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businesses also depends on the respective management teams of those businesses because we intend to operate our businesses on a stand-alone |
basis, primarily relying on their existing management teams for day-to-day operations. Consequently, their operational success, as well |
as the success of any organic growth strategy, will be dependent on the continuing efforts of the management teams of our businesses. |
We will seek to provide these individuals with equity incentives and to have employment agreements with certain persons we have identified |
as key to their businesses. However, these measures may not prevent these individuals from leaving their employment. The loss of services |
of one or more of these individuals may materially adversely affect our financial condition, business and results of operations. We may experience difficulty as we evaluate, |
acquire and integrate businesses that we may acquire, which could result in drains on our resources, including the attention of our management, |
and disruptions of our on-going business. We acquire small businesses in various industries. |
Generally, because such businesses are privately held, we may experience difficulty in evaluating potential target businesses as much |
of the information concerning these businesses is not publicly available. Therefore, our estimates and assumptions used to evaluate the |
operations, management and market risks with respect to potential target businesses may be subject to various risks and uncertainties. |
Further, the time and costs associated with identifying and evaluating potential target businesses and their industries may cause a substantial |
drain on our resources and may divert our management team’s attention away from the operations of our businesses for significant |
periods of time. 41 In addition, we may have difficulty effectively |
integrating and managing acquisitions. The management or improvement of businesses we acquire may be hindered by a number of factors, |
including limitations in the standards, controls, procedures and policies implemented in connection with such acquisitions. Further, the |
management of an acquired business may involve a substantial reorganization of the business’ operations resulting in the loss of |
employees and customers or the disruption of our ongoing businesses. We may experience greater than expected costs or difficulties relating |
to an acquisition, in which case, we might not achieve the anticipated returns from any particular acquisition. We face competition for businesses that |
fit our acquisition strategy and, therefore, we may have to acquire targets at sub-optimal prices or, alternatively, forego certain acquisition |
opportunities. We have been formed to acquire and manage small |
businesses. In pursuing such acquisitions, we expect to face strong competition from a wide range of other potential purchasers. Although |
the pool of potential purchasers for such businesses is typically smaller than for larger businesses, those potential purchasers can be |
aggressive in their approach to acquiring such businesses. Furthermore, we expect that we may need to use third-party financing in order |
to fund some or all of these potential acquisitions, thereby increasing our acquisition costs. To the extent that other potential purchasers |
do not need to obtain third-party financing or are able to obtain such financing on more favorable terms, they may be in a position to |
be more aggressive with their acquisition proposals. As a result, in order to be competitive, our acquisition proposals may need to be |
aggressively priced, including at price levels that exceed what we originally determined to be fair or appropriate. Alternatively, we |
may determine that we cannot pursue on a cost-effective basis what would otherwise be an attractive acquisition opportunity. We may not be able to successfully fund |
acquisitions due to the unavailability of debt or equity financing on acceptable terms, which could impede the implementation of our acquisition |
strategy. In order to make acquisitions, we intend to raise |
capital primarily through debt financing, primarily at our operating company level, additional equity offerings, the sale of equity or |
assets of our businesses, offering equity in our company or our businesses to the sellers of target businesses or by undertaking a combination |
of any of the above. Because the timing and size of acquisitions cannot be readily predicted, we may need to be able to obtain funding |
on short notice to benefit fully from attractive acquisition opportunities. Such funding may not be available on acceptable terms. In |
addition, the level of our indebtedness may impact our ability to borrow at our company level. The sale of additional shares of any class |
of equity will also be subject to market conditions and investor demand for such shares at prices that may not be in the best interest |
of our shareholders. These risks may materially adversely affect our ability to pursue our acquisition strategy. We may change our management and acquisition |
strategies without the consent of our shareholders, which may result in a determination by us to pursue riskier business activities. We may change our strategy at any time without |
the consent of our shareholders, which may result in our acquiring businesses or assets that are different from, and possibly riskier |
than, the strategy described in this report. A change in our strategy may increase our exposure to interest rate and currency fluctuations, |
subject us to regulation under the Investment Company Act of 1940, as amended, which we refer to as the Investment Company Act, or subject |
us to other risks and uncertainties that affect our operations and profitability. If we are unable to generate sufficient |
cash flow from the anticipated dividends and interest payments that we expect to receive from our businesses, we may not be able to make |
distributions to our shareholders. Our primary business is the holding and managing |
of controlling interests our operating businesses. Therefore, we will be dependent upon the ability of our businesses to generate cash |
flows and, in turn, distribute cash to us in the form of interest and principal payments on indebtedness and distributions on equity to |
enable us, first, to satisfy our financial obligations and, second, to make distributions to our common shareholders. The ability of our |
businesses to make payments to us may also be subject to limitations under laws of the jurisdictions in which they are incorporated or |
organized. If, as a consequence of these various restrictions or otherwise, we are unable to generate sufficient cash flow from our businesses, |
we may not be able to declare, or may have to delay or cancel payment of, distributions to our common shareholders. In addition, the put price and profit |
allocation will be payment obligations and, as a result, will be senior in right to the payment of any distributions to our |
shareholders. Further, we are required to make a profit allocation to our manager upon satisfaction of applicable conditions to |
payment. See Item 1 “ Business—Our Manager—Our Manager as an Equity Holder ” for more information about |
our manager’s put right and profit allocation. 42 Our loans with third parties contain certain |
terms that could materially adversely affect our financial condition. We and our subsidiaries are parties to |
certain loans with third parties, which are secured by the assets of our subsidiaries. The loans agreements contain customary |
representations, warranties and affirmative and negative financial and other covenants. If an event of default were to occur under |
any of these loans, the lender thereto may pursue all remedies available to it, including declaring the obligations under its |
respective loan immediately due and payable, which could materially adversely affect our financial condition. See Item 7 |
“ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital |
Resources ” for further discussion regarding our borrowing activities. In the future, we may seek to enter into |
other credit facilities to help fund our acquisition capital and working capital needs. These credit facilities may expose us to additional |
risks associated with leverage and may inhibit our operating flexibility and reduce cash flow available for payment of distributions to |
our shareholders. We may seek to enter into other credit facilities |
with third-party lenders to help fund our acquisitions. Such credit facilities will likely require us to pay a commitment fee on the undrawn |
amount and will likely contain a number of affirmative and restrictive covenants. If we violate any such covenants, our lenders |
could accelerate the maturity of any debt outstanding and we may be prohibited from making any distributions to our shareholders. Such |
debt may be secured by our assets, including the stock we may own in businesses that we acquire and the rights we have under intercompany |
loan agreements that we may enter into with our businesses. Our ability to meet our debt service obligations may be affected by events |
beyond our control and will depend primarily upon cash produced by businesses that we currently manage and may acquire in the future and |
distributed or paid to us. Any failure to comply with the terms of our indebtedness may have a material adverse effect on our financial |
condition. In addition, we expect that such credit facilities |
will bear interest at floating rates which will generally change as interest rates change. We will bear the risk that the rates that we |
are charged by our lenders will increase faster than we can grow the cash flow from our businesses or businesses that we may acquire in |
the future, which could reduce profitability, materially adversely affect our ability to service our debt, cause us to breach covenants |
contained in our third-party credit facilities and reduce cash flow available for distribution. We may engage in a business transaction |
with one or more target businesses that have relationships with our executive officers, our directors, our manager, our manager’s |
employees or our manager’s operating partners, or any of their respective affiliates, which may create or present conflicts of interest. We may decide to engage in a business transaction |
with one or more target businesses with which our executive officers, our directors, our manager, our manager’s employees, our manager’s |
operating partners, or any of their respective affiliates, have a relationship, which may create or present conflicts of interest. Regardless |
of whether we obtain a fairness opinion from an independent investment banking firm with respect to such a transaction, conflicts of interest |
may still exist with respect to a particular acquisition and, as a result, the terms of the acquisition of a target business may not be |
as advantageous to our shareholders as it would have been absent any conflicts of interest. The operational objectives and business |
plans of our businesses may conflict with our operational and business objectives or with the plans and objective of another business |
we own and operate. Our businesses operate in different industries |
and face different risks and opportunities depending on market and economic conditions in their respective industries and regions. A business’ |
operational objectives and business plans may not be similar to our objectives and plans or the objectives and plans of another business |
that we own and operate. This could create competing demands for resources, such as management attention and funding needed for operations |
or acquisitions, in the future. If, in the future, we cease to control and |
operate our businesses or other businesses that we acquire in the future or engage in certain other activities, we may be deemed to be |
an investment company under the Investment Company Act. We have the ability to make investments in businesses |
that we will not operate or control. If we make significant investments in businesses that we do not operate or control, or that we cease |
to operate or control, or if we commence certain investment-related activities, we may be deemed to be an investment company under the |
Investment Company Act. Our decision to sell a business will be based upon financial, operating and other considerations rather than a |
plan to complete a sale of a business within any specific time frame. If we were deemed to be an investment company, we would either have |
to register as an investment company under the Investment Company Act, obtain exemptive relief from the SEC or modify our investments |
or organizational structure or our contract rights to fall outside the definition of an investment company. Registering as an investment |
company could, among other things, materially adversely affect our financial condition, business and results of operations, materially |
limit our ability to borrow funds or engage in other transactions involving leverage and require us to add directors who are independent |
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