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continue to manage our operations effectively and our business may fail. If |
we terminate the management services agreement with our manager, any fees, costs and expenses already earned or otherwise payable to |
our manager upon termination would become immediately due. Moreover, if our manager were to be removed and our management services agreement |
terminated by a vote of our board of directors and a majority of our common shares other than common shares beneficially owned by our |
manager, we would also owe a termination fee to our manager on top of the other fees, costs and expenses. In addition, the management |
services agreement is silent as to whether termination of our manager “for cause” would result in a termination fee; there |
is therefore a risk that the agreement may be interpreted to entitle our manager to a termination fee even if terminated “for cause”. |
The termination fee would equal twice 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. As a result, we could incur significant management |
fees as a result of the termination of our manager, which may increase the risk that our business may be unable to meet its financial |
obligations or otherwise fail. 76 Mr. |
Ellery W. Roberts, our Chairman and Chief Executive Officer, controls our manager. If some event were to occur to cause Mr. Roberts (or |
his designated successor, heirs, beneficiaries or permitted assigns) not to control our manager without the prior written consent of |
our board of directors, our manager would be considered terminated under our agreement. Our |
manager and the members of our management team may engage in activities that compete with us or our businesses. Although |
our Chief Executive Officer intends to devote substantially all of his time to the affairs of our company and our manager must present |
all opportunities that meet our acquisition and disposition criteria to our board of directors, neither our manager nor our Chief Executive |
Officer is expressly prohibited from investing in or managing other entities. In this regard, the management services agreement and the |
obligation to provide management services will not create a mutually exclusive relationship between our manager and its affiliates, on |
the one hand, and our company, on the other. See Item 1 “ Business—Our Manager ” for more information about our |
relationship with our manager and our management team. Our |
manager need not present an acquisition opportunity to us if our manager determines on its own that such acquisition opportunity does |
not meet our acquisition criteria. Our |
manager will review any acquisition opportunity to determine if it satisfies our acquisition criteria, as established by our board of |
directors from time to time. If our manager determines, in its sole discretion, that an opportunity fits our criteria, our manager will |
refer the opportunity to our board of directors for its authorization and approval prior to signing a letter of intent, indication of |
interest or similar document or agreement. Opportunities that our manager determines do not fit our criteria do not need to be presented |
to our board of directors for consideration. In addition, upon a determination by our board of directors not to promptly pursue an opportunity |
presented to it by our manager, in whole or in part, our manager will be unrestricted in its ability to pursue such opportunity, or any |
part that we do not promptly pursue, on its own or refer such opportunity to other entities, including its affiliates. If such an opportunity |
is ultimately profitable, we will have not participated in such opportunity. See Item 1 “ Business—Our Manager—Acquisition |
and Disposition Opportunities ” for more information about our current acquisition criteria. Our |
Chief Executive Officer, Mr. Ellery W. Roberts, controls our manager and, as a result we may have difficulty severing ties with Mr. Roberts. Under |
the terms of the management services agreement, our board of directors may, after due consultation with our manager, at any time request |
that our manager replace any individual seconded to us, and our manager will, as promptly as practicable, replace any such individual. |
However, because Mr. Roberts controls our manager, we may have difficulty completely severing ties with Mr. Roberts absent terminating |
the management services agreement and our relationship with our manager. Further, termination of the management services agreement could |
give rise to a significant financial obligation, which may have a material adverse effect on our business and financial condition. See |
Item 1 “ Business—Our Manager ” for more information about our relationship with our manager. If |
the management services agreement is terminated, our manager, as holder of the allocation shares, has the right to cause us to purchase |
its allocation shares, which may have 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. 77 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. 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. 78 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 |
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