790705--5/30/2006--TEKELEC

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{customer, product, revenue}

{product, market, service}

{system, service, information}

{personnel, key, retain}

{property, intellectual, protect}

{financial, litigation, operation}

{condition, economic, financial}

{cost, operation, labor}

{tax, income, asset}

{operation, international, foreign}

{loan, real, estate}

{acquisition, growth, future}

{regulation, change, law}

{control, financial, internal}

{cost, regulation, environmental}

{competitive, industry, competition}

{regulation, government, change}

{operation, natural, condition}

Our operating results may be adversely affected by unfavorable economic and market conditions and the uncertain geopolitical environment. We expect our margins to vary over time, and our recent level of gross margins and operating margins may not be sustainable. The markets in which we compete are intensely competitive, which could adversely affect our revenue and net income growth. We have limited product offerings, and our revenues may suffer if demand for any of our products declines or fails to develop as we expect, if we are not able to develop and market additional and enhanced product offerings or if we consummate the sale of our IEX Contact Center Group. If wireless carriers do not continue to grow and to buy our Network Signaling Group products and services, our network signaling related business would be harmed. Our business is subject to risks related to the potential convergence of voice and data networks. The restatement of our consolidated financial statements and related events could have a material adverse effect on us. We have identified a material weakness in our disclosure controls and procedures and our internal control over financial reporting, which, if not remediated effectively, could have an adverse effect on the trading price of our Common Stock and otherwise seriously harm our business. We may not realize the anticipated benefits of past or future acquisitions, and integration of acquisitions may disrupt our business and management. We may incur future restructuring charges, which may adversely impact our operations. If we do not successfully manage the size of our operations, our profitability may be negatively impacted. Decreased effectiveness of equity compensation could negatively impact our ability to attract and retain employees, and a modification to our equity compensation strategy or recent changes in accounting for equity compensation could adversely affect our earnings. If our products do not satisfy customer demand for performance or price, our customers could purchase products from our competitors. We depend on a limited number of customers for a substantial portion of our revenues, and the loss of one or more of these customers could adversely affect our operating results. If we fail to develop or introduce new products in a timely fashion, our business will suffer. Our products are complex and may have errors that are not detected until deployment, and litigation related to warranty and product liability claims could be expensive and could negatively affect our reputation and profitability. Our relationships with strategic partners and distributors and other resellers are important to our future growth. Our business is subject to changing regulation of corporate governance and public disclosure that has increased both our costs and the risk of noncompliance. Our compliance with telecommunications regulations and standards may be time consuming, difficult and costly, and if we fail to comply, our product sales would decrease. Changes in telecommunications regulation and tariffs could harm our prospects and future sales. We have significant international sales, and international markets have inherent risks. Failure to retain and recruit key personnel could harm our ability to meet key objectives. Adverse resolution of litigation may harm our operating results or financial condition. Changes in effective tax rates or adverse outcomes resulting from examination of our income tax returns could adversely affect our results. Problems such as computer viruses or terrorism may disrupt our operations and harm our operating results. We are exposed to fluctuations in the market values of our portfolio investments and in interest rates and, therefore, impairment of our investments could harm our earnings. There can be no assurances that our measures to protect our proprietary technology and other intellectual property rights are adequate, and if we fail to protect those rights, our business would be harmed. Because we are subject to third parties claims that we are infringing their intellectual property and may become subject to additional such claims in the future, we may be prevented from selling certain products and we may incur significant expenses in resolving these claims. If we fail to accurately forecast our manufacturing requirements or customer demand or fail to effectively manage our contract manufacturer relationships, we could incur additional costs or be unable to timely fulfill our customer commitments which would adversely affect our business and results of operations and harm our customer relationships. We rely on third parties to provide many of our subsystems and components. If we are unable to obtain our subsystems and components from these parties at reasonable prices or on a timely basis, we may not be able to obtain substitute subsystems or components on terms that are as favorable. We are exposed to the credit risk of some of our customers and to credit exposures in certain markets.

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