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a transaction services agreement will be in addition to the management fee payable by us pursuant to the management services agreement |
and will not offset the payment of such management fee. A transaction services agreement with any of our businesses may provide for the |
reimbursement of costs and expenses incurred by our manager in connection with the acquisition of such businesses. Transaction services agreements will be reviewed, |
authorized and approved by our board of directors on an annual basis. Reimbursement of Expenses We are responsible for paying costs and expenses |
relating to its business and operations. We agreed to reimburse our manager during the term of the management services agreement for all |
costs and expenses that are incurred by our manager or its affiliates on our behalf of, including any out-of-pocket costs and expenses |
incurred in connection with the performance of services under the management services agreement, and all costs and expenses the reimbursement |
of which are specifically approved by our board of directors. We will not be obligated or responsible for reimbursing |
or otherwise paying for any costs or expenses relating to our manager’s overhead or any other costs and expenses relating to our |
manager’s conduct of its business and operations. Also, we will not be obligated or responsible for reimbursing our manager for |
costs and expenses incurred by our manager in the identification, evaluation, management, performance of due diligence on, negotiation |
and oversight of potential acquisitions of new businesses for which we (or our manager on our behalf) fail to submit an indication of |
interest or letter of intent to pursue such acquisition, including costs and expenses relating to travel, marketing and attendance of |
industry events and retention of outside service providers relating thereto. In addition, we will not be obligated or responsible for |
reimbursing our manager for costs and expenses incurred by our manager in connection with the identification, evaluation, management, |
performance of due diligence on, negotiating and oversight of an acquisition by us if such acquisition is actually consummated and the |
business so acquired entered into a transaction services agreement with our manager providing for the reimbursement of such costs and |
expenses by such business. In this respect, the costs and expenses associated with the pursuit of add-on acquisitions may be reimbursed |
by any businesses so acquired pursuant to a transaction services agreement. All reimbursements will be reviewed and, in certain |
circumstances, approved by our board of directors on an annual basis in connection with the preparation of year-end financial statements. 17 Termination Fee We will pay our manager a termination fee upon |
termination of the management services agreement if such termination is based solely on a vote of our board of directors and our shareholders; |
no other termination fee will be payable to our manager in connection with the termination of the management services agreement for any |
other reason. The termination fee that is payable to our manager will be equal to the product of (i) two (2) multiplied by (ii) the sum |
of the amount of the quarterly management fees calculated with respect to the four fiscal quarters immediately preceding the termination |
date of the management services agreement. The termination fee will be payable in eight equal quarterly installments, with the first such |
installment being paid on or within five (5) business days of the last day of the fiscal quarter in which the management services agreement |
was terminated and each subsequent installment being paid on or within five (5) business days of the last day of each subsequent fiscal |
quarter, until such time as the termination fee is paid in full to our manager. Our Manager as an Equity Holder Manager’s Profit Allocation Our manager owns 100% of our allocation shares, |
which generally will entitle our manager to receive a 20% profit allocation as a form of preferred distribution. Upon the sale of a subsidiary, |
our manager will be paid a profit allocation if the sum of (i) the excess of the gain on the sale of such subsidiary over a high-water |
mark plus (ii) the subsidiary’s net income since its acquisition by us exceeds the 8% hurdle rate. The 8% hurdle rate is the product |
of (i) a 2% rate per quarter, multiplied by (ii) the number of quarters such subsidiary was held by us, multiplied by (iii) the subsidiary’s |
average share (determined based on gross assets, generally) of our consolidated net equity (determined according to GAAP with certain |
adjustments). In certain circumstances, after a subsidiary has been held for at least 5 years, our manager may also trigger a profit allocation |
with respect to such subsidiary (determined based solely on the subsidiary’s net income since its acquisition). The calculation |
of the profit allocation and the rights of our manager, as the holder of the allocation shares, are governed by the operating agreement. Our board will have the opportunity to review |
and approve the calculation of manager’s profit allocation when it becomes due and payable. Our manager will not receive a profit |
allocation on an annual basis. Instead, our manager will be paid a profit allocation only upon the occurrence of one of the following |
events, which we refer to collectively as the trigger events: ● the sale of a material amount, as determined by our manager and reasonably consented to by a majority |
of our board of directors, of the capital stock or assets of one of our subsidiaries or a subsidiary of one of our subsidiaries, including |
a distribution of our ownership of a subsidiary to our shareholders in a spin-off or similar transaction, which event we refer to as a |
sale event; or ● at the option of our manager, for the 30-day period following the fifth anniversary of the date upon which |
we acquired a controlling interest in a business, which event we refer to as a holding event. If our manager elects to forego declaring |
a holding event with respect to such business during such period, then our manager may only declare a holding event with respect to such |
business during the 30-day period following each anniversary of such fifth anniversary date with respect to such business. Once declared, |
our manager may only declare another holding event with respect to a business following the fifth anniversary of the calculation date |
with respect to a previously declared holding event. We believe this payment timing, rather than a |
method that provides for annual allocation payments, more accurately reflects the long-term performance of each of our businesses and |
is consistent with our intent to hold, manage and grow our businesses over the long term. We refer generally to the obligation to make |
this payment to our manager as the “profit allocation” and, specifically, to the amount of any particular profit allocation |
as the “manager’s profit allocation.” Definitions used in, and an example of the calculation |
of profit allocation, are set forth in more detail below. The amount of our manager’s profit allocation |
will be based on the extent to which the “total profit allocation amount” (as defined below) with respect to any business, |
as of the last day of any fiscal quarter in which a trigger event occurs, which date we refer to as the “calculation date”, |
exceeds the relevant hurdle amounts (as described below) with respect to such business, as of such calculation date. Our manager’s |
profit allocation will be calculated by an administrator, which will be our manager so long as the management services agreement is in |
effect, and such calculation will be subject to a review and approval process by our board of directors. For this purpose, “total |
profit allocation amount” will be equal to, with respect to any business as of any calculation date, the sum o ● the contribution-based profit (as described below) of such business as of such calculation date, which |
will be calculated upon the occurrence of any trigger event with respect to such business; plus ● the excess of our cumulative gains and losses (as described below) over the high-water mark (as described |
below) as of such calculation date, which will only be calculated upon the occurrence of a sale event with respect to such business, and |
not on a holding event (we generally expect this component to be the most significant component in calculating total profit allocation |
amount). 18 Specifically, manager’s profit allocation |
will be calculated and paid as follows: ● manager’s profit allocation will not be paid with respect to a trigger event relating to any business |
if the total profit allocation amount, as of any calculation date, with respect to such business does not exceed such business’ |
level 1 hurdle amount (based on an 8% annualized hurdle rate, as described below), as of such calculation date; and ● manager’s profit allocation will be paid with respect to a trigger event relating to any business |
if the total profit allocation amount, as of any calculation date, with respect to such business exceeds such business’ level 1 |
hurdle amount, as of such calculation date. Our manager’s profit allocation to be paid with respect to such calculation date will |
be equal to the sum of the followin o 100% of such business’ total profit allocation amount, as of such calculation date, with respect |
to that portion of the total profit allocation amount that exceeds such business’ level 1 hurdle amount (but is less than or equal |
to such business’ level 2 hurdle amount (which is based on a 10% annualized hurdle rate, as described below), in each case, as of |
such calculation date. We refer to this portion of the total profit allocation amount as the “catch-up.” The “catch-up” |
is intended to provide our manager with an overall profit allocation of 20% of the business’ total profit allocation amount until |
such business’ level 2 hurdle amount has been reached; plus o 20% of the total profit allocation amount, as of such calculation date, that exceeds such business’ |
level 2 hurdle amount as of such calculation date; minus o the high-water mark allocation, if any, as of such calculation date. The effect of deducting the high-water |
mark allocation is to take into account profit allocations our manager has already received in respect of past gains attributable to previous |
sale events. The administrator will calculate our manager’s |
profit allocation on or promptly following the relevant calculation date, subject to a “true-up” calculation upon availability |
of audited or unaudited consolidated financial statements, as the case may be, to the extent not available on such calculation date. Any |
adjustment necessitated by the true-up calculation will be made in connection with the next calculation of manager’s profit allocation. |
Because of the length of time that may pass between trigger events, there may be a significant delay in our ability to realize the benefit, |
if any, of a true-up of our manager’s profit allocation. Once calculated, the administrator will submit |
the calculation of our manager’s profit allocation, as adjusted pursuant to any true-up, to our board of directors for its review |
and approval. The board of directors will have ten business days to review and approve the calculation, which approval shall be automatic |
absent disapproval by the board of directors. Our manager’s profit allocation will be paid ten business days after such approval. If the board of directors disapproves of the administrator’s |
calculation of manager’s profit allocation, the calculation and payment of manager’s profit allocation will be subject to |
a dispute resolution process, which may result in our manager’s profit allocation being determined, at our cost and expense, by |
two independent accounting firms. Any determination by such independent accounting firms will be conclusive and binding on us and our |
manager. We will also pay a tax distribution to our manager |
if our manager is allocated taxable income by us but does not realize distributions from us at least equal to the taxes payable by our |
manager resulting from allocations of taxable income. Any such tax distributions will be paid in a similar manner as profit allocations |
are paid. For any fiscal quarter in which a trigger event |
occurs with respect to more than one business, the calculation of our manager’s profit allocation, including the components thereof, |
will be made with respect to each business in the order in which controlling interests in such businesses were acquired or obtained by |
us and the resulting amounts shall be aggregated to determine the total amount of manager’s profit allocation. If controlling interests |
in two or more businesses were acquired at the same time and such businesses give rise to a calculation of manager’s profit allocation |
during the same fiscal quarter, then manager’s profit allocation will be further calculated separately for each such business in |
the order in which such businesses were sold. 19 The profit allocations and tax distributions will |
be paid prior to the payment of distributions to our shareholders. If we do not have sufficient liquid assets to pay the profit allocations |
or tax distributions when due, we may be required to liquidate assets or incur debt in order to pay such profit allocation. Our manager |
will have the right to elect to defer the payment of our manager’s profit allocation due on any payment date. Once deferred, our |
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