1094831--3/17/2008--ESPEED

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RISKS RELATED TO OUR BUSINESS Risks Related to the Merger The failure to integrate successfully the businesses and operations of eSpeed and BGC Partners in the expected time frame may adversely affect the Combined Company s future results. Certain directors and executive officers of eSpeed and BGC Partners may have interests in the merger that are different from, or in addition to or in conflict with, yours. eSpeed stockholders, other than Cantor and its affiliates, will have a reduced ownership and voting interest in the Combined Company after the merger and will be further diluted upon exchange of BGC Holdings limited partnership interests into Combined Company common stock. The impact of the separation and the merger on the founding partners, restricted equity partners and future working partners may adversely affect the Combined Company s ability to retain, recruit and motivate these persons. The Combined Company will be required to pay Cantor for a significant portion of the benefit relating to any additional tax depreciation or amortization deductions it may claim as a result of the tax basis step-up BGC Partners receives, the rights to which the Combined Company will assume in the merger, in connection with the separation and the related transactions, respectively. The separation and the merger might be challenged by creditors as a fraudulent transfer or conveyance, and equity holders and creditors of the entity held liable could be adversely affected should a court agree with such a challenge. If the Combined Company were deemed an investment company under the Investment Company Act of 1940, as amended, as a result of its ownership of BGC U.S., BGC Global or BGC Holdings, applicable restrictions could make it impractical for the Combined Company to continue its business as contemplated and could materially adversely affect its business, financial condition and results of operation. Risks Related to the Combined Company s Business Because competition for the services of brokers is intense, the Combined Company may not be able to attract and retain highly skilled brokers, which could adversely impact its revenues and as a result could materially adversely affect its business, financial condition and results of operations. The Combined Company will face strong competition from brokerage and financial services firms, many of which have greater market presence, marketing capabilities and technological and personnel resources than will the Combined Company, which could lead to pricing pressures which could adversely impact the Combined Company s revenues and as a result could materially adversely affect the Combined Company s business, financial condition and results of operations. Consolidation in the brokerage, exchange and financial services industries could materially adversely affect the Combined Company s business, financial condition and results of operations because the Combined Company may not be able to compete successfully. The failure to integrate successfully the businesses and operations of eSpeed and the BGC Partners businesses acquired from Cantor in the merger could limit our ability to achieve the expected benefits from the acquisition and may adversely affect our future results. The Combined Company may pursue strategic alliances, acquisitions or joint ventures or hire brokers for new or existing brokerage desks, which could present unforeseen integration obstacles or costs and could dilute the common stock owned by the Combined Company s stockholders. If the Combined Company is unable to identify and exploit new market opportunities, its revenues may decline and as a result its business, financial condition and results of operations could be materially adversely affected. The Combined Company s ability to retain its key employees and the ability of certain key employees to devote adequate time to the Combined Company are critical to the success of the Combined Company s business, and failure to do so may adversely affect the Combined Company s revenues and as a result could materially adversely affect its business, financial condition and results of operations. Difficult market conditions, economic conditions and geopolitical uncertainties could adversely affect the Combined Company s business in many ways by negatively impacting its revenues in the financial markets in which it offers services, which could have a material adverse effect on its business, financial condition and results of operations. Employee misconduct or error could harm the Combined Company by impairing its ability to attract and retain customers and subjecting the Combined Company to significant legal liability and reputational harm; moreover, this type of misconduct is difficult to detect and deter and error is difficult to prevent. The industry in which the Combined Company will operate is subject to significant regulation and as a result the Combined Company will be subject to regulatory capital requirements on the Combined Company s regulated entities, and a significant operating loss or any extraordinary charge against capital could adversely affect the Combined Company s ability to expand or, depending upon the magnitude of the loss or charge, even to maintain the current level of its business. BGC Partners has incurred substantial losses in recent periods and the Combined Company may incur losses in the future. Due to the current customer concentration of the businesses that will comprise the Combined Company, a loss of two, three or more of the Combined Company s significant customers could harm the Combined Company s business, financial condition and results of operations. The Combined Company s brokerage activities will be subject to credit and performance risks, which could result in the Combined Company incurring significant losses and as a result could materially adversely affect its business, financial condition and results of operations. Financial problems experienced by third parties could affect the markets in which the Combined Company provides brokerage services. In addition, a disruption in the credit derivative market could affect the Combined Company s brokerage revenues. The securities settlement process and the execution of matched principal transactions will expose the Combined Company to risks related to a counterparty failing to fulfill its obligations that may impact the Combined Company s liquidity and profitability and as a result could materially adversely affect its business, financial condition and results of operations. The Combined Company will have market risk exposure from unmatched principal transactions entered into by some of its brokerage desks, which could result in losses and have a disproportionate effect on its revenues, financial condition and results of operations for any particular reporting period. The Combined Company will be generally subject to risks inherent in doing business in the international markets, particularly in the regulated brokerage industry, and any failure to develop effective compliance and reporting systems could result in regulatory penalties in the applicable jurisdiction and the Combined Company s business could be adversely affected. If the value of the dollar against the other currencies in which the Combined Company pays expenses continues to decline or if the value of the dollar against the other currencies in which the Combined Company earns revenues improves dramatically, the Combined Company s financial results could suffer. The Combined Company is expected to be leveraged, which could adversely affect its ability to raise additional capital to fund its operations, limit its ability to react to changes in the economy or its industry, expose it to interest rate risk and prevent it from meeting its obligations under its indebtedness. The Combined Company may not be able to obtain additional financing, if needed, on terms that are acceptable to it, which could prevent it from developing or enhancing its business, taking advantage of future opportunities or responding to competitive pressure or unanticipated requirements. The brokerage and financial services industries in general face substantial litigation and regulatory risks, and the Combined Company may face damage to its professional reputation and legal liability if its services are not regarded as satisfactory or for other reasons, all of which could adversely affect the Combined Company s revenues and liabilities as a result could have a materially adverse effect on its business, financial condition and results of operations. Extensive regulation of the Combined Company s businesses will limit its activities and will result in ongoing exposure to the potential for significant penalties, including fines or limitations on the Combined Company s ability to conduct its businesses. A portion of the Combined Company s revenues will be derived from its sale of market data to third parties, and a decline in customer purchases or adverse new legislation or regulation could have an adverse effect on the Combined Company s business. The Combined Company s revenues and profitability could be reduced or otherwise adversely affected by pricing plans relating to commissions and fees on its trading platform. Reduced spreads in securities pricing, levels of trading activity and trading through market makers and/or specialists could materially adversely affect the Combined Company s business, financial condition and results of operations. The Combined Company may not be able to protect its intellectual property rights or may be prevented from using intellectual property necessary for its business. If the Combined Company is unable to protect the intellectual property rights it owns, its ability to operate electronic marketplaces may be materially adversely affected. If the Combined Company s software licenses from third parties are terminated or adversely changed or amended or if any of these third parties were to cease doing business, the Combined Company s ability to operate its business may be materially adversely affected. The financial markets in which the Combined Company will operate are generally affected by seasonality which could have a material adverse effect on the Combined Company s financial performance in a given period. The Combined Company will operate in a rapidly evolving business environment. If the Combined Company is unable to adapt its business effectively to keep pace with these changes, the Combined Company s ability to succeed will be adversely affected, which could have a material adverse effect on its business, financial condition and results of operations. The Combined Company s networks and those of its third-party service providers may be vulnerable to security risks, which could make the Combined Company s customers hesitant to use its electronic marketplaces. If the Combined Company experiences computer systems failures or capacity constraints, its ability to conduct its operations could be harmed. If the Combined Company fails to implement and maintain an effective internal control environment, its business and stock price could suffer. The Combined Company will be a holding company, and accordingly it will be dependent upon distributions from BGC U.S. and BGC Global to pay dividends, taxes and other expenses. While portions of the Combined Company s compensation structure will be variable, significant parts of the Combined Company s cost structure will be fixed, and if the Combined Company s revenues decline and the Combined Company is unable to reduce its costs in the amount that the Combined Company s revenues decline, its profitability could be materially adversely affected. Risks Related to the Combined Company s Relationship with Cantor and Its Affiliates The Combined Company will be controlled by Cantor, which will have potential conflicts of interest with the Combined Company and may exercise its control in a way that favors its interests to the Combined Company s detriment. Agreements between the Combined Company and Cantor are between related parties and the terms of these agreements may be less favorable to the Combined Company than those that the Combined Company could have negotiated with third parties. Risks Related to the Combined Company s Capital Structure Because the voting control of the Combined Company common stock will be concentrated among the holders of Combined Company Class B common stock, the market price of Combined Company Class A common stock may be adversely affected by disparate voting rights. Delaware law and the Combined Company certificate of incorporation may make a takeover of the Combined Company more difficult and dilute your percentage of ownership of Combined Company common stock. Delaware law may protect decisions of the Combined Company Board of Directors that have a different effect on holders of Combined Company Class A common stock and Class B common stock.

Full 10-K form ▸

1094831--3/17/2008--ESPEED_INC