943580--9/9/2008--LECROY

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{stock, price, share}

{debt, indebtedness, cash}

{tax, income, asset}

{property, intellectual, protect}

{product, market, service}

{operation, international, foreign}

{regulation, change, law}

{customer, product, revenue}

{stock, price, operating}

{acquisition, growth, future}

{product, candidate, development}

{personnel, key, retain}

{competitive, industry, competition}

{regulation, government, change}

{provision, law, control}

{condition, economic, financial}

{gas, price, oil}

{cost, regulation, environmental}

{operation, natural, condition}

{capital, credit, financial}

Our operating results are expected to continue to fluctuate and may not meet our financial guidance or published analyst forecasts, which may cause the price of our common stock to decline significantly. Our common stock price may be subject to significant fluctuations and volatility. If demand for our products does not match manufacturing capacity, we may underutilize our capacity or, alternatively, be unable to fulfill orders in a timely manner, and in either situation our operating results may suffer. If our operating results decline in the long-term, we may be required to establish an additional valuation allowance against our deferred tax assets. Changes to our tax rates or exposures to additional income tax liabilities could affect our operating results. Additionally, audits by tax authorities could result in additional tax payments for prior year periods. We are required to test our goodwill for impairment at least annually and that could result in a material impairment charge that would negatively impact our results of operations. We face risks from fluctuations in the value of foreign currency versus the U.S. dollar and the cost of currency exchange, which affect our revenue, cost of revenue and operating margins and could result in exchange losses. We face numerous risks associated with our international operations, which could cause a material adverse effect on our business and results of operations since approximately two-thirds of our revenues are derived from international sales. Our business practices in international markets subjects us to the requirements of additional regulation. If we or any of our employees are found to have violated these regulations, we could be subject to significant fines and other penalties. If we suffer loss to our facilities or distribution system due to catastrophe, our operations could be negatively impacted. We depend on single-source suppliers for some of our products, and the loss of these suppliers could harm our business by interrupting or terminating our manufacture of those products. Adverse changes in our relationships with, or the financial condition or performance of key distributors could adversely impact our operating results. We depend upon key personnel and qualified future hires to implement our expansion strategy, and if we are unable to retain or attract personnel we may not be able to manage and operate successfully and we may not be able to meet our strategic objectives. We may not be successful in protecting our intellectual and proprietary rights, which would deprive us of a competitive advantage and thereby negatively impact our ability to compete. Catalyst outsources a portion of its research and development activities to a third party in a foreign jurisdiction; the failure of this third party to adequately protect Catalyst s proprietary rights in the technologies developed for us by this third party or a change in the laws of its jurisdiction may result in the loss of those proprietary rights. We license certain intellectual property from third parties, and the loss of these licenses could delay development of future products or prevent the sale or enhancement of existing products. Potential acquisitions, strategic alliances, and joint ventures may result in financial results that are different than expected. We may not be able to obtain the capital we need to maintain or grow our business. We have a credit facility that contains financial covenants, and the failure to comply with these covenants could harm our financial condition because our credit facility may be unavailable to us. We have significantly increased our leverage as a result of the sale of the notes. The notes are effectively subordinated to all liabilities of our subsidiaries and to our secured debt and do not restrict certain corporate actions such as the payment of dividends and issuance of new debt. We may be unable to repay, repurchase or redeem the notes. If you hold notes, you will not be entitled to any rights with respect to our common stock, but you will be subject to all changes made with respect to our common stock. Conversion of the notes will dilute the ownership interest of existing stockholders, including stockholders who had previously converted their notes. Issuance of shares in connection with financing transactions or under stock plans will dilute current stockholders. Anti-takeover provisions under our charter documents, stockholder rights plan, and Delaware law could delay or prevent a change of control and could also limit the market price of our stock. Because we do not intend to pay dividends, stockholders will benefit from an investment in our common stock only if it appreciates in value. We could incur substantial costs as a result of violations of or liabilities under environmental laws. We are subject to laws and regulations governing government contracts, and failure to address these laws and regulations or comply with government contracts could harm our business by leading to a reduction in revenue associated with these customers. We face burdens relating to the recent trend toward stricter corporate governance and financial reporting standards. We must successfully execute our strategy to introduce new products. Without the timely introduction of competitive products, our products may become technologically obsolete. If we devote resources to developing products for emerging communications standards that ultimately are not widely accepted, our business could be harmed. If we fail to maintain and expand our relationships with the core or promoter companies in our target markets, we may have difficulty developing and marketing certain protocol analyzer products. We operate in highly competitive markets and this competition could reduce our market share and harm our business. A prolonged economic downturn could materially harm our business by decreasing capital spending.

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943580--9/9/2008--LECROY_CORP