886235--3/6/2009--ASPECT_MEDICAL_SYSTEMS

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Fluctuations in our quarterly operating results could cause our stock price to decrease. The current crisis in global credit and financial markets could materially and adversely affect our business and results of operations and our investment portfolio may become impaired further by a continuation of the global economic crisis. If the estimates we make, and the assumptions on which we rely, in preparing our financial statements prove inaccurate, our actual results may vary from those reflected in our financial statements. Compliance with changing regulation of corporate governance and public disclosure as well as potential new accounting pronouncements are likely to impact our future financial position or results of operations. Failure to maintain effective internal controls in accordance with section 404 of the Sarbanes-Oxley act could have a material adverse effect on our business and stock price. We may need additional financing for our future capital needs and may not be able to raise additional funds on terms acceptable to us, or at all. Cases of awareness with recall during monitoring with the BIS system could limit market acceptance of the BIS system and could expose us to product liability claims. We may not be able to compete with new products or alternative techniques developed by others, which could impair our ability to remain competitive and achieve future growth. If we do not maintain our relationships with the anesthesia community and if anesthesiologists and other healthcare providers do not recommend and endorse our products, our sales may decline or we may be unable to increase our sales and profits. Negative publicity or unfavorable media coverage could damage our reputation and harm our operations. If we do not successfully develop or acquire and introduce enhanced or new products we could lose revenue opportunities and customers. If our clinical trials are delayed or unsuccessful, our business could be adversely affected. If we do not develop and implement a successful sales and marketing strategy, we will not expand our business. We encourage our direct sales force, distributors and original equipment manufacturers to maximize the amount of our products they sell and they may engage in aggressive sales practices that may harm our reputation. Our third-party distribution and original equipment manufacturer relationships could negatively affect our profitability, cause sales of our products to decline and be difficult to terminate if we are dissatisfied. We may not be able to generate enough additional revenue from our international expansion to offset the costs associated with establishing and maintaining foreign operations. We may not be able to meet the unique operational, legal and financial challenges that we encounter in our international operations, which may limit the growth of our business. We may experience customer dissatisfaction and our reputation could suffer if we fail to manufacture enough products to meet our customers demands. Our reliance on sole-source suppliers could adversely affect our ability to meet our customers demands for our products in a timely manner or within budget. We may be required to bring litigation to enforce our intellectual property rights, which may result in substantial expense and may divert our attention from the implementation of our business strategy. We may be sued by third parties which claim that our products infringe on their intellectual property rights, particularly because there is substantial uncertainty about the validity and breadth of medical device patents. We could be exposed to significant product liability claims which could divert management attention and adversely affect our cash balances, our ability to obtain and maintain insurance coverage at satisfactory rates or in adequate amounts and our reputation. Several class action lawsuits have been filed against the underwriters of our initial public offering which may result in negative publicity and potential litigation against us that would be costly to defend and the outcome of which is uncertain and may harm our business. We and Boston Scientific jointly terminated our strategic alliance and other agreements and, as a result, we may not have sufficient funding to finance our neuroscience programs. We may not reserve amounts adequate to cover product obsolescence, claims and returns, which could result in unanticipated expenses and fluctuations in operating results. We may not be able to compete effectively, which could result in price reductions and decreased demand for our products. Our ability to market and sell our products and generate revenue depends upon receipt of domestic and foreign regulatory approval of our products and manufacturing operations. All of our manufacturing activities are performed at a single site and any disaster at this site could disrupt our ability to manufacture our products for a substantial length of time, which could cause our revenues to decrease. Even if we obtain the necessary FDA clearances or approvals, if we or our suppliers fail to comply with ongoing regulatory requirements our products could be subject to restrictions or withdrawal from the market. We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and regulations and, if we are unable to fully comply with such laws, could face substantial penalties. If we do not retain our senior management and other key employees, we may not be able to successfully implement our business strategy. If we do not attract and retain skilled personnel, or if we do not maintain good relationships with our employees, we will not be able to expand our business. If we make any acquisitions, we will incur a variety of costs and may never successfully integrate the acquired business into ours. Our employees may engage in misconduct or other improper activities, including insider trading. Failure of users of the BIS system, or users of future products we may develop, to obtain adequate reimbursement from third-party payors could limit market acceptance of the BIS system and other products, which could prevent us from sustaining profitability. The market price of our stock is highly volatile. This volatility could cause your investment in our stock to suffer a decline in value. Transactions engaged in by our largest stockholders, our directors or executives involving our common stock may have an adverse effect on the price of our stock. We have various mechanisms in place to discourage takeover attempts, which may reduce or eliminate our stockholders ability to sell their shares for a premium in a change of control transaction. Risks Related to our Issuance of $125.0 Million Principal Amount of 2.5% Convertible Senior Notes due 2014 Our increased indebtedness as a result of the issuance of $125.0 million principal amount of 2.5% convertible senior notes, or the notes, may harm our financial condition and results of operations. We may not have the cash necessary to pay interest on the notes, to settle conversions of the notes (if we have obtained stockholder approval to elect net share settlement of the notes, and we irrevocably elect such settlement method) or to repurchase the notes upon a fundamental change. The net share settlement feature of the notes, if available, may have adverse consequences. If we repurchase any portion of our notes, such repurchases could adversely affect the holders of both our notes and our common stock and could also adversely affect our financial condition and operating results. Future sales of our common stock in the public market or the issuance of securities senior to our common stock could adversely affect the trading price of our common stock and the value of the notes and our ability to raise funds in new securities offerings. Conversion of the notes will dilute the ownership interest of existing stockholders, including holders who had previously converted their notes. Provisions in the indenture for the notes may deter or prevent a business combination that may be favorable to note holders. The notes may not be rated or may receive a lower rating than anticipated. The effective subordination of the notes to our secured indebtedness to the extent of the collateral securing such indebtedness may limit our ability to satisfy our obligations under the notes. The structural subordination of the notes to our secured liabilities and all liabilities and preferred equity of our subsidiaries may limit our ability to satisfy our obligations under the notes.

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886235--3/6/2009--ASPECT_MEDICAL_SYSTEMS_INC