U.S. WELL SERVICES, INC. Item 8.01 Other Events. Explanatory Note As previously disclosed, onJune 21, 2022 , ProFrac Holding Corp. ("ProFrac") andU.S. Well Services, Inc. ("USWS") entered into an Agreement and Plan of Merger (the "Merger Agreement"), by and among ProFrac,USWS and Thunderclap Merger Sub I, Inc. , an indirect subsidiary of ProFrac ("Merger Sub"). The Merger Agreement provides that Merger Sub will merge with and into USWS, with USWS surviving the merger as the surviving corporation and an indirect subsidiary of ProFrac (the "Merger"). Pursuant to the Merger Agreement, the parties filed a proxy statement/information statement/prospectus that was (1) included in the Registration Statement on Form S-4 (File No. 333-267168) (the "Registration Statement") filed by ProFrac with theSecurities and Exchange Commission (the "SEC") onAugust 30, 2022 , as amended by Amendment No. 1 to the Registration Statement, filed by ProFrac with theSEC onSeptember 22, 2022 and declared effective by theSEC onSeptember 28, 2022 , (2) filed by ProFrac with theSEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, onSeptember 28, 2022 , (3) in the Definitive Proxy Statement on Schedule 14A filed by USWS onSeptember 28, 2022 , and (4) sent by USWS to its Class A common stockholders commencing onSeptember 28, 2022 . The information contained in this supplemental disclosure is incorporated by reference into the proxy statement/information statement/prospectus. Terms used in this supplemental disclosure, but not otherwise defined, have the meanings ascribed to such terms in the proxy statement/information statement/prospectus. Following the announcement of the entry into the Merger Agreement, certain alleged USWS stockholders filed separate individual actions in federal court against USWS and its board of directors. As ofOctober 17, 2022 , those actions were: McGowan v.U.S. Well Services, Inc. , et al., C.A. No. 22-cv-07518 (S.D.N.Y.Sept. 2, 2022 ), Wilson v.U.S. Well Services, Inc. et al., C.A. No. 22-cv-01340-UNA (D. Del.Sept. 11, 2022 ), andBrian Jones v.U.S. Well Services, Inc. et al., C.A. No. 22-cv-08625 (S.D.NY .Oct. 11, 2022 ). Other alleged stockholders have made demands of USWS in connection with the Merger, alleging violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended. USWS and the other named defendants deny that they have violated any laws or breached any duties to USWS' stockholders and believe that these lawsuits and demands are without merit and that no supplemental disclosure is required to the proxy statement/information statement/prospectus under any applicable law, rule or regulation. However, solely in an effort to mitigate the burden and expense of litigation and to avoid any possible disruption to the Merger that could result from further litigation, ProFrac and USWS are providing the supplemental disclosures set forth below, which should be read in conjunction with the proxy statement/information statement/prospectus in its entirety. Nothing in this supplemental disclosure is to be deemed an admission of the legal necessity or materiality under applicable laws of any of the disclosures set forth herein. The following disclosure supplements the discussion beginning on page 81 of the proxy statement/information statement/prospectus under the heading "Background of the Merger." In addition to entering into a confidentiality agreement with ProFrac, USWS entered into confidentiality agreements with two other counterparties for the purpose of discussing a possible strategic investment or business combination with such counterparties. These counterparties are identified asCompany A andCompany B on page 84 of the proxy statement/information statement/prospectus. Each of these confidentiality agreements was substantially the same as the confidentiality agreement between USWS and ProFrac, except that one of the agreements included a provision that restricted the management of the counterparty, which was not ProFrac, from engaging in certain acts seeking to influence the board or management of USWS. These restrictions expired one year from its execution date. These additional restrictions would not preclude any potentially interested parties from making superior offers to USWS or its board and management. None of the agreements contained "standstill" provisions or "don't ask, don't waive" provisions.
At no point during the discussions between the parties that are summarized under the heading "Background of the Merger" were any discussions held between representatives of ProFrac and USWS regarding post-transaction employment opportunities or compensation for USWS' employees.
The following disclosure supplements the discussion beginning on page 113 of the proxy statement/information statement/prospectus under the heading "USWS Prospective Financial Information."
Management of USWS prepared the USWS projections described in the proxy statement/information statement/prospectus. The USWS projections described in the proxy statement/information statement/prospectus were provided to Piper Sandler and Piper Sandler included these projections in its summary materials presented to the USWS Special Committee, and subsequently, to the USWS Board. -------------------------------------------------------------------------------- In addition, management of USWS prepared certain projections of ProFrac that were provided to Piper Sandler. Piper Sandler included these projections in its summary materials presented to the USWS Special Committee, and subsequently, to the USWS Board.
The following table and other information below is a summary of the ProFrac projections prepared by USWS management and provided to Piper Sandler (dollars in millions, except as noted).
Management Projections
Fiscal Year Ending December 31
2022E 2023E 2024E 2025E 2026E
Revenue $ 2,165 $ 2,917 $ 3,130 $ 3,287 $ 3,451
Gross Profit(1) 769 1,071 1,221 1,233 1,294
Adjusted EBITDA(2) 635 930 986 1,068 1,122
Free Cash Flow(3) 364 636 793 855 897
(1) Gross profit is defined as total revenue less cost of sales as adjusted to
exclude depreciation and amortization, stock-based compensation and other
non-cash costs.
(2) Adjusted EBITDA is defined as net income plus income tax expense (benefit),
stock-based compensation, net interest expense, depreciation and
amortization, other non-cash costs and one-time or non-recurring expenses.
(3) Free cash flow is defined as Adjusted EBITDA less total capital expenditures.
The following line item supplements the base case projections table on page 114
of the proxy statement/information statement/prospectus under the heading "USWS
Prospective Financial Information."
Management Projections
Fiscal Year Ending December 31
2022E 2023E 2024E 2025E 2026E
EBITDA(1) $ 53 $ 166 $ 193 $ 195 $ 196 (1) EBITDA is defined as non-GAAP Net Income (Loss), plus income tax expense
(benefit), net interest expense, stock-based compensation, depreciation and
amortization, other non-cash charges and other management adjustments.
The following line item supplements the downside projections table on page 114
of the proxy statement/information statement/prospectus under the heading "USWS
Prospective Financial Information."
Management Projections
Fiscal Year Ending December 31
2022E 2023E 2024E 2025E 2026E
EBITDA(1) $ 47 $ 91 $ 112 $ 115 $ 118 (1) EBITDA is defined as non-GAAP Net Income (Loss), plus income tax expense
(benefit), net interest expense, stock-based compensation, depreciation and
amortization, other non-cash charges and other management adjustments.
The following disclosure supplements the discussion beginning on page 121 of the proxy statement/information statement/prospectus under the heading "Piper Sandler's Relationship."
As described in the proxy statement/information statement/prospectus, the total transaction fee payable to Piper Sandler is$7.5 million , of which$6.5 million is contingent on the closing of the Merger. Piper Sandler received a$1.0 million fee from USWS upon rendering its fairness opinion, which will be credited towards the advisory fee payable to Piper Sandler upon the closing of the Merger. As such,$6.5 million of Piper Sandler's fee remains contingent on the closing of the Merger. -------------------------------------------------------------------------------- In addition to the fairness opinion fee of$1.0 million paid to Piper Sandler inJune 2022 , during the two years prior to the entry of the Merger Agreement, Piper Sandler was paid approximately$7.4 million in aggregate fees by USWS for the following services: • Financial advisory services related to USWS' issuance of Series B Redeemable Convertible Preferred Stock inMarch 2020 . • Commissions paid to Piper Sandler as placement agent pursuant to USWS' ATM program fromJuly 2020 toMarch 2022 .
• Financial advisory services related to USWS' issuance of Convertible
Senior Secured (Third Lien) PIK Notes in June 2021 .
• Financial advisory services related to USWS' entry into an amendment to
USWS' Senior Secured Term Loan Credit Agreement to allow USWS to borrow
last-out term loans.
• Financial advisory services related to USWS' entry into equipment
financings with
The following disclosure supplements the discussion beginning on page 120 of the proxy statement/information statement/prospectus under the heading "Select Comparable Transaction Analyses." The table below replaces the seven bullet points listed under such heading.
Transaction Value
Date of at Announcement
Transaction Transaction ($, millions)
ProFrac / FTSI 2022 408
NexTier Oilfield Solutions Inc. / Alamo
Pressure Pumping 2021 268
Liberty / OneStim (Schlumberger) 2020 448
ProPetro / Pioneer Natural Resources
Pressure Pumping Assets 2018 333
Matlin & Partners Acq. Corp. / USWS 2018 609
STEP Energy Services / Tucker Energy
Services 2018 275
Keane Group / RockPile Energy 2017 285
The following disclosure supplements the discussion beginning on page 120 of the
proxy statement/information statement/prospectus under the heading "Discounted
Cash Flow Analysis."
The value of the NOLs for the purposes of conducting the discounted cash flow
analysis, which was $92 million , was based on the value of the NOLs as
determined by USWS and disclosed on USWS' Annual Report on Form 10-K for the
fiscal year ended December 31, 2021 , filed with the SEC on March 30, 2022 . Piper
Sandler did not separately value the NOLs.
The following disclosure supplements the discussion beginning on page 121 of the
proxy statement/information statement/prospectus under the heading "Contribution
Analysis."
The following table and other information below is a summary of the consensus analyst recommendations with respect to both USWS and ProFrac: projections prepared by USWS management and provided to Piper Sandler.
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Analyst Recommendations - ProFrac(1)
2022P 2023P
Price as of
Publication Target Premium to
Research Publication Date Price Current Revenue EBITDA Revenue EBITDA
Institution Recommendation Date ($) ($) Price(2) ($, millions) ($, millions) ($, millions) ($, millions)
Bank of America Buy 6/10/2022(3) 22.64 26.00 22.3 % 2,167 641 2,805 897 JP Morgan Overweight6/7/2022 (3) 20.21 25.00 17.6 % 2,169 640 2,891 936 Morgan Stanley Overweight6/7/2022 20.21 30.00 41.1 % 2,205 650 2,966 946 Piper Sandler Overweight6/7/2022 (3) 20.21 31.50 48.2 % 2,161 628 2,917 942Seaport Research Buy6/7/2022 20.21 26.00 22.3 % 2,136 625 2,896 920 Stifel Buy6/7/2022 (3) 20.21 24.00 12.9 % 2,156 629 2,914 907 Median 26.00 22.3 % 2,164 635 2,905 928
Analyst Recommendations - USWS(1)
2022P 2023P
Price as of
Publication Target Premium to
Research Publication Date Price Current Revenue EBITDA Revenue EBITDA
Institution Recommendation Date ($) ($) Price(2) ($, millions) ($, millions) ($, millions) ($, millions)
Johnson Rice Hold 5/23/22 0.58 1.30 90.9 % n/a 66 n/a 119
Piper Sandler Neutral 5/18/22 0.59 1.00 46.8 % 236 4 366 70
Stifel Hold 4/12/22 0.91 1.00 46.8 % 232 19 363 111
Median 1.00 46.8 % 234 19 364 111
(1) Source:
(2) Source: Capital IQ. As of
(3) Released initial reaction reports to ProFrac earnings release but did not
adjust price target or provide updated estimates.
The following disclosure supplements the discussion beginning on page 108 of the proxy statement/information statement/prospectus under the heading "Commercial Arrangements with USWS." Additionally, onSeptember 30, 2022 ,U.S. Well Services, LLC , a subsidiary of USWS, entered into a$12.5 million promissory note (the "Second Equify Note") with Equify Financial, as lender, an affiliate of the Wilks Parties. The Second Equify Note provides for the debt financing of certain equipment to be used byU.S. Well Services, LLC in building an electric frac fleet. The Second Equify Note maturesOctober 1, 2027 . The Second Equify Note is payable byU.S. Well Services, LLC to Equify Financial in equal monthly installments of principal in the amount of$208,334.00 , together with all accrued and unpaid interest on the outstanding principal balance of the Second Equify Note, commencing onNovember 1, 2022 , and continuing thereafter until the maturity date. The Second Equify Note bears interest at a rate per annum equal to the lesser of (i) the sum of (A) "prime rate" as published in theWall Street Journal from time to time plus (B) 9.25%, and (ii) the maximum amount of interest allowed by applicable law. The following disclosure supplements the discussion beginning on page 122 of the proxy statement/information statement/prospectus under the heading "Interests of USWS Executive Officers and Directors in the Merger."
During the negotiation of the Merger Agreement and the related transactions, no discussions were held between representatives of ProFrac and USWS regarding post-transaction employment opportunities or compensation for USWS' employees.
Following execution of the Merger Agreement and the public announcement of the Merger,ProFrac Holdings II LLC ("ProFrac II") andMr. Shapiro entered into a consulting agreement as ofOctober 11, 2022 , pursuant to whichMr. Shapiro will provide consulting services to ProFrac II regarding financial analysis, modeling, due diligence review, strategic advisory services, and other financial, accounting and business advice asProFrac II LLC may request from time to time that is associated with or otherwise related to ProFrac II's sand operations and acquisitions. The fees for such services shall be$5,769 per week, and the term of the consulting agreement is for one month, and then month to month thereafter. Either party may terminate the consulting agreement at any time. In connection with the consulting agreement.Mr. Shapiro and ProFrac II entered into a confidentiality agreement as ofOctober 11, 2022 . Also in connection with the consulting agreement, USWS waived certain of its and its subsidiaries' rights under certain employment and related agreements between USWS andMr. Shapiro , and consented toMr. Shapiro entering into the consulting and confidentiality agreements with ProFrac II, and ProFrac consented to such actions by USWS, in accordance with the Merger Agreement.
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Important Information For Investors And Stockholders
This communication does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any securities or a solicitation of any vote or approval. This communication relates to a proposed transaction between USWS and ProFrac. In connection with this proposed transaction, ProFrac filed with theSEC a registration statement on Form S-4 containing a proxy statement/information statement/prospectus jointly prepared by USWS and ProFrac, and other related documents. The proxy statement/information statement/prospectus contains important information about the proposed transaction and related matters. STOCKHOLDERS OF USWS ARE URGED TO READ THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/INFORMATION STATEMENT/PROSPECTUS (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS THERETO) AND OTHER RELEVANT DOCUMENTS FILED BY USWS AND PROFRAC WITH THE SEC CAREFULLY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE USWS, PROFRAC AND THE PROPOSED TRANSACTION. Stockholders of USWS may obtain free copies of the registration statement, the proxy statement/information statement/prospectus and other relevant documents filed by USWS and ProFrac with theSEC through the website maintained by theSEC at www.sec.gov. Copies of the documents filed by USWS and ProFrac with theSEC are also available free of charge on USWS's website at www.uswellservices.com and ProFrac's website at www.pfholdingscorp.com. This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act.
Participants in Solicitation
USWS and ProFrac and their respective executive officers and directors may be deemed, underSEC rules, to be participants in the solicitation of proxies in connection with the transaction. Information regarding the officers and directors of USWS is included in USWS' Definitive Proxy Statement on Schedule 14A filed with theSEC onApril 20, 2022 , as amended from time to time, with respect to the 2022 Annual Meeting of Stockholders of USWS and in Current Report on Form 8-K filed with theSEC onMay 4, 2022 by USWS. Information regarding the officers and directors of ProFrac is included in ProFrac's final prospectus relating to its initial public offering (File No. 333-261255) declared effective by theSEC onMay 12, 2022 . More detailed information regarding the identity of the potential participants, and their direct or indirect interests, by security holdings or otherwise, is set forth in the proxy materials and other materials filed with theSEC in connection with the transaction.
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