NRCG NRC Group Holdings Corp

NRC Group Holdings Corp. (“NRCG”) is making the following supplemental disclosures (this “Proxy Supplement”) to the definitive proxy statement on Schedule 14A (the “Proxy Statement”) filed with the U.S. Securities and Exchange Commission by NRCG on September 19, 2019, to provide additional information relating to the Agreement and Plan of Merger, dated as of June 23, 2019 (the “Merger Agreement”), by and among US Ecology, Inc. (“US Ecology”), US Ecology Parent, Inc., a wholly-owned subsidiary of US Ecology (“Holdco”), Rooster Merger Sub, Inc., a wholly-owned subsidiary of Holdco (“Rooster Merger Sub”), ECOL Merger Sub, Inc., a wholly-owned subsidiary of Holdco (“ECOL Merger Sub”), and NRCG. Subject to the terms and conditions of the Merger Agreement, ECOL Merger Sub will merge with and into US Ecology, with US Ecology as the surviving entity and continuing as a wholly-owned subsidiary of Holdco (the “ECOL Merger”) and, simultaneously therewith, Rooster Merger Sub will merge with and into NRCG, with NRCG as the surviving entity and continuing as a wholly-owned subsidiary of Holdco (the “NRCG Merger,” and together with the ECOL Merger, the “Mergers”).

On October 1, 2019, following the filing of the Proxy Statement, a purported stockholder of NRCG filed a complaint in the United States District Court for the Southern District of New York, captioned Mehta v. NRC Group Holdings Corp., et al., Case No. 1:19-cv-09091 (the “Complaint”). The Complaint generally alleges that NRCG and its directors violated the federal securities laws by omitting material information from the Proxy Statement, and seeks, among other things, to enjoin the special meeting of the common stockholders  of NRCG to vote on the Merger Agreement and to enjoin the Mergers.

NRCG and its directors believe the Complaint’s allegations lack any merit and that the Proxy Statement fully complies with applicable law. However, solely to avoid the expense and distraction of litigation, NRCG has determined to voluntarily supplement the Proxy Statement with this Proxy Supplement. The disclosures set forth below should be read in conjunction with the Proxy Statement, which NRCG urges you to read in its entirety. To the extent that information set forth below differs from information contained in the Proxy Statement, the information set forth below supersedes such information contained in the Proxy Statement. These supplemental disclosures to the Proxy Statement shall not be deemed an admission that they are material or required under the federal securities laws, any applicable state fiduciary law or any other applicable rule, statue, regulation or law. To the contrary, NRCG and its directors specifically deny that the information in this Proxy Supplement, or any other additional information, is or was required.

Except as otherwise set forth below, the information set forth in the Proxy Statement remains unchanged, and defined terms used in the supplemental disclosures below but not otherwise defined in this Proxy Supplement have the meanings ascribed to such terms in the Proxy Statement.

As previously disclosed in the Proxy Statement, a special meeting is being held on October 22, 2019, at 9:00 a.m., Central time, at 717 Texas, Suite 3300, Houston, Texas 77002, for the purpose of considering and voting upon, among other things, the Merger Agreement.

NRCG’s board of directors recommends that NRCG’s common stockholders vote “FOR” the adoption of the Merger Agreement and “FOR” the other proposal being considered at the special meeting.

SUPPLEMENT TO PROXY STATEMENT

“On March 21, 2019, NRCG and US Ecology executed a confidentiality agreement, providing for the confidential treatment of information of NRCG provided to US Ecology in connection with the parties’ exploration of a potential strategic transaction. On March 25, 2019, NRCG and US Ecology executed a confidentiality agreement, providing for the confidential treatment of information of US Ecology provided to NRCG in connection with the parties’ exploration of a potential strategic transaction. Following the execution of these confidentiality agreements and through the signing of the Merger Agreement, each of NRCG and US Ecology and their respective advisors, and, with respect to US Ecology, its financing sources, conducted due diligence on the other party. The confidentiality agreements entered into by NRCG and US Ecology each included customary standstill provisions. The confidentiality agreements however, did not prohibit NRCG or US Ecology from making any private proposal or otherwise asking the board of the other party to waive the standstill. In addition, the standstill obligations of each of NRCG and US Ecology automatically terminated upon any change in control acquisition announced by the other.”

“Over the course of the next two weeks, as directed by the NRCG Board, Messrs. Baumgardner, Shor and Harman and certain officers of NRCG continued to engage in discussions with representatives of US Ecology regarding a potential strategic transaction.

In addition, Messrs. Baumgardner, Shor and Harman approached and interviewed potential financial advisors with expertise both with the industry in which NRCG operates and transactions of the nature potentially contemplated by NRCG. As a result of that process, Messrs. Baumgardner, Shor and Harman determined to engage Evercore to serve as financial advisor to NRCG in respect of the potential strategic transaction.”

“On April 23, 2019, the NRCG Board held a special telephonic meeting to discuss the US Ecology IOI. Mr. Shor reviewed the principal terms of the proposal, noting that the proposal reflected a premium to the then current trading price of NRCG Common Stock of 30.5%. Following discussion of the proposal, Mr. Baumgardner reminded the NRCG Board that he previously served in numerous senior management roles at US Ecology, including serving as president, chief executive officer, chief operating officer, chief financial officer and a member of the board of directors, until his departure in 2012. Mr. Baumgardner indicated that he no longer had any direct or indirect interests, economic or otherwise, in US Ecology and that he had not had any economic interests in US Ecology for a number of years. The NRCG Board was aware of Mr. Baumgardner’s prior relationship with US Ecology prior to this meeting as such prior relationship had been discussed with the NRCG Board and disclosed in NRCG’s public filings since Mr. Baumgardner first joined the NRCG Board in October of 2018. After deliberations, representatives of Jones Day provided an overview of the fiduciary duties of the NRCG Board and other relevant considerations in evaluating a potential strategic transaction with US Ecology.

After deliberations, the NRCG Board determined to continue to explore a potential strategic transaction with US Ecology, including to (1) engage in confirmatory due diligence of US Ecology, since the consideration proposed by US Ecology was proposed to comprised solely of shares of ECOL Common Stock and (2) continue to provide information to US Ecology and its representatives, including access to NRCG management, so that US Ecology could perform its confirmatory due diligence. In addition, in order to facilitate the evaluation and negotiation of a potential strategic transaction with US Ecology, the NRCG Board unanimously resolved to create a transaction committee of the NRCG Board (the “Transaction Committee”), to be comprised of Messrs. Baumgardner, Shor and Harman. Such individuals were appointed because of their knowledge of the operations of NRCG and the industry in which it operates, as well as their extensive experience in negotiating strategic transactions. The NRCG Board also considered Mr. Baumgardner’s previous relationship with US Ecology and determined that such prior relationship could potentially benefit the Transaction Committee in negotiations with US Ecology. The NRCG Board also appointed Mr. Shor as chairman of the Transaction Committee. The NRCG Board also resolved to formally engage Jones Day as outside legal counsel in connection with the potential transaction. From its formation on April 23, 2019 through the date on which the Merger Agreement was executed, the Transaction Committee led the evaluation and negotiation on behalf of NRCG for the proposed transaction with US Ecology.”

“On May 30, 2019, the NRCG Board held a regularly scheduled in-person meeting following NRCG’s annual stockholders’ meeting. At that meeting, the NRCG Board reviewed NRCG’s operations and financial performance. Also at that meeting, Mr. Shor provided an update on the status of due diligence related to the potential strategic transaction with US Ecology, noting that the parties had conducted in-person meetings in mid-May. Mr. Shor also informed the NRCG Board that the Transaction Committee expected to receive an updated proposal, as well as a draft merger agreement, from US Ecology the following week. The NRCG Board also discussed other hypothetical opportunities available to NRCG, including growth through potential acquisitions that NRCG was not currently pursuing but could decide to pursue at a later time. Later that day, following the NRCG Board meeting, Mr. Shor called a representative of Houlihan to provide an update.”

“On June 2, 2019, in accordance with US Ecology’s directives, representatives of BofA Merrill Lynch informed representatives of Evercore that US Ecology did not intend to increase its current proposed per share purchase price which, in light of US Ecology’s due diligence on NRCG’s capital structure, US Ecology still believed represented an increased enterprise value compared to the US Ecology IOI and that, as such, its proposal was to acquire all of the outstanding equity of NRCG based on an implied value of $11.05 per share of NRCG Common Stock at a fixed exchange ratio based on such price per share of NRCG Common Stock and the volume weighted average price of ECOL Common Stock from the date of the US Ecology IOI until the date on which the definitive merger agreement was signed. The proposed purchase price represented a premium of approximately 32.0% to the $8.37 closing price of NRCG Common Stock on May 31, 2019, the last trading day prior to such conversation. Later that evening, US Ecology’s position was confirmed by representatives of Houlihan and Mr. Shor. In that conversation, Mr. Shor stated that NRCG was not prepared to further engage in a potential strategic transaction at that valuation. Mr. Shor did not propose or suggest an alternative valuation.”

“On June 4, 2019, Mr. Harman received an unsolicited email communication from a former NRCG executive who had been contacted by a representative of Company A inquiring whether the JFL Entities would be interested in selling its interests in NRCG. The proposal set forth in the email communication from Company A was not for all of the outstanding equity interests in NRCG but limited to only the shares of NRCG Common Stock held by the JFL Entities. At the time of the inquiry from Company A, the JFL Entities were the registered holders of approximately 66% of the outstanding NRCG Common Stock.”

“Also on June 4, 2019, Mr. Harman and other representatives of the JFL Entities had a telephonic meeting with a representative of Company A regarding Company A’s proposal. In those discussions, Company A indicated that it was highly interested in pursuing an acquisition of NRCG and may be willing to acquire not only the shares of NRCG Common Stock held by the JFL Entities but, alternatively, all of the outstanding equity interests of NRCG. However, there was no discussion of the valuation of such shares.”

“On June 5, 2019, Mr. Shor met with a representative from Houlihan and informed him that a strategic third-party had expressed interest in acquiring interests in NRCG for cash, but that NRCG would be willing to reengage with US Ecology if US Ecology increased its proposed valuation to at least $12.00 per share of NRCG Common Stock. A $12.00 per share price valuation represented a premium of approximately 49.8% to the $8.01 closing price per share on the NYSE American of shares of NRCG Common Stock on that day.

In the morning of June 6, 2019, the Transaction Committee, together with certain officers of NRCG and representatives of Jones Day, held a telephonic meeting. At that meeting, the Transaction Committee noted that US Ecology had not been willing to increase its proposed valuation of NRCG and that the Transaction Committee did not believe US Ecology’s proposed valuation of $11.05 per share of NRCG Common Stock was adequate. Mr. Shor also informed the Transaction Committee that he had previously suggested to representatives from Houlihan that the proposed valuation needed to be at least $12.00 per share of NRCG Common Stock. Mr. Harman informed the Transaction Committee that the JFL Entities were willing to delay making any independent decision on a transaction with Company A until after the Transaction Committee had fully explored a potential strategic transaction with US Ecology. Mr. Harman also informed the Transaction Committee of the unsolicited proposal that the JFL Entities, in their capacity as a stockholder of NRCG, had received from Company A. After deliberation, the Transaction Committee resolved to inform US Ecology of the unsolicited proposal from Company A and reaffirm that the Transaction Committee would be willing to continue to explore a potential strategic transaction exclusively with US Ecology so long as US Ecology increased its proposed valuation to at least $12.00 per share of NRCG Common Stock.”

“Perpetuity Growth Rate Methodology. Using the perpetuity growth rate methodology, Evercore calculated terminal values for NRCG by applying perpetuity growth rates of 2.0% to 3.0%, which range was selected based on Evercore’s professional judgment and experience, to a terminal year estimate of the unlevered, after-tax free cash flows that NRCG was forecasted to generate based on the NRCG forecasts. The cash flows and terminal values in each case were then discounted to present value as of March 31, 2019 using discount rates ranging from 9.0% to 10.0%, which were based on an estimate of NRCG’s weighted average cost of capital and the mid-year cash flow discounting convention. In calculating implied enterprise values, Evercore included the present value of tax savings from NRCG’s estimated usage of net operating losses. Based on this range of implied enterprise values, NRCG’s estimated net debt (calculated as total debt less cash and cash equivalents) as of March 31, 2019, and the number of fully diluted shares of NRCG Common Stock (representing 51.872 million shares, based upon the midpoint of the implied equity value range and assuming conversion of each share of NRCG Series A Preferred Stock into NRCG Common Stock in accordance with their terms), in each case as provided by NRCG’s management, this analysis indicated a range of implied equity values per share of NRCG Common Stock of $12.84 to $16.91.”

“EBITDA Multiple Methodology. Using the EBITDA multiple methodology, Evercore calculated terminal values for NRCG by applying terminal multiples of 8.00x to 10.00x, which range was selected based on Evercore’s professional judgment and experience, to NRCG’s Adjusted EBITDA in fiscal year 2023 based on the NRCG forecasts. The cash flows and terminal values in each case were then discounted to present value as of March 31, 2019 using discount rates ranging from 9.0% to 10.0%, which were based on an estimate of NRCG’s weighted average cost of capital, and the mid-year cash flow discounting convention. In calculating implied enterprise values, Evercore included the present value of tax savings from NRCG’s estimated usage of net operating losses. Based on this range of implied enterprise values, NRCG’s estimated net debt (calculated as total debt less cash and cash equivalents) as of March 31, 2019, and the number of fully diluted shares of NRCG Common Stock (representing 54.376 million shares, based upon the midpoint of the implied equity value range and assuming conversion of each share of NRCG Series A Preferred Stock into NRCG Common Stock in accordance with their terms), in each case as provided by NRCG’s management, this analysis indicated a range of implied equity values per share of NRCG Common Stock of $15.35 to $19.83.”

“Perpetuity Growth Rate Methodology. Using the perpetuity growth rate methodology, Evercore calculated terminal values for US Ecology by applying perpetuity growth rates of 2.0% to 3.0%, which range was selected based on Evercore’s professional judgment and experience, to a terminal year estimate of the unlevered, after-tax free cash flows that US Ecology was forecasted to generate based on the US Ecology forecasts. The cash flows and terminal values in each case were then discounted to present value as of March 31, 2019 using discount rates ranging from 8.0% to 9.0%, which were based on an estimate of US Ecology’s weighted average cost of capital and the mid-year cash flow discounting convention. Based on this range of implied enterprise values, US Ecology’s estimated net debt (calculated as total debt less cash and cash equivalents) as of March 31, 2019, and the number of fully diluted shares of ECOL Common Stock (representing 22.259 million shares, based upon the midpoint of the implied equity value range), in each case as provided by US Ecology’s management and approved for Evercore’s use by NRCG, this analysis indicated a range of implied equity values per share of ECOL Common Stock of $53.63 to $78.00.”

“EBITDA Multiple Methodology. Using the EBITDA multiple methodology, Evercore calculated terminal values for US Ecology by applying terminal multiples of 9.0x to 12.0x, which range was selected based on Evercore’s professional judgment and experience, to US Ecology’s estimated Adjusted EBITDA in fiscal year 2023 based on the US Ecology forecasts. The cash flows and terminal values in each case were then discounted to present value as of March 31, 2019 using discount rates ranging from 8.0% to 9.0%, which were based on an estimate of US Ecology’s weighted average cost of capital and the mid-year cash flow discounting convention. Based on this range of implied enterprise values, US Ecology’s estimated net debt (calculated as total debt less cash and cash equivalents) as of March 31, 2019, and the number of fully diluted shares of ECOL Common Stock (representing 22.307 million shares, based upon the midpoint of the implied equity value range), in each case as provided by US Ecology’s management and approved for Evercore’s use by NRCG, this analysis indicated a range of implied equity values per share of ECOL Common Stock of $70.22 to $97.17.”

“Evercore reviewed financial information related to the following selected transactions involving publicly traded target companies in the environmental and facilities services and sanitation services industries announced since 2010 (the “selected transactions”). The selected transactions reviewed by Evercore, the month and year each was announced and the LTM EBITDA (as defined below) for each of the selected transactions, were as follows for the environmental and facilities services industry:”

“The selected transactions reviewed by Evercore, the month and year each was announced and the LTM EBITDA (as defined below) for each of the selected transactions, were as follows for the sanitation services industry:”

Note: Dollars in millions.

Note: Dollars in millions.

Note: Dollars in millions.

Note: Dollars in millions.

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FORWARD-LOOKING STATEMENTS

Statements in this communication that are not historical facts are forward-looking statements that reflect US Ecology’s and NRCG’s respective management’s current expectations, assumptions and estimates of future performance and economic conditions. These forward-looking statements are made in reliance on the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements relate to, among other things, future events or the future performance or operations of US Ecology and NRCG. All statements other than historical facts may be forward-looking statements; words such as “anticipate,” “believe,” “could,” “design,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “imply,” “intend,” “may”, “objective,” “opportunity,” “outlook,” “plan,” “position,” “potential,” “predict,” “project,” “prospective,” “pursue,” “seek,” “should,” “strategy,” “target,” “would,” “will” or other similar expressions that convey the uncertainty of future events or outcomes are used to identify forward-looking statements. Such forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the control of US Ecology or NRCG. Factors that could cause US Ecology’s or NRCG’s actual results to differ materially from those implied in the forward-looking statements include: (1) the risk that the conditions to the closing of the transaction are not satisfied, including the risk that required approvals for the transaction from governmental authorities or the stockholders of US Ecology or NRCG are not obtained; (2) the occurrence of any event, change or other circumstances that either could give rise to the right of one or both of US Ecology or NRCG to terminate the Merger Agreement; (3) litigation relating to the transaction; (4) uncertainties as to the timing of the consummation of the transaction and the ability of each party to consummate the transaction; (5) risks related to disruption of management time from ongoing business operations due to the proposed transaction; (6) unexpected costs, charges or expenses resulting from the transaction; (7) the ability of US Ecology and NRCG to retain and hire key personnel; (8) competitive responses to the proposed transaction and the impact of competitive services; (9) certain restrictions during the pendency of the Mergers that may impact US Ecology’s or NRCG’s ability to pursue certain business opportunities or strategic transaction; (10) the terms and availability of the indebtedness planned to be incurred in connection with the transaction to refinance NRCG’s existing indebtedness; (11) potential adverse changes to business relationships resulting from the announcement or completion of the transaction; (12) the combined companies’ ability to achieve the growth prospects and synergies expected from the transaction, as well as delays, challenges and expenses associated with integrating the combined companies’ existing businesses; and (13) legislative, regulatory and economic developments, including changing business conditions in the industries in which US Ecology and NRCG operate. These risks, as well as other risks associated with the proposed transaction, are more fully described in the joint proxy statement/prospectus that was filed with the Securities and Exchange Commission (“SEC”) by NRCG on September 19, 2019 in connection with the proposed transaction. Investors and potential investors are urged not to place undue reliance on forward-looking statements in this communication, which speak only as of this date. Neither US Ecology nor NRCG undertakes any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances. Nothing contained herein constitutes or will be deemed to constitute a forecast, projection or estimate of the future financial performance of US Ecology, NRCG, Holdco or the combined company, whether following the implementation of the proposed transaction or otherwise.

In addition, actual results are subject to other risks and uncertainties that relate more broadly to US Ecology’s and NRCG’s overall business, including those more fully described in US Ecology’s and NRCG’s filings with the SEC.

NO OFFER OR SOLICITATION

This communication relates to a proposed business combination involving US Ecology and NRCG. The information in this communication is for informational purposes only and is neither an offer to purchase, nor a solicitation of an offer to sell, subscribe for or buy any securities or the solicitation of any vote in any jurisdiction pursuant to the proposed transactions or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

ADDITIONAL INFORMATION AND WHERE TO FIND IT

In connection with the proposed transaction, Holdco has filed with the SEC a Registration Statement on Form S-4 that includes the Joint Proxy Statement of US Ecology and NRCG and a Prospectus of Holdco, as well as other relevant documents regarding the proposed transaction. INVESTORS AND SECURITY HOLDERS ARE ENCOURAGED TO READ THE REGISTRATION STATEMENT, INCLUDING THE JOINT PROXY STATEMENT/PROSPECTUS, REGARDING THE MERGER AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THESE DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION ABOUT THE TRANSACTION. A definitive Joint Proxy Statement/Prospectus has been mailed to stockholders of US Ecology and NRCG. A free copy of the Joint Proxy Statement/Prospectus, as well as other filings containing information about US Ecology and NRCG, may be obtained at the SEC’s website, www.sec.gov. You may obtain these documents, free of charge, by accessing US Ecology’s website at https://investors.usecology.com or by accessing NRCG’s website at ir.nrcg.com.

PARTICIPANTS IN THE SOLICITATION RELATING TO THE MERGERS

US Ecology, Holdco and NRCG and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from US Ecology stockholders and NRCG stockholders in respect of the proposed transaction. Information regarding US Ecology’s directors and executive officers is contained in US Ecology’s Annual Report on Form 10-K for the year ended December 31, 2018 and its Proxy Statement on Schedule 14A, dated April 11, 2019, which are filed with the SEC. Information regarding NRCG’s directors and executive officers is contained in NRCG’s Annual Report on Form 10-K for the year ended December 31, 2018 and its Proxy Statement on Schedule 14A, dated April 17, 2019, which are filed with the SEC. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction is included in the registration statement and joint proxy statement/prospectus and other relevant materials filed with the SEC. A free copy of these documents may be obtained as described in the preceding paragraph.