Business Context and Reporting Period
This Form 8-K, dated July 11, 2019, reports on Capitol Investment Corp. IV (a Cayman Islands special purpose acquisition company), not Custom Truck One Source, Inc. The filing details an amendment to the previously disclosed Merger Agreement with NESCO Holdings, LP ("Nesco"). Upon closing, Capitol will domesticate as a Delaware corporation, rename itself "Nesco Holdings, Inc.," and merge with Nesco, making Nesco a wholly-owned subsidiary.
Key Financial Metrics and Transaction Terms
- Enterprise Value: Reduced by $50 million to approximately $1,037 million (assuming no redemptions).
- Consideration to Nesco Owner:
- Cash consideration of $75 million was eliminated.
- Replaced with 7,500,000 shares of common stock at $10.00 per share.
- Aggregate common stock consideration reduced by 3,303,597 shares to reflect the enterprise value reduction.
- Private Placement: Nesco Owner or affiliates will purchase 2,500,000 newly issued shares at $10.00 per share, providing $25 million in gross proceeds to Capitol.
- Transaction Fees: Fees to underwriters and financial advisors reduced by approximately $10 million.
- Liquidity Condition: Up to $10 million of the fee reduction is designated to help satisfy the closing condition requiring at least $265 million in cash available after redemptions.
Material Changes Versus Prior Agreement
The primary material change is the reduction of the initial enterprise value by $50 million. This adjustment resulted in:
- A shift from cash to stock consideration for Nesco Owner regarding the $75 million portion.
- An increase in earnout consideration for Nesco Owner by 1,651,798 shares.
- Additional share cancellations and lock-up provisions for the Sponsor (Capitol Acquisition Management IV LLC and affiliates).
- Revised board composition rights for Nesco Owner, allowing designation of up to four directors if ownership remains above 45%.
Guidance, Outlook, Risks, and Contingencies
Earnout Targets: Additional shares for Nesco Owner and potential forfeiture of Sponsor shares are contingent on the combined company's stock price exceeding $19.00 per share for 20 trading days within a consecutive 30-day period, or a sale transaction exceeding $19.00 per share, within seven years of closing.
Risks and Contingencies:
- The transaction is subject to shareholder approval and other closing conditions.
- Forward-looking statements regarding Nesco's ability to execute business plans and estimates of future revenues and profitability are included but carry no guarantee.
- Neither Capitol nor Nesco undertakes an obligation to update forward-looking statements except as required by law.
Important Facts for Investor Verification
- Verify the final cash balance available at closing to ensure the $265 million threshold is met after accounting for shareholder redemptions.
- Confirm the exact number of shares outstanding post-transaction, considering the 7,500,000 new shares to Nesco Owner, the 2,500,000 private placement shares, and the specific share cancellations by the Sponsor.
- Review the Proxy Statement/Prospectus for detailed information on the revised Stockholders' Agreement and board composition.
- Monitor the $19.00 per share earnout trigger price, which dictates the vesting of additional shares and the forfeiture risk for Sponsor shares.