424B3 1 f424b3071119_capitolinvestiv.htm PROSPECTUS FILED PURSUANT TO RULE 424(B)(3)

Filed Pursuant to Rule 424(b)(3)

SEC File No.: 333-230817

CAPITOL INVESTMENT CORP. IV
1300 17th Street, Suite 820
Arlington, VA 22209

PROXY STATEMENT/PROSPECTUS SUPPLEMENT

July 11, 2019

TO THE SHAREHOLDERS OF CAPITOL INVESTMENT CORP. IV:

This is a supplement (this “Supplement”) to the proxy statement/prospectus of Capitol Investment Corp. IV (“Capitol” or the “Company”), dated June 24, 2019, as initially supplemented on June 24, 2019 (collectively, the “Proxy Statement/Prospectus”), that was sent to you in connection with the Company’s extraordinary general meeting to consider and vote upon a proposal, among others, to approve and adopt the Agreement and Plan of Merger, dated as of April 7, 2019 (“Merger Agreement”), by and among Capitol and its subsidiaries, NESCO Holdings, LP (“Nesco Owner”), and NESCO Holdings I, Inc. (“Nesco”). The extraordinary general meeting is scheduled to be held at 10 a.m., Eastern Time, on July 16, 2019 at the offices of Graubard Miller, the Company’s counsel, at The Chrysler Building, 405 Lexington Avenue, 11th Floor, New York, New York 10174. Terms that are defined in the Proxy Statement/Prospectus have the same meanings in this Supplement, unless a new definition for such term is provided herein.

On July 11, 2019, Capitol and its subsidiaries, Nesco Owner and Nesco entered into an amendment to the Merger Agreement (the “amended Merger Agreement”) pursuant to which the merger consideration to be issued to Nesco Owner was reduced and the Sponsors agreed to cancel an additional number of their Initial Shares in connection with the Transactions, in addition to certain other amendments described in this Supplement. A copy of the amended Merger Agreement is attached as Annex A to this Supplement.

Based on the amended Merger Agreement and assuming no redemptions, the combined company will have an initial enterprise value of approximately $1,037 million, based on approximately 69.0 million fully diluted shares of common stock outstanding at $10.00, estimated net debt of approximately $405 million and an adjustment for certain net operating loss carryforwards. This is a reduction of $50 million compared to the initial enterprise value of approximately $1,087 million based on approximately 63.0 million fully diluted shares of common stock outstanding at $10.00 under the original terms of the Transactions and based on updated net debt balances.

With the new adjustment in purchase price and after accounting for the business plan acceleration initiatives and the impact of an announced acquisition as outlined in the Proxy Statement/Prospectus, the implied multiple is 5.7x 2020 Estimated Adjusted EBITDA of $190 million (with estimated 2020 net income of $46 million. See “Forward-Looking Statements” and Annex B hereto.

At closing, current stockholders of Capitol and current Nesco shareholders will hold approximately 67% and 33%, respectively, of the issued and outstanding shares of the combined company’s common stock, assuming no public shareholders of Capitol exercise redemption rights.

The following outlines the amendments to the Merger Agreement:

•        The $75,000,000 cash previously disclosed as payable to Nesco Owner out of the transaction proceeds was eliminated and replaced with common stock consideration at $10.00 per share, or 7,500,000 shares regardless of redemptions.

•        Excluding the 7,500,000 additional shares referred to above, the aggregate common stock consideration to Nesco Owner was reduced by 3,303,597 shares as Nesco Owner’s contribution to the $50 million enterprise value reduction.

•        Earnout consideration to Nesco Owner was increased by 1,651,798 shares. All earnout shares will be issued to Nesco Owner at the closing of the Transactions, but will be forfeit if the applicable trading prices are not achieved. The incremental earnout shares will be forfeit if during the seven-year period following the closing of the Transactions, the trading price of Capitol’s common stock exceeds $19.00 per share for

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any 20 trading days during a 30 consecutive trading day period or if a sale transaction of the combined company occurs in which the consideration paid per share to holders of common stock exceeds $19.00 per share.

•        The Sponsors have contributed to the enterprise value reduction by subjecting an additional 696,403 shares to cancellation or an additional lock-up.

•        Of that amount, 348,202 shares will be subject to an earn-out such that if during the seven-year period following the closing of the Transactions, the trading price of Capitol’s common stock exceeds $19.00 per share for any 20 trading days during a 30 consecutive trading day period or if a sale transaction of the combined company occurs in which the consideration paid per share to holders of common stock exceeds $19.00 per share. If such trading price is not achieved or such sale transaction does not occur, in each case, during the seven-year period following the closing of the Transactions, such incremental lock-up shares will be forfeited for no consideration.

•        Nesco Owner has agreed that it and/or one or more affiliates will purchase an aggregate of 2,500,000 shares of Capitol common stock at the closing of the Transactions at a price per share of $10.00.

•        Nesco Owner (and its successors and assigns) will now have the right to designate up to four persons to be appointed or nominated for election to the board of directors of Capitol if it and its affiliates own at least 45% of the common shares, subject to reduction based on the aggregate ownership of Nesco Owner and its successors and assigns, as compared to the original right to designate up to three persons. The board will consist of between seven and nine members depending on Nesco Owner’s pro forma ownership.

Capitol and Nesco expect to enter into certain amendments to their agreements with their underwriters and financial advisors, reducing fees to such parties payable upon closing of the Transactions by approximately $10 million. Under the amended Merger Agreement, up to $10 million of such fee reduction will be included as cash available to Capitol for purposes of satisfying the condition to closing of the Transactions that Capitol have at least $265 million of cash available after giving effect to payment of amounts that Capitol may be required to pay to any redeeming shareholders upon consummation of the Transactions.

Additionally, the Sponsors and Nesco Owner have indicated that they and/or their affiliates may purchase an additional number of Capitol shares from Capitol upon consummation of the Transactions to meet the minimum cash closing condition or to better capitalize the company for its post-closing working capital or other needs. It would be in the Sponsors’ and Nesco Owner’s discretion as to whether to make such purchases.

We are sending you this supplement to provide you with additional information relating to the amendment to the Merger Agreement, including updated unaudited pro forma condensed combined financial information and updated comparative per share data to aid you in your analysis of the business combination.

Before you vote you should read the Proxy Statement/Prospectus and other documents that the Company has filed with the Securities and Exchange Commission, together with this Supplement, for more complete information about the Company and the business combination with Nesco. If you need additional copies of this Supplement, the Proxy Statement/Prospectus, or the proxy card you should contact:

Mr. L. Dyson Dryden

Capitol Investment Corp. IV

1300 17th Street, Suite 820

Arlington, VA 22209

Tel: (202) 654-7060

Fax: (202) 654-7070

or:

Morrow Sodali LLC

470 West Avenue

Stamford, CT 06902

Tel: (800) 662-5200 or banks and brokers can call collect at (203) 658-9400

Email: CIC.info@morrowsodali.com

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You may also obtain a free copy of this Supplement, the Proxy Statement/Prospectus and other documents containing information about the Company and the business combination, without charge, at the SEC’s website at www.sec.gov.

This Supplement should be read together with the Proxy Statement/Prospectus. To the extent that the information in this Supplement is inconsistent with the information in the Proxy Statement/Prospectus, the information in this Supplement supersedes the information in the Proxy Statement/Prospectus.

All of the Company’s shareholders are cordially invited to attend the extraordinary general meeting in person. If you are a shareholder of record and you have already provided a proxy, your shares will be voted in accordance with your instructions at the extraordinary general meeting, unless you affirmatively change your proxy as described in the Proxy Statement/Prospectus. If you have not yet provided a proxy, you are urged to complete, sign, date and return the proxy card that was enclosed with the Proxy Statement/Prospectus previously mailed to you as soon as possible. If you are a shareholder of record, you may also cast your vote in person at the extraordinary general meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares or, if you wish to attend the extraordinary general meeting and vote in person, obtain a proxy from your broker or bank. If you have already instructed your broker or bank how to vote your shares, your shares will be voted in accordance with those instructions at the extraordinary general meeting, unless you affirmatively change your instructions as described in the Proxy Statement/Prospectus.

Your vote is important regardless of the number of shares you own. Whether you plan to attend the extraordinary general meeting or not, please sign, date and return the enclosed proxy card as soon as possible in the envelope provided. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted.

Thank you for your participation. We look forward to your continued support.

 

By Order of the Board of Directors

   

/s/ Mark D. Ein

   

Mark D. Ein

   

Chief Executive Officer

This Supplement is dated July 11, 2019 and is first being mailed to shareholders of the Company on or about such date.

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FORWARD-LOOKING STATEMENTS

Capitol believes that some of the information in this Supplement constitutes forward-looking statements within the definition of the Private Securities Litigation Reform Act of 1995. However, because Capitol is a “blank check” company, the safe-harbor provisions of that act do not apply to statements made in this Supplement. You can identify these statements by forward-looking words such as “may,” “expect,” “anticipate,” “contemplate,” “believe,” “estimate,” “intends,” “suggests,” “plan,” “should,” “could,” “would,” “will,” “forecast,” and “continue” or similar expressions. You should read statements that contain these words carefully because they:

•        discuss future expectations;

•        contain projections of future results of operations or financial condition; or

•        state other “forward-looking” information.

Capitol believes it is important to communicate its expectations to its securityholders. However, there may be events in the future that Capitol is not able to predict accurately or over which it has no control. The forward-looking statements included herein are subject to and involve risks, uncertainties and assumptions and you should not place undue reliance on these forward-looking statements. The risk factors and cautionary language discussed in the Proxy Statement/Prospectus provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by Capitol or Nesco in such forward-looking statements, including among other things:

•        the timing to and the ability of each of Capitol and Nesco to complete the Transactions;

•        the number and percentage of Capitol’s Public Shareholders voting against the business combination proposals and/or seeking redemption;

•        the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement;

•        the ability to maintain the listing of Capitol’s securities on a national securities exchange before or following the business combination;

•        the inability to recognize the anticipated benefits of the proposed business combination, which may be affected by, among other things, the amount of cash available following any redemption of Public Shares by Capitol shareholders and Capitol’s level of indebtedness following the business combination;

•        changes adversely affecting the business in which Nesco is engaged;

•        the risks associated with cyclical demand for Nesco’s services and vulnerability to industry downturns and regional and national downturns;

•        fluctuations in Nesco’s revenue and operating results;

•        unfavorable conditions or further disruptions in the capital and credit markets;

•        Nesco’s ability to generate cash, service indebtedness and incur additional indebtedness;

•        competition from existing and new competitors;

•        Nesco’s relationships with equipment suppliers and dependence on key suppliers to obtain adequate or timely equipment;

•        increases in the cost of new equipment and Nesco’s ability to procure such equipment in a timely fashion;

•        Nesco’s ability to pass on increased operating costs related to the aging of its fleet;

•        Nesco’s ability to integrate any businesses it acquires;

•        Nesco’s ability to recruit and retain experienced personnel;

•        the effect of disruptions in Nesco’s information technology systems, including Nesco’s customer relationship management system;

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•        risks related to legal proceedings or claims, including liability claims;

•        Nesco’s dependence on third-party contractors to provide us with various services;

•        a need to recognize additional impairment charges related to goodwill, identified intangible assets and fixed assets;

•        Nesco’s ability to obtain additional capital on commercially reasonable terms;

•        laws and regulatory developments that may fail to result in increased demand for Nesco’s services;

•        safety and environmental requirements that may subject Nesco to unanticipated liabilities; and

•        potential litigation involving Capitol or Nesco;

•        general economic conditions; and

•        the result of future financing efforts.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Supplement.

All forward-looking statements included herein attributable to any of Capitol, Nesco or any person acting on either party’s behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, Capitol and Nesco undertake no obligations to update these forward-looking statements to reflect events or circumstances after the date of this Supplement or to reflect the occurrence of unanticipated events.

Before a shareholder grants its proxy or instructs how its vote should be cast or vote on each of the business combination proposals, the charter proposals, the director election proposal, the incentive plan proposal or the adjournment proposal, it should be aware that the occurrence of the events described in the “Risk Factors” section and elsewhere in the Proxy Statement/Prospectus and this Supplement may adversely affect Capitol and/or Nesco.

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SUPPLEMENT TO THE PROXY STATEMENT/PROSPECTUS

The purpose of this Supplement is to advise you that the Company, Nesco Owner and Nesco entered into the amended Merger Agreement pursuant to which the merger consideration to be issued to Nesco Owner was reduced and the Sponsors agreed to cancel an additional number of their Initial Shares in connection with the Transactions, in addition to certain other amendments.

The following information supersedes and supplements any information in the Proxy Statement/Prospectus relevant to the applicable topic. Any page references listed below are references to pages in the Proxy Statement/Prospectus, not this Supplement. Capitalized terms used herein but not defined shall have the meanings ascribed to such terms in the Proxy Statement/Prospectus.

The amended Merger Agreement is attached as Annex A hereto.

UPDATE TO QUESTIONS AND ANSWERS ABOUT THE PROPOSALS

The following questions and answers are intended to address briefly some common anticipated questions regarding the amended Merger Agreement and this Supplement. These questions and answers do not address all questions that may be important to Capitol shareholders. Capitol shareholders should refer to the more detailed information contained in the Proxy Statement/Prospectus or elsewhere in this Supplement, including the text of the amended Merger Agreement attached hereto as Annex A.

Q:     Why am I receiving this document?

A:     On July 11, 2019, the Company, Nesco Owner and Nesco entered into the amended Merger Agreement. This supplement to the Proxy Statement/Prospectus provides information regarding the amended Merger Agreement and the impact that such amendment will have on the terms of the transaction, and updates the Proxy Statement/Prospectus.

Q:     Do I still need to read the Proxy Statement/Prospectus?

A:     Yes. This supplement to the Proxy Statement/Prospectus is intended to supplement the Proxy Statement/Prospectus by providing an update of certain information contained in the Proxy Statement/Prospectus, particularly information that was included in the Proxy Statement/Prospectus that has changed as a result of the amended Merger Agreement. However, this supplement does not contain all of the information that you need to know about the proposed transaction, and we urge you to read the Proxy Statement/Prospectus in conjunction with this supplement, all of the Annexes and Appendices thereto and hereto, and the other documents to which we refer you.

Q:     Have the date and time of any of the extraordinary general meeting changed?

A:     No.

Q:     Has the record date for the extraordinary general meeting changed?

A:     No.

Q:     What terms of the transaction changed in the amended Merger Agreement?

A:     The following outlines the changes in the amended Merger Agreement:

•        The $75,000,000 cash previously disclosed as payable to Nesco Owner out of the transaction proceeds was eliminated and replaced with common stock consideration at $10.00 per share, or 7,500,000 shares regardless of redemptions.

•        Excluding the 7,500,000 additional shares referred to above, the aggregate common stock consideration to Nesco Owner was reduced by 3,303,597 shares as Nesco Owner’s contribution to the $50 million enterprise value reduction.

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•        Earnout consideration to Nesco Owner was increased by 1,651,798 shares. All earnout shares will be issued to Nesco Owner at the closing of the Transactions, but will be forfeit if the applicable trading prices are not achieved. The incremental earnout shares will be forfeit if during the seven-year period following the closing of the Transactions, the trading price of Capitol’s common stock exceeds $19.00 per share for any 20 trading days during a 30 consecutive trading day period or if a sale transaction of the combined company occurs in which the consideration paid per share to holders of common stock exceeds $19.00 per share.

•        The Sponsors have contributed to the enterprise value reduction by subjecting an additional 696,403 shares to cancellation or an additional lock-up.

•        Of that amount, 348,202 shares will be subject to an earn-out such that if during the seven-year period following the closing of the Transactions, the trading price of Capitol’s common stock exceeds $19.00 per share for any 20 trading days during a 30 consecutive trading day period or if a sale transaction of the combined company occurs in which the consideration paid per share to holders of common stock exceeds $19.00 per share. If such trading price is not achieved or such sale transaction does not occur, in each case, during the seven-year period following the closing of the Transactions, such incremental lock-up shares will be forfeited for no consideration.

•        Nesco Owner has agreed that it and/or one or more affiliates will purchase an aggregate of 2,500,000 shares of Capitol common stock at the closing of the Transactions at a price per share of $10.00.

•        Nesco Owner (and its successors and assigns) will now have the right to designate up to four persons to be appointed or nominated for election to the board of directors of Capitol if it and its affiliates own at least 45% of the common shares, subject to reduction based on the aggregate ownership of Nesco Owner and its successors and assigns, as compared to the original right to designate up to three persons. The board will consist of between seven and nine members depending on Nesco Owner’s pro forma ownership.

Q.     May I change my vote after I have mailed my signed proxy card?

A.     Yes. Shareholders may send a later-dated, signed proxy card to Capitol’s transfer agent at the address set forth below so that it is received prior to the vote at the extraordinary general meeting or attend the extraordinary general meeting in person and vote. Shareholders also may revoke their proxy by sending a notice of revocation to Capitol’s transfer agent, which must be received prior to the vote at the extraordinary general meeting. Shareholders may also revoke their proxy by attending the extraordinary general meeting in person.

Q:     Who can answer my questions?

A:     If you have questions about the Merger or if you need additional copies of the Proxy Statement/Prospectus or the proxy card you should contact:

Mr. L. Dyson Dryden

Capitol Investment Corp. IV

1300 17th Street, Suite 820

Arlington, VA 22209

Tel: (202) 654-7060

Fax: (202) 654-7070

or:

Morrow Sodali LLC

470 West Avenue

Stamford, CT 06902

Tel: (800) 662-5200 or banks and brokers can call collect at (203) 658-9400

Email: CIC.info@morrowsodali.com

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You may also obtain additional information about Capitol from documents filed with the SEC by following the instructions in the section of the Proxy Statement/Prospectus entitled “Where You Can Find More Information.” If you are a holder of Public Shares and you intend to seek redemption of your shares, you will need to deliver your shares (either physically or electronically) to Capitol’s transfer agent at the address below prior to the vote at the extraordinary general meeting. If you have questions regarding the certification of your position or delivery of your stock, please contact:

Mr. Mark Zimkind

Continental Stock Transfer & Trust Company

1 State Street, 30th Floor

New York, New York 10004

E-mail: mzimkind@continentalstock.com

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UPDATE TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

Introduction

Capitol is providing the following updated unaudited pro forma combined financial information to aid you in your analysis of the financial aspects of the Transactions.

The unaudited pro forma combined balance sheet as of March 31, 2019 gives pro forma effect to the Transactions as if they had been consummated as of that date. The unaudited pro forma combined statements of operations for the three months ended March 31, 2019 and the year ended December 31, 2018 give pro forma effect to the Transactions as if they had occurred as of January 1, 2018. This information should be read together with Nesco’s and Capitol’s respective audited and unaudited financial statements and related notes, “Nesco’s Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Other Information Related to Capitol Capitol’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included in the Proxy Statement/Prospectus.

The unaudited pro forma combined balance sheet as of March 31, 2019 has been prepared using the following:

•        Nesco’s unaudited historical consolidated balance sheet as of March 31, 2019, as included in the Proxy Statement/Prospectus; and

•        Capitol’s unaudited historical consolidated balance sheet as of March 31, 2019, as included in the Proxy Statement/Prospectus.

The unaudited pro forma combined statement of operations for the three months ended March 31, 2019 has been prepared using the following:

•        Nesco’s unaudited historical consolidated statement of operations for the three months ended March 31, 2019, as included in the Proxy Statement/Prospectus; and

•        Capitol’s unaudited historical consolidated statement of operations for the three months ended March 31, 2019, as included in the Proxy Statement/Prospectus.

The unaudited pro forma combined statement of operations for the year ended December 31, 2018 has been prepared using the following:

•        Nesco’s audited historical consolidated statement of operations for the year ended December 31, 2018, as included in the Proxy Statement/Prospectus; and

•        Capitol’s audited historical statement of operations for the year ended December 31, 2018, as included in the Proxy Statement/Prospectus.

Description of the Transactions

On April 7, 2019, Capitol entered into the Merger Agreement by and among Capitol, Intermediate Holdings, Merger Sub, New HoldCo, Nesco Owner, and Nesco, which was amended on July 11, 2019, pursuant to which (i) Capitol will domesticate as a Delaware corporation and will be renamed “Nesco Holdings, Inc.”, (ii) Merger Sub will merge with and into Nesco, with Nesco surviving as a wholly-owned subsidiary of Capitol and (iii) immediately after the Initial Merger, Nesco will merge with and into New HoldCo, with New HoldCo surviving as a wholly-owned subsidiary of Capitol. As a result of the Transactions, Nesco will become a wholly-owned subsidiary of Capitol, with Nesco Owner becoming a securityholder of Capitol.

In connection with the Domestication and the business combination, the outstanding Class A ordinary shares of Capitol will be automatically converted into shares of common stock of Capitol (which will be renamed “Nesco Holdings, Inc.”) on a one-for-one basis. The outstanding warrants of Capitol will automatically convert into warrants to purchase shares of common stock, on a one-for-one basis, beginning 30 days after the consummation of the business combination. The outstanding Class B ordinary shares of Capitol will automatically convert into common stock, on a one-for-one basis, upon consummation of the business combination. Additionally, pursuant to the Merger Agreement, in connection with the Mergers each outstanding share of Nesco common stock will be converted into the right to receive a pro rata portion of (i) 21,660,638 shares of common stock, and (ii) warrants to purchase 2,500,000 shares of common stock.

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Nesco Owner will also have the right to receive: (1) up to 1,800,000 additional shares of Capitol’s common stock, for a period of five years following the closing of the Transactions, in increments of 900,000 shares, if the trading price of Capitol’s common stock exceeds $13.00 per share or $16.00 per share for any 20 trading days during a 30 consecutive trading day period, or upon a change of control (as defined in the Merger Agreement) of Capitol if the consideration paid or payable to Capitol’s stockholders equals or exceeds $13.00 per share or $16.00 per share (less any shares previously issued), and (2) an additional 1,651,798 shares of Capitol’s common stock if during the seven-year period following the closing of the Transactions, the trading price of Capitol’s common stock exceeds $19.00 per share for any 20 trading days during a 30 consecutive trading day period or if a sale transaction of the combined company occurs in which the consideration paid per share to holders of common stock exceeds $19.00 per share.

In connection with the execution of the Merger Agreement, New HoldCo executed the Debt Commitment Letter pursuant to which the lender parties committed to provide Capitol with each of (i) $350 million in aggregate principal amount of commitments pursuant to a first lien senior secured asset based revolving credit facility and (ii) $400 million in second lien senior secured increasing rate bridge loans, subject to definitive documentation and certain customary closing conditions and solely to the extent that Capitol is unable to issue and sell senior second lien secured notes in a Rule 144A or other private placement yielding up to $400 million in gross proceeds on or prior to the closing of the Transactions.

The new revolving credit facility will have a five-year term and a floating rate of interest based on either the federal funds rate or LIBOR, in each case, plus a margin ranging between 150 and 200 basis points depending on excess availability under the facility. Nesco’s availability under the revolving credit facility will be a percentage of the value of its accounts receivable, its parts inventory, its fleet inventory and its cash, in each case, subject to certain eligibility criteria. A portion of the revolving credit facility may be used for the issuance of letters of credit. The revolving credit facility will be guaranteed by Nesco’s wholly owned domestic subsidiaries and will be secured by substantially all assets of Nesco and the guarantors. Nesco can reduce the aggregate commitments under the revolving credit facility without premium or penalty. The revolving credit facility will contain covenants which, among other things, limit the incurrence of additional indebtedness (including acquired indebtedness), issuance of certain preferred stock, the payment of dividends, making restricted payments and investments, the purchase or acquisition or retirement for value of any equity interests, the provision of loans or advances to restricted subsidiaries, the sale or lease or transfer of any properties to any restricted subsidiaries, the transfer or sale of assets, and the creation of certain liens.

While Capitol does not expect to enter into any bridge loans, Capitol does expect to issue the $400 million of senior second lien secured notes in lieu thereof. Capitol currently expects that the interest rate on the notes will be 8.25% if there are no redemptions by Capitol shareholders or 8.75% in a maximum redemption scenario, based on indicative levels from Capitol’s financing advisors. The notes are expected to mature in seven years from the date of issuance and will be non-callable for the first three years after issuance. Thereafter, the notes are expected to be callable at half the coupon declining ratably to par at the end of the fifth year after issuance. Up to 10% of the notes are also expected to be callable at 103% of the principal amount in each of the first three years after issuance. Interest on the notes will be due semi-annually. The notes are expected to be guaranteed by Nesco’s wholly owned domestic subsidiaries. The indenture governing the notes is expected to contain covenants which, among other things, limit the incurrence of additional indebtedness (including acquired indebtedness), issuance of certain preferred stock, the payment of dividends, making restricted payments and investments, the purchase or acquisition or retirement for value of any equity interests, the provision of loans or advances to restricted subsidiaries, the sale or lease or transfer of any properties to any restricted subsidiaries, the transfer or sale of assets, and the creation of certain liens.

Accounting for the Domestication and Mergers

The Domestication is being proposed solely for the purpose of changing the legal domicile of Capitol and, as such, neither it, nor the exchange of Capitol securities described above, is expected to have any accounting impact.

The Mergers will be accounted for as a reverse merger, in accordance with U.S. GAAP. Under this method of accounting, Capitol will be treated as the “acquired” company for financial reporting purposes. This determination was primarily based on Nesco Owner being expected to have the largest minority interest of the combined company, Nesco Owner being represented on the Board of Directors of the combined company by up to four members in addition to the CEO of Nesco, Nesco’s senior management comprising the senior management of the combined company, the relative size of Nesco compared to Capitol, and Nesco’s operations comprising the ongoing operations of the combined company. Accordingly, for accounting purposes, the Transactions will be treated as the equivalent of Nesco issuing stock for the

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net assets of Capitol. The net assets of Capitol will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Transactions will be those of Nesco.

As the issuance of 3,451,798 additional shares of Capitol’s common stock to Nesco Owner is contingent on the future performance of the trading price of Capitol’s common stock, they have been classified as an equity arrangement and therefore have not been recorded in the unaudited pro forma combined financial statements.

In addition to the merger of Capitol and Nesco, the Transactions involve utilizing the cash on Capitol’s balance sheet and funds from the issuance of the new revolving credit facility and the new senior second lien secured notes to redeem Nesco’s existing senior second lien secured notes, pay down Nesco’s existing revolving credit facility and Tranche B revolving credit facility, and make a one-time payment to Nesco Owner. The combined company, post recapitalization, will have substantially lower debt balances and leverage.

Basis of Pro Forma Presentation

The historical financial information has been adjusted to give pro forma effect to events that are related and/or directly attributable to the Transactions, are factually supportable, and as it relates to the unaudited pro forma combined statement of operations, are expected to have a continuing impact on the results of the combined company. The adjustments presented on the unaudited pro forma combined financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the Transactions.

The unaudited pro forma combined financial information is for illustrative purposes only. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma combined financial information as being indicative of the historical financial position and results that would have been achieved had the companies always been combined or the future financial position and results that the combined company will experience. Nesco and Capitol have not had any historical relationship prior to the Transactions. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

There is no historical activity with respect to Intermediate Holdings, Merger Sub or New HoldCo, and accordingly, no adjustments were required with respect to these entities in the pro forma combined financial statements.

The unaudited pro forma combined financial information has been prepared assuming two alternative levels of redemption into cash of Capitol’s ordinary shares:

•        Scenario 1 — Assuming no redemptions for cash: This presentation assumes that no Capitol shareholders exercise redemption rights with respect to their Public Shares upon consummation of the Transactions; and

•        Scenario 2 — Assuming redemptions of 14,310,769 Public Shares of Capitol for cash: This presentation assumes that Capitol shareholders exercise their redemption rights with respect to a maximum of 14,310,769 Public Shares upon consummation of the Transactions at a redemption price of approximately $10.19 per share. The maximum redemption amount is derived from a minimum of $265,000,000 of cash required from Capitol pursuant to the Merger Agreement, after giving effect to the payments to redeeming shareholders. Scenario 2 includes all adjustments contained in Scenario 1 and presents additional adjustments to reflect the effect of the maximum redemptions.

Included in the shares outstanding and weighted average shares outstanding as presented in the pro forma combined financial statements are 21,660,638 ordinary shares to be issued to Nesco shareholders under both Scenarios 1 and 2.

As a result of the Transactions and immediately following the closing of the Transactions, assuming no Capitol shareholders elect to redeem their shares for cash, Nesco Owner and certain members of current Nesco management will own approximately 33.5% of the Capitol shares to be outstanding immediately after the Transactions and Capitol shareholders will own approximately 66.5% of the Capitol shares, based on the number of Capitol shares outstanding as of March 31, 2019 (in each case, not giving effect to any shares issuable to them upon exercise of warrants). As a result, Nesco Owner and current Nesco management will be the single largest shareholder, as a group, of Capitol following consummation of the Transactions with no current shareholder of Capitol owning more than 10% of the issued and outstanding capital stock of Capitol.

11

If 14,310,769 ordinary shares are redeemed for cash, which assumes the maximum redemption of Capitol’s shares and providing for a minimum of $265,000,000 of cash after giving effect to payments to redeeming shareholders, Nesco will own approximately 41.8% and Capitol will own approximately 58.2% of the Capitol shares to be outstanding immediately after the Transactions (in each case, not giving effect to any shares issuable to them upon exercise of warrants). Prior to the consummation of the Transactions, all of Nesco’s outstanding phantom units and all Class B units of Nesco Owner will be cancelled and no consideration will be paid in respect thereof (except for a one-time payment by Nesco Owner to Bruce Heinemann of approximately $0.5 million).

12

PRO FORMA COMBINED BALANCE SHEET

AS OF MARCH 31, 2019

(UNAUDITED)

(in thousands)

         

Scenario 1
Assuming No
Redemptions into Cash

 

Scenario 2
Assuming Maximum Redemptions into Cash

   

(A)
Nesco

 

(B)
Capitol

 

Pro Forma Adjustments

 

Pro Forma Balance Sheet

 

Pro Forma Adjustments

 

Pro Forma Balance Sheet

Assets

 

 

   

 

   

 

 

 

 

 

   

 

 

 

 

 

 

Current assets:

 

 

   

 

   

 

 

 

 

 

   

 

 

 

 

 

 

Cash

 

$

3,781

 

$

757

 

$

410,027

(1)

 

 

   

 

 

 

 

 

 
   

 

   

 

   

 

(750

)(2)

 

 

   

 

 

 

 

 

 
   

 

   

 

   

 

400,000

(3)

 

 

   

 

 

 

 

 

 
   

 

   

 

   

 

25,000

(3)(8)

 

 

   

 

 

 

 

 

 
   

 

   

 

   

 

(765,000

)(4)

 

 

   

 

 

 

 

 

 
   

 

   

 

   

 

(20,500

)(5)

 

 

   

$

117,300

(3)

 

 

 
   

 

   

 

   

 

(21,050

)(6)

 

$

32,265

 

 

(145,784

)(7)

 

$

3,781

   

 

   

 

   

 

 

 

 

 

   

 

 

 

 

 

 

Accounts receivable, net

 

 

50,768

 

 

 

 

 

 

 

50,768

 

 

 

 

 

50,768

Inventory

 

 

14,264

 

 

 

 

 

 

 

14,264

 

 

 

 

 

14,264

Prepaid expenses and other

 

 

5,993

 

 

12

 

 

 

 

 

6,005

 

 

 

 

 

6,005

Total Current Assets

 

 

74,806

 

 

769

 

 

27,727

 

 

 

103,302

 

 

(28,484

)

 

 

74,818

Marketable securities held in Trust Account

 

 

 

 

410,027

 

 

(410,027

)(1)

 

 

 

 

 

 

 

Property and equipment, net

 

 

4,151

 

 

 

 

 

 

 

4,151

 

 

 

 

 

4,151

Rental equipment, net

 

 

321,747

 

 

 

 

 

 

 

321,747

 

 

 

 

 

321,747

Goodwill

 

 

228,714

 

 

 

 

 

 

 

228,714

 

 

 

 

 

228,714

Other intangible assets, net

 

 

70,016

 

 

 

 

 

 

 

70,016

 

 

 

 

 

70,016

Total Assets

 

$

699,434

 

$

410,796

 

$

(382,300

)

 

$

727,930

 

$

(28,484

)

 

$

699,446

   

 

   

 

   

 

 

 

 

 

   

 

 

 

 

 

 

Liabilities and Stockholder’s (Deficit)/Shareholders’ Equity

 

 

   

 

   

 

 

 

 

 

   

 

 

 

 

 

 

Current liabilities:

 

 

   

 

   

 

 

 

 

 

   

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

48,885

 

$

177

 

$

(2,510

)(6)

 

$

46,552

 

$

 

 

$

46,552

Accrued interest expense

 

 

4,682

 

 

 

 

 

 

 

4,682

 

 

 

 

 

4,682

Deferred rent income

 

 

1,325

 

 

 

 

 

 

 

1,325

 

 

 

 

 

1,325

Current maturities of long-term debt

 

 

7,557

 

 

 

 

 

 

 

7,557

 

 

 

 

 

7,557

Total Current Liabilities

 

 

62,449

 

 

177

 

 

(2,510

)

 

 

60,116

 

 

 

 

 

60,116

Long-term debt and other debt

 

 

790,479

 

 

750

 

 

(750

)(2)

 

 

   

 

 

 

 

 

 
   

 

   

 

   

 

400,000

(3)

 

 

   

 

 

 

 

 

 
   

 

   

 

   

 

(760,148

)(4)

 

 

   

 

 

 

 

 

 
   

 

   

 

   

 

(20,500

)(5)

 

 

409,831

 

 

117,300

(3)

 

 

527,131

Deferred tax liabilities

 

 

11,350

 

 

 

 

 

 

 

11,350

 

 

 

 

 

11,350

Deferred underwriting fee

 

 

 

 

14,087

 

 

(14,087

)(6)

 

 

 

 

 

 

 

Other liabilities

 

 

420

 

 

 

 

 

 

 

420

 

 

 

 

 

420

Total Liabilities

 

 

864,698

 

 

15,014

 

 

(397,995

)

 

 

481,717

 

 

117,300

 

 

 

599,017

13

PRO FORMA COMBINED BALANCE SHEET

AS OF MARCH 31, 2019

(UNAUDITED)

(in thousands) (Continued)

         

Scenario 1
Assuming No
Redemptions into Cash

 

Scenario 2
Assuming Maximum
Redemptions into Cash

   

(A)
Nesco

 

(B)
Capitol

 

Pro Forma Adjustments

 

Pro Forma Balance Sheet

 

Pro Forma Adjustments

 

Pro Forma Balance Sheet

Commitments and Contingencies

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary shares subject to redemption

 

 

 

 

 

390,782

 

 

(390,782

)(7)

 

 

 

 

 

 

 

 

 

Stockholder’s (Deficit)/Shareholders’ Equity

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

 

 

 

 

 

4

(7)

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

   

 

2

(8)

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

   

 

1

(9)

 

 

7

 

 

 

(1

)(7)

 

 

6

 

Class A Ordinary Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class B Ordinary Shares

 

 

 

 

 

 

1

 

 

(1

)(9)

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

259,428

 

 

 

 

 

390,778

(7)

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

   

 

25,000

(3)

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

   

 

4,997

(8)

 

 

680,203

 

 

 

(145,782

)(7)

 

 

534,420

 

(Accumulated deficit)/Retained earnings

 

 

(424,384

)

 

 

4,999

 

 

(4,453

)(6)

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

   

 

(4,852

)(4)

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

   

 

(4,999

)(8)

 

 

(433,689

)

 

 

 

 

 

 

(433,689

)

Accumulated other comprehensive loss

 

 

(308

)

 

 

 

 

 

 

 

(308

)

 

 

 

 

 

(308

)

Total Stockholder’s (Deficit)/Shareholders’ Equity

 

 

(165,264

)

 

 

5,000

 

 

406,477

 

 

 

246,213

 

 

 

(145,784

)

 

 

100,429

 

Total Liabilities and Stockholder’s (Deficit) /Shareholders’ Equity

 

$

699,434

 

 

$

410,796

 

$

(382,300

)

 

$

727,930

 

 

$

(28,484

)

 

$

699,446

 

14

Pro Forma Adjustments to the Unaudited Combined Balance Sheet

(in thousands, except share data)

(A)    Derived from the unaudited consolidated balance sheet of Nesco as of March 31, 2019.

(B)    Derived from the unaudited consolidated balance sheet of Capitol as of March 31, 2019.

(1)    Reflects the release of cash from marketable securities held in the trust account.

(2)    Reflects the repayment of convertible promissory notes due to related parties.

(3)    Reflects the new debt financing from entering into the $350.0 million revolving credit facility and the issuance of $400.0 million notes in connection with the Transactions. In Scenario 1, which assumes no Capitol shareholders exercise their redemption rights, the Transaction contemplates $807.3 million in uses of funds including: (a) the repayment of $525.0 million senior secured second lien notes, $215.0 million revolving credit facility and $25.0 million tranche B revolving credit facility, (b) $20.5 million of debt financing fees and expenses, (c) $0.8 million of promissory notes to related parties and (d) $21.0 million in deferred underwriting fees and other transaction fees and expenses. In Scenario 1, the sources of funds in the Transaction are: (a) $410.0 million of cash held in Capitol’s trust account, (b) $400.0 million from the issuance of new notes in connection with the Transaction, (c) $0.8 million of cash held on Capitol’s balance sheet, and (d) $25.0 million from the issuance of 2.5 million shares of common stock at $10.00 per share to Nesco Owner. An amount of $28.5 million is added to cash on the balance sheet.

In Scenario 2, which assumes the maximum number of shares are redeemed for cash by Capitol shareholders, $145.8 million would be paid out in cash to redeeming shareholders. As a result, in Scenario 2, the Transaction contemplates $953.1 million in uses of funds including: (a) the payment of $145.8 million in cash to redeeming shareholders, (b) the repayment of $525.0 million senior secured second lien notes, $215.0 million revolving credit facility and $25.0 million tranche B revolving credit facility, (c) $20.5 million of debt financing fees and expenses, (d) $0.8 million of promissory notes to related parties and (e) $21.0 million in deferred underwriting fees and other expenses. In Scenario 2, the sources of funds in the Transaction are: (a) $410.0 million of cash held in Capitol’s trust account, (b) $400.0 million from the issuance of senior secured second lien notes in connection with the Transaction, (c) $0.8 million of cash held on Capitol’s balance sheet, (d) $25.0 million from the issuance of 2.5 million shares of common stock at $10.00 per share to Nesco Owner, and (e) a draw on the new revolving credit facility for the remaining amount required of $117.3 million.

(4)    Reflects the repayment of prior existing long-term debt and corresponding amortization of the related remaining deferred financing costs in connection with the Transactions. The amortization of the deferred financing costs is reflected as an adjustment to accumulated deficit and is not shown as an adjustment to the statement of operations since it is a nonrecurring charge resulting directly from the Transaction. With respect to income taxes, this adjustment will change the amount of Nesco’s income tax loss carryforwards; however, the tax effect of this adjustment has not been reflected as the associated deferred tax asset is offset by a valuation allowance.

(5)    Reflects the underwriting fees and expenses associated with the debt transactions in footnote 3. These fees and expenses include the asset based revolving credit facility underwriting fee, bridge commitment fee and notes underwriting fee of $17.5 million. In addition, this adjustment reflects financing transaction related legal and advisory expenses of $3.0 million. This adjustment is not reflected in the statement of operations since it is a nonrecurring charge resulting directly from the transaction. With respect to income taxes, this adjustment will change the amount of Nesco’s income tax loss carryforwards; however, the tax effect of this adjustment has not been reflected as the associated deferred tax asset is offset by a valuation allowance.

(6)    Reflects the payment of fees and expenses related to the Transactions, including the deferred underwriting fee, legal, financial advisory, accounting and other professional fees. The direct, incremental costs of the Transactions related to the legal, financial advisory, accounting and other professional fees of up to approximately $4.4 million is reflected as an adjustment to accumulated deficit and is not shown as an adjustment to the statement of operations since it is a nonrecurring charge resulting directly from the Transaction. With respect to income taxes, this adjustment will change the amount of Nesco’s income tax loss carryforwards; however, the tax effect of this adjustment has not been reflected as the associated deferred tax asset is offset by a valuation allowance.

15

(7)    In Scenario 1, which assumes no Capitol shareholders exercise their redemption rights, all Class A ordinary shares previously subject to redemption for cash amounting to $390.8 million would be transferred to permanent equity, with an adjustment recorded to par value and additional paid in capital. In Scenario 2, which assumes the same facts as described in Items 1 through 6 above, but also assumes the maximum number of Class A ordinary shares are redeemed for cash by Capitol shareholders, $145.8 million would be paid out in cash. The $145.8 million, which is the amount required to redeem 14,310,769 Class A ordinary shares, represents the maximum redemption amount to leave a minimum of $265.0 million of cash from Capitol, including the cash to be released from Capitol’s trust account, after giving effect to payments to redeeming shareholders based on a consummation of the Transactions on March 31, 2019. In both Scenario 1 and Scenario 2, the redeemable Class A ordinary shares which are transferred to permanent equity but are not redeemed will automatically convert into common stock in the Transactions.

(8)    Reflects recapitalization of Nesco through (a) the contribution of all the share capital in Nesco to Capitol, (b) the issuance of the merger consideration of 21,660,638 shares of common stock, with an adjustment recorded to par value and additional paid in capital, (c) the issuance of 2,500,000 shares of common stock to Nesco Owner for $25.0 million or $10.00 per share, with an adjustment recorded to par value and additional paid in capital, and (d) the elimination of the historical retained earnings of Capitol, the accounting acquiree.

(9)    Reflects the conversion of 7,714,299 Class B ordinary shares into Class A ordinary shares, on a one-for-one basis, at the consummation of the Transactions, with an adjustment recorded to par value and additional paid in capital. The Class A ordinary shares automatically convert into common stock in the Transactions.

16

PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2019
(UNAUDITED)
(in thousands, except share and per share data)

         

Scenario 1
Assuming No
Redemptions into Cash

 

Scenario 2
Assuming Maximum
Redemptions into Cash

   

(A)
Nesco

 

(B)
Capitol

 

Pro Forma Adjustments

 

Pro Forma Income Statement

 

Pro Forma Adjustments

 

Pro Forma Income Statement

Total revenue

 

$

61,492

 

 

$

 

 

$

 

 

$

61,492

 

 

$

 

 

$

61,492

 

Cost of revenue

 

 

41,140

 

 

 

 

 

 

 

 

 

41,140

 

 

 

 

 

 

41,140

 

Gross profit

 

 

20,352

 

 

 

 

 

 

 

 

 

20,352

 

 

 

 

 

 

20,352

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction expenses

 

 

2,510

 

 

 

 

 

 

(2,510

)(1)

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

8,232

 

 

 

536

 

 

 

(50

)(1)

 

 

8,718

 

 

 

 

 

 

8,718

 

Amortization expense

 

 

724

 

 

 

 

 

 

 

 

 

724

 

 

 

 

 

 

724

 

Non-rental depreciation

 

 

46

 

 

 

 

 

 

 

 

 

46

 

 

 

 

 

 

46

 

Other operating expenses

 

 

150

 

 

 

 

 

 

 

 

 

150

 

 

 

 

 

 

150