1 ACCOUNTING AND OTHER TERMS

2 LOAN AND TERMS OF PAYMENT

3 CONDITIONS OF LOANS

4 CREATION OF SECURITY INTEREST

5 REPRESENTATIONS AND WARRANTIES

6 AFFIRMATIVE COVENANTS

7 NEGATIVE COVENANTS

8 EVENTS OF DEFAULT

9 BANK’S RIGHTS AND REMEDIES

10 NOTICES

11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER AND JUDICIAL REFERENCE

12 GENERAL PROVISIONS

13 DEFINITIONS

1. Joinder to Loan Agreement. Each of the undersigned, XENOGEN CORPORATION (f/k/a Caliper Holdings, Inc.), a Delaware corporation (“Xenogen”), and XENOGEN BIOSCIENCES CORPORATION, an Ohio corporation (“XBC”) (Xenogen and XBC, each a “New Borrower,” and, together with the Existing Borrower, jointly, severally, individually and collectively, the “Borrower”), hereby joins the Loan Agreement and each of the Loan Documents, and agrees to comply with and be bound by all of the terms, conditions and covenants of the Loan Agreement and Loan Documents, as if it were originally named a “Borrower” therein. Without limiting the generality of the preceding sentence, each New Borrower agrees that it will be jointly and severally liable, together with the Existing Borrower, for the payment and performance of all obligations and liabilities of the Borrower under the Loan Agreement, including, without limitation, the Obligations. Each New Borrower hereby appoints Caliper as agent for all purposes under the Loan Agreement, including with respect to requesting Credit Extensions pursuant to the Loan Agreement. Each Borrower hereunder shall be obligated to repay all Credit Extensions made pursuant to the Loan Agreement, regardless of which Borrower actually receives said Credit Extension, as if each Borrower hereunder directly received all Credit Extensions.

2. Subrogation and Similar Rights. Each Borrower waives any suretyship defenses available to it under the Code or any other applicable law. Each Borrower waives any right to require Bank to: (i) proceed against any Borrower or any other person; (ii) proceed against or exhaust any security; or (iii) pursue any other remedy. Bank may exercise or not exercise any right or remedy it has against any Borrower or any security it holds (including the right to foreclose by judicial or non-judicial sale) without affecting any Borrower’s liability. Notwithstanding any other provision of the Loan Agreement or other Loan Documents, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating Borrower to the rights of Bank under the Loan Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by Borrower with respect to the Obligations in connection with the Loan Agreement or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by Borrower with respect to the Obligations in connection with the Loan Agreement or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section shall be null and void. If any payment is made to a Borrower in contravention of this Section, such Borrower shall hold such payment

in trust for Bank and such payment shall be promptly delivered to Bank for application to the Obligations, whether matured or unmatured.

3. Grant of Security Interest. To secure the prompt payment and performance of all of the Obligations, each New Borrower hereby grants to the Bank a continuing lien upon and security interest in all of such New Borrower’s now existing or hereafter arising rights and interest in the Collateral, whether now owned or existing or hereafter created, acquired, or arising, and wherever located, including, without limitation, all of such New Borrower’s assets (excluding intellectual property); and all such New Borrower’s Books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing. Each New Borrower further covenants and agrees that by its execution hereof it shall provide all such information, complete all such forms, and take all such actions, and enter into all such agreements, in form and substance reasonably satisfactory to the Bank that are reasonably deemed necessary by the Bank in order to grant a valid, perfected security interest to the Bank in the Collateral. Each New Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions in order to perfect or protect Bank’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either the Borrower or any other Person, shall be deemed to violate the rights of the Bank under the Code.

4. Representations and Warranties. Each New Borrower hereby represents and warrants to Bank that all representations and warranties in the Loan Documents made on the part of Existing Borrower are true and correct on the date hereof with respect to such New Borrower, with the same force and effect as if such New Borrower were named as “Borrower” in the Loan Documents in addition to Existing Borrower.

5. Delivery of Documents. Each New Borrower hereby agrees that the following documents shall be delivered to the Bank prior to or concurrently with this Agreement, each in form and substance satisfactory to the Bank:

6. Countersignatures. This Agreement shall become effective only when it shall have been executed by Borrower and Bank.

1. BACKGROUND

2. DEFINITIONS

3. GRANT

4. GOVERNMENT RIGHTS

5. DILIGENCE

6. ROYALTIES

7. ROYALTY REPORTS, PAYMENTS, AND ACCOUNTING

8. NEGATION OF WARRANTIES

9. INDEMNITY

10. MARKING

11. STANFORD NAMES AND MARKS

12. PATENT PROTECTION AND INFRINGEMENT

13. SUBLICENSE(S)

14. TERMINATION

15. ASSIGNMENT

16. ARBITRATION

17. NOTICES

18. WAIVER

19. APPLICABLE LAW

20. CONFIDENTIALITY

21. ENTIRE AGREEMENT

1.1 Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.

1.2 Agented Loan Arrangement.

2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Bank the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement.

2.2 Overadvances. If, at any time Borrower’s Unrestricted Cash is less than Twenty Million Dollars ($20,000,000.00) and the Credit Extensions under Section 2.1.1 and Section 2.1.2 exceed the lesser of either (a) the Revolving Line or (b) the Borrowing Base, Borrower shall immediately pay to Bank in cash such excess.

2.3 Payment of Interest on the Credit Extensions.

2.4 Fees. Borrower shall pay to Bank:

2.5 Xenogen Credit Facilities. Upon the occurrence of the Acquisition Event but no earlier than August 14, 2006, that certain Amended and Restated Loan and Security Agreement dated July __, 2005 by and among Bank, Xenogen, and Xenogen Biosciences Corporation (“XBC”) (the “Xenogen/SVB Credit Agreement”), and that certain Loan and Security Agreement dated August 2, 2005 by and among Partners for Growth, Xenogen, and XBC (the “Xenogen/PFG Credit Agreement”) shall each be terminated and all amounts owed to Bank and Partners for Growth thereunder shall become immediately due and payable, provided that Bank agrees that (x) there shall not be any prepayment fees or charges or any “Minimum Interest” payable by either Xenogen or XBC under the Xenogen/SVB Credit Agreement as a result of any such termination of the Xenogen/SVB Credit Agreement due to the occurrence of the Acquisition Event, and (y) subject to satisfaction of all applicable terms and conditions hereunder, Borrower shall be entitled to utilize Advances made under this Agreement to pay the amounts owed to Bank under the Xenogen/SVB Credit Agreement and to Partners for Growth under the Xenogen/PFG Credit Agreement.

3.1 Conditions Precedent to Initial Credit Extension. Bank’s obligation to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of the following matters:

3.2 Conditions Precedent to all Credit Extensions. Bank’s obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following:

3.3 Covenant to Deliver.

3.4 Procedures for Borrowing. Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this Agreement, to obtain an Advance, Agent shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 noon Eastern time on the Funding Date of the Advance. Together with any such electronic or facsimile notification, Agent shall deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. Bank shall credit Advances to the Designated Deposit Account. Bank may make Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Advances are necessary to meet Obligations which have become due.

4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that may have superior priority to Bank’s Lien under this Agreement). If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.

4.2 Authorization to File Financing Statements. Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Bank’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code.

5.1 Due Organization and Authorization. Borrower and each of its Subsidiaries are duly existing and in good standing, as Registered Organizations in their respective jurisdictions of formation and are qualified and licensed to do business and are in good standing in any jurisdiction in which the conduct of their business or their ownership of property requires that they be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business. In connection with this Agreement, Borrower has delivered to Bank a completed certificate signed by Borrower (the “Perfection Certificate”). Borrower represents and warrants to Bank that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete in all material respects. If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Bank of such occurrence and provide Bank with Borrower’s organizational identification number.

5.2 Collateral. Borrower has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens. Borrower has no deposit accounts other than the deposit accounts with Bank, the deposit accounts, if any, described in the Perfection Certificate delivered to Bank in connection herewith, or of which Borrower has given Bank notice and taken such actions as are necessary to give Bank a perfected security interest therein. The Accounts are bona fide, existing obligations of the Account Debtors.

The Collateral is not in the possession of any third party bailee (such as a warehouse) except (x) as otherwise provided in the Perfection Certificate and (y) Equipment or Inventory in the possession of third party carriers in the ordinary course of business for delivery to Borrower or to customers of Borrower and its Subsidiaries. None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as Borrower has given Bank notice pursuant to Section 7.2. In the event that Borrower, after the date hereof, intends to store or otherwise deliver any portion of the Collateral to a bailee, then Borrower will first receive the written consent of Bank and such bailee must execute and deliver a bailee agreement in form and substance satisfactory to Bank in its sole discretion.

All Inventory is in all material respects of good and marketable quality, free from material defects.

5.3 Accounts Receivable. For any Eligible Account in any Borrowing Base Certificate, all statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing such Eligible Accounts are and shall be true and correct and all such invoices, instruments and other documents, and all of Borrower’s Books are genuine and in all respects what they purport to be. All sales and other transactions underlying or giving rise to each Eligible Account shall comply in all material respects with all applicable laws and governmental rules and regulations. Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are an Eligible Account in any Borrowing Base Certificate. To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Eligible Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.

5.4 Litigation. Except as disclosed in Borrower’s Report of Form 10-K for the year ended December 31, 2005 and, assuming the Acquisition Event occurs, in Xenogen’s Report of Form 10-K for the year ended December 31, 2005, there are no actions or proceedings pending or, to the knowledge of the Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries involving more than One Million Dollars ($1,000,000.00).

5.5 No Material Deviation in Financial Statements. All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations. There has not been any material

deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Bank.

5.6 Solvency. The fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.

5.7 Regulatory Compliance. Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to have a material adverse effect on its business. None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted, except for such consents, approvals, authorizations, declarations and filings the failure to obtain or make would not reasonably be expected to have a material adverse effect on Borrower’s business or operations.

5.8 Subsidiaries; Investments. Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments.

5.9 Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required tax returns and reports, and Borrower and its Subsidiaries have timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower. Borrower may defer payment of any contested taxes, provided that Borrower (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Bank in writing of the commencement of, and any material development in, the proceedings, (c) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien”. Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due and payable by Borrower in the aggregate in excess of: (y) Two Hundred Fifty Thousand Dollars ($250,000.00) plus (z) the lesser of (i) Two Hundred Fifty Thousand Dollars ($250,000.00) and (ii) the amount of additional taxes becoming due and payable by Borrower in connection with the contested taxes set forth on Schedule 5.9 attached hereto. Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

5.10 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as working capital and to fund its general business requirements (including, without limitation, to pay amounts owing to Bank under the Xenogen Credit Agreement following an Acquisition Event) and as set forth on Schedule 5.10 attached hereto, and not for personal, family, household or agricultural purposes.

5.11 Full Disclosure. No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank, as of the date such representations, warranties, or other statements were made, taken together with all such written certificates and written statements given to Bank, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading (it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).

6.1 Government Compliance. Maintain its and all its Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so maintain existence of a Subsidiary or to so qualify would reasonably be expected to have a material adverse effect on Borrower’s business or operations. Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, the noncompliance with which could have a material adverse effect on Borrower’s business.

6.2 Financial Statements, Reports, Certificates.

6.3 Inventory; Returns. Keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its Account Debtors shall follow Borrower’s customary practices. Borrower must promptly notify Bank of all returns, recoveries, disputes and claims that involve more than One Million Dollars ($1,000,000).

6.4 Taxes; Pensions. Make, and cause each of its Subsidiaries to make, timely payment of all foreign, federal, state, and local taxes or assessments (other than taxes and assessments which Borrower is contesting pursuant to the terms of Section 5.9 hereof) and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.

6.5 Insurance. Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s industry and location and as Bank may reasonably request. Insurance policies shall be in a form, with companies having a minimum AM Best rating of A-, and in amounts that are commercially reasonable. All property policies shall have a lender’s loss payable endorsement showing Bank as lender loss payee, and all liability policies shall show, or have endorsements showing, Bank as an additional insured. All policies (or the loss payable and additional insured endorsements) shall provide that the insurer must give Bank at least thirty (30) days notice before canceling its policy. At Bank’s request, Borrower shall deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy shall, at Bank’s option, be payable to Bank on account of the Obligations. Notwithstanding the foregoing, (a) so long as no Event of Default has occurred and

is continuing, Borrower shall have the option of applying the proceeds of any casualty policy up to $250,000, in the aggregate, toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Bank has been granted a first priority security interest, and (b) after the occurrence and during the continuance of an Event of Default, all proceeds payable under such casualty policy shall, at the option of Bank, be payable to Bank on account of the Obligations. If Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Bank deems prudent.

6.6 Operating Accounts.

6.7 Financial Covenants.

6.8 Litigation Cooperation. From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and its officers, employees and agents and Borrower’s books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower.

6.9 Co-Borrower. Within fifteen (15) days after the occurrence of the Acquisition Event, Borrower shall cause XBC and Caliper Holdings, Inc. (successor by merger of Xenogen) (“Holdings”) to become a co-borrowers under this Agreement, pursuant to documentation acceptable to Bank in Bank’s sole discretion. In connection therewith, Borrower shall provide Bank with authority documents acceptable to Bank, including, without limitation, an authority/enforceability opinion from XBC and Holdings’ counsel, a certificate from the Ohio Secretary of State certifying that XBC is a validly existing Ohio corporation, and is in good standing in the State of Ohio, and a certificate from the Delaware Secretary of State certifying that Holdings is a validly existing Delaware corporation, and is in good standing in the State of Delaware.

6.10 Further Assurances. Borrower shall execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes of this Agreement.

7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out or obsolete Equipment; (c) Equipment and Intellectual Property no longer necessary or useful in the conduct of Borrower’s business, up to a maximum aggregate amount of One Million Dollars ($1,000,000.00) per annum; (d) in connection with Permitted Liens and Permitted Investments; (e) of licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; and (f) cross-licenses entered into in the settlement of litigation or threatened or potential litigation and consistent with Borrower’s past practices.

7.2 Changes in Business, Management, Ownership, or Business Locations. (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) enter into any transaction or series of related transactions in which the stockholders of Borrower immediately prior to the first such transaction own less than 51% of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions (other than by the sale of Borrower’s equity securities in a public offering or to venture capital investors so long as Borrower identifies to Bank the venture capital investors prior to the closing of the transaction). Borrower shall not, without at least ten (10) days prior written notice to Bank: (1) add any new offices or business locations at which any material amount of Inventory or Equipment will be located, (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization.

7.3 Mergers or Acquisitions. Without Bank’s prior written consent, which shall not be unreasonably withheld, merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, except (i) the acquisition of Xenogen pursuant to the Caliper/Xenogen Merger Agreement, (ii) where (A) the aggregate purchase price or other consideration for such transactions does not exceed $5,000,000.00, in the case of a cash transaction or $15,000,000.00 in the case of a stock transaction, (B) no Event of Default has occurred and is continuing or would result from the consummation of such transaction during the term of this Agreement, and (C) Borrower is the surviving entity after such transaction or is the parent company of the surviving entity after such transaction, and (iii) a Subsidiary may merge or consolidate into another Subsidiary or into Borrower

7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.

7.5 Encumbrance. Create, incur, or allow any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted herein, or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s intellectual property, except as is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Lien” herein.

7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to the terms of Section 6.6.(b) hereof.

7.7 Distributions; Investments. (a) Directly or indirectly make any Investment other than Permitted Investments, or permit any of its Subsidiaries to do so; or (b) pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock, other than any Investments or redemptions, retirements or purchases of capital stock that in the aggregate exceed One Million Dollars ($1,000,000.00) during any period of twelve (12) consecutive months.

7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrower’s

business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.

7.9 Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof or adversely affect the subordination thereof to Obligations owed to Bank.

7.10 Compliance. Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

8.1 Payment Default. Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three day grace period will not apply to payments due on the Maturity Date). During the cure period, the failure to cure the payment default is not an Event of Default (but no Credit Extension will be made during the cure period);

8.2 Covenant Default.

(b) Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement, any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Grace periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in subsection (a) above;

8.3 Material Adverse Change. A Material Adverse Change occurs;

8.4 Attachment. (a) Any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in ten (10) days; (b) the service of process upon Bank ( or Bank’s Affiliate) seeking to attach, by trustee or similar process, any funds of, or of any entity under control of Borrower (including a Subsidiary) on deposit with the Bank; (c) Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business; (d) a judgment or other claim in excess of One Million Dollars ($1,000,000.00) becomes a Lien on any of Borrower’s assets; or (e) a notice of lien, levy, or assessment is filed against any of Borrower’s assets by any government agency and not paid within ten (10) days after Borrower receives notice. These are not Events of Default if stayed or if a bond is posted pending contest by Borrower (but no Credit Extensions shall be made during the cure period);

8.5 Insolvency (a) Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within forty-five (45) days (but no Credit Extensions shall be made while of any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);

8.6 Other Agreements. There is a default in any agreement to which Borrower or any Guarantor is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, which results in the acceleration of the maturity of any Indebtedness in an amount in excess of One Million Dollars ($1,000,000.00) or that could have a material adverse effect on Borrower’s business;

8.7 Judgments. A judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least One Million Dollars ($1,000,000.00) (not covered by independent third-party insurance) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of thirty (30) days after the entry thereof (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment);

8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made;

8.9 Subordinated Debt. A default or breach occurs under any agreement between Borrower and any creditor of Borrower that signed a subordination, intercreditor, or other similar agreement with Bank, or any creditor that has signed such an agreement with Bank breaches any terms of such agreement.

9.1 Rights and Remedies. While an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following:

9.2 Power of Attorney. Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits. Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Bank’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder. Bank’s foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions terminates.

9.3 Accounts Verification; Collection. In the event that an Event of Default has occurred and is continuing, Bank may notify any Person owing Borrower money of Bank’s security interest in such funds and verify the amount of such account. After the occurrence of an Event of Default, any amounts received by Borrower shall be held in trust by Borrower for Bank, and, if requested by Bank, Borrower shall immediately deliver such receipts to Bank in the form received from the Account Debtor, with proper endorsements for deposit.

9.4 Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest applicable rate, and secured by the Collateral. Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.

9.5 Application of Payments and Proceeds. Unless an Event of Default has occurred and is continuing, Bank shall apply any funds in its possession, whether from Borrower account balances, payments, or proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, first, to Bank Expenses, including without limitation, the reasonable costs, expenses, liabilities, obligations and attorneys’ fees incurred by Bank in the exercise of its rights under this Agreement; second, to the interest due upon any of the Obligations; and third, to the principal of the Obligations and any applicable fees and other charges, in such order as Bank shall determine in its sole discretion. Any surplus shall be paid to Borrower or other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency. If an Event of Default has occurred and is continuing, Bank may apply any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Bank shall determine in its sole discretion. Any surplus shall be paid to Borrower or other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency. If Bank, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the

Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.

9.6 Bank’s Liability for Collateral. So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.

9.7 No Waiver; Remedies Cumulative. Bank’s failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by Bank and then is only effective for the specific instance and purpose for which it is given. Bank’s rights and remedies under this Agreement and the other Loan Documents are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank’s exercise of one right or remedy is not an election, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay in exercising any remedy is not a waiver, election, or acquiescence.

9.8 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable.

12.1 Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights or obligations under it without Bank’s prior written consent (which may be granted or withheld in Bank’s discretion). Bank has the right, without the consent of or notice to Borrower, to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents.

12.2 Indemnification. Borrower agrees to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank harmless against: (a) all obligations, demands, claims, and liabilities (collectively, “Claims”) asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from, following, or arising from transactions between Bank and Borrower (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by Bank’s gross negligence or willful misconduct.

12.3 Limitation of Actions. Any claim or cause of action by Borrower against Bank, its directors, officers, employees, agents, accountants, attorneys, or any other Person affiliated with or representing Bank based upon, arising from, or relating to this Loan Agreement or any other Loan Document, or any other transaction contemplated hereby or thereby or relating hereto or thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted or suffered to be done by Bank, its directors, officers, employees, agents, accountants or attorneys, shall be barred unless asserted by Borrower by the commencement of an action or proceeding in a court of competent jurisdiction by (a) the filing of a complaint within one year from the earlier of (i) the date any of Borrower’s officer or directors had knowledge of the first act, the occurrence or omission upon which such claim or cause of action, or any part thereof, is based, or (ii) the date this Agreement is terminated, and (b) the service of a summons and complaint on an officer of Bank, or on any other person authorized to accept service on behalf of Bank, within thirty (30) days thereafter. Borrower agrees that such one-year period is a reasonable and sufficient time for Borrower to investigate and act upon any such claim or cause of action. The one-year period provided herein shall not be waived, tolled, or extended except by the written consent of Bank in its sole discretion. This provision shall survive any termination of this Loan Agreement or any other Loan Document.

12.4 Time of Essence. Time is of the essence for the performance of all Obligations in this Agreement.

12.5 Severability of Provisions. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

12.6 Amendments in Writing; Integration. All amendments to this Agreement must be in writing signed by both Bank and Borrower. This Agreement and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the Loan Documents.

12.7 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken together, constitute one Agreement.

12.8 Survival. All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been satisfied. The obligation of Borrower in Section 12.2 to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run.

12.9 Confidentiality. In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank’s Subsidiaries or Affiliates; (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall use commercially reasonable efforts to obtain such prospective transferee’s or purchaser’s agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise required in connection with Bank’s examination or audit; and (e) as Bank considers appropriate in exercising remedies under this Agreement. Confidential information does not include information that either: (i) is in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (ii) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.

12.10 Right of Set Off. Borrower hereby grants to Bank, a lien, security interest and right of set off as security for all Obligations to Bank, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Bank or any entity under the control of Bank (including a Bank subsidiary) or in transit to any of them. At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Bank may set off the same or any part thereof and apply the same to any liability or obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

12.11 Borrower Liability. As detailed in Article 1, each Borrower has appointed Caliper as Agent for each Borrower for all purposes hereunder, including with respect to requesting Credit Extensions hereunder. Each Borrower hereunder shall be obligated to repay all Credit Extensions made hereunder, regardless of which Borrower actually receives said Credit Extension, as if each Borrower hereunder directly received all Credit Extensions. Each Borrower waives any suretyship defenses available to it under the Code or any other applicable law. Each Borrower waives any right to require Bank to: (i) proceed against any Borrower or any other person; (ii) proceed against or exhaust any security; or (iii) pursue any other remedy. Bank may exercise or not exercise any right or remedy it has against any Borrower or any security it holds (including the right to foreclose by judicial or non-judicial sale) without affecting any Borrower’s liability. Notwithstanding any other provision of this Agreement or other related document, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating Borrower to the rights of Bank under this Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise and all rights that it might have to benefit from, or to

participate in, any security for the Obligations as a result of any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section shall be null and void. If any payment is made to a Borrower in contravention of this Section, such Borrower shall hold such payment in trust for Bank and such payment shall be promptly delivered to Bank for application to the Obligations, whether matured or unmatured.

13.1 Definitions. As used in this Agreement, the following terms have the following meanings:

A. a certificate of the Secretary of such New Borrower with respect to certificate of incorporation, by-laws, incumbency and resolutions authorizing the execution and delivery of this Agreement;

B. a certificate of the Secretary of each Existing Borrower with respect to resolutions authorizing the execution and delivery of this Agreement;

C. a certificate of the Secretary of State of Delaware of a recent date as to Holding’s existence and good standing;

D. a certificate of the Secretary of State of Ohio of a recent date as to XBC’s existence and good standing;

E. the results of UCC searches with respect to the Collateral indicating no Liens other than Permitted Liens and otherwise in form and substance satisfactory to the Bank;

F. a Perfection Certificate;

G. a Securities Account Control Agreement;

H. a legal opinion of New Borrower’s counsel (authority and enforceability), in form and substance acceptable to Bank;

I. Evidence of Insurance (On Acord 27 Form, and Acord 25S Form); and

J. such other documents as the Bank may reasonably request.

1.1 STANFORD has an assignment of the invention entitled “Using Light to Detect and Track Pathogens in Living Hosts”, from the laboratory of Dr. Christopher Contag (“Invention[s]”), as described in Stanford Docket S94-044, and any Licensed Patent(s), as hereinafter defined, which may issue to such Invention(s).

1.2 STANFORD desires to have the Invention(s) perfected and marketed at the earliest possible time in order that products resulting therefrom may be available for public use and benefit.

1.3 LICENSEE desires a license under said Invention(s), Licensed Materials and Licensed Patent(s) to develop, make, have made, use, import, offer for sale and sell Licensed Product(s) in the Licensed Field of Use, and/or to sublicense said Invention(s), Licensed Materials and Licensed Patent(s) in the Licensed Field of Use.

1.4 LICENSEE and STANFORD have a prior agreement and amendments to the prior agreement for Invention(s), Licensed Materials and Licensed Patent(s). The parties acknowledge that pursuant to the prior agreement, (i) LICENSEE has paid to STANFORD a noncreditable, nonrefundable license issue royalty of [] Dollars [], and (ii) LICENSEE has paid to STANFORD [***] for reimbursement of past patent expenses. The prior agreement and amendments are superseded by this Agreement.

1.5 The Invention(s) was made in the course of research supported by one or more of the following: the American Foundation for AIDS Research, the National Institutes of Health, The United States Public Health Service, and the Office of Naval Research.

2.1 “Licensed Patent(s)” means any (i) U.S. patent application Serial Number 270,631 filed July 1, 1994 (issued on July 22, 1997 as U.S. Patent Number 5,650,135), (ii) all divisions, substitutions, and continuations in whole or part of any of the preceding, (iii) all foreign

patent applications corresponding to or claiming priority from (including International Application Number PCT/US95/15040 and all national applications claiming priority therefrom), and (iv) all U.S. and foreign patents issuing on any of the preceding, including patents of addition, reexaminations, reissues and extensions.

2.2 “Licensed Materials” means those biological materials listed in Exhibit A, and such other agreed materials as STANFORD may provide to LICENSEE during the term of this Agreement, which shall be added to Exhibit A.

2.3 “Licensed Product(s)” means any product or part thereof in the Licensed Field of Use, the manufacture, use, or sale of which:

2.4 “Net Sales” means the gross revenue derived by LICENSEE from Licensed Product(s), less the following items but only insofar as they actually pertain to the disposition of such Licensed Product(s) by LICENSEE, are included in such gross revenue, and are separately billed:

2.5 “Licensed Field of Use” means all uses.

2.6 “Licensed Territory” means worldwide.

2.7 “Exclusive” means that, subject to Article 4, STANFORD shall not grant further licenses in the Licensed Territory in the Licensed Field of Use.

3.1 STANFORD hereby grants and LICENSEE hereby accepts an Exclusive license under the Licensed Patents and Licensed Materials to make, have made, import, use, lease, sell and offer for sale and otherwise commercialize and exploit Licensed Products in the Licensed Territory, and practice any method process or procedure within the Licensed Patents in the Licensed Territory.

3.2 Said license is Exclusive, including the right to sublicense pursuant to Article 13, in the Licensed Field of Use for a term commencing as of July 1, 1997 and ending on the expiration of the last to expire of the Licensed Patent(s).

3.3 STANFORD shall have the right to practice the Invention(s) and use the Technology for its own bona fide research, including sponsored research and collaborations. STANFORD shall have the right to publish any information included in Licensed Materials and Licensed Patent(s).

3.4 Notwithstanding Section 3.1 above, the license granted to XENOGEN for those Licensed Materials which are [], shall be non-exclusive. This Section 3.4 shall have no effect on the Exclusive License granted herein for (i) the Licensed Patents and (ii) all Licensed Materials and/or Licensed Product(s) other than the [].

5.1 As an inducement to STANFORD to enter into this Agreement, LICENSEE agrees to use all reasonable efforts and diligence to sublicense the Licensed Patent(s) and/or to proceed with the development, manufacture, and sale or lease of Licensed Product(s). LICENSEE further agrees to diligently develop markets for the Licensed Patent(s) and/or Licensed Product(s). LICENSEE agrees that STANFORD may terminate this Agreement if, prior to July 1, 2000, LICENSEE has neither sublicensed the Licensed Patent(s) nor made a Licensed Product(s) available for commercial sale. LICENSEE further agrees that STANFORD may terminate this Agreement if, for any period of one (1) full year after first sublicense or commercial sale, LICENSEE has neither maintained at least one sublicense in force nor sold any Licensed Product(s).

5.2 Progress Report - On or before September 1 of each year until LICENSEE markets a Licensed Product(s) or grants a sublicense under the Licensed Patent(s), LICENSEE shall make a written annual report to STANFORD covering the preceding year ending June 30,

regarding the progress of LICENSEE toward commercial use of Licensed Product(s) or sublicensing of Licensed Patent(s). Such report shall include, as a minimum, information sufficient to enable STANFORD to satisfy reporting requirements of the U.S. Government and for STANFORD to ascertain progress by LICENSEE toward meeting the diligence requirements of this Article 5.

5.3 In the event that LICENSEE fails to make available for commercial sale a Licensed Product based on a particular Licensed Material listed in Exhibit A for any period of one (1) full year after July 1, 2000, STANFORD may convert the Exclusive License granted to LICENSEE solely with respect to that particular Licensed Material (hereinafter, the “Uncommercialized Material”) to a non-exclusive license, provided that STANFORD gives LICENSEE written notice of such intent and LICENSEE fails to commercialize the Uncommercialized Material within ninety (90) days of such notice. STANFORD agrees that nothing in this Section 5.3 shall have any effect on the Exclusive License granted to LICENSEE under any Licensed Material(s) or Licensed Product(s) other than the Uncommercialized Material. STANFORD further agrees that nothing in this Section 5.3 shall have any effect on the Exclusive License granted to LICENSEE under the Licensed Patent(s) in Article 3 herein.

6.1 Beginning July 1, 2000, and each July 1 thereafter, LICENSEE shall pay to STANFORD a yearly royalty of [***]. Said yearly royalty payments are nonrefundable, but they are creditable against earned royalties to the extent provided in Paragraph 6.4.

6.2 In addition, LICENSEE shall pay STANFORD earned royalties of [***] of Net Sales.

6.3 In the event that a Licensed Product is sold in combination with or containing one or more products or components, then Net Sales on the combination product shall be calculated using one of the following methods:

6.4 Creditable payments under this Agreement shall be an offset to LICENSEE against up to [***] of each earned royalty payment which LICENSEE would be required to pay pursuant to Paragraph 6.2 until the entire credit is exhausted.

6.5 If this Agreement is not terminated in accordance with other provisions hereof, LICENSEE’s obligation to pay royalties hereunder shall continue for so long as LICENSEE, by its activities would, but for the license granted herein, infringe a valid claim of an unexpired Licensed Patent(s) of STANFORD covering said activity.

6.6 The royalty on sales in currencies other than U.S. Dollars shall be calculated using the appropriate foreign exchange rate for such currency quoted by the Bank of America (San Francisco) foreign exchange desk, on the close of business on the last banking day of each calendar quarter. Royalty payments to STANFORD shall be in U.S. Dollars. All non-U.S. taxes related to royalty payments shall be paid by LICENSEE and are not deductible from the payments due STANFORD.

7.1 Quarterly Earned Royalty Payment and Report - Beginning with the first sale of a Licensed Product(s) or the first sublicense, LICENSEE shall make written reports (even if there are no sales or sublicenses) and earned royalty payments to STANFORD within thirty (30) days after the end of each calendar quarter. This report shall state the number, description, and aggregate Net Sales of Licensed Product(s) during such completed calendar quarter, and resulting calculation pursuant to Paragraph 6.2 of earned royalty payment due STANFORD for such completed calendar quarter. The report shall also state the number and description of, and fees due under, sublicenses issued by Xenogen during such completed calendar quarter, and resulting calculation pursuant to Paragraph 13.5 of earned royalty payment due STANFORD for such completed calendar quarter. Concurrent with the making of each such report, LICENSEE shall include payment due STANFORD of royalties for the calendar quarter covered by such report.

7.2 Accounting - - LICENSEE agrees to keep and maintain records for a period of three (3) years showing the sublicenses granted and the manufacture, sale, use, and other disposition of products sold or otherwise disposed of under the license herein granted. Such records will include general ledger records showing cash receipts and expenses, and records which include production records, customers, serial numbers, and related information in sufficient detail to enable the royalties payable hereunder by LICENSEE to be determined. LICENSEE further agrees to permit its books and records to be examined by STANFORD from time to time to the extent necessary to verify reports provided for in Paragraph 7.1. Such examination is to be made by STANFORD or its designee, at the expense of STANFORD, except in the event that the results of the audit reveal an underreporting of royalties due STANFORD of five percent (5%) or more, then the audit costs shall be paid by LICENSEE.

8.1 Nothing in this Agreement is or shall be construed as:

8.2 Except as expressly set forth in this Agreement, STANFORD MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF THE LICENSED PRODUCT(S) WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS OR ANY OTHER EXPRESS OR IMPLIED WARRANTIES.

8.3 LICENSEE agrees that nothing in this Agreement grants LICENSEE any express or implied license or right under or to U.S. Patent 4,656,134 “Amplification of Eucaryotic Genes” or any patent application corresponding thereto.

9.1 LICENSEE agrees to indemnify, hold harmless, and defend STANFORD, Stanford Hospital and Clinics and Stanford Health Services and their respective trustees, officers, employees, students, and agents against any and all claims for death, illness, personal injury, property damage, and improper business practices arising out of the manufacture, use, sale, or other disposition of Invention(s), Licensed Patent(s), Licensed Product(s), or Licensed Materials by LICENSEE or sublicensee(s), or their customers.

9.2 STANFORD shall not be liable for any indirect, special, consequential or other damages whatsoever, whether grounded in tort (including negligence), strict liability, contract or otherwise. STANFORD shall not have any responsibilities or liabilities whatsoever with respect to Licensed Products(s).

9.3 LICENSEE shall at all times comply, through insurance or self-insurance, with all statutory workers’ compensation and employers’ liability requirements covering any and all employees with respect to activities performed under this Agreement.

9.4 In addition to the foregoing, LICENSEE shall maintain, during the term of this Agreement, Comprehensive General Liability Insurance, including Products Liability Insurance, with reputable and financially secure insurance carrier(s) to cover the activities

of LICENSEE and its sublicensee(s). Commencing with the introduction of Licensed Product(s) into humans for any purpose, including clinical trials, such insurance shall provide minimum limits of liability of Five Million Dollars ($5,000,000) and shall include STANFORD, Stanford University Hospital, their trustees, directors, officers, employees, students, and agents as additional insureds. Such insurance shall be written to cover claims incurred, discovered, manifested, or made during or after the expiration of this Agreement. At STANFORD’s request, LICENSEE shall furnish a Certificate of Insurance evidencing primary coverage and requiring thirty (30) days prior written notice of cancellation or material change to STANFORD. LICENSEE shall advise STANFORD, in writing, that it maintains excess liability coverage (following form) over primary insurance for at least the minimum limits set forth above. All such insurance of LICENSEE shall be primary coverage; insurance of STANFORD or Stanford Health Services shall be excess and noncontributory.

10.1 Prior to the issuance of any patents on any Licensed Products, LICENSEE agrees to mark all Licensed Products (or their containers or labels) covered by such patents and made, sold, or otherwise disposed of by LICENSEE under the license granted in this Agreement with the words “Patent Pending,” and following the issuance of one or more patents, with the numbers of such patent(s).

10.2 STANFORD agrees to provide LICENSEE with notice of all STANFORD patent applications filed (and all STANFORD patents issuing) on any Licensed Products based on Licensed Materials listed in Exhibit A within 30 days of (i) the filing of such patent applications, and (ii) issuance of such patents. No such notice is required from STANFORD to LICENSEE for patents and patent applications that are included in the Licensed Patent(s).

12.1 LICENSEE shall have the primary responsibility for the prosecution, filing and maintenance of all Licensed Patents, including the conduct of all interference, opposition, nullity and revocation proceedings, using counsel of its choice; provided, however, that STANFORD shall have reasonable opportunity to advise and consult with LICENSEE on such matters and may instruct LICENSEE to take such action as STANFORD reasonably believes necessary to protect the Licensed Patent(s). Should LICENSEE elect to abandon any patent or patent application in any country, it shall give timely notice to STANFORD, who may continue prosecution or maintenance, at its sole expense and LICENSEE shall have not further rights with respect to such patent application or patent in such country. In the event that a conflict arises with respect to patent counsel selected by LICENSEE, STANFORD may, with just cause and after consulting with LICENSEE, select new patent counsel reasonably acceptable to LICENSEE.

12.2 Payment of all reasonable fees and costs relating to the filing, prosecution and maintenance of all patent applications and patents within the Licensed Patent(s), including interference and/or opposition, nullity and revocation proceedings, shall be the responsibility of LICENSEE. STANFORD shall direct the patent counsel to send invoices for such fees and costs directly to LICENSEE with a copy to STANFORD, and LICENSEE shall pay such patent counsel directly amounts due.

12.3 STANFORD shall promptly inform LICENSEE of any suspected infringement of any Licensed Patent by a third party and any declaratory judgment filed with respect to any Licensed Patent. LICENSEE shall have the initial right but not the obligation, at its expense, to initiate and control any proceeding relating to any infringement by a third party of any Licensed Patents, any declaratory action alleging invalidity or noninfringement of any Licensed Patents, or any interference, opposition, nullity or revocation proceeding relating to any Licensed Patents (“a Protective Action”). In pursuing any such Protective Action, LICENSEE shall provide STANFORD with material information related to the Protective Action, and shall have the right, but not the obligation, to join STANFORD as a party to the Protective Action, at LICENSEE’s expense. STANFORD shall have the right to participate in the Protective Action with its own counsel at its own expense. If LICENSEE brings a Protective Action it may enter into a settlement, consent judgment or other voluntary final disposition of such Protective Action, at its sole option, and any damages recovered by a Protective Action shall be used first to reimburse LICENSEE for the costs (including attorney’s and expert fees) of such Protective Action actually paid by LICENSEE, and the remainder, if any, shall be retained by LICENSEE, except LICENSEE shall pay STANFORD two percent (2%) of said remainder, provided, if STANFORD joins in any Protective Action at its inception and shares equally in the costs (including attorney’s and expert fees) incurred in its conduct, in the event of any recovery each party shall be reimbursed for its expenses incurred in such Protective Action and STANFORD and LICENSEE shall equally share any remainder.

12.4 If LICENSEE, or its sublicensee pursuant to Section 13.6, decides not to bring a Protective Action after LICENSEE receives notice from STANFORD pursuant to Section 12.3,

LICENSEE shall inform STANFORD and STANFORD may institute a Protective Action. In such event, STANFORD shall control such Protective Action, including any settlement, consent judgment or other voluntary final disposition thereof at its sole option, and shall bear the entire cost of such Protective Action and shall be entitled to retain the entire amount of any recovery or settlement. STANFORD may, at its expense, join LICENSEE as a party to such a Protective Action and LICENSEE shall cooperate reasonably with STANFORD in any such Protective Action, at STANFORD’s expense.

12.5 Should either party commence a Protective Action under this Section 12 and thereafter elect to abandon the same, it shall give timely notice to the other party who may continue prosecution of such Protective Action; provided, however, that the sharing of past and future expenses and any recovery in such Protective Action shall be as mutually agreed by the parties.

12.6 In any Protective Action under this Section 12, the other party hereto shall, at the request and expense of the party initiating such Protective Action, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples and the like.

13.1 LICENSEE may grant sublicense(s) during the Exclusive period. LICENSEE may sublicense all or a portion of the rights granted to it pursuant to this Agreement, subject to the conditions of this Article 13. A “Patent Sublicense” means a sublicense which grants all or a portion of the rights under the Licensed Patent(s) to practice any method, process or procedure claimed therein in all or a part of the Licensed Territory. It is understood that a Patent Sublicense shall not grant any rights to lease, sublicense, sell, offer for sale, or otherwise commercially dispose of any Licensed Products in any part of the Licensed Territory. A “Products Sublicense” means a sublicense which grants all or a portion of the rights to lease, sell, offer for sale and otherwise commercially exploit Licensed Products in all or a part of the Licensed Territory. It is understood that a Products Sublicense may also include rights under the Licensed Patent(s).

13.2 If LICENSEE is unable or unwilling to serve or develop a potential market or market territory for which there is a willing sublicensee(s), LICENSEE will, at STANFORD’s request, negotiate in good faith a sublicense(s) hereunder.

13.3 Any sublicense(s) granted by LICENSEE under this Agreement shall be subject and subordinate to terms and conditions of this Agreement, except:

13.4 LICENSEE agrees to provide STANFORD a copy of any sublicense granted pursuant to this Article 13.

13.5 LICENSEE will pay to STANFORD [] of all non-equity payments received by LICENSEE from its sublicensee(s) for the grant of a sublicense to practice the Licensed Patent(s), excluding those made under consulting or service agreements. In addition, LICENSEE shall pay to STANFORD [] of all earned royalty income received by LICENSEE from each sublicense from the sale of Licensed Product(s); provided however, that LICENSEE shall pay to STANFORD no less than [] and no more than [] of such royalty income.

13.6 With the prior written consent of LICENSEE, and the prior written consent of STANFORD, which shall not be unreasonably withheld, a sublicensee may bring a Protective Action, subject to the provisions of Section 12.3.

14.1 LICENSEE may terminate this Agreement by giving STANFORD notice in writing at least thirty (30) days in advance of the effective date of termination selected by LICENSEE.

14.2 STANFORD may terminate this Agreement if LICENSEE:

14.3 In the event of any termination of this Agreement, LICENSEE shall provide for the transfer to STANFORD of all obligations accrued or accruable after such termination in any active sublicense(s) issued pursuant to Section 13. Such obligations shall include the payment of any royalties specified in such sublicense(s) that have accrued after termination of this Agreement.

14.4 Surviving any termination are:

16.1 Any controversy arising under or related to this Agreement, and any disputed claim by either party against the other under this Agreement excluding any dispute relating to patent validity or infringement arising under this Agreement, shall be settled by arbitration in accordance with the Licensing Agreement Arbitration Rules of the American Arbitration Association.

16.2 Upon request by either party, arbitration will be by a third party arbitrator mutually agreed upon in writing by LICENSEE and STANFORD within thirty (30) days of such arbitration request. Judgment upon the award rendered by the arbitrator shall be final and nonappealable and may be entered in any court having jurisdiction thereof.

16.3 The parties shall be entitled to discovery in like manner as if the arbitration were a civil suit in the California Superior Court. The Arbitrator may limit the scope, time and/or issues involved in discovery.

16.4 Any arbitration shall be held at Stanford, California, unless the parties hereto mutually agree in writing to another place.

2.1.1 Revolving Advances.

2.1.2 Letters of Credit Sublimit.

(a) Is covered by a valid claim of an issued, unexpired Licensed Patent(s) directed to the Invention(s). A claim of an issued, unexpired Licensed Patent(s) shall be presumed to be valid unless and until it has been held to be invalid or unenforceable by a final judgment of a court of competent jurisdiction from which no appeal can be or is taken or is disclaimed, or rejected or found invalid or unenforceable in a reissue application or re-examination proceeding or otherwise;

(b) Is covered by any claim being prosecuted in a pending application directed to the Invention(s); or

(c) Incorporates any of the Licensed Materials.

(a) Import, export, excise and sales taxes, and custom duties;

(b) Costs of insurance, packing, and transportation from the place of manufacture to the customer’s premises or point of installation;

(c) Costs of installation at the place of use; and

(d) Credit for returns, allowances, or trades.

(a) By multiplying the net selling price of the combination product by the fraction A/A+B, where A is the gross selling price, during the royalty-paying period being considered, of the Licensed Product sold separately, and B is the gross selling price, during the royalty period in question, of the other products or components sold separately; or

(b) In the event that no such separate sales are made of the Licensed Product, Net Sales on the combination product for royalty determination shall be as reasonably allocated between such Licensed Product and the other active products or components, based on their relative importance and proprietary protection, as agreed by the parties. If the parties fail to reach agreement such allocation shall be submitted to binding arbitration.

(a) A warranty or representation by STANFORD as to the validity or scope of any Licensed Patent(s);

(b) A warranty or representation that anything made, used, sold, or otherwise disposed of under any license granted in this Agreement is or will be free from infringement of patents, copyrights, and other rights of third parties;

(c) An obligation to bring or prosecute actions or suits against third parties for infringement, except to the extent and in the circumstances described in Article 12;

(d) Granting by implication, estoppel, or otherwise any licenses or rights under patents or other rights of STANFORD or other persons other than Licensed Patent(s), regardless of whether such patents or other rights are dominant or subordinate to any Licensed Patent(s); or

(e) An obligation to furnish any technology or technological information.

(a) Sublicense terms and conditions shall reflect that any sublicensee(s) shall not further sublicense without the written consent of STANFORD, which consent shall not be unreasonably withheld; and

(b) The earned royalty rate specified in the sublicense(s) may be at higher rates than the rates in this Agreement

(a) Is in default in payment of royalty or providing of reports;

(b) Is in breach of any provision hereof; or

(c) Provides any false report;

(a) LICENSEE’s obligation to pay royalties accrued or accruable;

(b) Any cause of action or claim of LICENSEE or STANFORD, accrued or to accrue, because of any breach or default by the other party;

(c) The provisions of Articles 7, 8, 9, 16 and 20, Sections 13.3, 14.3, and 14.4 and any other provisions that by their nature are intended to survive.

(a) Availability. Subject to the terms and conditions of this Agreement, Bank shall make Advances not exceeding the Availability Amount. Amounts borrowed under the Revolving Line may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.

(b) Termination; Repayment. The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable.

(c) Prepayment. Borrower shall have the option to prepay the Revolving Line at anytime, provided Borrower (i) provides written notice to Bank of its election to prepay the Revolving Line, and (ii) pays, on the date of such prepayment (A) all outstanding principal plus accrued interest, (B) the Minimum Usage Fee which would be due, and (C) all other sums, if any, that shall have become due and payable.

(a) As part of the Revolving Line, Bank shall issue or have issued Letters of Credit for Borrower’s account. The face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) may not exceed $5,000,000.00. Such aggregate amounts utilized hereunder shall at all times reduce the amount otherwise available for Advances under the Revolving Line. If, on the Revolving Maturity Date, there are any outstanding Letters of Credit, then on such date Borrower shall provide to Bank cash collateral in an amount equal to 105% of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to said Letters of Credit. All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank’s standard Application and Letter of Credit Agreement (the “Letter of Credit Application”). Borrower agrees to execute any further documentation in connection with the Letters of Credit as Bank may reasonably request. Borrower further agrees to be bound by the regulations and interpretations of the issuer of any Letters of Credit guarantied by Bank and opened for Borrower’s account or by Bank’s interpretations of any Letter of Credit issued by Bank for Borrower’s account, and Borrower understands and agrees that Bank shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower’s instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto.

(b) The obligation of Borrower to immediately reimburse Bank for drawings made under Letters of Credit shall be absolute, unconditional, and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, such Letters of Credit, and the Letter of Credit Application.

(c) Borrower may request that Bank issue a Letter of Credit payable in a Foreign Currency. If a demand for payment is made under any such Letter of Credit, Bank shall treat such demand as an Advance to Borrower of the equivalent of the amount thereof (plus fees and charges in connection therewith such as wire, cable, SWIFT or similar charges) in Dollars at the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.

(d) To guard against fluctuations in currency exchange rates, upon the issuance of any Letter of Credit payable in a Foreign Currency, Bank shall create a reserve (the “Letter of Credit Reserve”) under the Revolving Line in an amount equal to ten percent (10%) of the face amount of such Letter of Credit. The amount of the Letter of Credit Reserve may be adjusted by Bank from time to time to account for fluctuations in the exchange rate. The availability of funds under the Revolving Line shall be reduced by the amount of such Letter of Credit Reserve for as long as such Letter of Credit remains outstanding.

(a) Interest Rate. Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to: (x) if Borrower’s Unrestricted Cash is equal to or greater than Twenty Million Dollars ($20,000,000.00), the Prime Rate, or (y) if Borrower’ Unrestricted Cash is less than Twenty Million Dollars ($20,000,000.00), one-half of one percentage point (.50%) above the Prime Rate, which interest shall be payable monthly in accordance with Section 2.3(f) below. Any changes to the applicable interest rate due as set forth in (x) or (y) above, shall be effective on the first day of the month following such event.

(b) Default Rate. Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is two percentage points above the rate effective immediately before the Event of Default (the “Default Rate”). Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank.

(c) Adjustment to Interest Rate. Changes to the interest rate of any Credit Extension based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change.

(d) 360-Day Year. Interest shall be computed on the basis of a 360-day year for the actual number of days elapsed.

(e) Debit of Accounts. Bank may debit any of Borrower’s deposit accounts, including the Designated Deposit Account, for principal and interest payments or any other amounts Borrower owes Bank when due. These debits shall not constitute a set-off.

(f) Payments. Unless otherwise provided, interest is payable monthly on the first calendar day of each month. Payments of principal and/or interest received after 12:00 noon Eastern time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional fees or interest, as applicable, shall continue to accrue.

(a) Commitment Fee. A fully earned, non-refundable commitment fee of Two Hundred Sixty-Five Thousand Dollars ($265,000.00) is earned as of the date hereof and shall be payable as follows: (i) One Hundred Sixty-Five Thousand Dollars ($165,000.00) is payable on the date hereof, and (ii) One Hundred Thousand Dollars ($100,000.00) is payable upon the earlier to occur: (y) the first anniversary of the Effective Date, and (z) the early termination of the Loan Agreement. In the event that the Agreement and Plan of Merger dated as of February 10, 2006 among Borrower, Caliper Holdings Inc., and Xenogen Corporation (“Xenogen”) (the “Caliper/Xenogen Merger Agreement”) is terminated for any reason prior the closing of the merger thereunder, Sixty Five Thousand Dollars ($65,000.00) of the commitment fee shall be refunded to the Borrower; and

(b) Minimum Usage Fee. Upon the occurrence of the Acquisition Event and for a period of eighteen (18) consecutive months thereafter, for any month in which the average outstanding principal amount under the Revolving Line is less than Eight Million Dollars ($8,000,000.00), a fee (the “Minimum Usage Fee”), payable monthly, in arrears, in an amount equal to the effective rate of interest set forth in Section 2.3(a) multiplied by the difference between (x) Eight Million Dollars ($8,000,000.00), and (y) the average outstanding principal amount of the Revolving Line during such month. Borrower shall not be entitled to any credit, rebate or repayment of any Minimum Usage Fee previously earned by Bank pursuant to this Section notwithstanding any termination of the Agreement or the suspension or termination of Bank’s obligation to make loans and advances hereunder; and

(c) Letter of Credit Fee. Bank’s customary fees and expenses for the issuance or renewal of Letters of Credit, upon the issuance, each anniversary of the issuance, and the renewal of such Letter of Credit; and

(d) Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due.

(a) Duly executed original signatures to the Loan Documents to which it is a party;

(b) Duly executed original signatures to the Control Agreements;

(c) Caliper shall have delivered its Operating Documents and a good standing certificate of Caliper certified by the Secretary of State of the State of Delaware as of a date no earlier than thirty (30) days prior to the Effective Date;

(d) NovaScreen shall have delivered its Operating Documents and a good standing certificate of NovaScreen certified by the Secretary of State of the State of Maryland as of a date no earlier than thirty (30) days prior to the Effective Date;

(e) Duly executed original signatures to the completed Borrowing Resolutions for each Borrower;

(f) Bank shall have received certified copies, dated as of a recent date, of financing statement searches, as Bank shall request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;

(g) Borrower shall have delivered a legal opinion of Borrower’s counsel dated as of the Effective Date together with the duly executed original signatures thereto;

(h) Borrower shall have delivered a payoff letter from Manufacturers & Traders Trust Company;

(i) Borrower shall have delivered evidence satisfactory to Bank that the insurance policies required by Section 6.5 hereof are in full force and effect, together with appropriate evidence showing loss payable and/or additional insured clauses or endorsements in favor of Bank; and

(j) Borrower shall have paid the fees and Bank Expenses then due as specified in Section 2.4 hereof.

(a) except as otherwise provided in Section 3.4, timely receipt of an executed Payment/Advance Form; and

(b) the representations and warranties in Section 5 shall be true in all material respects on the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Default or Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in Section 5 remain true in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and

(c) there has not been a Material Adverse Change.

(a) Deliver to Bank: (i) as soon as available, but no later than forty-five (45) days after the last day of each quarter, a company prepared consolidated balance sheet and income statement covering Caliper’s consolidated (including each Borrower and any other Subsidiary of Caliper) operations during the period certified by a Responsible Officer and in a form acceptable to Bank; (ii) as soon as available, but no later than one hundred twenty (120) days after the last day of Caliper’s fiscal year, Caliper’s audited consolidated (including each Borrower and any other Subsidiary of Caliper) financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm acceptable to Bank in its reasonable discretion; (iii) within five (5) days of delivery, copies of all statements, reports and notices made available to Borrower’s security holders or to any holders of Subordinated Debt (iv) within five (5) days of filing, all reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission or a link thereto on Caliper’s or another website on the Internet; (v) a prompt report of any legal actions pending or threatened against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of One Million Dollars ($1,000,000.00) or more; (vi) annually, Caliper’s consolidated (including each Borrower and any other Subsidiary of Caliper) annual operating budget, substantially as presented to the Board; (vii) as soon as available, but no later than fifteen (15) days after the last day of each month, a monthly cash report; and (viii) other financial information reasonably requested by Bank.

(b) Within thirty (30) days after the last day of each month in which the Borrower’s Unrestricted Cash is less than Twenty Million Dollars ($20,000,000.00), and Advances are outstanding or an Advance request has been made, deliver to Bank a duly completed Borrowing Base Certificate signed by a Responsible Officer, with aged listings of accounts receivable (by invoice date).

(c) Within forty-five (45) days after the last day of each quarter, deliver to Bank with the quarterly financial statements, a duly completed Compliance Certificate signed by a Responsible Officer setting forth calculations showing compliance with the financial covenants set forth in this Agreement.

(d) Allow Bank to audit Borrower’s Collateral at Borrower’s expense. Such audits shall be conducted no more often than once every twelve (12) months unless a Default or an Event of Default has occurred and is continuing.

(a) Maintain its and its Subsidiaries’ depository, operating and securities accounts with Bank and Bank’s affiliates, with the exception of up to thirty percent (30.0%) of all of Borrower’s accounts required to be maintained in the ordinary course of business outside of the U.S. Any Guarantor shall maintain all depository, operating and securities accounts with Bank, or SVB Securities.

(b) Provide Bank five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or its Affiliates. In addition, for each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such.

(a) declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);

(b) stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Bank;

(c) demand that Borrower (i) deposits cash with Bank in an amount equal to the aggregate amount of any Letters of Credit remaining undrawn, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;

(d) settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, notify any Person owing Borrower money of Bank’s security interest in such funds, and verify the amount of such account;

(e) make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral if Bank requests and make it available as Bank designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank’s rights or remedies;

(f) apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower;

(g) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, patents, copyrights, mask works, rights of use of any name, trade secrets, trade names,

trademarks, service marks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;

(h) place a “hold” on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;

(i) demand and receive possession of Borrower’s Books; and

(j) exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).

0001104659-06-073582.txt : 20061109 0001104659-06-073582.hdr.sgml : 20061109 20061109155918 ACCESSION NUMBER: 0001104659-06-073582 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20061109 DATE AS OF CHANGE: 20061109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIPER LIFE SCIENCES INC CENTRAL INDEX KEY: 0001014672 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 330675808 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-32976 FILM NUMBER: 061202132 BUSINESS ADDRESS: STREET 1: 68 ELM STREET STREET 2: . CITY: HOPKINTON STATE: MA ZIP: 01748 BUSINESS PHONE: 508-435-9500 MAIL ADDRESS: STREET 1: 68 ELM STREET STREET 2: . CITY: HOPKINTON STATE: MA ZIP: 01748 FORMER COMPANY: FORMER CONFORMED NAME: CALIPER TECHNOLOGIES CORP DATE OF NAME CHANGE: 19990921 10-Q 1 a06-22085_110q.htm QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(D)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended September 30, 2006.

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from to .

Commission file # 000-28229

CALIPER LIFE SCIENCES, INC.

(Exact name of registrant as specified in its charter)

Delaware		33-0675808
(State of Incorporation)		(I.R.S. Employer Identification Number)

68 Elm Street

Hopkinton, Massachusetts 01748

(Address and zip code of principal executive offices)

Registrant’s telephone number, including area code: (508) 435-9500

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer x Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ON October 31, 2006: 46,592,366

CALIPER LIFE SCIENCES, INC.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2006 and 2005
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005
Notes to Unaudited Condensed Consolidated Financial Statements

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

PART II OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

Item 4. Submission of Matters to a Vote of Security Holders

Item 5. Other Information

Item 6. Exhibits

SIGNATURES

EXHIBIT INDEX
Ex-31.1 Section 302 Certification of CEO
Ex-31.2 Section 302 Certification of CFO
Ex-32.1 Section 906 Certification of CEO
Ex-32.2 Section 906 Certification of CFO

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CALIPER LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)

	September 30, 2006			December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	22,334		$	8,096
Marketable securities	7,436			23,129
Restricted cash	285			479
Accounts receivable, net	24,686			19,532
Inventories	19,073			11,061
Prepaid expenses and other current assets	3,946			2,657

Total current assets	77,760			64,954

Restricted cash	—			3,145
Property and equipment, net	13,635			12,019
Intangibles, net	57,144			16,822
Goodwill	82,011			60,866
Other assets	1,432			403

Total assets	$	231,982		$	158,209

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,487		$	5,318
Accrued compensation	7,401			6,774
Other accrued liabilities	13,914			8,117
Deferred revenue and customer deposits	12,968			7,990
Current portion of accrued restructuring	7,357			2,872
Current portion of long-term obligations	136			133

Total current liabilities	49,263			31,204

Credit facility and other loans payable	8,598			320
Noncurrent portion of accrued restructuring	3,180			4,358
Other noncurrent liabilities	5,481			3,503
Deferred tax liability	1,516			386

Commitments and contingencies (Note 7)

Stockholders’ equity:
Preferred stock	—			—
Common stock	46			34
Additional paid-in capital	364,649			302,412
Deferred stock-based compensation	—			(3,003		)
Accumulated deficit	(201,153		)	(181,106		)
Accumulated other comprehensive income	402			101

Total stockholders’ equity	163,944			118,438

Total liabilities and stockholders’ equity	$	231,982		$	158,209

See accompanying notes.

CALIPER LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Revenues:
Product revenue	$	18,501		$	15,813		$	45,509		$	41,394
Service revenue	5,934			3,437			16,366			10,293
License fees and contract revenue	2,091			2,082			11,276			8,380

Total revenue	26,526			21,332			73,151			60,067

Costs and expenses:
Cost of product revenue	12,816			10,517			31,430			28,408
Cost of service revenue	4,155			1,665			9,733			5,070
Cost of license revenue	73			—			73			—
Research and development	8,663			4,259			18,049			12,857
Selling, general and administrative	12,535			8,033			29,940			23,896
Amortization of intangible assets	2,020			897			4,528			2,693
Restructuring charges, net	23			90			97			266

Total costs and expenses	40,285			25,461			93,850			73,190

Operating loss	(13,759		)	(4,129		)	(20,699		)	(13,123		)
Interest income, net	99			230			470			698
Other income (expense), net	101			(50		)	379			(509		)

Loss before income taxes	(13,559		)	(3,949		)	(19,850		)	(12,934		)
Benefit (provision) for income taxes	26			97			(197		)	(35		)

Net loss	$	(13,533	)	$	(3,852	)	$	(20,047	)	$	(12,969	)

Net loss per share, basic and diluted	$	(0.33	)	$	(0.13	)	$	(0.56	)	$	(0.42	)
Shares used in computing net loss per common share, basic and diluted	40,939			30,763			36,078			30,602

See accompanying notes.

CALIPER LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)

	Nine Months Ended September 30,
	2006			2005
Operating activities
Net loss	$	(20,047	)	$	(12,969	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization	7,119			5,164
Stock-based compensation expense, net	4,090			1,188
In-process research and development	2,898			—
Non-cash restructuring charge, net	124			270
Foreign currency exchange (gains) losses	(282		)	430
Changes in operating assets and liabilities:
Accounts receivable	1,964			2,840
Inventories	(2,380		)	(2,888		)
Prepaid expenses and other current assets	247			(365		)
Notes receivable from director	—			151
Accounts payable and other accrued liabilities	1,886			(492		)
Accrued compensation	(1,570		)	(913		)
Deferred revenue and customer deposits	(1,572		)	(1,301		)
Other noncurrent liabilities	406			585
Payments of accrued restructuring obligations, net	(2,550		)	(2,636		)

Net cash from operating activities	(9,667		)	(10,936		)

Investing activities
Purchases of marketable securities	(14,450		)	(5,927		)
Proceeds from sales of marketable securities	11,157			9,966
Proceeds from maturities of marketable securities	19,108			10,798
Other assets	(21		)	(519		)
Change in restricted cash, net	3,339			(1,273		)
Purchases of property and equipment	(4,342		)	(3,468		)
Xenogen acquisition, cash and marketable securities acquired, net	7,200			—

Net cash from investing activities	21,991			9,577

Financing activities
Payments of obligations under sale-leaseback arrangements	(100		)	(301		)
Borrowings of credit facility	8,587			—
Payments of credit facility, loans payable and other obligations	(8,680		)	(367		)
Proceeds from issuance of common stock	1,696			1,492

Net cash from financing activities	1,503			824

Effect of exchange rates on changes in cash and cash equivalents	411			(149		)
Net increase (decrease) in cash and cash equivalents	14,238			(684		)
Cash and cash equivalents at beginning of period	8,096			10,403

Cash and cash equivalents at end of period	$	22,334		$	9,719

Supplemental disclosure of cash flow information
Stock issued for acquisition of Xenogen	$	52,149
Warrants issued for acquisition of Xenogen	5,476
Value of Xenogen warrants assumed in acquisition	1,655
Total non-cash consideration	59,280
Non-cash assets and liabilities	52,080
Xenogen cash and marketable securities acquired, net of $2.8 million in acquisition costs	$	7,200

Non-cash purchase of property and equipment	$	400

See accompanying notes.

CALIPER LIFE SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006
(Unaudited)

1. Summary of Significant Accounting Principles

Basis of Presentation

Caliper Life Sciences (“Caliper”) uses its core technologies of microfluidics, liquid handling, and imaging technologies to provide life science research solutions. With its acquisitions of NovaScreen Biosciences Corporation (“NovaScreen”) in October 2005 and Xenogen Corporation (“Xenogen”) in August 2006, Caliper has a portfolio of products and services that span in vitro (test tube) and in vivo (in living organisms) experimentation. Caliper currently operates in one business segment: the development and commercialization of life science instruments and related consumables and services for use in drug discovery and development and other life sciences research.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Certain prior period amounts have been reclassified to conform to the current period presentation. In the opinion of management, all adjustments (consisting of normal recurring entries) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. For example, Caliper typically experiences higher revenues in the fourth quarter of its fiscal year as a result of capital spending patterns of its customers. The consolidated balance sheet as of December 31, 2005 has been derived from audited financial statements as of that date. For further information, refer to the financial statements and notes thereto included in Caliper’s Annual Report on Form 10-K for the year ended December 31, 2005.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

General Policy

Caliper recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, and collectibility is reasonably assured. Revenue is recognized on product sales when goods are shipped under Caliper’s standard terms of “FOB origin.” Revenues on shipments subject to customer acceptance provisions are recognized only upon customer acceptance, provided all other revenue recognition criteria are met. In general, sales made by Caliper do not include general return rights or privileges. In the limited circumstance where a right of return exists, Caliper recognizes revenue when the right has lapsed. Based upon Caliper’s prior experiences, sales returns are not significant and therefore a general provision for sales returns or other allowances is not recorded at the time of sale. Revenue from services offered by Caliper is generally recognized as the services are performed (or, as applicable, ratably over the contract service term in the case of annual maintenance contracts). Provision is made at the time of sale for estimated costs related to Caliper’s warranty obligations to customers.

Our revenue arrangements may include the sale of an instrument, including software that is incidental to the instrument, consumables, software, service, technology licenses, installation and training. Revenue arrangements may include one of these single elements, or may incorporate one or more elements in a single transaction or combination of related transactions. When multiple contractual elements exist in an arrangement, and software is incidental, the contractual elements are divided into separate units of accounting if the deliverables in the arrangement meet certain criteria under Emerging Issues Task Force (EITF) Issue 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21). The criteria applied to multiple element arrangements are whether (a) each delivered element has standalone value to the customer, (b) there is objective and reliable evidence of fair value of the undelivered elements, and, if applicable, (c) delivery or performance of the undelivered elements is probable and within the control of Caliper. Arrangement consideration is allocated among the separate units of accounting based on their relative fair values, or based upon the residual method when fair value exists only for remaining undelivered items, and the amount of revenue allocable to the delivered item(s) is recognized in accordance with the requirements of SAB 104, “Revenue Recognition (a replacement of SAB 101)” (SAB 104). In either case, the amount of arrangement consideration allocated to the delivered item(s) is limited to the amount that is not contingent on us delivering additional products or services.

When our revenue arrangements include the sale of an instrument where the software is more than incidental, revenue is recognized in accordance with Statement of Position 97-2, “Software Revenue Recognition” and EITF 03-5, “Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-than-Incidental Software”. We allocate revenue on the arrangement between software and non-software related deliverables based on fair value as required by EITF 03-5. Revenue allocated to the software deliverable is recognized in accordance with SOP 97-2. If there is vendor-specific objective evidence of the fair value(s) of the undelivered item(s) in an arrangement, but no such evidence for the delivered item(s), we use the residual method to allocate the arrangement consideration associated with the software deliverables. Revenue allocated to non-software deliverables is further allocated based on the separation criteria established in EITF 00-21. When items included in a multiple-element arrangement represent separate units of accounting and there is objective and reliable evidence of fair value for all items included in the arrangement, we allocate the arrangement consideration to the individual items based on their relative fair values. If there is objective and reliable evidence of the fair value(s) of the undelivered item(s) in an arrangement, but no such evidence for the delivered item(s), we use the residual method to allocate the arrangement consideration. In either case, the amount of arrangement consideration allocated to the delivered item(s) is limited to the amount that is not contingent on us delivering additional products or services.

Cash received from customers as advance deposits for undelivered products and services, including contract research and development services, is recorded within customer deposits until revenue is recognized. Revenue related primarily to annual maintenance contracts and remaining undelivered performance obligations associated with product sales separately accounted for under EITF 00-21 is deferred and recognized upon completion of the underlying performance criteria.

Contract Revenue

Revenue from contract research and development services is recognized as earned based on the performance requirements of the contract. Non-refundable contract fees, which are neither time and materials- nor time and expense-based, nor tied to substantive milestones, are recognized using the proportional performance method, subject to the consideration of the guidance in SAB 104.

License and Royalty Fees

Revenue from license fees is recognized when the earnings process is complete and no further obligations exist. If further obligations exist, the license fee is recognized ratably over the obligation period. Royalties under licenses are recorded as earned in accordance with contract terms, when third-party results are reliably measured and collectibility is reasonably assured.

Warranty Obligations

Caliper provides for estimated warranty expenses as a component of cost of revenue at the time product revenue is recognized in accordance with FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others.” Caliper offers a one-year limited warranty on most products, which is included in the selling price. Caliper’s standard limited warranty covers repair or replacement of defective goods, a preventative maintenance visit on certain products, and telephone-based technical support. Factors that affect Caliper’s warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim. Caliper periodically assesses the adequacy of its recorded warranty liabilities and adjusts amounts as necessary.

Changes in Caliper’s warranty obligation are as follows (in thousands):

	Nine Months Ended September 30,
	2006			2005
Balance at beginning of period	$	1,555		$	1,436
Warranties issued during the period	2,065			1,191
Warranties assumed in Xenogen acquisition	548			—
Settlements made during the period	(1,482		)	(1,126		)

Balance at end of period	$	2,686		$	1,501

Net Loss Per Share

Basic earnings per share is calculated based on the weighted-average number of common shares outstanding during the period. Diluted earnings per share would give effect to the dilutive effect of common stock equivalents consisting of stock options, unvested restricted stock, unvested restricted stock units, warrants and contingently issuable shares (calculated using the treasury stock method).

Common stock equivalents equal to 13.5 and 7.2 million shares (prior to the application of the treasury stock method) were excluded from the computation of net loss per share in each of the three and nine months ended September 30, 2006 and 2005, respectively, as they would have had an antidilutive effect due to Caliper’s net loss.

Stock-Based Compensation

On January 1, 2006, Caliper adopted Statement of Financial Accounting Standard No. 123R, “Share-Based Payment” (“SFAS 123R”), which requires all share-based payments to be recognized in the income statement as an operating expense, based on their fair values. Caliper’s share-based payment arrangements within the scope of SFAS 123R include options, restricted stock and other forms of stock bonuses, including restricted stock units, awarded under its option plans, and its Employee Stock Purchase Plan (“ESPP”) which enables participating employees to purchase Caliper’s stock at a discount from fair market value. Caliper has applied the modified prospective method in adopting SFAS 123R. For stock option awards and ESPP purchases, Caliper estimates the fair value of share-based payments using the Black-Scholes-Merton formula and, for all share-based payments made after the adoption of SFAS 123R, recognizes the resulting compensation expense using a straight-line recognition method over the applicable service period of each award. The fair value of restricted stock awards (including restricted stock units) is determined based upon the fair market value of Caliper’s stock on the date of grant. For restricted stock and restricted stock unit awards granted prior to January 1, 2006, Caliper continues to recognize the resulting compensation expense under the accelerated expense attribution method. Periods prior to adoption of SFAS 123R have not been restated. The majority of the incentive and nonstatutory stock option grants and

restricted stock awards carry a 4-year vesting term, which is generally the requisite service period. There is typically no acceleration provision related to the stock option grants. The exercise price of stock option grants is equal to the fair market value of Caliper’s stock on the date of grant. For certain restricted stock awards that cliff vest, Caliper recognizes the resulting compensation expense using a straight-line recognition method over the applicable service period of each award.

Under the modified prospective method, compensation cost recognized in the three and nine months ended September 30, 2006 includes (a) all share-based payments granted prior to, but not yet vested as of, January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of Statement of Financial Accounting Standard No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation,” and (b) all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. Prior to the adoption of SFAS 123R, forfeitures of unvested awards were accounted for in the period in which they occurred. Effective with the adoption of SFAS 123R, estimated prospective forfeitures are included in the determination of compensation cost to be recognized. Caliper applied an expected forfeiture rate of 12% to unvested stock options for which expense was recognized during the three and nine months ended September 30, 2006.

Prior to adopting SFAS 123R, Caliper accounted for its stock options and equity awards in accordance with the intrinsic value method under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related interpretations. Accordingly, prior to January 1, 2006, no compensation expense was recognized in Caliper’s financial statements for stock-based compensation granted to employees other than for awards which had an exercise price less than the fair value of the underlying common stock on the date of grant. Upon the adoption of SFAS 123R, deferred stock-based compensation of $3.0 million was reclassified to additional paid-in capital within stockholders’ equity.

Caliper accounts for options issued to non-employees in accordance with the provisions of SFAS 123R and EITF No. 96-18, “Accounting for Equity Instruments that are issued to other than Employees for Acquiring, or in Conjunction with Selling Goods or Services.” For the three and nine months ended September 30, 2006, compensation expense related to stock-based compensation issued to non-employees was not material.

The adoption of SFAS 123R on January 1, 2006 had the effects of increasing Caliper’s operating loss, loss before income taxes and net loss for the three and nine months ended September 30, 2006 by $1.1 million and $2.8 million, respectively, over the amount of share-based compensation which would have been recognized under APB No. 25. Basic and diluted net loss per share for the three and nine months ended September 30, 2006 would have been lower by $0.03 and $0.08, respectively, if Caliper had not adopted SFAS 123R. The adoption of SFAS 123R had no impact on cash flows.

Stock-based compensation expense is included within costs and expenses as follows (in thousands):

	Three Months Ended September 30				Nine Months Ended September 30
	2006		2005		2006		2005
Cost of product revenue	$	124	$	39	$	373	$	121
Cost of service revenue	44		3		111		16
Research and development	232		56		723		219
Selling, general and administrative	1,027		241		2,870		814
Total	$	1,427	$	339	$	4,077	$	1,170

The following table illustrates the effect on net loss and net loss per share for the three and nine months ended September 30, 2005 as if Caliper had applied the fair value-based method in each of those periods (in thousands, except per share data):

	Three Months			Nine Months

Net loss:
As reported	$	(3,852	)	$	(12,969	)
Add: Stock-based employee compensation expense included in reported net loss	339			1,170
Deduct: Total stock-based employee compensation expense determined under fair value based method	(697		)	(5,164		)
Pro forma net loss	$	(4,210	)	$	(16,963	)
Net loss per share:
As reported:	$	(0.13	)	$	(0.42	)
Basic and diluted
Pro forma:
Basic and diluted	$	(0.14	)	$	(0.55	)

On September 30, 2006, Caliper had five share-based compensation plans (the “Plans”), which are described above and within Note 14 of our audited financial statements included in Caliper’s Annual Report on Form 10-K for the year ended December 31, 2005.

The fair value of each option award issued under Caliper’s equity plans is estimated on the date of grant using a Black-Scholes-Merton based option pricing model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of Caliper’s stock. The expected term of the options is based on Caliper’s historical option exercise data taking into consideration the exercise patterns of the option holder during the option’s life. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the date of the grant.

	Nine Months Ended September 30,
	2006	2005

Expected volatility (%)	45	63
Risk-free interest rate (%)	4.80	3.96
Expected term (years)	4.3	4.1
Expected dividend yield (%)	—	—

A summary of stock option and restricted stock activity under the Plans as of September 30, 2006, and changes during the nine months then ended as follows:

Stock Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
						(in thousands)

Outstanding at December 31, 2005	6,381,195		$	6.56
Granted	641,000		6.24
Exercised	(420,680	)	3.58
Canceled	(98,540	)	9.99
Outstanding at September 30, 2006	6,502,975		$	6.67	5.93	$	3,697
Exercisable at September 30, 2006	4,860,262		$	6.86	5.13	$	3,616
Unvested at September 30, 2006	1,642,713		$	6.10	8.29	$	82

Restricted Stock and Restricted Stock Units	Shares		Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
					(in thousands)

Outstanding at December 31, 2005	612,226		*
Granted	165,000		*
Vested	(161,424	)	*
Unvested repurchases	(10,994	)	*
Outstanding at September 30, 2006	604,808		*	2.71	$	2,951

*Nominal exercise price

During the nine months ended September 30, 2006, Caliper granted its employees and directors 641,000 options at a weighted average grant date fair value of $2.67 per share, and 165,000 restricted stock units at a weighted average grant date fair value of $6.40 per share. The total intrinsic value of options exercised during the nine months ended September 30, 2006 was approximately $0.7 million. The total fair value restricted stock that vested during the nine months ended September 30, 2006 was approximately $0.8 million.

As of September 30, 2006, there was $7.3 million of total unrecognized compensation cost related to unvested stock-based compensation arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average remaining service (vesting) period of approximately 2.4 years.

Reclassifications

The 2006 income statement presentation includes the reclassification of restructuring-related accretion charges from interest expense, as previously reported, to the restructuring line item within the accompanying consolidated statement of operations. In addition, foreign currency transaction losses (gains) have been reclassified within the statement of cash flows from effect of exchange rates to cash from operating activities. Also, employee stock-based compensation expense, which was previously disclosed as a

separate income statement line item, has been reflected within costs and expenses in accordance with SFAS 123R. The 2006 balance sheet presentation reflecting the current portion of restricted cash has been reclassified from cash and cash equivalents to a separate line in the consolidated balance sheet. Amounts in the 2005 financial statements have been reclassified to conform to the 2006 financial statement presentation. These reclassifications had no effect on previously reported net loss, total stockholders’ equity or net loss per share.

2. Acquisitions

Xenogen Corporation

On August 9, 2006, Caliper completed its acquisition of Xenogen for $62.1 million, including $52.2 million in Caliper common stock, $7.1 million in warrants and $2.8 million of estimated direct acquisition costs. Xenogen develops and markets products, technologies and services for acquiring, analyzing and managing complex image data from live animals. Xenogen’s in vivo biophotonic imaging system combines technologies in molecular biology and physiology to enable researchers to track and monitor the dynamic properties associated with the mechanisms of disease and the impact of drugs on such mechanisms as they occur at the molecular level in live animals. The principal goals of the acquisition were as follows:

· Improve Caliper’s strategic position in the markets it serves by allowing it to supply its customers with systems and services for use in both in vitro and in vivo research. The acquisition allows Caliper to supply the fast-growing molecular imaging market and is expected to position Caliper as one of the first life science instrumentation companies able to provide an integrated package of products and services for both in vitro and in vivo research. Caliper believes the integration of molecular tool technologies presents a key opportunity to improve drug discovery research.

· Academic and commercial cross-selling opportunities. Caliper believes that the respective market strengths of Xenogen, with its strong academic presence, and Caliper, with its strong commercial presence, complement each other, potentially resulting in sales synergies.

· Improve ability to fulfill the needs of researchers. Caliper believes it is capable of enhancing Xenogen’s existing platforms to further satisfy the needs of researchers who are looking for increased application power and flexibility in imaging research.

The value of the common stock issued was calculated in accordance with the terms of the merger agreement and EITF No. 99-12, “Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination.” The value of the warrants issued and assumed was estimated using the Black-Scholes-Merton option-pricing model. Caliper issued 12,108,877 shares of common stock and warrants to purchase 4,701,733 shares of common stock, and assumed 1,830,581 of Xenogen warrants, in exchange for all of Xenogen’s equity securities outstanding at the closing. The Caliper warrants have a term of five years from the closing and an exercise price of $6.79 per share. Caliper reserved 1,060,273 common shares and 411,698 warrants for issuance subject to the future potential exercise of the Xenogen warrants assumed by Caliper. The terms of these warrants are discussed in Note 8.

Xenogen’s operations, assumed as of the date of the acquisition, are included in the results of operations of Caliper beginning on August 9, 2006. The acquisition was accounted for as a purchase business combination in accordance with SFAS No. 141, “Business Combinations,” and Caliper accordingly allocated the estimated purchase price of Xenogen based upon the fair value of net assets acquired and liabilities assumed. The total purchase price was allocated to acquired assets and assumed liabilities as follows (in thousands):

Cash and cash equivalents	$	10,000
Other current assets	14,010
Other assets	2,101
Liabilities assumed	(28,560		)
Liabilities established for employee terminations and facility closures (see Note 5)	(4,594		)
Identifiable intangible assets	44,849
In-process research and development	2,898
Goodwill	21,376

	$	62,080

The allocation of the purchase price is expected to be finalized within one year of the acquisition. Goodwill related to the Xenogen transaction is not tax deductible. Acquired intangible assets consisted of the following (in thousands):

	Useful Life	Fair Value
Backlog	1 year	$	78
Developed and contract technologies	3 to 6 years	6,770
Customer contracts and relationships	8 years	4,990
Core technologies	8 to 9 years	30,113
Trade name	Indefinite	2,898
		$	44,849

Fair value was determined by an independent appraisal and was based upon projected future discounted cash flows taking into account risks related to the characteristics and application of the technology, existing and future markets and assessments of life cycle stage of the technology.

The weighted average amortization period for acquired intangibles, excluding the trade name, is 8.1 years. Amortization expense was approximately $765,000 related to Xenogen in the third quarter of 2006. Future amortization of acquired intangible assets is estimated as follows (in thousands):

2006 (3 months ended)	$	1,350
2007	5,372
2008	5,324
2009	5,301
2010	5,147
Thereafter	18,692
	$	41,186

In-process research and development costs of approximately $2.9 million were expensed within research and development during the third quarter of 2006 within the accompanying Statement of Operations.

NovaScreen Biosciences Corporation

On October 3, 2005, Caliper completed the acquisition of NovaScreen for $23.3 million, including $17.6 million in Caliper common stock, $4.4 million of cash and $1.3 million of estimated direct acquisition costs. NovaScreen’s operations, assumed as of the date of the acquisition, are included in the results of operations of Caliper beginning on October 3, 2005.

Pro Forma Operating Results

Unaudited pro forma operating results for Caliper for the three and nine months ended September 30, 2006 and 2005, assuming the above acquisitions were completed as of January 1, 2005, would have been as follows (in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Revenue	$	30,404		$	31,389		$	96,920		$	93,502
Operating loss	(16,950		)	(12,029		)	(35,445		)	(31,825		)
Net loss	(16,750		)	(11,530		)	(34,993		)	(31,810		)
Basic and diluted loss per share	(0.36		)	(0.27		)	(0.76		)	(0.74		)
Pro forma weighted average shares assumed	46,262			42,872			45,908			42,711

The unaudited pro forma financial information is presented for informational purposes only, and is not necessarily indicative of Caliper’s operating results had the acquisitions been completed on the date for which the pro forma results give effect. The pro forma results reflect the following pro forma adjustments.

· Amortization related to acquired intangible assets of $3.2 million and $5.1 million for the nine months ended September 30, 2006 and 2005, respectively, have been included in the pro forma operating results.

· Revenue of $0.9 million that would have been included in Xenogen’s reported revenue on a continuing GAAP basis has been added back to third quarter 2006 revenue. This adjustment resulted from a $3.5 million purchase accounting adjustment to record deferred revenues of Xenogen at fair value in accordance with SFAS No. 141 and EITF No. 01-03, “Accounting in a Business Combination for Deferred Revenue of an Acquiree.”

· Cost of product revenue charges of $0.1 million related to the valuation of inventories at fair value as of the date of acquisition have been excluded from the pro forma operating results shown above.

3. Inventories

Inventories are stated at the lower of cost (determined on a first-in, first-out basis, or “FIFO”) or market. Amounts are removed from inventory and recognized as a component of cost of sales on a FIFO basis. Inventories consist of the following (in thousands):

	September 30,		December 31,
	2006		2005
Raw material	$	9,903	$	5,075
Work-in-process	1,031		762
Finished goods	8,139		5,224

Inventories	$	19,073	$	11,061

4. Comprehensive Loss

Comprehensive loss is as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Net loss	$	(13,533	)	$	(3,852	)	$	(20,047	)	$	(12,969	)
Unrealized gain on marketable securities	32			46			121			71
Foreign currency translation gain (loss)	89			7			181			(201		)

Comprehensive loss	$	(13,412	)	$	(3,799	)	$	(19,745	)	$	(13,099	)

5. Restructuring Activities

In connection with the acquisition of Xenogen, Caliper will incur costs associated with the involuntary termination of certain employees of Xenogen as well as the closing of duplicate facilities. These costs have been accounted for in accordance with EITF No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination,” pursuant to which Caliper recorded a liability based on a defined exit plan equal to the fair value of the facility obligations and accrued for the costs related to the involuntarily terminated individuals.

· Caliper has identified severance and other expenses relating to the involuntary termination of personnel performing duplicative general and administrative and manufacturing functions and established an assumed liability of $3.5 million related to this activity. This action is expected to reduce the total Xenogen workforce by 34 employees, or approximately 6%. Substantially all affected employees will be terminated by October 31, 2006.

· Caliper will not occupy one of the Xenogen facilities in Alameda, California which was intended to be occupied for sales, general and administrative functions. Caliper plans to sublease the facility. As of August 9, 2006, Caliper established a liability of $1.1 million related to this lease obligation. The fair value of the lease obligation was determined based upon the discounted present value of remaining lease rentals (8.25% discount rate used) for the space no longer occupied, considering sublease income potential of the property. The lease term expires April 30, 2011.

In addition to the above liabilities recognized in connection with the Xenogen acquisition, accrued restructuring obligation as of September 30, 2006 includes remaining liabilities related to two facilities in Mountain View, California as a result of the following restructuring activities:

· In November 2003, Caliper consolidated its instrument manufacturing and research and development facilities, and recognized a $7.4 million restructuring charge for the estimated remaining lease costs through June 2008.

· In June 2004, Caliper partially consolidated its research and development facilities, and recognized a $2.1 million restructuring charge for estimated remaining lease costs through June 2008.

· In December 2004, as a result of identifying additional efficiencies, Caliper was able to achieve further consolidation of its research and development facilities. In addition, Caliper revised its estimate of the sublease income potential of its idle facilities. Caliper recognized an additional $3.6 million restructuring charge as a result of these activities.

· In December 2005, Caliper recognized a $1.4 million restructuring credit to reflect the net present value of future sublease rental income based upon subleases entered into for portions of its two idle facilities.

These facility closures were accounted for in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or

Disposal Activities,” pursuant to which Caliper recorded a liability equal to the fair value of the remaining lease payments as of the cease-use date for each of the closed facilities. Fair value was determined based upon the discounted present value of remaining lease rentals (5% discount rate used) for the space no longer occupied, considering sublease income at each point in time.

Minimum monthly lease and operating expense payments under the two idle facility leases are currently $0.3 million, subject to escalation through expiration of the leases in June 2008 at an average rate of 3.6%. The restructuring liability as of September 30, 2006 reflects the minimum future payment obligations related to base lease rentals and operating charges over the remaining lease lives through June 30, 2008, net of anticipated sublease income, discounted at 5%.

In connection with the acquisition of Xenogen, Caliper assumed a $1.0 million obligation related to Xenogen’s St. Louis, Missouri operation. The facility closure was previously accounted for in accordance with SFAS 146.

The following table summarizes the restructuring accrual activity during the nine months ended September 30, 2006 (in thousands):

	Severance and Related			Facilities			Total
Balance, December 31, 2005	$	—		$	7,230		$	7,230
Established obligations with Xenogen	3,503			1,091			4,594
Assumed obligation with Xenogen	—			1,034			1,034
Interest accretion	—			247			247
Payments	(55		)	(2,513		)	(2,568		)

Balance as of September 30, 2006	$	3,448		$	7,089		$	10,537

The remaining severance and facility obligations are as follows (in thousands):

	Severance and Related		Facilities		Total
Years ending December 31:
2006 (3 months ended)	$	271	$	1,171	$	1,442
2007	3,177		4,200		7,377
2008	—		1,893		1,893
2009	—		289		289
2010	—		96		96

Total minimum payments	3,448		7,649		11,097
Less: Amount representing interest	—		560		560

Present value of future payments	3,448		7,089		10,537
Less: Current portion of obligations	3,448		3,909		7,357

Non-current portion of obligations	$	—	$	3,180	$	3,180

6. Credit Facility and Other Loans Payable

On August 9, 2006, Caliper entered into a loan and security agreement with a bank (the “Credit Facility”) which permits Caliper to borrow up to $20.0 million in the form of revolving loan advances including up to $5.0 million in the form of letters of credit. Principal borrowings under the Credit Facility accrue interest at a floating per annum rate equal to the prime rate if Caliper’s unrestricted cash held at the bank exceeds $20.0 million, or prime plus one-half of one percentage point if Caliper’s unrestricted cash held at the bank is below $20.0 million. Under the Credit Facility, Caliper is permitted to borrow up to $20.0 million, provided it maintains unrestricted cash of at least $20.0 million with the bank, or is otherwise subject to a borrowing base limit consisting of up to (a) 80% of eligible accounts receivable, as defined, plus (b) the lesser of 90% of Caliper’s unrestricted cash maintained at the bank or $10.0 million. The Credit Facility has a two-year initial maturity. During the first eighteen (18) months following Caliper’s merger with Xenogen, Caliper is required to pay interest on a minimum of $8.0 million of outstanding borrowings.

The Credit Facility includes traditional lending and reporting covenants including that certain financial covenants applicable to liquidity and earnings are to be maintained by Caliper and tested as of the last day of each quarter. As of September 30, 2006, Caliper was in compliance with these covenants. The Credit Facility also includes several potential events of default such as payment default, material adverse change conditions and insolvency conditions that could cause interest to be charged at prime plus two percentage points, or in the event of any uncured events of default, could result in the bank’s right to declare all outstanding obligations immediately due and payable.

In August 2006, Caliper utilized the Credit Facility to refinance Xenogen’s outstanding credit facility with a bank (approximately $8.0 million as of August 9, 2006), and consolidate other existing debt obligations of NovaScreen (approximately $370,000). In addition, Caliper financed certain loan fees, interest and costs through increased borrowings (approximately $217,000). The Credit Facility will serve as a source of capital for ongoing operations and working capital needs. As of September 30, 2006, the Credit

Facility is classified as long term in the attached balance sheet within loans payable.

Outstanding obligations under the Credit Facility and Other Loans Payable consisted of the following (in thousands):

	Interest Rates	Payment Terms	Repayment Schedule	Due Date	September 30, 2006		December 31, 2005

Credit Facility	8.25%	Interest only	Monthly, Principal at maturity	2008	$	8,587	$	—

Capital Loans	9.57-9.84%	Principal & interest	Monthly	2007	147		—

Bank Notes Payable	5.90-7.75%	Principal & interest	Monthly	2009	—		453
					8,734		453
Less: Current portion of long-term obligations					136		133
Credit Facility and other loans payable					$	8,598	$	320

As of September 30, 2006, future scheduled debt payments were as follows (in thousands):

Years ending December 31:
2006 (3 months ended)	$	53
2007	94
2008	8,587
Total payments	$	8,734

At September 30, 2006, Caliper had $11.4 million in available borrowings under the Credit Facility. This amount is restricted by $3.6 million in standby letters of credit related to Caliper’s facilities.

7. Commitments and Contingencies

Leases

As of September 30, 2006, future minimum payments under operating leases (excluding idle facilities accounted for within accrued restructuring) were as follows (in thousands):

Years ending December 31:
2006 (3 months ended)	$	1,807
2007	7,106
2008	6,947
2009	4,513
2010	2,576
Thereafter	9,055
Total minimum lease payments	$	32,004

Caliper’s worldwide headquarters and instrument manufacturing operations are located in Hopkinton, Massachusetts. Caliper’s research and development and manufacturing operations for LabChip devices are located in Mountain View, California. NovaScreen screening, profiling, and assay development operations are located in Hanover, Maryland. Caliper also has direct sales, service and application support operations in several European countries and Japan.

In connection with the acquisition of Xenogen, Caliper acquired three facility leases in Alameda, California, a facility lease in St. Louis, Missouri and a facility lease in Cranbury, New Jersey. Cranbury is the primary location for the in vivo imaging services business of Xenogen. Caliper will maintain one of the facilities in Alameda which will serve as the primary location for research and development activities for imaging, biology and reagents. One facility’s lease expires in December 2006 and Caliper will not renew this obligation. Neither the St. Louis facility nor the third facility in Alameda will be occupied.

Royalties

On August 9, 2006, Stanford University provided Xenogen with a copy of an audit report prepared by a third party consultant which asserted certain claims of underpayments under the license agreement between Stanford and Xenogen during the period from 2002 through March 31, 2006 based upon the consultant’s interpretation of Xenogen’s exclusive license with Stanford. Upon review of the audit report, Caliper determined that additional royalties of $71,000 were owed to Stanford. This underpayment was accrued as an assumed obligation as of August 9, 2006 in connection with Caliper’s acquisition of Xenogen. Caliper is contesting the remaining payment obligation that is claimed in the Stanford audit report, and as a result, has not accrued for any liability beyond

the $71,000 of royalties that have been accrued and paid. Caliper is currently discussing with Stanford the scope of Xenogen products that are subject to the royalty provisions of the Stanford license agreement. As a result of these discussions, the parties may amend the license agreement to change the royalties Caliper pays to Stanford for future product sales. An amendment may also include the payment of back royalties to Stanford for products Caliper has already sold. Caliper has not discussed with Stanford the specific terms and conditions of an amendment. At any time, either party may choose binding arbitration to resolve any dispute over the amount of back royalties owed, if any. The amount of any remaining contingent obligation, if any, cannot currently be estimated, nor is it probable that a liability exists. However, Caliper believes that this matter will be resolved within the next twelve months. In accordance with SFAS 141, Caliper will account for any additional liability related to the identified contingent obligation as of August 9, 2006 as additional purchase price which will be recorded to goodwill.

Legal Proceedings

On March 7, 2005, AntiCancer, Inc. filed a lawsuit against Xenogen in the U.S. District Court for the Southern District of California (the “Court”) alleging infringement of five patents of AntiCancer. The complaint seeks damages and injunctive relief against the alleged infringement. On March 29, 2005, AntiCancer amended its complaint to include an additional claim seeking a judgment that one of our imaging patents exclusively in-licensed from Stanford University, U.S. patent No. 5,650,135, is invalid. On May 10, 2005, Xenogen filed its answer to AntiCancer’s amended complaint. Xenogen denied all of AntiCancer’s allegations and asserted various affirmative defenses, including its position that AntiCancer’s patents cited in its complaint, and its patent claims relating to in vivo imaging of fluorescence, are invalid. Caliper is vigorously defending itself against AntiCancer’s claims and believes AntiCancer’s complaint is without merit. Concurrent with filing Xenogen’s answer to AntiCancer’s complaint, Xenogen had filed its own counterclaims against AntiCancer. These counterclaims allege that AntiCancer infringes two of Xenogen’s U.S. patents, Nos. 5,650,135 and 6,649,143, both relating to in vivo imaging and with a priority date before each of the AntiCancer patents alleged in its amended complaint. Both parties seek injunctive relief and an unspecified amount of damages, including enhanced damages for willful infringement. Caliper intends to vigorously pursue its claims against AntiCancer.

The Court held the first three days of a Markman hearing (a pre-trial hearing where the trial judge hears evidence and then continues, as a matter of law, the asserted patent claims) relating to these claims on June 13, 2006 through June 15, 2006. On July 14, 2006, Xenogen filed a motion to disqualify AntiCancer’s attorneys due to numerous violations of ethical rules by such attorneys. After a hearing on this motion, on August 10, 2006, the Court issued an order granting Xenogen’s motion to disqualify AntiCancer’s attorneys. On October 18, 2006, the Court issued a supplemental and clarifying order to its previous August 10, 2006 order in which the Court, among other things, (i) granted Xenogen’s motion to restart the Markman hearing, (ii) granted Xenogen’s motion to prohibit the transfer of tainted files to AntiCancer’s successor counsel, (iii) continued Xenogen’s motion for sanctions against AntiCancer’s previous counsel, (iv) granted AntiCancer’s motion for an extension of time to file a writ to seek appellate review of the Court’s August 10, 2006 order, as supplemented and clarified on October 18, 2006, (v) vacated all pending hearing dates in the case, and (vi) granted AntiCancer permission until November 6, 2006 to amend its complaint. AntiCancer may file a writ seeking such appellate review. The Court has indicated that if AntiCancer obtains appellate review of the order(s), further proceedings in this case will be stayed pending the outcome of any appellate review of the Court’s order. On November 6, 2006, AntiCancer served its Third Amended Complaint in this matter and voluntarily dismissed Stanford University from this proceeding. The Third Amended Complaint adds Caliper as a defendant. All defendants will file responsive pleadings in due course with the Court.

Caliper currently is not able to determine the outcome of the patent infringement lawsuit with AntiCancer. Even if Caliper prevails in this lawsuit, the defense of the lawsuit or similar lawsuits will be expensive and time-consuming and may distract Caliper management from operating Caliper’s business.

From time to time Caliper is involved in litigation arising out of claims in the normal course of business. Based on the information presently available, management believes that there are no other claims or actions pending or threatened against Caliper, the ultimate resolution of which will have a material adverse effect on our financial position, liquidity or results of operations, although the results of litigation are inherently uncertain, and adverse outcomes are possible.

8. Stockholders’ Equity

During 2006, Caliper has issued 12,791,741 shares of common stock, increasing the total shares outstanding as of September 30, 2006 to 46,577,533. Included in this overall share increase were 12,108,877 shares issued in connection with the Xenogen acquisition (see Note 2). The remaining increase in shares relates to shares issued as a result of stock purchases under the employee stock purchase plan, stock option exercises and vesting of restricted stock awards.

Also in connection with Caliper’s acquisition of Xenogen, Caliper granted Xenogen stockholders an aggregate of 4,701,733 warrants, and reserved an additional 411,814 warrants for potential issuance upon the exercise of Xenogen warrants (see below) which were assumed by Caliper. Each such warrant permits the holder to acquire one Caliper common share at an exercise price of $6.79 per share through August 9, 2011. Caliper valued the warrants using the Black-Scholes-Merton formula at $1.16 per warrant, or approximately $5.5 million in total for all issued and outstanding warrants. This value is included in additional paid-in capital as of September 30, 2006. Key assumptions used to value the warrants were as follows:

Fair market value at issuance	$	4.25
Exercise price	$	6.79
Contractual term	5 years
Volatility	40		%
Risk free rate of return	4.87		%

As discussed above, Caliper also assumed certain outstanding Xenogen warrants. As of August 9, 2006, there were 1,830,581 Xenogen warrants outstanding, which were exercisable at $2.91 to $40.75 per warrant. Upon the potential exercise of these warrants, the holders are entitled to receive the number of Caliper shares and warrants that such holder would have been entitled to receive as a Xenogen stockholder as of the acquisition date. The termination date of the Caliper warrants that are to be issued upon the eventual exercise of the Xenogen warrants may not be extended beyond the 5 year expiration date (August 9, 2011). Caliper estimated the value of the Xenogen warrants at approximately $1.6 million, which represents the value of both the Caliper shares and warrants to be issued upon exercise of the Xenogen warrants. The value of the Xenogen warrants assumed was calculated using the Black-Scholes-Merton option-pricing model. The key assumptions used to value the warrants assumed were as follows:

Implied fair market value at issuance		$2.72
Exercise price		Based on actual warrant
Contractual term		Based on actual warrant
Volatility		40%
Risk free rate of return		4.86-4.88%

The implied fair market value at the date of issuance represents the share-exchange ratio-adjusted fair value of the common stock issuable upon exercise, plus the warrant-exchange ratio-adjusted fair value of the warrant issuable upon exercise.

9. Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainties in income taxes recognized in an enterprise’s financial statements. The interpretation requires that Caliper determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authority. If a tax position meets the more likely than not recognition criteria, FIN 48 requires the tax position be measured at the largest amount of benefit greater than 50 percent likely to be realized upon ultimate settlement. This accounting standard is effective for fiscal years beginning after December 15, 2006. The effect, if any, of adopting FIN 48 on the Caliper’s financial position and results of operations has not been determined.

In September 2006, FASB issued SFAS No. 157 (“SFAS 157”), “Fair Value Measurements”. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This accounting standard is effective for fiscal years beginning after November 15, 2007. The effect, if any, of adopting SFAS 157 on Caliper’s financial position and results of operations has not been determined.

10. Subsequent Event

Upon the anniversary of the NovaScreen acquisition, October 3, 2006, Caliper released the remaining 318,734 shares that were being held in escrow subject to the terms of the purchase agreement between Caliper and NovaScreen.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations as of September 30, 2006 and for the three and nine months ended September 30, 2006 and September 30, 2005 should be read in conjunction with our financial statements included in this Quarterly Report on Form 10-Q and Management’s Discussion and Analysis of Financial Condition and Results of Operations and our financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2005.

The discussion in this report contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to these differences include those discussed under the caption “Risk Factors” below, as well as those discussed elsewhere. The cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report.

Executive Summary

Business

Caliper Life Sciences uses its core technologies of microfluidics, optical imaging, and liquid handling to provide life sciences research solutions. Our strategy is to further enhance the value of our company to the pharmaceutical industry by improving the correlation between in vitro and in vivo experimentation. A large majority of drug candidates that seem promising in early in vitro studies fail during animal trials. By tracking this drug attrition, understanding its root causes, and pursuing solutions, we believe we can improve the clinical relevance of early drug discovery and development. Our recent acquisition of Xenogen Corporation is key to this strategy since it adds in vivo imaging technologies, products, and services to our existing portfolio of in vitro microfluidics and automation technologies, products and services.

The initial focus of our strategic effort is to pursue oncology applications, and we are currently seeking new experimental models, techniques and tools that bridge in vitro and in vivo experimentation in this major therapeutic area. Future areas of interest include solutions for cardiovascular and inflammation therapeutic programs.

Our products and services currently address some of the key challenges that face the pharmaceutical and biotechnology industry, including product pipelines, late-stage drug failures, and side effect issues. Using our products and services, researchers are able to increase the speed and efficiency of their high-throughput screening efforts, make better choices earlier in the drug discovery and development process, and conduct profiling experiments that identify drug side effects well before the human clinical trial stage.

We are pursuing diagnostic market potential for our technology and believe that our LabChip® technologies may help reduce the high cost of many diagnostic tests, particularly molecular diagnostic tests, through integration, automation and miniaturization of the various steps required to carry out these tests. We are presently working with collaboration partners in this area, although these projects are still in the feasibility or early development stages.

We have three channels of distribution for our products: direct to customers, indirect through our international network of distributors, and through partnership channels under our Caliper DrivenÔ program. Through our direct and indirect channels, we sell complete system solutions, developed by us, to end customers. Our Caliper Driven program is core to our business strategy and complementary to our direct sales and distribution network activities, as it enables us to extend the commercial potential of our LabChip and advanced liquid handling technologies into new industries and new applications with experienced commercial partners. Under this program, we supply liquid handling products, microfluidics chips, and other products on an OEM basis, and when requested, provide product development expertise to our commercial partners, who then typically integrate an application solution and market it to their end customers. In addition, as part of our Caliper Driven program we provide licenses to our extensive patent estate to other companies. We view out-licensing under our Caliper Driven program as a way for us to extend our technologies into certain application areas that we do not have a present strategic intent to address directly, or that may require the greater technical, marketing or financial resources of our licensing partner, in order to obtain more rapid adoption of our technology in the particular application area. By using direct and indirect distribution, and out-licensing our technology under our Caliper Driven program, we seek to maximize penetration of our products and technologies into the marketplace and position Caliper as a leader in the life sciences tools market.

On August 9, 2006, we acquired Xenogen Corporation, a maker of advanced imaging systems including instruments and biological solutions designed to accelerate drug discovery and development for approximately $62.1 million, including $52.2 million in Caliper common stock, $7.1 million in warrants and $2.8 million of estimated direct acquisition costs. Under the terms of the acquisition agreement, we issued approximately 12.1 million common shares and approximately 4.7 million warrants to purchase Caliper common shares, and reserved approximately 1.1 million additional shares and 0.4 million warrants related to Xenogen warrants assumed at the date of acquisition, in exchange for all of Xenogen’s equity securities outstanding at the closing.

The acquisition of Xenogen remains subject to substantial risks and uncertainties, as follows:

· the expected benefits, including revenue growth, from combining the two companies may not be realized;

· integration of the companies and their product portfolios following closing could prove more difficult and costly than expected, and planned synergies may not transpire;

· Xenogen employees who are key to maintaining the revenue growth of Xenogen’s products may leave Xenogen due to the uncertainties created by the merger;

· the historic growth rate of Xenogen’s products may not continue as expected due to market saturation or to the failure to convince large pharmaceutical companies as to the value of Xenogen’s imaging technology;

· unanticipated difficulties may be encountered in connection with consolidating the operations of the two companies; and

· other factors that involve known and unknown risks and uncertainties may cause actual financial results, performance or achievements to differ materially from anticipated results.

Overview of Third Quarter 2006

During the third quarter of 2006, we achieved total revenue of $26.5 million, which represented a 24% net increase compared to revenue in the third quarter of 2005. Highlights of the quarter included our overall improved revenue performance due to strong acquisition growth, the completion of substantial integration activities involving Xenogen, and several new product launches.

The acquisitions of Xenogen in the quarter and of NovaScreen in October 2005 were the principal drivers of overall revenue growth. These operations generated third quarter 2006 revenues of approximately $9.4 million including $5.6 million of product revenue from sales of IVIS imaging systems, $2.4 million of drug discovery services, and $1.1 million of license and contract revenue. Other areas of our business, especially including OEM sales to Affymetrix and contract revenue related to collaborative research projects, partially offset this revenue improvement. We experienced no additional GCAS system sales to Affymetrix in comparison with $2.0 million in third quarter of 2005. Affymetrix has experienced difficulties with its products that are used in conjunction with the GCAS system, and we are unsure when sales of such systems will resume. In addition, we experienced a $1.0 million decrease in contract revenue versus the third quarter of 2005 as a result of certain collaborative research projects concluded since last year. When a particular project concludes, we commonly experience a decline in revenue and time lag until such time that a collaboration partner begins to generate substantial commercial sales which produce benefit to Caliper. Sales of chips and reagents and drug development and specialty instruments were also off during the quarter in comparison to the third quarter of 2005.

We completed our merger with Xenogen Corporation on August 9, 2006 and have completed major facets of the integration of the manufacturing operations and general and administrative functions. Approximately three-fourths of the IVIS Imaging systems shipped during the third quarter were manufactured in our Hopkinton, Massachusetts manufacturing headquarters. We believe the acquisition of Xenogen will significantly advance our capabilities as a leading provider of tools and services that increase the productivity and clinical relevance of life sciences research, and is expected to accelerate our revenue growth and profitability. The integration of molecular tool technologies could present a key opportunity to improve drug discovery research. As highlighted in the FDA Critical Path Initiative, biomarker research and better experimentation models are essential to improve predictability and efficiency along the critical path from laboratory to commercial drug. The combination of our proprietary microfluidic technology and automation expertise with Xenogen’s proprietary imaging technology addresses these key research needs by creating molecular level solutions that encompass in vitro (test tube) to in vivo (living organism). These technologies offer exceptional data quality and productivity advantages, and we believe that combining them to offer a highly correlated suite of products and services should result in earlier, clinically relevant insights in the drug discovery process. We refer to the continuum of these solutions as “the I-I Bridge” which stands for in vitro—in vivo. During the third quarter, including the period from July 1 to August 9 which preceded the acquisition, the Xenogen business operation shipped 33 IVIS imaging systems compared to 21 systems in the third quarter of 2005.

In connection with our integration of Xenogen, we have taken steps, including staffing reductions and facilities consolidation, to reduce Xenogen planned annual spending by over $11.0 million. We expect to begin benefiting at this rate of fully combined savings starting in the first quarter of 2007. The majority of cost synergies related to existing and or open employment positions that were eliminated due to redundancy. Reductions occurred mainly in manufacturing and general and administrative functions.

Five new products were launched during the third quarter of 2006:

· IVIS Spectrum — in vivo imaging system with bioluminescence and fluorescence imaging capabilities;

· Zephyr automated liquid handling system — a compact liquid handling system with the advanced capabilities of our Sciclone liquid handler;

· Maestro — new application software for liquid handling;

· LabChip Desktop Profiler — a microfluidic platform for the rapid profiling of kinases; and

· ProfilerPro — a suite of reagent kits for use with Desktop Profiler.

Subsequent to the quarter, Canon U.S. Life Sciences announced that it has licensed Caliper’s microfluidics technology as the basis of development of Canon’s platform for genetic diagnostics and screening. This announcement and license agreement results from a prior collaboration project with Canon under our Caliper Driven program. The license agreement, which was entered into during the second quarter of 2006, grants Canon non-exclusive access to Caliper’s microfluidics intellectual property.

Critical Accounting Estimates

The critical accounting policies used in the preparation of our financial statements that we believe affect our more significant judgments and estimates used in the preparation of our consolidated financial statements presented in this report are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005. There have been no material changes to the critical accounting policies, other than the adoption of SFAS 123R, revenue recognition and restructuring charges established within the Xenogen acquisition.

SFAS 123R

On January 1, 2006, the Company adopted SFAS 123R, which requires all share-based payments, including grants of stock options, to be recognized in the income statement as an operating expense, based on their fair values.

The Company estimates the fair value of each option award on the date of grant using a Black-Scholes-Merton based option-pricing model. Various assumptions are used in these estimations, including:

· expected volatility, which is based on historical volatility of the Company’s stock;

· expected option term, which is based on the Company’s historical option exercise data taking into consideration the exercise patterns of the option holders during the option’s life;

· risk-free interest rate, based on the U.S. Treasury yield curve in effect at the time of the grant; and forfeiture rate.

A 10% unfavorable change in expected volatility and option term, which represent the most sensitive and judgmental assumptions, would not have a material effect on our financial statements.

Prior to adopting SFAS 123R, the Company accounted for stock-based compensation under APB No. 25, as permitted by SFAS 123. The Company has applied the modified prospective method in adopting SFAS 123R. Accordingly, periods prior to adoption have not been restated. As of September 30, 2006, there was $7.3 million of total unrecognized compensation costs related to unvested stock-based compensation arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average remaining service (vesting) period of approximately 2.4 years.

The implementation of SFAS 123R has had no adverse effect on our balance sheet or total cash flows, but it does impact our operating expenses, net loss and net loss per share. Because we are not restating periods prior to adoption, comparability between periods has been affected. Additionally, management uses estimates of and assumptions about forfeiture rates, volatility and interest rates to calculate stock-based compensation. Changing these estimates could materially affect our operating results.

Revenue Recognition

Our revenue recognition policy requires that we determine “fair value” of undelivered items based upon our historic selling prices, or where no historic information exists, based upon management’s estimate of the probable selling prices for such undelivered items. The amount of our product revenue is affected by our judgments as to whether an arrangement includes multiple elements, and if so, whether there is objective evidence of fair value for those elements. Changes to the elements in an arrangement and the ability to establish objective evidence of fair value for those elements could affect the timing of revenue recognition. These conditions are sometimes subjective and actual results could vary from the estimated outcome, requiring future adjustments to revenue. We recognize certain service and contract revenue for certain arrangements based upon proportional performance which requires that we estimate resources required to perform the work. The extent to which our resource estimates prove to be inaccurate could affect the timing of the revenue recognition for a particular contract arrangement.

Restructuring Charge

During the third quarter of 2006, in connection with the Xenogen acquisition, we established liabilities for certain employee terminations of $3.5 million and facility closures of $1.1 million. We established exit plans for activities which took place and accounted for these plans in accordance with Emerging Issues Task Force Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination” and Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations.” In accordance with such standards, management makes certain judgmental estimates related to these established liabilities. For example, the closure of facilities required us to make estimates with respect to contractual rental commitments or lease buy-outs for office space being vacated and related costs, offset by estimated sublease income. We review on at least a quarterly basis our sublease assumptions. These estimates include anticipated rates to be charged to a sub-tenant and the timing of the sublease arrangement. If the rental markets change, our sublease assumptions may not be accurate and changes in these estimates might be necessary and could materially affect our financial condition and results of operations.

Results of Operations for the Three and Nine Months Ended September 30, 2006 and 2005

Revenue

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
(In thousands)	2006		2005		$ Change		% Change		2006		2005		$ Change		% Change
Product revenue	$	18,501	$	15,813	$	2,688	17	%	$	45,509	$	41,394	$	4,115	10	%

Service revenue	5,934		3,437		2,497		73	%	16,366		10,293		6,073		59	%

License fees and contract revenue	2,091		2,082		9		—	%	11,276		8,380		2,896		35	%

Total Revenues	$	26,526	$	21,332	$	5,194	24	%	$	73,151	$	60,067	$	13,084	22	%

Total Revenue. Our total revenue increase on both a three and nine month basis over 2005 resulted primarily from growth driven by our acquisitions of NovaScreen in October of 2005 and Xenogen in August of 2006. Sales of Xenogen IVIS imaging systems during the third quarter offset lower product sales caused mainly by a $2.0 million decrease in GCAS systems sold to Affymetrix on an OEM basis. The same is true for the nine months ended September 30, 2006 over which time GCAS system sales were lower by $3.4 million than in the 2005 period. We have experienced no additional GCAS system sales to Affymetrix during the first nine months of 2006 and remain unsure of when such sales will resume. In vivo and in vitro drug discovery services provided by our Xenogen and NovaScreen service groups, respectively, were the principal drivers of service growth during both the three and nine months ended September 30, 2006 in comparison to the same periods in 2005. In addition, success in out-licensing our intellectual property, which now includes imaging intellectual property as a major contributor within our Caliper Driven licensing program portfolio, contributed to improved license revenues a year-to-date basis.

Product Revenue. Product revenue increased during the third quarter of 2006 compared to the third quarter of 2005 primarily as a result of growth from Xenogen IVIS imaging systems which generated $5.6 million of revenue in the quarter. The total number of IVIS instruments sold during the quarter was 33, a 57% increase over 21 units sold by Xenogen in the third quarter of 2005 while Xenogen was a stand alone reporting entity. Twenty-seven (27) units were sold post-acquisition and included in Caliper’s

product revenues. Other product sales declined $2.9 million during the third quarter of 2006 compared to the third quarter of 2005 with the majority of the decrease, $2.0 million, resulting from the decline in GCAS system sales. Our development and specialty instrument product lines accounted for $0.8 million of the remaining decrease in product sales while microfluidic instruments and chips and all other drug discovery instrument sales were relatively unchanged during the quarter. During the third quarter of 2006 we placed a total of 14 new LabChip systems with customers versus 15 systems in the third quarter of 2005. A decrease in MultiDose dissolution workstation sales accounted for most of the decline in development and specialty instrument sales.

Product revenue increased during the nine months ended September 30, 2006 compared to 2005 also as a result of growth from Xenogen IVIS imaging systems as discussed above. GCAS system sales were lower by $3.4 million in comparison to the nine months ended September 30, 2005. Sales of microfluidic instruments and chips increased approximately $1.3 million during the nine month period compared to 2005 due primarily to increased instrument placements while all other product sales increased approximately $0.5 million due primarily to increased sales of discovery liquid handling and automation products. During the nine months ended September 30, 2006, we placed a total of 39 LabChip systems with customers, in comparison to a total of 26 systems during the nine months ended September 30, 2005, a 50% increase in placements.

Service Revenue. Service revenue increased during the three and nine months ended September 30, 2006 in comparison to the same periods in 2005 primarily as a result of growth relating to our NovaScreen and Xenogen operations. During the three and nine months ended September 30, 2006, equipment related services decreased by 4% and 2%, respectively, over the same periods in 2005. The majority of these decreases resulted from decreased billable services from Affymetrix and our development products.

License Fees and Contract Revenue. License fees and contract revenue increased during the three months ended September 30, 2006 primarily as a result of SBIR grant research projects conducted at NovaScreen and in vivo imaging license revenue generated by Xenogen. Combined, these new sources of revenue generated approximately $1.1 million of revenue to offset a comparable decrease in collaborative funding project revenue due to projects that were finalized between the last quarter of 2005 and the third quarter of 2006. Overall license fees and contract revenues increased during the nine months ended September 30, 2006 in comparison to the same period in 2005 due to increased license revenue under Caliper Driven out-licensing program and also as a result of growth from SBIR grant research projects conducted at NovaScreen and in vivo imaging license revenue generated by Xenogen. Combined, these new sources of revenue contributed approximately $2.0 million during the nine months ended September 30, 2006.

Costs of Revenue

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
(In thousands)	2006		2005		$ Change		% Change		2006		2005		$ Change		% Change
Product	$	12,816	$	10,517	$	2,299	22	%	$	31,430	$	28,408	$	3,022	11	%

Service	4,155		1,665		2,490		150	%	9,733		5,070		4,663		92	%

Contract	73		—		73		—	%	73		—		73		—	%

Total Costs	$	17,044	$	12,182	$	4,862	40	%	$	41,236	$	33,478	$	7,758	23	%

Cost of Product Revenue. Cost of product revenue increased during the three months ended September 30, 2006 in comparison to the same period of 2005 primarily as a result of the increase in overall product sales which accounted for approximately $1.4 million of higher material costs and incremental absorption of manufacturing costs. The remaining increase resulted from unabsorbed manufacturing costs of approximately $0.4 million occurring in our chip production plant due to reduced chip sales to Agilent, increased freight and other miscellaneous spending of approximately $0.2 million due to manufacturing scale-up of the IVIS imaging system product line, $0.1 million of stock-based compensation due to the adoption of SFAS 123R and $0.1 million of purchase accounting effects related to the valuation of acquired Xenogen inventories.

Cost of product revenue increased during the nine months ended September 30, 2006 in comparison to the same period of 2005, primarily as a result of the increase in overall product sales which accounted for approximately $1.9 million of higher material costs and incremental absorption of manufacturing costs. Other increases to cost of product revenue during the nine months ended September 30, 2006 in comparison to 2005 included approximately $0.3 million in stock-based compensation due to the adoption of SFAS 123R, $0.3 million of increased freight costs, $0.2 million of unfavorable material spending variances due to higher costs and $0.3 million of all other spending effects.

Cost of Service Revenue. Cost of service revenue increased during the three and nine months ended September 30, 2006 primarily due

to service related costs of NovaScreen and Xenogen which were new to Caliper in 2006 in comparison to 2005. On a combined basis, costs related to our drug discovery service operations were $2.4 million during the quarter and $4.5 million on a nine month basis during 2006.

Gross Margins. Gross margin on product revenue was 30.7% and 30.9%, respectively, for the three and nine months ended September 30, 2006, as compared to 33.5% and 31.4%, respectively, in the same periods during 2005.

During the three months ended September 30, 2006, unabsorbed manufacturing costs resulting from reduced chip production and slightly higher manufacturing spending overall accounted for approximately 1.9 percentage points of the overall 2.8 percentage point decrease. The increase in manufacturing spending included incremental costs of approximately $0.1 million associated with our strategic outsourcing initiative aimed to reduce the costs of certain key purchased components, Xenogen-related retention costs of approximately $0.1 million and purchase accounting related expenses of approximately $0.1 million. We completed the integration of our manufacturing operations and successfully transferred the manufacturing of IVIS imaging systems from Alameda, California to Hopkinton, Massachusetts. Approximately three-fourths of the IVIS Imaging systems shipped during the third quarter were manufactured in our Hopkinton, Massachusetts manufacturing headquarters. The outsourcing initiative is expected to result in lower material cost of goods beginning in the fourth quarter of 2006. In addition to the forgoing, the adoption of SFAS 123R had a 0.4 percentage point unfavorable impact on product gross margins in comparison to the third quarter of 2005. All other changes resulted in the remaining 0.5 percentage point of change including the effects of product mix.

During the nine months ended September 30, 2006, product margins decreased by 0.5 percentage points. This decrease was caused by increased freight, warranty and unfavorable purchase price variances which combined had an unfavorable impact of approximately 2 percentage points. These unfavorable effects were partially offset by the favorable impact of increased leverage of manufacturing spending over higher product revenues.

Gross margin on service revenue was 30.0% and 40.5%, respectively, for the three and nine months ended September 30, 2006, as compared to 51.6% and 50.7%, respectively, in comparison to the same periods in 2005. The decreases in 2006 in comparison to 2005 resulted from lower gross margins associated with NovaScreen’s and Xenogen’s drug discovery service revenues. Xenogen contributed approximately $1.1 million of animal production and collaborative research revenue at a negative gross margin, while NovaScreen’s overall gross margins were approximately 18% for the quarter and 37% for the nine month period, in each case lower than our historical service business margin of approximately 50%. NovaScreen’s service margins are currently influenced by a more significant proportion of government contract revenue than is typical of NovaScreen’s historic business. As service revenues expand, both for NovaScreen and Xenogen, we expect to see increased gross margin on service revenues.

Expenses

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
(In thousands)	2006		2005		$ Change			% Change		2006		2005		$ Change			% Change
Research and development	$	8,663	$	4,259	$	4,404		103	%	$	18,049	$	12,857	$	5,192		40	%

Selling, general and administrative	12,535		8,033		4,502			56	%	29,940		23,896		6,044			25	%

Amortization of intangible assets	2,020		897		1,123			125	%	4,528		2,693		1,835			68	%

Restructuring charges	23		90		(67		)	(74	)%	97		266		(169		)	(64	)%

Research and Development Expenses. The net increase in research and development expenses during the three months ended September 30, 2006 in comparison to the same period in 2005 comprised $2.9 million of in-process research and development (see Note 2) and $1.5 million of new spending, including $1.0 million of imaging biology and physics research performed by Xenogen, and $0.5 million of grant-related research and assay development research performed by NovaScreen. Xenogen’s research and development spending comprised approximately $0.5 million in labor-related costs, $0.3 million in facilities-related costs and $0.2 million of all other costs. NovaScreen’s research and development spending comprised approximately $0.2 million in labor-related costs, $0.1 million in facilities-related costs and $0.2 million of all other costs. In addition, the adoption of SFAS 123R resulted in additional stock-based compensation expense of $0.2 million. All other research and development expenses decreased by approximately $0.2 million during the quarter in comparison to the same period in 2005.

The net increase in research and development expenses during the nine months ended September 30, 2006 in comparison to the same period in 2005 comprised $2.9 million of in-process research and development (see discussion above) and $2.5 million of new spending, including $1.0 million of Xenogen-related expenses as discussed above, and $1.5 million of grant-related research and assay development research performed by NovaScreen. NovaScreen’s research and development spending comprised approximately $0.7 million in labor-related costs, $0.4 million of materials cost, $0.2 million in facilities-related costs and $0.2 million of all other costs. In addition, the adoption of SFAS 123R resulted in additional stock-based compensation expense $0.5 million. All other research and

development expenses decreased by approximately $0.7 million during the quarter in comparison to the same period in 2005 including materials expenses, which accounted for the majority of the decrease.

As part of our Caliper Driven program, we may undertake potential projects that could cause our research and development costs to increase as a percentage of revenue, although such increased spending may be fully or partially funded by our commercial partners.

Selling, General and Administrative Expenses. The net increase in selling, general and administrative expenses during the three months ended September 30, 2006 in comparison to the same period in 2005 comprised $2.6 million of new spending including $2.2 million of Xenogen expenses and $0.4 million of NovaScreen expenses. In addition, stock-based compensation expense in the third quarter increased by approximately $0.8 million related to the adoption of SFAS 123R. The remaining increase in expense of $0.9 million during the third quarter included increased accounting, audit fees and consulting fees of approximately $0.7 million which were largely related to Xenogen integration related activities, $0.3 million of increased legal expenses related to patent work, $0.2 million of labor-related expenses and reductions in all other expenses of approximately $0.3 million. Xenogen-related expenses included approximately $1.3 million of labor-related expenses, $0.4 million of legal expenses consisting primarily of AntiCancer litigation costs, and $0.5 million of spending across other areas. We anticipate that Xenogen-related general and administrative costs will decrease in subsequent periods, although it is difficult to predict the level of ongoing litigation related legal costs that we will incur relating to the matters described in Part II, Item 1 (“Legal Proceedings”). The majority of NovaScreen-related expenses in this area were labor-related costs.

The net increase in selling, general and administrative expenses during the nine months ended September 30, 2006 in comparison to the same period of 2005 was comprised of $3.4 million of new spending including $2.2 million of Xenogen expenses, as discussed above, and $1.2 million of NovaScreen-related expenses. Stock-based compensation expense increased by approximately $2.1 million related to the adoption of SFAS 123R. All other selling, general and administrative expenses increased on a net basis by approximately $0.5 million including the increase in AntiCancer legal costs of $0.4 million and an increase of $0.4 million related to integration costs, offset by a $0.3 million decrease in all other selling, general and administrative costs during the third quarter of 2006.

Amortization of Intangible Assets. The increase in amortization of intangible assets for the three months ended September 30, 2006 relates to the intangible assets acquired in the NovaScreen acquisition in October 2005 and Xenogen in August 2006. The three and nine month expense increase includes amortization related to Xenogen intangible assets only during the third quarter.

Restructuring Charges. We incurred restructuring charges in 2006 and 2005 related to acquisition and integration activities that are more fully discussed in Note 5 to the accompanying financial statements. Restructuring charges during the three and nine month period relate to accretion of interest on facilities, net of sub-lease income.

Interest and Other Expense, Net

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
(In thousands)	2006		2005		$ Change		% Change		2006	2005		$ Change		% Change
Interest income, net	$	99	230		(131	)	(57	)%	470	698		(228	)	(33	)%
Other income (expense), net	101		(50	)	151		302	%	379	(509	)	888		174	%

Interest Income, Net. Interest income in 2006 decreased on both a three and nine month basis compared to 2005 primarily due to lower cash, cash equivalents and marketable securities balances, on average, over the previous period due to cash used in operating and investing activities. In addition, interest income, net, decreased due to interest expense incurred during the third quarter of 2006 related to the new Credit Facility with a bank.

Other Income, Net. Other income, net increased on a three month basis compared to 2005 primarily from gains and losses associated with sales and maturities of available for sale securities. During the three months ended September 30, 2006, we realized gains of approximately $0.1 million compared to losses of $0.1 million in 2005. Other income, net increased on a nine month basis compared to 2005 primarily from gains and losses associated with recording account balances denominated in non-U.S. currencies at fair market value. During the nine months ended September 30, 2006, we incurred foreign currency transaction gains of approximately $0.3 million compared to transaction losses of $0.4 million in 2005.

Liquidity and Capital Resources

As of September 30, 2006, we had $30.1 million in cash, cash equivalents, marketable securities and short-term restricted cash, as compared to $31.7 million as of December 31, 2005.

As noted in Note 6 of the Notes to Condensed Consolidated Financial Statements, on August 9, 2006, Caliper entered into a Credit Facility with a bank which permits Caliper to borrow up to $20.0 million in the form of revolving loan advances including up to $5.0 million in the form of letters of credit. Principal borrowings under the Credit Facility accrue interest at a floating per annum rate equal to the prime rate if Caliper’s unrestricted cash held at the bank exceeds $20.0 million, or prime plus one-half of one percentage

point if Caliper’s unrestricted cash held at the bank is below $20.0 million. Under the Credit Facility, Caliper is permitted to borrow up to $20.0 million, provided it maintains unrestricted cash of at least $20.0 million with the bank, or is otherwise subject to a borrowing base limit consisting of up to (a) 80% of eligible accounts receivable, as defined, plus (b) the lesser of 90% of Caliper’s unrestricted cash maintained at the bank or $10.0 million. The Credit Facility has a two-year initial maturity. During the first 18 months following Caliper’s merger with Xenogen, Caliper is subject to pay interest on a minimum of $8.0 million of outstanding borrowings.

The Credit Facility includes traditional lending and reporting covenants including that certain financial covenants applicable to liquidity and earnings are to be maintained by Caliper and tested as of the last day of each quarter. The Credit Facility also includes several potential events of default such as payment default, material adverse change conditions and insolvency conditions that could cause interest to be charged at prime plus two percentage points, or, in the event of any uncured events of default, could result in the bank’s right to declare all outstanding obligations immediately due and payable.

Cash Flows

	Nine Months Ended
	September 30,
(In thousands)	2006			2005			$ Change
Cash provided by (used in)
Operating Activities	$	(9,667	)	$	(10,936	)	$	(1,269	)
Investing Activities	21,991			9,577			12,414
Financing Activities	1,503			824			679

Operating Activities. During the nine months ended September 30, 2006 we used $9.7 million of cash for operating activities which included approximately $2.6 million of restructuring accrual lease payments, net of sublease income, primarily related to our idle facilities in Mountain View, California. Net operating results and all other working capital changes consumed approximately $7.1 million of cash. Primary cash sources comprised $1.5 million of cash provided by tenant reimbursement funding from our Hopkinton, Massachusetts landlord. Primary cash uses included inventory purchases of approximately $2.4 million associated with newer products and 2005 bonus payments of approximately $2.5 million. All other working capital changes consumed cash of approximately $3.7 million, consisting primarily of increased outflows for salary related costs and facilities.

Investing Activities. During the nine months ended September 30, 2006, net proceeds from purchases, sales and maturities of marketable securities and unrestricted cash generated $19.2 million of cash which we used for operations and property and equipment purchases. Our primary investing activities included purchases of property and equipment of $4.3 million, of which the majority related to facility improvements made to our Hopkinton, Massachusetts headquarters. As noted above, we received tenant improvement funding from our landlord reflected in operating activities which partially offset this investment. In addition, we acquired $7.2 million, net of acquisition costs, in cash and marketable equity securities.

Financing Activities. During the nine months ended September 30, 2006, financing cash proceeds were principally comprised of proceeds from option exercises and employee stock purchase plan purchases.

Contractual Obligations

The commitments under leases and other obligations are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005. In connection with the Xenogen acquisition, Caliper assumed certain contractual obligations which include a Credit Facility and certain lease obligations.

Credit Facility

On August 9, 2006, Caliper entered into a loan and security agreement with a bank (“the “Credit Facility”) which permits Caliper to borrow up to $20.0 million in the form of revolving loan advances including up to $5.0 million in the form of letters of credit. Principal borrowings under the Credit Facility accrue interest at a floating per annum rate equal to the prime rate if Caliper’s unrestricted cash held at the bank exceeds $20.0 million, or prime plus one-half of one percentage point if Caliper’s unrestricted cash held at the bank is below $20.0 million. Under the Credit Facility, Caliper is permitted to borrow up to $20.0 million, provided it maintains unrestricted cash of at least $20 million with the bank, or is otherwise subject to a borrowing base limit consisting of up to a) 80% of eligible accounts receivable, as defined, plus b) the lesser of 90% of Caliper’s unrestricted cash maintained at the bank or $10.0 million. The Credit Facility has a two-year initial maturity. During the first eighteen (18) months following Caliper’s merger with Xenogen, Caliper is subject to pay interest on a minimum of $8.0 million of outstanding borrowings.

The Credit Facility includes traditional lending and reporting covenants including that certain financial covenants applicable to liquidity and earnings are to be maintained by Caliper and tested as of the last day of each quarter. The Credit Facility also includes several potential events of default such as payment default, material adverse change conditions and insolvency conditions that could cause interest to be charged at prime plus two percentage points, or for any uncured events of default result in the bank’s right to declare all outstanding obligations immediately due and payable.

In August, Caliper utilized the Credit Facility to refinance Xenogen’s outstanding credit facility with the bank (approximately $8.0 million as of August 9, 2006), and consolidate other existing debt obligations of NovaScreen (approximately $370,000). In addition, Caliper financed certain loan fees, interest and costs through increased borrowings (approximately $217,000). The Credit Facility will serve as a source of capital for ongoing operations and working capital needs. As of September 30, 2006, Caliper’s Credit Facility is classified as long term in the attached balance sheet within loans payable.

Leases

As of September 30, 2006, future minimum payments under operating leases (excluding idle facilities accounted for within accrued restructuring) were as follows (in thousands):

Years ending December 31:
2006 (3 months ended)	$	1,807
2007	7,106
2008	6,947
2009	4,513
2010	2,576
Thereafter	9,055
Total minimum lease payments	$	32,004

In connection with the acquisition of Xenogen, Caliper acquired three facility leases in Alameda, California, a facility lease in St. Louis, Missouri and a facility lease in Cranbury, New Jersey. Cranbury is the primary location for the in-vivo imaging services business of Xenogen BioSciences. Caliper will maintain one of the facilities in Alameda which will serve as the primary location for research and development activities for imaging, biology and reagents. One facility’s lease expires in December 2006 and Caliper will not renew this obligation. Neither the St. Louis facility nor the third facility in Alameda will be occupied.

Capital Requirements

Our capital requirements depend on numerous factors, including market acceptance of our products, the resources we devote to developing and supporting our products, and acquisitions. We expect to devote substantial capital resources to continuing our research and development efforts, expanding our support and product development activities, and for other general corporate activities. Our future capital requirements will depend on many factors, including:

· continued market acceptance of our microfluidic and lab automation products;

· the magnitude and scope of our research and product development programs;

· our ability to maintain existing, and establish additional, corporate partnerships and licensing arrangements;

· the time and costs involved in expanding and maintaining our manufacturing facilities;

· the potential need to develop, acquire or license new technologies and products; and

· other factors not within our control.

Based on current plans, we expect that our current cash balances together with borrowing availability under the SVB Credit Facility will be sufficient to fund our operations at least through the end of 2007.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

Our primary market risk exposures are foreign currency fluctuation and interest rate sensitivity. There have been no material changes to the information included under Item 7A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

Item 4. Controls and Procedures

We evaluated our “disclosure controls and procedures” as defined by Exchange Act Rules 13a-15(e) and 15d-15(e), as of September 30, 2006. This evaluation was done under the supervision and with the participation of Caliper’s management, including our chief executive officer and our chief financial officer.

Evaluation of Disclosure Controls and Procedures. We have established disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed to provide reasonable assurance that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Based on their evaluation as of September 30, 2006, the chief executive officer and the chief financial officer have concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Limitations on the Effectiveness of Disclosure Controls and Procedures. Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Caliper have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Controls. No changes in our internal control over financial reporting identified in connection with the evaluation of such internal control occurred during the third quarter of 2006, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II — OTHER INFORMATION

Item 1. Legal Proceedings

Commencing on June 7, 2001, Caliper and three of its officers and directors (David V. Milligan, Daniel L. Kisner and James L. Knighton) were named as defendants in three securities class action lawsuits filed in the United States District Court for the Southern District of New York. The cases have been consolidated under the caption In re Caliper Technologies Corp. Initial Public Offering Securities Litigation, 01 Civ. 5072 (SAS) (GBD). Similar complaints were filed against approximately 300 other public companies that conducted initial public offerings of their common stock during the late 1990s (the “IPO Lawsuits”). On August 8, 2001, the IPO Lawsuits were consolidated for pretrial purposes before United States Judge Shira Scheindlin of the Southern District of New York. Together, those cases are denominated In re Initial Public Offering Securities Litigation, 21 MC 92(SAS). On April 19, 2002, a Consolidated Amended Complaint was filed alleging claims against Caliper and the individual defendants under Sections 11 and 15 of the Securities Act of 1933, and under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as Rule 10b-5 promulgated thereunder. The Consolidated Amended Complaint also names certain underwriters of Caliper’s December 1999 initial public offering of common stock as defendants. The Complaint alleges that these underwriters charged excessive, undisclosed commissions to investors and entered into improper agreements with investors relating to aftermarket transactions. The Complaint seeks an unspecified amount of money damages. Caliper and the other issuers named as defendants in the IPO Lawsuits moved on July 15, 2002, to dismiss all claims on multiple grounds. By Stipulation and Order dated October 9, 2002, the claims against Messrs. Milligan, Kisner and Knighton were dismissed without prejudice. On February 19, 2003, the Court granted Caliper’s motion to dismiss all claims against it. Plaintiffs were not given the right to replead the claims against Caliper. The time to appeal the dismissal has not yet expired. In May 2003, a Memorandum of Understanding was executed by counsel for plaintiffs, issuers and their insurers setting forth the terms of a settlement that would result in the termination of all claims brought by plaintiffs against the issuers and individual defendants named in the IPO Lawsuits. On July 7, 2003, a Special Litigation Committee of the Caliper Board of Directors approved the settlement terms described in that Memorandum of Understanding, which was subsequently set forth in a definitive Settlement Agreement among the settling parties. On February 15, 2005, Judge Scheindlin issued an order granting preliminary approval of the settlement, subject to certain modifications. The parties agreed to those modifications and on August 31, 2005, Judge Scheindlin issued an order granting preliminary approval of the settlement as modified and certifying settlement classes. The fairness hearing for final approval of the settlement was held on April 24, 2006. As of November 8, 2006, Judge Scheindlin had not issued any order regarding the Court’s decision with respect to the final approval of the settlement. The final resolution of this litigation is not expected to have a material impact on Caliper.

The Court held the first three days of a Markman hearing relating to these claims on June 13, 2006 through June 15, 2006. On July 14, 2006, Xenogen filed a motion to disqualify AntiCancer’s attorneys due to numerous violations of ethical rules by such attorneys. After a hearing on this motion, on August 10, 2006, the Court issued an order granting Xenogen’s motion to disqualify AntiCancer’s attorneys. On October 18, 2006, the Court issued a supplemental and clarifying order to its previous August 10, 2006 order in which the Court, among other things, (i) granted Xenogen’s motion to restart the Markman hearing, (ii) granted Xenogen’s motion to prohibit the transfer of tainted files to AntiCancer’s successor counsel, (iii) continued Xenogen’s motion for sanctions against AntiCancer’s previous counsel, (iv) granted AntiCancer’s motion for an extension of time to file a writ to seek appellate review of the Court’s August 10, 2006 order as supplemented and clarified on October 18, 2006, (v) vacated all pending hearing dates in the case, and (vi) granted AntiCancer permission until November 6, 2006 to amend its complaint. AntiCancer may file a writ seeking such appellate review. The Court has indicated that if AntiCancer obtains appellate review of the order(s), further proceedings in this case will be stayed pending the outcome of any appellate review of the Court’s order. On November 6, 2006, AntiCancer served its Third Amended Complaint in this matter and voluntarily dismissed Stanford University from this proceeding. The Third Amended Complaint adds Caliper as a defendant. All defendants will file responsive pleadings in due course with the Court.

the ultimate resolution of which will have a material adverse effect on our financial position, liquidity or results of operations, although the results of litigation are inherently uncertain, and adverse outcomes are possible.

Item 1A. Risk Factors

Risks Related To Our Business

Our LabChip products may not achieve widespread market acceptance, which could cause our revenue to grow slowly or decline and make it more difficult for us to achieve or maintain profitability.

The commercial success of our LabChip products depends upon market acceptance of the merits of our drug discovery and automated electrophoresis separations systems by pharmaceutical and biotechnology companies, academic research centers and other companies that rely upon laboratory experimentation. However, because our microfluidic drug discovery and automated electrophoresis systems have been in operation for only a limited period of time, their accuracy, reliability, ease-of-use and commercial value have not yet gained widespread commercial acceptance. If these systems do not continue to gain further market acceptance, our revenue may grow more slowly than expected or decline.

In addition, our strategy for the LabChip 3000 system, our microfluidic-based high throughput screening product, depends upon the early users of these systems buying additional units as they spread the adoption of this technology throughout their organizations worldwide. New customers for our drug discovery systems may wait for indications from our initial drug discovery system customers that our drug discovery systems work effectively and generate substantial benefits. If the early users of our LabChip 3000 systems do not endorse the further adoption of these systems because they fail to generate the expected quantities and quality of data, are too difficult or costly to use, or are otherwise deficient in meeting the screening needs of these customers, further sales of these systems to these early users may be limited, and sales to new users will be more difficult.

Because drug screening systems represent substantial capital expenditures, it is important that these systems be capable of performing a wide variety of different types of assays and experiments in order to justify the cost of the systems. We intend to continue to lower the cost of these systems and to develop new versions of our microfluidic-based drug discovery systems with enhanced features that address existing and emerging customer needs, such as offering a broad range of standardized, easy-to-use assays. In this regard, we are in the process of launching a new LabChip system, the Desktop Profiler, designed specifically to facilitate secondary kinase screening by providing a more highly automated system and making available our ProfilerPro reaction ready plates already loaded with required reagents. If the commercial adoption of our other existing LabChip products and this new LabChip system is slower than we presently expect, we may experience a decline in revenue or slow revenue growth and may not achieve or maintain profitability.

For all of the foregoing reasons, we cannot assure you that our efforts to increase the adoption of our LabChip-based high-throughput drug screening and automated electrophoresis systems, by both existing and new users, will be expeditious or effective.

In summary, market acceptance of our LabChip systems will depend on many factors, including:

· our ability to demonstrate the advantages and potential economic value of our LabChip drug discovery systems over alternative, well-established technologies;

· our ability to develop a broader range of standard assays and applications that enable customers and potential customers to perform many different types of experiments on a single LabChip instrument system;

· our ability to penetrate the market for secondary kinase screening with our new DeskTop Profiler and ProfilerPro products; and

· our ability to market and sell our drug discovery systems and related consumable products through our marketing and sales organization without the involvement of our senior management.

If our Xenogen in vivo biophotonic imaging products and services do not become widely used by pharmaceutical, biotechnology, biomedical and chemical researchers, our revenue will grow more slowly than expected or decline and make it more difficult for us to achieve or maintain profitability.

We acquired Xenogen Corporation on August 9, 2006 in order to add its suite of in vivo biophotonic imaging products and other drug discovery and development services to our existing suite of in vitro products and services. Pharmaceutical, biotechnology, biomedical and chemical researchers have historically conducted in vivo biological assessment using a variety of technologies, including a variety of animal models. Compared to these technologies, Xenogen in vivo biophotonic imaging technology is relatively new, and the number of companies and institutions using our technology is relatively limited. The commercial success of these products will depend upon the widespread adoption of our technology as a preferred method to perform in vivo biological assessment. In order to be successful, these products must meet the technical and cost requirements for in vivo biological assessment within the life sciences industry. Widespread market acceptance will depend on many factors, including:

· the willingness and ability of researchers and prospective customers to adopt new technologies;

· our ability to convince prospective strategic partners and customers that our technology is an attractive alternative to other methods of in vivo biological assessment;

· our customers’ perception that our products can help accelerate efforts and reduce costs in drug development; and

· our ability to sell and service sufficient quantities of our products.

Additionally, to our knowledge, only one drug development customer has used Xenogen imaging technology to submit an investigational new drug application, or IND, to the Food and Drug Administration, or FDA, and no drugs have been approved to date using our imaging technology. As a result, our ability to assist the drug development process in leading to the approval of drugs with commercial potential has yet to be fully proven. If commercial advantages are not realized from the use of in vivo biophotonic imaging, our existing customers could stop using our products, and we could have difficulty attracting new customers. Because of these and other factors, our biophotonic imaging products may not gain widespread market acceptance or become the industry standard for in vivo biological assessment.

We have experienced no GCAS system sales to Affymetrix during the nine months ended September 30, 2006, and our future revenue growth depends to a significant extent on sales by Affymetrix of the GCAS automated target preparation system, which is based on the Caliper Sciclone liquid handling instrument. If end-user demand for this product is not as strong as anticipated by Affymetrix, our revenue targets may not be achieved.

In collaboration with Affymetrix, we have developed a new automated system for the preparation of nucleic acid target material to be applied to Affymetrix’s GeneChip® devices, which system is based on our Sciclone liquid handling instrument. Affymetrix began to ship the commercial version of the GCAS system during the third quarter of 2005. Under the terms of the collaboration agreement, Affymetrix will market and sell the GCAS system. Affymetrix announced in 2005 that low initial-production yields of its commercial Mapping 500K Set Array had constrained shipment volumes for this product. Because users of Affymetrix’s Mapping 500K Set Array product are also expected to be users of the GCAS systems, if Affymetrix continues to have low production volumes for this product or experiences difficulties in launching other GeneChip® applications, the demand for GCAS systems will be adversely affected. In addition, Affymetrix may experience other difficulties in the marketing, sale, and support of the GCAS system. For these reasons, our revenues from the sale of GCAS systems have been less than we originally anticipated. We believe that Affymetrix is addressing the production and other technical issues associated with its Mapping 500K Set Assay products and that shipments of the GCAS systems to end-users will resume in the fourth quarter. However, if Affymetrix continues to experience production and other technical issues with its products, our revenue from the sale of GCAS systems will be less than expected. In addition, because the GCAS system is a relatively new product for which there is limited commercial experience, there can be no assurance that the demand for this product will materialize as expected.

Our future revenue growth depends to a significant extent on the revenue growth of NovaScreen, which we recently acquired. If NovaScreen’s revenue does not grow as we anticipate, our future revenue targets may not be achieved.

In October 2005 we acquired NovaScreen Biosciences, a privately held business which provides high throughput screening and compound profiling services. We completed this acquisition, in part, because we believe that the market for these services will grow at a relatively high rate as more pharmaceutical and biotech companies increase their outsourcing of these services. There can be no assurance, however, that pharmaceutical and biotech companies will continue to increase their demand for these services. If the trend toward more outsourcing of these services does not continue to grow, our revenues from the NovaScreen business may not increase as anticipated, making it more difficult for us to achieve our future revenue growth targets.

Because we receive revenue principally from pharmaceutical, biotechnology and chemical companies and biomedical research institutions, the economic conditions faced by those companies and institutions and their capital spending policies may have a significant effect on the demand for our products.

We market our products to pharmaceutical, biotechnology and chemical companies and biomedical research institutions, and the capital spending policies of these entities can have a significant effect on the demand for our products. These policies vary significantly between different customers and are based on a wide variety of factors, including the resources available for purchasing research equipment, the spending priorities among various types of research companies and the policies regarding capital expenditures. In particular, economic conditions faced by pharmaceutical and biotechnology companies have at certain times directly affected their capital spending budgets. In addition, continued consolidation within the pharmaceutical industry will likely delay and may potentially reduce capital spending by pharmaceutical companies involved in such consolidations. During the past several years, many of our customers and potential customers, particularly in the biopharmaceutical industry, have reduced their capital spending budgets because of these generally adverse prevailing economic conditions, consolidation in the industry and increased pressure on the profitability of such companies, due in part to competition from generic drugs. If our customers and potential customers do not increase their capital spending budgets, because of continuing adverse economic conditions or further consolidation in the industry, we could face weak demand for our products. Similarly, changes in availability of grant moneys may impact our sales to academic customers. Recent developments regarding safety issues for widely used drugs, including actual and/or threatened litigation, also may affect capital spending by pharmaceutical companies. Any decrease or delay in capital spending by life sciences or chemical companies or biomedical researchers could cause our revenue to decline and harm our profitability.

In addition, consolidation within the pharmaceutical industry may not only affect demand for our products, but also existing business relationships. For example, if two or more of our present or future biophotonic imaging customers merge, we may not receive the same aggregate amount of fees under one license agreement with the combined entity that we received under separate license agreements with these customers prior to their merger. Moreover, if one of our biophotonic imaging customers merges with an entity that is not such a customer, the new combined entity may prematurely terminate our license agreement. Any of these developments could materially harm our business or financial condition.

Our future revenue is unpredictable and could cause our operating results to fluctuate significantly from quarter to quarter.

Our quarterly and annual operating results have fluctuated in the past and are likely to do so in the future. Our operating results have been historically stronger in the fourth quarter due to the decision-making process of our customer base. Xenogen’s operating results have historically been stronger in the second and fourth quarters. The sale of many of our products typically involves a scientific evaluation and commitment of capital by customers. Accordingly, the initial sales cycles of many of our products are lengthy and subject to a number of significant risks that are beyond our control, including customers’ budgetary constraints and internal acceptance reviews. As a result of this lengthy and unpredictable sales cycle, our operating results have historically fluctuated significantly from quarter to quarter, and we expect this trend to continue. In addition, a large portion of our expenses are relatively fixed. Historically, customer buying patterns and our revenue growth have caused a substantial portion of our revenues to occur in the last month of the quarter. Delays in the receipt of orders, our recognition of product or service revenue or the manufacture of product near the end of the quarter could cause quarterly revenues to fall short of anticipated levels. Because our operating expenses are based on anticipated revenue levels and a high percentage of our expenses are relatively fixed, less than anticipated revenues for a quarter could have a significant adverse impact on our operating results. Accordingly, if our revenue declines or does not increase as we anticipate, we might not be able to correspondingly reduce our operating expenses in a timely enough manner to avoid incurring additional losses. Our failure to achieve our anticipated level of revenue could significantly harm our operating results for a particular fiscal period.

The following are among additional factors that could cause our operating results to fluctuate significantly from period to period:

· changes in the demand for, and pricing of, our products and services;

· the length of our sales cycles and buying patterns of our customers, which may cause a decrease in our operating results for a quarterly period;

· the nature, pricing and timing of other products and services provided by us or our competitors;

· changes in our renewable contracts, including licenses;

· our ability to obtain key components for products and manufacture and install them on a timely basis to meet demand;

· changes in the research and development budgets of our customers;

· customer resistance to paying technology licensing fees in conjuction with future IVIS imaging system purchases;

· customer reactions to our recent merger with Xenogen;

· acquisition, licensing and other costs related to the expansion of our operations;

· expenses related to our patent infringement litigation with AntiCancer and other litigation in which we may become involved; and

· expenses related to, and the results of, patent filings and other proceedings relating to intellectual property rights.

Due to the possibility of fluctuations in our revenue and expenses, we believe that quarter to quarter or annual comparisons of our operating results are not a good indication of our future performance.

Our intellectual property rights may not provide meaningful commercial protection for our products, which could enable third parties to use our technology, or very similar technology, and could reduce our ability to compete in the market.

We rely on patent, copyright, trade secret and trademark laws to limit the ability of others to compete with us using the same or similar technology in the U.S. and other countries. However, these laws afford only limited protection and may not adequately protect our rights to the extent necessary to sustain any competitive advantage we may have. In addition, our current and future patent applications may not result in the issuance of patents in the U.S. or foreign countries. The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the U.S., and many companies have encountered significant problems in protecting their proprietary rights abroad. These problems can be caused by the absence of adequate rules and methods for defending and enforcing intellectual property rights.

We will be able to protect our technology from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are effectively maintained as trade secrets. The patent positions of companies developing tools for pharmaceutical, biotechnology, biomedical and chemical industries, including our patent position, generally are uncertain and involve complex legal and factual questions, particularly as to questions concerning the enforceability of such patents against alleged infringement. The biotechnology patent situation outside the U.S. is even more uncertain, particularly with respect to the patentability of transgenic animals. Changes in either the patent laws or in interpretations of patent laws in the U.S. and other countries may therefore diminish the value of our intellectual property. Moreover, our patents and patent applications may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. We also face the risk that others may independently develop similar or alternative technologies or design around our patented technologies.

We own, or control through licenses, a variety of issued patents and pending patent applications. However, the patents on which we rely may be challenged and invalidated, and our patent applications may not result in issued patents. For example, in 2005 AntiCancer filed a lawsuit against Xenogen alleging infringement of five patents and requesting that the court declare invalid one of our primary patents covering methods of in vivo biophotonic imaging. For a description of our litigation with AntiCancer, see Part II, Item 1 (“Legal Proceedings”).

We have taken measures to protect our proprietary information, especially proprietary information that is not covered by patents or patent applications. These measures, however, may not provide adequate protection of our trade secrets or other proprietary information. We seek to protect our proprietary information by entering into confidentiality agreements with employees, collaborators and consultants. Nevertheless, employees, collaborators or consultants may still disclose our proprietary information, and we may not be able to protect our trade secrets in a meaningful way. If we lose employees, we may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by those former employees despite the existence of nondisclosure and confidentiality agreements and other contractual restrictions to protect our proprietary technology. In addition, others may independently develop substantially equivalent proprietary information or techniques or otherwise gain access to our trade secrets.

U.S. Patent No. 4,873,191, claiming the use of certain widely accepted microinjection techniques to create transgenic animals and licensed exclusively to our subsidiary, Xenogen Biosciences Corp., expired in October 2006. Due to the expiration of this patent, we will not be able to prevent others from practicing those methods for commercial purposes and we may face competition from third parties seeking to provide those services on a commercial basis.

We are currently involved in patent litigation and we may need to initiate other lawsuits to protect or enforce our patents or other proprietary rights, which would be expensive and, if we lose, may cause us to lose some of our intellectual property rights, which would reduce our ability to compete in the market and may cause our stock price to decline.

The patents on which we rely may be challenged and invalidated, and our patent applications may not result in issued patents. For example, in 2005 AntiCancer filed a lawsuit against Xenogen alleging infringement of five patents and requesting that the court declare invalid one of our primary patents covering methods of in vivo biophotonic imaging. For a description of our litigation with AntiCancer, see Part II, Item 1 (“Legal Proceedings”). In addition, in order to protect or enforce our patent rights, we may initiate patent litigation against third parties, such as infringement suits or interference proceedings. This risk is exacerbated by the fact that those third parties may have access to substantially greater financial resources than we have to conduct such litigation.

These lawsuits could be expensive, take significant time and could divert management’s attention from other business concerns. These lawsuits would put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. Additionally, we may suffer reduced instrumentation sales and/or license revenue as a result of pending lawsuits or following final resolution of lawsuits. Further, these lawsuits may also provoke these third parties to assert claims against us. Attempts to enforce our patents may trigger third party claims that our patents are invalid. We may not prevail in any of these suits and any damage or other remedies awarded to us, if any, may not be commercially valuable. During the course of these suits, there may be public announcements of results of hearings, motions and other interim proceedings or developments in the litigation. If securities analysts or others perceive any of these results to be negative, it could cause our stock price to decline.

Acquisitions may have unexpected consequences or impose additional costs on us.

Our business is highly competitive and our growth is dependent upon market growth and our ability to enhance our existing products, introduce new products on a timely basis and offer our customers products that provide a more complete solution. One of the ways we may address the need to develop new products is through acquisitions of complementary businesses and technologies, such as our acquisition of Zymark in July 2003, our acquisition of NovaScreen in October 2005, and our recently completed acquisition of Xenogen in August 2006. From time to time, we consider and evaluate potential business combinations involving our acquisition of another company and transactions involving the sale of our company through, among other things, a possible merger or consolidation of our business into that of another entity.

Acquisitions involve numerous risks, including the following:

• difficulties in integration of the operations, technologies and products and services of the acquired companies;

• the risk of diverting management’s attention from normal daily operations of the business;

• potential cost and disruptions caused by the integration of financial reporting systems and development of uniform standards, controls, procedures and policies;

• accounting consequences, including amortization of acquired intangible assets or other required purchase accounting adjustments, resulting in variability or reductions of our reported earnings;

• potential difficulties in completing projects associated with purchased in-process research and development;

• risks of entering markets in which we have no or limited direct prior experience and where competitors in these markets have stronger market positions;

• the potential loss of our key employees or those of the acquired company due to the employment uncertainties inherent in the acquisition process;

• the assumption of known and potentially unknown liabilities of the acquired company;

• the risk that we may find that the acquired company or business does not further our business strategy or that we paid more than what the company or business was worth;

• our relationship with current and new employees and customers could be impaired;

• the acquisition may result in litigation from terminated employees or third parties who believe a claim against us would be valuable to pursue;

• our due diligence process may fail to identify significant issues with product quality, product architecture and legal contingencies, among other matters; and

• there may be insufficient revenues to offset increased expenses associated with acquisitions.

Acquisitions may also cause us to issue common stock that would dilute our current stockholders’ percentage ownership; record goodwill and non-amortizable intangible assets that will be subject to impairment testing and potential periodic impairment charges; incur amortization expenses related to certain intangible assets; or incur other large and immediate write-offs.

We cannot assure you that future acquisitions will be successful and will not adversely affect our business. We must also maintain our ability to manage growth effectively. Failure to manage growth effectively and successfully integrate acquisitions that we make could harm our business.

We may not realize all of the anticipated benefits of the Xenogen acquisition.

The success of our acquisition of Xenogen will depend, in part, on our ability to realize the anticipated synergies, cost savings, and growth opportunities from integrating the businesses of Xenogen with our business. Our success in realizing these benefits and the timing of this realization depend upon the successful integration of the operations of Xenogen. The integration of two independent companies is a complex, costly, and time-consuming process. For example, we are presently in the process of moving manufacturing operations for Xenogen optical imaging systems to our manufacturing facility in Hopkinton, Massachusetts, and we have no experience with manufacturing these types of instrument systems at that facility. Delays or other disruptions in our ability to manufacture these types of instruments could delay the shipment of these instruments to customers and adversely affect our future revenue. The difficulties of combining the operations of the companies include, among others:

· consolidating research and development and manufacturing operations;

· retaining key employees;

· consolidating corporate and administrative infrastructures;

· coordinating sales and marketing functions;

· preserving our and Xenogen’s research and development, distribution, marketing, promotion, and other important relationships;

· minimizing the diversion of management’s attention from ongoing business concerns; and

· coordinating geographically separate organizations.

We cannot assure you that the integration of Xenogen with us will result in the realization of the full benefits anticipated by us to result from the merger.

We expect to incur future operating losses and may not achieve profitability.

We have experienced significant operating losses each year since our inception and we expect to incur an operating loss in 2006. As of September 30, 2006, Caliper had an accumulated deficit of approximately $201.0 million. As of the effectiveness date of our merger with Xenogen, Xenogen had an accumulated deficit of approximately $199.1 million. Our losses have resulted principally from costs incurred in research and development and product marketing and from general and administrative costs associated with our operations. These costs have exceeded our cumulative cash proceeds which, to date, have been generated principally from product sales, collaborative research and development agreements, technology access fees, license fees, litigation settlement proceeds and interest income on cash and investment balances. To achieve profitability, we will need to generate and sustain substantially higher revenue than we have to date, while achieving reasonable costs and expense levels. We may not be able to generate enough revenue to achieve profitability. We may not achieve or maintain reasonable costs and expense levels. Even if we become profitable, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail to achieve profitability within the timeframe expected by securities analysts or investors, the market price of our common stock will likely decline.

Failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products could reduce our ability to compete and result in lower revenue.

We anticipate that our existing capital resources, together with the revenue to be derived from our commercial partners and from commercial sales of our products and services, will enable us to maintain currently planned operations at least through the year 2007. However, we premise this expectation on our current operating plan, which may change as a result of many factors, including our acquisition of NovaScreen and our recently completed acquisition of Xenogen, or of another company or business. Consequently, we may need additional funding sooner than anticipated. Our inability to raise needed capital would seriously harm our business and product development efforts. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe that we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in dilution to our stockholders.

On August 9, 2006, Caliper entered into a Credit Facility with a bank which permits Caliper to borrow up to $20.0 million in the form of revolving loan advances including up to $5.0 million in the form of letters of credit. The Credit Facility includes traditional lending and reporting covenants including that certain financial covenants applicable to liquidity and earnings are to be maintained by Caliper and tested as of the last day of each quarter. The Credit Facility also includes several potential events of default such as payment default, material adverse change conditions and insolvency conditions that could cause interest to be charged at prime plus two percentage points, or for any uncured events of default result in the bank’s right to declare all outstanding obligations immediately due and payable. While we believe that we will be able to remain in compliance with applicable loan covenants through the Credit Facility’s maturity in 2008, should our results of operations deteriorate or any other material adverse change occur with our business, we may become in default of one or more covenants under the Credit Facility.

If such events were to occur, we currently have no alternative committed sources of capital. In addition, to the extent that operating and capital resources are insufficient to meet future requirements, we will have to raise additional funds to continue the development and commercialization of our technologies. These funds may not be available on favorable terms, or at all. If adequate funds are not available on attractive terms, we may be required to curtail operations significantly or to obtain funds by entering into financing, supply or collaboration agreements on unattractive terms.

The termination or non-renewal of a large contract or the loss of, or a significant reduction in, sales to any of our significant customers could harm our operating results.

We currently derive, and we expect to continue to derive, a significant percentage of our total revenue from a relatively small number of customers. If any of these customers terminates or substantially diminishes its relationship with us, our revenue could decline significantly. Our newly acquired Xenogen business often sells products and provides services pursuant to agreements that are renewable on an annual basis. Failure to renew or the cancellation of these agreements by any one of our larger biophotonic imaging customers could result in a significant loss of revenue.

We may not fully realize our revenue under long-term contracts, which could harm our business and result in higher losses than anticipated.

We have long-term contracts for custom animal production and/or phenotyping services with two customers that are renewed annually and are expected to generate future revenues. These two long-term contracts may not be renewed annually and may be terminated at any time during their terms. In addition, we may not be able to maintain our sublicensed rights under certain patents relating to these contracts. Termination of these contracts for any reason would result in the loss of significant revenue would negatively impact our results of operations or limit our ability to execute our strategy.

Our success will depend partly on our ability to operate without infringing or misappropriating the proprietary rights of others.

We may be exposed to future litigation by third parties based on claims that our products infringe the intellectual property rights of others. This risk is exacerbated because there are numerous issued and pending patents in the life sciences industry and, as described above, the validity and breadth of life sciences patents involve complex legal and factual questions. Our competitors may

assert that their U.S. or foreign patents may cover our products and the methods we employ. For example, we are involved in patent litigation with AntiCancer in which it has alleged that we have infringed certain of its patents. We have counterclaimed with allegations that AntiCancer infringes our imaging patents, as well as allegations that certain AntiCancer’s patents are invalid. For a description of our litigation with AntiCancer, see Part II, Item 1 (“Legal Proceedings”). Also, because patent applications can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our products may infringe. There could also be existing patents of which we are not aware that one or more of our products may inadvertently infringe.

From time to time, we have received, and may receive in the future, letters asking us to license certain technologies the signing party believes we may be using or would like us to use. If we do not accept a license, we may be subject to claims of infringement, or may receive letters alleging infringement. Infringement and other intellectual property claims, with or without merit, can be expensive and time-consuming to litigate and can divert management’s attention from our core business.

If we lose a patent infringement lawsuit, we could be prevented from selling our products unless we can obtain a license to use technology or ideas covered by such patent or are able to redesign the products to avoid infringement. A license may not be available at all or on terms acceptable to us, or we may not be able to redesign our products to avoid any infringement. If we are not successful in obtaining a license or redesigning our products, we may be unable to sell our products and our business could suffer.

Our rights to the use of technologies licensed to us by third parties are not within our control, and without these technologies, our products and programs may not be successful and our business prospects could be harmed.

We rely on licenses to use various technologies that are material to our business, including licenses, with sublicense rights, to certain microfluidic technologies and in vivo imaging methods, licenses to the use of certain biological materials, and licenses to engineer and commercialize transgenic animals. We do not own the patents that underlie these licenses. Our rights to use these technologies and employ the inventions claimed in the licensed patents are subject to the negotiation of, continuation of and compliance with the terms of those licenses and the continued validity of these patents. In some cases, we do not control the prosecution or filing of the patents to which we hold licenses, or the enforcement of these patents against third parties. For example, under the Promega Corporation and The Regents of the University of California licenses for a patented form of firefly luciferase used in our LPTA animal models and certain of our bioware, we do not have the right to enforce the patent, and neither licensor is obligated to do so on our behalf. Certain of our licenses contain diligence obligations, as well as provisions that allow the licensor to terminate the license upon specific conditions. Some of the licenses under which we have rights, such as our licenses from the University of Pennsylvania and from UT Battele for certain microfluidic technologies and from Stanford University for certain biophotonic imaging methods, provide us with exclusive rights in specified fields, including the right to enforce the licensed patents , but the scope of our rights and obligations under these and other licenses may become subject to dispute by our licensors or third parties. For example, we are currently discussing with Stanford the scope of products that we sell which are subject to the royalty provisions of our Stanford license agreement. As a result of these discussions, we may amend the license agreement to change the royalties we pay to Stanford for future product sales. The amendment may also include the payment of back royalties to Stanford for products we have already sold. We have not discussed with Stanford the specific terms and conditions of an amendment or the amount of any back royalty payments. Any increase in the royalties we pay to Stanford would negatively impact our gross margins.

Our tax net operating losses and credit carryforwards may expire if we do not achieve or maintain profitability.

As of December 31, 2005, we had federal and state net operating loss carryforwards of approximately $148.1 million and $44.6 million, respectively. We also had federal and state research and development tax credit carryforwards of approximately $4.7 million and $2.8 million, respectively. The federal net operating loss and credit carryforwards will expire at various dates through 2025 beginning in the year 2009 if not utilized. State net operating losses of approximately $5,000 expired in 2005. The current remaining state net operating losses have varying expiration dates through 2015.

Utilization of the federal and state net operating losses and credits may be subject to a substantial limitation due to the change in ownership provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. As of December 31, 2005, Xenogen had federal and state net operating loss carryforwards of approximately $126.3 and $28.6 million, respectively. The acquisition of Xenogen resulted in Xenogen shareholders’ owning approximately one-third of Caliper and will likely result in a change of ownership that will cause pre-merger losses of the merged entities to be subject to limitation. The amount of limitation has not yet been determined. Because of our lack of earnings history and the uncertainty of realizing these net operating losses, the deferred tax assets have been fully offset by a valuation allowance.

If we are unable to meet customer demand, it would adversely impact our financial results and restrict our sales growth.

Upon our acquisition of Xenogen, manufacturing of IVIS Imaging Systems was transferred to our manufacturing plant in Hopkinton, Massachusetts. While our manufacturing group has considerable expertise with the manufacture of complex systems, we are relatively inexperienced in the manufacture of IVIS Imaging Systems. To be successful, we must manufacture our IVIS Imaging Systems in substantial quantities at acceptable costs. If we do not succeed in manufacturing sufficient quantities of our imaging systems to meet customer demand, we could lose customers and fail to acquire new customers if they choose a competitor’s product because our imaging system is not available. We believe our current manufacturing capacity in Hopkinton, Massachusetts is sufficient to meet our current and forecasted demand over the foreseeable future. Certain components of our IVIS systems are specially manufactured by our single-source suppliers and supply of these parts to us requires adequate lead time that can result in production delays. If we experience unexpected shifts in customer demand that requires alterations to planned manufacturing, we may experience production delays that could restrict our sales growth. If we are unable to meet customer demand for IVIS Imaging Systems, it would adversely affect our financial results and restrict our sales growth.

We depend on a limited number of suppliers for components of IVIS Imaging Systems, and we will be unable to manufacture or deliver our products if shipments from these suppliers are interrupted or are not supplied on a timely basis.

We use original equipment manufacturers, or OEMs, for various parts of our IVIS Imaging Systems, including the cameras, boxes, certain subassemblies, filters and lenses. We obtain these key components from a small number of sources. For example, the lens for our IVIS 200 system is obtained from a single source on a purchase order basis from Coastal Optical Systems Inc., and the CCD cameras for all of our IVIS Imaging Systems are obtained from two sources, Spectral Instruments, Inc. and Andor Technology Limited. We have binding supply agreements with Spectral and Andor. From time to time, Xenogen experienced delays in obtaining components from certain of its suppliers, which had an impact on its ability to produce imaging systems. We believe that alternative sources for certain of these components in the event of a disruption or discontinuation in supply would not be available on a timely basis, which would disrupt our operations and impair our ability to manufacture and sell our IVIS Imaging Systems.

Our dependence upon outside suppliers and OEMs exposes us to risks, including:

· the possibility that one or more of our suppliers could terminate their services at any time;

· the potential inability of our suppliers to obtain required components or products;

· reduced control over pricing, quality and timely delivery due to the difficulties in switching to alternative suppliers;

· the potential delays and expense of seeking alternative suppliers; and

· increases in prices of raw materials, products and key components.

We face competition from companies with established technologies for in vivo biological assessment, which may prevent us from achieving significant market share for our products.

We compete with a variety of established and accepted technologies for in vivo biological assessment that several competitors and customers may be using to analyze animal models. The most basic of these technologies have remained relatively unchanged for the past 40 years, are well established and are routinely used by researchers. We believe it may take several years for all researchers to become fully educated about our in vivo biophotonic imaging technology.

We believe that in the near term, the market for in vivo biological assessment will be subject to rapid change and will be significantly affected by new technology introductions and other market activities of industry participants. As other companies develop new technologies and products to conduct in vivo biological assessment, we may be required to compete with many larger companies that enjoy several competitive advantages, including:

· established distribution networks;

· established relationships with life science, pharmaceutical, biotechnology and chemical companies as well as with biomedical researchers;

· additional lines of products, and the ability to offer rebates or bundle products to offer higher discounts or incentives to gain a competitive advantage; and

· greater resources for technology and product development, sales and marketing and patent litigation.

Our principal competitors that use established technologies for in vivo biological assessment include Exelixis, Inc. and Lexicon Genetics Incorporated. Each of these companies uses animal models in the area of target validation in drug discovery and utilizes methods of assessment based upon knockout mice as well as other organisms such as fruit flies, worms and yeast. We also face competition from several companies including Eastman Kodak Company, Berthold Detection Systems GmbH, Hamamatsu Photonics, Olympus Corporation, K.K. and Roper Scientific, Inc., that market systems which may be used to perform biophotonic imaging with the appropriate licenses. These companies are larger and have greater resources than we do. There are also several privately-held companies that have recently begun to market systems that may be used to perform biophotonic imaging with the appropriate licenses. At any time, other companies may develop additional directly competitive products that could achieve greater market acceptance or render our products obsolete.

Contamination in our animal populations could damage our inventory, harm our reputation and result in decreased sales.

We offer a portfolio of transgenic animals and LPTA animal models for use by researchers in a wide range of research and drug discovery programs and also perform breeding and model validation. We maintain animal facilities in Alameda, California and Cranbury, New Jersey. These animals and facilities must be free of contaminants, viruses or bacteria, or pathogens that would compromise the quality of research results. Contamination of our isolated breeding rooms could disrupt our models, delay delivery to customers of data generated from phenotyping and result in decreased sales. Contamination would result in inventory loss, clean-up and start-up costs and reduced sales as a result of lost customer orders.

In 2003, one of Xenogen’s animal facilities in Alameda was contaminated by a mouse virus introduced through one of our animal vendors. That facility was closed for decontamination, and the most valuable strains were transferred to third party breeders for rederivation so that Xenogen could continue to provide animals to its customers. The decontamination process took approximately three months. A similar contamination occurred again in 2005.

Terrorist acts, acts of war and natural disasters may seriously harm our business and revenues, costs and expenses and financial condition.

We rely on a single manufacturing location to produce our microfluidic chips and drug discovery systems, and a single location to produce laboratory automation, imaging and robotics systems, with no alternative facilities. We rely principally on our facility in Cranbury, New Jersey, to produce LPTA animal models and our facility in Alameda, California to produce bioware cells and microorganisms. Alameda, California is also able to serve as a back-up facility for producing our LPTA animal models. These facilities and some pieces of manufacturing equipment are difficult to replace and could require substantial replacement lead-time. Our manufacturing facilities may be affected by natural disasters, such as earthquakes and floods. Earthquakes are of particular significance because our LabChip product manufacturing facility is located in Mountain View, California, an earthquake-prone area. In the event that our existing manufacturing facilities or equipment are affected by man-made or natural disasters, we would be unable to manufacture products for sale, meet customer demands or meet sales projections. If our manufacturing operations were curtailed or ceased, it would harm our business.

Terrorist acts, acts of war and natural disasters (wherever located around the world) may cause damage or disruption to us, our employees, facilities, partners, suppliers, distributors and customers, any and all of which could significantly impact our revenues, expenses and financial condition. The terrorist attacks that took place in the United States on September 11, 2001 were unprecedented events that have created many economic and political uncertainties. The potential for future terrorist attacks, the national and international responses to terrorist attacks and other acts of war or hostility have created many economic and political uncertainties that could adversely affect our business and results of operations that cannot presently be predicted. The tsunami in Asia on December 26, 2004 was unpredictable and caused devastation of tremendous proportions and its effects are still being realized. The unpredictability of such a disaster inevitably causes uncertainty that could adversely affect our business and results of operations. We are largely uninsured for losses and interruptions caused by terrorist acts, acts of war and natural disasters.

We use hazardous materials in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.

Our research and development processes, our anesthesia systems used with our IVIS Imaging Systems to anesthetize the animals being imaged and our general biology operations involve the controlled storage, use and disposal of hazardous materials including, but not limited to, biological hazardous materials and radioactive compounds. We are subject to federal, state and local regulations governing the use, manufacture, storage, handling and disposal of these materials and waste products. Although we believe that our safety procedures for handling and disposing of these hazardous materials comply with the standards prescribed by law and regulation, the risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of an accident, we could be held liable for any damages that result, and any liability could exceed the limits or fall outside the coverage of our insurance. We currently maintain a limited pollution cleanup insurance policy in the amount of $1.0 million. We may not be able to maintain insurance on acceptable terms, or at all. We could be required to incur significant costs to comply with current or future environmental laws and regulations.

Compliance with governmental regulations could increase our operating costs, which would adversely affect the commercialization of our technology.

The Animal Welfare Act, or AWA, is the federal law that covers the treatment of certain animals used in research. The AWA currently does not cover rats of the genus Rattus or mice of the genus Mus bred for use in research, and consequently, we are not currently required to be in compliance with this law.

Currently, the AWA imposes a wide variety of specific regulations that govern the humane handling, care, treatment and transportation of certain animals by producers and users of research animals, most notably personnel, facilities, sanitation, cage size, feeding, watering and shipping conditions. If in the future the AWA is amended to include mice or rats bred for use in research in the scope of regulated animals, we will become subject to registration, inspections and reporting requirements. We believe compliance

with such regulations would require us to modify our current practices and procedures, which could require significant financial and management resources.

Furthermore, some states have their own regulations, including general anti-cruelty legislation, which establish certain standards in handling animals. To the extent that we provide products and services overseas, we also have to comply with foreign laws, such as the European Convention for the Protection of Animals During International Transport and other anti-cruelty laws. In addition, customers of our mice in certain countries may need to comply with requirements of the European Convention for the Protection of Vertebrate Animals Used for Experimental and Other Scientific Purposes. Additional or more stringent regulations in this area could impact our sales of laboratory animals into signatory countries.

Since we develop animals containing changes in their genetic make-up, we may become subject to a variety of laws, guidelines, regulations and treaties specifically directed at genetically modified organisms. The area of environmental releases of genetically modified organisms is rapidly evolving and is currently subject to intense regulatory scrutiny, particularly overseas. If we become subject to these laws, we could incur substantial compliance costs. For example, the Biosafety Protocol, an international treaty adopted in 2000 to which the U.S. is not a party, regulates the transit of living modified organisms, a category that includes our transgenic mice, into countries party to the treaty. As our mice are not intended for release into the environment or for use for food, feed or processing, the treaty imposes only identification, handling, packaging and transport requirements for shipments into signatory countries. However, additional requirements may be imposed on such shipments in the future.

Additionally, exports of our IVIS Imaging Systems and biological reagents to foreign customers and distributors are governed by the International Traffic in Arms Regulations, the Export Administration Regulations, Patriot Act and Bioterrorism Safety Act. Although these laws and regulations do not restrict our present foreign sales programs, any future changes to these regulatory regimes may negatively affect or limit our foreign sales.

Public perception of ethical and social issues may limit or discourage the use of mice for scientific experimentation, which could reduce our revenues and adversely affect our business.

Governmental authorities could, for social or other purposes, limit the use of genetic modifications or prohibit the practice of our technology. Public attitudes may be influenced by claims that genetically engineered products are unsafe for use in research or pose a danger to the environment. The subject of genetically modified organisms, like genetically altered mice and rats, has received negative publicity and aroused significant public debate. In addition, animal rights activists could protest or make threats against our facilities, which may result in property damage. Ethical and other concerns about our methods, particularly our use of genetically altered mice and rats, could adversely affect our market acceptance.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

Our 2006 Annual Meeting of Stockholders was held on August 9, 2006, at 10:00 a.m. local time at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial Center, Boston, Massachusetts. There were present at the meeting, in person or represented by proxy, the holders of 28,675,834 shares of common stock. The matters voted on at the meeting and the votes cast are as follows:

(1) The approval of the issuance of Caliper common stock and warrants to purchase shares of Caliper common stock pursuant to the Agreement and Plan of Merger, dated as of February 10, 2006, by and among Caliper, Xenogen Corporation, and Caliper Holdings, Inc., as described in Caliper’s and Xenogen’s Joint Proxy Statement — Prospectus dated July 11, 2006. There were 22,195,083 shares of Common Stock voting in favor, 405,856 shares of Common Stock voting against, 12,115 shares abstaining and 6,021,137 broker non-votes.

(2) Consent to adjournment of the meeting, if necessary, if a quorum was present, to solicit additional proxies if there were not sufficient votes in favor of Proposal No. 1. There were 27,946,173 shares of Common Stock voting in favor, 652,070 shares of Common Stock voting against, 35,948 shares abstaining and zero broker non-votes.

(3) The approval of an amendment to Caliper’s restated certificate of incorporation to increase the number of authorized shares of common stock from 70,000,000 shares to 100,000,000 shares, which represents an additional 30,000,000 shares, as described in Caliper’s and Xenogen’s Joint Proxy Statement — Prospectus dated July 11, 2006. There were 28,205,577 shares of Common Stock voting in favor, 416,150 shares of Common Stock voting against, 12,464 shares abstaining and zero broker non-votes.

(4) Two persons were elected to serve as Directors of the Company to hold office until our 2009 Annual Meeting of Stockholders or until their successors are chosen and qualified. The following is a table setting forth the number of votes cast for and withheld for each nominee for Director:

Name of Nominee	No. of Common Votes in Favor	No. of Common Votes Withheld
Kathryn A. Tunstall	28,121,632	512,559
E. Kevin Hrusovsky	28,144,213	489,978

On August 9, 2006, pursuant to the terms of the merger agreement with Xenogen, the following individuals were appointed as Directors of the Company: Michael Eisenson, whose term expires upon the 2008 annual meeting of stockholders and David W. Carter, whose term expires upon the 2009 Annual Meeting of Stockholders. The following individuals are continuing Directors with terms expiring upon the 2007 Annual Meeting of Stockholders: Van Billet, Robert C. Bishop, Ph.D. and David V. Milligan, Ph.D. The following individuals are continuing Directors with terms expiring upon the 2008 Annual Meeting of Stockholders: Daniel K. Kisner, M.D., and Allan L. Comstock.

(5) The appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2006 was ratified. There were 28,521,071 shares of Common Stock voting in favor, 106,224 shares of Common Stock voting against, and 6,896 shares of Common Stock abstaining with zero broker non-votes.

Item 5. Other Information

None.

EXHIBIT INDEX

Item 6. Exhibits

Exhibit Number		Description of document
3.1(1)		Amended and Restated Certificate of Incorporation of Caliper.

3.2(2)		Certificate of Designation Of Series A Junior Participating Preferred Stock.

3.3(3)		Restated Bylaws of Caliper.

3.4(4)		Amendment No. 1 to Bylaws of Caliper.

4.2(5)		Specimen Stock Certificate.

4.3(6)		Rights Agreement, dated as of December 18, 2001, between Caliper and Wells Fargo Bank Minnesota, N.A., as Rights Agent.

10.1		Loan and Security Agreement, dated as of August 9, 2006, among Silicon Valley Bank, Caliper Life Sciences, Inc. and NovaScreen Biosciences Corporation.

10.2		Joinder Agreement, dated as of September 28, 2006, among Silicon Valley Bank, Xenogen Corporation, Xenogen Biosciences Corporation, Caliper Life Sciences, Inc. and NovaScreen Biosciences Corporation.

10.3		Agreement, dated as of May 5, 2000, between the Board of Trustess of the Leland Stanford Junior University and Xenogen Corporation.

31.1		Certification of Chief Executive Officer Required Under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Required Under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer Required Under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.

32.2*		Certification of Chief Financial Officer Required Under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.

(1)	Previously filed as the like-numbered Exhibit to Form 10-Q for the quarterly period ended March 31, 2004 and incorporated by reference herein.

(2)	Previously filed as Exhibit 4.1 to Current Report on Form 8-K filed December 19, 2001 and incorporated by reference herein.

(3)	Previously filed as Exhibit 3.4 to our Registration Statement on Form S-1, as amended, File No. 333-88827, filed on October 12, 1999 and incorporated by reference herein.

(4)	Previously filed as the like-numbered Exhibit to Form 10-K for the year ended December 31, 2002 and incorporated by reference herein.

(5)	Previously filed as the like-numbered Exhibit to Annual Report on Form 10-K for the annual period ended December 31, 2004 and incorporated by reference herein.

(6)	Previously filed as Exhibit 99.2 to Current Report on Form 8-K filed December 19, 2001 and incorporated by reference herein.

*	The certifications attached as Exhibits 32.1 and 32.2 accompany this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by Caliper for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CALIPER LIFE SCIENCES, INC.

Date: November 9, 2006	By:	/s/ E. Kevin Hrusovsky
	E. Kevin Hrusovsky
	Chief Executive Officer and President

	By:	/s/ Thomas T. Higgins
	Thomas T. Higgins
	Executive Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit Number		Description of document
3.1(1)		Amended and Restated Certificate of Incorporation of Caliper.

3.2(2)		Certificate of Designation Of Series A Junior Participating Preferred Stock.

3.3(3)		Restated Bylaws of Caliper.

3.4(4)		Amendment No. 1 to Bylaws of Caliper.

4.2(5)		Specimen Stock Certificate.

4.3(6)		Rights Agreement, dated as of December 18, 2001, between Caliper and Wells Fargo Bank Minnesota, N.A., as Rights Agent.

10.1		Loan and Security Agreement, dated as of August 9, 2006, among Silicon Valley Bank, Caliper Life Sciences, Inc. and NovaScreen Biosciences Corporation.

10.2		Joinder Agreement, dated as of September 28, 2006, among Silicon Valley Bank, Xenogen Corporation, Xenogen Biosciences Corporation, Caliper Life Sciences, Inc. and NovaScreen Biosciences Corporation.

10.3		Agreement, dated as of May 5, 2000, between the Board of Trustess of the Leland Stanford Junior University and Xenogen Corporation.

31.1		Certification of Chief Executive Officer Required Under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Required Under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer Required Under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.

32.2*		Certification of Chief Financial Officer Required Under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.

(1)	Previously filed as the like-numbered Exhibit to Form 10-Q for the quarterly period ended March 31, 2004 and incorporated by reference herein.

(2)	Previously filed as Exhibit 4.1 to Current Report on Form 8-K filed December 19, 2001 and incorporated by reference herein.

(3)	Previously filed as Exhibit 3.4 to our Registration Statement on Form S-1, as amended, File No. 333-88827, filed on October 12, 1999 and incorporated by reference herein.

(4)	Previously filed as the like-numbered Exhibit to Form 10-K for the year ended December 31, 2002 and incorporated by reference herein.

(5)	Previously filed as the like-numbered Exhibit to Annual Report on Form 10-K for the annual period ended December 31, 2004 and incorporated by reference herein.

(6)	Previously filed as Exhibit 99.2 to Current Report on Form 8-K filed December 19, 2001 and incorporated by reference herein.

*	The certifications attached as Exhibits 32.1 and 32.2 accompany this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by Caliper for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-10.1 2 a06-22085_1ex10d1.htm EX-10

EXHIBIT 10.1

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of August 9, 2006 (the “Effective Date”) between SILICON VALLEY BANK, a California corporation and with a loan production office located at One Newton Executive Park, Suite 200, 2221 Washington Street, Newton, Massachusetts 02462 (“Bank”), and CALIPER LIFE SCIENCES, INC., a Delaware corporation (“Caliper”) and NOVASCREEN BIOSCIENCES CORPORATION, a Maryland corporation (“NovaScreen”) (hereinafter, Caliper and NovaScreen are jointly and severally, individually and collectively, referred to as “Borrower”), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank. The parties agree as follows:

(a) Designation of Agent. Each Borrower hereby designates Caliper as the agent (the “Agent”) of each Borrower to discharge the duties and responsibilities of the Agent as provided herein.

(b) Operation of Loan Arrangement.

(i) Except as otherwise permitted by Bank, Credit Extensions hereunder shall be requested solely by the Agent as agent for each Borrower.

(ii) Any Credit Extension which may be made by Bank under this Agreement and which is directed to the Agent is received by the Agent in trust for that Borrower who is intended to receive such Credit Extension. The Agent shall distribute the proceeds of any such Credit Extension solely to that Borrower. Each Borrower shall be directly indebted to Bank for each Credit Extension distributed to any Borrower by the Agent, together with all accrued interest thereon, as if that amount had been advanced directly by Bank to a Borrower (whether or not the subject Credit Extension was based upon the accounts and/or inventory or other assets of the Borrower which actually received such distribution), in addition to which each Borrower shall be liable to Bank for all Obligations under this Agreement, whether or not the proceeds of the Credit Extension are distributed to any particular Borrower.

(iii) Bank shall have no responsibility to inquire as to the distribution of Credit Extensions made by Bank through the Agent as described herein.

(i) If, for any reason, and at any time during the term of this Agreement:

(A) any Borrower, including the Agent, as agent for each Borrower, shall be unable to, or prohibited from carrying out the terms and conditions of this Agreement (as determined by Bank in Bank’s sole and absolute discretion); or

(B) Bank deems it inexpedient (in Bank’s sole and absolute discretion) to continue making Credit Extensions to or for the account of any particular Borrower, or to channel such Credit Extensions through the Agent, then Bank may make Credit Extensions directly to such Borrower as Bank determines to be expedient, which Credit

Extensions may be made without regard to the procedures otherwise included in this Article 1.

(ii) In the event that Bank determines to forgo the procedures included herein pursuant to which Credit Extensions are to be channeled through the Agent, then Bank may designate one or more Borrower to fulfill the financial and other reporting requirements otherwise imposed herein upon the Agent.

(iii) Each Borrower shall remain liable to Bank for the payment and performance of all Obligations (which payment and performance shall continue to be secured by all Collateral) notwithstanding any determination by Bank to cease making Credit Extensions to or for the benefit of any Borrower.

(d) Continuation of Authority of Agent. The authority of the Agent to request Credit Extensions on behalf of, and to bind, each Borrower, shall continue unless and until Bank acts as provided in Section 1.2(c) above, or Bank actually receives:

(i) written notice of: (i) the termination of such authority, and (ii) the subsequent appointment of a successor Agent, which notice is executed by the respective Presidents of each Borrower then eligible for borrowing under this Agreement; and

(ii) written notice from the successor Agent (i) accepting such appointment; (ii) acknowledging that the removal and appointment has been effected by the respective Presidents of each Borrower eligible for borrowing under the within Agreement; and (iii) acknowledging that from and after the date of appointment, the newly appointed Agent shall be bound by the terms hereof, and that as used herein, the term “Agent” shall mean and include the newly appointed Agent.

(e) Indemnification. The Agent and each Borrower respectively shall indemnify, defend, and save and hold Bank harmless from and against any liabilities, claims, demands, expenses, or losses made against or suffered by Bank on account of, or arising out of, this Agreement, Bank’s reliance upon Credit Extension requests made by the Agent, or any other action taken by Bank hereunder or under any of Bank’s various agreements with the Agent and/or any Borrower and/or any other Person arising under this Agreement.

Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition to any Credit Extension. Borrower expressly agrees that the extension of a Credit Extension prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrower’s obligation to deliver such item, and any such extension in the absence of a required item shall be in Bank’s sole discretion.

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash. Upon payment in full in cash of the Obligations and at such time as Bank’s obligation to make Credit Extensions has terminated, Bank shall, at Borrower’s sole cost and expense, release its Liens in the Collateral and all rights therein shall revert to Borrower.

Borrower represents and warrants as follows:

The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrower’s organizational documents, nor constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower’s business.

Except as noted on the Perfection Certificate, Borrower is not a party to, nor is bound by, any material license or other agreement with respect to which Borrower is the licensee that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property. Borrower shall provide written notice to Bank within ten (10) days of entering or becoming bound by any such license or agreement which is reasonably likely to have a material impact on Borrower’s business or financial condition (other than over-the-counter software that is commercially available to the public). Borrower shall take such steps as Bank requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for all such licenses or contract rights to be deemed “Collateral” and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such license or agreement (such consent or authorization may include a licensor’s agreement to a contingent assignment of the license to Bank if Bank determines that is necessary in its good faith judgment), whether now existing or entered into in the future. Notwithstanding the foregoing, the terms of the preceding sentence shall not apply to, and the Collateral shall not include, license agreements solely for the use of Intellectual Property of a third party, with respect to which license Borrower is the licensee.

Borrower shall do all of the following:

Borrower shall maintain at all times, to be tested as of the last day of each quarter:

(a) Adjusted Quick Ratio. A ratio of Quick Assets to Quick Liabilities of at least 1.25 to 1.0; and

(b) Minimum EBITDA-Cap Ex. Borrower’s EBITDA minus its capital expenditures, (“EBITDA-Cap Ex”) for the two (2) quarter period ending with each quarter, shall be in an amount equal to: (i) losses not greater than (x) Seven Million Dollars ($7,000,000.00) for the quarter ending September 30, 2006; (y) Six Million Dollars ($6,000,000.00) for the quarters ending December 31, 2006, March 31, 2007, and June 30, 2007; and (z) Three Million Dollars ($3,000,000.00) for the quarter ending September 30, 2007; and (ii) at least Zero Dollars ($0.00) for the quarter ending December 31, 2007, and as of the last day of each quarter thereafter.

Borrower shall not do any of the following without Bank’s prior written consent, which shall not be unreasonably withheld or delayed:

Any one of the following shall constitute an event of default (an “Event of Default”) under this Agreement:

(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.6, 6.7 or violates any covenant in Section 7; or

All notices, consents, requests, approvals, demands, or other communication (collectively, “Communication”) by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or Borrower may change its address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.

If to Borrower:	Caliper Life Sciences, Inc.
	68 Elm Street
	Hopkinton, Massachusetts 01748
	Attn: Thomas Higgins, Chief Financial Officer
	Fax: (508) 497-2726
	Email: Thomas.Higgins@caliperls.com

with a copy to:	Caliper Life Sciences, Inc.
	650 Fairchild Drive
	Mountain View, CA 94043-2234
	Attn: Steve Creager, General Counsel
	Fax: (650) 623-0505
	Email: Stephen.Creager@caliperls.com

If to Bank:	Silicon Valley Bank
	One Newton Executive Park, Suite 200
	2221 Washington Street
	Newton, Massachusetts 02462
	Attn: Mr. Tom Davies
	Fax: (617) 939-5973
	Email: tdavies@svb.com

with a copy to:	Riemer & Braunstein LLP
	Three Center Plaza
	Boston, Massachusetts 02108
	Attn: David A. Ephraim, Esquire
	Fax: (617) 880-3456
	Email: DEphraim@riemerlaw.com

Massachusetts law governs the Loan Documents (other than the Securities Account Control Agreements dated as of the Effective Date executed by, among others, Bank and each Borrower) without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Massachusetts; provided, however, that if for any reason Bank cannot avail itself of such courts in the Commonwealth of Massachusetts, Borrower accepts jurisdiction of the courts and venue in Santa Clara County, California. NOTWITHSTANDING THE FOREGOING, BANK SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH BANK DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE BANK’S RIGHTS AGAINST BORROWER OR ITS PROPERTY.

TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

“Account” is any “account” as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.

“Account Debtor” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.

“Advance” or “Advances” means an advance (or advances) under the Revolving Line.

“Affiliate” of any Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.

“Agent” is defined in Section 1.2(a).

“Agreement” is defined in the preamble hereof.

“Acquisition Event” is the consummation of the acquisition of Xenogen Corporation by the Borrower.

“Availability Amount” is (a) (1) if the Borrower’s Unrestricted Cash is greater than or equal to Twenty Million Dollars ($20,000,000.00) or (2) with respect to the Initial Advance, (i) the Revolving Line, minus (ii) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit Reserves, and minus (iii) the outstanding principal balance of any Advances; or (b) if Borrower’s Unrestricted Cash is less than Twenty Million Dollars ($20,000,000.00)(except with respect to the Initial Advance) (i) the lesser of (x) the Revolving Line or (y) the Borrowing Base, minus (ii) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit Reserves, and minus (iii) the outstanding principal balance of any Advances.

“Bank” is defined in the preamble hereof.

“Bank Expenses” are all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees and expenses) for preparing, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.

“Board” is Borrower’s Board of Directors.

“Borrower” is defined in the preamble hereof.

“Borrower’s Books” are all Borrower’s books and records including ledgers, federal and state tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

“Borrowing Base” is (a) eighty percent (80.0%) of Eligible Accounts based upon a Borrowing Base Certificate delivered to, and acceptable to Bank, plus (b) the lesser of ninety percent (90.0%) of Borrower’s Unrestricted Cash or Ten Million Dollars ($10,000,000.00), as determined by Bank from Borrower’s most recent Borrowing Base Certificate; provided, however, that, Bank may decrease the foregoing percentages in its good faith business judgment, after an audit of Borrower’s Accounts, based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect Collateral.

“Borrowing Base Certificate” is that certain certificate in the form attached hereto as Exhibit C.

“Borrowing Resolutions” are, with respect to any Person, those resolutions adopted by such Person’s Board of Directors and delivered by such Person to Bank approving the Loan Documents to which such Person is a party and the transactions contemplated thereby, together with a certificate executed by its secretary on behalf of such Person certifying that (a) such Person has the authority to execute, deliver, and perform its obligations under each of the Loan Documents to which it is a party, (b) that attached as Exhibit A to such certificate is a true, correct, and complete copy of the resolutions then in full force and effect authorizing and ratifying the execution, delivery, and performance by such Person of the Loan Documents to which it is a party, (c) the name(s) of the Person(s) authorized to execute the Loan Documents on behalf of such Person, together with a sample of the true signature(s) of such Person(s), and (d) that Bank may conclusively rely on such certificate unless and until such Person shall have delivered to Bank a further certificate canceling or amending such prior certificate.

“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank is closed.

“Caliper” is defined in the preamble hereof.

“Caliper/Xenogen Merger Agreement” is defined in Section 2.4(a).

“Cash Equivalents and Marketable Securities” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc., (c) Bank’s certificates of deposit issued maturing no more than one (1) year after issue, and (d) any marketable securities owned and held by Capiler in compliance with Caliper’s approved investment guidelines as of the Effective Date (a copy of which has been delivered to Bank).

“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the Commonwealth of Massachusetts; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the Commonwealth of Massachusetts, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes on the provisions th ereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

“Collateral” is any and all properties, rights and assets of Borrower described on Exhibit A.

“Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.

“Commodity Account” is any “commodity account” as defined in the Code with such additions to such term as may hereafter be made.

“Communication” is defined in Section 10.

“Compliance Certificate” is that certain certificate in the form attached hereto as Exhibit D.

“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

“Control Agreement” is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity account, Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.

“Credit Extension” is any Advance, Letter of Credit, or any other extension of credit by Bank for Borrower’s benefit.

“Current Liabilities” are all obligations and liabilities of Borrower to Bank, plus, without duplication, the aggregate amount of Borrower’s Total Liabilities that mature within one (1) year.

“Default” means any event which with notice or passage of time or both, would constitute an Event of Default.

“Default Rate” is defined in Section 2.3(b).

“Deferred Revenue” is all amounts received or invoiced in advance of performance under contracts and not yet recognized as revenue.

“Deposit Account” is any “deposit account” as defined in the Code with such additions to such term as may hereafter be made.

“Designated Deposit Account” is Borrower’s deposit account, account number , maintained with Bank.

“Dollars,” “dollars” and “$” each mean lawful money of the United States.

“Domestic Subsidiary” means a Subsidiary organized under the laws of the United States or any state or territory thereof or the District of Columbia.

“EBITDA” shall mean (a) Net Income, plus (b) Interest Expense, plus (c) to the extent deducted in the calculation of Net Income, depreciation expense, amortization expense, and non-cash stock-based compensation expense, plus (d) income tax expense, plus, without duplication, (e) Acquisition Event related expenses (for the quarter in which the Acquisition Event occurs through the quarter ending June 30, 2007).

“Effective Date” is defined in the preamble of this Agreement.

“Eligible Accounts” are Accounts which arise in the ordinary course of Borrower’s business that meet all Borrower’s representations and warranties in Section 5.3. Bank reserves the right, at any time and from time to time after the Effective Date, to adjust any of the criteria set forth below and to establish new criteria in its good faith business judgment. Unless Bank agrees otherwise in writing, Eligible Accounts shall not include:

(a) Accounts for which the Account Debtor has not been invoiced;

(b) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date;

(c) Accounts owing from an Account Debtor, fifty percent (50%) or more of whose Accounts have not been paid within ninety (90) days of invoice date;

(d) Credit balances over ninety (90) days from invoice date;

(e) Accounts owing from an Account Debtor, including Affiliates, whose total obligations to Borrower exceed twenty-five (25%) of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing;

(f) Accounts owing from an Account Debtor which does not have its principal place of business in the United States except for Eligible Foreign Accounts;

(g) Accounts owing from an Account Debtor which is a federal, state or local government entity or any department, agency, or instrumentality thereof, except for (i) the lesser of (1) One Million Dollars ($1,000,000.00), or (2) ten percent (10%) of all Advances (not including Advances based on such Accounts), or (ii) Accounts of the United States if Borrower has assigned its payment rights to Bank and the assignment has been acknowledged under the Federal Assignment of Claims Act of 1940, as amended;

(h) Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise - sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts), with the exception of customary credits, adjustments and/or discounts given to an Account Debtor by Borrower in the ordinary course of its business;

(i) Accounts for demonstration or promotional equipment, or in which goods are consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on approval”, “bill and hold”, or other terms if Account Debtor’s payment may be conditional;

(j) Accounts for which the Account Debtor is Borrower’s Affiliate, officer, employee, or agent;

(k) Accounts in which the Account Debtor disputes liability or makes any claim (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business;

(l) Accounts owing from an Account Debtor with respect to which Borrower has received deferred revenue (but only to the extent of such deferred revenue);

(m) Accounts for which Bank in its good faith business judgment determines collection to be doubtful; and

(n) other Accounts Bank deems ineligible in the exercise of its good faith business judgment.

“Eligible Foreign Accounts” are Accounts for which the Account Debtor does not have its principal place of business in the United States but are otherwise Eligible Accounts, and that Bank approves in writing in its sole and absolute discretion, on a case by case basis.

“Equipment” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

“ERISA” is the Employee Retirement Income Security Act of 1974, and its regulations.

“Event of Default” is defined in Section 8.

“Foreign Currency” means lawful money of a country other than the United States.

“Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.

“Funding Date” is any date on which a Credit Extension is made to or on account of Borrower which shall be a Business Day.

“GAAP” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

“General Intangibles” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, any trade secret rights, including any rights to

unpatented inventions, payment intangibles, royalties, contract rights, goodwill, franchise agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims, income and other tax refunds, security and other deposits, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.

“Initial Advance” is the initial Advance hereunder which shall be used (a) by Borrower to pay off, in full, Bank under the Xenogen/SVB Credit Agreement and Partners for Growth under the Xenogen/PFG Credit Agreement pursuant to Section 2.5, and (b) by Bank to pay off, in full, NovaScreen’s obligations to Manufacturer and Traders Trust Company.

“Insolvency Proceeding” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

“Intellectual Property” is (a) any copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, (b) any patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, and the goodwill of the business of Borrower connected with and symbolized thereby, (c) any know-how, operating manuals, trade secret rights, rights to unpatented inventions, and (d) any claims for damage by way of any past, present, or future infringement of any of the foregoing.

“Interest Expense” means for any fiscal period, interest expense (whether cash or non-cash) determined in accordance with GAAP for the relevant period ending on such date, including, in any event, interest expense with respect to any Credit Extension and other Indebtedness of Borrower, including, without limitation or duplication, all commissions, discounts, or related amortization and other fees and charges with respect to letters of credit and bankers’ acceptance financing and the net costs associated with interest rate swap, cap, and similar arrangements, and the interest portion of any deferred payment obligation (including leases of all types).

“Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

“Investment” is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.

“Letter of Credit” means a standby letter of credit issued by Bank or another institution based upon an application, guarantee, indemnity or similar agreement on the part of Bank as set forth in Section 2.1.2.

“Letter of Credit Application” is defined in Section 2.1.2(a).

“Letter of Credit Reserve” has the meaning set forth in Section 2.1.2(d).

“Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.

“Loan Documents” are, collectively, this Agreement, the Perfection Certificate, any note, or notes or guaranties executed by Borrower or any Guarantor, and any other present or future agreement between Borrower any Guarantor and/or for the benefit of Bank in connection with this Agreement, all as amended, restated, or otherwise modified.

“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; (c) a material impairment of the prospect of repayment of any portion of the Obligations; or (d) Bank determines in good faith, based upon information available to it and in its reasonable judgment, that there is a substantial likelihood that Borrower shall fail to comply with one or more of the financial covenants in Section 6 during the next succeeding financial reporting period.

“Minimum Usage Fee” is defined in Section 2.4(b).

“Net Income” means, as calculated on a consolidated basis for Borrower for any period as at any date of determination, the net profit (or loss), after provision for taxes, of Borrower and its Subsidiaries for such period taken as a single accounting period.

“NovaScreen” is defined in the preamble hereof.

“Obligations” are Borrower’s obligation to pay when due any debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank now or later, whether under this Agreement, the Loan Documents, or otherwise, including, without limitation, all obligations relating to letters of credit (including reimbursement obligations for drawn and undrawn letters of credit), cash management services, and foreign exchange contracts, if any, and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and the performance of Borrower’s duties under the Loan Documents.

“Operating Documents” are, for any Person, such Person’s formation documents, as certified with the Secretary of State of such Person’s state of formation on a date that is no earlier than 30 days prior to the Effective Date, and its bylaws in current form, each of the foregoing with all current amendments or modifications thereto.

“Payment/Advance Form” is that certain form attached hereto as Exhibit B.

“Perfection Certificate” is defined in Section 5.1.

“Permitted Indebtedness” is:

(a) Borrower’s Indebtedness to Bank under this Agreement and the other Loan Documents;

(b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate;

(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;

(e) Indebtedness secured by Permitted Liens;

(f) other unsecured Indebtedness that does not, in the aggregate, exceed One Million Dollars ($1,000,000.00) outstanding at any time; and

(g) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (f) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.

“Permitted Investments” are:

(a) Investments shown on the Perfection Certificate and existing on the Effective Date;

(b) Cash Equivalents and Marketable Securities;

(c) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrower’s Board of Directors; and

(d) joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the non-exclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash investments by Borrower do not exceed One Million Dollars ($1,000,000.00) in the aggregate in any fiscal year.

“Permitted Liens” are:

(a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising under this Agreement and the other Loan Documents;

(b) Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its Books, if they have no priority over any of Bank’s Liens;

(c) Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than One Million Dollars ($1,000,000.00) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Liens in both (i) and (ii) are confined to the property and improvements and the proceeds of the Equipment; and

(d) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase.

(e) leases or subleases of real property granted in the ordinary course of business, and leases, subleases, non-exclusive licenses or sublicenses of property (other than real property or intellectual property) granted in the ordinary course of Borrower’s business, if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest;

(f) non-exclusive license of intellectual property granted to third parties in the ordinary course of business;

(g) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 8.4 or 8.7; and

(h) Liens on cash maintained at Wells Fargo Bank, N.A., in the aggregate amount of no greater than $3,100.000.00, securing Borrower’s existing letters of credit issued by Wells Fargo Bank, N.A., provided that such Liens shall not be “Permitted Liens” after the current maturity dates of such letters of credit.

“Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest rate.

“Quick Assets” is, on any date, all cash and Cash Equivalents and Marketable Securities as shown on Borrower’s consolidated financial statements as of such date prepared in accordance with GAAP, plus net billed accounts receivable, excluding any cash or Cash Equivalents and Marketable Securities that are restricted or are pledged to any Person other than Bank or any of Bank’s Affiliates.

“Quick Liabilities” are Current Liabilities, less Deferred Revenue, real estate related restructuring reserves, and customer deposits.

“Registered Organization” is any “registered organization” as defined in the Code with such additions to such term as may hereafter be made

“Responsible Officer” is any of the Chief Executive Officer, President, Chief Financial Officer and Vice President, Finance of Borrower.

“Revolving Line” is an Advance or Advances in an aggregate amount of up to Twenty Million Dollars ($20,000,000.00) outstanding at any time; provided that no Credit Extensions shall be made until after the Initial Advance is made.

“Revolving Line Maturity Date” is August 8, 2008.

“Securities Account” is any “securities account” as defined in the Code with such additions to such term as may hereafter be made.

“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank.

“Subsidiary” means, with respect to any Person, any Person of which more than 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly, by such Person or one or more Affiliates of such Person.

“Total Liabilities” is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, and current portion of Subordinated Debt permitted by Bank to be paid by Borrower, but excluding all other Subordinated Debt.

“Transfer” is defined in Section 7.1.

“Unrestricted Cash” shall mean all cash, Cash Equivalents and Marketable Securities maintained at Bank or SVB Securities (provided a control agreement is in place) in Borrower’s name that is unrestricted and not pledged to any other Person.

“XBC” is defined in Section 2.5.

“Xenogen” is defined in Section 2.4(a).

“Xenogen/PFG Credit Agreement” is defined in Section 2.5.

“Xenogen/SVB Credit Agreement” is defined in Section 2.5.

Signature page follows.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the Effective Date.

BORROWER:

CALIPER LIFE SCIENCES, INC.

By
Name:
Title:

NOVASCREEN BIOSCIENCES CORPORATION

By
Name:
Title:


BANK:

SILICON VALLEY BANK

By
Name:
Title:

[Signature page to Loan and Security Agreement]

EXHIBIT A

The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property:

All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (except as provided below), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, certificates of deposit, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; [and]

all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

Notwithstanding the foregoing, the Collateral does not include any of the following, whether now owned or hereafter acquired (a) more than 65% of the presently existing and hereafter arising issued and outstanding shares of capital stock owned by Borrower of any Foreign Subsidiary which shares entitle the holder thereof to vote for directors or any other matter, (b) license agreements solely for the use of Intellectual Property of a third party, with respect to which license Borrower is the licensee, (c) any copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, (d) any patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, and the goodwill of the business of Borrower connected with and symbolized thereby, (e) any know-how, operating manuals, trade secret rights, rights to unpatented inventions, and (f) any claims for damage by way of any past, present, or future infringement of any of the foregoing; provided, however, the Collateral shall include all Accounts, license and royalty fees and other revenues, proceeds, or income arising out of or relating to any of the foregoing.

Pursuant to the terms of a certain negative pledge arrangement with Bank, Borrower has agreed not to encumber any of its copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, and the goodwill of the business of Borrower connected with and symbolized thereby, know-how, operating manuals, trade secret rights, rights to unpatented inventions, and any claims for damage by way of any past, present, or future infringement of any of the foregoing, without Bank’s prior written consent.

EXHIBIT B

Loan Payment/Advance Request Form

DEADLINE FOR SAME DAY PROCESSING IS NOON E.S.T.*

Fax To:

Date: _________________

LOAN PAYMENT:

Caliper Life Sciences, Inc., as Agent

From Account # _____________________________	To Account # __________________________________
(Deposit Account #)	(Loan Account #)

Principal $ _________________________________	and/or Interest $ ________________________________

Authorized Signature: _________________________	Phone Number: ________________________
Print Name/Title: ______________________________

LOAN ADVANCE:

Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire.

From Account #___________________________	To Account # __________________________________
(Loan Account #)	(Deposit Account #)

Amount of Advance $______________________

All Borrower’s representations and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the request for an advance; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date:

Authorized Signature: _______________________	Phone Number: ________________________
Print Name/Title: ____________________________

OUTGOING WIRE REQUEST:

Complete only if all or a portion of funds from the loan advance above is to be wired.

Deadline for same day processing is noon, E.S.T.

Beneficiary Name: _____________________________	Amount of Wire: $ _________________________
Beneficiary Bank: _____________________________	Account Number: __________________________
City and State: ________________________________

Beneficiary Bank Transit (ABA) #: _______________	Beneficiary Bank Code (Swift, Sort, Chip, etc.): ____________
	(For International Wire Only)

Intermediary Bank: ____________________________	Transit (ABA) #: _____________________________________
For Further Credit to: ________________________________________________________________________________

Special Instruction: __________________________________________________________________________________

By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).

Authorized Signature: ________________________	2nd Signature (if required): ______________________________
Print Name/Title: ____________________________	Print Name/Title: _____________________________________
Telephone #: _______________________________	Telephone ___________________________________________

* Unless otherwise provided for an Advance bearing interest at LIBOR.

EXHIBIT C

BORROWING BASE CERTIFICATE

Borrower: Caliper Life Sciences, Inc. and NovaScreen BioSciences Corporation
Lender: Silicon Valley Bank
Commitment Amount: $20,000,000.00

ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of		$
2. Additions (please explain on reverse)		$
3. TOTAL ACCOUNTS RECEIVABLE		$

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due		$
5. Balance of 50% over 90 day accounts		$
6. Credit balances over 90 days		$
7. Concentration Limits		$
8. Foreign Accounts		$
9. Governmental Accounts		$
10. Contra Accounts		$
11. Promotion or Demo Accounts		$
12. Intercompany/Employee Accounts		$
13. Disputed Accounts		$
14. Deferred Revenue		$
15. Other (please explain on reverse)		$
16. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS		$
17. Eligible Accounts (#3 minus #16)		$
18. ELIGIBLE AMOUNT OF ACCOUNTS (80% of #17, plus 90% of Unrestricted Cash)		$

BALANCES
19. Maximum Loan Amount		$
20. Total Funds Available (Lesser of #18 or #19)		$
21. Present balance owing on Line of Credit		$
22. Outstanding under Sublimits		$
23. RESERVE POSITION (#20 minus #21 and #22)		$

The undersigned represents and warrants that this is true, complete and correct, and that the information in this Borrowing Base Certificate complies with the representations and warranties in the Loan and Security Agreement between the undersigned and Silicon Valley Bank.

	BANK USE ONLY

COMMENTS:	Received by: _________________________
	Authorized Signer

By: _______________________	Date: _______________________________
Authorized Signer	Verified: ____________________________
	authorized signer
Date: ______________________
	Date: _______________________________
	Compliance Status: Yes No

EXHIBIT D

COMPLIANCE CERTIFICATE

TO:	SILICON VALLEY BANK	Date:
FROM:	CALIPER LIFE SCIENCES, INC.
	NOVASCREEN BIOSCIENCES CORPORATION

The undersigned authorized officers of Caliper Life Sciences, Inc. and NovaScreen Biosciences Corporation (individually and collectively, “Borrower”) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the “Agreement”), (1) Borrower is in complete compliance for the period ending with all required covenants except as noted below, (2) there are no Events of Default, (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no Liens have been levied or claims made against Borrower relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank. Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with generally GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

Please indicate compliance status by circling Yes/No under “Complies” column.

Reporting Covenant	Required	Complies

Quarterly financial statements with Compliance Certificate	Quarterly within 45 days	Yes No
Annual financial statement (CPA Audited)	FYE within 120 days	Yes No
Board Approved Projections	Annually, as revised	Yes No
Audit	Annually	Yes No
Borrowing Base Certificate A/R & A/P Agings	Monthly within 30 days (when Unrestricted Cash < $20,000,000.00 and months in which Credit Extensions requested or outstanding)	Yes No
Cash Report	Monthly within 15 days	Yes No

Financial Covenant	Required	Actual	Complies

Maintain at all times (tested quarterly):
Minimum Adjusted Quick Ratio	1.25:1.0	:1.0	Yes No
Minimum EBITDA-Cap Ex	$ *	$	Yes No

*As set forth in Section 6.7(b) of the Agreement.

The following financial covenant analys[is][es] and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.

The following are the exceptions with respect to the certification above: (If no exceptions exist, state “No exceptions to note.”)

Caliper Life Sciences, Inc.	BANK USE ONLY

By:	Received by:
Name:			authorized signer
Title:	Date:

NovaScreen Biosciences Corporation	Verified:
		authorized signer
By:	Date:
Name:
Title:	Compliance Status: Yes No

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

Dated: ____________________

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall control.

ADJUSTED QUICK RATIO

A.	Aggregate value of the Unrestricted Cash and Cash Equivalents and Marketable Securities of Borrower	$

B.	Aggregate value of the net billed accounts receivable of Borrower	$

C.	Quick Assets (the sum of lines A and B)	$

D.	Aggregate value of Obligations to Bank	$

E.	Aggregate value of liabilities of Borrower (including all Indebtedness) that matures within one (1) year and current portion of Subordinated Debt permitted by Bank to be paid by Borrower	$

F	Aggregate value of (i) Deferred Revenue, (ii) real estate related restructuring expenses, and customer deposits)

G.	Quick Liabilities (the sum of lines D, E minus F)	$

G.	Adjusted Quick Ratio (line C divided by line G)

Is line G equal to or greater than 1.25:1:00?

No, not in compliance Yes, in compliance

II.

MINIMUM EBITDA minus CAP-EX

Required:

A.	Net Income	$

B.	Interest Expense	$

C.	To the extent included in the determination of Net Income:

	1. Depreciation expense	$

	2. Amortization expense	$

	3. Non-cash stock-based compensation expense	$

D.	income tax expense	$

E.	Acquisition Event related expenses (for the quarter in which the Acquisition Event occurs occurs through the quarter ending June 30, 2007)	$

Is line H equal to or greater than:		(a) ($7,000,000) for the two-quarter period ending 9/30/06
		(b) ($6,000,000) for the two-quarter periods ending 12/31/06, 3/31/07, and 6/30/07
		(c) ($3,000,000) for the two-quarter period ending 9/30/07
		(d) $0.00 for the two-quarter period ending 12/31/07 and for the two-quarter periods ending as of the last day of each quarter thereafter?

	No, not in compliance		Yes, in compliance

EX-10.2 3 a06-22085_1ex10d2.htm EX-10

EXHIBIT 10.2

JOINDER AGREEMENT

Dated: As of September 28, 2006
Effective: As of September 28, 2006

Reference is hereby made to a certain loan arrangement by and among (a) SILICON VALLEY BANK, a California corporation with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054, and with a loan production office located at One Newton Executive Park, Suite 200, 2221 Washington Street, Newton, Massachusetts 02462 (the “Bank”) and (b) CALIPER LIFE SCIENCES, INC., a Delaware corporation with its chief executive office at 68 Elm Street, Hopkinton, Massachusetts 01748 (“Caliper”) and NOVASCREEN BIOSCIENCES CORPORATION, a Delaware corporation with its chief executive office at 68 Elm Street, Hopkinton, Massachusetts 01748 (“NovaScreen”)(Caliper and NovaScreen are, hereinafter, individually and collectively, the “Existing Borrower”), evidenced by that certain Loan and Security Agreement dated as of August 9, 2006, by and among Bank and Existing Borrower (as may be amended from time to time, the “Loan Agreement”). All capitalized terms used herein without definitions shall have the meanings given such terms in the Loan Agreement.

[The remainder of this page is intentionally left blank]

This Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first written above.

	NEW BORROWER:

	XENOGEN CORPORATION

	By:
	Name:
	Title

	XENOGEN BIOSCIENCES CORPORATION

	By:
	Name:
	Title

	EXISTING BORROWER:

	CALIPER LIFE SCIENCES, INC.

	By:
	Name:
	Title

	NOVASCREEN BIOSCIENCES CORPORATION

	By:
	Name:
	Title

	BANK:

	SILICON VALLEY BANK

	By:
	Name:
	Title

EX-10.3 4 a06-22085_1ex10d3.htm EX-10

Exhibit 10.3

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company’s application requesting confidential treatment under Rule 24b-2 of the Exchange Act.

AGREEMENT

Effective as of May 5, 2000 (“Effective Date”), THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, a body having corporate powers under the laws of the State of California (“STANFORD”), and Xenogen Corporation, a California corporation, having a principal place of business at 860 Atlantic Avenue, Alameda, CA 94501 (“LICENSEE”), agree as follows:

This Agreement is subject to all of the terms and conditions of Title 35 United States Code Sections 200 through 204, including an obligation that Licensed Product(s) sold or produced in the United States be “manufactured substantially in the United States,” and LICENSEE agrees to take all reasonable action necessary on its part as licensee to enable STANFORD to satisfy its obligation thereunder, relating to Invention(s), provided that STANFORD has provided LICENSEE with written notice of each such obligation STANFORD must meet and a description of each act LICENSEE must take to comply with such obligation.

Except in connection with the identification of the source of Invention(s), Licensed Patent(s) and Licensed Products(s), LICENSEE agrees not to identify STANFORD in any promotional advertising or other promotional materials to be disseminated to the public or any portion thereof or to use the name of any STANFORD faculty member, employee, or student or any trademark, service mark, trade name, or symbol of STANFORD or the Stanford Health Services, or that is associated with either of them, without STANFORD’s prior written consent. Notwithstanding the above, LICENSEE may use in any manner it deems fit the name(s) of STANFORD faculty members or employees who are inventors on the Inventions, Licensed Patents and/ or Licensed Products, and who are employees of or have a consulting agreement with LICENSEE (“Affiliates”), provided that LICENSEE obtains the voluntary consent of the Affilites for such use. STANFORD agrees that the names of the Affiliates and Affiliates’ connection with STANFORD will appear in disclosure documents required by securities laws, and in other regulatory and administrative filings in the ordinary course of LICENSEE’S business. Any use of STANFORD’s name shall be limited to statements of fact and shall not imply endorsement of LICENSEE’s products or services.

Such sublicense(s) (including, without limitation, any non-exclusive sublicenses) shall remain in effect in the event of any termination of this Agreement, provided that upon request by STANFORD, such sublicensee agrees in writing to be bound by the applicable terms of this Agreement. All Products Sublicenses shall expressly include the provisions of Articles 7, 8, and 9 for the benefit of STANFORD. All Patent Sublicenses granted to commercial or for-profit entities shall expressly include the provisions of Articles 8 and 9 for the benefit of STANFORD.

and LICENSEE fails to remedy any such default, breach, or false report within thirty (30) days after written notice thereof by STANFORD.

and

Neither party may assign this Agreement or any part hereof without the express written consent of the other, which consent shall not be unreasonably withheld; provided, however, LICENSEE may assign this Agreement or any portion hereof to an affiliate or to a successor of all or substantially all its business relating to the Licensed Patent(s) without the written consent of STANFORD and shall provide STANFORD notice of any such assignment.

All notices under this Agreement shall be deemed to have been fully given when done in writing and deposited in the United States mail, registered or certified, and addressed as follows:

To STANFORD:		Office of Technology Licensing
		Stanford University
		900 Welch Road, Suite 350
		Palo Alto, CA 94304-1850
		Attention: Director

To LICENSEE:		Xenogen Corporation
		860 Atlantic Avenue
		Alameda, CA 94501
		Attention: President

Either party may change its address upon written notice to the other party.

None of the terms of this Agreement can be waived except by the written consent of the party waiving compliance.

This Agreement shall be governed by the laws of the State of California applicable to agreements negotiated, executed and performed wholly within California.

STANFORD shall maintain this Agreement and the reports and any information provided by LICENSEE to STANFORD pursuant to Articles 5, 7 and 13 in confidence and shall be treated with at least the same degree of care as used to maintain secrecy of STANFORD’s other confidential information. STANFORD may, however, disclose to third parties total annual royalty payments and general statistical information regarding payments made hereunder in the context of disclosing statistical information pertaining to the performance of the STANFORD Office of Technology Licensing.

EBITDA (line A, plus line B, plus line C.1, plus line C.2, plus line C.3, plus line D, and plus line E)

capital expenditures

EBIDTA minus CAP EX (line F minus line G)

This Agreement constitutes the entire agreement between LICENSEE and STANFORD and supersedes all prior communications, understandings and agreements with respect to the subject matter of this Agreement. This Agreement may not be amended except with a written agreement signed by LICENSEE and STANFORD.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate originals by their duly authorized officers or representatives.

			THE BOARD OF TRUSTEES OF THE LELAND
			STANFORD JUNIOR UNIVERSITY


			Signature:			/s/ Katharine Ku
			Name:			Katharine Ku
			Title:			Director, Technology Licensing
			Date:


			LICENSEE


			Signature:			/s/ David W. Carter
			Name:			David W. Carter
			Title:			Chairman and Co-CEO
			Date:

Exhibit A: Licensed Materials

Exhibit A

[***]

A-1

EX-31.1 5 a06-22085_1ex31d1.htm EX-31

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, E. Kevin Hrusovsky, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Caliper Life Sciences, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2006

/s/ E. Kevin Hrusovsky
E. Kevin Hrusovsky
President and Chief Executive Officer
(Principal Executive Officer)

EX-31.2 6 a06-22085_1ex31d2.htm EX-31

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Thomas T. Higgins, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Caliper Life Sciences, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2006

/s/ Thomas T. Higgins
Thomas T. Higgins
Executive Vice President and Chief Financial
Officer
(Principal Financial Officer)

EX-32.1 7 a06-22085_1ex32d1.htm EX-32

EXHIBIT 32.1

CALIPER LIFE SCIENCES, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Caliper Life Sciences, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, E. Kevin Hrusovsky, President and Chief Executive Officer of the Company certify, pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Exchange Act; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	/s/ E. KEVIN HRUSOVSKY
	E. Kevin Hrusovsky
	President and Chief Executive Officer

Date: November 9, 2006

EX-32.2 8 a06-22085_1ex32d2.htm EX-32

EXHIBIT 32.2

CALIPER LIFE SCIENCES, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Caliper Life Sciences, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas T. Higgins, Executive Vice President and Chief Financial Officer of the Company certify, pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Exchange Act; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	/s/ THOMAS T. HIGGINS
	Thomas T. Higgins
	Executive Vice President and
	Chief Financial Officer

Date: November 9, 2006