350832--1/10/2007--AMERICAN_PACIFIC

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{customer, product, revenue}

{regulation, government, change}

{cost, regulation, environmental}

{product, liability, claim}

{debt, indebtedness, cash}

{competitive, industry, competition}

{product, market, service}

{cost, operation, labor}

{loss, insurance, financial}

{provision, law, control}

{personnel, key, retain}

{acquisition, growth, future}

{stock, price, operating}

{condition, economic, financial}

{property, intellectual, protect}

Our existing U.S. government contracts and contracts based on U.S. government contracts are subject to continued appropriations by congress and may be terminated if future funding is not made available. Our U.S. government or U.S. government contractor contracts can be categorized as either cost-plus or fixed-price. Our U.S. government contracts and our customer s U.S. government contracts are subject to termination. We are subject to procurement and other related laws and regulations, non-compliance with which may expose us to adverse consequences. Our operations and properties are currently the subject of numerous environmental and other government regulations, which may become more stringent in the future and may reduce our profitability and liquidity. The production of most of our Specialty Chemicals products is conducted in a single facility and our operations will be materially affected if production at that facility is disrupted. Disruptions in the supply of key raw materials and difficulties in the supplier qualification process, as well as increases in prices of raw materials, could adversely impact our operations. Our Fine Chemicals segment may be unable to comply with customer specifications and manufacturing instructions, experience schedule delays or other problems with existing or new products and systems, which could result in increased costs and loss of sales. Failure to meet strict timing or delivery requirements could cause AFC to be in breach of material customer contracts. Because AFC currently manufactures a limited number of products for a small number of customers, a problem with any of its significant customers or the final products that our chemical compound is a part could materially adversely affect its results of operations and cash flow. AFC depends heavily on third parties for the supply of certain raw materials used in its production processes. Successful commercialization of pharmaceutical products and product line extensions is very difficult and subject to many uncertainties. If a customer is not able to successfully commercialize its products for which AFC produces compounds, then the operating results of AFC may be negatively impacted. AFC or its customers may be unable to obtain government approval for its products or comply with government regulations relating to its business. Recall or withdrawal of a customer s product from the market or the failure of the customer to obtain regulatory approval of its products will impact forecasted revenues. AFC involves hazardous and highly potent materials and if it is unable to comply with the environmental laws and regulations to which it is subject, its results may be adversely affected. A strike or other work stoppage, or the inability to renew collective bargaining agreements on favorable terms, could have a material adverse effect on the cost structure and operational capabilities of AFC. The pharmaceutical fine chemicals industry is a capital-intensive industry and if AFC does not have enough capital to finance the necessary capital expenditures, its business and results of operations may be harmed. We have a substantial amount of debt, and the cost of servicing that debt could adversely affect our ability to take actions or our liquidity or financial condition. If we are unable to generate sufficient cash flow to service our debt and fund our operating costs, our liquidity may be adversely affected. Although we have established reserves for our environmental liabilities, given the many uncertainties involved in assessing liability for environmental claims, our reserves may not be sufficient. The release or explosion of dangerous materials used in our business could disrupt our operations and cause us to incur additional costs and liability. Our inability to adapt to rapid technological changes could impair our ability to remain competitive. Our proprietary rights may be violated or compromised, which could damage our operations. We are subject to intense competition in certain of the industries where we compete and therefore may not be able to compete successfully. Due to the nature of our business, our sales levels may fluctuate causing our quarterly operating results to fluctuate. The cyclicality and volatility of the chemical industry affects our capacity utilization and causes fluctuations in our results of operations. A loss of key personnel or highly skilled employees could disrupt our operations. Our Shareholder Rights Plan, Certificate of Incorporation and Bylaws discourage unsolicited takeover proposals and could prevent stockholders from realizing a premium on their common stock. We may continue to expand our operations through acquisitions, which could divert management s attention and expose us to unanticipated liabilities and costs. We may experience difficulties integrating the acquired operations, and we may incur costs relating to acquisitions that are never consummated.

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350832--1/10/2007--AMERICAN_PACIFIC_CORP