction. In addition, a reasonable investor will view a full and accurate
`
`disclosure as significantly altering the total mix of information made available in the Proxy
`
`Statement and in other information reasonably available to stockholders.
`
`44.
`
`The Proxy Statement is an essential link in causing Plaintiff and the Company’s
`
`stockholders to approve the Proposed Transaction.
`
`45.
`
`By reason of the foregoing, defendants violated Section 14(a) of the Exchange Act
`
`and Rule 14a-9 promulgated thereunder.
`
`46.
`
`Because of the false and misleading statements in the Proxy Statement, Plaintiff is
`
`threatened with irreparable harm.
`
` 10
`
`
`
`Case 1:22-cv-08625 Document 1 Filed 10/11/22 Page 11 of 13
`
`COUNT II
`
`Claims for Violation of Section 20(a) of the Exchange Act
`Against the Individual Defendants
`
`Plaintiff repeats and realleges the preceding allegations as if fully set forth herein.
`
`The Individual Defendants acted as controlling persons of USWS within the
`
`47.
`
`48.
`
`meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their positions as
`
`officers and/or directors of USWS and participation in and/or awareness of the Company’s
`
`operations and/or intimate knowledge of the false statements contained in the Proxy Statement,
`
`they had the power to influence and control and did influence and control, directly or indirectly,
`
`the decision making of the Company, including the content and dissemination of the various
`
`statements that Plaintiff contends are false and misleading.
`
`49.
`
`Each of the Individual Defendants was provided with or had unlimited access to
`
`copies of the Proxy Statement alleged by Plaintiff to be misleading prior to and/or shortly after
`
`these statements were issued and had the ability to prevent the issuance of the statements or cause
`
`them to be corrected.
`
`50.
`
`In particular, each of the Individual Defendants had direct and supervisory
`
`involvement in the day-to-day operations of the Company, and, therefore, is presumed to have had
`
`the power to control and influence the particular transactions giving rise to the violations as alleged
`
`herein, and exercised the same. The Proxy Statement contains the unanimous recommendation of
`
`the Individual Defendants to approve the Proposed Transaction. They were thus directly involved
`
`in the making of the Proxy Statement.
`
`51.
`
`By virtue of the foregoing, the Individual Defendants violated Section 20(a) of the
`
`Exchange Act.
`
` 11
`
`
`
`Case 1:22-cv-08625 Document 1 Filed 10/11/22 Page 12 of 13
`
`52.
`
`As set forth above, the Individual Defendants had the ability to exercise control
`
`over and did control a person or persons who have each violated Section 14(a) of the Exchange
`
`Act and Rule 14a-9, by their acts and omissions as alleged herein. By virtue of their positions as
`
`controlling persons, these defendants are liable pursuant to Section 20(a) of the Exchange Act. As
`
`a direct and proximate result of defendants’ conduct, Plaintiff is threatened with irreparable harm.
`
`PRAYER FOR RELIEF
`
`WHEREFORE, Plaintiff demands judgment and preliminary and permanent relief,
`
`including injunctive relief, in his favor on behalf of USWS, and against defendants, as follows:
`
`A.
`
`Preliminarily and permanently enjoining defendants and all persons acting in
`
`concert with them from proceeding with, consummating, or closing the Proposed Transaction,
`
`including the stockholder vote on the Proposed Transaction, unless and until defendants disclose
`
`the material information identified above which has been omitted from the Proxy Statement;
`
`B.
`
`In the event defendants consummate the Proposed Transaction, rescinding it and
`
`setting it aside or awarding rescissory damages to Plaintiff;
`
`C.
`
`Directing the Individual Defendants to file a Proxy Statement that does not contain
`
`any untrue statements of material fact;
`
`D.
`
`Awarding Plaintiff the costs of this action, including reasonable allowance for
`
`Plaintiff’s attorneys’ and experts’ fees; and
`
`E.
`
`Granting such other and further relief as this Court may deem just and proper.
`
`
`
` 12
`
`
`
`Case 1:22-cv-08625 Document 1 Filed 10/11/22 Page 13 of 13
`
`JURY DEMAND
`
`Plaintiff demands a trial by jury.
`
`
`
`Dated: October 11, 2022
`
`
`
`
`
`
`
`
`
`
`
`
`By
`
`
`
`ACOCELLI LAW, PLLC
`
`
`/s/ Richard A. Acocelli
`Richard A. Acocelli
`33 Flying Point Road, Suite 131
`Southampton, NY 11968
`Tel: (631) 204-6187
`Email: racocelli@acocellilaw.com
`
`Attorneys for Plaintiff
`
` 13
`
`