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Exhibit 99.1
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects,"
"intends" and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of BayCorp and/or its subsidiaries to differ materially from those indicated by
such forward-looking statements. These factors include, without limitation,
those set forth below and elsewhere in this Annual Report.
History of Losses
BayCorp has never reported an operating profit for any year since its
incorporation. Historically, electricity sales at short-term rates have not
resulted in sufficient revenue to enable BayCorp to meet its cash requirements
for operations, maintenance and capital related costs. In addition,
HoustonStreet has incurred substantial operating expenses and capital
expenditures, totaling approximately $6.2 million from formation to December 31,
1999, with continuing losses in 2000. These expenses and capital expenditures
greatly exceeded HoustonStreet's revenue of $59,200 for the same period.
HoustonStreet expects to continue to incur substantial operating losses for the
foreseeable future. Moreover, there can be no assurance that Great Bay or Little
Bay will be able to sell power at prices that will enable them to meet their
cash requirements.
Liquidity Needs
As of December 31, 1999, BayCorp had approximately $6.1 million in cash and
cash equivalents, restricted cash and short-term investments. The Company
believes that such cash, together with the anticipated proceeds from the sale of
electricity by Great Bay and Little Bay and additional external financing that
HoustonStreet is currently seeking, will be sufficient to enable the Company and
its subsidiaries to meet their cash requirements in 2000. However, if in 2000 or
thereafter, the Seabrook Project operated at a capacity factor below historical
levels, or if expenses associated with the ownership or operation of the
Seabrook Project, including without limitation decommissioning costs, are
materially higher than anticipated, or if the prices at which Great Bay and
Little Bay are able to sell their share of the Seabrook Project electricity do
not increase at the rates and within the time expected by Great Bay and Little
Bay, or if HoustonStreet expenses materially exceed budgeted expenses, the
Company or its subsidiaries would be required to raise additional capital,
either through a debt financing or an equity financing, to meet ongoing cash
requirements. In any event, in 2000 or shortly thereafter, the Company and its
subsidiaries will likely need to raise additional capital from outside sources.
There is no assurance that the Company or its subsidiaries would be able to
raise such capital or that the terms on which any additional capital is
available would be acceptable. If additional funds are raised by issuing equity
securities, dilution to then existing stockholders will result.
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Factors Related to Great Bay and Little Bay
Primary Reliance on a Single Asset. BayCorp's principal source of revenue
is its wholesale electricity generation and trading business, which depends in
large part on Great Bay and Little Bay's 15% combined joint interest in the
Seabrook Nuclear Power Project in Seabrook, New Hampshire. Accordingly,
BayCorp's results of operations significantly depend on the successful and
continued operation of the Seabrook Project. In particular, if the Seabrook
Project experiences unscheduled outages of significant duration, BayCorp's
results of operations will be materially adversely affected.
Changes in the New England Wholesale Power Market. During recent years in
New England, the combination of (1) increased competition in the wholesale power
market, (2) small increases in the demand for electricity and (3) electric
industry deregulation has resulted in increased uncertainty regarding the price
of electricity in the wholesale power market. Although Great Bay's average
selling price per kWh (determined by dividing total sales revenue by the total
number of kWhs sold in the applicable period) increased from 2.76 cents in 1997
to 3.04 cents in 1998 and 3.13 cents in 1999, there can be no assurance that
Great Bay or Little Bay will be able to sell their power at these prices or
higher prices in the future.
Risks in Connection with Joint Ownership of Seabrook Project. Great Bay
and Little Bay are required under the JOA to pay their share of Seabrook Unit 1
and Seabrook Unit 2 expenses, including without limitation operations and
maintenance expenses, construction and nuclear fuel expenditures and
decommissioning costs, regardless of Seabrook Unit 1's operations. Under certain
circumstances, a failure by Great Bay or Little Bay to make their monthly
payments under the JOA entitles certain other joint owners of the Seabrook
Project to purchase Great Bay or Little Bay's interest in the Seabrook Project
for 75% of the then fair market value thereof.
In addition, the failure to make monthly payments under the JOA by owners
of the Seabrook Project other than Great Bay and Little Bay may have a material
adverse effect on the Company. For example, Great Bay or Little Bay could opt to
pay a greater proportion of the Seabrook Project expenses in order to preserve
the value of their share of the Seabrook Project. In the past, certain of the
owners of the Seabrook Project other than Great Bay and Little Bay have not made
their full respective payments. The electric utility industry is undergoing
significant changes as competition and deregulation are introduced into the
marketplace. Some utilities, including certain Participants, have indicated in
state regulatory proceedings that they may be forced to seek bankruptcy
protection if regulators, as part of the industry restructuring, do not allow
for full recovery of stranded costs. If a Participant other than Great Bay or
Little Bay filed for bankruptcy and that Participant was unable to pay its share
of Seabrook Project expenses, Great Bay or Little Bay might opt to pay a greater
portion of Seabrook Project expenses in order to preserve the value of their
share of the Seabrook Project. In the past, the filing of bankruptcy by a
Participant has not resulted in a failure to pay Seabrook Project expenses or an
increase in the percentage of expenses paid by other Participants.
The Seabrook Project is owned by Great Bay, Little Bay and the other owners
thereof as tenants in common, with the various owners holding varying ownership
shares. This means that Great Bay and Little Bay, which together own only a 15%
interest, do not have control of the management of the Seabrook Project. As a
result, decisions may be made affecting the Seabrook Project notwithstanding
Great Bay and/or Little Bay's opposition.
Certain costs and expenses of operating the Seabrook Project or owning an
interest therein, such as certain insurance and decommissioning costs, are
subject to increase or retroactive adjustment based on factors beyond the
control of BayCorp or its subsidiaries. The cost of disposing of Unit 2 of the
Seabrook Project is not known at this time. These various costs and expenses may
adversely affect BayCorp, Great Bay and Little Bay, possibly materially.
Extensive Government Regulation. The Seabrook Project is subject to
extensive regulation by federal and state agencies. In particular, the Seabrook
Project, and Great Bay and Little Bay as part owners of a licensed nuclear
facility, are subject to the broad jurisdiction of the NRC, which is empowered
to authorize the siting, construction and operation of nuclear reactors after
consideration of public health and safety, environmental and antitrust matters.
Great Bay and Little Bay are also subject to the jurisdiction of the FERC
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and, as a result, are required to file with FERC all contracts for the sale of
electricity. FERC's jurisdiction also includes, among other things, the sale,
lease, merger, consolidation or other disposition of facilities, interconnection
of certain facilities, accounts, service and property records. Noncompliance
with NRC requirements may result, among other things, in a shutdown of the
Seabrook Project.
The NRC has promulgated a broad range of regulations affecting all aspects
of the design, construction and operation of a nuclear facility, such as the
Seabrook Project, including performance of nuclear safety systems, fire
protection, emergency response planning and notification systems, insurance and
quality assurance. The NRC retains authority to modify, suspend or withdraw
operating licenses, such as the license pursuant to which the Seabrook project
operates, at any time that conditions warrant. For example, the NRC might order
Seabrook Unit 1 shut down (i) if flaws were discovered in the construction or
operation of Seabrook Unit 1, (ii) if problems developed with respect to other
nuclear generating plants of a design and construction similar to Unit 1, or
(iii) if accidents at other nuclear facilities suggested that nuclear generating
plants generally were less safe than previously believed.
Risk of Nuclear Accident. Nuclear reactors have been used to generate
electric power for more than 35 years and there are currently more than 100
nuclear reactors used for electric power generation in the United States.
Although the safety record of these nuclear reactors in the United States
generally has been very good, accidents and other unforeseen problems have
occurred both in the United States and elsewhere, including the well-publicized
incidents at Three Mile Island in Pennsylvania and Chernobyl in the former
Soviet Union. The consequences of such an accident can be severe, including loss
of life and property damage, and the available insurance coverage may not be
sufficient to pay all the damages incurred.
Public Controversy Concerning Nuclear Power Plants. Substantial
controversy has existed for some time concerning nuclear generating plants and
over the years such opposition has led to construction delays, cost overruns,
licensing delays, demonstrations and other difficulties. The Seabrook Project
was the subject of significant public controversy during its construction and
licensing and remains controversial. An increase in public concerns regarding
the Seabrook Project or nuclear power in general could adversely affect the
operating license of Seabrook Unit 1. While the Company cannot predict the
ultimate effect of such controversy, it is possible that it could result in a
premature shutdown of the unit.
Waste Disposal; Decommissioning Cost. There has been considerable public
concern and regulatory attention focused upon the disposal of low- and
high-level nuclear wastes produced at nuclear facilities and the ultimate
decommissioning of such facilities. As to waste disposal concerns, both the
federal government and the State of New Hampshire are currently delinquent in
the performance of their statutory obligations.
The joint owners of the Seabrook Project, through their managing agent
NAESCO, entered into contracts with the DOE for high level waste disposal in
accordance with the NWPA. Under these contracts and the NWPA, the DOE was
required to take title to and dispose of the Seabrook Project's high level waste
beginning no later than January 31, 1998. However, the DOE has announced that
its first high level waste repository will not be in operation until 2010 at the
earliest.
The Seabrook Project increased its on-site storage capacity for low level
waste ("LLW") in 1996 and that capacity is expected to be sufficient to meet the
Project's storage requirements through 2006. In addition, the managing agent of
the Seabrook Project has advised the Joint Owners that the Seabrook Project has
adequate on-site storage capacity for high level waste until approximately 2010.
If the Seabrook Project were unable to store nuclear waste on site or make other
disposal provisions, the Company's business, results of operations and financial
condition would be materially and adversely affected. See "Business -- Wholesale
Electricity Generation and Trading Business -- Nuclear Waste Disposal."
As to decommissioning, NRC regulations require that upon permanent shutdown
of a nuclear facility, appropriate arrangements for full decontamination and
decommissioning of the facility be made. These regulations require that during
the operation of a facility, the owners of the facility must set aside
sufficient funds to defray decommissioning costs. While the owners of the
Seabrook Project are accumulating monies in a trust fund to defray
decommissioning costs, these costs could substantially exceed the value of the
trust fund, and the owners (including Great Bay and Little Bay) would remain
liable for the excess. Moreover, the
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amount that is required to be deposited in the trust fund is subject to periodic
review and adjustment by an independent commission of the State of New
Hampshire, which could result in material increases in such amounts.
Intense Competition. Great Bay sells its share (and Little Bay's share) of
Seabrook Project electricity primarily into the Northeast United States
wholesale electricity market. There are a large number of suppliers to this
market and competition is intense. A primary source of competition comes from
traditional utilities, many of which presently have excess capacity. In
addition, non-utility wholesale generators of electricity, such as IPPs, QFs and
EWGs, as well as power marketers and brokers, actively sell electricity in this
market. Great Bay may face increased competition, primarily based on price, from
all sources in the future.
Factors Related to HoustonStreet
Limited Operating History. HoustonStreet was incorporated in Delaware on
April 27, 1999. HoustonStreet.com was launched initially in the Northeast on
July 8, 1999 and nationwide on September 13, 1999. HoustonStreet has only a
limited operating history upon which to evaluate its performance.
Significant Future Losses Expected. HoustonStreet's business is subject to
the risks and uncertainties encountered by companies in early stages of
development, particularly enterprises in new and rapidly evolving markets, such
as electronic trading of energy products over the Internet. HoustonStreet's
substantial operating expenses and capital expenditures from formation to date
have greatly exceeded its revenues over the same period. HoustonStreet expects
to continue to incur substantial operating losses for the foreseeable future.
Moreover, there is no assurance that HoustonStreet will be able to achieve or
sustain profitability.
Internet-based Wholesale Energy Trading is a New and Evolving Market.
Wholesale trading of energy products over the Internet is a new and rapidly
evolving market. HoustonStreet cannot be certain that a viable market will
emerge or be sustainable. If the market for Internet-based wholesale energy
trading fails to develop, if it develops more slowly than expected, if it
becomes saturated with competitors or if it does not achieve widespread market
acceptance, HoustonStreet would be materially adversely affected.
Dependence on Internet-based Wholesale Energy Trading. Substantially all
of HoustonStreet's revenues depend on the continued and expanded use of
Internet-based wholesale energy trading platforms. HoustonStreet currently
depends on its wholesale electricity trading platform for all revenues.
HoustonStreet will likely depend on other energy trading platforms, including
platforms for oil and natural gas trading, if planned expansion is successful.
Businesses have only recently begun significant use of the Internet for
electronic commerce. Although Internet usage has grown dramatically,
HoustonStreet cannot assure you that usage will continue to increase for
commerce or trading wholesale energy products. A decrease in the use of the
Internet or a reduction in the currently anticipated growth in the use of the
Internet would have a material adverse effect on HoustonStreet. Businesses may
reject the Internet as a viable commercial medium for a number of reasons,
including potentially inadequate network infrastructure, slow development of
enabling technologies, insufficient commercial support or privacy concerns. The
Internet's infrastructure may be unable to support the demands placed on it by
increased usage. In addition, delays in developing or adopting new standards and
protocols required to handle increased levels of Internet activity, or increased
government regulation, could cause the Internet to lose its viability as a
commercial medium.
Dependence on Trading Liquidity. HoustonStreet will need to achieve
trading liquidity on its Internet-based wholesale energy trading exchange in
order to increase and sustain revenues. If the volume and level of trades on the
exchange do not increase, HoustonStreet will not achieve profitability.
Dependence on Increased Business from Unaffiliated Customers. If
HoustonStreet fails to grow its customer base or generate repeat and expanded
business from customers that are not affiliated with BayCorp, HoustonStreet will
be unable to achieve or sustain profitability. For the period beginning July 8,
1999 through December 31, 1999, Great Bay, a subsidiary of BayCorp, was a party
to 77% of all trades on HoustonStreet. HoustonStreet earns standard commissions
from all trades on HoustonStreet, including trades by Great Bay
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and its counterparties. To date, a substantial majority of HoustonStreet's
revenue has been derived from commissions from trades involving Great Bay and
its counterparties.
HoustonStreet's management expects that commissions from trades involving
Great Bay and its counterparties will be a less significant portion of revenue
in the future as the number of registered traders and the volume of trades
increases. If trading volume does not increase as anticipated, HoustonStreet's
revenue will not increase and HoustonStreet's business and financial results
will be materially adversely affected.
Need for Expanded Sales and Marketing Operations. Expanded sales and
marketing operations will be necessary to attract traders to HoustonStreet's
trading exchange, to lengthen the time and frequency of service use, and to
build the HoustonStreet community of users. If HoustonStreet's sales and
marketing operations fail to register additional users and generate increased
traffic on its Web site, the number of trades completed on the exchange may not
increase. If the number, size and frequency of transactions do not increase,
HoustonStreet will be unable to increase its revenues and HoustonStreet's
business will not achieve profitability.
Need for Additional Financing. Based on current levels of operations and
planned growth, HoustonStreet's management anticipates that the net proceeds of
its stock sales in February and March 2000 and cash generated from operations
will be sufficient to meet HoustonStreet's needs through approximately October
2000. If HoustonStreet requires additional funding or determines that it is
appropriate to raise additional funding, HoustonStreet may be unable to raise
additional funds. Further, any such funding may result in significant dilution
to existing HoustonStreet stockholders, including BayCorp. The inability to
obtain sufficient funds from operations and external sources when needed would
have a material adverse effect on HoustonStreet's business, results of
operations and financial condition.
Ability to Implement Business Strategy. The growth and expansion of
HoustonStreet's business are expected to place significant demands on
HoustonStreet's management, operational and financial resources. Successful
implementation of HoustonStreet's business strategy will depend on a number of
factors, including its ability to:
- offer an efficient and effective wholesale energy trading platform
that meets industry needs,
- increase awareness of the HoustonStreet brand,
- continue to develop and upgrade the HoustonStreet Web site and related
technology, operating software and capacity,
- attract more wholesale energy traders to the HoustonStreet Web Site,
lengthen the time and frequency of service use, and build the
HoustonStreet community of registered users, and
- attract, hire, integrate, retain and motivate qualified personnel.
There can be no assurance that HoustonStreet will be successful in the
implementation of its business strategy.
Reliance on Strategic Relationships. HoustonStreet may be unable to
implement its strategic growth plans without successfully identifying, forming,
maintaining and enhancing strategic relationships, such as its strategic
relationship with Equiva. HoustonStreet's ability to achieve significant future
revenue growth will depend in part on adding new strategic partners. If
HoustonStreet is unable to form or successfully develop additional strategic
relationships, HoustonStreet may be unable to grow its revenues and
HoustonStreet could be materially adversely affected.
International Expansion. If HoustonStreet cannot expand internationally,
HoustonStreet may be unable to take advantage of the potential revenue
associated with energy trading on a global level. While HoustonStreet's
management believes that HoustonStreet can become profitable if its services are
widely adopted by power traders in the United States, the global energy market
represents a much larger source of revenue.
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To be successful, HoustonStreet's management believes that HoustonStreet
must expand its operations into international markets. International operations
will subject HoustonStreet to a number of risks that may increase
HoustonStreet's costs and require significant management attention. These risks
include:
- difficulties and increased expenses associated with staffing and
managing foreign operations,
- differing technology standards that may impede HoustonStreet's ability
to integrate its trading platforms across international borders,
- reluctance or inability of energy traders abroad to accept
Internet-based wholesale energy trading as a method of conducting
business,
- changes in regulatory requirements,
- currency exchange rate fluctuations, and
- potentially adverse tax consequences, including restrictions on the
repatriation of earnings.
Regulatory Risks and Privacy Concerns. As use of the Internet evolves,
federal, state and foreign agencies could adopt regulations covering issues such
as user privacy, content and taxation of products and services. If enacted,
government regulations could limit the market for HoustonStreet's services.
In order to use HoustonStreet's trading exchange, traders must first
register with HoustonStreet. The registration process requires that users
provide certain information about themselves and the companies for which they
trade. Although HoustonStreet collects this data only with the consent of a
visitor, privacy concerns may cause visitors to resist registering to use the
exchange. In addition, legislative or regulatory requirements may heighten
privacy concerns. Other countries and political entities, such as the European
Economic Community, have adopted legislation or regulatory requirements relating
to privacy. The United States may adopt similar legislation or regulatory
requirements. If privacy legislation is enacted or privacy concerns are not
adequately addressed, HoustonStreet's business could be materially adversely
affected.
Unpredictability of Future Revenues; Potential Fluctuation in Quarterly
Operating Results. As a result of HoustonStreet's limited operating history and
the emerging nature of the market for Internet-based trading of wholesale energy
products, HoustonStreet is unable to forecast its revenues accurately.
HoustonStreet expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside HoustonStreet's control. These factors include the demand for
HoustonStreet's trading services, the introduction and market acceptance of new
services in the industry, reductions in trading commissions or changes in how
services are priced, and the amount and timing of operating costs and capital
expenditures related to expanding HoustonStreet's business, operations and
infrastructure. Quarterly results also can be affected by changes in the use of
the Internet and electronic commerce, changes in governmental regulations, and
changes in general economic conditions and economic conditions specifically
related to the Internet and energy trading markets.
In addition, trading volumes can fluctuate due to the seasonal nature of
the wholesale electricity trading market. Typically, there are substantial
declines in the volume of wholesale electricity trading during the fourth
quarter of the calendar year. Based on statistics published by the FERC, the
amount of electricity traded in the United States in the fourth quarter of 1998
was approximately 50% less than amount traded in the third quarter of 1998.
HoustonStreet's management believes that fourth quarter trading can be adversely
affected by seasonal trading patterns, the inclination of some utilities,
independent power producers and power marketers to maintain existing trading
positions near year-end and other factors.
It is difficult to forecast the effect such factors, or the combination of
any of these factors, would have on HoustonStreet's results of operations for
any given fiscal quarter. HoustonStreet's management believes that
HoustonStreet's quarterly revenues, expenses and operating results could vary
significantly in the future and that period-to-period comparisons should not be
relied on as indications of future performance.
System Maintenance and Protection. Unanticipated problems at the
third-party facility that houses substantially all of HoustonStreet's computer
and communications hardware systems could cause interruptions or delays in
HoustonStreet's business, loss of data or render HoustonStreet unable to process
wholesale
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energy trades. Any such interruptions or delays at the facility would harm
HoustonStreet's revenue and results of operations. In addition, these
third-party systems and operations are vulnerable to damage or interruption from
intentional malicious acts, fire, flood, power loss, telecommunications failure,
break-ins, earthquake and similar events. HoustonStreet does not have a formal
disaster recovery plan and does not carry business interruption insurance. In
addition, the failure by the third-party facility to provide the data
communications capacity required by HoustonStreet, as a result of human error,
natural disaster or other operational disruptions, could result in interruptions
in HoustonStreet's service. The occurrence of any or all of these events could
harm HoustonStreet's reputation and brand and business.
Traders on the HoustonStreet.com may also be harmed by any system or
equipment failures experienced by HoustonStreet. In that event, HoustonStreet's
relationship with these traders may be adversely affected, HoustonStreet may
lose traders, HoustonStreet's ability to attract new users may be adversely
affected and HoustonStreet could be exposed to liability.
If users of HoustonStreet's trading platform suffer similar interruptions
in their operations, for any of the reasons discussed above or for other
reasons, HoustonStreet's business could also be adversely affected. In addition,
if traders' computer systems suffer interruptions, the link to HoustonStreet's
Web site could be severed and the traders' wholesale energy trades could be
delayed or stopped.
Rapid Technological Change. To remain competitive, HoustonStreet must
continue to enhance and improve its services. The Internet is characterized by
rapid technological change, changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and practices.
HoustonStreet's success will depend, in part, on its ability to:
- develop leading Internet-based technologies useful for wholesale
energy trading,
- enhance its existing services,
- develop new services and technology that address the increasingly
sophisticated and varied needs of wholesale energy traders, and
- respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
HoustonStreet would be materially adversely affected if it is unable, for
technical, legal, financial or other reasons, to adapt in a timely manner to
changing market conditions or customer requirements.
Intense Competition. Wholesale energy trading markets are dynamic and
intensely competitive. Competition is likely to increase in the future as new
companies enter the market and current competitors expand their products and
services. See "Business -- Internet-based Energy Trading and Information
Business -- Competition." Many of these potential competitors are likely to
enjoy substantial competitive advantages, including:
- larger technical, production and marketing staffs,
- a more established presence in the wholesale energy trading community,
- greater brand recognition, and
- substantially greater financial, marketing, technical and other
resources.
If HoustonStreet does not compete effectively or if it experiences pricing
pressures, reduced margins or loss of market share resulting from increased
competition, HoustonStreet's business would be materially adversely affected.
Dependence on Management and Need for New Personnel. HoustonStreet is, and
for the foreseeable future will be, dependent upon the services of its
directors, executive officers and key management personnel. HoustonStreet's
future success depends on its ability to identify, attract, hire, train, retain
and motivate highly skilled technical, managerial, marketing, sales and customer
service personnel. The loss of the services of
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current key personnel and the failure to hire new personnel could have a
material adverse effect upon HoustonStreet's results of operations, product
development efforts and ability to grow.
In particular, HoustonStreet plans to recruit and hire a new Chief
Financial Officer and new Vice President of Technology in 2000. Competition for
such personnel is intense and there can be no assurance that HoustonStreet can
attract, assimilate or retain sufficiently qualified personnel. The failure to
hire and retain a new Chief Financial Officer, Vice President of Technology and
other necessary technical, managerial, marketing, sales and customer service
personnel, would materially adversely affect HoustonStreet.
HoustonStreet does not currently have employment agreements in place and
does not currently carry key man life insurance. Although HoustonStreet intends
to purchase key man term life insurance on the life of Frank W. Getman Jr., its
President and Chief Executive Officer, that insurance is not currently in place.
HoustonStreet does not plan to purchase life insurance on the lives of any of
its other key personnel.
Management of Growth. HoustonStreet expects to experience significant
growth in its business operations. This growth will place a substantial strain
on HoustonStreet's resources. HoustonStreet's need to manage its growth
successfully will require it to implement appropriate operational, financial,
accounting and management information systems and controls. HoustonStreet's
failure to manage its growth effectively would have a material adverse effect on
HoustonStreet.
Protection of Proprietary Rights. HoustonStreet's ability to compete
depends significantly on the proprietary nature of its Web site technology as
well as its patent applications. HoustonStreet has filed two patent applications
to date. HoustonStreet seeks to protect its proprietary rights through a
combination of patent, copyright and trade secret law and confidentiality
agreements. However, there can be no assurance that a third party will not
misappropriate or otherwise obtain access to HoustonStreet's proprietary
technology or develop similar technology independently. Competitors may also be
able to circumvent any patents that HoustonStreet obtains.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. HoustonStreet could
incur substantial costs to prosecute or defend any intellectual property
litigation. If HoustonStreet litigated to enforce its rights, it would be
expensive, would divert management resources and may not be adequate to prevent
the use of its intellectual property by third parties.
Potential Intellectual Property Infringement. While HoustonStreet
currently is not aware that it infringes any other patents, it is possible that
HoustonStreet's technology infringes patents held by third parties. If
HoustonStreet were to be found infringing, the owner of the patent could sue
HoustonStreet for damages, prevent HoustonStreet from making, selling or using
the owner's patented technology or could impose substantial royalty fees for
those privileges.
