10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006
o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                        TO

Commission File Number  000-30833

Bruker BioSciences Corporation

(Exact name of registrant as specified in its charter)

DELAWARE	04-3110160
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

40 Manning Park
Billerica, MA  01821

(Address of principal executive offices)

(978) 663-3660

(Registrant’s telephone number, including area code)

Indicate by checkmark 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 checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer  (as defined in Rule 12b-2 of the Exchange Act).  Large accelerated filer o Accelerated filer x Non-accelerated filer o

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

As of August 4, 2006, there were 101,961,522 shares of the Registrant’s common stock outstanding.

Bruker BioSciences Corporation

Form 10-Q

For the Quarter Ended June 30, 2006

Index

PART I	FINANCIAL INFORMATION	3
ITEM 1:	Financial Statements:	3
	Condensed Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005	3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2006 and 2005	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005	5
	Notes to Condensed Consolidated Financial Statements	6
ITEM 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
ITEM 3:	Quantitative and Qualitative Disclosures about Market Risk	27
ITEM 4:	Controls and Procedures	28
PART II	OTHER INFORMATION	30
ITEM 1:	Legal Proceedings	30
ITEM 1A:	Risk Factors	30
ITEM 2:	Unregistered Sales of Equity Securities and Use of Proceeds	32
ITEM 3:	Defaults Upon Senior Securities	32
ITEM 4:	Submission of Matters to a Vote of Security Holders	32
ITEM 5:	Other Information	33
ITEM 6:	Exhibits	33
	SIGNATURES	34

2

PART I   FINANCIAL INFORMATION

ITEM 1:  Financial Statements

Bruker BioSciences Corporation

Condensed Consolidated Balance Sheets

(in thousands, except share data)

	June 30,		December 31,
	2006		2005
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	96,596	$	53,159
Short-term investments	—		46,419
Accounts receivable, net	61,709		53,744
Due from affiliated companies	2,678		4,860
Inventories	103,174		96,333
Other current assets	11,879		11,094
Total current assets	276,036		265,609
Property, plant and equipment, net	74,864		72,336
Intangibles and other assets	28,826		22,942
Total assets	$	379,726	$	360,887
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	9,613	$	8,002
Accounts payable	12,340		14,118
Due to affiliated companies	3,472		3,857
Customer advances	28,762		29,232
Other current liabilities	62,203		56,319
Total current liabilities	116,390		111,528
Long-term debt	21,969		21,423
Other long-term liabilities	23,293		20,134
Commitments and contingencies (Note 12)
Preferred stock, $0.01 par value, 5,000,000 shares authorized, none issued or outstanding at June 30, 2006 or December 31, 2005	—		—
Common stock, $0.01 par value, 200,000,000 and 150,000,000 shares authorized, 90,086,241 and 89,803,836 shares issued and outstanding at June 30, 2006 and December 31, 2005, respectively	901		898
Other stockholders’ equity	217,173		206,904
Total shareholders’ equity	218,074		207,802
Total liabilities and shareholders’ equity	$	379,726	$	360,887

See the accompanying notes to financial statements.

3

Bruker BioSciences Corporation

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
Product revenue	$	67,373	$	60,723	$	132,330	$	127,547
Service revenue	10,234		9,977		19,043		17,732
Other revenue	233		668		877		1,000
Total revenue	77,840		71,368		152,250		146,279
Cost of product revenue	38,599		34,275		74,841		72,540
Cost of service revenue	5,279		6,548		10,500		11,815
Total cost of revenue	43,878		40,823		85,341		84,355
Gross profit	33,962		30,545		66,909		61,924
Operating expenses:
Sales and marketing	15,426		13,385		29,398		25,537
General and administrative	5,532		5,287		11,148		10,955
Research and development	10,619		10,962		20,993		21,982
Acquisition related charges	1,192		—		2,368		—
Total operating expenses	32,769		29,634		63,907		58,474
Operating income	1,193		911		3,002		3,450
Interest and other income, net	459		554		1,122		424
Income before income tax provision and minority interest in consolidated subsidiaries	1,652		1,465		4,124		3,874
Income tax provision	1,127		1,145		2,775		3,070
Income before minority interest in consolidated subsidiaries	525		320		1,349		804
Minority interest in consolidated subsidiaries	45		36		93		103
Net income	$	480	$	284	$	1,256	$	701
Net income per common share - basic and diluted	$	0.01	$	0.00	$	0.01	$	0.01
Weighted average common shares outstanding:
Basic	90,080		89,472		90,054		89,471
Diluted	90,493		89,599		90,403		89,591

See the accompanying notes to financial statements.

4

Bruker BioSciences Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Six Months Ended
	June 30,
	2006			2005
Operating activities:
Net cash provided by operating activities	$	260		$	21,660
Investing activities:
Purchases of property and equipment	(1,858		)	(1,249		)
Redemption of short-term investments	46,460			464
Acquisitions, net of cash acquired	(3,970		)	110
Changes in restricted cash	(107		)	(153		)
Net cash provided by (used in) investing activities	40,525			(828		)
Financing activities:
Proceeds from short-term borrowings, net	1,559			(1,874		)
Repayments of long-term debt, net	(923		)	(1,079		)
Proceeds from issuance of common stock	49			11
Net cash provided by (used in) financing activities	685			(2,942		)
Effect of exchange rate changes on cash	1,967			(3,079		)
Net change in cash and cash equivalents	43,437			14,811
Cash and cash equivalents at beginning of period	53,159			32,547
Cash and cash equivalents at end of period	$	96,596		$	47,358

See the accompanying notes to financial statements.

5

Bruker BioSciences Corporation

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.  Description of Business and Basis of Presentation

Bruker BioSciences Corporation and its wholly-owned subsidiaries (the “Company”) design, manufacture, service and market proprietary life science and materials research systems based on mass spectrometry core technology platforms and X-ray technologies. The Company also sells a broad range of field analytical systems for chemical, biological, radiological and nuclear (CBRN) detection. The Company maintains major technical centers in Europe, North America and Japan and sales offices throughout the world. The Company’s diverse customer base includes pharmaceutical, biotechnology and proteomics companies, academic institutions, advanced materials and semiconductor industries and government agencies.

The financial statements represent the consolidated accounts of the Company and its wholly-owned subsidiaries prior to its acquisition of Bruker Optics Inc. on July 1, 2006. All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements as of and for the three and six months ended June 30, 2006 and 2005 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with Article 10 of Regulation S-X. The December 31, 2005 balance sheet is the balance sheet included in the audited financial statements as presented in the Company’s 2005 Annual Report on Form 10-K. Accordingly, the financial information presented herein does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of the results to be expected for the full year.

On July 1, 2006, the Company completed its acquisition of Bruker Optics.  Both the Company and Bruker Optics were majority owned by five affiliated stockholders prior to the acquisition. As a result, the acquisition of Bruker Optics by the Company is considered a business combination of companies under common control, and is being accounted for in a manner similar to a pooling-of-interests. Accordingly, the acquisition of Bruker Optics, as it relates to the portion under common ownership (approximately 96%), is being accounted for at historical carrying values. The portion not under the common ownership of the five affiliated stockholders (approximately 4%) is being accounted for using the purchase method of accounting (at fair value) on a pro rata basis. Any excess purchase price of the interest not under common control over the fair value of the related net assets acquired is being accounted for as goodwill and intangible assets. Because this acquisition will be essentially considered a pooling of interests, all one-time transaction costs will be expensed as incurred rather than being added to goodwill. During the six months ended June 30, 2006, the Company incurred and expensed acquisition related charges totaling $2.4 million, which consisted of investment banking, legal and accounting fees, compensation earned by the special committee of the Company’s Board of Directors and antitrust regulation filing fees. The consolidated balance sheets, statements of operations, statements of cash flows and notes to the financial statements presented in this Quarterly Report on Form 10-Q exclude Bruker Optics since the acquisition was completed on July 1, 2006.   See footnote 16 for selected pro forma information including the results of Bruker Optics.

The Company reports financial results on the basis of the following two business segments:

1Bruker Daltonics is a leading developer and provider of innovative life science tools based on mass spectrometry and also develops and provides a broad range of field analytical systems for CBRN detection.

2.Bruker AXS is a leading developer and provider of life science and advanced materials research tools for advanced X-ray instrumentation used in non-destructive molecular and elemental analysis in academic, research and industrial applications.

 For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

2.  Acquisition

On January 17, 2006, the Company acquired Socabim SAS, a privately-held company focused on advanced X-ray analysis software for materials research based in Paris, France. The initial aggregate purchase price of approximately $8.8 million was paid through the issuance of 267,302 restricted shares of common stock of the Company to Socabim’s two largest shareholders, which had an aggregate value of approximately $1.3 million as of the date of issuance, and an aggregate of $7.5 million was paid to all of the Socabim selling shareholders from cash on hand. Additional cash consideration, in the amount of approximately $1.5 million in total, may be paid through 2009 based on the future performance of Socabim. Prior to the acquisition, the Company licensed from Socabim software that is used in various Bruker AXS systems. Bruker AXS was

6

Socabim’s principal customer before the acquisition which required the Company to evaluate the preexisting relationship with Socabim in accordance with Emerging Issues Task Force No. 04-1, “Accounting for Preexisting Relationships between the Parties to a Business Combination.”  EITF 04-1 requires an analysis to be performed to determine whether there has been an effective settlement of a preexisting executory contract that was either favorable or unfavorable to the acquirer. To the extent there was an executory contract that was either favorable or unfavorable to the acquirer, a gain or loss is recognized. Management determined there was no settlement of a preexisting executory contract in the acquisition of Socabim and, accordingly, no gain or loss was recognized. The results of Socabim have been included in the Bruker AXS segment from the date of acquisition. Pro forma information to reflect the Socabim acquisition has not been presented as the impact on revenues and net income and net income per common share would not have been material.

3.  Equity-Based Compensation

In 2000, the Board of Directors adopted and the stockholders approved the 2000 Stock Option Plan. The 2000 Stock Option Plan provided for the issuance of up to 2,200,000 shares of common stock in connection with awards under the Plan. The 2000 Stock Option Plan allows a committee of the Board of Directors to grant incentive stock options, non-qualified stock options, stock appreciation rights and stock awards (including the use of restricted stock and phantom shares). The committee has the authority to determine which employees will receive the awards, the amount of the awards and other terms and conditions of the award. Awards granted by the committee typically vest over a period of three-to-five years.

On July 1, 2003, the Company’s stockholders approved an amendment and restatement of the 2000 Stock Option Plan to change the plan name and increase the number of shares available for issuance. The name of the amended plan is the Bruker BioSciences Corporation Amended and Restated 2000 Stock Option Plan. The amendment  authorized 4,132,000 additional shares of common stock of the Company issuable pursuant to the plan. On June 29, 2006, the Company’s stockholders approved an increase in the number of shares available for issuance under the plan from 6,320,000 shares to 8,000,000 shares, an increase of 1,680,000 shares.

The total number of shares issuable under the plan is 8,000,000, of which 6,320,000 have been registered on Form S-8 (Reg. No. 333-47836 and 333-107924).

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment. This standard revised the measurement, valuation and recognition of financial accounting and reporting standards for equity-based compensation plans contained in SFAS No. 123, Accounting for Stock Based Compensation. The new standard requires companies to expense the value of employee stock options and similar equity-based compensation awards based on fair value recognition provisions determined on the date of grant.

The Company adopted SFAS No. 123(R) using the modified prospective transition method, which required the application of the accounting standard on January 1, 2006, the effective date of the standard for the Company. In accordance with the modified prospective transition method, the Company’s consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). The Company will continue to include tabular, pro forma disclosures in accordance with SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, for all periods prior to January 1, 2006.

As of June 30, 2006, the Company’s primary types of share-based compensation were stock options and restricted stock. The Company recorded stock-based compensation expense for the three and six months ended June 30, 2006 as follows (in thousands):

	Three months ended		Six months ended
	June 30, 2006		June 30, 2006
Stock options	$	242	$	459
Restricted stock	37		74
Total stock-based compensation, pre-tax	279		533
Tax benefit	145		145
Total stock-based compensation, net of tax	$	134	$	388

7

Restricted Stock

Restricted shares of the Company’s common stock are periodically awarded to executive officers and certain key employees of the Company subject to a service restriction which expires ratably over a period of five years. The restricted shares of common stock may not be sold or transferred during the restriction period. Stock compensation for restricted stock is recorded based on the stock price on the grant date and charged to expense ratably through the restriction period. The following table summarizes information about restricted stock activity during the six months ended June 30, 2006:

			Weighted
	Shares		Average
	Subject to		Grant Date
	Restriction		Fair Value
Outstanding at December 31, 2005	—		$	—
Granted	130,550		5.00
Vested	—		—
Forfeited	(1,500	)	5.00
Outstanding at June 30, 2006	129,050		$	5.00

Unrecognized pretax expense of $0.7 million related to restricted stock awards is expected to be recognized over the weighted average remaining service period of 4.5 years for awards outstanding at June 30, 2006.

Stock Options

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. Assumptions regarding volatility, expected term, dividend yield and risk-free interest rate are required for the Black-Scholes model. Volatility and expected term assumptions are based on the Company’s historical experience. The risk-free interest rate is based on a U.S. treasury note with a maturity similar to the option award’s expected life. The assumptions for volatility, expected life, dividend yield and risk-free interest rate are presented in the table below:

	2006
Risk-free interest rate	3.80	%
Expected life	5 years
Volatility	105.0	%
Expected dividend yield	0	%

All stock options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. Stock option activity for the six months ended June 30, 2006 was as follows:

					Weighted
			Weighted		Average	Aggregate
	Shares		Average		Remaining	Intrinsic
	Subject to		Option		Contractual	Value
	Options		Price		Term (Yrs)	($’s in 000’s)
Outstanding at December 31, 2005	3,576,868		$	6.43
Granted	335,250		4.94
Exercised	(15,103	)	3.30
Forfeited	(180,165	)	7.12
Outstanding at June 30, 2006	3,716,850		$	6.27	5.4	$	2,457
Exercisable at June 30, 2006	3,084,997		$	6.69	5.1	$	1,751

8

The following table summarizes information about stock options outstanding and exercisable at June 30, 2006:

	Options Outstanding						Options Exercisable
		Weighted
		Average	Weighted		Aggregate			Weighted		Aggregate
		Remaining	Average		Intrinsic			Average		Intrinsic
Range of	Number	Contractual	Exercise		Value		Number	Exercise		Value
Exercise Prices	Outstanding	Term (Yrs)	Price		($’s in 000’s)		Exercisable	Price		($’s in 000’s)
$2.12 to $4.00	888,191	5.2	$	3.20	$	1,919	614,099	$	3.12	$	1,373
$4.01 to $6.00	1,698,595	5.7	5.07		538		1,340,834	5.11		378
$6.01 to $10.00	531,715	4.7	6.69		—		531,715	6.69		—
$10.01 to $13.00	230,099	5.7	11.05		—		230,099	11.05		—
$13.01 and above	368,250	4.8	15.64		—		368,250	15.64		—
	3,716,850	5.4	$	6.27	$	2,457	3,084,997	$	6.69	$	1,751

The intrinsic values above are based on the Company’s closing stock price of $5.36 on June 30, 2006. The weighted-average grant-date fair value of options granted during the six months ended June 30, 2006 was $3.34. Unrecognized pretax expense of $2.0 million related to stock options is expected to be recognized over the weighted average remaining service period of 1.6 years for awards outstanding at June 30, 2006.

Prior Year Equity Compensation Expense

Prior to January 1, 2006, the Company applied the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for stock options. The exercise price of each option issued under the Plan equaled the closing market price of the Company’s stock on the date of grant and, therefore, the Company took no charges to the statement of operations with respect to stock options prior to January 1, 2006. The following table illustrates the effect on net income (loss) and net income (loss) per common share for the three and six months ended June 30, 2005 had the Company applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock Based Compensation, to equity-based compensation (in thousands, except per-share data):

	Three months			Six months
	ended			ended
	June 30, 2005			June 30, 2005
Net income, as reported	$	284		$	701
Deduct:
Total stock-based compensation expense determined using fair value based method for all awards, net of taxes	(638		)	(1,276		)
Net loss, pro forma	$	(354	)	$	(575	)
Net income (loss) per common share:
Basic and diluted, as reported	$	0.00		$	0.01
Basic and diluted, pro forma	$	0.00		$	(0.01	)

The fair value of each stock option included in the preceding pro forma amounts was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rate	3.83	%
Expected life	5 years
Volatility	69.7	%
Expected dividend yield	0	%

4.  Inventories

Inventories consisted of the following as of June 30, 2006 and December 31, 2005 (in thousands):

9

	June 30,		December 31,
	2006		2005
Raw materials	$	25,854	$	26,270
Work-in process	35,327		29,508
Demonstration units	12,753		16,768
Finished goods	29,240		23,787
Total inventories	$	103,174	$	96,333

5.  Goodwill and Other Intangible Assets

The following is a summary of other intangible assets subject to amortization as of June 30, 2006 and December 31, 2005 (in thousands):

				June 30, 2006							December 31, 2005
	Useful	Gross					Net		Gross					Net
	Lives	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	in Years	Amount		Amortization			Amount		Amount		Amortization			Amount
Existing technology and related patents	4-5	$	2,719	$	(1,140	)	$	1,579	$	2,095	$	(950	)	$	1,145
Customer relationships	5	310		(187		)	123		310		(156		)	154
Trade names	10	310		(92		)	218		310		(76		)	234
Total amortizable intangible assets		$	3,339	$	(1,419	)	$	1,920	$	2,715	$	(1,182	)	$	1,533

For the three months ended June 30, 2006 and 2005, the Company recorded amortization expense of approximately $0.1 million and $0.1 million, respectively, related to other amortizable intangible assets.  For the six months ended June 30, 2006 and 2005, the Company recorded amortization expense of approximately $0.2 million and $0.2 million, respectively, related to other amortizable intangible assets.

The estimated future amortization expense related to other amortizable intangible assets is as follows (in thousands):

For the year ending December 31,	(in thousands)
2006 (a)	$	485
2007	543
2008	325
2009	293
2010	182
Thereafter	92
Total	$	1,920

(a)  Amount represents estimated amortization expense for the remaining six months ending December 31, 2006.

The carrying amount of goodwill as of June 30, 2006 and December 31, 2005 was $21.5 million and $17.5 million, respectively, and is included in the Bruker AXS segment. The Company performs its annual test for indications of impairment as of December 31st each year. The Company completed its annual test for impairment as of December 31, 2005 and determined that goodwill was not impaired at that time.

6.  Warranty Costs

The Company typically provides a one-year parts and labor warranty with the purchase of equipment. The anticipated cost for this one-year warranty is accrued upon recognition of the sale and is included as a current liability on the balance sheet. The Company also offers to its customers warranty and service agreements extending beyond the initial year of warranty for a fee. These fees are recorded as deferred revenue and amortized into income over the life of the extended warranty contract.

Changes in the Company’s accrued warranty liability during the six months ended June 30, 2006 were as follows (in thousands):

10

Warranty accrual at December 31, 2005	$	7,489
Accruals for warranties issued during the period	4,334
Settlements of warranty claims	(3,982		)
Foreign currency impact	484
Warranty accrual at June 30, 2006	$	8,325

7. Provision for Income Taxes

For the three months ended June 30, 2006, the Company recorded an income tax provision of $1.1 million compared with an income tax provision of $1.1 million for the three months ended June 30, 2005.  For the six months ended June 30, 2006, the Company recorded an income tax provision of $2.8 million compared with an income tax provision of $3.1 million for the six months ended June 30, 2005.  In the United States, any income tax provision or benefit is currently recorded as an adjustment to the valuation allowance until sufficient positive evidence exists to support the reversal of a full valuation allowance.

8. Employee Benefit Plans

The Company has a defined benefit retirement plan that covers substantially all employees of the Bruker AXS German subsidiary who were employed as of September 30, 1997. The plan provides pension benefits based upon final average salary and years of service.

The net periodic pension benefit cost includes the following components during the three and six months ended June 30, 2006 and 2005 (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
Components of net periodic benefit cost
Service cost	$	180		$	159		$	345		$	325
Interest cost	100			96			192			196
Recognized actuarial loss	—			—			—			200
Amortization	(5		)	(9		)	(8		)	(19		)
Net periodic benefit cost	$	275		$	246		$	529		$	702

To date, the Company has not funded the defined benefit plan and is not required to make contributions during the remainder of 2006.

9.  Earnings Per Share

Basic earnings per share is calculated by dividing net earnings by the weighted-average number of common shares outstanding during the period. Except where the result would be antidilutive, the diluted earnings per share computation includes the effect of shares which would be issuable upon the exercise of outstanding stock options, reduced by the number of shares which are assumed to be purchased by the Company from the resulting proceeds at the average market price during the period.

The following table sets forth the computation of basic and diluted average shares outstanding for the three and six months ended June 30, 2006 and 2005 (in thousands):

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	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
Net income, as reported	$	480	$	284	$	1,256	$	701
Weighted average shares outstanding:
Weighted average shares outstanding - basic	90,080		89,472		90,054		89,471
Net effect of dilutive stock options - based on treasury stock method	413		127		349		120
Weighted average shares outstanding - diluted	90,493		89,599		90,403		89,591
Net income per share - basic and diluted	$	0.01	$	0.00	$	0.01	$	0.01

10. Interest and Other Income (Expense), Net

The components of interest and other income (expense), net, were as follows for the three and six months ended June 30, 2006 and 2005 (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
Interest income	$	811		$	798		$	1,523		$	1,465
Interest expense	(291		)	(425		)	(544		)	(787		)
Exchange (losses) gains on foreign currency transactions	(254		)	226			(303		)	(220		)
Appreciation of the fair value of derivative financial instruments	22			—			73			—
Other expense	171			(45		)	373			(34		)
Interest and other income (expense), net	$	459		$	554		$	1,122		$	424

11.  Comprehensive Income (Loss)

Comprehensive income (loss) refers to revenues, expenses, gains and losses that under accounting principles generally accepted in the United States of America are included in other comprehensive income (loss), but excluded from net income as these amounts are recorded directly as an adjustment to stockholders’ equity, net of tax.  The following is a summary of comprehensive income (loss) for the three and six months ended June 30, 2006 and 2005 (in thousands):

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2006		2005			2006		2005
Net income	$	480	$	284		$	1,256	$	701
Foreign currency translation adjustments	4,900		(6,463		)	7,138		(11,735		)
Total comprehensive income (loss)	$	5,380	$	(6,179	)	$	8,394	$	(11,034	)

12.  Commitments and Contingencies

Lawsuits, claims and proceedings of a nature considered normal to its businesses may be pending from time to time against the Company. The Company believes the outcome of these proceedings, if any, will not have a material impact on the Company’s financial position or results of operations.

13.  Letters of Credit and Guarantees

As of June 30, 2006 and December 31, 2005, the Company had bank guarantees of $7.2 million and $8.3 million, respectively, for its customer advances. These bank guarantees affect the availability of the Company’s lines of credit.

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14.  Business Segment Information

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, (SFAS 131) establishes standards for reporting information about reportable segments in financial statements of public business enterprises. SFAS 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company reports financial results on the basis of two reportable segments: Bruker Daltonics and Bruker AXS. Bruker Daltonics manufactures and distributes mass spectrometry instruments that can be integrated and used along with other analytical instruments. Bruker AXS manufactures and distributes advanced X-ray instrumentation used in non-destructive molecular and elemental analysis in academic, research and industrial applications. Bruker BioSciences Corporation, the parent company of Bruker Daltonics and Bruker AXS, is the corporate entity that principally incurs certain public company costs.

Selected reportable segment financial information for the three and six months ended June 30, 2006 and 2005 is presented below (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
Revenue:
Bruker Daltonics	$	39,830		$	37,362		$	77,359		$	80,005
Bruker AXS	39,113			34,068			76,970			66,582
Eliminations (a)	(1,103		)	(62		)	(2,079		)	(308		)
Total	$	77,840		$	71,368		$	152,250		$	146,279
Operating income (loss):
Bruker Daltonics	$	1,660		$	973		$	4,465		$	3,948
Bruker AXS	1,599			420			2,660			1,241
Eliminations (a)	(415		)	—			(655		)	—
Corporate	(1,651		)	(482		)	(3,468		)	(1,739		)
Total	$	1,193		$	911		$	3,002		$	3,450

(a)represents transactions between segments which are eliminated in consolidation.

15.  Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes. This Interpretation sets forth a recognition threshold and valuation method to recognize and measure an income tax position taken, or expected to be taken, in a tax return. The evaluation is based on a two-step approach. The first step requires an entity to evaluate whether the tax position would “more likely than not,” based upon its technical merits, be sustained upon examination by the appropriate taxing authority. The second step requires the tax position to be measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement. In addition, previously recognized benefits from tax positions that no longer meet the new criteria would no longer be recognized. The application of this Interpretation will be considered a change in accounting principle with the cumulative effect of the change recorded to the opening balance of retained earnings in the period of adoption. This Interpretation will be effective for the Company on January 1, 2007. The Company is currently evaluating the Interpretation and the impact it may have on its results of operations and financial condition.

In November 2004, the FASB issued SFAS No. 151 Inventory Costs. This statement amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). In addition, this Statement requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this Statement are effective for the Company beginning with its fiscal year ending 2006.  The adoption of the provisions of this Statement did not have a material impact on our financial position, results of operations or cash flows.

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16.  Subsequent Events and Disclosures Related to the Acquisition of Bruker Optics

On April 17, 2006, the Company and Bruker Optics entered into a definitive acquisition agreement pursuant to which the Company agreed to acquire all of the outstanding shares of Bruker Optics. The acquisition agreement was signed following its unanimous approval by a Special Committee of independent directors of the Company, as well as by all independent directors of the Board of Directors of the Company, with the non-independent directors recusing themselves from the Board vote.  The agreement was also unanimously approved by the Board of Bruker Optics.

On June 29, 2006, the acquisition was approved by the stockholders of the Company, and the closing of the acquisition occurred on July 1, 2006. The total purchase value of the acquisition was $135 million and was paid with approximately 59% cash, or approximately $80 million, and 41% in the Company’s common stock resulting in the issuance of an additional 11,375,344 shares of the Company’s common stock.

Both the Company and Bruker Optics were majority owned by five affiliated stockholders prior to the acquisition. As a result, the acquisition of Bruker Optics by the Company is considered a business combination of companies under common control, and is being accounted for in a manner similar to a pooling-of-interests. Accordingly, the acquisition of Bruker Optics, as it relates to the portion under common ownership (approximately 96%), is being accounted for at historical carrying values. The portion not under the common ownership of the five affiliated stockholders (approximately 4%) is being accounted for using the purchase method of accounting (at fair value) on a pro rata basis. Any excess purchase price of the interest not under common control over the fair value of the related net assets acquired is being accounted for as goodwill and intangible assets.

The following unaudited summary financial information presents the consolidated results of operations of the Company and Bruker Optics, had they been combined for all periods presented. The combined results presented below are not necessarily indicative of results that may occur in the future (dollars in thousands).

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Revenue	$	100,483	$	89,316	$	195,339	$	179,677
Net income	$	2,524	$	1,364	$	5,784	$	2,675
Basic and diluted—net income per share	$	0.02	$	0.01	$	0.06	$	0.03
Weighted average shares outstanding
Basic	101,456		100,847		101,430		100,847
Diluted	101,869		100,974		101,779		100,966

Included in net income for the three and six months ended June 30, 2006 are $2.8 million and $4.0 million, respectively, of acquisition related charges.

On July 5, 2006, the Company entered into a line of a credit with the ability to draw down funds of up to $40 million.  Outstanding balances on the line of credit are due on demand, and no financial covenants exist on the line of credit. In connection with the acquisition of Bruker Optics described above, the Company utilized $20 million under the line of credit to finance a portion of the cash purchase price.

On July 18, 2006, the Company acquired KeyMaster Technologies, Inc., a manufacturer and distributor of handheld X-ray analysis products.  KeyMaster is located in Kennewick, Washington.  The aggregate purchase price for KeyMaster was $10.0 million and was funded by utilizing an additional $10 million of the Company’s line of credit, which was entered into on July 5, 2006.  The results of KeyMaster will be included in the Bruker AXS segment from the date of acquisition.

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ITEM 2:  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our interim condensed consolidated financial statements and the notes to those statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q, and in conjunction with the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2005.

Statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations which express that we “believe”, “anticipate”, “expect” or “plan to”, as well as other statements which are not historical fact, are forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. Actual events or results may differ materially from those set forth in forward-looking statements. Certain factors that might cause such a difference are discussed in “Factors Affecting Our Business, Operating Results and Financial Condition” set forth in our Annual Report on Form 10-K for the year ended December 31, 2005.

OVERVIEW

The following management’s discussion and analysis of financial condition and results of operations (MD&A) describes the principal factors affecting the results of our operations, financial condition, and changes in financial condition, as well as our critical accounting policies and estimates. MD&A is organized as follows:

·Executive overview. This section provides a general description and history of our business, a brief discussion of our reportable segments and significant recent developments in our business.

·Critical accounting policies and estimates. This section discusses the accounting estimates that are considered important to our financial condition and results of operations and require us to exercise subjective or complex judgments in their application.

·Results of operations. This section provides our analysis of the significant line items in our consolidated statement of operations for the three and six months ended June 30, 2006 compared to the three and six months ended June 30, 2005.

·Liquidity and capital resources. This section provides an analysis of our liquidity and cash flow and a discussion of our outstanding debt and commitments.

EXECUTIVE OVERVIEW

Bruker BioSciences and its wholly-owned subsidiaries design, manufacture, market and service proprietary life science and materials research systems based on mass spectrometry core technology platforms and X-ray technologies. We also manufacture and distribute a broad range of field analytical systems for chemical, biological, radiological and nuclear (CBRN) detection. We currently report financial results on the basis of two reportable segments: Bruker Daltonics and Bruker AXS. Management is currently reevaluating the internal reporting structure due to the Bruker Optics acquisition, which may require a change to our segment reporting. This evaluation is expected to be completed in the third quarter of 2006. Bruker Daltonics is a leading manufacturer of innovative mass spectrometry-based instruments and accessories used by pharmaceutical, biotechnology, proteomics and molecular diagnostics companies, academic institutions, and government agencies in their research that can also be integrated and used along with other analytical instruments. Bruker Daltonics also manufactures and distributes a broad range of field analytical systems for CBRN detection. Bruker AXS primarily engages in the business of manufacturing and distributing advanced instrumentation and automated solutions based on X-ray technology with the purpose of addressing the needs of our customers in the discovery of new drugs, drug targets and advanced materials, as well as industrial QA/QC applications. Typical customers of Bruker AXS’ products and solutions include biotechnology and pharmaceutical companies, semiconductor industries, chemical, cement and petroleum companies, raw material manufacturers, and academic and government research institutions.

We maintain major technical centers in Europe, North America and Japan, have sales offices located throughout the world and our corporate headquarters is located in Billerica, Massachusetts. Our business strategy is to capitalize on our proven ability to innovate and generate rapid revenue growth, both organically and through acquisitions. Our revenue growth strategy, combined with continued improvements to our gross profit margins and increased leverage on our research and development, sales and marketing and distribution investments and general and administrative expenses, are expected to enhance our operating margins and improve our earnings in the future.

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For the six months ended June 30, 2006, excluding the effect of foreign currency translation, our revenues grew by 8.3% to $77.8 million. Of this revenue growth, 3.5% was related to acquisitions and the remainder was organic.   We continue to focus on improving our profitability, and our gross profit margins for product and service revenues improved from 41.9% during the six months ended June 30, 2005 to 43.6% for the six months ended June 30, 2006, reflecting improvements realized from ongoing gross profit margin improvement programs and contributions from our recent acquisitions.  We continue to invest in sales and marketing initiatives, primarily headcount increases, which has resulted in our sales and marketing expenses as a percentage of product and service revenue to increase year-over-year.  We expect these investments to result in increased revenues in future periods.  Our ongoing cost control initiatives resulted in decreases in both general and administrative and research and development expenses as a percentage of product and service revenue during the first half of 2006 compared to the first half of 2005.

On April 17, 2006, we announced that we planned to acquire Bruker Optics.  On June 29, 2006 the shareholders of the Company approved the acquisition of Bruker Optics, and on July 1, 2006 the acquisition was completed. With the addition of Bruker Optics, the Company increases and diversifies its market presence, technology base, product line, global distribution and customer support capabilities.  We believe this acquisition will increase our ‘critical mass’ in many of the markets we serve, create revenue synergies, diversify our customer and revenue base and expand our product and service offerings, all of which should provide us with revenue growth opportunities and accelerate our drive to improve our margins, net income and operating cash flow. The acquisition of Bruker Optics also provides us access to new market segments and applications, particularly in pharmaceutical process analytical technologies and pharma-forensics, as well as in food and beverage and feed and agricultural analysis.

On July 18, 2006, we acquired KeyMaster Technologies which will provide us with access to the fast growing handheld and portable X-ray analysis market.  We believe the technologies KeyMaster has developed, and the markets it serves, are highly complimentary to our core businesses.

On January 1, 2006, we adopted Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment. This standard revised the measurement, valuation and recognition of financial accounting and reporting standards for equity-based compensation plans contained in SFAS No. 123, Accounting for Stock Based Compensation. The new standard required companies to expense the value of employee stock options and similar equity-based compensation awards based on fair value recognition provisions determined on the date of grant.

We adopted SFAS No. 123(R) using the modified prospective transition method, which required the application of the accounting standard on January 1, 2006, the effective date of the standard for us. In accordance with the modified prospective transition method, our consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). The effect of implementing SFAS No. 123 (R) was not typically material to the overall results of operations or specific line items within the consolidated statement of operations, and as a result was not referenced often within the discussions on results of operations in the accompanying MD&A. For the six months ended June 30, 2006, the $0.4 million, net of tax, in stock-based compensation expense was allocated as follows (in thousands):

	Six months ended
	June 30, 2006
Sales and Marketing	$	184
General and Administrative	144
Research and Development	60
Total stock-based compensation expense	$	388

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, allowance for doubtful accounts, inventories, goodwill, long-lived assets, warranty costs, income taxes, contingencies, and restructuring. We base our estimates and judgments on historical experience, current market and economic conditions, our observance of industry trends and other assumptions that we believe are reasonable and form the basis for making judgments about the carrying value of assets and

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liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

We believe the following critical accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment.

·Revenue recognition. We recognize revenue from system sales when persuasive evidence of an arrangement exists, the price is fixed or determinable, title and risk of loss has been transferred to the customer and collectibility of the resulting receivable is reasonably assured. Title and risk of loss is generally transferred to the customer upon receipt of a signed customer acceptance form for a system that has been shipped, installed, and for which the customer has been trained. As a result, the timing of customer acceptance or readiness could cause our reported revenues to differ materially from expectations. When products are sold through an independent distributor, a strategic distribution partner or an unconsolidated affiliated distributor, which assumes responsibility for installation, we recognize the system sale when the product has been shipped and title and risk of loss has been transferred. Our distributors do not have price protection rights or rights to return; however, our products are warranted to be free from defect for a period of one year. Revenue is deferred until cash is received when a significant portion of the fee is due over one year after delivery, installation and acceptance of a system. For arrangements with multiple elements, we recognize revenue for each element based on the fair value of the element provided all other criteria for revenue recognition have been met. The fair value for each element provided in multiple element arrangements is typically determined by referencing historical pricing policies when the element is sold separately. Changes in our ability to establish the fair value for each element in multiple element arrangements could affect the timing of revenue recognition. Revenue from accessories and parts is recognized upon shipment and service revenue is recognized as the services are performed.

·Warranty costs. We normally provide a one-year parts and labor warranty with the purchase of equipment. The anticipated cost for this one-year warranty is accrued upon recognition of the sale and is included as a current liability on the balance sheet. Although our facilities undergo quality assurance and testing procedures throughout the production process, our warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Although our actual warranty costs have historically been consistent with expectations, to the extent warranty claim activity or costs associated with servicing those claims differ from our estimates, revisions to the warranty accrual may be required.

·Inventories. Inventories are stated at the lower of cost or market, with cost determined by the first-in, first-out method. We maintain an allowance for excess and obsolete inventory to reflect the expected un-saleable or un-refundable inventory based on an evaluation of slow moving products. If ultimate usage or demand varies significantly from expected usage or demand, additional write-downs may be required, resulting in a charge to operations.

·Goodwill, other intangible assets, investments in other companies, and other long-lived assets. We perform an evaluation of whether goodwill is impaired annually or when events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Fair value is determined using market comparables for similar businesses or forecasts of discounted future cash flows. We also review other intangible assets, investments in other companies, and other long-lived assets when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets. Should the fair value of our long-lived assets decline because of reduced operating performance, market declines, or other indicators of impairment, a charge to operations for impairment may be necessary.

·Allowance for doubtful accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to pay amounts due. If the financial condition of our customers were to deteriorate, reducing their ability to make payments, additional allowances would be required, resulting in a charge to operations.

·Income taxes. We estimate the degree to which tax assets and loss carryforwards will result in a benefit based on expected profitability by tax jurisdiction, and provide a valuation allowance for tax assets and loss carryforwards that we believe will more likely than not go unused. If it becomes more likely than not that a tax asset or loss carryforward will be used for which a reserve has been provided, we reverse the related valuation allowance. If our actual future taxable income by tax jurisdiction differ from estimates, additional allowances or reversals of reserves may be necessary.

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Results of Operations

Three months ended June 30, 2006 compared to the three months ended June 30, 2005

Revenue

The following table presents revenue, change in revenue and revenue growth by reportable segment for the three months ended June 30, 2006 and 2005 (dollars in thousands):

										Percentage
	2006			2005			$ Change			Change
Bruker Daltonics	$	39,830		$	37,362		$	2,468		6.6	%
Bruker AXS	39,113			34,068			5,045			14.8	%
Eliminations (a)	(1,103		)	(62		)	(1,041		)
Total Revenue	$	77,840		$	71,368		$	6,472		9.1	%

(a)represents revenue recorded on transactions between segments which is eliminated in consolidation.

Bruker Daltonics’ revenue increased by $2.5 million, or 6.6%, to $39.8 million for the three months ended June 30, 2006 compared to $37.4 million for the comparable period in 2005. Included in this change in revenue is approximately $0.2 million from the impact of foreign exchange. Excluding the effect of foreign exchange, revenue increased by 7.1%. The increase in revenue excluding the effect of foreign exchange is a result of an increase in life science systems units accepted in the second quarter of 2006 compared to the second quarter of 2005 and improved aftermarket sales, partially offset by reduced CBRN detection systems revenue year-over-year and continued pricing pressures from increased competition, particularly in the life science systems sales.   Aftermarket revenues include accessory sales, consumables, training and services. Included in other revenue during the three months ended June 30, 2006 and 2005 are grant revenues from various projects for early-stage research and development projects funded by the German and United States governments. Life science systems, CBRN detection systems and aftermarket revenue as a percentage of Bruker Daltonics’ product and service revenue were as follows during the three months ended June 30, 2006 and 2005:

	2006				2005
			Percentage of				Percentage of
			Segment Product				Segment Product
	Revenue		and Service Revenue		Revenue		and Service Revenue
Life Science Systems	$	30,651	77.4	%	$	25,690	70.0	%
CBRN Detection Systems	2,045		5.2	%	4,358		11.9	%
Bruker Daltonics Aftermarket	6,901		17.4	%	6,646		18.1	%
Product and Service Revenue	39,597		100	%	36,694		100	%
Grant Revenue	233				668
Total Revenue	$	39,830			$	37,362

Bruker AXS’ revenue increased by $5.0 million, or 14.8%, to $39.1 million for the three months ended June 30, 2006 compared to $34.1 million for the comparable period in 2005. Included in this change in revenue is approximately $0.2 million from the impact of foreign exchange. Excluding the effect of foreign exchange, revenue increased by 15.3%. The increase in revenue is attributable to two acquisitions which were completed in the fourth quarter of 2005, which represented approximately 8% of the revenue growth, and an increase in materials research system sales, other systems and aftermarket revenue. Other system revenue relates primarily to the distribution of products not manufactured by Bruker AXS. X-ray systems, other systems and aftermarket revenue as a percentage of Bruker AXS’ product and service revenue were as follows during the three months ended June 30, 2006 and 2005:

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	2006				2005
			Percentage of				Percentage of
			Segment Product				Segment Product
	Revenue		and Service Revenue		Revenue		and Service Revenue
X-Ray Systems	$	25,587	65.4	%	$	22,486	66.0	%
Other System Revenue	1,931		5.0	%	997		2.9	%
Bruker AXS Aftermarket	11,595		29.6	%	10,585		31.1	%
Total Product and Service Revenue	$	39,113	100	%	$	34,068	100	%

Cost of Revenue

The following table presents cost of product and service revenue and gross profit margins on product and service revenue by reportable segment for the three months ended June 30, 2006 and 2005 (dollars in thousands):

	2006					2005
	Cost of			Gross Profit		Cost of			Gross Profit
	Revenue			Margin		Revenue			Margin
Bruker Daltonics	$	23,161		41.5	%	$	20,952		42.9	%
Bruker AXS	21,865			44.1	%	19,933			41.5	%
Eliminations (a)	(1,148		)			(62		)
Total Cost of Revenue	$	43,878		43.5	%	$	40,823		42.3	%

(a)represents the cost of revenues between segments which is eliminated in consolidation.

Bruker Daltonics’ cost of product and service revenue for the three months ended June 30, 2006 was $23.2 million, resulting in a gross profit margin of 41.5%, compared to cost of product and service revenue of $21.0 million, or a gross profit margin of 42.9% for the comparable period in 2005. The decrease in gross profit margin is primarily attributable to lower CBRN detection system revenues year-over-year and pricing pressures due to increased competition, primarily in our life science system sales.

Bruker AXS’ cost of product and service revenue for the three months ended June 30, 2006 was $21.9 million, resulting in a gross profit margin of 44.1%, compared to cost of product and service revenue of $19.9 million, or a gross profit margin of 41.5% for the comparable period in 2005. The increase in gross profit margin is primarily attributable to the higher margin businesses acquired in the fourth quarter of 2005, the realization of benefits from various ongoing gross profit margin improvement programs and better capacity utilization as a result of increased revenues year-over-year, partially offset by lower gross profit margins realized on other system revenue.

Sales and Marketing

The following table presents sales and marketing expense and sales and marketing expense as a percentage of product and service revenue by reportable segment for the three months ended June 30, 2006 and 2005 (dollars in thousands):

	2006				2005
			Percentage of				Percentage of
	Sales and		Segment Product		Sales and		Segment Product
	Marketing		and Service Revenue		Marketing		and Service Revenue
Bruker Daltonics	$	7,137	18.0	%	$	6,003	16.4	%
Bruker AXS	8,289		21.2	%	7,382		21.7	%
Total Sales and Marketing	$	15,426	19.9	%	$	13,385	18.9	%

Bruker Daltonics’ sales and marketing expense for the three months ended June 30, 2006 increased to $7.1 million, or 18.0% of product and service revenue, from $6.0 million, or 16.4% of product and service revenue for the comparable period in 2005. The increase in sales and marketing expense as a percentage of product and service revenue is attributable to

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incremental investments in various sales and marketing initiatives, primarily headcount related.

Bruker AXS’ sales and marketing expense for the three months ended June 30, 2006 increased to $8.3 million, or 21.2% of product and service revenue, from $7.4 million, or 21.7% of product and service revenue for the comparable period in 2005. The increase in sales and marketing expense is primarily attributable to increased headcount related to the acquisitions in the fourth quarter of 2005.

General and Administrative

The following table presents general and administrative expense and general and administrative expense as a percentage of product and service revenue by reportable segment for the three months ended June 30, 2006 and 2005 (dollars in thousands):

	2006				2005
			Percentage of				Percentage of
	General and		Segment Product		General and		Segment Product
	Administrative		and Service Revenue		Administrative		and Service Revenue
Bruker Daltonics	$	1,620	4.1	%	$	2,388	6.5	%
Bruker AXS	3,181		8.1	%	2,417		7.1	%
Corporate	731				482
Total General and Administrative	$	5,532	7.1	%	$	5,287	7.5	%

Bruker Daltonics’ general and administrative expense for the three months ended June 30, 2006 decreased to $1.6 million, or 4.1% of product and service revenue, from $2.4 million, or 6.5% of product and service revenue for the comparable period of 2005. The decrease in general and administrative expenses is primarily attributable to lower bad debt expense year-over-year and benefits from ongoing cost reduction initiatives.

Bruker AXS’ general and administrative expenses for the three months ended June 30, 2006 increased to $3.2 million, or 8.1% of product and service revenue, from $2.4 million, or 7.1% of product and service revenue for the comparable period in 2005. The increase in general and administrative expenses is primarily due to increased headcount and intangible asset amortization associated with the acquisitions completed in the fourth quarter of 2005 and first quarter of 2006.

Corporate general and administrative expense for the three months ended June 30, 2006 increased to $0.7 million from $0.5 million for the comparable period in 2005. Corporate general and administrative expenses represent expenses associated with being a public company not allocated to our reportable segments, including legal fees, audit and consulting fees, salaries and filing fees. The increase in expenses is primarily attributable to stock-based compensation charges in the second quarter of 2006 not recorded in the second quarter of 2005, and increased headcount year-over-year.

Research and Development

The following table presents research and development expense and research and development expense as a percentage of product and service revenue by reportable segment for the three months ended June 30, 2006 and 2005 (dollars in thousands):

	2006				2005
			Percentage of				Percentage of
	Research and		Segment Product		Research and		Segment Product
	Development		and Service Revenue		Development		and Service Revenue
BrukerDaltonics	$	6,394	16.1	%	$	7,045	19.2	%
Bruker AXS	4,225		10.8	%	3,917		11.5	%
Total Research and Development	$	10,619	13.7	%	$	10,962	15.5	%

Bruker Daltonics’ research and development expense for the three months ended June 30, 2006 decreased to $6.4 million, or 16.1% of product and service revenue, from $7.0 million, or 19.2% of product and service revenue for the comparable period in 2005. The decrease in research and development expense is primarily attributable to a decrease in material purchases during the second quarter of 2006 compared to the second quarter of 2005 and to a reduction in headcount

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year-over-year.

Bruker AXS’ research and development expense for the three months ended June 30, 2006 increased to $4.2 million, or 10.8% of product and service revenue, from $3.9 million, or 11.5% of product and service revenue for the comparable period in 2005. The increase in research and development expense is primarily attributable to an increase in headcount resulting from the acquisitions completed in the fourth quarter of 2005 and first quarter of 2006.

Acquisition Related Charges

On April 17, 2006, the Company announced that it had entered into a definitive agreement to acquire all of the stock of molecular spectroscopy company Bruker Optics.  The acquisition of Bruker Optics was approved by the Company’s shareholders on June 29, 2006 and was subsequently completed on July 1, 2006. Since this acquisition represents a business combination of companies under common control due to a majority ownership by individuals in both the Company and Bruker Optics, this acquisition is being accounted for in a manner similar to a pooling-of-interest. As a result, transaction costs are being expensed as incurred rather than being included in a purchase price allocation. During the second quarter of 2006, the Company incurred acquisition related charges totaling $1.2 million, which consisted of investment banking, legal and accounting fees.

Interest and Other Income (Expense), Net

Interest and other income (expense), net, during the three months ended June 30, 2006 was $0.5 million, compared to $0.6 million during the three months ended June 30, 2005. During the three months ended June 30, 2006, the major component within interest and other income (expense), net, was net interest income of $0.5 million and losses on foreign currency transactions of $(0.3) million. During the three months ended June 30, 2005, the major components within interest and other income (expense), net, were net interest income of $0.4 million and gains on foreign currency transactions of $0.2 million.

Provision for Income Taxes

The income tax provision for the three months ended June 30, 2006 and 2005 was $1.1 million, representing effective tax rates of 68% and 78%, respectively. Our effective tax rate reflects our tax provision for non-U.S. entities only, since no benefit was recognized for losses incurred in the U.S. We will maintain a full valuation allowance for our U.S. net operating losses until such evidence exists that it is more likely than not that the loss carry forward amounts will be utilized to offset U.S. taxable income. Our tax rate may change over time as the amount or mix of income and taxes outside the U.S. changes. Our effective tax rate is calculated using our projected annual pre-tax income or loss and is affected by research and development tax credits, the expected level of other tax benefits, the impact of changes to the valuation allowance as well as changes in the mix of our pre-tax income and losses among jurisdictions with varying statutory tax rates and credits.

Minority Interest in Consolidated Subsidiaries

Minority interest in consolidated subsidiaries for the three months ended June 30, 2006 was $45,000 compared to $36,000 in the comparable period of 2005. The minority interest in subsidiaries represents the minority shareholders’ proportionate share of net income of those subsidiaries for the three months ended June 30, 2006 and 2005. For the three months ended June 30, 2006 and 2005, the minority interest relates to our two majority-owned subsidiaries, Incoatec GmbH and Baltic Scientific Instruments Ltd.

Six months ended June 30, 2006 compared to the six months ended June 30, 2005

Revenue

The following table presents revenue, change in revenue and revenue growth by reportable segment for the six months ended June 30, 2006 and 2005 (dollars in thousands):

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										Percentage
	2006			2005			$ Change			Change
Bruker Daltonics	$	77,359		$	80,005		$	(2,646	)	-3.3	%
Bruker AXS	76,970			66,582			10,388			15.6	%
Eliminations (a)	(2,079		)	(308		)	(1,771		)
Total Revenue	$	152,250		$	146,279		$	5,971		4.1	%

(a)represents revenue recorded on transactions between segments which is eliminated in consolidation.

Bruker Daltonics’ revenue decreased by $2.6 million, or 3.3%, to $77.4 million for the six months ended June 30, 2006 compared to $80.0 million for the comparable period in 2005. Included in this change in revenue is approximately $3.2 million from the impact of foreign exchange. Excluding the effect of foreign exchange, revenue increased by 0.6%. The increase in revenue excluding the effect of foreign exchange is a result of higher life science system revenues year-over-year, partially offset by lower aftermarket revenues, which includes accessory sales, consumables, training and services, by lower sales of CBRN systems during the first half of 2006 compared to the fist half of 2005 and by continued pricing pressures from increased competition.   Included in other revenue for the six months ended June 30, 2006 and 2005 are grant revenues from various projects for early-stage research and development projects funded by the German and United States governments. Life science systems, CBRN detection systems and aftermarket revenue as a percentage of Bruker Daltonics’ product and service revenue were as follows during the six months ended June 30, 2006 and 2005.

	2006				2005
			Percentage of				Percentage of
			Segment Product				Segment Product
	Revenue		and Service Revenue		Revenue		and Service Revenue
Life Science Systems	$	59,601	77.9	%	$	54,663	69.2	%
CBRN Detection Systems	3,416		4.5	%	8,675		11.0	%
Bruker Daltonics Aftermarket	13,465		17.6	%	15,667		19.8	%
Product and Service Revenue	76,482		100	%	79,005		100	%
Grant Revenue	877				1,000
Total Revenue	$	77,359			$	80,005

Bruker AXS’ revenue increased by $10.4 million, or 15.6%, to $77.0 million for the six months ended June 30, 2006 compared to $66.6 million for the comparable period in 2005. Included in this change in revenue is approximately $2.6 million from the impact of foreign exchange. Excluding the effect of foreign exchange, revenue increased by 19.5%. The increase in revenue is attributable to two acquisitions which were completed in the fourth quarter of 2005, which represented approximately 8% of the revenue growth, and an increase in materials research system sales, other systems and aftermarket revenue. Other system revenue relates primarily to the distribution of products not manufactured by Bruker AXS. X-ray systems, other systems and aftermarket revenue as a percentage of Bruker AXS’ product and service revenue were as follows during the six months ended June 30, 2006 and 2005:

	2006				2005
			Percentage of				Percentage of
			Segment Product				Segment Product
	Revenue		and Service Revenue		Revenue		and Service Revenue
X-Ray Systems	$	51,276	66.6	%	$	46,083	69.2	%
Other System Revenue	2,687		3.5	%	2,125		3.2	%
Bruker AXS Aftermarket	23,007		29.9	%	18,374		27.6	%
Total Product and Service Revenue	$	76,970	100	%	$	66,582	100	%

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Cost of Revenue

The following table presents cost of product and service revenue and gross profit margins on product and service revenue by reportable segment for the six months ended June 30, 2006 and 2005 (dollars in thousands):

	2006					2005
	Cost of			Gross Profit		Cost of			Gross Profit
	Revenue			Margin		Revenue			Margin
Bruker Daltonics	$	44,354		42.0	%	$	45,518		42.4	%
Bruker AXS	43,156			43.9	%	39,145			41.2	%
Eliminations (a)	(2,169		)			(308		)
Total Cost of Revenue	$	85,341		43.6	%	$	84,355		41.9	%

(a)represents the cost of revenues between segments which is eliminated in consolidation.

Bruker Daltonics’ cost of product and service revenue for the six months ended June 30, 2006 was $44.4 million, resulting in a gross profit margin of 42.0%, compared to cost of product and service revenue of $45.5 million, or a gross profit margin of 42.4% for the comparable period in 2005. The decrease in gross profit margin is primarily attributable to lower CBRN detection system revenues year-over-year and pricing pressures due to increased competition, primarily in our life science system sales.

Bruker AXS’ cost of product and service revenue for the six months ended June 30, 2006 was $43.2 million, resulting in a gross profit margin of 43.9%, compared to cost of product and service revenue of $39.1 million, or a gross profit margin of 41.2% for the comparable period in 2005. The increase in gross profit margin is primarily attributable to the higher margin businesses acquired in the fourth quarter of 2005, the realization of benefits from various ongoing gross profit margin improvement programs and better capacity utilization as a result of increased revenue period-over-period, partially offset by lower gross profit margins realized on other system revenue.

Sales and Marketing

The following table presents sales and marketing expense and sales and marketing expense as a percentage of product and service revenue by reportable segment for the six months ended June 30, 2006 and 2005 (dollars in thousands):

	2006				2005
			Percentage of				Percentage of
	Sales and		Segment Product		Sales and		Segment Product
	Marketing		and Service Revenue		Marketing		and Service Revenue
Bruker Daltonics	$	12,907	16.9	%	$	11,823	15.0	%
Bruker AXS	16,491		21.4	%	13,714		20.6	%
Total Sales and Marketing	$	29,398	19.4	%	$	25,537	17.6	%

Bruker Daltonics’ sales and marketing expense for the six months ended June 30, 2006 increased to $12.9 million, or 16.9% of product and service revenue, from $11.8 million, or 15.0% of product and service revenue for the comparable period in 2005. The increase in sales and marketing expense as a percentage of product and service revenue is attributable to incremental investments in various sales and marketing initiatives, primarily headcount related.

Bruker AXS’ sales and marketing expense for the six months ended June 30, 2006 increased to $16.5 million, or 21.4% of product and service revenue, from $13.7 million, or 20.6% of product and service revenue for the comparable period in 2005. The increase in sales and marketing expense is primarily attributable to increased headcount related to the acquisitions in the fourth quarter of 2005 and incremental investments in various sales and marketing initiatives during the first half of 2006.

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General and Administrative

The following table presents general and administrative expense and general and administrative expense as a percentage of product and service revenue by reportable segment for the six months ended June 30, 2006 and 2005 (dollars in thousands):

	2006				2005
			Percentage of				Percentage of
	General and		Segment Product		General and		Segment Product
	Administrative		and Service Revenue		Administrative		and Service Revenue
Bruker Daltonics	$	3,540	4.6	%	$	4,318	5.5	%
Bruker AXS	6,205		8.1	%	4,897		7.4	%
Corporate	1,403				1,740
Total General and Administrative	$	11,148	7.4	%	$	10,955	7.5	%

Bruker Daltonics’ general and administrative expense for the six months ended June 30, 2006 decreased to $3.5 million, or 4.6% of product and service revenue, from $4.3 million, or 5.5% of product and service revenue for the comparable period of 2005. The decrease in general and administrative expenses is primarily attributable to lower bad debt expenses year-over-year and benefits from ongoing cost reduction initiatives.

Bruker AXS’ general and administrative expenses for the six months ended June 30, 2006 increased to $6.2 million, or 8.1% of product and service revenue, from $4.9 million, or 7.4% of product and service revenue for the comparable period in 2005. The increase in general and administrative expenses is primarily due to increased headcount and intangible asset amortization related to the acquisitions completed in the fourth quarter of 2005 and the first quarter of 2006.

Corporate general and administrative expense for the six months ended June 30, 2006 decreased to $1.4 million from $1.7 million for the comparable period in 2005. Corporate general and administrative expenses represent expenses associated with being a public company not allocated to our reportable segments, including legal fees, audit and consulting fees, salaries and filing fees. The decrease in expenses is primarily attributable to ongoing cost reduction initiatives, partially offset by stock-based compensation charges in 2006 not recorded in 2005, and increased headcount year-over-year.

Research and Development

The following table presents research and development expense and research and development expense as a percentage of product and service revenue by reportable segment for the six months ended June 30, 2006 and 2005 (dollars in thousands):

	2006				2005
			Percentage of				Percentage of
	Research and		Segment Product		Research and		Segment Product
	Development		and Service Revenue		Development		and Service Revenue
Bruker Daltonics	$	12,366	16.2	%	$	14,398	18.2	%
Bruker AXS	8,627		11.2	%	7,584		11.4	%
Total Research and Development	$	20,993	13.9	%	$	21,982	15.1	%

Bruker Daltonics’ research and development expense for the six months ended June 30, 2006 decreased to $12.4 million, or 16.2% of product and service revenue, from $14.4 million, or 18.2% of product and service revenue for the comparable period in 2005. The decrease in research and development expense is primarily attributable to a decrease in material purchases during the six months ended June 30, 2006 compared to the comparable period in 2005 and to a reduction in headcount year-over-year.

Bruker AXS’ research and development expense for the six months ended June 30, 2006 increased to $8.6 million, or 11.2% of product and service revenue, from $7.6 million, or 11.4% of product and service revenue for the comparable period in 2005. The increase in research and development expense is primarily attributable to an increase in headcount resulting from the acquisitions completed in the fourth quarter of 2005 and the first quarter of 2006, and increased material purchases during the first half of 2006 compared to the first half of 2005.

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Acquisition Related Charges

On April 17, 2006, the Company announced that it had entered into a definitive agreement to acquire all of the stock of molecular spectroscopy company Bruker Optics.  The acquisition of Bruker Optics was approved by the Company’s shareholders on June 29, 2006 and was subsequently completed on July 1, 2006. Since this acquisition represents a business combination of companies under common control due to a majority ownership by individuals in both the Company and Bruker Optics, this acquisition is being accounted for in a manner similar to a pooling-of-interest. As a result, transaction costs are being expensed as incurred rather than being included in a purchase price allocation. During the six months ended June 30, 2006, the Company incurred and expensed acquisition related charges totaling $2.4 million, which consisted of investment banking, legal and accounting fees, compensation earned by the special committee of the Company’s Board of Directors and antitrust regulation filing fees.

Interest and Other Income (Expense), Net

Interest and other income (expense), net, during the six months ended June 30, 2006 was $1.1 million, compared to $0.4 million during the six months ended June 30, 2005. During the six months ended June 30, 2006, the major component within interest and other income (expense), net, was net interest income of $1.0 million and losses on foreign currency transactions of $(0.3) million. During the six months ended June 30, 2005, the major components within interest and other income (expense), net, were net interest income of $0.7 million and losses on foreign currency transactions of $(0.2) million.

Provision for Income Taxes

The income tax provision for the six months ended June 30, 2006 was $2.8 million, or an effective tax rate of 67%, compared to an income tax provision of $3.1 million for the six months ended June 30, 2005, or an effective tax rate of 79%. Our effective tax rate reflects our tax provision for non-U.S. entities only, since no benefit was recognized for losses incurred in the U.S. We will maintain a full valuation allowance for our U.S. net operating losses until such evidence exists that it is more likely than not that the loss carry forward amounts will be utilized to offset U.S. taxable income. Our tax rate may change over time as the amount or mix of income and taxes outside the U.S. changes. Our effective tax rate is calculated using our projected annual pre-tax income or loss and is affected by research and development tax credits, the expected level of other tax benefits, the impact of changes to the valuation allowance as well as changes in the mix of our pre-tax income and losses among jurisdictions with varying statutory tax rates and credits.

Minority Interest in Consolidated Subsidiaries

Minority interest in consolidated subsidiaries for the six months ended June 30, 2006 was $93,000 compared to $103,000 in the comparable period of 2005. The minority interest in subsidiaries represents the minority shareholders’ proportionate share of net income of those subsidiaries for the six months ended June 30, 2006 and 2005. For the six months ended June 30, 2006 and 2005, the minority interest relates to our two majority-owned subsidiaries, Incoatec GmbH and Baltic Scientific Instruments Ltd.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2006, we had cash and short-term investments totaling $96.6 million, compared to $99.6 million as of December 31, 2005. On April 17, 2006, we announced that we had entered into a definitive agreement to acquire all of the stock of molecular spectroscopy company Bruker Optics for $135 million, to be paid approximately 59% in cash and 41% in our common stock. The acquisition was completed on July 1, 2006, resulting in a use of approximately $62 million of cash on hand to settle the cash component of the purchase price and acquisition related investment banking fees.  In addition, on July 5, 2006, we entered into a demand note for up to $40 million.  On July 5, 2006, we borrowed $20 million under the demand note to finance a portion of the Bruker Optics purchase price. On July 18, 2006, we borrowed an additional $10 million under the demand note to finance the acquisition of KeyMaster Technologies. Subsequent to the acquisitions of Bruker Optics and KeyMaster Technologies, we had approximately $47 million of cash on hand, which includes $13 million of cash acquired from Bruker Optics.  We also have approximately $62 million in outstanding debt, of which approximately $40 million is current. Based on our cash on hand subsequent to the acquisitions of Bruker Optics and KeyMaster Technologies, we believe we have sufficient cash to support our operating and investing needs for at least the next twelve months, but this depends on our profitability and our ability to manage working capital requirements. Future cash requirements could also be affected by additional future acquisitions that we may consider. Historically, we have financed our growth through a combination of debt financings and issuances of common stock. In the future, there can be no assurance that additional financing alternatives will be available to us if required, or if available, will be obtained with terms favorable to us.

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During the six months ended June 30, 2006, net cash provided by operating activities was $0.3 million, compared to net cash provided by operating activities of $21.7 million during the six months ended June 30, 2005. The change in cash generated by operating activities was primarily attributable to an increase in inventory and accounts receivable, a decrease in customer deposits, and a tax refund received in the first half of 2005.

During the six months ended June 30, 2006, investing activities provided $40.5 million in cash compared to net cash used in investing activities of $0.8 million during the six months ended June 30, 2005. Cash provided by investing activities during the six months ended June 30, 2006 was attributable primarily to approximately $46.5 million from the redemption of short term investments offset by approximately $4.0 million used for acquisitions, net of cash acquired, and $1.9 million in capital expenditures.

In connection with our November 2005 acquisition of Roentec AG, additional consideration, in the amount of approximately $2.0 million, may be paid to Roentec’s former management, employee and consultant shareholders based on the 2006 and 2007 revenue performance of Roentec. If these payments are required, they will be comprised of either, at the option of the Company, 50% restricted stock of the Company and 50% cash, or 100% cash.

On January 17, 2006, we acquired Socabim SAS, a privately-held company focused on advanced X-ray analysis software for materials research based in Paris, France. The initial aggregate purchase price of approximately $8.8 million was paid through the issuance of 267,302 restricted shares of our common stock to Socabim’s two largest shareholders, which had an aggregate value of approximately $1.3 million as of the date of issuance, and an aggregate of $7.5 million was paid to all of the Socabim selling shareholders from cash on hand. Additional cash consideration, in the amount of approximately $1.5 million in total, may be paid through 2009 based on the future performance of Socabim.

During the six months ended June 30, 2006, financing activities provided $0.7 million of cash compared to a use of $2.9 million of cash during the six months ended June 30, 2005. The change in cash provided by financing activities in the first half of 2006 was due to increased proceeds from short-term borrowings.

We had a demand revolving line of credit with Citizens Bank in the United States in the amount of $2.5 million. The line of credit, which was secured by portions of our inventory, receivables and equipment in the United States, was used to support our working capital requirements and expired in June 2006. This line of credit was replaced by a new facility entered into on July 5, 2006. We maintain revolving lines of credit totaling approximately $32.6 million with various German and Japanese banks. The German and Japanese lines of credits are unsecured. As of June 30, 2006, approximately $8.8 million was outstanding on our German and Japanese lines of credit.

In addition to our lines of credit, we have both short-term and long-term notes payable with outstanding balances aggregating $22.8 million as of June 30, 2006. The interest rates on these obligations range from 1.19% to 8.01%. In 1999, we entered into an interest rate swap to hedge the variability of cash flows related to changes in interest rates on borrowings of variable debt obligations and pay a 4.6% fixed rate of interest and receive a variable rate of interest based on the Bond Market Association Municipal Swap Index. The interest rate swap has a notional value of $1.9 million which decreases in conjunction with the IRB payment schedule until the interest rate swap and IRB agreements terminate in December 2013.

The following table summarizes maturities for our significant financial obligations as of June 30, 2006 (in thousands):

			Less than		1-3		4-5		More than
Contractual Obligations	Total		1 year		years		years		5 years
Short-term borrowings	$	9,613	$	9,613	$	—	$	—	$	—
Long-term borrowings	21,969		—		16,168		4,042		1,759
Pension	9,870		—		431		227		9,212
Total contractual obligations	$	41,452	$	9,613	$	16,599	$	4,269	$	10,971

In connection with some of our outstanding debt, we are required to maintain certain financial ratios and meet other financial criteria. Additionally, we are subject to a variety of restrictive covenants that require bank consent if not met. As of June 30, 2006, the latest measurement date, we were in compliance with all financial covenants.

As of June 30, 2006, we have approximately $11.1 million of net operating loss carryforwards available to reduce future U.S. taxable income. These losses have various expiration dates through 2024. We also have research and development tax credits and foreign tax credits of approximately $11.7 million available to offset future U.S. tax liabilities that expire at

26

various dates through 2024.

Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes. This Interpretation sets forth a recognition threshold and valuation method to recognize and measure an income tax position taken, or expected to be taken, in a tax return. The evaluation is based on a two-step approach. The first step requires an entity to evaluate whether the tax position would “more likely than not,” based upon its technical merits, be sustained upon examination by the appropriate taxing authority. The second step requires the tax position to be measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement. In addition, previously recognized benefits from tax positions that no longer meet the new criteria would no longer be recognized. The application of this Interpretation will be considered a change in accounting principle with the cumulative effect of the change recorded to the opening balance of retained earnings in the period of adoption. This Interpretation will be effective for the Company on January 1, 2007. The Company is currently evaluating the Interpretation and the impact it may have on its results of operations and financial condition.

In November 2004, the FASB issued SFAS No. 151 Inventory Costs. This statement amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). In addition, this Statement requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this Statement are effective for the Company beginning with its fiscal year ending 2006.  The adoption of the provisions of this Statement did not have a material impact on our financial position, results of operations or cash flows.

ITEM 3:  Quantitative and Qualitative Disclosures About Market Risk

We are potentially exposed to market risk associated with changes in foreign exchange and interest rates for which we selectively use financial instruments to reduce related market risks. An instrument is treated as a hedge if it is effective in offsetting the impact of volatility in our underlying exposure. We have also entered into instruments which are not effective derivatives under the requirements of SFAS No. 133, and therefore such instruments are not designated as hedges. All transactions are authorized and executed pursuant to our policies and procedures. Analytical techniques used to manage and monitor foreign exchange and interest rate risk include market valuations and sensitivity analysis.

The Company regularly invests excess cash in overnight repurchase agreements and interest-bearing investment-grade securities that we hold for the duration of the term of the respective instrument and are subject to changes in short-term interest rates. The Company believes that the market risk arising from holding these financial instruments is minimal.

The Company’s exposure to market risks associated with changes in interest rates relates primarily to the increase or decrease in the amount of interest income earned on its investment portfolio. The Company ensures the safety and preservation of invested funds by limiting default risks, market risk and reinvestment risk. The Company mitigates default risk by investing in investment grade securities. Declines in interest rates over time will, however, reduce the Company’s interest income.

Impact of Foreign Currencies

We sell products in many countries, and a substantial portion of sales and expenses are denominated in foreign currencies, principally in the Euro and Japanese Yen. Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies could adversely affect our financial results. Costs related to these sales are largely denominated in the same respective currencies, thereby limiting our transaction risk exposure. However, for sales not denominated in U.S. dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases, if we price our products in the foreign currency, we will receive less in U.S. dollars than we did before the rate increase went into effect. If we price our products in U.S. dollars and competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could result in our prices not being competitive in a market where business is transacted in the local currency.

While we may from time to time hedge specifically identified cash flows in foreign currencies using forward contracts, this foreign currency activity historically has not been material. The maturities of the forward exchange contracts, if or when entered into, generally would coincide with the settlement dates of the related transactions. Realized and unrealized gains and losses on these contracts would be recognized in the same period as gains and losses on the hedged items. As of June 30, 2006, there were no foreign currency forward contracts outstanding.

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Realized foreign exchange gains (losses) were approximately $(0.3) million and $0.2 million for the three months ended June 30, 2006 and 2005, respectively and approximately $(0.3) million and $(0.2) million for the six months ended June 30, 2006 and 2005, respectively. As we continue to expand internationally, we evaluate currency risks and may enter into foreign exchange contracts on a more consistent basis or from time to time as the circumstances require to mitigate foreign currency exposure.

We have entered into foreign-denominated debt obligations. The currency effects of the debt obligations are reflected in interest and other income (expense), net, on the consolidated statement of operations. We also have foreign-denominated intercompany borrowing arrangements with our Bruker Daltonik GmbH subsidiary in Germany, our Bruker AXS GmbH subsidiary in Germany and our Bruker Nonius subsidiary in the Netherlands that affected accumulated other comprehensive income (loss). A 10% increase or decrease of the respective foreign exchange rate with our Bruker Daltonik GmbH subsidiary in Germany would result in a change in accumulated other comprehensive income (loss) of approximately $2.9 million or $(2.3) million, respectively. A 10% increase or decrease of the respective foreign exchange rate with our Bruker AXS subsidiary in Germany would result in a transaction gain (loss) of approximately $0.7 million or $(0.5) million, respectively. A 10% increase or decrease of the respective foreign exchange rate with our Bruker Nonius subsidiary in the Netherlands would result in a change in accumulated other comprehensive income (loss) of approximately $1.1 million or $(0.9) million, respectively.

Impact of Interest Rates

Our exposure related to adverse movements in interest rates is derived primarily from outstanding floating rate debt instruments that are indexed to short-term market rates and cash equivalents. Our objective in managing our exposure to interest rates is to decrease the volatility that changes in interest rates might have on our earnings and cash flows. To achieve this objective, we use a fixed rate agreement to adjust a portion of our debt that is subject to variable interest rates.

In the United States, we have entered into an interest rate swap arrangement to limit the interest rate exposure on our $1.9 million industrial revenue bond to a fixed rate of 4.6%. We pay a 4.6% fixed rate of interest and receive a variable rate of interest based on the Bond Market Association Municipal Swap Index on a $1.9 million notional amount. Net interest payments or receipts are recorded as adjustments to interest expense. In addition, the instrument is recorded at fair market value on our balance sheet, and changes in the fair market value are recorded in current earnings since the arrangement is not considered an effective hedge. As of June 30, 2006, the fair value of the instrument was approximately $0.1 million, net of tax, and is recorded as a liability on the balance sheet.

In 2002, we entered into two derivative financial instruments; a cross currency interest rate swap and an interest rate swap. The cross currency interest rate swap of 2.0 million Euro secures a fixed interest rate of 1.75% per annum until January 4, 2012. The interest rate swap of 3.0 million Euro reduces the 6-month EURIBOR rate by 1.80% per annum until January 4, 2007. We entered into the financial instruments to manage our exposure to interest rates and foreign exchange risk. During the year ended December 31, 1999, we entered into an interest rate swap. By entering into this financial instrument, we obtained the right to borrow money at lower rates of interest. We continue to hold this financial instrument until we elect to exercise the option to borrow the money. Until the instrument becomes an effective hedge, it is considered speculative and is marked-to-market through interest and other income (expense), net, on the consolidated statement of operations. The change in fair value of the instrument was not material for any period presented. As of June 30, 2006, the fair value of the instrument was approximately $49,000 net of tax, and is recorded as a liability on the balance sheet.

A 10% increase or decrease in the average cost of our variable rate debt would not result in a material change in pre-tax interest expense.

Inflation

We do not believe inflation had a material impact on our business or operating results during any of the periods presented.

ITEM 4:  Controls and Procedures

Our Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2006. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls were effective at June 30, 2006.

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We maintain internal controls and procedures designed to ensure that we are able to collect the information subject to required disclosure in reports we file with the United States Securities and Exchange Commission, and to process, summarize and disclose this information within the time specified by the rules set forth by the Securities and Exchange Commission.

In the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, we identified and disclosed material weaknesses in our internal control over financial reporting at one significant subsidiary whose operations and financial condition were significant to our consolidated financial statements. In response to these material weaknesses identified, we took steps to strengthen our internal controls over financial reporting at this significant subsidiary which were effective in remediating these material weaknesses in 2005. The steps included evaluating the roles and functions within the significant subsidiary’s accounting department and adding additional resources to support the controls surrounding inventory valuation and the financial statement close process. Temporary staff were used to perform additional procedures while management evaluated resources and systems, and permanent resources were in place by the end of the third quarter of 2005. In addition to augmenting our accounting personnel, management determined it was necessary to automate and establish certain preventive controls through the implementation of a fully integrated Materials Resource Planning (MRP) system. Management selected an MRP system during the third quarter of 2005 and completed the implementation of the new system at the beginning of the second quarter of 2006.

There were no other changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2006 that materially affected, or are reasonably likely to affect, our internal control over financial reporting.

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PART II  OTHER INFORMATION

ITEM 1:  Legal Proceedings

General

The Company may, from time to time, be involved in legal proceedings in the ordinary course of business. The Company is not currently involved in any pending legal proceedings that, either individually or taken as a whole, are reasonably likely in management’s judgment to materially harm our business, prospects, results of operations or financial condition, nor have any such legal proceedings been threatened.

ITEM 1A:  Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2005, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K and below are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

This report may include forward-looking statements that involve risks and uncertainties. In addition to those risk factors discussed elsewhere in this report, we identify the following risk factors, which could affect our actual results and cause actual results to differ materially from those in the forward-looking statements.

If we are unable to make or complete future mergers, acquisitions or strategic alliances as a part of our growth strategy or integrate any mergers, acquisitions or strategic alliances, our business development may suffer.

Our strategy includes potentially expanding our technology base through selected mergers, acquisitions and strategic alliances. In 2005, our indirect subsidiary, Bruker AXS GmbH, acquired Roentec AG, a broad-based X-ray analysis instrumentation company based in Berlin, Germany, and our direct subsidiary, Bruker AXS, acquired the assets of the microanalysis business of Princeton Gamma-Tech Instruments, Inc., a company located in Rocky Hill, New Jersey. The acquired businesses were combined to form a new group within Bruker AXS that will focus on the X-ray microanalysis market, a market not previously addressed by Bruker AXS. In the first quarter of 2006, Bruker AXS GmbH completed its acquisition of Socabim SAS, a privately-held Paris, France based company focused on advanced X-ray materials research and analysis software. On July 1, 2006, we completed our acquisition of Bruker Optics. On July 18, 2006, Bruker AXS acquired KeyMaster, a developer and manufacturer of portable hand-held X-ray fluorescence (XRF) systems located in Kennewick, Washington.

We may seek to continue to expand our technology base through additional mergers, acquisitions and strategic alliances. If we fail to effect mergers, acquisitions and strategic alliances, our technology base may not expand as quickly and efficiently as possible. Without such complementary growth from selected mergers, acquisitions and strategic alliances, our ability to keep up with the evolving needs of the market and to meet our future performance goals could be adversely affected. However, we may not be able to find attractive candidates, or enter into mergers, acquisitions or strategic alliances on terms that are favorable to us, or successfully integrate the operations of companies that we acquire. In addition, we may compete with other companies for these merger, acquisition or strategic alliance candidates, which could make such a transaction more expensive for us. If we are able to successfully identify and complete a merger, acquisition or strategic alliance, it could involve a number of risks, including, among others:

·the difficulty of coordinating or consolidating geographically separate organizations and integrating personnel with different business backgrounds and corporate cultures;

·the difficulty of integrating previously autonomous departments in accounting and finance, sales and marketing, distribution, and administrative functions, and expanding and integrating information and management systems;

·the diversion of resources and management time;

·the potential disruption of our ongoing business; and

·the potential impairment of relationships with customers as a result of changes in management or otherwise arising out of such transactions.

If we are not able to successfully integrate acquired businesses, we may not be able to realize all of the cost savings and other benefits that we expect to result from the transactions.

30

Goodwill and other intangible assets are subject to impairment.

As a result of the merger of Bruker Daltonics and Bruker AXS in July 2003, we recorded goodwill and other intangible assets, which must be periodically evaluated for potential impairment. In addition, the recent acquisitions of Roentec AG, SOCABIM, Bruker Optics and KeyMaster and the assets of the microanalysis business of Princeton Gamma-Tech Instruments resulted in additional goodwill and other intangible assets. We assess the realizability of the goodwill and other intangible assets annually as well as whenever events or changes in circumstances indicate that the assets may be impaired. These events or circumstances generally include operating losses or a significant decline in the earnings associated with the business segment these acquisitions are reported within. Our ability to realize the value of the goodwill will depend on the future cash flows of the business segment in addition to how well we integrate the businesses.

If we fail to maintain effective systems of internal controls, we may not be able to accurately report our financial results. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock.

Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our business and operating results could be harmed. We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement. For example, in our Annual Report on Form 10-K, for the year ended December 31, 2004, we identified and disclosed material weaknesses in our internal control over financial reporting at one significant subsidiary whose operations and financial condition are significant to our consolidated financial statements. In response to these material weaknesses identified, we have taken steps to strengthen our internal controls over financial reporting at this significant subsidiary. These steps have included the following:

·We evaluated and continue to evaluate the roles and functions within the significant subsidiary’s accounting department and added additional resources to support the controls surrounding inventory valuation and the financial statement close process. Temporary staff had been used to perform additional procedures while management evaluated resources and systems and permanent resources were in place by the end of the third quarter of 2005. Management believes that these additional resources together with the existing accounting staff will enable proper financial reporting.

·In addition to augmenting our accounting personnel, management determined it was necessary to automate and establish certain preventative controls through the implementation of a fully integrated Materials Resource Planning (MRP) system. Management selected an MRP system during the third quarter of 2005 and completed the implementation of the new system at the beginning of the second quarter of 2006.

Management believes that the above measures will address the material weaknesses described in our Annual Report on Form 10-K, for the year ended December 31, 2004, in the near and long-term. The material weaknesses identified and disclosed in the Annual Report on Form 10-K for the year ended December 31, 2004 have been remediated in 2005 (See Item 9A of the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 14, 2006, Controls and Procedures, ). The Audit Committee and management will continue to monitor the effectiveness of our internal controls and procedures on an ongoing basis and will take further action, as appropriate.

As part of our ongoing monitoring of internal control we may discover material weaknesses or significant deficiencies in our internal control as defined under standards adopted by the Public Company Accounting Oversight Board, or PCAOB, that require remediation. Under the PCAOB standards, a “material weakness” is a significant deficiency or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A “significant deficiency” is a control deficiency or combination of control deficiencies, that adversely affect a company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is a more than remote likelihood that a misstatement of a company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected.

Management has concluded, and our independent registered public accounting firm has attested, that the Company maintained effective internal control over financial reporting as of December 31, 2005, based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Any failure to maintain improvements in the internal control over our financial reporting could cause us to fail to meet our reporting obligations. As a result, current and potential investors could lose confidence in our reported financial information, which could have a negative impact on the trading price of our stock.

31

Existing stockholders have significant influence over us.

As of August 8, 2006, our majority stockholders, the five members of the Laukien family, owned, in the aggregate, approximately 63% of our outstanding common stock. As a result, these stockholders will be able to exercise substantial influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could have the effect of delaying or preventing a change in control of our Company and will make some transactions difficult or impossible to accomplish without the support of these stockholders.

ITEM 2:  Unregistered Sales of Equity Securities and Use of Proceeds

On July 1, 2006, the Company acquired Bruker Optics, a molecular spectroscopy company located in Billerica, Massachusetts for $135 million, payable approximately 59% in cash and 41% in unregistered shares of the Company’s common stock to the Bruker Optics stockholders.   A total of 11,375,344 unregistered shares were issued to the Bruker Optics stockholders.   The issuance of the unregistered shares was in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933.  Based upon the small number of holders of Bruker Optics capital stock receiving restricted shares of the Company’s common stock, their financial position and sophistication and the absence of any general solicitation, the transaction was determined not to involve any public offering.

ITEM 3:  Defaults Upon Senior Securities

None.

ITEM 4:  Submission of Matters to a Vote of Security Holders

The annual meeting of stockholders of the Company was held on June 29, 2006.  Proxies representing 87,560,475 shares were received (total shares outstanding as of the Record Date were 90,074,933).  The results of the voting at the Annual Meeting as to the proposals to approve (i) the acquisition of all of the outstanding stock of Bruker Optics and the issuance of shares of the Company’s common stock in connection with the acquisition of Bruker Optics, (ii) the amendment of the Company’s certificate of incorporation to increase the number of shares of common stock authorized for issuance from 150,000,000 to 200,000,000, (iii) the amendment of the Company’s amended and restated stock option plan to increase the number of shares of common stock for which options and restricted stock may be granted under the stock option plan from 6,320,000 to 8,000,000, (iv) the election of three Class III directors to hold office until the 2009 annual meeting of stockholders, and (v) the ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal year 2006 are set forth below:

To approve the acquisition of all of the outstanding stock of Bruker Optics and the issuance of shares of the Company’s common stock in connection with the acquisition of Bruker Optics:

Vote of the stockholders of the Company who are unaffiliated with the Laukien stockholders:

Votes for	30,081,355
Votes against	61,339
Votes abstaining	15,623
Broker non-votes	6,149,397

Vote of all of the stockholders:

Votes for	81,334,116
Votes against	61,339
Votes abstaining	15,623

To approve the amendment of the Company’s certificate of incorporation to increase the number of shares of common stock authorized for issuance from 150,000,000 to 200,000,000:

Votes for	81,187,353
Votes against	204,176
Votes abstaining	19,549
Broker non-votes	6,149,397

32

To approve the amendment of the Company’s amended and restated stock option plan to increase the number of shares of common stock for which options and restricted stock may be granted under the stock option plan from 6,320,000 to 8,000,000:

Votes for	79,779,690
Votes against	1,610,453
Votes abstaining	20,934
Broker non-votes	6,149,398

To elect three Class III directors:

(i)      Mr. Richard D. Kniss

Votes for	87,077,828
Votes withheld	482,647

(ii)      Mr. Jörg C. Laukien

Votes for	78,569,025
Votes withheld	8,991,450

(iii)      Mr. William A. Linton

Votes for	87,077,714
Votes withheld	482,761

To ratify the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal year 2006:

Votes for	86,525,880
Votes against	1,023,983
Votes abstaining	10,612

Except as set forth above, there were no shares abstaining and no broker non-voting shares cast.

ITEM 5:  Other Information

None.

ITEM 6:  Exhibits

+2.5	Stock Purchase Agreement, dated as of July 18, 2006, by and among Bruker AXS Inc., KeyMaster Technologies, Inc., and the stockholders of KeyMaster Technologies, Inc. (1).
31.1	Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1).
31.2	Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1).
32.1	Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
	Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (2).

(1)Filed herewith

(2)Furnished herewith

+Confidential treatment requested as to certain portions, which portions have been omitted and filed separately with the Securities and Exchange Commission.

33

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.

	Bruker BioSciences Corporation
Date: August 9, 2006
		/s/ Frank H. Laukien, Ph.D.
	By:	Frank H. Laukien, Ph.D. President, Chairman, Chief Executive Officer, and Director (Principal Executive Officer)
Date: August 9, 2006		/s/ William J. Knight
	By:	William J. Knight Chief Financial Officer (Principal Financial and Accounting Officer)

34

EX-2.5

Exhibit 2.5

CONFIDENTIAL TREATMENT REQUESTED BY BRUKER BIOSCIENCES CORPORATION

STOCK PURCHASE AGREEMENT

by and among

BRUKER AXS INC.,

and

KEYMASTER TECHNOLOGIES, INC.,

and

ALL OF THE SHAREHOLDERS OF KEYMASTER TECHNOLOGIES, INC.

Dated as of July 18, 2006

TABLE OF CONTENTS

ARTICLE I DEFINITIONS AND DEFINED TERMS		1
ARTICLE II PURCHASE AND SALE OF THE INTERESTS; CLOSING		7
Section 2.1	Purchase and Sale of Shares.	7
Section 2.2	Purchase Price.	7
Section 2.3	The Closing.	8
Section 2.4	Deliveries at Closing.	8
Section 2.5	Indemnity Escrow.	9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS		9
Section 3.1	Power and Authority.	9
Section 3.2	Enforceability.	9
Section 3.3	No Violation.	10
Section 3.4	No Conflict.	10
Section 3.5	Litigation.	10
Section 3.6	No Other Agreement.	10
Section 3.7	No Broker.	10
Section 3.8	Ownership of the Shares.	10
ARTICLE IV REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY		11
Section 4.1	Organization and Good Standing.	11
Section 4.2	Authorization and Effect of Agreement.	11
Section 4.3	Capitalization of the Company.	11
Section 4.4	No Subsidiaries; Other Interests.	12
Section 4.5	No Conflict.	13
Section 4.6	Permits; Compliance with Law.	13
Section 4.7	Books and Records.	13
Section 4.8	Litigation.	13
Section 4.9	Financial Statements; Undisclosed Liabilities.	14
Section 4.10	Absence of Certain Changes.	14
Section 4.11	Contracts.	14
Section 4.12	Transactions with Affiliates.	17
Section 4.13	Labor Relations.	17
Section 4.14	Insurance.	18
Section 4.15	Accounts Receivable.	18
Section 4.16	Real Property; Leases.	18
Section 4.17	Environmental.	19
Section 4.18	No Broker.	21
Section 4.19	Employee Benefits.	21
Section 4.20	Employees.	23
Section 4.21	Taxes and Tax Returns.	24

Section 4.22	Proprietary Rights.	26
Section 4.23	Information Technology.	27
Section 4.24	Guarantees.	28
Section 4.25	Bank Accounts.	28
Section 4.26	Foreign Corrupt Practices and International Trade Sanctions.	28
Section 4.27	Inventory.	28
Section 4.28	Disclaimer of Other Representations and Warranties.	28
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER		28
Section 5.1	Organization of Purchaser; Authority.	28
Section 5.2	Capitalization.	29
Section 5.3	Authorization; Enforceability.	29
Section 5.4	No Conflict.	29
Section 5.5	No Broker.	30
Section 5.6	Financial Ability.	30
Section 5.7	Investment Representation.	30
Section 5.8	Accredited Investor.	30
ARTICLE VI COVENANTS		30
Section 6.1	Further Assurances.	30
Section 6.2	Tax Matters.	31
Section 6.3	Employee Benefits Matters.	31
Section 6.4	Release.	32
Section 6.5	Appraisal Rights.	32
Section 6.6	Immigration.	32
ARTICLE VII		33
Section 7.1	Conditions to Each Party’s Obligations.	33
ARTICLE VIII	Deliberately omitted.	33
ARTICLE IX SURVIVAL; INDEMNIFICATION		33
Section 9.1	Survival of Indemnification Rights.	33
Section 9.2	Indemnification Obligations.	34
Section 9.3	Indemnification Procedure.	34
Section 9.4	Calculation of Indemnity Payments.	35
Section 9.5	Indemnification Amounts.	35
Section 9.6	Exclusive Remedy.	36
ARTICLE X MISCELLANEOUS PROVISIONS		36
Section 10.1	Notices.	36
Section 10.2	Expenses.	38
Section 10.3	Successors and Assigns.	38
Section 10.4	Extension; Waiver.	38
Section 10.5	Entire Agreement; Schedules.	39

ii

Section 10.6	Amendments, Supplements, Etc.	39
Section 10.7	Applicable Law.	39
Section 10.8	Waiver of Jury Trial.	39
Section 10.9	Actions by Sellers.	39
Section 10.10	Execution in Counterparts.	40
Section 10.11	Attorney-in-Fact.	40
Section 10.12	Titles and Headings.	40
Section 10.13	Invalid Provisions.	40
Section 10.14	Publicity.	40
Section 10.15	Specific Performance.	40
Section 10.16	Construction.	40
Exhibits
Exhibit A—Indemnity Escrow Agreement
Exhibit B—List of Company Knowledge Individuals
Exhibit C—Sellers Representative Agreement
Exhibit F—FIRPTA Certificate
Exhibit G—Opinion

These exhibits are omitted in accordance with Item 601(b)(2) of Regulation S-K. The Registrant will furnish a copy of any omitted exhibit to the Securities and Exchange Commission supplementally upon request.

iii

STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of July 18, 2006 by and among Bruker AXS Inc., a Delaware corporation (“Purchaser”), KeyMaster Technologies, Inc. (the “Company”), a Delaware corporation, and Jules Kortenhorst, a resident of the Netherlands, Alessandra Mei Kortenhorst, a resident of the Netherlands, Jules Kiril Kortenhorst, a resident of the Netherlands, Winston Powell Kortenhorst, a resident of the Netherlands, Rainier George Kortenhorst, a resident of the Netherlands, David Ray McLemore, a resident of the State of  Texas, Claude Agnes Tobaly, a resident of France, Bobby Jay Tolan, a resident of Great Britain, Joseph Nicolosi, a resident of the State of New Jersey, Alan Devenish, a resident of the State of New Jersey, Bjorn Bergsten, a resident of the State of New Jersey, Bruce Kaiser, a resident of the State of Washington, James Abramson, a resident of the State of New Jersey, Lloyd Starks, a resident of the State of Georgia, J. Bart Heenan, a resident of the Commonwealth of Virginia, John Landefeld, a resident of the State of Washington, Advent Euro-Italian Direct Investment Program Limited Partnership, a Delaware limited partnership, Advent PGGM Global Limited Partnership, a Delaware limited partnership, Global Private Equity III Limited Partnership, a Delaware limited partnership, Global Private Equity III-A Limited Partnership, a Delaware limited partnership, Global Private Equity III-B Limited Partnership, a Delaware limited partnership, Global Private Equity III-C Limited Partnership, a Delaware limited partnership, Advent Global GECC III Limited Partnership, a Delaware limited partnership, Advent Partners Limited Partnership, a Delaware limited partnership, Advent Partners(NA) GPE III Limited Partnership, a Delaware limited partnership and Advent Partners GPE III Limited Partnership, a Delaware limited partnership (each a “Seller” and collectively, “Sellers”).

RECITALS

WHEREAS, Sellers own all of the issued and outstanding capital stock (the “Shares”) and options of the Company; and

WHEREAS, Sellers desire to sell to Purchaser, and Purchaser desires to purchase from Sellers, all of the Shares, upon the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements herein contained, the parties agree as follows:

ARTICLE I

DEFINITIONS AND DEFINED TERMS

(a)          As used in this Agreement, the following terms shall have the following meanings:

“Advent Sellers” shall mean individually and collectively Advent Euro-Italian Direct Investment Program Limited Partnership, a Delaware limited partnership, Advent PGGM Global Limited Partnership, a Delaware limited partnership, Global

Private Equity III Limited Partnership, a Delaware limited partnership, Global Private Equity III-A Limited Partnership, a Delaware limited partnership, Global Private Equity III-B Limited Partnership, a Delaware limited partnership, Global Private Equity III-C Limited Partnership, a Delaware limited partnership, Advent Global GECC III Limited Partnership, a Delaware limited partnership, Advent Partners Limited Partnership, a Delaware limited partnership, Advent Partners(NA) GPE III Limited Partnership, a Delaware limited partnership and Advent Partners GPE III Limited Partnership, a Delaware limited partnership.

“Affiliate” shall mean with respect to any Person, any other Person who, directly or indirectly, controls, is controlled by or is under common control with that Person.  For purposes of this definition, a Person has control of another Person if it has the direct or indirect ability or power to direct or cause the direction of management policies of such other Person or otherwise direct the affairs of such other Person, whether through ownership of at least fifty percent (50%) of the voting securities of such other Person, by Contract or otherwise.

“Ancillary Agreements” shall mean the Indemnity Escrow Agreement and the Non-Competition Agreements.

“Business Day” shall mean a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close.

“Code” shall mean the Internal Revenue Code of 1986, as amended.

“Company IT Systems” shall mean any and all information technology and computer systems (including software, hardware and other equipment, firmware and embedded software) relating to the transmission, storage, maintenance, organization, presentation, generation, processing or analysis of data and information whether or not in electronic format, which technology and systems are used in or necessary to the conduct of the business of the Company or the Subsidiaries.

“Consent” shall mean any consent, approval or authorization of, notice to, permit, or designation, registration, declaration or filing with, any Person.

“Contract” shall mean, whether written or oral, any note, bond, mortgage, indenture, contract, agreement, permit, license, lease, purchase order, sales order, arrangement or other commitment, obligation or understanding (including any understanding with respect to pricing) to which a Person is a party or by which a Person or its assets or properties are bound.

“Dollars” and “$” shall mean the lawful currency of the United States.

“Employee” shall mean any employee of the Company or any person providing services through a third-party employee leasing or similar organization.

2

“GAAP” shall mean U.S. generally accepted accounting principles.

“Governmental Authority” shall mean any federal, state, local or foreign government or any subdivision, agency, instrumentality, authority, quasi-governmental authority, department, commission, board or bureau thereof or any federal, state, local or foreign court, tribunal or arbitrator.

“Indemnity Escrow” shall mean an amount in cash equal to One Million Dollars ($1,000,000).

“Indemnity Escrow Agent” shall mean Armstrong Teasdale LLP.

“Indemnity Escrow Agreement” shall mean the agreement among the Indemnity Escrow Agent, Purchaser and the Sellers Representative in the form set forth hereto as Exhibit A.

“IRS” shall mean the Internal Revenue Service.

“Knowledge” (including the word “Known” and the phrase “to the Knowledge of” and words or phrases of similar import) as to Sellers or the Company shall mean the knowledge of (i) each Seller only with respect to such Seller, and (ii) those Sellers and the individuals listed on Exhibit B with respect to the Company, in all such cases, after reasonable inquiry.

“KTI Shareholders Agreement” means that certain agreement by and among the Company and certain shareholders of the Company dated as of February 28, 2001.

“Laws” shall mean all federal, state, local or foreign laws, orders, writs, injunctions, decrees, ordinances, awards, stipulations, treaty, statutes, judicial or administrative doctrines, rules or regulations enacted, promulgated, issued or entered by a Governmental Authority.

“Liens” shall mean all title defects or objections, mortgages, liens, claims, charges, pledges or other encumbrances of any nature whatsoever, including licenses, leases, chattel or other mortgages, collateral security arrangements, pledges, title imperfections, defect or objection liens, security interests, conditional and installment sales agreements, easements, encroachments or restrictions, of any kind and other title or interest retention arrangements, reservations or limitations of any nature.

“Losses” shall mean all losses, liabilities, demands, claims, actions or causes of action, costs, damages, judgments, debts, settlements, assessments, deficiencies, Taxes, penalties, fines or expenses, whether or not arising out of any claims by or on behalf of a third-party, including interest, penalties, reasonable attorneys’ fees and expenses and all reasonable amounts paid in investigation, defense or settlement of any of the foregoing.

3

“Material Adverse Effect” shall mean any circumstance, change or effect that, individually or in the aggregate with other circumstances, changes or effects, is or is reasonably likely to materially delay or impede consummation of the transactions contemplated by this Agreement or be materially adverse to the business, operations (including results of operations), assets, liabilities, or financial condition of the Company taken as a whole; provided, however, that none of the following, either alone or in combination, shall be considered in determining whether there has been a “Material Adverse Effect”: (a) events, circumstances, changes or effects (including, but not limited to, legal and regulatory changes) that generally affect the industries in which the Company operates, and (b) changes caused by a material worsening of current conditions caused by acts of terrorism or war occurring after the date hereof.

“Ordinary Course of Business” shall mean the ordinary course of business of the Company and the Subsidiaries consistent with past practice.

“Organizational Documents” shall mean (i) the articles or certificate of incorporation, the bylaws and any stockholders agreement of a corporation, (ii) the partnership agreement and any statement of partnership of a general partnership, (iii) the limited partnership agreement and the certificate of limited partnership of a limited partnership, (iv) the operating or limited liability company agreement and certificate of formation or organization of any limited liability company, (v) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person and (vi) any amendment to any of the foregoing.

“Permits” shall mean all permits, licenses, approvals, certifications, registrations, franchises, notices and authorizations issued by any Governmental Authority that are used or held for use in, necessary or otherwise relate to the ownership, operation or other use of any business of the Company.

“Permitted Liens” shall mean (i) mechanics’, carriers’, workmen’s, repairmen’s or other like Liens arising or incurred in the Ordinary Course of Business for amounts which are not material and not yet due and payable and which secure an obligation of the Company, (ii) Liens arising under Contracts with third parties entered into in the Ordinary Course of Business in respect of amounts still owing, which Liens are reflected in the Financial Statements, and (iii) Liens for Taxes that are not due and payable.

“Person” shall mean any individual, partnership, joint venture, corporation, trust, unincorporated organization, Governmental Authority or other entity.

“SEC” shall mean the Securities and Exchange Commission.

“Securities Act” shall mean the Securities Act of 1933, as amended.

“Sellers Representative” shall mean David McLemore or any other Person appointed as the Sellers Representative pursuant to the Sellers Representative Agreement.

4

“Sellers Representative Agreement” shall mean that certain Agreement Among Shareholders dated May 22, 2006 among certain Sellers holding a minority interest in the Company and the Sellers Representative, in the form attached hereto as Exhibit C.

“Subsidiary” shall mean, with respect to any Person, any other corporation, partnership, limited liability company, joint venture or other entity in which such Person (i) owns, directly or indirectly, fifty percent (50%) or more of the outstanding voting securities, equity securities, profits interest or capital interest, (ii) is entitled to elect at least a majority of the board of directors or similar governing body or (iii) in the case of a limited partnership or limited liability company, is a general partner or managing member, respectively.  When used without reference to a particular entity, Subsidiary means a Subsidiary of the Company.

“Taxes” shall mean any and all federal, national, provincial, state, local and foreign taxes, assessments and other governmental charges, duties, impositions, levies and liabilities (including, without limitation, taxes based upon or measured by gross premiums, receipts, income, profits, sales, use or occupation, and value added, ad valorem, alternative or add-on minimum, transfer, gains, franchise, estimated, withholding, payroll, recapture, employment, excise, unemployment, insurance, social security, business license, occupation, business organization, stamp, environmental and property taxes), together with all interest, penalties and additions imposed with respect to such amounts.  For purposes of this Agreement, “Taxes” also includes any obligations under any agreements or arrangements with any Person with respect to the liability for, or sharing of, Taxes (including pursuant to Treasury Regulations Section 1.1502-6 or comparable provisions of state, local or foreign tax Law) and any liability for Taxes as a transferee or successor, by contract or otherwise.

“Taxing Authority” shall mean any federal, national, provincial, foreign, state or local government, or any subdivision, agency, commission or authority thereof exercising tax regulatory, enforcement, collection or other authority.

“Tax Return” shall mean any report, return, election, notice, estimate, declaration, information statement or other form or document (including all schedules, exhibits and other attachments thereto) relating to and filed or required to be filed with a Taxing Authority in connection with any Tax.

“Treasury Regulations” shall mean the regulations, including temporary regulations, promulgated under the Code, as the same may be amended hereafter from time to time (including corresponding provisions of succeeding regulations).

“U.S.” shall mean the United States of America.

“WARN Act” shall mean Worker Adjustment and Retraining Notification Act, 29 U.S.C., Section 2101, et seq.

5

 (b)               Each of the following terms is defined in the Section set forth opposite such term:

Term	Section
Accounts Receivable	4.15
Agreement	Preamble
Alternative Proposal	6.7(b)
Applicable Portion	2.2(a)
Benefit Plan	4.19(a)
Cash Payment	2.2(a)
Closing	2.3
Closing Date	2.3
Company	Preamble
Company Contract	4.11(a)
Company Employees	6.10(a)
Company Option	2.2(c)
Company Proprietary Rights	4.22(a)
Environmental Law	4.17(e)
Environmental Permits	4.17(e)
ERISA	4.19(a)
ERISA Affiliate	4.19(d)
Financial Statements	4.9(a)
Hazardous Substance	4.17(e)
Leased Real Property	4.16(b)
Non-Competition Agreements	2.4(b)
Option Holder	3.1(b)
Owned Proprietary Rights	4.22(a)
Pension Plan	4.19(a)
Proceedings	3.6
Proprietary Rights	4.22(a)
Purchase Price	2.2(a)
Purchaser	Preamble
Purchaser Indemnified Parties	9.2
Purchaser Option	2.2(c)
Real Property Leases	4.16(b)
Related Party	4.12
Release	4.17(e)
Sellers	Preamble
Trade Secrets	4.22(a)
Welfare Plan	4.19(a)

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ARTICLE II

PURCHASE AND SALE OF THE INTERESTS; CLOSING

Section 2.1    Purchase and Sale of Shares.  At the Closing, upon the terms and subject to the conditions set forth herein, Sellers shall sell, transfer, convey, assign and deliver to Purchaser, and cause any other Person holding Shares at the Closing, to sell, transfer, convey, assign and deliver their Shares to Purchaser, and Purchaser shall purchase and acquire from Sellers, and any other Person holding Shares at the Closing, all of the Shares, free and clear of any Liens.

Section 2.2    Purchase Price.

(a)          The aggregate purchase price for all of the Shares and all Company Options shall be an amount equal to Ten Million Dollars ($10,000,000) (the “Purchase Price”), which shall be allocated among the Sellers in proportion to their respective Share holdings (subject to adjustment pursuant to Section 2(b) below).  The Purchase Price will be payable to Sellers and holders of Company Options in accordance with Schedule 2.2 (with the amount due to each Seller and each holder of Company Options being the respective “Applicable Portion”).

(b)         Stock Options.

(i)         On or prior to the Closing, Sellers and/or Company shall take such actions necessary such that outstanding options to acquire shares of stock of the Company (each, a “Company Option”) granted under the Company’s stock option plans or other equity plans, whether vested or unvested, shall by virtue of the sale of the Shares under this Agreement be either exercised or canceled and, if cancelled, the holder thereof will receive as soon as reasonably practicable following the Closing Date a cash payment (less any required tax withholdings) with respect thereto equal to (1) the product of (a) the excess, if any, of the per share purchase price over the exercise price per share of such Company Option and (b) the number of shares of stock of the Company issuable upon exercise of such Company Option, or (2) such other amount as reasonably determined by the Company for Company Options which are not of any value. As of the Closing, all Company Options shall no longer be outstanding and shall automatically cease to exist, and each holder of a Company Option shall cease to have any rights with respect thereto, except the right to receive the cash payment described in this Section 2.2(b).

(ii)        In the event that a holder of a Company Option exercises such Company Option on or prior to the Closing, each of Sellers and the Company shall cause such holder to sell any shares of Company stock acquired pursuant to the exercise of such

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Company Option to Purchaser, at a price per share equal to the per Share purchase price (as the same may be adjusted as a result thereof) in cash.

Section 2.3    The Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Nixon Peabody LLP, 100 Summer Street, Boston, Massachusetts 02110, simultaneously with the execution hereof (the “Closing Date”).  The Closing shall be deemed to have been consummated at 12:01 a.m., EDT, on the Closing Date.

Section 2.4    Deliveries at Closing.  At the Closing:

(c)          Sellers shall deliver the following documents and deliverables to Purchaser:

(i)         stock certificates evidencing all of the Shares, including Shares, if any, held by Persons other than Sellers, outstanding at the Closing, duly endorsed in blank, or accompanied by stock powers duly executed in blank and with all required stock transfer tax stamps affixed;

(ii)        a receipt to Purchaser executed by Sellers and the holders of Company Options for the Purchase Price;

(iii)       satisfactory evidence of the cancellation of all Company Options;

(iv)      an executed counterpart of the Indemnity Escrow Agreement as executed by each Seller; and

(v)       all other documents and instruments required to be delivered by Sellers and the Sellers Representative pursuant to this Agreement or any Ancillary Agreement to which Seller or the Sellers Representative is or is required to be a party, including those set forth in Section 7.2, and any other document or instrument reasonably requested by Purchaser.

(d)         The Company shall deliver the following documents and deliverables to Purchaser:

(i)         All other documents and instruments required to be delivered by the Company pursuant to this Agreement or any Ancillary Agreement to which the Company is or is required to be a party, including those set forth in Section 7.2.

(e)          Purchaser shall deliver the following documents and deliverables to each Seller:

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(i)         (A) An amount equal to the Purchase Price, less the Indemnity Escrow, to an escrow account established by the Sellers from which the Applicable Portion shall be distributed to each Seller;

(ii)        an executed counterpart of the Indemnity Escrow Agreement as executed by Purchaser; and

(iii)       all other documents and instruments required to be delivered by Purchaser pursuant to Section 7.3, and any other document or instrument reasonably requested by the Company.

Section 2.5 Indemnity Escrow.  At the Closing, (a) Purchaser, Sellers and the Indemnity Escrow Agent shall enter into the Indemnity Escrow Agreement, and (b) the Indemnity Escrow shall be placed in escrow with the Indemnity Escrow Agent as security for fulfillment by Sellers of their obligations pursuant to Article IX until the later of (x) one (1) year after the Closing Date, or (y) the resolution of any claim for indemnification with respect to which any Purchaser Indemnified Party has provided Sellers notice of a claim for indemnification pursuant to Section 9.3(a) prior to the expiration of such one (1) year period.  Within three (3) Business Days following the later of (x) or (y) above, the Indemnity Escrow Agent shall release to Sellers the remaining Indemnity Escrow in accordance with the terms and conditions of the Indemnity Escrow Agreement.  Purchaser and Sellers shall each be responsible for fifty percent (50%) of the fees and expenses charged by the Indemnity Escrow Agent.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLERS

Each Seller hereby represents and warrants to Purchaser, solely with respect to such Seller, as of the date hereof and as of the Closing Date or, if a representation or warranty is made as of a specified date, as of such date, as follows:

Section 3.1    Power and Authority. Sellers have all necessary power and authority to execute, deliver and perform this Agreement and the Ancillary Agreements, if any, to which Sellers will become a party.

Section 3.2    Enforceability.  This Agreement and each Ancillary Agreement to which any Seller is a party have been duly executed and delivered by Sellers and (assuming due authorization, execution and delivery by Purchaser), constitute legal, valid and binding obligations of Sellers, enforceable against Sellers in accordance with their respective terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity.

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Section 3.3    No Violation.  Sellers’ execution and delivery of this Agreement and any Ancillary Agreement to which any Seller is a party, the consummation of the transactions contemplated hereby or thereby or compliance by Sellers with any of the provisions hereof or thereof will not (i) result in the creation of any Lien upon the Shares under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, agreement or any other instrument or obligation to which any Seller is a party or by which Sellers or the Shares may be bound or affected, or under Law or otherwise, or (ii) violate any Law applicable to Sellers or the Shares.

Section 3.4    No Conflict.  The execution and delivery of this Agreement or any Ancillary Agreement by Sellers and the consummation of the transactions contemplated hereby or thereby, assuming all required filings, consents, approvals, authorizations and notices set forth on Schedule 3.4 have been made, given or obtained, do not and shall not adversely affect the ability of Sellers or the Company to enter into, perform their obligations under, and to consummate the transactions contemplated by this Agreement or any Ancillary Agreement.

Section 3.5    Litigation.  There is no action, proceeding, claim, suit, arbitration, opposition, challenge, proceeding, charge or investigation (collectively, “Proceedings”) pending or, to the Knowledge of Sellers, threatened that relates, directly or indirectly, to this Agreement or any action taken or to be taken in connection with this Agreement or any Ancillary Agreement.

Section 3.6    No Other Agreement.  No Seller has any obligation, absolute or contingent, to any other individual, corporation, partnership, trust, limited liability company, association, joint venture or any similar entity to sell the Shares, other than the KTI Shareholders Agreement and the Sellers Representative Agreement.

Section 3.7    No Broker.  No agent, broker, investment banker, financial advisor or other firm or Person (a) has acted directly or indirectly for Sellers in connection with this Agreement or any Ancillary Agreement or the transactions contemplated hereby or thereby, or (b) is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee in connection with this Agreement or any Ancillary Agreement or the transactions contemplated hereby or thereby, other than (i) Gavan Sellers Associates, 25 Mount Pleasant Road. London NW10 3EG, UK and Dr. Paul Winson, both of whose fees and expenses will be fully paid by Sellers at or before the Closing, (ii) Synergent Termination Solutions, L.L.C. which shall receive payment of $[*] from Sellers and $[*] from the Company pursuant to the Synergent Termination Agreement between Synergent and the Company dated June 5, 2006 and (iii) John Landefeld who shall waive any and all claims with regard to the [*] months of severance due him from the Company in the event of his termination of employment with the Company.

Section 3.8    Ownership of the Shares.  Each Seller has good and valid title to, and owns of record and beneficially, Shares in the amount set

[*]Indicates information has been omitted and separately filed with the Securities and Exchange Commission pursuant to an application for an order declaring confidential treatment thereof.

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forth next to such Seller’s name under the caption “Shares of Company Stock Owned” on Schedule 2.2, free and clear of any Liens other than restrictions on transfer which may arise solely under applicable securities Laws.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY

The Company and Sellers, severally but not jointly, hereby represent and warrant to Purchaser, as of the date hereof and as of the Closing Date or, if a representation or warranty is made as of a specified date, as of such date, as follows:

Section 4.1    Organization and Good Standing.  The Company is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization and has the requisite corporate, partnership or limited liability company authority and power to own, lease operate and otherwise hold its property and assets and to conduct its business as currently being conducted.  The Company is duly qualified to do business as a foreign company and is in good standing in each jurisdiction where the property owned by the Company or the nature of its business requires such qualification, except where the failure to be so qualified could not reasonably be expected to have an adverse effect on the Company in any material respect.

Section 4.2    Authorization and Effect of Agreement.

(a)          The execution and delivery by the Company of this Agreement and the Ancillary Agreements to which it is a party and its ability to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby or thereby on or prior to the Closing, have been duly and validly authorized and approved by all requisite action on the part of the Company, and no other action by the Company is necessary to authorize the transactions contemplated hereby or thereby or to consummate such transactions.

(b)         This Agreement and the Ancillary Agreements to which the Company is a party have been duly executed and delivered by the Company, and (assuming due authorization, execution and delivery by Purchaser) this Agreement and each such Ancillary Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity.

Section 4.3    Capitalization of the Company.

(a)          As of the date hereof, the entire authorized capital stock of the Company consists of 2,000,000 shares of common stock, par value $0.01 per share, of which One Million Five Hundred Eighty Five Thousand and Forty Three

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(1,585,043) shares are issued and outstanding.  Such Shares held by Sellers constitute all of the issued and outstanding shares of capital stock of the Company as of the date hereof and have been duly authorized and are validly issued, fully paid and nonassessable and have not been issued and were not issued in violation of any preemptive or other similar right.  Sellers have good and valid title to, own of record and beneficially, the Shares, free and clear of any Liens other than restrictions on transfer which may arise solely under applicable securities Laws.  Upon consummation of the transactions contemplated by this Agreement and registration of the Shares in the name of Purchaser in the stock records of the Company, Purchaser will own all the Shares free and clear of all Liens.  Upon consummation of the transactions contemplated by this Agreement, the Shares will be fully paid and nonassessable other than restrictions on transfer which may arise solely under applicable securities Laws, or under the KTI Shareholders Agreement and the Sellers Representative Agreement.

(b)         Schedule 4.3(b) sets forth the name, address and number of Company Options held by each Option Holder as of the date hereof, and the date of issuance and strike price of each Company Option.  The Company has not issued any securities in violation of any preemptive or similar rights and, except as set forth on Schedule 4.3(b), there are no options, warrants, calls, rights or other securities convertible into or exchangeable or exercisable for equity securities of the Company, any other commitments, arrangements, rights or agreements providing for the issuance or sale of additional equity interests or the repurchase, redemption or other acquisition of equity interests of the Company, and there are no agreements of any kind which may obligate the Company to issue, purchase, redeem or otherwise acquire any of its equity interests.  No (zero) shares of the issued and outstanding shares of common stock of the Company are held in the treasury of the Company.  There are no voting agreements, proxies or other similar agreements or understandings with respect to the equity interests of the Company, other than the KTI Shareholders Agreement and the Sellers Representative Agreement.

(c)          The stock register of the Company accurately records (i) the name and address of each Person owning Shares, and (ii) the certificate number of each certificate evidencing shares of capital stock issued by the Company, the number of shares evidenced by each such certificate, the date of issuance thereof and, in the case of cancellation, the date of cancellation.

Section 4.4    No Subsidiaries; Other Interests.

(a)          The Company has no subsidiaries.

(b)         Except as set forth on Schedule 4.4(b), the Company does not own, directly or indirectly, any interest or investment (whether equity or debt) in any corporation, partnership, limited liability company, joint venture, business, trust or other Person.

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Section 4.5    No Conflict.  Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (a) violate any charter provision, bylaw, constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Sellers or the Company are subject or (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Seller or the Company is a party or by which he or it is bound or to which any of his or its assets is subject.

Section 4.6    Permits; Compliance with Law.

(a)          The Company holds all Permits necessary for the ownership and lease of their properties and assets and the lawful conduct of their respective businesses as currently conducted under and pursuant to all applicable Laws.  All Permits have been legally obtained and maintained and are valid and in full force and effect.  No outstanding violations are or have been recorded in respect of any such Permits.  No proceeding is pending or, to the Knowledge of the Company, threatened, to suspend, revoke, withdraw, modify or limit any Permit.  The transactions contemplated by this Agreement or any Ancillary Agreement do not give rise to the requirement of any consent, approval or modification in order for each Permit to continue to be valid and in full force and effect following the Closing.

(b)         To the Knowledge of the Company, the Company is and has been in compliance with and is not in default under any Law applicable to the Company or any of its respective properties, assets or businesses.

Section 4.7    Books and Records.  True and complete copies of the Organizational Documents of the Company and the Subsidiaries, as currently in effect, have heretofore been delivered to Purchaser.  True and complete copies of the minute books and stock record books of the Company have been made available to Puchaser.

Section 4.8    Litigation.  There are no Proceedings pending or, to the Knowledge of the Company, threatened that relate, directly or indirectly, to this Agreement or any Ancillary Agreement to which the Company is a party, or any action taken or to be taken in connection with this Agreement or any Ancillary Agreement.  Except as set forth on Schedule 4.8, there are no Proceedings pending or, to the Knowledge of the Company, threatened that relate to the (a) Company or its respective assets, properties or businesses, or (b) the officers, directors, employees, stockholders or Affiliates of the Company (in their capacity as such).  There are no outstanding judgments, writs, injunctions, orders, decrees or settlements that apply, in whole or in part, to the Company or its respective assets, properties or business.

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Section 4.9    Financial Statements; Undisclosed Liabilities.

(a)          The Company has furnished Purchaser true and complete copies of (i) the audited consolidated balance sheet and the related audited consolidated statements of income and cash flows of the Company for the fiscal year ended as of December 31, 2005, and the related opinion of LeMaster & Daniels PLLC, the independent accountants of the Company, (ii) the reviewed consolidated balance sheet and the related reviewed consolidated statements of income and cash flows of the Company for the fiscal year ended as of December 31, 2004, and (iii) the unaudited balance sheet and related statements of income for the Company as of and for the 5 month period ended May 31st, 2006 (the “Most Recent Financial Statements”), (collectively, together with the related notes thereto, the “Financial Statements”).

(b)         Except as noted on Schedule 4.9(b), the Financial Statements fairly present in all material respects the financial position and the results of operations of the Company as of the respective dates thereof and for the respective periods then ended.  The Financial Statements have been prepared in accordance with GAAP consistently applied during the periods involved, except as otherwise noted herein, therein or in the notes thereto.  The Financial Statements have been prepared in accordance with the books and records of the Company consistent with past practice.  The Most Recent Financial Statements are subject to normal year end adjustments and the absence of notes.

(c)          Except (i) as reflected or adequately reserved against in the Financial Statements, (ii) liabilities which have been incurred since December 31, 2005 in the Ordinary Course of Business, and (iii) as set forth on Schedule 4.9(c), there are no liabilities or obligations, secured or unsecured (whether absolute, accrued, contingent or otherwise), matured or unmatured that are, or would reasonably be expected to be, material to the Company or materially delay the consummation of the transactions contemplated by this Agreement.  Without limiting the generality of the foregoing, except as set forth on Schedule 4.9(c), the Company has (i) no indebtedness for borrowed money, capital leases or other similar obligations; and (ii) no liability of any nature whatsoever for deferred compensation or other similar amounts.

Section 4.10  Absence of Certain Changes.  Since December 31, 2005, (a) the Company has been operated in the Ordinary Course of Business, (b) to the Knowledge of the Company, there has not occurred any event or condition that, individually or in the aggregate, has had or is reasonably likely to have a Material Adverse Effect, (c) there have been no actual or threatened cancellations or terminations by any material producer, agent, supplier, customer or contractor of the Company, and (e) there has been no material damage to or loss or theft of any of the material assets of the Company.

Section 4.11  Contracts.

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(a)          Schedule 4.11(a) sets forth a complete and accurate list of the following Contracts to which the Company is a party or by which the Company or any of its respective properties or assets is or may be bound (the “Company Contracts”):

(i)         employment Contracts with any current or former officer,  director or Employee providing for compensation of [*] Dollars ($[*]) or more per annum (the name, position or capacity and rate of compensation of each such person and the expiration date of each such Contract being set forth in accordance with this Section 4.11(a));

(ii)        all Contracts (other than employment contracts) with any current or former officer, director, stockholder, member, Employee, consultant, agent or other representative or with an entity in which any of the foregoing is a controlling person;

(iii)       all collective bargaining or other labor or union Contracts;

(iv)      all instruments relating to indebtedness for borrowed money, any note, bond, deed of trust, mortgage, indenture or agreement to borrow money, and any agreement relating to the extension of credit or the granting of a Lien other than Permitted Liens, or any Contract of guarantee in favor of any Person or entity other than the Company;

(v)       all lease, sublease, rental or other Contracts under which the Company is a lessor or lessee of any real property or the guarantee of any such lease, sublease, rental or other Contracts;

(vi)      all lease, sublease, rental, licensing use or similar Contracts with respect to personal property providing for annual rental license or use payments in excess of Ten Thousand Dollars ($10,000) or the guarantee of any such lease, sublease, rental or other Contracts;

(vii)     all Contracts containing any covenant or provision limiting the freedom or ability of the Company to engage in any line of business, engage in business in any geographical area or compete with any other Person;

(viii)    all Contracts for the purchase or sale of materials, supplies or equipment (including computer hardware and software), or the provision of services (including consulting services, data processing and management and project management services), involving total payments in excess of Fifty Thousand Dollars ($50,000) or containing any escalation, renegotiation or redetermination provisions, which Contracts are not terminable at will without liability, premium or penalty by the Company;

[*]Indicates information has been omitted and separately filed with the Securities and Exchange Commission pursuant to an application for an order declaring confidential treatment thereof.

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(ix)       all confidentiality Contracts;

(x)        all partnership or joint venture Contracts;

(xi)       all Contracts, purchase orders or service agreements relating to capital expenditures involving total payments by the Company in excess of Fifty Thousand Dollars ($50,000);

(xii)      all Contracts relating to licenses of trademarks, trade names, service marks or other Company Proprietary Rights;

(xiii)     all Contracts between or among (A) the Company, on the one hand, and (B) any Seller, Affiliate of any Seller, (other than the Company) or any Related Party on the other hand;

(xiv)     all Contracts (A) outside the Ordinary Course of Business for the purchase, acquisition, sale or disposition of any assets or properties, or (B) for the grant to any Person (excluding the Company) of any option or preferential rights to purchase any assets or properties;

(xv)      all Contracts pursuant to which there is either a current or future obligation of the Company to make payments or provide services for a value in excess of Fifty Thousand Dollars ($50,000) in any twelve (12) month period;

(xvi)     all Contracts under which the Company agrees to indemnify any Person;

(xvii)    all non-competition, non-solicitation and any similar Contracts;

(xviii)   all “earn-out” agreements or arrangements or any similar Contracts;

(xix)     all other Contracts material to the business of the Company; and

(xx)      each amendment, supplement and modification in respect of any of the foregoing.

(b)         (i) Each Company Contract is legal, valid, binding and enforceable against the Company and, to the Knowledge of the Company, against each other party thereto, and is in full force and effect, and (ii) to the Knowledge of the Company, no party is in material breach or default, and, to the Knowledge of the Company, no event has occurred which would constitute (with or without notice or lapse of time or both) a material breach or default (or give rise to any right of termination, modification, cancellation or acceleration) or material loss of any benefits under any Company Contract.

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(c)    [*]

(d)    [*]

Section 4.12  Transactions with Affiliates.  Neither the Company nor any Related Party, either currently or at any time since December 31, 2004 (a) has or has had any interest in any property (real or personal, tangible or intangible) that the Company uses or has used in or pertaining to the business of the Company, or (b) has or has had any business dealings or a financial interest in any transaction with the Company or involving any assets or property of the Company, other than business dealings or transactions conducted in the Ordinary Course of Business at prevailing market prices and on prevailing market terms.  For purposes of this Agreement, the term “Related Party” shall mean as of any time an executive officer, manager or director, five percent (5%) stockholder (including any executive officers, members, managers or directors thereof) or Affiliate of the Company or at such time, any present or former known spouse, sibling or child of any such executive officer, member, manager, director or Affiliate of the Company or any trust or other similar entity for the benefit of any of the foregoing Persons.

Section 4.13  Labor Relations.

(a)          As of the date of this Agreement, there is no labor dispute, controversy, arbitration, grievance, strike, slowdown, lockout or work stoppage against the Company pending or threatened which may interfere with the business activities of the Company.  The Company is not a party to, or bound by, any labor agreement, collective bargaining agreement, work rules or practices or any other labor-related agreements or arrangements with any labor union, labor organization or works council.  There are no labor agreements, collective bargaining agreements, work rules or practices or any other labor-related agreements or arrangements that pertain to any Employees.  None of the Employees is represented by any labor organization with respect to such Employees’ employment or other service with the Company.  No labor union, labor organization, works council or group of Employees of the Company has made a pending demand for recognition or certification, and there are no representation or certification proceedings or petitions seeking a representation proceeding presently pending or threatened in writing to be brought or filed with the National Labor Relations Board or any other labor relations tribunal or authority.  To the Knowledge of the Company, there are no organizational efforts presently being made involving any of the presently

[*]Indicates information has been omitted and separately filed with the Securities and Exchange Commission pursuant to an application for an order declaring confidential treatment thereof.

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unorganized Employees.  The Company is not a party to, or otherwise bound by, any order relating to Employees or employment practices.

(b)         The Company is in compliance in all material respects with all applicable Laws and orders applicable to the Company or the Employees or other persons providing services to or on behalf of such entities, as the case may be, relating to the employment of labor, including all such Laws and orders relating to discrimination, civil rights, immigration, safety and health, workers’ compensation, wages, withholding, hours, and employment standards, including the WARN Act, Title VII of the Civil Rights Act of 1964, Age Discrimination in Employment Act, Americans with Disabilities Act, Equal Pay Act, Health Insurance Portability and Accessibility Act, ERISA and Family and Medical Leave Act.

(c)          To the Knowledge of the Company, the Company has, in all material respects, properly classified the employment or other service status of all Employees, independent contractors and other persons providing services to or on behalf of the Company for purposes of compliance with (i) all applicable Laws, and (ii) the terms or tax qualification requirements of any Benefit Plan or other benefit arrangement.

Section 4.14  Insurance.  Schedule 4.14 sets forth a true and complete list and of all insurance policies currently maintained relating to the Company, including those which pertain to the Company’s assets, directors, officers or employees or operations, and all such insurance policies are in full force and effect and all premiums due thereunder have been paid.  There is no material claim outstanding under any such insurance policies and, to the Knowledge of the Company, there are no existing circumstances likely to give rise to a claim under any such insurance policies.  The Company has not received notice of cancellation of any such insurance policies.  The Company has made available to Purchaser true and complete copies of all insurance policies (including any amendments thereto) listed on Schedule 4.14.

Section 4.15  Accounts Receivable.  All accounts receivable, notes receivable and other indebtedness of the Company (the “Accounts Receivable”) reflected in the Financial Statements or which arose subsequent to December 31, 2005, represent bona fide, arm’s-length transactions for the sale of goods or performance of services actually delivered in the Ordinary Course of Business and, in the case of Accounts Receivable, have been billed, invoiced or written off in the Ordinary Course of Business consistent with past practice.  Except to the extent expressly reserved against or reflected on the Financial Statements (which reserves are consistent with past practice) or paid prior to the Closing, the Accounts Receivable are, or will be as of the Closing Date, collectible in the Ordinary Course of Business.

Section 4.16  Real Property; Leases.

(a)          The Company does not own any real property.

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(b)         Schedule 4.16(b) contains a complete and correct list of all leases of real property, occupancy agreements, licenses, concessions or similar agreements (the “Real Property Leases”) under which the Company is a lessee, sub-lessee, tenant, licensee or assignee of any real property owned by any third Person (the “Leased Real Property”).  The Company has made available to Purchaser true, correct and complete copies of each Real Property Lease.  With respect to each Real Property Lease, (i) there exists no default under such Real Property Lease by the Company nor, to the Knowledge of the Company, is there any event which, with notice or the passage of time or both, could ripen into a default and the Company has received no written notice of any such default, and (ii) to the Knowledge of the Company, there exists no default by any third-party thereunder nor any event which, with notice or the passage of time or both, could ripen into a default.  Each Real Property Lease is a legal, valid and binding obligation of the Company, and, to the Knowledge of the Company, each other party thereto, enforceable against each such other party thereto in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and subject to general principles of equity.  The consummation of the transactions contemplated by this Agreement or any Ancillary Agreement require no Consents from any Person and will not result in any default, penalty, right to terminate, increase in the amounts payable under or modification to any Real Property Lease.  The Company holds good and valid leasehold estates in the Leased Real Property and such Leased Real Property constitutes all of the Real Property currently used for the conduct of the Company’s business.

(c)          (i) There is no pending or, to the Knowledge of the Company, threatened condemnation (or similar proceedings) of all or any part of the Leased Real Property, and, except as set forth on Schedule 4.16(c), the Company has not assigned or sublet or granted any rights to use and occupy or created any limitations to or on its interests under any Real Property Lease to any Person, (ii) to the Knowledge of the Company, there are no zoning, building code, occupancy restriction or other land-use regulation proceedings or any proposed change in any applicable Laws that could, individually or in the aggregate, result in a Material Adverse Effect, nor has the Company received any notice of any special assessment proceedings affecting any Leased Real Property, or applied for any change to the zoning or land use status of any Leased Real Property, (iii) to the Knowledge of the Company, there are no defects, structural or otherwise, with respect to any of the Leased Real Property (or any improvements located thereon), which could reasonably be anticipated to have a material adverse impact on the value or utility of any such parcel of Leased Real Property, and (iv) to the Knowledge of the Company, there are no easements, Liens or other agreements (whether of record or not) affecting title to, or creating any Lien or charge upon, any of the Leased Real Property.

Section 4.17  Environmental.

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(a)          The Company holds all Environmental Permits necessary for the ownership and lease of their properties and assets and the lawful conduct of their respective businesses as currently conducted under and pursuant to all applicable Laws.  All such Environmental Permits have been legally obtained and maintained and are valid and in full force and effect.  No outstanding violations are or have been recorded in respect of any such Environmental Permits.  No proceeding is pending or, to the Knowledge of the Company, threatened, to suspend, revoke, withdraw, modify or limit any such Environmental Permit.  The transactions contemplated by this Agreement or any Ancillary Agreement do not give rise to the requirement of any filing, consent, approval or modification in order for each Environmental Permit to continue to be valid and in full force and effect following the Closing.

(b)         The Company complies and has complied in all respects with and is not in default under any Environmental Law applicable to Company or any of its respective properties or assets except for such noncompliance as would not have a Material Adverse Effect on the financial condition of the Company.

(c)          There are no Proceedings arising under any Environmental Law pending or, to the Knowledge of the Company, threatened that relate to the (i) Company or its respective assets, properties or businesses or (ii) the officers, directors, employees, stockholders or Affiliates of the Company (in their capacity as such).  There are no outstanding judgments, writs, injunctions, orders, decrees or settlements arising under any Environmental Law that apply, in whole or in part, to the Company or their respective assets, properties or business.

(d)         To the Knowledge of the Company, there has been no Release or threatened Release of any Hazardous Substance from, and no Hazardous Substances are present at, on or beneath any property currently or formerly owned, leased or operated by the Company or, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, any other location, including any location at which any Hazardous Materials manufactured, used or generated by the Company have been stored, treated or disposed.

(e)          (i)           “Hazardous Substances” shall mean any pollutant, contaminant, hazardous substance, hazardous waste, medical waste, special waste, toxic substance, petroleum or petroleum-derived substance, waste or additive, radioactive material, or other compound, element, material or substances in any form (including products) regulated, restricted or addressed by or under any applicable Environmental Law.

(ii)        “Environmental Law” shall mean any Law relating to the environment, natural resources or the safety or health of human beings or other living organisms, including the manufacture, distribution in commerce, use or presence of Hazardous Substances.

(iii)       “Environmental Permits” shall mean all Permits required under Environmental Laws.

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(iv)        “Release” shall mean any release, pumping, pouring, emptying, injecting, escaping, leaching, migrating, dumping, seepage, spill, leak, flow, discharge, disposal or emission.

Section 4.18  No Broker. No agent, broker, investment banker, financial advisor or other firm or Person (a) has acted directly or indirectly for the Company in connection with this Agreement or any Ancillary Agreement or the transactions contemplated hereby or thereby, or (b) is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee in connection with this Agreement or any Ancillary Agreement or the transactions contemplated hereby or thereby, other than Gavan Sellers Associates, 25 Mount Pleasant Road. London NW10 3EG, UK, and Dr. Paul Winson, whose fees and expenses in both cases will be fully paid by Sellers at or before the Closing, Synergent Termination Solutions, L.L.C. which will be handled as described in Sections 7.2(o) and (p) and John Landefeld who will be handled as described in Section 7.2(q).

Section 4.19  Employee Benefits.

(a)          Schedule 4.19(a) contains a list of (i) each “employee pension benefit plan” (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and referred to herein as a “Pension Plan”), (ii) each “employee welfare benefit plan” (as defined in Section 3(1) of ERISA and referred to herein as a “Welfare Plan”), and (iii) each other material plan, fund, program, arrangement or agreement (including any material employment or consulting agreement) to provide medical, health, disability, life, bonus, incentive, stock or stock-based right (option, ownership or purchase), retirement, deferred compensation, severance, change in control, salary continuation, vacation, sick leave, fringe, incentive insurance or other benefits to any current or former Employee, officer, or director of the Company or any Subsidiary (or any other individual providing non-professional services (directly or through a personal services corporation) as an independent contractor, consultant or agent to the Company) that is maintained, or contributed to, or required to be contributed to, by the Company, or by any third-party leasing or similar organization in respect of any Employees (each such plan, any Pension Plan and any Welfare Plan referred to herein as a “Benefit Plan”).

(b)         With respect to each Benefit Plan, the Company has delivered to Purchaser true, complete and correct copies of (i) such Benefit Plan (or, in the case of an unwritten Benefit Plan, a written description thereof), (ii) the three (3) most recent annual reports on Form 5500 filed with the IRS with respect to such Benefit Plan (if any such report was required), (iii) the most recent summary plan description and all subsequent summaries of material modifications for such Benefit Plan (if a summary plan description was required), (iv) each trust agreement and group annuity contract relating to such Benefit Plan, if any, (v) the most recent determination letter from the IRS with respect to such Benefit Plan, if any, and (vi) the most recent actuarial valuation with respect to such Benefit Plan, if any.  Except

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as specifically provided in the foregoing documents delivered to Purchaser, there are no amendments to any Benefit Plan that have been adopted or approved by the Company or any Subsidiary that are not reflected in the applicable Benefit Plan and neither the Company nor any Subsidiary has undertaken to or committed to make any such amendments or to establish, adopt or approve any new Benefit Plan.

(c)          Each Benefit Plan has, in all material respects, been established, funded, maintained and administered in compliance with its terms and with the applicable provisions of ERISA, the Code and all other applicable Laws.  Each Benefit Plan and any trust established pursuant thereto intended to be qualified and tax exempt under Sections 401(a) and 501(a) have been the subject of a favorable and up-to-date determination letter from the IRS, or a timely application therefor has been filed, to the effect that such Benefit Plan and trust are qualified and exempt from federal income taxes under Section 401(a) and 501(a), respectively, of the Code, and no circumstances exist and no events have occurred that could adversely affect the qualification of any Benefit Plan or the related trust.

(d)         With respect to each Benefit Plan, there has not occurred, and no person or entity is contractually bound to enter into, any nonexempt “prohibited transaction” within the meaning of Section 4975 of the Code or Section 406 of ERISA.  The Company does not sponsor or contribute to any “multiple employer welfare arrangement” as defined in Section 3(40) of ERISA.  Neither the Company, any Subsidiary nor any ERISA Affiliate of the Company has maintained, contributed to or been required to contribute to (i) any plan in the past six (6) years that is subject to the provisions of Title IV of ERISA or (ii) any plan that is a “multiemployer plan” as defined in Section 3(37) of ERISA.  For purposes hereof, “ERISA Affiliate” means, with respect to any entity, trade or business, any other entity, trade or business that is, or was at the relevant time, a member of a group described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes or included the first entity, trade or business or that is, or was at the relevant time, a member of the same “controlled group” as the first entity, trade or business pursuant to Section 4001(a)(14) of ERISA.

(e)          The Company is not obligated under any Welfare Plan to provide life, health, medical, death or other welfare benefits with respect to any current or former Employee (or their beneficiaries or dependents) of the Company, or its respective predecessors after termination of employment or other service, except as required under Section 4980B of the Code or Part 6 of Title I of ERISA or other applicable Law, (ii) the Company has complied in all material respects with the notice and continuation coverage requirements, and all other requirements, of Section 4980B of the Code and Parts 6 and 7 of Title I of ERISA, and the regulations thereunder, and any other applicable Law with respect to each Welfare Plan that is, or was during any taxable year for which the statute of limitations on the assessment of federal income taxes remains open, by consent or otherwise, a group health plan within the meaning of Section 5000(b)(1) of the Code, and (iii) no Welfare Plan that is a group health plan, which is maintained, contributed to or

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required to be contributed to by the Company or any Subsidiary, is a self-insured plan.

(f)          All contributions or premiums owed by the Company with respect to Benefit Plans under Law, contract or otherwise have been made in full and on a timely basis.  All material reports, returns and similar documents required to be filed with any Governmental Authority or distributed to any plan participant have been duly and timely filed or distributed.  All amounts that the Company is legally or contractually required to deduct from the salaries of their Employees have been duly paid into the appropriate fund or funds.  There are no pending or, to the Knowledge of the Company, threatened, material claims, lawsuits, arbitrations or audits asserted or instituted against any Benefit Plan, any fiduciary (as defined by Section 3(21) of ERISA) of any Benefit Plan, the Company, any Employee, or administrator thereof, in connection with the existence, operation or administration of a Benefit Plan, other than routine claims for benefits.

(g)         Except as set forth on Schedule 4.19(g), neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (either alone or in conjunction with any other event) (i) cause or result in the accelerated vesting, funding or delivery of, or increase the amount or value of, any material payment or benefit to any manager, officer, Employee, consultant or independent contractor of the Company or any Subsidiary (including the acceleration of the vesting of any outstanding Company Options), (ii) cause or result in the funding of any Benefit Plan, or (iii) cause or result in a limitation on the right of the Company to amend, merge, terminate or receive a reversion of assets from any Benefit Plan or related trust.  Without limiting the generality of the foregoing, no amount paid or payable by the Company in connection with the transactions contemplated hereby (either solely as a result thereof or as a result of such transactions in conjunction with any other event) will be an “excess parachute payment” within the meaning of Section 280G of the Code.

(h)         Except as set forth on Schedule 4.19(h), neither the Company nor any Person acting on behalf of the Company has made or entered into any legally binding commitment with any current or former officers, Employees, consultants or independent contractors of the Company to the effect that, following the date hereof, (i) any benefits or compensation provided to such Persons under existing Benefit Plans or under any other plan or arrangement will be enhanced or accelerated (including the acceleration of the vesting of any outstanding Company Options), (ii) any new plans or arrangements providing benefits or compensation will be adopted, (iii) any Benefit Plan will be continued for any period of time or cannot be amended or terminated at any time or for any reason, (iv) any Benefit Plan or arrangement provided by the Company or any Subsidiary will be made available to such Persons, or (v) any trusts or other funding mechanisms will be required to be funded.

Section 4.20  Employees.

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(a)          Schedule 4.20(a) sets forth (i) the name, title and total compensation (payable by the Company) of each officer and director of the Company and each other Employee and agent, (ii) all bonuses and other incentive compensation received by such Persons since January 1, 2005 and any accrual for such bonuses and incentive compensation, and (iii) all Contracts or commitments by the Company to increase the compensation or to modify the conditions or terms of employment or other service of any of its officers,  Employees, consultants and agents.

(b)         To the Knowledge of the Company, no officer or director of the Company or any Employee, consultant or agent of the Company is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, non-competition, or proprietary rights agreement, between such Person and any other Person that will (i) materially affect the performance by such Person of such Person’s duties to the Company, or (ii) materially affect the ability of the Company to conduct its business.

(c)          No executive, key Employee or significant group of Employees has given notice to the Company to terminate employment or service with the Company during the next twelve (12) months.

Section 4.21  Taxes and Tax Returns.

Except as provided on Schedule 4.21:

(a)          All Tax Returns required to be filed by or with respect to the Company or their respective assets and operations have been timely filed.  All such Tax Returns (i) are true, correct and complete in all material respects, and (ii) accurately reflect the liability for Taxes of the Company.

(b)         True, correct and complete copies of all federal, state, local and foreign Tax Returns of or including the Company filed in the previous three (3) years have been made available to Purchaser prior to the date hereof.

(c)          The Company has timely paid, or caused to be paid, all Taxes required to be paid, whether or not shown (or required to be shown) on a Tax Return, and the Company has accrued for the payment in full of all Taxes not yet due and payable on the balance sheet included in the Financial Statements for the Company’s fiscal year ended December 31, 2005.  Since December 31, 2005, the Company has not incurred any liability for Taxes other than Taxes incurred in the Ordinary Course of Business.

(d)         The Company has complied in all material respects with the provisions of the Code relating to the withholding and payment of Taxes, including the withholding and reporting requirements under Sections 1441 through 1464, 3101 through 3510, and 6041 through 6053 of the Code and related regulations, has complied in all material respects with all provisions of state and local Law relating

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to the withholding and payment of Taxes, and have, within the time and in the manner prescribed by Law, withheld the applicable amount of Taxes required to be withheld from amounts paid to any Employee, independent contractor or other third-party and paid over to the proper Governmental Authorities all amounts required to be so paid over.

(e)          None of the Tax Returns of or relating to the Company have been examined by the IRS or any state, local or foreign Taxing Authorities and no adjustment relating to any Tax Return of or including the Company or their respective assets or operations has been, to the Company’s Knowledge, proposed or threatened formally or informally by any Taxing Authority.  The Company has not entered into a closing agreement pursuant to Section 7121 of the Code (or an analogous provision of state, local or foreign Law).  There are no examinations or other administrative or court proceedings relating to Taxes in progress or pending, and there is no existing, pending or, to the Company’s Knowledge, threatened claim, proposal or assessment against the Company or relating to their assets or operations asserting any deficiency for Taxes.

(f)          No claim has ever been made by any Taxing Authority with respect to the Company in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to taxation by that jurisdiction.  There are no security interests on any of the assets of the Company that arose in connection with any failure (or alleged failure) to pay any Taxes and, except for liens for real and personal property Taxes that are not yet due and payable, there are no liens for any Taxes upon any assets of the Company.

(g)         No extension of time with respect to any date by which a Tax Return was or is to be filed by or with respect to the Company is in force, and no waiver or agreement by the Company is in force for the extension of time for the assessment or payment of any Taxes.

(h)         The Company has not granted a power of attorney to any Person with respect to any Taxes.

(i)           The Company is not a party to, nor owns an interest in, a joint venture, partnership or other arrangement or contract that could be treated as a partnership for federal income tax purposes.  The Company does not own any membership or other equity interest, or any other interest, in any other Person.

(j)           The Company is not a party to any contract, agreement, plan or arrangement relating to allocating or sharing the payment of, indemnity for, or liability for, Taxes.

(k)          The Company is not, and has not been, a “United States real property holding corporation” within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

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(l)           The Company has not participated in any “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4.

(m)         At all times during its existence, the Company has been a C corporation for federal income tax purposes and neither the Company nor any of the Subsidiaries has been includible with any other entity in any consolidated, combined, unitary or similar return for any Tax period for which the statute of limitations has not expired.

(n)         The Company has not constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (x) in the two (2) years prior to the date if this Agreement, or (y) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the transactions contemplated by this Agreement.

(o)         The Company has never participated in an international boycott within the meaning of Section 999 of the Code.

(p)         The Company has, in all material respects, properly and in a timely manner documented their transfer pricing methodology in compliance with Section 482 and 6662 (and any related sections) of the Code, the related regulations, and any comparable provisions of state, local or foreign Tax Law or regulation.

Section 4.22  Proprietary Rights.

(a)          Except as set forth on Schedule 4.22, (i) the Company is the sole owner of, free and clear of any Lien (other than Permitted Liens), or has a valid license to (without the payment of any royalty, except with respect to off-the-shelf software licensed on commercially reasonable terms), all U.S. and non-U.S. trademarks, service marks, logos, designs, trade names, internet domain names and corporate names, and the goodwill of the business connected with and symbolized by the foregoing, patents, registered designs, copyrights, computer software (including all information systems, data files and databases, source and object codes, user interfaces, manuals and other specifications and documentation related thereto and all intellectual property and proprietary rights incorporated therein), web sites and web pages and related items (and all intellectual property and proprietary rights incorporated therein) and all trade secrets, research and development, formulae and know-how (“Trade Secrets”) and all other proprietary and intellectual property rights and information, including all grants, registrations and applications relating to any of the foregoing (all of the foregoing to be collectively referred to as the “Proprietary Rights”) used or held for use in, or necessary for the conduct of the business of the Company as of the date hereof (such Proprietary Rights owned by or licensed to the Company, collectively, the “Company Proprietary Rights”), (ii) the rights of the Company in the Company Proprietary Rights are enforceable, (iii) the Company has not received any demand, claim, notice or inquiry from any Person in respect of the Company Proprietary Rights which challenges, threatens to challenge

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or inquires as to whether there is any basis to challenge, the validity of, or the rights of the Company in, any of the Company Proprietary Rights, (iv) no act has been done or omitted to be done by the Company, or, to the Knowledge of the Company, any licensee thereof, which has had or could have the effect of impairing or dedicating to the public, or entitling any U.S. or foreign governmental authority or any other Person to cancel, forfeit, modify or consider abandoned, any material Company Proprietary Rights owned by the Company (the “Owned Proprietary Rights”), or give any Person any rights with respect thereto (except pursuant to an agreement listed on Schedule 4.22(b)), (v) all necessary registration, maintenance and renewal fees in respect of the Owned Proprietary Rights have been paid and all necessary documents and certificates have been filed with the relevant Governmental Authority for the purpose of maintaining such Owned Proprietary Rights, (vi) to the Knowledge of the Company, the businesses of the Company as currently or in the past operated does not violate or infringe, and has not violated or infringed, any Proprietary Rights of any other Person, (vii) to the Knowledge of the Company, no Person is violating or infringing any of the Company Proprietary Rights, (viii) the Company has obtained from all individuals who participated (as Employees, consultants, employees of consultants or otherwise) in any respect in the invention or authorship of any of the Owned Proprietary Rights effective waivers of any and all ownership rights of such individuals in such Proprietary Rights, or assignments to the Company, of all rights with respect thereto, and (ix) the Company has not divulged, furnished to or made accessible to any Person, any Trade Secrets without prior thereto having obtained an enforceable agreement of confidentiality from such Person.

(b)         Schedule 4.22(b) contains a complete and accurate list of the material Company Proprietary Rights (other than Trade Secrets) and all licenses and other agreements relating thereto.

Section 4.23  Information Technology.

(a)          The material Company IT Systems are in good working condition to effectively perform all information technology operations necessary for the conduct of its business as now conducted.

(b)         Except for scheduled or routine maintenance which would not reasonably be expected to cause any material disruption to, or material interruption in, the conduct of the business, the Company IT Systems are available for use during normal working hours and other times when required to be available.  The Company has taken commercially reasonable steps to provide for the backup and recovery of the data and information critical to the conduct of the business (including such data and information that is stored on magnetic or optical media in the ordinary course) without material disruption to, or material interruption in, the conduct of the business.

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Section 4.24  Guarantees.  The Company is not a guarantor or otherwise responsible for any liability or obligation (including indebtedness) of any Person.

Section 4.25  Bank Accounts.  Schedule 4.25 contains a true and complete list of (a) the names and locations of all banks, trust companies, securities brokers and other financial institutions at which the Company has an account or safe deposit box or maintains a banking, custodial, trading or other similar relationship, (b) a true and complete list and description of each such account, box and relationship and (c) the name of every Person authorized to draw thereon or having access thereto.

Section 4.26  Foreign Corrupt Practices and International Trade Sanctions. To the Knowledge of Sellers and the Company, neither the Company, nor any of its directors, officers, agents, employees or any other Persons acting on its behalf has, in connection with the operation of the business of the Company, (a) used any corporate or other funds for unlawful contributions, payments, gifts or entertainment, or made any unlawful expenditures relating to political activity to government officials, candidates or members of political parties or organizations, or established or maintained any unlawful or unrecorded funds in violation of Section 104 of the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), or any other similar applicable Laws, (b) paid, accepted or received any unlawful contributions, payments, expenditures or gifts or (c) violated or operated in noncompliance with any export restrictions, anti-boycott regulations, embargo regulations or other applicable Laws.

Section 4.27  Inventory. The inventories shown on Company’s balance sheet for the year ended December 31, 2005 or acquired after December 31, 2005, were acquired and maintained in the Ordinary Course of Business, are of good and merchantable quality, and consist of items of a quantity and quality usable or salable in the Ordinary Course of Business.

Section 4.28  Disclaimer of Other Representations and Warranties. Except as expressly set forth in either Article III or this Article IV, neither Company nor Sellers make any representation or warranty, express or implied, at law or in equity, and any such other representations or warranties are hereby expressly disclaimed.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser represents and warrants to Sellers as of the date hereof and as of the Closing Date or, if a representation or warranty is made as of a specified date, as of such date, as follows:

Section 5.1    Organization of Purchaser; Authority. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all necessary corporate power and

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authority to own, lease, operate and otherwise hold its properties and assets and to carry on its business as presently conducted.  Purchaser is duly qualified or licensed to do business as a foreign corporation and is in good standing in every jurisdiction in which the nature of the business conducted by it or the assets or properties owned or leased by it requires qualification, except where the failure to be so qualified, licensed or in good standing could not, individually or in the aggregate, be reasonably likely to have a material adverse effect on the ability of Purchaser to consummate the transactions contemplated by this Agreement or any Ancillary Agreement to which it is a party.

Section 5.2    Capitalization. The authorized capital stock of Purchaser consists of 1,000 shares of common stock, $.01 par value per share.  100 shares of such common stock are issued and outstanding.  All of the outstanding shares of capital stock of Purchaser have been duly authorized and validly issued and are fully paid and nonassessable and free of preemptive and similar rights and were issued in compliance with applicable federal and state securities laws.

Section 5.3    Authorization; Enforceability.

(a)          The execution and delivery by Purchaser of this Agreement and the Ancillary Agreements to which it is a party, the performance of its obligations hereunder and thereunder and the consummation by Purchaser of the transactions contemplated hereby and thereby, have been duly and validly authorized and approved by all requisite action on the part of Purchaser, and no other action by Purchaser is necessary to authorize the transactions contemplated hereby or thereby or to consummate such transactions.

(b)         This Agreement and the Ancillary Agreements to which Purchaser is a party have been duly executed and delivered by Purchaser, and, (assuming the due authorization, execution and delivery of this Agreement by Sellers) this Agreement and each such Ancillary Agreement constitutes a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity.

Section 5.4    No Conflict.  The execution and delivery by Purchaser of this Agreement and the Ancillary Agreements to which it is a party and the consummation by Purchaser of the transactions contemplated hereby and thereby, assuming all required filings, consents, approvals authorizations and notices set forth on Schedule 5.4 (collectively, the “Purchaser Approvals”) have been made, given or obtained, does not and shall not:

(a)          violate or conflict with any Organizational Document of Purchaser;

(b)         violate or conflict with, in any material respect, any Law applicable to Buyer or any of its assets, properties or businesses or require any filing

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with, consent, approval or authorization of, or notice to, any Governmental Authority; or

(c)          (i) conflict with, result in any breach of, constitute a default (or event which after notice or lapse of time or both, would become a default) under, or require any consent under any Contract, to which Purchaser is a party or by which Purchaser may be bound, (ii) result in the termination of any such Contract, (iii) result in the creation of any Lien (other than Permitted Liens) upon any of the properties or assets of Purchaser, or (iv) constitute an event which, after notice or lapse of time or both, would result in any such breach, termination or creation of a Lien upon any of the properties or assets of Buyer;

except in the case of clause (c) above, as would not reasonably be expected to have a material adverse effect on Purchaser or the ability of Purchaser to enter into and perform its obligations under, and to consummate the transactions contemplated by, this Agreement.

Section 5.5    No Broker.  No agent, broker, investment banker, financial advisor or other firm or Person (a) has acted directly or indirectly for Purchaser in connection with this Agreement or any Ancillary Agreement or the transactions contemplated hereby or thereby, or (b) is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee in connection with this Agreement or any Ancillary Agreement or the transactions contemplated hereby or thereby.

Section 5.6    Financial Ability.  Purchaser has, or will have, sufficient funds available to consummate the transactions contemplated hereby, including the payments contemplated by Article II.

Section 5.7    Investment Representation.  Purchaser is acquiring the Shares for investment purposes only, and not with a view to, or for offer or sale in connection with, any resale or distribution thereof or any transaction which would be in violation of all applicable Laws, including U.S. federal securities laws.

Section 5.8    Accredited Investor.  Purchaser (a) is an “accredited investor” as such term is defined in Rule 501(a) under the Securities Act and (b) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Shares.

ARTICLE VI

COVENANTS

Section 6.1    Further Assurances.  From time to time after the Closing, without additional consideration, each party will (or, if appropriate, cause its Affiliates to) execute and deliver such further instruments and take such other action as may be necessary or reasonably requested by the each other party to make effective the transactions contemplated by this Agreement and to provide each other party with the

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intended benefits of this Agreement.  Without limiting the foregoing, upon reasonable request of Purchaser, each of Sellers and the Company shall, or shall cause their respective Affiliates to, as applicable, execute, acknowledge and deliver all such further assurances, deeds, assignments, consequences, powers of attorney and other instruments and paper as may be required to sell, transfer, assign, convey and deliver to Purchaser all right, title and interest in, to and under the Shares.

Section 6.2    Tax Matters.

(a)          All transfer, documentary, sales, use, registration and other such Taxes (including all applicable real estate transfer or gains Taxes and stock transfer Taxes) incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by Sellers.  Each party shall cooperate to the extent necessary in the timely making of all filings, returns, reports and forms as may be required in connection therewith.

(b)         All contracts, agreements or arrangements under which the Company or any Subsidiary may at any time have an obligation to indemnify for or share the payment of or liability for any portion of a Tax (or any amount calculated with reference to any portion of a Tax) shall be terminated with respect to the Company or Subsidiary, as applicable, as of the Closing Date, and the Company or Subsidiary, as applicable, shall thereafter be released from any liability thereunder.

(c)          The Company, Purchaser and Sellers shall, and shall each cause their Affiliates to, provide to the other cooperation and information, as and to the extent reasonably requested, in connection with the filing of any Tax Return or in conducting any audit, litigation or other proceeding with respect to Taxes.

(d)         Immediately prior to the Closing, the Company shall deliver to Purchaser a certification that stock in the Company is not a U.S. real property interest because the Company is not, and has not been, a “United States real property holding corporation” within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.  Such certification shall be in accordance with Treasury Regulation Section 1.1445-2(c)(3)(i).  The Company shall timely deliver to the IRS the notification required under Treasury Regulation Section 1.897-2(h)(2).

Section 6.3    Employee Benefits Matters.

(a)          Purchaser currently intends to maintain the Company at its present location. Purchaser will provide administrative and general management from Purchaser’s headquarters in Madison, Wisconsin. Employees of the Company will receive substantially the same employee benefits and human resource management as are provided to other employees of Purchaser in the United States.  The preceding sentence shall not preclude Purchaser or its Subsidiaries at any time following the Closing from terminating the employment of any Company employee.

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(b)         No provision of this Agreement shall create any third-party beneficiary rights in any Company employee, any beneficiary or dependent thereof, or any collective bargaining representative thereof, with respect to the compensation, terms and conditions of employment and/or benefits that may be provided to any Company employee by Purchaser or under any benefit plan which Purchaser may maintain.

Section 6.4    Release. In consideration for payment of the Purchase Price, as of and following the Closing Date, each Seller (on its own behalf and on behalf of each of its Affiliates) knowingly, voluntarily and unconditionally releases, forever discharges, and covenants not to sue Purchaser and its Subsidiaries and their respective predecessors, successors, parents, Subsidiaries and other Affiliates, and all of their respective current and former officers, directors, managers, employees, agents, attorneys and representatives from and for any and all claims, causes of action, demands, suits, debts, obligations, liabilities, damages, losses, costs, and expenses (including attorneys’ fees) of every kind or nature whatsoever, known or unknown, actual or potential, suspected or unsuspected, fixed or contingent, that any Seller or its Affiliates, as applicable, has or may have, now or in the future, arising out of, relating to, or resulting from any act of commission or omission, errors, negligence, strict liability, breach of contract, tort, violations of law, matter or cause whatsoever from the beginning of time to the Closing Date, with respect to, arising out of, or in connection with the Company or its Subsidiaries; provided, however, that such release shall not cover (a) any claims arising under this Agreement, including the schedules and exhibits attached hereto, or the agreements or documents executed and/or delivered in connection herewith, but excluding claims of a breach of fiduciary duties by any Sellers or the Company in connection with the transactions contemplated by this Agreement, or (b) any claims against the Company or a Subsidiary in its capacity as a current or former director, officer or employee of the Company or a Subsidiary for indemnification under the Organizational Documents of the Company or such Subsidiary, as such documents are in effect immediately prior to the Closing Date.

Section 6.5    Appraisal Rights.  Sellers hereby severally but not jointly irrevocably waive any and all dissenter, appraisal and other similar or related rights or remedies of any nature whatsoever arising out of or in connection with the transactions described herein.

Section 6.6    Immigration.  In accordance with U.S. Department of Labor regulations, and current policy and procedures of the U.S. Citizenship and Immigration Service (“USCIS”), Purchaser hereby assumes any and all rights, obligations, liabilities and undertakings, past, present and future, of the Company arising from and under attestations made in each and every certified and still effective Labor Condition Application filed by the Company and approved by the Department of Labor (“DOL”), including, but not limited to, [*].  Purchaser further assumes any and all other immigration-related rights, obligations, liabilities and undertakings of the Company arising from or under attestations made in each and every

[*]Indicates information has been omitted and separately filed with the Securities and Exchange Commission pursuant to an application for an order declaring confidential treatment thereof.

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petition or application submitted to, pending with, or approved by the DOL, the USCIS, or any other government agency that is involved when sponsoring a foreign employee for a nonimmigrant or immigrant visa. Unless expressly stated herein, the assumption of obligations and liabilities as such pertain to Company’s foreign employees are limited to those obligations and liabilities set forth in this Section 6.11.

ARTICLE VII

Section 7.1    Conditions to Each Party’s Obligations.  The respective obligation of each party to effect the transactions contemplated by this Agreement is subject to the satisfaction, on or prior to the Closing Date, of the following conditions, which may be waived by Purchaser or Sellers:

(a)          All necessary Consents of any Governmental Authority required for consummation of the transactions contemplated by this Agreement shall have been obtained; and

(b)         There shall not be in effect any Law of any Governmental Authority of competent jurisdiction restraining, enjoining or otherwise preventing the consummation of the transactions contemplated by this Agreement or any of the Ancillary Agreements.

ARTICLE VIII

Deliberately omitted.

ARTICLE IX

SURVIVAL; INDEMNIFICATION

Section 9.1    Survival of Indemnification Rights.  Subject to the limitations and other provisions of this Agreement, the representations and warranties of Sellers in Article III and of the Company and Sellers in Article IV shall survive the Closing (unless Purchaser knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing) and remain in full force and effect until the later of one (1) year after the Closing date and the resolution of any claim for indemnification with respect to which any Purchaser Indemnified Party has provided Sellers notice of a claim for indemnification pursuant to Section 9.3(a) prior to the expiration of such one (1) year period; provided, however, the following representations and warranties shall survive and remain in full force and effect for the period indicated:

(a)          Section 3.8 (Ownership of the Shares), Section 4.3 (Capitalization of the Company), and Section 4.4 (Capitalization of the Subsidiaries; Other Interests), indefinitely; and

33

(b)         Section 4.21 (Taxes and Tax Returns), until sixty (60) calendar days after expiration of the applicable statute of limitations (including any extension thereof);

and with respect to clause (c), if a claims notice has been provided by such date, shall remain in full force and effect until final resolution thereof.

The covenants and agreements of Sellers and the Company contained in this Agreement shall survive and remain in full force and effect for the applicable period specified therein, or if no such period is specified, indefinitely.  The provisions of this Article IX shall survive for so long as any other Section of this Agreement shall survive.

Section 9.2    Indemnification Obligations.  Sellers will severally but not jointly indemnify, defend and hold harmless Purchaser and any parent, Subsidiary, associate, Affiliate, director, officer, stockholder, employee or agent thereof, and their respective representatives, successors and permitted assigns (all of the foregoing are collectively referred to as the “Purchaser Indemnified Parties”) from and against and pay on behalf of or reimburse such party in respect of, as and when incurred, all Losses which any such party may actually incur, suffer, sustain or become subject to or accrue, as a result of, in connection with, or relating to or by virtue of:

(a)          any breach of, any representation or warranty made by the Company or Sellers under this Agreement or any Ancillary Agreement;

(b)         any breach or non-fulfillment of any covenant or agreement on the part of Sellers or the Company in respect of pre-Closing covenants, under this Agreement or any Ancillary Agreement; or

(c)          any fees, expenses or other payments incurred or owed by Sellers or the Company to any agent, broker, investment banker or other firm or Person retained or employed by Sellers or the Company in connection with the transactions contemplated by this Agreement.

Section 9.3             Indemnification Procedure.

(a)          If any Purchaser Indemnified Party intends to seek indemnification pursuant to this Article IX, such Purchaser Indemnified Party shall promptly notify Sellers by providing written notice of such claim to the Sellers Representative in writing.  The Purchaser Indemnified Party will provide the Sellers Representative with prompt notice of any third-party claim in respect of which indemnification is sought.  The failure to provide either such notice will not affect any rights hereunder except to the extent Sellers are materially prejudiced thereby.  For avoidance of doubt, it is understood and acknowledged by the parties that Sellers shall not be liable for indemnification of the Purchaser Indemnified Parties with respect to any claim for a breach or representation and warranty for which notice of such claim is received after the expiration of survival periods set forth in Section 9.1 above.

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(b)         If such claim involves a claim by a third-party against the Purchaser Indemnified Parties, the Sellers Representative may, upon notice to the Purchaser Indemnified Parties, assume, through counsel of the Sellers Representative’s choosing and at Sellers’ expense, the settlement or defense thereof, and the Purchaser Indemnified Parties shall reasonably cooperate with the Sellers Representative in connection therewith; provided that the Purchaser Indemnified Parties may participate in such settlement or defense through counsel chosen by them; provided, further, that if the Purchaser Indemnified Parties reasonably determine that representation by the counsel of the Sellers Representative and the Purchaser Indemnified Parties may present such counsel with a conflict of interests, then the Sellers shall pay the reasonable and actual fees and expenses of the Purchaser Indemnified Parties’ counsel.  Notwithstanding anything in this Section 9.3 to the contrary, the Sellers Representative may not, without the prior written consent of the Purchaser Indemnified Parties, settle or compromise any action or consent to the entry of any judgment, such consent not to be unreasonably withheld.  So long as the Sellers Representative is contesting any such claim in good faith, the Purchaser Indemnified Parties shall not pay or settle any such claim without the Sellers Representative consent, such consent not to be unreasonably withheld.  If the Sellers Representative is not contesting such claim in good faith, then the Purchaser Indemnified Parties may conduct and control, through counsel of their own choosing and at the expense of the Sellers Representative, the settlement or defense thereof, and Sellers and the Sellers Representative shall cooperate with it in connection therewith.  The failure of the Purchaser Indemnified Parties to participate in, conduct or control such defense shall not relieve Sellers or the Sellers Representative of any obligation they may have hereunder.

(c)          Notwithstanding anything to the contrary in this Section 9.3, to the extent a claim for which indemnification is sought by Purchaser Indemnified Parties relates to Taxes for a taxable period beginning on or before and ending after the Closing Date, the Sellers Representative and Purchaser shall jointly control any proceeding in respect of such claim and neither party shall settle or compromise any action or consent to the entry of any judgment with respect thereto without the prior written consent of the other party, such consent not to be unreasonably withheld.

Section 9.4    Calculation of Indemnity Payments. The amount of any Loss for which indemnification is provided under this Article IX shall be (a) increased to the extent necessary such that after payment of any net Tax cost by the Purchaser Indemnified Parties with respect to the receipt or accrual of indemnity payments hereunder, as increased pursuant to this clause (a), the amount remaining shall be the amount of the indemnity payment prior to any increase pursuant to this clause (a) and (b) reduced by the amount of the net Tax benefit actually realized by the Purchaser Indemnified Parties by reason of such Loss.

Section 9.5    Indemnification Amounts. Notwithstanding any provision to the contrary contained in this Agreement, Sellers shall not be obligated to indemnify the Purchaser Indemnified Parties for any Losses pursuant to this Article IX

35

unless and until the Purchaser Indemnified Parties have suffered Losses in excess of [*] Dollars ($[*]), after which the Sellers shall be obligated only to indemnify the Purchaser Indemnified Parties from and against further Losses; provided that in no event shall the aggregate indemnification obligations of Sellers pursuant to Section 9.2 exceed the Indemnity Escrow; provided, further, that notwithstanding the foregoing, the Purchaser Indemnified Parties’ right to seek indemnification hereunder for any Losses (1) arising out of (a) criminal activity or fraud of Sellers or the Company; (b) for a breach of Section 3.8, or (c) a breach by the Advent Sellers of Section 3.1, Section 3.3 or Section 3.4 shall not be subject to, or limited by, the limits contained in this Section 9.5, and (2) [*].

Section 9.6    Exclusive Remedy. The indemnification provisions of this Article IX shall be the sole and exclusive remedies of Purchaser against Sellers and the Company for any breach by Sellers or the Company of the representations and warranties in this Agreement, for any failure by Sellers, the Sellers Representative or the Company to perform and comply with any covenants and agreements in this Agreement that are required to be complied with or performed prior to the Closing and for any failure by Sellers, the Sellers Representative or the Company to perform and comply with any covenants and agreements in this Agreement.  Notwithstanding anything contained in this Agreement to the contrary, Purchaser shall retain the right to receive damages or other relief (including equitable relief) against the Company or Sellers as a result of any criminal activity or fraudulent action by the Company or Sellers without regard to any restriction or limitation contained herein.

ARTICLE X

MISCELLANEOUS PROVISIONS

Section 10.1  Notices.  All notices and other communications required or permitted hereunder will be in writing and, unless otherwise provided in this Agreement, will be deemed to have been duly given when delivered in person or when dispatched by electronic facsimile transfer (confirmed in writing by mail simultaneously dispatched) or one (1) Business Day after having been dispatched by a

[*]Indicates information has been omitted and separately filed with the Securities and Exchange Commission pursuant to an application for an order declaring confidential treatment thereof.

36

nationally recognized overnight courier service to the appropriate party at the address specified below:

(a)          If to Purchaser, to:

Bruker AXS Inc.

5465 E. Cheryl Parkway

Madison, Wisconsin 53711

Facsimile:

Attention: Lisa Rogers

with a copy to:

Nixon Peabody LLP

100 Summer Street

Boston, Massachusetts  02110

Facsimile: 866-382-6139

Attention:  Richard M. Stein

(b)         If to Sellers to:

David R. McLemore

Sellers Representative

1708 Southeast Harbor Lane

Wilmington, North Carolina  28409

with a copy to:

Advent International plc

123 Buckingham Palace Road

London, SW1W 9SL

Attention:  Thomas A. Allen

with a copy to:

Armstrong Teasdale LLP

One Metropolitan Square, Ste. 2600

St. Louis, Missouri 63102

Attention:  David B. Jennings

37

(c)          If to the Company to:

KeyMaster Technologies, Inc.

415 N. Quay

Kennewick, Washington 9936

Attention: John Landefeld, CEO

with a copy to:

Armstrong Teasdale LLP

One Metropolitan Square, Ste. 2600

St. Louis, Missouri 63102

Attention:  David B. Jennings

or to such other address or addresses as any such party may from time to time designate as to itself by like notice.

Section 10.2  Expenses.  Except as otherwise expressly provided herein, each party will pay any expenses incurred by it incident to this Agreement and in preparing to consummate and consummating the transactions provided for herein.

Section 10.3  Successors and Assigns. No party may assign any of its rights under this Agreement without the prior written consent of the other parties.  Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties.  Notwithstanding anything to the contrary in this Section 10.3, upon written notice to Sellers, Purchaser shall be permitted to assign this Agreement and the rights and obligations under it to a wholly-owned direct or indirect Subsidiary of Purchaser; provided that in the event of any such assignment, Purchaser shall remain liable in full for the performance of its obligations hereunder.  Nothing expressed or referred to in this Agreement will be construed to give any Person other than the Parties any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement.  This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns.

Section 10.4  Extension; Waiver.  A party may, by written notice to the other parties (a) extend the time for performance of any of the obligations of another party under this Agreement, (b) waive any inaccuracies in the representations or warranties of another party contained in this Agreement, (c) waive compliance with any of the conditions or covenants of another party contained in this Agreement, or (d) waive or modify performance of any of the obligations of another party under this Agreement; provided that no party may, without the prior written consent of the other parties, make or grant such extension of time, waiver of inaccuracies or compliance or waiver or modification of performance with respect to its representations, warranties, conditions or

38

covenants hereunder.  Except as provided in the immediately preceding sentence, no action taken pursuant to this Agreement will be deemed to constitute a waiver of compliance with any representations, warranties, conditions or covenants contained in this Agreement and will not operate or be construed as a waiver of any subsequent breach, whether of a similar or dissimilar nature.

Section 10.5  Entire Agreement; Schedules.  This Agreement, which includes the schedules and exhibits hereto, supersedes any other agreement, whether written or oral, that may have been made or entered into by any party relating to the matters contemplated by this Agreement and constitutes the entire agreement by and among the parties.

Section 10.6  Amendments, Supplements, Etc.  This Agreement may be amended or supplemented at any time by additional written agreements as may mutually be determined by the Company, Purchaser and the Sellers Representative to be necessary, desirable or expedient to further the purposes of this Agreement or to clarify the intention of the parties.

Section 10.7  Applicable Law. This Agreement shall be governed by and construed under the Laws of the State of Delaware (without regard to the conflict of law principles thereof).  Any legal action or proceeding with respect to this Agreement or for recognition and enforcement of any judgment in respect hereof shall be brought and determined in the United States District Court for the District of Delaware or if such legal action or proceeding may not be brought in such court for jurisdictional purposes, in the state courts of Delaware.  Each of the parties (a) irrevocably submits with regard to any such action or proceeding to the exclusive personal jurisdiction of the aforesaid courts in the event any dispute arises out of this Agreement or any transaction contemplated hereby and waives the defense of sovereign immunity, (b) shall not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court or that such action is brought in an inconvenient forum, and (c) shall not bring any action relating to this Agreement or any transaction contemplated hereby in any court other than any Delaware state or federal court sitting in Delaware.

Section 10.8  Waiver of Jury Trial.  Each of the parties hereby waives to the fullest extent permitted by applicable law any right it may have to a trial by jury with respect to any litigation directly or indirectly arising out of, under or in connection with this Agreement or the transactions contemplated by this Agreement.  Each of the parties hereby (a) certifies that no representative, agent or attorney of another party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver, and (b) acknowledges that it has been induced to enter into this Agreement and the transactions contemplated by this Agreement, as applicable, by, among other things, the mutual waivers and certifications in this Section 10.8.

Section 10.9  Actions by Sellers. Where any provision of this Agreement indicates that the Company will take any specified action (or refrain from taking any specified action) or requires the Company to take any specified action (or to

39

 refrain from taking any specified action), then, regardless of whether this Agreement specifically provides that Sellers will do so, Sellers shall cause the Company to take such action (or to refrain from taking such action, as applicable).  Sellers will be responsible for the failure of the Company to take any such action (or to refrain from taking any such action, as applicable).

Section 10.10   Execution in Counterparts.  This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same agreement.

Section 10.11   Attorney-in-Fact.  Any of the undersigned Sellers may execute and act under this Agreement through an agent or attorney-in-fact, provided satisfactory written evidence of authority is first furnished to any party relying on such authority.

Section 10.12   Titles and Headings. Titles and headings to sections herein are inserted for convenience of reference only, and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

Section 10.13   Invalid Provisions.  If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, and if the rights or obligations under this Agreement of Sellers on the one hand and Purchaser on the other hand will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement, and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.

Section 10.14   Publicity.  Except as otherwise required by applicable Law or the rules and regulations of any national securities exchange, no party shall issue any press release or otherwise make any public statement with respect to the transactions contemplated by this Agreement or the Ancillary Agreements without prior consultation with and consent of the Company, Purchaser and the Sellers Representative, which consent shall not be unreasonably withheld, conditioned or delayed.

Section 10.15   Specific Performance.  If any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, irreparable damage will occur, no adequate remedy at law would exist and damages would be difficult to determine, and the parties shall be entitled to seek specific performance of the terms hereof, in addition to any other remedy at law or equity.

Section 10.16   Construction.

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(a)          Whenever the words “include,” “includes,” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”

(b)         All terms defined in this Agreement shall have the defined meanings contained herein when used in any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein.  The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms.  References to a Person are also to its permitted successors and assigns.

(c)          Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, qualified or supplemented, including (in the case of agreements and instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and all attachments thereto and instruments incorporated therein.

(d)         All article, section, paragraph, schedule and exhibit references used in this Agreement are to articles, sections, paragraphs, schedules and exhibits to this Agreement unless otherwise specified.

(e)          The parties acknowledge that each party, or its designated representative, and its attorney has reviewed this Agreement and that any rule of construction to the effect that any ambiguities are to be resolved against the drafting party, or any similar rule operating against the drafter of an agreement, shall not be applicable to the construction or interpretation of this Agreement.

41

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year first above written.

BRUKER AXS INC
By:	/s/ Klein Wilkins
Title:	Senior Vice President of Operations
KEYMASTER TECHNOLOGIES, INC.
By:	/s/ David R. McLemore
Title:	Chairman of the Board

[Continued on following pages]

42

Jules Kortenhorst	John Landefeld
Alessandra Mei Kortenhorst	Claude Agnes Tobaly
Jules Kiril Kortenhorst	Bobby Jay Tolan
Winston Powell Kortenhorst	Joseph Nicolosi
Rainier George Kortenhorst	Alan Devenish
Bjorn Bergsten	Bruce Kaiser
James Abramson	Lloyd Starks
J. Bart Heenan

By:

/s/ David R. McLemore

David R. McLemore,

Attorney-in-Fact and representative for each above named individual Seller

/s/ David R. McLemore

David R. McLemore, as Seller

[continued on following page]

43

Advent Euro-Italian Direct Investment Program Limited Partnership
Advent PGGM Global Limited Partnership
Global Private Equity III Limited Partnership
Global Private Equity III-A Limited Partnership
Global Private Equity III-B Limited Partnership
Global Private Equity III-C Limited Partnership

By:	Advent International Limited Partnership, General Partner
	By:	Advent International Corporation, General Partner
	By:	/s/ Michael J. Ristaino, Senior Vice President / Vice President

Advent Global GECC III Limited Partnership

By:	Advent Global Management L.P., General Partner
	By:	Advent International Limited Partnership, General Partner
		By:	Advent International Corporation, General Partner
		By:	/s/ Michael J. Ristaino, Senior Vice President / Vice President

Advent Partners Limited Partnership
Advent Partners(NA) GPE III Limited Partnership
Advent Partners GPE III Limited Partnership

By:	Advent International Corporation, General Partner
By:	/s/ Michael J. Ristaino, Senior Vice President / Vice President

44

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Frank H. Laukien, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of Bruker BioSciences Corporation;

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 quarterly 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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 officers 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 registrant’s board of directors (or persons performing the equivalent functions):

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: August 9, 2006		/s/ Frank H. Laukien
	By:	Frank H. Laukien President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, William J. Knight, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of Bruker BioSciences Corporation;

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 quarterly 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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 officers 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 registrant’s board of directors (or persons performing the equivalent functions):

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: August 9, 2006		/s/ William J. Knight
	By:	William J. Knight Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

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 the Company on Form 10-Q for the three months ended June 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),  Frank H. Laukien, as President, Chief Executive Officer and Chairman of the Board of Directors of the Company, and William J. Knight, as Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition of the Company.

Date: August 9, 2006		/s/Frank H. Laukien, Ph.D.
	By:	Frank H. Laukien, Ph.D. President, Chief Executive Officer, and Chairman
Date: August 9, 2006		/s/ William J. Knight
	By:	William J. Knight Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.