ITEM
1A. RISK FACTORS
RISK
FACTORS
Stockholders should carefully consider
the following risk factors, together with all of the other information included in this Annual Report on Form 10-K. These risks
could have a material adverse effect on the business, results of operations or financial condition of the company and could adversely
affect the trading price of our common stock.
In this section, “Atlas”
refers to Atlas Intermediate prior to the business combination and to the company following the Business Combination.
Risks Relating to
Atlas’ Business and Industry
Atlas’ continued success is
dependent upon its ability to hire, retain and utilize qualified personnel.
The success of Atlas’ business is
dependent upon its ability to hire, retain and utilize qualified personnel, including engineers, architects, designers, craft personnel
and corporate management professionals who have the required experience and expertise at a reasonable cost. The market for these
and other personnel is competitive. From time to time, it may be difficult to attract and retain qualified individuals with the
expertise, and in the timeframe, demanded by Atlas’ clients, or to replace such personnel when needed in a timely manner.
In certain geographic areas, for example, Atlas may not be able to satisfy the demand for its services because of its inability
to successfully hire and retain qualified personnel. Furthermore, some of Atlas’ personnel hold government granted clearance
that may be required to obtain government projects. If Atlas was to lose some or all these personnel, they would be difficult to
replace. Loss of the services of, or failure to recruit, qualified technical and management personnel could limit Atlas’
ability to successfully complete existing projects and compete for new projects.
In addition, if any of Atlas’ key
personnel retire or otherwise leave the company, Atlas needs to have appropriate succession plans in place and to successfully
implement such plans, which requires devoting time and resources toward identifying and integrating new personnel into leadership
roles and other key positions. If Atlas cannot attract and retain qualified personnel or effectively implement appropriate succession
plans, it could have a material adverse impact on its business, financial condition and results of operations.
The cost of providing Atlas’ services,
including the extent to which Atlas utilizes its workforce, affects its profitability. For example, the uncertainty of contract
award timing can present difficulties in matching Atlas’ workforce size with its contracts. If an expected contract award
is delayed or not received, Atlas could incur costs resulting from excess staff, reductions in staff, or redundancy of facilities
that could have a material adverse impact on its business, financial condition and results of operations.
Atlas’
profitability could suffer if Atlas is not able to maintain adequate utilization of its workforce.
The cost of providing Atlas’ services,
including the extent to which Atlas utilizes its workforce, affects its profitability. The rate at which Atlas utilizes its workforce
is affected by several factors, including:
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its ability to transition employees from completed projects to new assignments and to hire and
assimilate new employees;
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its ability to forecast demand for its services and thereby maintain an appropriate headcount in
each of its geographies and workforces;
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its ability to manage attrition;
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its need to devote time and resources to training, business development, professional development,
and other non-chargeable activities; and
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its ability to match the skill sets of its employees to the needs of the marketplace.
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If Atlas over-utilizes its workforce, its employees may become disengaged, which will impact employee
attrition. If Atlas under-utilizes its workforce, its profit margin and profitability could suffer.
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If Atlas
is unable to integrate acquired businesses successfully, its business could be harmed.
As part of Atlas’ business strategy
to pursue accretive acquisitions, Atlas intends to selectively pursue targets that provide complementary, low-risk services and
expand its national platform. Atlas’ inability to successfully integrate future acquisitions could impede it from realizing
all of the benefits of those acquisitions and could weaken its business operations. The integration process of any particular acquisition
may disrupt Atlas’ business and, if implemented ineffectively, may preclude realization of the full benefits expected by
Atlas and could harm its results of operations. In addition, the overall integration process may result in unanticipated problems,
expenses, liabilities and competitive responses and may cause Atlas’ stock price to decline.
The difficulties of integrating acquisitions
include, among other things:
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unanticipated issues in integration of information, communications and other systems;
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unanticipated incompatibility of logistics, marketing and administration methods;
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maintaining employee morale and retaining key employees;
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integrating the business cultures of both companies;
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preserving important strategic client relationships;
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consolidating corporate and administrative infrastructures and eliminating duplicative operations;
and
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coordinating geographically separate organizations.
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In addition, even if the operations of
an acquisition are integrated successfully, Atlas may not realize the full benefits of such acquisition, including the synergies,
cost savings or growth opportunities that it expects. These benefits may not be achieved within the anticipated time frame, or
at all.
Further, acquisitions may also cause Atlas
to:
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cause its management to expend significant time, effort and resources;
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issue securities that would dilute its current stockholders;
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use a substantial portion of its cash resources;
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increase its interest expense, leverage and debt service requirements if it incurs additional debt
to pay for an acquisition;
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assume liabilities, including environmental liabilities, for which it does not have indemnification
from the former owners or have indemnification that may be subject to dispute or concerns regarding the creditworthiness of the
former owners;
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record goodwill and non-amortizable intangible assets that are subject to impairment testing on
a regular basis and potential impairment charges;
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experience volatility in earnings due to changes in contingent consideration related to acquisition
liability estimates;
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incur amortization expenses related to certain intangible assets;
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lose existing or potential contracts as a result of conflict of interest issues;
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incur large and immediate write-offs; or
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become subject to litigation.
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Construction
and maintenance sites are inherently dangerous workplaces. If Atlas, the owner, or others working at the project site fail to maintain
safe work sites, Atlas can be exposed to significant financial losses and reputational harm, as well as civil and criminal liabilities.
Construction and maintenance sites often
put Atlas’ employees and others in proximity with large pieces of mechanized equipment, moving vehicles, chemical and manufacturing
processes, and highly regulated materials, in a challenging environment. If Atlas fails to implement safety procedures or if the
procedures it implements are ineffective, or if others working at the site fail to implement and follow appropriate safety procedures,
its employees and others may become injured, disabled or even lose their lives, the completion or commencement of its projects
may be delayed, and Atlas may be exposed to litigation or investigations. Unsafe work sites also have the potential to increase
employee turnover, increase the cost of a project to Atlas’ clients, and raise its operating and insurance costs. Any of
the foregoing could result in financial losses or reputational harm, which could have a material adverse impact on Atlas’
business, financial condition and results of operations.
In addition, Atlas’ projects can
involve the handling of hazardous and other highly regulated materials, which, if improperly handled or disposed of, could subject
Atlas to civil and/or criminal liabilities. Atlas is also subject to regulations dealing with occupational health and safety. Although
Atlas maintains functional groups whose primary purpose is to ensure it implements effective health, safety and environmental (“HSE”)
work procedures throughout its organization, including construction sites and maintenance sites, the failure to comply with such
regulations could subject it to liability. In addition, despite the work of Atlas’ functional groups, Atlas cannot guarantee
the safety of its personnel or that there will be no damage to or loss of its work, equipment or supplies.
Atlas’ safety record is critical
to its reputation. Many of Atlas’ clients require that Atlas meets certain safety criteria to be eligible to bid for contracts
and many contracts provide for automatic termination or forfeiture of some or all Atlas’ contract fees or profit in the event
Atlas fails to meet certain measures. Accordingly, if it fails to maintain adequate safety standards, Atlas could suffer reduced
profitability or the loss of projects or clients, which could have a material adverse impact on its business, financial condition
and results of operations.
Demand from
clients is cyclical and vulnerable to economic downturns. If the economy weakens or client spending declines, Atlas’ financial
results may be impacted.
Demand for services from Atlas’ clients
is cyclical and vulnerable to economic downturns, which may result in clients delaying, curtailing or canceling proposed and existing
projects. Atlas’ business traditionally lags the overall recovery in the economy. If the economy weakens or client spending
declines, then Atlas’ revenue, profits and overall financial condition may deteriorate.
In addition, if there is an economic downturn,
Atlas’ existing and potential clients may either postpone entering into new contracts or request price concessions. Difficult
financing and economic conditions may cause some of Atlas’ clients to demand better pricing terms or delay payments for services
Atlas performs, thereby increasing the average number of days Atlas’ receivables are outstanding and the potential of increased
credit losses on uncollectible invoices. Further, these conditions may result in the inability of some of Atlas’ clients
to pay Atlas for services that it has already performed. Accordingly, these factors affect Atlas’ ability to forecast its
future revenue and earnings from business areas that may be adversely impacted by market conditions.
Atlas’
results of operations depend on the award of new contracts and the timing of the performance of these contracts.
Atlas’ revenues are derived from
new contract awards. Delays in the timing of the awards or cancellations of such prospects as a result of economic conditions,
material and equipment pricing and availability or other factors could impact Atlas’ long-term projected results. It is particularly
difficult to predict whether or when Atlas will receive large-scale projects as these contracts frequently involve a lengthy and
complex bidding and selection process, which is affected by several factors, such as market conditions or governmental and environmental
approvals. Since a significant portion of Atlas’ revenues is generated from such projects, its results of operations and
cash flows can fluctuate significantly from quarter to quarter depending on the timing of Atlas’ contract awards and the
commencement or progress of work under awarded contracts. Furthermore, many of these contracts are subject to financing contingencies
and, as a result, Atlas is subject to the risk that the customer will not be able to secure the necessary financing for the project.
In addition, many contracts require Atlas
to satisfy specific progress or performance milestones in order to receive payment from the customer. As a result, Atlas may incur
significant costs for engineering, materials, components, equipment, labor or subcontractors prior to receipt of payment from a
customer.
The uncertainty of contract award timing
can also present difficulties in matching workforce size with contract needs. In some cases, Atlas maintains and bears the cost
of a ready workforce that is larger than necessary under existing contracts in anticipation of future workforce needs for expected
contract awards. If an expected contract award is delayed or not received, Atlas may incur additional costs resulting from reductions
in staff or redundancy of facilities, which could have a material adverse effect on its business, financial condition and results
of operations.
The contracts
in Atlas’ backlog may be adjusted, cancelled or suspended by its clients and, therefore, Atlas’ backlog is not necessarily
indicative of its future revenues or earnings. Additionally, even if fully performed, Atlas’ backlog is not a good indicator
of its future gross margins.
Backlog represents the total dollar amount
of revenues Atlas expects to record in the future as a result of performing work under contracts that have been awarded to it.
As of December 31, 2019, Atlas’ backlog totaled approximately $611 million. There is no assurance that backlog will be realized
as revenues in the amounts reported or, if realized, will result in profits. In accordance with industry practice, substantially
all Atlas’ contracts are subject to cancellation, termination, or suspension at the discretion of the client. In the event
of a project cancellation, Atlas would generally have no contractual right to the total revenue reflected in its backlog. Projects
can remain in backlog for extended periods of time because of the nature of the project and the timing of the services required
by the project. The risk of contracts in backlog being cancelled or suspended generally increases during periods of widespread
economic slowdowns or in response to changes in commodity prices.
The contracts in Atlas’ backlog are
subject to changes in the scope of services to be provided as well as adjustments to the costs relating to the contracts. The revenue
for certain contracts included in backlog is based on estimates. Additionally, the way Atlas performs on its individual contracts
can affect greatly its gross margins and hence, future profitability.
Atlas’
services expose Atlas to significant risks of liability, and its insurance policies may not provide adequate coverage.
If Atlas fails to provide its services
in accordance with applicable professional standards or contractual requirements, Atlas could be exposed to significant monetary
damages or even criminal violations. Atlas’ engineering practice, for example, involves professional judgments regarding
the planning, design, development, construction, operations and management of industrial facilities and public infrastructure projects.
While Atlas does not generally accept liability for consequential damages in its contracts, and although it has adopted a range
of insurance, risk management and risk avoidance programs designed to reduce potential liabilities, a catastrophic event at one
of Atlas’ project sites or completed projects resulting from the services Atlas has performed could result in significant
professional or product liability, and warranty or other claims against it as well as reputational harm, especially if public safety
is impacted. These liabilities could exceed Atlas’ insurance limits or the fees Atlas generates, may not be covered by insurance
at all due to various exclusions in its coverage and self-insured retention amounts, and could impact Atlas’ ability to obtain
insurance in the future. Further, even where coverage applies, the policies have deductibles, which result in Atlas’ assumption
of exposure for certain amounts with respect to any claim filed against Atlas. In addition, clients or subcontractors who have
agreed to indemnify Atlas against any such liabilities or losses might refuse or be unable to pay it. An uninsured claim, either
in part or in whole, as well as any claim covered by insurance but subject to a high deductible, if successful and of a material
magnitude, could have a material adverse impact on Atlas’ business, financial condition and results of operations.
Unavailability
or cancellation of third-party insurance coverage would increase Atlas’ overall risk exposure as well as disrupt the management
of its business operations.
Atlas maintains insurance coverage from
third-party insurers as part of its overall risk management strategy and some of its contracts require Atlas to maintain specific
insurance coverage limits. If any of Atlas’ third-party insurers fail, suddenly cancel coverage, or otherwise are unable
to provide Atlas with adequate insurance coverage, its overall risk exposure and operational expenses would increase and the management
of Atlas’ business operations would be disrupted. In addition, there can be no assurance that any of Atlas’ existing
insurance coverage will be renewable upon the expiration of the coverage period or that future coverage will be affordable at the
required limits.
Atlas engages
in a highly competitive business. If Atlas is unable to compete effectively, it could lose market share and its business and results
of operations could be negatively impacted.
Atlas faces intense competition to provide
technical, professional and construction services to clients. The markets Atlas serves are highly competitive and it competes against
many regional, national and multinational companies.
The extent of Atlas’ competition
varies by industry, geographic area and project type. Atlas’ projects are frequently awarded through a competitive bidding
process, which is standard in its industry. Atlas is constantly competing for project awards based on pricing, schedule and the
breadth and technical sophistication of its services. Competition can place downward pressure on Atlas’ contract prices and
profit margins, and may force Atlas to accept contractual terms and conditions that are less favorable to it, thereby increasing
the risk that, among other things, it may not realize profit margins at the same rates as it has seen in the past or may become
responsible for costs or other liabilities it has not accepted in the past. If Atlas is unable to compete effectively, it may experience
a loss of market share or reduced profitability or both, which, if significant, could have a material adverse impact on Atlas’
business, financial condition and results of operations.
The nature
of Atlas’ contracts, particularly those that are fixed price, subject Atlas to risks of cost overruns. Atlas may experience
reduced profits or, in some cases, losses if costs increase above budgets or estimates or if the project experiences schedule delays.
As of December 31, 2019, approximately
5% of Atlas’ revenues were earned under fixed price contracts. Fixed price contracts require Atlas to estimate the total
cost of the project in advance of its performance. For fixed price contracts, Atlas may benefit from any cost savings, but it bears
greater risk of paying some, if not all, of any cost overruns. Fixed price contracts are established in part on partial or incomplete
designs, cost and scheduling estimates that are based on several assumptions, including those about future economic conditions,
commodity and other materials pricing and availability of labor, equipment and materials, and other exigencies. If the design or
the estimates prove inaccurate or if circumstances change due to, among other things, unanticipated technical problems, difficulties
in obtaining permits or approvals, changes in local laws or labor conditions, weather or other delays beyond Atlas’ control,
changes in the costs of equipment or raw materials, Atlas’ vendors’ or subcontractors’ inability or failure to
perform, or changes in general economic conditions, then cost overruns may occur and Atlas could experience reduced profits or,
in some cases, a loss for that project. These risks are exacerbated for projects with long-term durations because there is an increased
risk that the circumstances on which Atlas based its original estimates will change in a manner that increases costs. If the project
is significant, or there are one or more issues that impact multiple projects, costs overruns could have a material adverse impact
on Atlas’ business, financial condition and results of operations.
Governmental
agencies may modify, curtail or terminate Atlas’ contracts at any time prior to their completion and, if Atlas does not replace
them, Atlas may suffer a decline in revenue.
Most government contracts may be modified,
curtailed or terminated by the government either at its discretion or upon the default of the contractor. If the government terminates
a contract at its discretion, then Atlas typically can recover only costs incurred or committed, settlement expenses and profit
on work completed prior to termination, which could prevent it from recognizing all its potential revenue and profits from that
contract. In addition, for some assignments, the U.S. government may attempt to “insource” the services to government
employees rather than outsource to a contractor. If a government terminates a contract due to Atlas’ default, Atlas could
be liable for excess costs incurred by the government in obtaining services from another source.
Atlas is
dependent on third-parties to complete certain of its contracts.
Third-party subcontractors Atlas hires
perform certain work under its contracts. Atlas also relies on third- party equipment manufacturers or suppliers to provide equipment
and materials used for certain of its projects. If Atlas is unable to hire qualified subcontractors or find qualified equipment
manufacturers or suppliers, its ability to successfully complete certain projects could be impaired. If Atlas is not able to locate
qualified third-party subcontractors or the amount it is required to pay for subcontractors or equipment and supplies exceeds what
it has estimated, especially in a lump sum or a fixed price contract, Atlas may suffer losses on these contracts. If a subcontractor,
supplier or manufacturer fails to provide services, supplies or equipment as required under a contract for any reason, Atlas may
be required to source these services, equipment or supplies to other third- parties on a delayed basis or on less favorable terms,
which could impact contract profitability. There is a risk that Atlas may have disputes with its subcontractors relating to, among
other things, the quality and timeliness of work performed, customer concerns about a subcontractor or Atlas’ failure to
extend existing task orders or issue new task orders under a contract. In addition, faulty workmanship, equipment or materials
could impact the overall project, resulting in claims against Atlas for failure to meet required project specifications.
Third-parties may find it difficult to
obtain enough financing to help fund their operations. The inability to obtain financing could adversely affect a third-party’s
ability to provide materials, equipment or services which could have a material adverse impact on Atlas’ business, financial
condition and results of operations. In addition, a failure by a third-party subcontractor, supplier or manufacturer to comply
with applicable laws, regulations or client requirements could negatively impact Atlas’ business and, for government clients,
could result in fines, penalties, suspension or even debarment being imposed on Atlas, which could have a material adverse impact
on its business, financial condition and results of operations.
Atlas relies
on third-party internal and outsourced software to run its critical accounting, project management and financial information systems.
As a result, any sudden loss, disruption or unexpected costs to maintain these systems could significantly increase Atlas’
operational expense and disrupt the management of its business operations.
Atlas relies on third-party software to
run its critical accounting, project management and financial information systems. Atlas also depends on its software vendors to
provide long-term software maintenance support for its information systems. Software vendors may decide to discontinue further
development, integration or long-term software maintenance support for Atlas’ information systems, in which case Atlas may
need to abandon one or more of its current information systems and migrate some or all of its accounting, project management and
financial information to other systems, thus increasing its operational expense as well as disrupting the management of its business
operations.
Negative
conditions in the credit and financial markets and delays in receiving client payments could result in liquidity problems, adversely
affecting Atlas’ cost of borrowing and its business.
Although Atlas finances much of its operations
using cash provided by operations, at times it depends on the availability of credit to grow its business and to help fund business
acquisitions. Instability in the credit markets in the U.S. or abroad could cause the availability of credit to be relatively difficult
or expensive to obtain at competitive rates, on commercially reasonable terms or in sufficient amounts. This situation could make
it more difficult or more expensive for Atlas to access funds, refinance its existing indebtedness, enter into agreements for new
indebtedness, or obtain funding through the issuance of securities or such additional capital may not be available on terms acceptable
to it, or at all. Atlas may also enter into business acquisition agreements that require it to access credit, which if not available
at the closing of the acquisition could result in a breach of the acquisition agreement and a resulting claim for damages by the
sellers of such business. In addition, market conditions could negatively impact Atlas’ clients’ ability to fund their
projects and, therefore, utilize its services, which could have a material adverse impact on Atlas’ business, financial condition
and results of operations.
Some of Atlas’ customers, suppliers
and subcontractors depend on access to commercial financing and capital markets to fund their operations. Disruptions of the credit
or capital markets could adversely affect Atlas’ clients’ ability to finance projects and could result in contract
cancellations or suspensions, project delays and payment delays or defaults by its clients. In addition, clients may be unable
to fund new projects, may choose to make fewer capital expenditures or otherwise slow their spending on Atlas’ services or
to seek contract terms more favorable to them. Atlas’ government clients may face budget deficits that prohibit them from
funding proposed and existing projects or that cause them to exercise their right to terminate Atlas’ contracts with little
or no prior notice. In addition, any financial difficulties suffered by Atlas’ subcontractors or suppliers could increase
its cost or adversely impact project schedules. These disruptions could materially impact Atlas’ backlog and have a material
adverse impact on its business, financial condition and results of operations.
If Atlas
fails to comply with federal, state and local governmental requirements, its business may be adversely affected.
Atlas is subject to U.S. federal, state,
and local laws and regulations that affect its business. Although Atlas has policies and procedures to comply with U.S. trade laws,
the violation of such laws could subject it and its employees to civil or criminal penalties, including substantial monetary fines,
or other adverse actions including debarment from participation in U.S. government contracts, and could damage Atlas’ reputation
and its ability to do business.
Atlas’
business strategy relies in part on acquisitions to sustain its growth. Acquisitions of other companies present certain risks and
uncertainties.
Atlas’ business strategy involves
growth through, among other things, the acquisition of other companies. Atlas tries to evaluate companies that it believes will
strategically fit into its business and growth objectives, including, for example, Atlas’ acquisition of ATC Group Services
in January 2019. If Atlas is unable to successfully integrate and develop acquired businesses, it could fail to achieve anticipated
synergies and cost savings, including any expected increases in revenues and operating results, which could have a material adverse
effect on its financial results.
Atlas may not be able to identify suitable
acquisition or strategic investment opportunities or may be unable to obtain the required consent of its lenders and, therefore,
may not be able to complete such acquisitions or strategic investments. Atlas may incur expenses associated with sourcing, evaluating
and negotiating acquisitions (including those that do not get completed), and it may also pay fees and expenses associated with
financing acquisitions to investment banks and other advisors. Any of these amounts may be substantial, and together with the size,
timing and number of acquisitions Atlas pursues, may negatively affect and cause significant volatility in its financial results.
In addition, Atlas has assumed, and may
in the future assume, liabilities of the company it is acquiring. While Atlas retains third-party advisors to consult on potential
liabilities related to these acquisitions, there can be no assurances that all potential liabilities will be identified or known
to it. If there are unknown liabilities or other obligations, Atlas’ business could be materially affected.
Atlas’
quarterly results may fluctuate significantly, which could have a material negative effect on the price of its Class A common stock.
Atlas’ quarterly operating results
may fluctuate due to several factors, including:
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fluctuations in the spending patterns of its customers;
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the number and significance of projects executed during a quarter;
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unanticipated changes in contract performance, particularly with contracts that have funding limits;
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the timing of resolving change orders, requests for equitable adjustments and other contract adjustments;
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changes in prices of commodities or other supplies;
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changes in foreign currency exchange rates;
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weather conditions that delay work at project sites;
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the timing of expenses incurred in connection with acquisitions or other corporate initiatives;
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natural disasters or other crises;
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staff levels and utilization rates;
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changes in prices of services offered by its competitors; and
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general economic and political conditions.
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If Atlas’ quarterly operating results
fluctuate significantly, causing its operating results to fall below the expectations of securities analysts, the price of Atlas’
Class A common stock may decrease substantially, which could have a material negative impact on its financial condition and results
of operations.
Atlas previously
identified a material weakness in its internal control over financial reporting relating to a shortage of accounting personnel
and we may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal
controls, which may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting
obligations.
Atlas and its independent registered public
accounting firm previously identified a material weakness in its internal control over financial reporting related to its accounting
for significant transactions. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial
statements will not be prevented or detected on a timely basis. The material weakness related to a shortage of accounting personnel,
at a time when Atlas was engaged in several significant acquisitions, which caused Atlas’ controls to not operate with appropriate
precision sufficient to enable management to timely analyze, evaluate, account for and prepare financial statements on an accrual
basis or to appropriately consider the accounting for such significant acquisitions. As a result of the material weakness, post-closing
adjustments of $3.5 million relating primarily to the fair value of contingent consideration of $2.8 million in connection with
an acquisition (which reduced income from continuing operations in the same amount of such adjustments) were recorded to the combined
financial statements of Atlas for the year ended December 31, 2018.
Atlas has taken steps to remedy this material
weakness by hiring additional accounting personnel and engaging external temporary resources as needed, and is implementing, documenting
and modifying policies and procedures to maintain effective internal control. In addition, we expect to have additional resources
to dedicate to any further remedial steps as needed. However, we cannot provide assurances that additional material weaknesses
will not occur in the future. If we fail to establish and maintain adequate internal control, we could suffer material misstatements
in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in
our reported financial information. This could limit our access to capital markets, adversely affect our results of operations
and lead to a decline in the trading price of our Class A common stock. Additionally, ineffective internal control could expose
us to an increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on
which we list or to other regulatory investigations and civil or criminal sanctions.
If we fail
to maintain an effective system of internal control, we may not be able to accurately report our financial results.
Atlas is required to comply with Section
404 of the Sarbanes-Oxley Act, which requires, among other things, a company to evaluate annually the effectiveness of its internal
control over financial reporting as of the end of each fiscal year and to include a management report assessing the effectiveness
of its internal control over financial reporting in its Annual Report on Form 10-K. Effective internal control over financial reporting
is necessary to provide reliable financial reports and to help prevent fraud. The combined company’s management team and
other personnel will be required to devote a substantial amount of time to these compliance requirements. Moreover, these rules
and regulations increase legal and financial compliance costs and make some activities more time-consuming and costly. Despite
best efforts, we cannot be certain that we will be able to maintain adequate internal controls over our financial processes and
reporting in the future or that we will be able to comply with our obligations under Section 404 of the Sarbanes-Oxley Act.
An impairment
charge on Atlas’ goodwill could have a material adverse impact on its financial position and results of operations.
Because Atlas has grown in part through
acquisitions, goodwill and intangible assets represent a substantial portion of its assets. Under U.S. GAAP, Atlas is required
to test goodwill carried in its combined balance sheets for possible impairment on an annual basis based upon a fair value approach.
As of December 31, 2019, Atlas had $80,352,000 of goodwill, representing 23% of its total assets of $353,660,000. Atlas also is
required to test goodwill for impairment between annual tests if events occur or circumstances change that would more likely than
not reduce its enterprise fair value below its book value. These events or circumstances could include a significant change in
the business climate, including a significant sustained decline in a reporting unit’s market value, legal factors, operating
performance indicators, competition, sale or disposition of a significant portion of Atlas’ business, potential government
actions toward its facilities, and other factors.
If Atlas’ market capitalization drops
significantly below the amount of net equity recorded on its balance sheet, it might indicate a decline in its fair value and would
require Atlas to further evaluate whether its goodwill has been impaired. If the fair value of Atlas’ reporting units is
less than their carrying value, Atlas could be required to record an impairment charge. The amount of any impairment could be significant
and could have a material adverse impact on Atlas’ financial position and results of operations for the period in which the
charge is taken.
Rising inflation,
interest rates, and/or construction costs could reduce the demand for Atlas’ services as well as decrease Atlas’ profit
on its existing contracts, in particular with respect to its fixed price contracts.
Rising inflation, interest rates, or construction
costs could reduce the demand for Atlas’ services. In addition, Atlas bears all the risk of rising inflation with respect
to those contracts that are fixed price. Because a portion of Atlas’ revenues are earned from fixed price contracts (approximately
5% as of December 31, 2019), the effects of inflation on Atlas’ financial condition and results of operations over the past
few years have been generally minor. However, if Atlas expands its business into markets and geographic areas where fixed price
and lump sum work is more prevalent, inflation may have a larger impact on Atlas’ results of operations in the future. Therefore,
increases in inflation, interest rates or construction costs could have a material adverse impact on Atlas’ business, financial
condition and results of operations.
Atlas is
subject to professional standards, duties and statutory obligations on professional reports and opinions it issues, which could
subject it to monetary damages.
Atlas issues reports and opinions to clients
based on its professional engineering expertise as well as its other professional credentials that subject it to professional standards,
duties and obligations regulating the performance of its services. If a client or another third-party alleges that Atlas’
report or opinion is incorrect or it is improperly relied upon and Atlas is held responsible, it could be subject to significant
liability or claims for damages. In addition, Atlas’ reports and other work product may need to comply with professional
standards, licensing requirements, securities regulations and other laws and rules governing the performance of professional services
in the jurisdiction where the services are performed. Atlas could be liable to third-parties who use or rely upon its reports and
other work product even if it is not contractually bound to those third- parties. These events could in turn result in monetary
damages and penalties.
The outcome
of pending and future claims and litigation could have a material adverse impact on Atlas’ business, financial condition
and results of operations.
Atlas
is a party to claims and litigation in the normal course of business. Since Atlas engages in engineering and construction activities
for large facilities and projects where design, construction or systems failures can result in substantial injury or damage to
employees or others, it is exposed to claims and litigation and investigations if there is a failure at any such facility or project.
Such claims could relate to, among other things, personal injury, loss of life, business interruption, property damage, pollution
and environmental damage and be brought by Atlas’ clients or third-parties, such as those who use or reside near its clients’
projects. Atlas can also be exposed to claims if it agreed that a project will achieve certain performance standards or satisfy
certain technical requirements and those standards or requirements are not met. In many of Atlas’ contracts with clients,
subcontractors, and vendors, Atlas agrees to retain or assume potential liabilities for damages, penalties, losses and other exposures
relating to projects that could result in claims that greatly exceed the anticipated profits relating to those contracts. In addition,
while clients and subcontractors may agree to indemnify Atlas against certain liabilities, such third-parties may refuse or be
unable to pay it.
Outbreaks
of communicable diseases could adversely affect our business, financial condition and results of operations.
Global
or national health concerns, including the outbreak of pandemic or contagious disease, can negatively impact the global economy
and, therefore, demand and pricing for our services. For example, there have been recent outbreaks in several countries, including
the United States, of a highly transmissible and pathogenic coronavirus (“COVID-19”). The outbreak of communicable
diseases, or the perception that such an outbreak could occur, could result in a widespread public health crisis that could adversely
affect the economies and financial markets of many countries, resulting in an economic downturn that could negatively impact the
demand for our services. Furthermore, uncertainty regarding the impact of any outbreak of pandemic or contagious disease, including
COVID-19, could lead to increased volatility in the markets in which we operate. The occurrence or continuation of any of these
events could lead to decreased revenues and limit our ability to execute on our business plan, which could adversely affect our
business, financial condition and results of operations.
Risks Relating to
our Common Stock and Warrants
We may be
required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative
effect on our financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.
Although we conducted due diligence on
Atlas, we cannot assure you that this diligence revealed all material issues that may be present in Atlas’ business, that
it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of our
control will not later arise. As a result, the company may be forced to later write-down or write-off assets, restructure our operations,
or incur impairment or other charges that could result in losses. Even if the due diligence successfully identified certain risks,
unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis.
Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that the company reports
charges of this nature could contribute to negative market perceptions about the company or our securities. In addition, charges
of this nature may cause the company to violate net worth or other covenants to which we may be subject. Accordingly, our stockholders
could suffer a reduction in the value of their shares. Such stockholders are unlikely to have a remedy for such reduction in value
unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care
or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the
proxy solicitation or tender offer materials, as applicable, relating to the business combination contained an actionable material
misstatement or material omission.
To the extent
that any shares of Class A common stock are issued pursuant to the terms of the Holdings LLC Agreement or upon exercise of any
of the warrants, the number of shares eligible for resale in the public market would increase.
Pursuant to the terms of the Holdings LLC
Agreement, the Continuing Members may redeem any or all of the shares of Class B common stock issued to them along with a corresponding
number of Holdings Units, for an equal number of shares of Class A common stock.
Furthermore, following the business combination,
the company has 20,000,000 outstanding warrants to purchase 20,000,000 shares of Class A common stock at an exercise price of $11.50
per share, which warrants became exercisable 30 days following the Closing. In addition, there are 3,750,000 private placement
warrants (including the warrants underlying the private placement units) outstanding exercisable for 3,750,000 shares of common
stock at an exercise price of $11.50 per share.
To the extent that any shares of Class
A common stock are issued pursuant to the terms of the Holdings LLC Agreement or upon exercise of any of the warrants to purchase
shares of Class A common stock, there will be an increase in the number of shares of Class A common stock eligible for resale in
the public market. Sales of a substantial number of such shares in the public market could adversely affect the market price of
Class A common stock.
If we raise
capital in the future by issuing shares of common or preferred stock or other equity or equity-linked securities, convertible debt
or other hybrid equity securities, our then existing stockholders may experience dilution, such new securities may have rights
senior to those of our common stock, and the market price of our common stock may be adversely effected.
If we raise capital in the future our then
existing stockholders may experience dilution. Our second amended and restated certificate of incorporation (the “Charter”)
provides that preferred stock may be issued from time to time in one or more series. Our board of directors is authorized to fix
the voting rights, if any, designations, powers, preferences, the relative, participating, optional or other special rights and
any qualifications, limitations and restrictions thereof, applicable to the shares of each series. Our board of directors may,
without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and
other rights of the holders of the shares of common stock and could have anti-takeover effects. The ability of our board of directors
to issue preferred stock without stockholder approval could have the effect of delaying, deferring or preventing a change of control
of us or the removal of existing management. The issuance of any such securities may have the impact of adversely affecting the
market price of our common stock.
We may redeem
your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.
The company has the ability to redeem outstanding
public warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided
that the closing price of our Class A common stock equals or exceeds $18.00 per share (as adjusted for share splits, share dividends,
reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third trading
day prior to proper notice of such redemption. If and when the warrants become redeemable by us, we may exercise our redemption
right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.
Redemption of the outstanding warrants could force holders (i) to exercise the warrants and pay the exercise price therefor at
a time when it may be disadvantageous to do so, (ii) to sell the warrants at the then-current market price when the holder might
otherwise wish to hold your warrants or (iii) to accept the nominal redemption price which, at the time the outstanding warrants
are called for redemption, is likely to be substantially less than the market value of the warrants. The private placement warrants
are not redeemable by us so long as they are held by the Sponsor or its permitted transferees.
The only principal asset of the Company
following the Business Combination is our interest in Atlas, and accordingly it depends on distributions from Atlas to pay taxes
and expenses.
Upon consummation of the business combination,
the Company became a holding company and does not have any material assets other than our ownership of Holdings Units. The Company
is not expected to have independent means of generating revenue or cash flow, and our ability to pay our taxes, operating expenses,
and pay any dividends in the future, if any, will be dependent upon the financial results and cash flows of Atlas. There can be
no assurance that Atlas will generate sufficient cash flow to distribute funds to the Company or that applicable state law and
contractual restrictions, including negative covenants under debt instruments will permit such distributions. If Atlas does not
distribute sufficient funds to the Company to pay our taxes or other liabilities, we may default on contractual obligations or
have to borrow additional funds. In the event that the Company is required to borrow additional funds it could adversely affect
our liquidity and subject us to additional restrictions imposed by lenders.
We are a “controlled company”
within the meaning of Nasdaq listing standards and the rules of the SEC. As a result, we qualify for, and may elect to rely on,
exemptions from certain corporate governance requirements that would otherwise provide protection to stockholders of other companies.
Following the completion of the Business
Combination, Bernhard Capital Partners beneficially owns a majority of the voting power of all outstanding shares of our common
stock. Pursuant to Nasdaq listing standards, a company of which more than 50% of the voting power for the election of directors
is held by an individual, a group or another company qualifies as a “controlled company” and may elect not to comply
with certain corporate governance requirements. Therefore, for so long as Bernhard Capital Partners beneficially owns a majority
of the voting power of all outstanding shares of our common stock, we may elect to not be subject to Nasdaq listing standards that
would otherwise require us to have: (i) a board of directors comprised of a majority of independent directors; (ii) compensation
of our executive officers determined by a majority of the independent directors or a compensation committee comprised solely of
independent directors; (iii) a compensation committee charter which, among other things, provides the compensation committee with
the authority and funding to retain compensation consultants and other advisors; and (iv) director nominees selected, or recommended
for the board’s selection, either by a majority of the independent directors or a nominating committee comprised solely of
independent directors. Accordingly, if we remain a controlled company and if we elect to rely on the exemption and during any transition
period following a time when we have made such election and are no longer a controlled company, our stockholders would not have
the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.
In addition, on June 20, 2012, the SEC
passed final rules implementing provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 pertaining
to compensation committee independence and the role and disclosure of compensation consultants and other advisers to the compensation
committee. The SEC’s rules direct each of the national securities exchanges (including Nasdaq on which we intend to list
our common stock) to develop listing standards requiring, among other things, that: (i) compensation committees be composed of
fully independent directors, as determined pursuant to new independence requirements; (ii) compensation committees be explicitly
charged with hiring and overseeing compensation consultants, legal counsel and other committee advisors; and (iii) compensation
committees be required to consider, when engaging compensation consultants, legal counsel or other advisors, certain independence
factors, including factors that examine the relationship between the consultant or advisor’s employer and us. As a “controlled
company,” we are not subject to these compensation committee independence requirements.
If the benefits
of the business combination do not meet the expectations of investors or securities analysts, the market price of our securities
may decline.
If the benefits of the business combination
do not meet the expectations of investors or securities analysts, the market price of our securities may decline. The market values
of our securities may vary significantly from their prices on the date the Purchase Agreement was executed, the date of the proxy
statement, or the date of this Annual Report on Form 10-K.
In addition, fluctuations in the price
of the company’s securities could contribute to the loss of all or part of your investment. Prior to the business combination,
there was not a public market for the stock of the company and trading in shares of Class A common stock has not been active. Accordingly,
the valuation ascribed to the company in the business combination may not be indicative of the price that will prevail in the trading
market following the business combination. If an active market for our securities develops and continues, the trading price of
our securities following the business combination could be volatile and subject to wide fluctuations in response to various factors,
some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in
our securities and our securities may trade at prices significantly below the price you paid for them. In such circumstances, the
trading price of our securities may not recover and may experience a further decline.
Factors affecting the trading price of
the company’s securities may include:
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actual or anticipated fluctuations in our quarterly financial results or the quarterly financial
results of companies perceived to be similar to us;
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changes in the market’s expectations about our operating results;
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success of competitors;
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our operating results failing to meet the expectation of securities analysts or investors in a
particular period;
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changes in financial estimates and recommendations by securities analysts concerning the company
or the industries in which the company operates in general;
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operating and stock price performance of other companies that investors deem comparable to the
company;
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our ability to market new and enhanced products on a timely basis;
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changes in laws and regulations affecting our business;
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commencement of, or involvement in, litigation involving the company;
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changes in the company’s capital structure, such as future issuances of securities or the
incurrence of additional debt;
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the volume of shares of our Class A common stock available for public sale;
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any major change in our board or management;
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sales of substantial amounts of our Class A common stock by our directors, executive officers or
significant stockholders or the perception that such sales could occur; and
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general economic and political conditions such as recessions, interest rates, fuel prices, international
currency fluctuations and acts of war or terrorism.
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Broad market and industry factors may materially
harm the market price of our securities irrespective of our operating performance. The stock market in general, and Nasdaq, have
experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the
particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable.
A loss of investor confidence in the market for the stocks of other companies that investors perceive to be similar to the company
could depress our stock price regardless of our business, prospects, financial conditions, or results of operations. A decline
in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to
obtain additional financing in the future.
There can
be no assurance that the warrants will be in the money at the time they become exercisable, and they may expire worthless.
The exercise price for the outstanding
warrants is $11.50 per share of common stock. There can be no assurance that the warrants will be in the money following the time
they become exercisable and prior to their expiration, and as such, the warrants may expire worthless.
There can
be no assurance that we will be able to comply with the continued listing standards of Nasdaq.
Our continued eligibility for listing on
Nasdaq depends on a number of factors. If, after the business combination, Nasdaq delists the Class A common stock from trading
on its exchange for failure to meet the listing standards, the company and its stockholders could face significant material adverse
consequences including:
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a limited availability of market quotations for our securities;
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a determination that our Class A common stock is a “penny stock,” which will require
brokers trading in our Class A common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading
activity in the secondary trading market for our Class A common stock;
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a limited amount of analyst coverage; and
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a decreased ability to issue additional securities or obtain additional financing in the future.
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Provisions
in our Charter and Delaware law may have the effect of discouraging lawsuits against our directors and officers.
The Charter requires, unless we consent
in writing to the selection of an alternative forum, that (i) any derivative action or proceeding brought on our behalf, (ii) any
action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders,
(iii) any action asserting a claim against us, our directors, officers or employees arising pursuant to any provision of the DGCL
or the Charter or our second amended and restated bylaws, or (iv) any action asserting a claim against us, our directors, officers
or employees governed by the internal affairs doctrine may be brought only in the Court of Chancery in the State of Delaware, except
any claim (A) as to which the Court of Chancery of the State of Delaware determines that there is an indispensable party not subject
to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the
Court of Chancery within ten days following such determination), (B) which is vested in the exclusive jurisdiction of a court or
forum other than the Court of Chancery, (C) for which the Court of Chancery does not have subject matter jurisdiction, or (D) any
action arising under the Securities Act, as to which the Court of Chancery and the federal district court for the District of Delaware
shall have concurrent jurisdiction. If an action is brought outside of Delaware, the stockholder bringing the suit will be deemed
to have consented to service of process on such stockholder’s counsel. Although we believe this provision benefits us by
providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, a court may determine
that this provision is unenforceable, and to the extent it is enforceable, the provision may have the effect of discouraging lawsuits
against our directors and officers, although our stockholders will not be deemed to have waived our compliance with federal securities
laws and the rules and regulations thereunder.
Notwithstanding the foregoing, the Charter
provides that the exclusive forum provision will not apply to suits brought to enforce a duty or liability created by the Exchange
Act or any other claim for which the federal courts have exclusive jurisdiction. Section 27 of the Exchange Act creates exclusive
federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations
thereunder. Although we believe this provision benefits us by providing increased consistency in the application of Delaware law
in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors
and officers.
Provisions
in the Charter may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our
Class A common stock and could entrench management.
The Charter contains provisions that may
discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include
a staggered board of directors, the controlling provisions of the Nomination Agreement we entered into with the Seller at Closing
(the “Nomination Agreement”), a supermajority vote required to amend certain provisions of the Charter and the ability
of the board of directors to designate the terms of, and issue new series of, preferred stock, which may make more difficult the
removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market
prices for our securities.