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a material adverse effect on our financial condition. I (i) the management services agreement is terminated |
at any time other than as a result of our manager’s resignation, subject to (ii); or (ii) our manager resigns, our manager will |
have the right, but not the obligation, for one year from the date of termination or resignation, as the case may be, to cause us to purchase |
the allocation shares for the put price. The put price shall be equal to, as of any exercise date: (i) if we terminate the management |
services agreement, the sum of two separate, independently made calculations of the aggregate amount of the “base put price amount” |
as of such exercise date; or (ii) if our manager resigns, the average of two separate, independently made calculations of the aggregate |
amount of the “base put price amount” as of such exercise date. If our manager elects to cause us to purchase its allocation |
shares, we are obligated to do so and, until we have done so, our ability to conduct our business, including our ability to incur debt, |
to sell or otherwise dispose of our property or assets, to engage in certain mergers or consolidations, to acquire or purchase the property, |
assets or stock of, or beneficial interests in, another business, or to declare and pay distributions, would be restricted. These financial |
and operational obligations may have a material adverse effect on our financial condition, business and results of operations. See Item |
1 “ Business—Our Manager—Our Manager as an Equity Holder—Supplemental Put Provision ” for more information |
about our manager’s put right and our obligations relating thereto, as well as the definition and calculation of the base put price |
amount. If the management services agreement is |
terminated, we will need to change our name and cease our use of the term “1847”, which in turn could have a material adverse |
impact upon our business and results of operations as we would be required to expend funds to create and market a new name. Our manager controls our rights to the term “1847” |
as it is used in the name of our company. We and any businesses that we acquire must cease using the term “1847,” including |
any trademark based on the name of our company that may be licensed to them by our manager under the license provisions of our management |
services agreement, entirely in their businesses and operations within 180 days of our termination of the management services agreement. |
The sublicense provisions of the management services agreement would require our company and its businesses to change their names to remove |
any reference to the term “1847” or any reference to trademarks licensed to them by our manager. This also would require us |
to create and market a new name and expend funds to protect that name, which may have a material adverse effect on our business and results |
of operations. We have agreed to indemnify our manager |
under the management services agreement that may result in an indemnity payment that could have a material adverse impact upon our business |
and results of operations. The management services agreement provides that |
we will indemnify, reimburse, defend and hold harmless our manager, together with its employees, officers, members, managers, directors |
and agents, from and against all losses (including lost profits), costs, damages, injuries, taxes, penalties, interests, expenses, obligations, |
claims and liabilities of any kind arising out of the breach of any term or condition in the management services agreement or the performance |
of any services under such agreement except by reason of acts or omissions constituting fraud, willful misconduct or gross negligence. |
If our manager is forced to defend itself in any claims or actions arising out of the management services agreement for which we are obligated |
to provide indemnification, our payment of such indemnity could have a material adverse impact upon our business and results of operations. Our manager can resign on 120 days’ |
notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could |
materially adversely affect our financial condition, business and results of operations, as well as the market price of our shares. Our manager has the right, under the management |
services agreement, to resign at any time on 120 days written notice, whether we have found a replacement or not. If our manager resigns, |
we may not be able to contract with a new manager or hire internal management with similar expertise and ability to provide the same or |
equivalent services on acceptable terms within 120 days, or at all, in which case our operations are likely to experience a disruption, |
our financial condition, business and results of operations, as well as our ability to pay distributions are likely to be materially adversely |
affected and the market price of our shares may decline. In addition, the coordination of our internal management, acquisition activities |
and supervision of our business is likely to suffer if we are unable to identify and reach an agreement with a single institution or group |
of executives having the experience and expertise possessed by our manager and its affiliates. Even if we are able to retain comparable |
management, whether internal or external, the integration of such management and their lack of familiarity with our businesses may result |
in additional costs and time delays that could materially adversely affect our financial condition, business and results of operations |
as well as the market price of our shares. 66 The amount recorded for the allocation shares |
may be subject to substantial period-to-period changes, thereby significantly adversely impacting our results of operations. We will record the allocation shares at the redemption |
value at each balance sheet date by recording any change in fair value through our income statement as a dividend between net income and |
net income available to common shareholders. The redemption value of the allocation shares is largely related to the value of the profit |
allocation that our manager, as holder of the allocation shares, will receive. The redemption value of the allocation shares may fluctuate |
on a period-to-period basis based on the distributions we pay to our common shareholders, the earnings of our businesses and the price |
of our common shares, which fluctuation may be significant, and could cause a material adverse effect on our results of operations. See |
Item 1 “ Business—Our Manager—Our Manager as an Equity Holder ” for more information about the terms and |
calculation of the profit allocation and any payments under the supplemental put provisions of our operating agreement. We cannot determine the amount of management |
fee that will be paid to our manager over time with certainty, which management fee may be a significant cash obligation and may reduce |
the cash available for operations and distributions to our shareholders. Our manager’s management fee will be calculated |
by reference to our adjusted net assets, which will be impacted by the following facto ● the acquisition or disposition of businesses; ● organic growth, add-on acquisitions and dispositions by our businesses; and ● the performance of our businesses. We cannot predict these factors, which may cause |
significant fluctuations in our adjusted net assets and, in turn, impact the management fee we pay to our manager. Accordingly, we cannot |
determine the amount of management fee that will be paid to our manager over time with any certainty, which management fee may represent |
a significant cash obligation and may reduce the cash available for our operations and distributions to our shareholders. We must pay our manager the management fee |
regardless of our performance. Therefore, our manager may be induced to increase the amount of our assets rather than the performance |
of our businesses. Our manager is entitled to receive a management |
fee that is based on our adjusted net assets, as defined in the management services agreement, regardless of the performance of our businesses. |
In this respect, the calculation of the management fee is unrelated to our net income. As a result, the management fee may encourage our |
manager to increase the amount of our assets by, for example, recommending to our board of directors the acquisition of additional assets, |
rather than increase the performance of our businesses. In addition, payment of the management fee may reduce or eliminate the cash we |
have available for distributions to our shareholders. The management fee is based solely upon |
our adjusted net assets; therefore, if in a given year our performance declines, but our adjusted net assets remain the same or increase, |
the management fee we pay to our manager for such year will increase as a percentage of our net income and may reduce the cash available |
for distributions to our shareholders. The management fee we pay to our manager will |
be calculated solely by reference to our adjusted net assets. If in a given year our performance declines, but our adjusted net assets |
remain the same or increase, the management fee we pay to our manager for such year will increase as a percentage of our net income and |
may reduce the cash available for distributions to our shareholders. See Item 1 “ Business—Our Manager—Our Manager |
as a Service Provider—Management Fee ” for more information about the terms and calculation of the management fee. The amount of profit allocation to be paid |
to our manager could be substantial. However, we cannot determine the amount of profit allocation that will be paid over time or the put |
price with any certainty. We cannot determine the amount of profit allocation |
that will be paid over time or the put price with any certainty. Such determination would be dependent on, among other things, the number, |
type and size of the acquisitions and dispositions that we make in the future, the distributions we pay to our shareholders, the earnings |
of our businesses and the market value of common shares from time to time, factors that cannot be predicted with any certainty at this |
time. Such factors will have a significant impact on the amount of any profit allocation to be paid to our manager, especially if our |
share price significantly increases. See Item 1 “ Business—Our Manager—Our Manager as an Equity Holder—Manager’s |
Profit Allocation ” for more information about the calculation and payment of profit allocation. Any amounts paid in respect |
of the profit allocation are unrelated to the management fee earned for performance of services under the management services agreement. 67 The management fee and profit allocation |
to be paid to our manager may significantly reduce the amount of cash available for distributions to shareholders and for operations. Under the management services agreement, we will be obligated to pay |
a management fee to and, subject to certain conditions, reimburse the costs and out-of-pocket expenses of our manager incurred on our |
behalf in connection with the provision of services to us. Similarly, our businesses will be obligated to pay fees to and reimburse the |
costs and expenses of our manager pursuant to any offsetting management services agreements entered into between our manager and our businesses, |
or any transaction services agreements to which such businesses are a party. In addition, our manager, as holder of the allocation shares, |
will be entitled to receive a profit allocation upon satisfaction of applicable conditions to payment and may be entitled to receive the |
put price upon the occurrence of certain events. While we cannot quantify with any certainty the actual amount of any such payments in |
the future, we do expect that such amounts could be substantial. See Item 1 “ Business—Our Manager ” for more information |
about these payment obligations. The management fee, put price and profit allocation are payment obligations and, as a result, will be |
senior in right to the payment of any distributions to our shareholders. Likewise, the profit allocation may also significantly reduce |
the cash available for operations. Our manager’s influence on conducting |
our business and operations, including acquisitions, gives it the ability to increase its fees and compensation to our Chief Executive |
Officer, which may reduce the amount of cash available for distributions to our shareholders. Under the terms of the management services agreement, |
our manager is paid a management fee calculated as a percentage of our adjusted net assets for certain items and is unrelated to net income |
or any other performance base or measure. See Item 1 “ Business—Our Manager—Our Manager as a Service Provider—Management |
Fee ” for more information about the calculation of the management fee. Our manager, which Ellery W. Roberts, our Chief Executive |
Officer, controls, may advise us to consummate transactions, incur third-party debt or conduct our operations in a manner that may increase |
the amount of fees paid to our manager which, in turn, may result in higher compensation to Mr. Roberts because his compensation is paid |
by our manager from the management fee it receives from us. Fees paid by our company and our businesses |
pursuant to transaction services agreements do not offset fees payable under the management services agreement and will be in addition |
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