| Risk Factors As with all companies, MAM is exposed to certain risk factors as a result of their operations |
| MAM has identified the following key risk factors for the company as a whole and also specific to the various industries in which MAM and its subsidiaries operate |
| Liquidity and Capital Formation Risk MAMapstas current liabilities of dlra23dtta17 million as of December 31, 2005, exceed its current assets of dlra12dtta68 million by dlra10dtta49 million, exposing MAM to the risk of being unable to fulfill its obligations in 2006 |
| However, of these current liabilities, dlra14dtta1 million is short-term borrowings, including the lines of credit and one-year notes payable through Royal Bank of Canada |
| MAM has taken steps to mitigate this short-term risk before and after year-end, including identification of additional sources of financing and options to reduce or defer costs |
| In the long term, Management expects MAMapstas cash flow to improve, with MPSapstas recovery of deferred fuel and other stranded costs currently deferred by MPS The current cash expenditures for deferred fuel and Maine Yankee exceed the recovery of stranded costs |
| With the expiration of the Wheelabrator-Sherman contract in December 2006, this position will reverse, and recovery of stranded costs will exceed the cash outflows |
| Lack of Profitable Operations from Unregulated Business The unregulated business segments which have been added since 2003 have not been profitable to date |
| Please read the in-depth analysis in the Managementapstas Discussion and Analysis of Financial Condition and Results of Operations |
| As noted there, Management believes that the success of these ventures is crucial to the future growth of the Company, but can give no assurances as to the success of these ventures |
| Acquisition and Integration Risks The Maricor Group and Maricor Properties have each acquired several companies over the past three years, in conjunction with MAMapstas growth strategy |
| The companies face several risks associated with this process, including lack of suitable available targets, insufficient funds for acquisitions to achieve the growth strategy, lack of synergies and the cost of integration |
| MAM and its subsidiaries mitigate these risks through a due diligence process intended to identify and mitigate these risks throughout and after the acquisition process |
| Legislation and Regulation Changes in legislation and regulation could impact MAMapstas earnings and operations positively or negatively |
| Such changes could include changes in tax rates, changes in environmental or workplace laws or changes in regulation of cross-border transactions |
| For The Maricor Group, public policies related to energy, energy efficiency, asset lifecycle management, and air emissions may impact the overall market, particularly the governmental sectors |
| MPS is a regulated utility, operating its distribution activity under the jurisdiction of the Maine Public Utilities Commission and transmission activity under the jurisdiction of the Federal Energy Regulatory Commission |
| MPUC and FERC regulate the rates MPS is allowed to charge its customers |
| MPS filed notice with the MPUC on January 10, 2006, under Docket Nodtta 2006-24, that it intended to seek a 4prca increase in distribution rates, a procedure expected to last through most of 2006 |
| Further, the transmission formula under which MPS transmission rates have been determined for the past three years is up for review and negotiation for the rates that will go into effect on June 1, 2006 |
| Finally, the rates for recovery of stranded costs are set to expire in December 2006 |
| The outcome of these rate 6 _________________________________________________________________ cases could have a positive or negative impact on earnings and cash flow; their ultimate impact is unknown at this time |
| Foreign Operations MAM subsidiaries Maricor Properties, including its subsidiaries Mecel Properties Ltd and Cornwallis Court Developments Ltd and its joint venture Maricor Ashford Ltd, and The Maricor Group, Canada operate in Canada |
| There are a number of risks associated with operations outside of the United States, including differences in laws, policies and measures; regulatory requirements affecting trade and investment; differences in social, political, labor, and economic conditions, including foreign exchange rates; difficulties in staffing and managing foreign operations; and potential adverse foreign tax consequences |
| General Economic Conditions MAM, like all other entities, is exposed to a certain amount of risk as a result of the general economic conditions under which it operates |
| Such risks include the overall economy of the geographic region in which the entity operates, interest rate risk, risk of loss of value of real estate assets and risk of inflation |
| Economy of the Region MPS operations are restricted to a territory in Aroostook County and northern Penobscot County, Maine |
| Limited population growth and economic expansion in the region could negatively impact the utilityapstas ability to maintain this customer base |
| MPS has been actively involved with the Aroostook Partnership for Progress, an organization with the mission of enhancing the economy in Aroostook County |
| The Maricor Group and its subsidiaries generally operate within Atlantic Canada and New England |
| The nature of work available may differ depending on various economic and political conditions, including cost of energy, interest rates, and other factors |
| Interest Rate Risk MAM, TMG, Maricor Properties and MPS each have interest rate risk due to variable interest rates on financing arrangements |
| The Company has mitigated a portion of this risk by fixing interest rates on three MPS variable rate debt issues with a derivative interest rate swap transaction on September 9, 2003 |
| See Item 8 of this Form 10-K, Note 7 to the Consolidated Financial Statements, "e Accumulated Other Comprehensive Income (Loss), "e which is hereby incorporated by this reference, for a discussion on the impact on MPSapstas financial statements and further description of the interest rate swaps |
| The Company has observed that increasing interest rates generally tend to negatively impact the market for fee-for-service mechanical and electrical engineering services |
| However, increasing interest rates also appear to increase the demand for energy efficiency and asset lifecycle management services |
| The Company cannot warrant or predict these economic effects and makes no predictive statement as to future market or competitive trends |
| Value of Real Estate The net book value of Maricor Properties &apos real estate totaled dlra7dtta82 million at December 31, 2005 |
| MAM is exposed to risk associated with the local real estate markets in Moncton, New Brunswick and Halifax, Nova Scotia, and its impact on the value of these properties |
| The most recent appraisals 7 _________________________________________________________________ obtained during 2005 and 2006 indicate that the appraised value of the properties currently exceeds the book value; however, this position could reverse with changes in the real estate markets |
| Inflation Risk MAM is exposed to inflation risk in both the United States and Canada |
| Franchises and Competition Except for consumers served by municipal electric utilities within MPSapstas service area, MPS has a nearly exclusive franchise to deliver electric energy in its service territory, and has little exposure to risk from competition |
| The Maricor Group, Canada Ltd and The Maricor Group New England operate in competitive markets and do not have exclusive franchises |
| Competition for contracts comes from local, regional and mechanical and electrical engineering firms, as well as local, regional or national energy services, energy asset development and energy controls companies |
| TMGC also faces risks associated with their relationships with the local architectural firms |
| The majority of its current business is obtained through local architects, and a deterioration of this relationship could negatively impact financial performance |
| Maricor Properties Ltd, Cornwallis Court Developments Ltd and Mecel Properties Ltd compete in the open market for tenants for facilities owned and operated by these subsidiaries |
| Competition is driven by per square foot lease costs, operating costs, quality of the work environment, availability of parking, management services and other factors that could influence a tenant to lease office space |
| These companies have greatly mitigated this risk with their existing long-term leases for tenants |
| In addition to competition for tenants, the subsidiaries compete in the market with other real estate and development companies regarding the potential acquisition of additional real estate |
| Market conditions driven by supply and demand issues, as well as interest rates typically drive the subsidiaries &apos markets to acquire, lease or sell real estate holdings |
| Maricor Properties and Mecel Properties compete with individual real estate developers, regional real estate developers, real estate investment trusts ( "e REITs "e ), national real estate developers, insurance companies and others that invest in commercial real estate |
| competes in the open market and does not have an exclusive franchise |
| Factors affecting its market include the economic needs of facilities owners, the age of facilities infrastructure, the availability or lack thereof of capital, public policies and other issues |
| It competes with existing and potential additional providers and/or developers of similar software solutions |
| Maintaining the market viability of their software assets through product enhancements and new versions is a critical part of ensuring its market competitiveness |
| Additionally, its competitiveness may be impacted by its ability to expand its product offerings to address a more comprehensive array of facility infrastructure information management and planning needs |
| Environmental Risks MAM, particularly MPS, bear environmental risks associated with former ownership of nuclear, diesel and oil fired generation, as well as the ownership of transformers containing Poly Chlorinated Bi-phenols ( "e PCBapstas "e ) |
| Further, MPS has potential risks concerning claims related to electro-magnetic fields ( "e EMFapstas "e ) |
| While the Company takes significant steps to ensure prudent environmental practices, it cannot assure that risks do not exist from past or future environmental practices |
| Additionally, while the Company does not believe EMFapstas represent a danger, particularly due to its lack of ownership of bulk transmission, it cannot warrant that claims could not be filed |
| 8 _________________________________________________________________ Aging Infrastructure and Reliability MPS has risks associated with aging infrastructure assets that may in some instances be beyond the useful life of the asset |
| The failure of such assets could result in the loss of power that could result in harm to property or person |
| MPS works diligently through on-site inspection and testing programs to ensure the integrity of its infrastructure, but cannot warrant that outages will not occur due to the age of some infrastructure |
| MPS does maintain substantial back-up equipment and the capability to repair or rebuild such assets in a timely manner, including the maintenance of mobile transformers |
| Debt Covenants MAM and certain of its subsidiaries have obtained financing with financial and other covenants, such as debt service coverage ratios |
| This could also trigger increases in interest rates, difficulty obtaining other sources of financing and cross-default provisions within the debt agreements |
| Collections Risk MAMapstas subsidiaries sometimes extend credit to their customers |
| This may be regulated, as in the case of MPS, or under the terms of contracts or leases |
| MAM partly mitigates this risk through the use of credit checks and monitoring of the accounts receivable aging |
| MAM also maintains an allowance for uncollectible accounts for accounts receivable that are unlikely to be collected |
| Attraction and Retention of Qualified Employees MAM primarily operates in service sectors, and is heavily dependent on the attraction and retention of qualified employees, including engineers and electricians |
| MAM maintains competitive wage and benefits packages for its employees to aid in attracting and retaining staff |
| Equity Price Risk The Maricor Group and its subsidiaries incurred equity price risk when it bought the stock of certain of its subsidiaries |
| Part of the consideration was MAM stock |
| In the event that the price of MAM common stock is below a specified price when the seller wishes to dispose of it, The Maricor Group (or the applicable subsidiary) has agreed to pay the difference |
| There were 41cmam151 shares outstanding pursuant to this kind of agreement as of December 31, 2005 |
| At a market price of dlra15dtta49 per share on that date, the total exposure was approximately dlra814cmam000 |
| A dlra1dtta00 change in the market price would impact this exposure by approximately dlra41cmam000 |
| Market price protection of a different sort was given by Maricor Technologies when it acquired the HCI assets |
| Part of the consideration for that acquisition was MAM preferred stock which is convertible into 26cmam000 shares of MAM common stock on February 15, 2008, subject to some other conditions |
| To the extent that the market price of MAM common stock is then below dlra25 per share, the number of shares issuable on conversion is ratably increased, which could result in further dilution of MAMapstas common stock |
| Professional Liability The Maricor Group and its subsidiaries are subject to risks associated with engineering design errors and/or omissions |
| The Company carries insurance to address errors and omissions to mitigate certain risks |
| 9 _________________________________________________________________ Technological Obsolescence Due to the nature of their business, Maricor Technologies is subject to risks associated with changing technologies and obsolescence of their products |
| As a result, MTI monitors technology and competitor trends to ensure its product offerings remain market competitive |
| Weather MPS and its electric wires infrastructure are at risk to natural phenomena, especially those caused by the weather |
| Storms, such as ice storms and major winter snow storms may have an impact on the integrity of MPS infrastructure assets in the field |
| Vandalism, Terrorism and Other Illegal Acts MAM and its asset-owning subsidiaries are subject to the risks of damage to others &apos properties or human harm due to the failure of infrastructure |
| While MAM and its subsidiaries exercise diligent asset management and asset inspections, it cannot warrant that such risks can be fully eliminated |
| MPS and its electric wires and information technology infrastructure are particularly at risk to vandalism and acts of terrorism |
| While the Company takes steps to protect against such illegal acts through various risk insurance policies and other protective measures, including restricting access to assets, it cannot warrant that they cannot happen |
| Information Technology MAM is subject to systemic risks associated with information technology systems that could impact the calculative outcome of billing determinations or the unintended release of confidential consumer information |
| MAM goes to significant lengths to stress test its systems and protect against such events; however, the Company cannot warrant that such risks do not exist |
| Alternative Generation Options MPS does face technology and product substitution risks associated with the evolution of distributed generation, non-utility generation, and other alternative fuel forms |
| The primary risk in this area is non-utility generation, which the utility successfully competed with to date |
| However, as electric commodity prices increase, the viability of alternative fuel from non-utility generation may become more practical |
| Such projects could result in reduced usage of MPSapstas delivery system |