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EXHIBIT 99.1

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS

In passing the Private Securities Litigation Reform Act of 1995 (the Reform
Act), Congress encouraged public companies to make forward-looking
statements by creating a safe harbor to protect companies from securities law
liability in connection with forward-looking statements. We intend to qualify
both our written and oral forward-looking statements for protection under the
Reform Act and any other similar safe harbor provisions.

Forward-looking statements are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. The words
believe, expect, anticipate, intend, forecast, estimate, project,
and similar expressions identify forward-looking statements. Such statements
may include, but are not limited to, the state of the electronic payments
industry and competition within the industry; projections regarding specific
demand for our products and services; the commercial feasibility of new
products, services and market development initiatives; our future financial
performance and financial condition; the adequacy of our current facilities and
management systems infrastructure to meet our operational needs; the status of
our relationship with and condition of third parties upon whom we rely in the
conduct of our business; the sufficiency of reserves for assets and obligations
exposed to revaluation; our ability to successfully expand our
business; our
ability to effectively hedge our exposure to foreign currency exchange rate
fluctuations; our ability to sustain our current income tax structure; and
future access to capital on terms that are acceptable, as well as assumptions
related to the foregoing. Such forward-looking statements are within the
meaning of that term in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. All
forward-looking statements are inherently uncertain as they are based on
various expectations and assumptions concerning future events and they are
subject to numerous known and unknown risks and uncertainties that could cause
actual events or result to differ materially from those projected. Due to those
and other uncertainties and risks, you are urged not to place undue reliance on
our written or oral forward-looking statements. We undertake no obligation to
update or revise this Cautionary Statement Regarding Forward-Looking Statements
to reflect future developments. In addition, we undertake no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events, or changes to future operating results over
time.

We provide the following risk factor disclosure in connection with our
continuing effort to qualify our written and oral forward-looking statements
under the safe harbor protection of the Reform Act and any other similar safe
harbor provisions. Important factors currently known to management that could
cause actual results to differ materially from those in forward-looking
statements include the disclosures contained in our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and also
include the following:

RISK FACTORS

Risks Related To Our Business

We have incurred significant losses in the past. If we are unable to improve
our financial performance in line with investor expectations, the price of our
common stock will suffer and our access to future capital may be impaired.

We incurred losses of $61.1 and $19.9 million for the years ended December 31,
2002 and 2001, respectively. Although we have undertaken aggressive efforts to improve profitability, increase our free cash flow and strengthen our balance
sheet, it is possible that the steps we have taken will not be successful or of
sufficient impact for us to achieve an acceptable level of profitability. If
we fail to do so, the price of our common stock will suffer.





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We expect our results of operations to vary from quarter to quarter and, as a
result, we may not meet the expectations of our investors and stock analysts,
which could cause the price of our common stock to fluctuate or decline.

Our revenues and results of operations have fluctuated significantly in the
past and are likely to fluctuate significantly in the future. Accordingly, we
believe that period-to-period comparisons of our results of operations may be
misleading. You should not rely upon the results of one quarter as an
indication of future performance. Our revenue and operating results may fall
below the expectations of securities analysts or investors in some future
quarter or quarters. Our failure to meet these expectations could cause the
market price of our common stock to decline.

Our quarterly revenue and operating results may vary depending on a number of
factors, including:



| |  |  | variations in product mix, timing and size of fulfilled orders;
| | - |  | ---------------------------------------------------------------



| |  |  | customer deferral of purchases in anticipation of future product or service enhancements;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | accomplishment of certain performance parameters embedded in our service level agreements;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | the markets demand for new product offerings;
| | - |  | ----------------------------------------------



| |  |  | delays in the delivery of our products and services;
| | - |  | ----------------------------------------------------



| |  |  | product returns;
| | - |  | ----------------



| |  |  | incremental costs incurred as a result of product quality and/or performance issues;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | write-off of doubtful accounts receivables;
| | - |  | -------------------------------------------



| |  |  | inventory obsolescence;
| | - |  | -----------------------



| |  |  | manufacturing or production difficulties;
| | - |  | -----------------------------------------



| |  |  | restructuring activities;
| | - |  | -------------------------



| |  |  | foreign currency exchange rate fluctuations;
| | - |  | --------------------------------------------



| |  |  | variations in income tax as a function of income recognition by tax jurisdiction;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | availability and cost of financing; and
| | - |  | ---------------------------------------



| |  |  | industry and economic conditions, including competition, industry
standards, product certification requirements, trade restrictions and
other regulations.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

The loss of one or more of our key customers could significantly reduce our
revenues and profits.

We have derived, and believe that we may continue to derive, a significant
portion of our revenues from a limited number of large customers. For the
fiscal year ended December 31, 2002, our two largest customers accounted for
19.5% of our net revenue and our five largest customers
accounted for 32.8% of
our net revenue. As of December 31, 2002, three customers represented 58%, or
$45.0 million, of our total backlog of $77.4 million. Our customers may buy
less of our products or services depending on their own technological
developments, end-user demand for our products and internal budget cycles. A
major customer in one year may not purchase any of our products or services in
another year, which may negatively affect our financial performance.





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Our products may contain defects that may be difficult or even impossible to
correct. Product defects could result in sales delays, lost sales, delays in
our collection of receivables and claims against us.

We offer technically complex products which, when first introduced or released
in new versions, may contain software or hardware defects that are difficult to
detect and correct. The existence of defects and delays in correcting them
could result in negative consequences, including the following:



| |  |  | delays in shipping products;
| | - |  | ----------------------------



| |  |  | loss of market acceptance for our products;
| | - |  | -------------------------------------------



| |  |  | product returns;
| | - |  | ----------------



| |  |  | additional warranty expense; and
| | - |  | --------------------------------



| |  |  | diversion of R&D resources from new product development
| | - |  | -------------------------------------------------------

Even though we test all of our products, defects may continue to be identified
after products are shipped. In past periods, we have experienced various issues
in connection with product launches, including the need to rework these
products and stabilize product designs. Correcting defects can be a
time-consuming and difficult task. Software errors may take several months to
correct, and hardware errors may take even longer. Such issues may result in
sales delays, delays in the collection of receivables, cancellation of orders,
and lost sales, which could adversely affect our results of operations,
financial condition and future business.

We may accumulate excess or obsolete inventory that could result in
unanticipated price reductions and write downs and adversely affect
our results of operation and financial condition.

Managing the proper inventory levels for components and finished products is
challenging. In formulating our product offerings, we have focused our efforts
on providing to our customers products with greater capacity and functionality,
which requires us to develop and incorporate the most current technologies in
our products. This approach tends to increase the risk of obsolescence for
products and components we hold in inventory and may compound the difficulties
posed by other factors that affect our inventory levels, including the
following:



| |  |  | the need to maintain significant inventory of components that are in limited supply;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | buying components in bulk for the best pricing;
| | - |  | -----------------------------------------------



| |  |  | responding to the unpredictable demand for products;
| | - |  | ----------------------------------------------------



| |  |  | responding to customer requests for quick delivery schedules;
| | - |  | -------------------------------------------------------------



| |  |  | failure of customers to take delivery of
ordered products; and
| | - |  | --------------------------------------------------------------



| |  |  | product returns.
| | - |  | ----------------

If we accumulate excess or obsolete inventory, price reductions and inventory
write downs may result, which could adversely affect our results of operation
and financial condition.

If we are unable to adequately protect our proprietary technology, our
competitors may develop products substantially similar to our products and use
similar technologies, which may result in the loss of customers.

We rely on patent, copyright, trademark and trade secret laws, as well as
confidentiality, licensing and other contractual arrangements, to establish and
protect the proprietary aspects of our products. Our efforts may result in only
limited protection, and our competitors may develop, market and sell products
substantially equivalent to our products, or utilize technologies similar to
those used by us. If we are unable





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to adequately protect our proprietary technology, these third parties will be
able to compete more effectively against us, which could result in the loss of
customers and adversely affect our business.

Our products and other proprietary rights may infringe on the proprietary
rights of third parties, which may expose us to litigation.

Although we believe that our products do not infringe on any third partys
patents, we cannot be certain that we will not become involved in litigation
involving patents or proprietary rights. Patent and proprietary rights
litigation entails substantial legal and other costs, and there can be no
assurance that we will have the necessary financial resources to defend or
prosecute our rights in connection with any such litigation. Responding to,
defending or bringing claims related to our intellectual property rights may
require our management to redirect our human and financial resources to address
these claims.

A disruption in the manufacturing capabilities of our third-party manufacturers
or suppliers would negatively impact our ability to meet customer demands.

We rely on third-party manufacturers to manufacture and assemble our products.
We also depend upon third-party suppliers to deliver components that are free
from defects, competitive in functionality and cost, and in compliance with our
specifications and delivery schedules. Since we generally do not maintain large
inventories of our products or components, any termination of, or significant
disruption in, our relationship with our third-party manufacturers or suppliers
may prevent us from filling customer orders in a timely manner.

We have occasionally experienced, and may in the future experience, delays in
delivery of products and delivery of products of inferior quality from
third-party manufacturers. Although alternate manufacturers and suppliers are
generally available to produce our products and product components, the number
of manufacturers or suppliers of some of our products and components is
limited, and qualifying a replacement manufacturer or supplier could take
several months. In addition, our use of third-party manufacturers reduces our
direct control over product quality, manufacturing timing, yields and costs.
Disruption of the manufacture or supply of our products and components, or a
third-party manufacturers or suppliers failure to remain competitive in
functionality, quality or price, could delay or interrupt our ability to
manufacture or deliver our products to customers on a timely basis, which would
have a material adverse effect on our business and financial performance.

Force Majeure events, such as terrorist attacks, other acts of violence or war,
and health epidemics may affect the markets in which our common stock trades,
the markets in which we operate and our profitability.

Domestic and international terrorist attacks, wars and regional conflicts may
cause instability in the global financial markets, and contribute to downward
pressure on securities prices of United States publicly traded companies, such
as us. Future terrorist attacks or armed conflicts, and epidemics, such as
SARS, could result in economic, political and other uncertainties that could
adversely affect our revenues and operating results, and further depress
securities prices, including the price of our common stock. Such events may
disrupt the global insurance and reinsurance industries, and adversely affect
our ability to obtain or renew certain insurance policies, and may result in
significantly increased costs of maintaining insurance coverage. Further, we
may not be able to obtain insurance coverage at historical or acceptable levels
for all of our facilities. Future terrorist attacks, armed conflicts and
epidemics could affect our domestic and international sales, disrupt our supply
chain and impair our ability to produce and deliver our products. Such events
could directly impact our physical facilities or those of our suppliers or
customers, both in the United States and elsewhere. Our primary facilities
include administrative, sales and R&D facilities in the United States, and
manufacturing facilities in China. Acts of terrorism, wars and epidemics may
make transportation of our supplies and products more difficult or cost
prohibitive. Any impairment of our financial performance as a result of such
events would increase the risk of non-compliance with the financial covenants
under our senior secured credit facility and other lending arrangements,
resulting in events of default and the possible acceleration of our
indebtedness.





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If we cannot manage the additional challenges presented by our international
operations, our revenues and profitability may suffer.

For the year ended December 31,
2002, we derived approximately 66% of our total
net revenues from sales outside of the United States, principally in
Latin America and Europe. We expect that international sales will
continue to account for a significant percentage of our net revenue in the foreseeable
future. Accordingly, we face numerous risks associated with conducting
international operations, any of which could negatively affect our results of
operations and financial condition. These risks include the following:



| |  |  | changes in foreign country regulatory requirements;
| | - |  | ---------------------------------------------------



| |  |  | various import/export restrictions and the availability of required
import/export licenses;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | imposition of foreign tariffs and other trade barriers;
| | - |  | -------------------------------------------------------



| |  |  | political and economic instability;
| | - |  | -----------------------------------



| |  |  | foreign currency exchange rate fluctuations;
| | - |  | --------------------------------------------



| |  |  | availability of qualified staff with which to manage our foreign
operations;
| | - |  | ----------------------------------------------------------------------------



| |  |  | extended payment terms and the ability to collect accounts receivable; and
| | - |  | --------------------------------------------------------------------------



| |  |  | the ability to repatriate cash.
| | - |  | -------------------------------

Additionally, we are subject to the Foreign Corrupt Practices Act which may
place us at a competitive disadvantage to foreign companies that are not
subject to similar regulations.

We sell our POS products
directly to end-user merchants in the United Kingdom under sales-type
leases that are subject to governmental regulation and involve a risk
of default that, if excessive, could result in a substantial
write-off of that lease portfolio and impair our profitability.

Our subsidiary in the United Kingdom
sells POS equipment directly to end-user merchants under capital
lease arrangements accounted for as sales-type leases. The customer
base of this leasing business is characterized by higher incidences
of delinquencies and defaults and is distinctly different from the
Companys predominant customer base of large domestic and
international financial institutions, electronic payment processors,
independent sales organizations, distributors and resellers. We
maintain an allowance for estimated uncollectible sales-type lease
receivables at an amount that we believe is sufficient to provide
adequate protection against losses in our sales-type lease portfolio.
Our allowance is determined principally on the basis of historical
loss experience and managements assessment of the credit
quality of the sales-type lease customer base. The value of this lease
portfolio and the profitability of this leasing activity could be
substantially impaired if our existing lease loss reserves prove
inadequate or future leases we originate experience a default rate
greater than that for which we established reserves at the time of
inception. This business activity is also subject to governmental
regulation. Our failure to comply with such regulation could
adversely affect our ability to enforce the sales-type leases, which
could negatively impact our results of operation and financial
condition.

We are dependent on current management and key personnel. The loss of certain
of these individuals could cause material harm to the operation and future
prospects of our business.

Christopher Alexander, our Chairman, President and Chief Executive Officer, and
John W. Smolak, our Executive Vice President and Chief Financial and
Administrative Officer, are instrumental in the development, growth and
operations of Hypercom. The loss of either of these key executives could have a
material adverse effect on the operation and future prospects of our business.

We also believe our future success will depend largely upon our ability to
attract and retain highly-skilled hardware and software engineers, managerial,
and sales and marketing personnel. We compete against numerous companies,
including larger, more established companies, for our personnel. We do not know
if we will be successful in attracting or retaining skilled personnel. Further,
the loss of certain key employees or our inability to attract and retain other
qualified employees could negatively affect our financial performance.

We have in the past and may in the future make acquisitions and strategic
investments, which will involve numerous risks. We may not be able to address
these risks without substantial expense, delay or other operational or
financial problems.

We may acquire or make substantial investments in related businesses,
technologies, products or services in the future. These acquisitions or
investments involve various risks, such as:



| |  |  | the inability to assimilate the technologies, operations and
personnel of the acquired business;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | the potential disruption of our existing business, including the
diversion of management attention and the redeployment of additional
resources;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------





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| |  |  | the loss of key employees of an acquired
business; and
| | - |  | ------------------------------------------------------



| |  |  | an inability to obtain the desired strategic and financial benefits from
the acquisition or investment.
| | - |  | -------------------------------------------------------------------------------------------------------



| |  | Future acquisitions and investments could also result in substantial cash
expenditures, potentially dilutive issuance of our equity securities, our
incurring of additional debt and contingent liabilities, and amortization
expenses related to other intangible assets that could adversely affect our
business, operating results and financial condition.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Risks Related To The Industry

The markets in which we compete are highly competitive, maturing, and subject
to price erosion.

The markets in which we operate are maturing and highly competitive. Increased
competition from manufacturers or distributors of products similar to or
competitive with our products, or from service providers that provide services
similar to our services, could result in price reductions, extended terms,
reduced margins and a loss of market share.

We expect to continue to experience significant and increasing levels of
competition in the future. With respect to our POS payment system products, we
compete primarily on the basis of ease-of-use, product performance, price,
features, quality, the availability of application software programs, the
number of third-party network host and telecommunication system certifications
we have obtained for our products and application programs, rapid development,
release and delivery of software products and customer support and
responsiveness. Software products compete on the basis of functionality,
scalability, quality and support.



| |  |  | In the POS terminal segment, our global competitors are Ingenico, a
France-based company, VeriFone, Inc., a privately-held domestic
company, and Lipman, an Israel-based company. In any particular market,
we may also find ourselves in competition with local or regional
manufacturers and distributors.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In the electronic cash register market, we compete with companies
such as IBM, Siemens, NCR, ICL and Micros.
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | In the specialty network products niche of the marketplace, our
primary competitors are Cisco, 3Com, Motorola and Suntec, all of which
are U.S.-based.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

We often face additional competitive factors in foreign countries, including
but not limited to preferences for national vendors, difficulties in obtaining
required certifications, conformity with local government policies and trade
practices, and compliance with the Foreign Corrupt Practices Act. Some of our
competitors and potential competitors are more established, benefit from
greater name recognition and have significantly greater resources than we do.
Moreover, there are limited barriers to entry that could keep our competitors
from developing products or services and technology similar to ours, or from
selling competing products or services in our markets.

We are subject to industry and technology changes and are dependent on
development and market acceptance of new products. If we are unable to
adequately respond to these changes and to market demands in a timely manner,
our business will not be successful.

The industry in which we operate is characterized by rapid changes in
technology and numerous new product introductions. Our success depends to a
large degree upon our continued ability to offer new products and enhancements
to our existing products to meet changing market requirements,
including conformity with imposed standards. The introduction of new products and
technologies by third parties could have an adverse effect on the sales of our
existing products and technologies. We cannot be certain of our ability to
successfully:





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| |  |  | identify, develop, or manufacture new products and technologies in a cost effective manner;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | market or support these new products and technologies on a timely basis;
| | - |  | ------------------------------------------------------------------------



| |  |  | eliminate defects in new products;
| | - |  | ----------------------------------



| |  |  | gain market acceptance for the new products and technologies; or
| | - |  | ----------------------------------------------------------------



| |  |  | respond to technological changes, new industry standards, and
announcements of new products by competitors.
| | - |  | -----------------------------------------------------------------------------------------------------------

Developing new products and technologies is a complex, uncertain process
requiring innovation and accurate anticipation of technological and market
trends. When changes to the product line are announced, we will be challenged
to manage possible shortened life cycles for existing products, continue to
sell existing products and prevent customers from returning existing products.
Our inability to respond effectively to any of these challenges may have a
material adverse effect on our business and financial success. We may suffer
other business and financial losses if we are not successful in marketing new
products and responding to industry changes and new product introductions or
enhancements by our competitors.

We are subject to extensive industry standards and government regulations. Our
failure to properly comply with these standards and regulations could adversely
affect our production and sales.

Our product sales are subject to a substantial and complex array of industry
driven standards and governmental regulation, both domestic and foreign,
including:



| |  |  | industry standards imposed by EuroPay International, Mastercard
International, VISA International, and others;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | certification standards required for connection to some public telecommunications networks;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | Federal Communications Commission regulations;
| | - |  | ----------------------------------------------



| |  |  | Underwriters Laboratories regulations; and
| | - |  | -------------------------------------------



| |  |  | certification standards set by domestic processors.
| | - |  | ---------------------------------------------------

Our failure to properly comply with these standards and regulations could
result in lost product sales, significant costs associated with required
remedial measures or production stoppages, any of which could have a material
adverse effect on our business and financial performance.

Risks Related To Our Common Stock

Our stock price has been and may continue to be volatile.

The market price of our common stock has been, and is likely to continue to be,
volatile. When we or our competitors announce new customer orders or services,
change pricing policies, experience quarterly fluctuations in operating
results, announce strategic relationships, acquisitions or dispositions, change
earnings estimates, experience government regulatory actions or suffer from
generally adverse economic conditions, our stock price is often affected.
Recently, companies similar to ours have experienced extreme price
fluctuations, often for reasons unrelated to their performance.

We are subject to anti-takeover effects of certain charter and bylaw provisions
and Delaware law.

We have provisions in our certificate of incorporation and bylaws which:





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| |  |  | make it more difficult for a third party to acquire control of us,
and discourage a third party from attempting to acquire control of us;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | may limit the price some investors are willing to pay for our
common stock;
| | - |  | ---------------------------------------------------------------------------



| |  |  | enable us to issue preferred stock without a vote of our
stockholders or other stockholder action;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | provide for a classified Board of Directors and regulate nominations for the Board of Directors;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | make it more difficult for stockholders to take certain corporate actions; and
| | - |  | ------------------------------------------------------------------------------



| |  |  | may delay or prevent a change of control.
| | - |  | -----------------------------------------

These and other provisions of our charter documents, as well as certain
provisions of Delaware law, could delay or make more difficult certain types of
transactions involving a change of control of Hypercom or our management. As a
result, the price of our common stock may be adversely affected.

Our stock price could be affected because a substantial number of shares of our
common stock will be available for sale in the future.

As of November 11, 2003, we had
49,853,702 shares of our common stock
outstanding, all of which have been listed for trading according to
the rules of the New York Stock
Exchange. We also had outstanding, as of November 11, 2003, options and warrants
to acquire an additional 11,160,243 shares of our common stock. All of the
shares underlying the outstanding options and warrants have been registered for
resale. Future public sales of our common stock, or the availability of such
shares for sale, including the shares subject to outstanding options and
warrants, could adversely affect the prevailing market price of our common
stock and impair our ability to raise capital through the sale of additional
equity securities.

We do not plan to pay any dividends on our common stock.

We do not anticipate paying any dividends on our common stock for the
foreseeable future. Our credit agreements restrict our ability to pay cash
dividends on our common stock.

Risks Related To Our Indebtedness

Our indebtedness and the restrictions imposed by the terms of our debt could
adversely affect our financial condition and our ability to respond to changes
in our business.

As a result of the terms of our senior secured credit facility:



| |  |  | our vulnerability to adverse general economic conditions and
competitive pressures is heightened;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | we are governed by restrictive covenants that require us to
maintain certain financial ratios and limit our ability to, among other
things, borrow additional funds, make capital expenditures, pay
dividends, make investments, consummate asset sales or conduct
mergers and acquisitions;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our flexibility in planning for, or reacting to, changes in our
business and industry will be limited;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | we are sensitive to fluctuations in interest rates because some of
our debt obligations are subject to variable interest rates;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may incur significant fees and expenses if we terminate our
credit facility prior to its scheduled expiration; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------





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| |  |  | our ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general corporate
purposes or other purposes may be impaired.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We cannot assure you that our leverage and such restrictions will not
materially and adversely affect our ability to finance our future operations or
capital needs or to engage in other business activities. In addition, we cannot
assure you that additional or replacement financing will be available when
required or, if available, will be on terms satisfactory to us. Further, even
if we were able to obtain additional or replacement financing, we may be
required to use the proceeds thereof to repay any outstanding debt.

Our loan agreement contains restrictive and financial covenants and, if we are
unable to comply with these covenants, we will be in default. A default could
result in the acceleration of any outstanding indebtedness, which would have an
adverse effect on our business and the price of our common stock.

Our senior secured credit facility contains customary covenants that require us
to maintain certain specified financial ratios and consolidated net worth and
restrict our ability to make certain distributions with respect to our capital
stock, prepay other debt, or undertake various other corporate activities. For
example, our senior secured credit facility contains covenants that, subject to
specified exceptions, prohibit us from:



| |  |  | incurring any additional indebtedness;
| | - |  | --------------------------------------



| |  |  | incurring or permitting to exist any additional liens on our assets;
| | - |  | --------------------------------------------------------------------



| |  |  | engaging in a change of control transaction or other fundamental
change, such as a merger, recapitalization or liquidation;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | disposing of our assets, including equipment and inventory, outside
the ordinary course of business;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | prepaying or modifying the terms of our existing indebtedness,
except in connection with a permitted refinancing;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | redeeming or paying dividends or other distributions on our capital stock;
| | - |  | --------------------------------------------------------------------------



| |  |  | engaging in certain transactions with our affiliates;
| | - |  | -----------------------------------------------------



| |  |  | failing to maintain specified levels of EBITDA and tangible net
worth and ratios of senior debt and total debt to EBITDA; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | issuing or selling any prohibited preferred stock.
| | - |  | --------------------------------------------------

If we are unable to comply with any of these covenants, we will be in default,
which could cause cross-defaults under other loans or agreements. A default, if
not waived by our lenders, could result in the acceleration of any outstanding
indebtedness and cause such debt to become immediately due and payable. If we
were required to obtain waivers of defaults, we may incur significant fees and
transaction costs. If waivers of defaults are not obtained and acceleration
occurs, we will be required to repay our debt, and we may not be able to borrow
sufficient additional funds to refinance this debt. Even if new financing is
made available to us, it may not be available on acceptable terms.