10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

[ X ]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
            for the fiscal year ended September 30, 2002.

OR

[    ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
            for the transition period from                                              to                                            .

Commission File Number 000-23357
BIOANALYTICAL SYSTEMS, INC.
(Exact name of the registrant as specified in its charter)

INDIANA	35-1345024
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2701 KENT AVENUE WEST LAFAYETTE, INDIANA	47906
(Address of principle executive offices)	(Zip Code)
(765) 463-4527
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to section 12(g) of the Act:   Common Shares

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.      X   

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2).    YES              NO     X   

Based on the closing price on the NASDAQ stock market on December 31, 2002, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant is $12,530,823. As of December 31, 2002, 4,590,045 shares of registrant’s common shares were outstanding. No shares of registrant’s Preferred Stock were outstanding as of December 31, 2002.

Portions of the following documents have been incorporated by reference into this report:

Registrant's Document	Parts Into Which Incorporated
Annual Report to security holders for the fiscal year ended September 30, 2002	Parts I, II and IV
Proxy Statement	Part III

TABLE OF CONTENTS

		Page
Part I
Item 1.	Business	3
Item 2.	Properties	12
Item 3.	Legal Proceedings	12
Item 4.	Submission of Matters to a Vote of Security Holders	12
Part II
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	13
Item 6.	Selected Consolidated Financial Data	13
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 8.	Financial Statements and Supplementary Data	13
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	13
Part III
Item 10.	Directors and Executive Officers of the Registrant	14
Item 11.	Executive Compensation	15
Item 12.	Security Ownership of Certain Beneficial Owners and Management	15
Item 13.	Certain Relationships and Related Transactions	16
Part IV
Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	17

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Part I

This Report contains certain statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers of this Report are cautioned that reliance on any forward-looking statement involves risks and uncertainties. Although Bioanalytical Systems, Inc. (the “Company”) believes that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate given the inherent uncertainties as to the occurrence or nonoccurrence of future events. There can be no assurance that the forward-looking statements contained in this Report will prove to be accurate. The inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that the Company’s objectives will be achieved.

Item 1.   Business

General

The Company provides contract development services and research equipment to many of the leading global pharmaceutical, medical device and biotechnology companies. It has played a significant role in understanding the underlying causes of central nervous system disorders, diabetes, osteoporosis and other diseases since its start in 1974, when it was formed as a corporation in Indiana.

The Company offers an efficient, variable cost alternative to its clients’ internal product development programs. Outsourcing development work to reduce overhead and speed drug approvals through the Food and Drug Administration (“FDA”) is a growing trend among pharmaceutical developers. As a result, the Company now derives its revenues from sales of its research services and drug development tools, both focused on determining the safety and efficacy of drugs developed by its clients.

The Company supports the preclinical (pharmacokinetics, toxicology, pathology) and clinical development (formulations, bioanalysis for clinical trials) needs of researchers and clinicians for small molecules through large biomolecules. The Company believes its scientists have the skills necessary in analytical instrumentation development, chemistry, computer software development, physiology and toxicology, and the global presence, to make the services and products it provides increasingly valuable to the worldwide pharmaceutical, medical device and biotechnology industries.

Scientists engaged in drug metabolism studies, pharmacokinetics and basic neuroscience research at drug development organizations, many of the largest global pharmaceutical companies, are the Company’s principal clients.

Acquisitions

                 PharmaKinetics Laboratories, Inc.

On June 20, 2002, the Company, PI Acquisition Corp., a Maryland corporation and a wholly owned subsidiary of the Company (“Acquisition”), and PharmaKinetics Laboratories, Inc., a Maryland corporation (“PKLB”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) which provides for, subject to the terms and conditions set forth therein, the Merger of PKLB and Acquisition (the “Merger”).

On July 24, 2002, the Company, Acquisition and PKLB executed an amendment to the Merger Agreement. The amendment revised the exchange terms for the Class A Preferred shares of PKLB to a set amount of $6.00 per share for clarity, provided for the conversion of an outstanding warrant to a warrant for the purchase of common shares of the Company which had not been addressed, and added as a condition to the Merger that shareholders holding 10% or more of the outstanding PKLB common shares not exercise dissenters’ appraisal rights.

Between June and August 2002, the Company loaned PKLB a total of $350,000 for working capital purposes. On November 14, 2002, PKLB executed a Secured Convertible Revolving Note in the principal amount of up to $925,000 payable to the Company to replace the existing notes payable to the Company and to allow PKLB to borrow additional amounts to cover short-term operating requirements (the “Note”). The Note issued to the Company carries an annual interest rate of 8%, and all principal and accrued interest is due and payable on May 1, 2003. The outstanding principal amount of the Note is convertible by the Company at any time into PKLB common stock at a price of $0.1585 per common share, which price represents the average of the closing prices for PKLB’s common shares as reported by Nasdaq for the twenty (20) trading days ended November 8, 2002. The Note to the Company is secured by a security interest in favor of the Company in all of the assets of PKLB pursuant to a Security Agreement between PKLB, as debtor, and the Company as secured party. PKLB Limited Partnership, a subsidiary of PKLB, guaranteed the repayment of the Note to the Company, pursuant to the terms of an Unconditional Guaranty dated as of November 15, 2002, and pledged the real property located at 302 West Fayette Street, Baltimore, Maryland to the Company as security for its guaranty pursuant to the terms of an Indemnity Deed of Trust.

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On November 21, 2002, the Company, Acquisition and PKLB executed a second amendment to the Merger Agreement. The second amendment revised the Merger Agreement to provide that all PKLB common shares held by the Company will be canceled automatically as of the effective time of the Merger. The second amendment further amended the Merger Agreement to provide that the Company will have the right to terminate the Merger Agreement in the event that any holder of PKLB’s Class A Preferred shares exercises its conversion rights prior to the effective time of the Merger. The second amendment also extended the date upon which the parties will have the right to terminate the Merger Agreement if the Merger has not been consummated from December 31, 2002 to March 31, 2003. Finally, the second amendment modified the merger consideration payable to the holders of Class A Preferred shares by reducing the principal amount of the 6% Subordinated Convertible Note due 2008 from $6.00 per Class A Preferred share to $4.80 per share and modified the form of the 6% Subordinated Convertible Note due 2008 to insert certain subordination provisions required by the Company’s lender.

The board of directors of PKLB has unanimously approved the Merger Agreement. Each holder of PKLB common shares (other than the Company) will be entitled to receive one-twelfth (1/12) of one common share of the Company for each of their PKLB common shares. Each holder of PKLB Class A Preferred shares will be entitled to receive a 6% Subordinated Convertible Note due 2009 issued by the Company with a principal amount equal to $4.80 per Class A Preferred share. The notes are convertible into common shares of the Company at any time after one year after the date of issuance at a price of $16.00 per share. The sole holder of PKLB Class B Preferred shares will be entitled to receive one-twelfth (1/12) of one common share of the Company for each PKLB common share into which its Class B Preferred shares are convertible. Each Class B Preferred share is convertible into 1.00062 PKLB common shares. In addition, the warrant held by the holder of the Class B Preferred shares to purchase 100,000 PKLB common shares at a price of $6.00 per share will be exchanged for a warrant to purchase 8,333 BAS common shares at a price of $72.00 per share. As of the effective time of the Merger, all PKLB common shares held by the Company will be cancelled. The transaction is subject to approval by the Company’s board and customary closing conditions, including registration of the Company’s securities to be issued in the Merger and the approval of PKLB’s shareholders. The Merger is currently expected to close prior to March 31, 2003.

Holders of more than 85% of the Class A Preferred shares have agreed to vote those shares in favor of the approval of the Merger and the Merger Agreement. The sole holder of the Class B Preferred shares has advised the Company that it intends to vote its shares in favor of the approval of the Merger and the Merger Agreement. Prior to the record date of the special meeting of the shareholders of PKLB, the Company intends to convert the outstanding balance under the Note into common shares of PKLB. Assuming that the entire balance of $925,000 is outstanding as of the record date (without accounting for any interest that may also be outstanding), BAS will own 5,836,962 common shares of PKLB. The Company intends to vote all of these shares in favor of approval of the Merger and the Merger Agreement. The votes described in this paragraph are sufficient to approve the Merger and the Merger Agreement under Maryland law.

                 LC Resources, Inc.

On December 13, 2002, the Company acquired LC Resources, Inc. (“LCR”) through the purchase by the Company of all of the outstanding shares of LCR for $2.5 million, subject to adjustment as described below. The Company paid cash of $125,000 at closing. In addition, the Company also delivered $2,250,000 of the purchase price at the closing in the form of promissory notes maturing on October 1, 2007 and bearing interest at a rate of 10% per annum. The holders of the notes will have the option to require the Company to repay up to 20% of the outstanding principal balance of the notes on each October 1 prior to maturity, commencing October 1, 2003. The amount of the purchase price may be adjusted as a result of certain changes in the net tangible assets of LCR as of the closing date. The Company has 90 days from the closing date to determine the amount of the adjustment. Finally, the Company will pay an additional $125,000 either in cash or by increasing the principal amount of the promissory notes, to be determined by the mutual agreement of the parties when the net tangible assets of LCR are determined.

Certain assets comprising separate lines of business of LCR were sold to an unrelated third party prior to the closing of the purchase by the Company of the outstanding shares of LCR, and the proceeds of that sale were distributed to the LCR shareholders.

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Changing Nature of the Pharmaceutical Industry

The Company provides research services and products globally. The Company’s services and products are marketed to pharmaceutical, medical device and biotech companies engaged in drug development. The research services industry is highly fragmented among hundreds of niche vendors and a small number of larger companies; the latter offer an ever-growing portfolio of cradle-to-grave pharmaceutical development services. The Company’s products are also marketed to academic and government institutions. The Company’s services and products may have distinctly different customers (often separate divisions in a single large pharmaceutical company) and requirements. It believes that all clients are facing increased pressure to outsource facets of their research and development activities and that the following factors will increase client outsourcing:

                 Accelerated Drug Development
End users continue to demand faster, more efficient, more selective development of a larger pool of drug candidates. Clients demand fast, high quality service in order to make immediate, well informed decisions to quickly exclude poor candidates and speed development of successful ones. The need for additional development capacity to exploit more opportunities, accelerate development, extend market exclusivity and increase profitability drives the demand for outsourced services.

                  Cost Containment
Pharmaceutical companies continue to push for more efficient operations to optimize profitability as development costs escalate, generic competition challenges previously secure profit generators, and political and social pressures mount to reduce health care costs.

                 Patent Expiration
As exclusivity ends with patent expiry, drug companies defend their proprietary positions against generic competition with various patent extension strategies (reformulation, drug combinations, chiral forms). Both the parent creating these line extensions and the generic competitors will outsource development.

                 Alliances
Strategic alliances allow pharmaceutical companies to share research know-how and to develop and market new drugs faster in more diverse, global markets. The Company believes that alliances will lead to a greater number of potential drugs in testing, many under study by small companies lacking broad technical resources. Those small companies add shareholder value by further developing new products through outsourcing, reducing risk for potential allies.

                 Mergers and Acquisitions
Consolidation in the pharmaceutical industry is commonplace. As firms blend personnel, resources and business activities, the Company believes they will continue to streamline operations, minimizing staffing which will lead to more outsourcing. This may result in short-term disruption in placement of, or progress on, drug development programs as merging companies rationalize their respective pipelines.

                 Biotechnology Industry and Virtual Drug Company Growth
The biotech industry continues to grow and has introduced many new developmental drugs. Developers do not have in-house resources to conduct development. Strategically, many new companies choose only to develop a product sufficiently to attract a partner who will manufacture and market the drug. Many of these virtual development companies will outsource drug development.

                 Unique Technical Expertise
The increasing complexity of new drugs requires highly specialized quality and innovative, solution-driven research not available in all client labs. The Company believes that this need for unique technical expertise will increasingly lead to outsourcing of research activity.

                 Data Management Expertise
The FDA is requiring more regulatory data and greater access to that data and is encouraging use of computer-assisted filings in an effort to expedite approval. The Company is able to provide clients with remote access to Company computer systems while at the same time protecting client data from unauthorized access. The Company has also developed proprietary validated online data entry software enabling direct publication of data in unique client formats.

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                 Globalization of the Marketplace
Foreign firms are relying on independent development companies with experience in the United States to provide integrated services through all phases of product development and to assist in preparing complex regulatory submissions. Domestic drug firms are broadening product availability globally, demanding local regulatory approval. The Company believes that domestic service providers with global reach, established regulatory expertise, and a broad range of integrated development services will benefit from this trend. The Company has a significant European presence and domestic skills in foreign operations.

The Company’s Role in the Drug Development Process

After a new drug candidate is created and carried through preliminary screening, the development process for new drugs has three distinct phases.

1)   The preclinical phase includes safety testing to prepare an Investigational New Drug (“IND”) exemption for submission to the FDA (Food and Drug Administration). The IND must be accepted by the FDA before the drug can be tested in humans. Once a pharmacologically active molecule is fully analyzed to confirm its integrity, the initial dosage form for clinical trials is created. An analytical chemistry method is developed to enable reliable quantification. Stability of the formulation is also determined.

Clients work with the Company’s preclinical services group to establish pharmacokinetics and safety testing of the new drug. These safety studies range from acute safety monitoring on drugs and medical devices to chronic, multi-year oncogenicity studies. Bioanalyses of blood sampled under these protocols by the Company’s bioanalytical services group provide kinetic, metabolism and dose ranging data. Upon successful completion of preclinical safety studies, an IND submission is prepared and provided to the FDA for review prior to human clinical trials.

Many of the Company’s products are designed for use in preclinical development. The Culex^® ABS, a robotic automated blood sampler, enables researchers to develop pharmacokinetic profiles of drugs during early screening in rodents quickly and cost effectively. Several variations of this technology are in development. Clients and the Company’s bioanalytical services group used the Company’s electrochemistry and chromatography products to develop a single, quick, proprietary method to screen drugs in biological samples.

2)   The second clinical phase further explores the safety and efficacy of the substance in humans. The sponsor conducts Phase I human clinical trials in a limited number of healthy individuals to determine safety and tolerability. Bioanalytical assays determine the availability and metabolism of the active ingredient following administration. Expertise in method development and validation is essential, particularly for new chemical entities.

More exhaustive safety, tolerability and dosing regimens have been established in sick humans in Phase II trials. Phase III clinical trials are conducted to verify efficacy and safety. After successful completion of Phase III clinical trials, the sponsor of the new drug submits a New Drug Application (“NDA”) or Product License Application (“PLA”) to the FDA requesting that the product be approved for marketing. Early manufacturing demonstrates production of the substance in accordance with the FDA’s cGMP guidelines. Data from these activities are compiled in an NDA, or for biotechnology products a PLA, for submission to the FDA requesting approval to market the drug or product. The Company’s bioanalytical work per patient grows rapidly from Phase I through III. The number of samples per patient declines as the number of patients grows in later studies. Phase II and III studies take several years, practicing well-proven analytical protocols. It is unusual for a sponsor to change laboratories unless there are problems in the quality or timely delivery of results.

3)   Post-approval, the third phase, follows FDA approval of the NDA or PLA. This includes production and continued analytical and clinical monitoring of the drug. The post-approval phase also involves the development and regulatory approval of product modifications and line extensions, including improved dosage forms. Following approval, the drug manufacturer must comply with quality assurance and quality control requirements throughout production and must continue analytical and stability studies of the drug during commercial production in order to continue to validate production processes and confirm product shelf life. Samples from each manufactured batch must be tested prior to release of the batch for distribution to the public. The Company also provides services in all areas during the post-approval phase, concentrating on bio-equivalence studies of new formulations, line extensions, new disease indications and drug interaction studies.

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The Company’s ability to solve client problems combining its knowledge base, services and products has been a factor in the Company’s selection by major pharmaceutical companies to assist in several preclinical and Phase I, II and III clinical trials, as well as in the post-approval phase.

Company Services and Products

                 Overview
The Company operates in two principal segments – analytical services and analytical products, both of which are aimed at addressing the bioanalytical and preclinical research needs of drug developers. Both segments arose out of the Company’s expertise in a number of core technologies, out of which state-of-the-art equipment and procedures designed to quantify trace chemicals in complex materials were developed. The Company evaluates performance and allocates resources based on these segments.

The Pharmaceutical Research and Manufacturing Association (“PhRMA”) states that pharmaceutical and biotechnology companies spent $30.3 billion worldwide on research and development in 2001. Analysts estimate that outsourced research and development services will grow from $5 billion in 2000 to more than $9 billion by 2004. The Company believes this growing trend toward outsourcing will continue.

                 Services
The Company’s analytical services unit provides screening and pharmacological testing, preclinical/safety testing, formulation development, regulatory compliance and quality control testing. Revenues from the Company’s services unit were $16,140,000 for fiscal year 2002. For additional financial information regarding the services unit, please see Note 10 in the Notes to Consolidated Financial Statements included in the Company’s Annual Report which is incorporated herein by reference. The following is a description of the services provided by the Company’s analytical services unit:

• Method Development and Validation:   The Company develops analytical methods to demonstrate potency, purity, stability or physical attributes. Methods are validated to ensure that data generated are accurate, precise, reproducible and reliable and are used consistently throughout the drug development process and in later product support.

• Product Characterization:   The Company identifies the chemical composition, structure and physical properties of a compound. Characterization data is a significant portion of a regulatory application.

• Stability Testing:   The Company tests stability and maintains secure storage facilities necessary to establish and confirm product purity, potency and shelf life. The Company has multiple ICH (International Conference on Harmonization) validated controlled climate GMP (Good Manufacturing Practices) systems.

• Bioanalytical Testing:   The Company analyzes biological samples to measure drug and metabolite concentrations in complex biological matrixes.

• Preclinical and Pathology Services:   The Company provides pharmacokinetic and safety testing in studies ranging from acute safety monitoring of drugs and medical devices to chronic, multi-year oncogenicity studies. Depending on protocol, multiple tissues may be collected to monitor pathological changes.

• In Vivo Sampling:   The Company develops and sells miniaturized in vivo sampling products and services for the continuous monitoring of chemical changes in life.

                 Products
The Company also competes in niches of the $20 billion (2001) analytical instrument industry. It leverages its talented personnel in these instrument businesses to provide solutions to highly challenging problems. The Company designs, develops, manufactures and markets state-of-the-art robotic blood sampling and in vivo microdialysis collection systems and physiology monitoring tools. Complementing these, the Company’s liquid chromatography and electrochemistry instrument platform, epsilon™, is used to separate and quantify drugs, xenobiotics, metabolites and other chemicals in blood, cerebrospinal fluid and other biological media. These tools are used to track complex chemical, physiological and behavioral effects in humans and laboratory animal models. The Company is focusing its products business on expediting preclinical screening of developmental drugs. Revenues for the Company’s products unit were $10,373,000 for fiscal year 2002. For additional financial information regarding the products unit, please see note 10 in the Notes to Consolidated Financial Statements included in the Company’s Annual Report which is incorporated herein by reference. The following is a description of the products offered by the Company:

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• The Culex^® ABS robotic automated rodent blood sampling system is used by pharmaceutical researchers to monitor drug concentrations as a function of time (pharmacokinetics). Compared to current manual methods, the Culex offers greater than 80% reduction in test model use and comparable reduction in labor, coupled with computer-controlled blood sampling protocol, providing exceptional cost savings, significant reduction in model stress and more expeditious data delivery.

• Bioanalytical separation instrumentation (liquid chromatography) used in connection with Windows^® software, detect and quantify low concentrations of substances in biological fluids and tissues.

• A wide range of chemical analyzers monitor trace levels of organic chemicals such as neurotransmitters in biological samples using core electrochemistry, liquid chromatography and enzymology technologies.

• Diagnostic kits and methods are designed to add value to the Company’s instrumentation and enable clinical laboratories and pharmaceutical researchers to determine the presence of multiple drugs in blood plasma and to measure neurotransmitters and their metabolites in plasma and urine.

• A line of miniaturized in vivo sampling devices sold to drug developers and medical research centers, assist in the study of a number of medical conditions including stroke, depression, Alzheimer’s and Parkinson’s diseases, diabetes and osteoporosis.

Clients

Over the past five years, the Company has regularly provided its services and/or products to most of the top 25 pharmaceutical companies in the world, as ranked by 2001 research and development spending. The Company has been recognized as a preferred vendor, or a tactical partner, to four of these firms. Since 2000, the Company has been concentrating its business development effort on the next tier of smaller drug development companies. The Company believes that companies of this size are less likely to have resources comparable to the Company’s and will consequently be more inclined to establish a consistent, long-term, strategic relationship with the Company. The Company also recognizes that increasing its dependence on a larger pool of smaller companies demands a broader, more active and more fragmented business development effort, and the Company has adapted accordingly.

Approximately 24% of the Company’s products and services revenues are generated from customers outside the United States. During 2002, 2001 and 2000, Pfizer accounted for approximately 19.0%, 18.9% and 21.0%, respectively, of the Company’s total revenue and 15.7% and 23.6% of total trade accounts receivable at September 30, 2002 and 2001, respectively. During 2002, 2001 and 2000, Pharmacia accounted for approximately 9.3%, 11.7% and 12.2%, respectively, of the Company’s total revenues, and 6.3% and 10.7% of total trade accounts receivable at September 30, 2002 and 2001, respectively. During 2002, Pfizer and Pharmacia announced their intention to merge, but to date, this merger has not affected the Company’s relationship with these former customers who now are a single customer. There can be no assurance that the Company’s business will not continue to be dependent on continued relationships with the combined Pfizer/Pharmacia or other clients or, that annual results will not be dependent on the performance of a few large projects. In addition, there can be no assurance that significant clients in any one period will continue to be significant clients in other periods. In any given year, there is a possibility that a single pharmaceutical company may account for 5% or more of the Company’s total revenue. Furthermore, since the Company does not have long term contracts with its clients, the importance of a single client may vary dramatically from year to year.

Sales and Marketing

Capitalizing on its long history of innovation and technical excellence, the current sales and marketing plan of the Company focuses on key account development among the top 200 global pharmaceutical companies. The Company recognizes that its growth and customer satisfaction depend upon its ability to continually improve client relationships.

In North America, the Company’s products are sold directly to the end user. The Company has nine employees on its business development staff and an equal number providing technical and development support to those end users. The Company also has created a collection of catalogs, training and technical support literature, media presentations, web sites, workshops and academic publications.

Sales, marketing and technical support are based in the Company’s corporate headquarters located in West Lafayette, Indiana. The Company also maintains offices in Evansville, Indiana; New Jersey; Oregon; and Warwickshire and Congleton, UK. These locations enable the Company to present the Company close to its largest concentration of key customers. For additional financial information relating to geographic segments, please see Note 10 in the Notes to Consolidated Financial Statements in the Company’s Annual Report which is incorporated herein by reference.

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BAS Analytics, Ltd., a wholly owned subsidiary, provides a direct liaison with research service clients in the United Kingdom and maintains a laboratory to provide those services. BAS Instruments, Ltd., also a wholly owned subsidiary, manages most product sales in Europe. In addition, the Company has a network of more than 20 established distributors covering Japan, the Pacific Basin, South America, the Middle East, India, South Africa and Eastern Europe. All of the Company’s distributor relationships are managed from the Company’s headquarters in West Lafayette, Indiana. International growth is planned through acquisitions, stronger local promotion and expansion of the Company’s distributor network.

Although the Company’s revenues tend to be lower in its first fiscal quarter, the Company does not believe that this reflects any seasonal changes in the Company’s business.

Contractual Arrangements

The Company’s service contracts typically establish an estimated fee to be paid for identified services. In most cases, some percentage of the contract costs is paid in advance. While the Company is performing a contract, clients often adjust the scope of services to be provided by the Company based on interim project results. Fees are adjusted accordingly. Generally, the Company’s fee-for-service contracts are terminable by the client upon written notice of 30 days or less for a variety of reasons, including the client’s decision to forego a particular study, the failure of product prototypes to satisfy safety requirements, and unexpected or undesired results of product testing.

Backlog

Considering that the arrangements pursuant to which the Company provides its services are terminable upon written notice of 30 days or less, the Company does not disclose backlog for the services it provides. The Company does maintain projections based on bids and contracts to optimize asset utilization.

Competition

With respect to its services, the Company competes primarily with in-house research, development, quality control and other support service departments of pharmaceutical and biotechnology companies. There are also full-service Contract Research Organizations (“CROs”) that compete in this industry. The largest CRO competitors offering similar research services include Covance, Inc., Pharmaceutical Product Development, Inc., AAIpharma, Inc. and MDS Health Group Ltd. CROs generally compete on the basis of previous experience, medical and scientific expertise in specific therapeutic areas, quality of contract research, ability to organize and manage large-scale trials on a global basis, medical database management capabilities, ability to provide statistical and regulatory services, ability to recruit investigators, ability to integrate information technology with systems to improve the efficiency of contract research, existence of an international presence with strategically located facilities, financial viability and price.

With respect to its products, the Company competes with several large equipment manufacturers, including Agilent, Waters Corporation and Perkin Elmer Corporation. Competitive factors include market presence, product quality, reliability and price. The Company believes it competes well in its niche markets because of its reputation and the quality of its products, together with the technical assistance and service it offers.

Many of the Company’s competitors are much larger and have greater resources than the Company, which makes it difficult for the Company to capture business from clients other than those who need the Company’s unique capabilities.

Government Regulation

The Company is subject to various regulatory requirements designed to ensure the quality and integrity of its data and products. These regulations are governed primarily under the Federal Food, Drug and Cosmetic Act, as well as by associated Good Laboratory Practice (“GLP”) and Good Manufacturing Practice (“GMP”) guidelines administered by the FDA. The standards of GLP and GMP are required by the FDA and by similar regulatory authorities around the world. These guidelines demand rigorous attention to employee training; detailed, authorized documentation; equipment validation; careful tracking of changes and routine auditing of compliance. Noncompliance with these standards could result in disqualification of project data collected by the Company. Material violation of GLP or GMP guidelines could result in additional regulatory sanctions and, in severe cases, could also result in a discontinuance of selected Company operations.

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Laboratories such as ours that provide information that is included in INDs, NDAs and PLAs must conform to regulatory requirements that are designed to ensure the quality and integrity of the testing process. Most of the Company’s contract research services are subject to government standards for laboratory practices that are embodied in guidelines for GLP. The FDA and other regulatory authorities require that test results submitted to such authorities be based on studies conducted in accordance with GLP. These guidelines are set out to help the researcher perform work in compliance with a pre-established plan and standardized procedures. These guidelines include but are not restricted to:

• Resources - organization, personnel, facilities and equipment

• Rules - protocols and written procedures

• Characterization - test items and test systems

• Documentation - raw data, final report and archives

• Quality assurance unit - formalized internal audit function

The Company must also maintain reports for each study for specified periods for auditing by the study sponsor and by the FDA or similar regulatory authorities in other parts of the world. Noncompliance with GLP can result in the disqualification of data collection during the clinical trial.

The Company’s animal research facilities are also subject to a variety of federal and state laws and regulations, including The Animal Welfare Act and the rules and regulations promulgated thereunder by the United States Department of Agriculture (“USDA”). These regulations establish the standards for the humane treatment, care and handling of animals by dealers and research facilities. The Company’s animal research facilities maintain detailed standard operating procedures and the documentation necessary to comply with applicable regulations for the humane treatment of the animals in its custody. Besides being licensed by the USDA as a research facility, this business is also accredited by the Association for Assessment and Accreditation of Laboratory Animal Care International and has registered assurance with the United States National Institutes of Health Office of Laboratory Animal Welfare.

To help assure compliance with applicable regulations, the Company has established quality assurance programs at its facilities that audit test data, train personnel and review procedures and regularly inspect facilities. In addition, FDA regulations and guidelines serve as a basis for the Company’s standard operating procedures where applicable.

Some of the Company’s development and testing activities are subject to the Controlled Substances Act administered by the Drug Enforcement Agency (“DEA”), which strictly regulates all narcotic and habit-forming substances. The Company maintains restricted-access facilities and heightened control procedures for projects involving such substances due to the level of security and other controls required by the DEA. In addition, the Company is subject to other federal and state regulations concerning such matters as occupational safety and health and protection of the environment.

The Company’s activities also involve the controlled use of hazardous materials and chemicals. The Company is subject to foreign, federal, state and local laws and regulations governing the use, storage, handling and disposal of such materials and certain waste products, as well as the safety and health of laboratory employees.

Our United States laboratories are subject to licensing and regulation under federal, state and local laws relating to hazard communication and employee right-to-know regulations, the handling and disposal of medical specimens and hazardous waste, as well as the safety and health of laboratory employees. All of our laboratories are subject to applicable federal and state laws and regulations relating to the storage and disposal of all laboratory specimens including the regulations of the Environmental Protection Agency, the Department of Transportation, the National Fire Protection Agency and the Resource Conservation and Recovery Act. Although we believe that the Company is currently in compliance in all material respects with such federal, state and local laws, failure to comply could subject the Company to denial of the right to conduct business, fines, criminal penalties and other enforcement actions.

In addition to its comprehensive regulation of safety in the workplace, the Occupational Safety and Health Administration has established extensive requirements relating to workplace safety for health care employers whose workers may be exposed to blood-borne pathogens such as HIV and the hepatitis B virus. These regulations, among other things, require work practice controls, protective clothing and equipment, training, medical follow-up, vaccinations and other measures designed to minimize exposure to chemicals, and transmission of blood-borne and airborne pathogens. Furthermore, relevant employees of the Company receive initial and periodic training focusing on compliance with applicable hazardous materials regulations and health and safety guidelines.

Page 10

The regulations of the U.S. Department of Transportation, the U.S. Public Health Service and the U.S. Postal Service apply to the surface and air transportation of laboratory specimens. The Company’s laboratories also comply with the International Air Transport Association regulations which govern international shipments of laboratory specimens. Furthermore, when materials are sent to a foreign country, the transportation of such materials becomes subject to the laws, rules and regulations of such foreign country.

The Department of Health and Human Services recently promulgated final regulations under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) that will govern the disclosure of confidential medical information in the United States. The Privacy Rule, which governs disclosure of confidential information, was effective beginning April 14, 2001, and all companies subject to the Privacy Rule must comply with its provisions on or before April 14, 2003. We have had a global privacy policy in place since January 2001, which includes a designated privacy officer, and believe that we are in compliance with the current EU (European Union) and HIPAA requirements. Nevertheless, we will continue to monitor our compliance with these new regulations and will take appropriate steps to ensure compliance as these and other privacy regulations come into effect.

Product Liability and Insurance

The Company maintains product liability and professional errors and omissions liability insurance, providing approximately $6.0 million in coverage on a claims-made basis. Additionally, in certain circumstances the Company seeks to manage its liability risk through contractual provisions with clients requiring the Company to be indemnified by the client or covered by clients’ product liability insurance policies. Also, in certain types of engagements the Company seeks to limit its contractual liability to clients to the amount of fees received by the Company. The contractual arrangements are subject to negotiation with clients, and the terms and scope of such indemnification, liability limitation and insurance coverage vary by client and project.

Research and Development

In fiscal year 2002, the Company spent $1,521,000 on research and development. Separate from the Company’s contract research services business, the Company maintains applications research and development to enhance its products business. Expenditures cover hardware and software engineering costs, laboratory supplies, animals, drugs/reagents, labor, prototype development and laboratory demonstrations of new products and applications for those products. Hardware and software engineering and prototype development in 2002 generated multiple Culex®-related products (Bambino System, Raturn upgrade, Vertical Sensor, Metabolic Cage for Mice, Empis Automated Infusion System) and new techniques which can be offered as contract services (lung microdialysis, rodent electrocardiography). Laboratory demonstrations are published in peer-reviewed journals, scientific seminars or at scientific association meetings as promotional tools for existing and new products. Culex^®-related products and demonstrations consumed roughly 80% of all research and development dollars in 2002. The Company also makes small expenditures in novel research and development, some under partial grants, such as its membership in the National Institutes of Health (“NIH”) supported Botanicals Center with Purdue University, Indiana University, and the University of Alabama. The Center is focused on applying strict FDA safety and efficacy guidelines to plant-derived chemicals that are claimed to have therapeutic properties. Seven NIH SBIR research grant applications were filed in 2002 to support development of other products under consideration.

Intellectual Property

The Company believes that its patents, trademarks, copyrights and other proprietary rights are important to its business and, accordingly, it actively seeks protection for those rights both in the United States and abroad. Where the Company deems it to be an appropriate course of action, it will vigorously prosecute patent infringements. The Company does not believe, however, that the loss of any one of its patents, trademarks, copyrights or other proprietary rights would be material to its consolidated revenues or earnings.

The Company currently holds seven registered trademarks and one pending trademark, as well as one copyright. The Company also maintains a small pool of issued and pending patents. Most of these patents are related to the Company’s Culex^® or in vivo product line. Of these patents, most are either issued or pending in the United States, although there are also patents pending in the European Union, Japan and with the World Intellectual Property Organization. Although the Company believes that at least two of these patents are important to the ^Culex® product line, the success of the Culex^® business is not dependent on the Company’s intellectual property rights because the Company also generates client value through continuing client support, hardware and software upgrades, system reliability and accuracy.

Page 11

In addition, the Company relies on trade secrets, unpatented know-how and continuing applications research which it seeks to protect through means of reasonable business procedures, such as confidentiality agreements. The Company believes that the greatest value that it generates for its clients comes from these trade secrets, know-how and applications research.

Raw Materials

There are no specialized raw materials that are particularly essential to the Company’s business.

Employees

At September 30, 2002, the Company had 267 full-time employees, 163 of which hold college degrees, including 41 at the doctoral level. All employees enter into confidentiality agreements intended to protect the Company’s proprietary information. The Company believes that its relations with its employees are good. None of the Company’s employees are represented by a labor union. The Company’s performance depends on its ability to attract and retain qualified professional, scientific and technical staff. The level of competition among employers for skilled personnel is high. The Company believes that its employee benefit plans enhance employee morale, professional commitment and work productivity and provide an incentive for employees to remain with the Company.

Item 2.   Properties

The Company’s principal executive offices are located at 2701 Kent Avenue, West Lafayette, Indiana 47906, and constitute approximately 100,000 square feet of operational and administrative space. Both the services unit and the products unit conduct operations at the West Lafayette facility. The BAS Evansville facility consists of 10 buildings with roughly 80,000 square feet of operational and administrative space on 52 acres. The Company also maintains offices which provide sales and technical support services in the United Kingdom and leases 8,560 square feet of laboratory and administrative space in McMinnville, Oregon. The Company believes that its facilities are adequate for the Company’s operations and that suitable additional space will be available when needed.

Item 3.   Legal Proceedings

Not applicable.

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

Not applicable.

[Remainder of page intentionally left blank.]

Page 12

Part II

Item 5.   Market for Registrant’s Common Equity and Related Stockholder Matters

“Market for Registrant’s Common Equity and Related Stockholder Matters” on the last page of our 2002 Annual Report is incorporated herein by reference.

Please see Item 12 of this report for a description of the Company’s equity compensation plans.

Pursuant to its purchase of all of the outstanding shares of LC Resources, Inc. (“LCR”) (as more fully described in Item 1), on December 13, 2002 the Company issued subordinated promissory notes to four (4) former shareholders of LCR in a private placement. The issuance of these notes was a transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. Each former LCR shareholder represented that he was acquiring the notes for his own account and for investment and not with a view to distribution or resale thereof, and each acknowledged and agreed that the notes would not be resold without registration under applicable federal and state securities laws unless an exemption from such registration is available.

Item 6.   Selected Financial Data

You can find Selected Financial Data for each of our five most recent fiscal years on the first page of our 2002 Annual Report under “Selected Consolidated Financial Data”. That information is incorporated herein by reference.

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations

You can find Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 10-15 of our 2002 Annual Report. That information is incorporated herein by reference.

Item 7A.   Quantitative and Qualitative Disclosures about Market Risk

The Company’s primary market risk exposure with regard to financial instruments is the changes in interest rates. The Credit Agreement between the Company and The Provident Bank dated October 29, 2002 bears interest at a rate of either the bank’s prime rate plus 0 to 125 basis points, or at LIBOR plus 200 to 350 basis points, depending in each case upon the ratio of the Company’s interest-bearing indebtedness (less subordinated debt) to EBITDA, at the Company’s option. Historically, the Company has not used derivative financial instruments to manage exposure to interest rate changes. The Company estimates that a hypothetical 10% adverse change in interest rates would not affect the consolidated operating results of the Company by a material amount.

The Company operates internationally and is, therefore, subject to potentially adverse movements in foreign currency rates change. The effect of movements in the exchange rates was not material to the consolidated operating results of the Company in fiscal years 2002 and 2001. The Company estimates that a hypothetical 10% adverse change in foreign currency exchange rates would not affect the consolidated operating results of the Company by a material amount.

Item 8.   Financial Statements and Supplementary Data

You can find the consolidated financial statements of the Company and its subsidiaries in our 2002 Annual Report at pages 16-19 (Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Shareholders’ Equity and Consolidated Statements of Cash Flows) and pages 20-30 (Notes to Consolidated Financial Statements). You can find the Report of Independent Auditors at page 31 of our 2002 Annual Report. All of the above information is incorporated herein by reference.

Also incorporated by reference herein is information on quarterly results of operations, which can be found in our 2002 Annual Report under “Quarterly Financial Data (unaudited)” at page 9.

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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Part III

Item 10.   Directors and Executive Officers of the Registrant.

The following information concerns the persons who served as the directors and executive officers of the Company as of September 30, 2002. Except as indicated in the following paragraphs, the principal occupations of these persons has not changed in the past five years. Officers are elected annually at the annual meeting of the board of directors.

Name Age Position

Peter T. Kissinger, Ph.D 58 Chairman of the Board;
President; Chief Executive Officer

Ronald E. Shoup, Ph.D 51 Chief Operating Officer, BAS Contract
Research Services; Director

Douglas P. Wieten 41 Vice President, Finance; Chief Financial
Officer; Treasurer

Candice B. Kissinger 51 Senior Vice President, Marketing;
Secretary and Director

Craig S. Bruntlett, Ph.D 53 Senior Vice President, International Sales

Donnie A. Evans 56 Vice President, Engineering

Stephen Geary, Ph.D 61 Vice President, United States Sales

Lina L. Reeves-Kerner 52 Vice President, Human Resources

Michael P. Silvon 55 Vice President, Planning and Development

Michelle L. Troyer 31 Corporate Controller

William E. Baitinger 69 Director

John A. Kraeutler 54 Director

W. Leigh Thompson 64 Director

Peter T. Kissinger, Ph.D. founded the Company in 1974 and has served as its Chairman, President and Chief Executive Officer since 1974. He is also a part-time Professor of Chemistry at Purdue University, where he has been teaching since 1975. Dr. Kissinger has a Bachelor of Science degree in Analytical Chemistry from Union College and a Doctorate in Analytical Chemistry from the University of North Carolina.

Ronald E. Shoup, Ph.D. serves as Chief Operating Officer of the Company’s BAS Contract Research Services and is Managing Director of BAS Analytics, Ltd. in the UK. He joined BAS in 1980 as an applications chemist, became Research Director in 1983 and initiated the laboratory services group within BAS in 1988. Dr. Shoup has a Bachelor of Science degree in Mathematics and Chemistry from Purdue University and then attended Michigan State and Purdue University for his Ph.D in Analytical Chemistry. He has served on the Company’s board of directors since 1991 and is a member of the external advisory board to the Purdue University Department of Chemistry.

Douglas P. Wieten has been Vice President, Finance since February 1999, Chief Financial Officer since September 1997 and Treasurer since March 1997. He served as Corporate Controller from 1992 to February 1999. Prior to that time, Mr. Wieten worked at Ernst & Young LLP, where he had been employed since 1984. Mr. Wieten is a certified public accountant and has a Bachelor of Science degree in Accounting from Butler University.

Candice B. Kissinger is currently serving as the Interim Director of Research. She has been Senior Vice President, Marketing since January 2000. She served as Vice President, International Sales and Marketing since July 1981. From 1978 to 1981, Mrs. Kissinger served as an accounts receivable clerk. Mrs. Kissinger has a Bachelor of Science degree in Microbiology from Ohio Wesleyan University and a Master of Science degree in Food Science from the University of Massachusetts. Mrs. Kissinger is the wife of Dr. Peter Kissinger. She has served as a director of the Company since 1978.

Craig S. Bruntlett, Ph.D. has been Senior Vice President of International Sales since January 2000. From 1992 to 1999 he was Vice President, Electrochemical Products. From 1980 to 1990, Dr. Bruntlett was Director of New Products Development for the Company. Dr. Bruntlett has a Bachelor of Arts degree in Chemistry and Mathematics from St. Cloud State University in Minnesota and a Ph.D. in Chemistry from Purdue University.

Page 14

Donnie A. Evans he has been Vice President, Engineering Services since January of 1988. Mr. Evans was the Company's first full-time employee, beginning as an electronics engineer in 1978.

Stephen Geary, Ph.D has been Vice President, United States Sales since January 1992. Dr. Geary is also responsible for the sales efforts of the Company's clinical products. Dr. Geary has a Bachelor of Science degree in Biology and Chemistry from Tufts University, a Master of Science degree in Biology from the University of New Hampshire and a Ph.D. in Biochemistry from Syracuse University.

Lina L. Reeves-Kerner has been Vice President, Human Resources since 1995 and is responsible for the administrative support functions of the Company, including shareholder relations, human resources and community relations. From 1980 to 1990, Ms. Reeves-Kerner served as an Administrative Assistant with the Company. Ms. Reeves-Kerner has a Bachelor of Science degree in Business Administration from Indiana Wesleyan University.

Michael P. Silvon, Ph.D. has been Vice President since March 1997. Dr. Silvon has been general manager, BAS Evansville and Vetronics since January 2000. Prior to January 1997, Dr. Silvon was principal in his own consulting firm and Vice President Sales and Marketing at Hi-Port, Inc. in Houston, Texas. Before October 1993, Dr. Silvon was Regional Business Manager-Americas for Zeneca Fine Chemicals. He has a Bachelor of Science in Chemistry from Loyola University of Chicago, a Master of Business Administration from Sacred Heart University and a Doctorate in Chemistry from the University of Vermont.

Michelle L. Troyer has been the Corporate Controller since February 1999. Ms. Troyer joined the Company in 1994 as a Staff Accountant and became Assistant Controller in October 1996. Ms. Troyer has a Bachelor of Science degree in Accounting from Purdue University and is a certified public accountant.

William E. Baitinger has served as a director of the Company since 1979. Mr. Baitinger was Director of Technology Transfer for the Purdue Research Foundation from 1988 until 2000. In this capacity he was responsible for all licensing and commercialization activities from Purdue University. He currently serves as Special Assistant to the Vice President for Research at Purdue University. Mr. Baitinger has a Bachelor of Science degree in Chemistry and Physics from Marietta College and a Master of Science degree in Chemistry from Purdue University.

John A. Kraeutler has served as a director of the Company since January 1997. Mr. Kraeutler has been President and Chief Operating Officer of Meridian Bioscience, Inc. since August 1992 and is also a director. Prior to joining Meridian Bioscience, Inc., Mr. Kraeutler held a progression of technical, marketing and general management positions with a number of healthcare companies, including Carter-Wallace, Becton Dickinson and Organon (Akzo Nobel). Mr. Kraeutler has Bachelor of Science degree in Biology from Fairleigh Dickinson University and a Master of Business Administration in Marketing and a Master of Science degree in Biology from Seton Hall University.

W. Leigh Thompson, Ph.D., M.D. has served as a director of the Company since January 1997. Since 1995, Dr. Thompson has been Chief Executive Officer of Profound Quality Resources, Inc., a scientific consulting firm. Prior to 1995, Dr. Thompson was Professor of Medicine at Case Western Reserve and Indiana Universities, President of the society of Critical Care Medicine and Chief Scientific Officer at Eli Lilly and Company. He earned a Bachelor of Science degree in Biology from the College of Charleston, a Master of Science and a Doctorate in Pharmacology from the Medical University of South Carolina, a Medical Doctor degree from The Johns Hopkins University and was awarded a Doctorate of Science from the Medical University of South Carolina. Dr. Thompson is also a director of La Jolla Pharmaceutical Company, Diabetogen, Medarex, Inc., Guilford Pharmaceuticals, Inspire, Sontra and DepoMed.

Item 11.   Executive Compensation.

The information included under the captions “Election of Directors - Compensation of Directors” and “Executive Compensation” in the Proxy Statement is incorporated herein by reference in response to this item.

Item 12.   Security Ownership of Certain Beneficial Owners and Management.

The information contained under the captions “Share Ownership of Certain Beneficial Owners and Management” in the Proxy Statement is incorporated herein by reference in response to this item.

Page 15

Disclosure with Respect to the Corporation's Equity Compensation Plans

The Company maintains a stock option plan that allows for the granting of options to certain key employees and directors of the Company. The following table gives information about equity awards under the Plan.

Plan Category	Number of Securities to be Issued upon Exercise of Outstanding Options	Weighted Average Exercise Price of Outstanding Options	Number of Securities Remaining Available for Future Issuance under the Equity Compensation Plan (excluding Securities) Reflected in First Column
Equity compensation plans approved by   security holders	109,114	$4.46	10,250
Equity compensation plans not approved   by security holders	4,000	$8.00	1,000
Total	113,114	$4.59	11,250

For additional information regarding the Company’s stock option plans, please see Note 8 in the Notes to Consolidated Financial Statements in the Company’s Annual Report, which is incorporated herein by reference.

Item 13.   Certain Relationships and Related Transactions.

Not applicable.

[Remainder of page intentionally left blank.]

Page 16

Part IV

Item 14.   Controls and Procedures

Based on their most recent evaluation, which was completed within 90 days of the filing of this Form 10-K, the Company’s Chief Executive Officer and Chief Financial Officer believe the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) are effective in timely alerting the Company’s management to material information required to be included in this Form 10-K and other Exchange Act filings. There were no significant changes in the Company’s internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation, and there were no significant deficiencies or material weaknesses which required corrective actions.

Item 15.   Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) Documents filed as part of this Report.

1. Financial Statements:

Included as outlined in Item 8 of Part II of this report, which are included in the Company’s Annual Report and the relevant portions of which are filed herewith as follows:

Report of Independent Auditors.

Consolidated Balance Sheets as of September 30, 2002 and 2001.

Consolidated Statements of Operations for the Years Ended September 30, 2002, 2001 and 2000.

Consolidated Statements of Shareholders' Equity for the Years Ended September 30, 2002, 2001 and 2000.

Consolidated Statements of Cash Flows for the Years Ended September 30, 2002, 2001 and 2000.

Notes to Consolidated Financial Statements.

2. Financial Statement Schedules:

Schedules are not required, are not applicable or the information is shown in the Notes to the Consolidated Financial Statements.

(b) Reports on Form 8-K.  Form 8-K dated July 3, 2002 relating to other events under Item 5.

(c) Exhibits.  See Index to Exhibits.

Page 17

SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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.

	BIOANALYTICAL SYSTEMS, INC. (Registrant) By:  /s/ Peter T. Kissinger Peter T. Kissinger President, Chairman and Chief Executive Officer By:  /s/ Douglas P. Wieten Douglas P. Wieten Chief Financial Officer, Treasurer, VP Finance (Principal Financial and Accounting Officer)
Date:  January 13, 2003

CERTIFICATIONS

I, Peter T. Kissinger, Chief Executive Officer, certify that:

1.	I have reviewed this annual report on Form 10-K of Bioanalytical Systems, Inc;
2.	Based on my knowledge, this annual 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 annual report;
3.	Based upon my knowledge, the financial statements, and other financial information included in this annual 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 annual report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)	designed such disclosure controls and procedures 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 annual report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

Page 18

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, 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 in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  January 13, 2003

/s/  Peter T. Kissinger Peter T. Kissinger
Chief Executive Officer

I, Douglas P. Wieten, Chief Financial Officer, certify that:

1.	I have reviewed this annual report on Form 10-K of Bioanalytical Systems, Inc;
2.	Based on my knowledge, this annual 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 annual report;
3.	Based upon my knowledge, the financial statements, and other financial information included in this annual 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 annual report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

Page 19

a)	designed such disclosure controls and procedures 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 annual report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, 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 in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  January 13, 2003

/s/  Douglas P. Wieten Douglas P. Wieten
Chief Financial Officer

Page 20

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Capacity	Date
/s/  Peter T. Kissinger Peter T. Kissinger	President, Chairman Chief Executive Officer and Director	January 13, 2003
/s/  Douglas P. Wieten Douglas P. Wieten	Chief Financial Officer, and Treasurer	January 13, 2003
/s/  William E. Baitinger William E. Baitinger	Director	January 13, 2003
/s/  Candice B. Kissinger Candice B. Kissinger	Director	January 13, 2003
/s/  John A. Kraeutler John A. Kraeutler	Director	January 13, 2003
/s/  Ronald E. Shoup Ronald E. Shoup	Director	January 13, 2003
/s/  W. Leigh Thompson W. Leigh Thompson	Director	January 13, 2003

Page 21

INDEX TO EXHIBITS

Number
Assigned In
Regulation S-K
Item 601 Description of Exhibits Sequential
Numbering
System Page
Number of
Exhibits

(2) No Exhibit

(3) 3.1 Second Amended and Restated Articles of Incorporation of Bioanalytical Systems, Inc. (incorporated by reference to Exhibit 3.1 to Form 10-Q for the quarter ended December 31, 1997).

3.2 Second Restated Bylaws of Bioanalytical Systems, Inc. (incorporated by reference to Exhibit 3.2 to Form 10-Q for the quarter ended December 31, 1997).

(4) 4.1 Specimen Certificate for Common Shares (incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-1, Registration No. 333-36429).

4.2 See Exhibits 3.1 and 3.2 to this Form 10-K.

(9) No Exhibit.

(10) 10.1 Bioanalytical Systems, Inc. 1990 Employee Incentive Stock Option Plan (incorporated by reference to Exhibit 10.4 to Registration Statement on Form S-1, Registration No. 333-36429).

10.2 Form of Bioanalytical Systems, Inc. 1990 Employee Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.5 to Registration Statement on Form S-1, Registration No. 333-36429).

10.3 Bioanalytical Systems, Inc. 1997 Employee Incentive Stock Option Plan (incorporated by reference to Exhibit 10.26 to Registration Statement on Form S-1, Registration No. 333-36429).

10.4 Form of Bioanalytical Systems, Inc. 1997 Employee Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.27 to Registration Statement on Form S-1, Registration No. 333-36429).

Page 22

Number
Assigned In
Regulation S-K
Item 601 Description of Exhibits Sequential
Numbering
System Page
Number of
Exhibits

10.5 1997 Bioanalytical Systems, Inc. Outside Director Stock Option Plan (incorporated by reference to Exhibit 10.28 to Registration Statement on Form S-1, Registration No. 333-36429).

10.6 Form of Bioanalytical Systems, Inc. 1997 Outside Director Stock Option Agreement (incorporated by reference to Exhibit 10.29 to Registration Statement on Form S-1, Registration No. 333-36429).

10.7 Agreement and Plan of Merger, dated June 20, 2002, among Bioanalytical Systems, Inc., PI Acquisition Corp. and PharmaKinetics Laboratories, Inc., amended and restated to give effect to Amendment No. 1 to Agreement and Plan of Merger, dated July 24, 2002 (incorporated by reference to Exhibit 2.1 to Registration Statement on Form S-4, Registration No. 333-99593).

10.8 Second Amendment, dated November 21, 2002, to the Agreement and Plan of Merger by and among PharmaKinetics Laboratories, Inc., Bioanalytical Systems, Inc. and PI Acquisition Corp., dated as of June 20, 2002, as amended by a First Amendment, dated as of July 24, 2002 (incorporated by reference to Exhibit 10.1 to Form 8-K filed November 21, 2002).

10.9 Master Equipment Lease Agreement by and between Bioanalytical Systems, Inc. and Keycorp Leasing, dated December 5, 1997.

10.10 Credit Agreement by and between Bioanalytical Systems, Inc., and The Provident Bank, dated October 29, 2002.

10.11 General Security Agreement by and between Bioanalytical Systems, Inc. and The Provident Bank, dated October 29, 2002.

10.12 Trademark Security Agreement by and between Bioanalytical Systems and The Provident Bank, dated October 29, 2002.

10.13 Patent Security Agreement by and between Bioanalytical Systems and The Provident Bank, dated October 29, 2002.

10.14 Promissory Note by and between Bioanalytical Systems, Inc. and The Provident Bank, dated October 29, 2002 related to loan in the amount of $6,000,000.

Page 23

Number
Assigned In
Regulation S-K
Item 601 Description of Exhibits Sequential
Numbering
System Page
Number of
Exhibits

10.15 Loan Agreement between Bioanalytical Systems, Inc. and Union Planters Bank, dated October 29, 2002.

10.16 Real Estate Mortgage and Security Agreement between Bioanalytical Systems, Inc. and Union Planters Bank, dated October 29, 2002.

10.17 Real Estate Mortgage and Security Agreement between Bioanalytical Systems, Inc. and Union Planters Bank, dated October 29, 2002.

10.18 Term Loan Promissory Note made by Bionanalytical Systems, Inc. in favor of Union Planters Bank, dated October 29, 2002.

10.19 Promissory Note made by Bioanalytical Systems, Inc. in favor of Union Planters Bank, dated October 29, 2002.

10.20 Secured Convertible Revolving Note, dated November 14, 2002, payable by PharmaKinetics Laboratories, Inc. to Bioanalytical Systems, Inc. in the original principal amount of up to $925,000 (incorporated by reference to Exhibit 10.3 to Form 8-K filed November 21, 2002).

(12) No Exhibit

(13) 2002 Annual Report. This report, except for those portions which are expressly incorporated by reference in this Form 10-K, is furnished for the information of the Commission and is not to be deemed “filed” as part of this Form 10-K.

(16) No Exhibit

(18) No Exhibit

(21) 21.1 Subsidiaries of the Registrant

(23) 23.1 Consent of Independent Auditors

Page 24

Number
Assigned In
Regulation S-K
Item 601 Description of Exhibits Sequential
Numbering
System Page
Number of
Exhibits

(24) No Exhibit

(27) No Exhibit

(99) 99.1 Risk Factors

99.2 Certification of Chief Executive Officer

99.3 Certification of Chief Financial Officer

Page 25

EX-10.9

Exhibit 10.9

MASTER EQUIPMENT LEASE AGREEMENT

         THIS MASTER EQUIPMENT LEASE AGREEMENT dated as of December 5, 1997, is made by and between KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC., having an address at 54 State Street, Albany, New York 12207 (“Lessor”), and BIOANALYTICAL SYSTEMS INC, an Indiana corporation with its principal place of business at 2701 Kent Avenue, West Lafayette, IN 47906 (“Lessee”).

TERMS AND CONDITIONS OF LEASE

        1.         Lease.     Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Equipment, subject to and upon the terms and conditions set forth herein. Each Equipment Schedule shall constitute a separate and enforceable lease incorporating all the terms and conditions of this Master Equipment Lease Agreement as if such terms and conditions were set forth in full in such Equipment Schedule. In the event that any term or condition of any Equipment Schedule conflicts with or is inconsistent with any term or condition of this Master Equipment Lease Agreement, the terms and conditions of the Equipment Schedule shall govern.

        2.         Disclaimer of Warranties.     LESSOR MAKES NO (AND SHALL NOT BE DEEMED TO HAVE MADE ANY) WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN, OPERATION OR CONDITION OF, OR THE QUALITY OF THE MATERIAL, EQUIPMENT OR WORKMANSHIP IN, THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE STATE OF TITLE THERETO OR ANY COMPONENT THERETO, THE ABSENCE OF LATENT OR OTHER DEFECTS (WHETHER OR NOT DISCOVERABLE), AND LESSOR HEREBY DISCLAIMS THE SAME; IT BEING UNDERSTOOD THAT THE EQUIPMENT IS LEASED TO LESSEE "AS IS" AND ALL SUCH RISKS, IF ANY, ARE TO BE BORNE BY LESSEE. NO DEFECT IN, OR UNFITNESS OF, THE EQUIPMENT, OR ANY OF THE OTHER FOREGOING MATTERS, SHALL RELIEVE LESSEE OF THE OBLIGATION TO PAY RENT OR OF ANY OTHER OBLIGATION HEREUNDER. LESSEE HAS MADE THE SELECTION OF THE EQUIPMENT FROM THE SUPPLIER BASED ON ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS ANY RELIANCE UPON ANY STATEMENTS OR REPRESENTATIONS MADE BY LESSOR. LESSOR IS NOT RESPONSIBLE FOR ANY REPAIRS, SERVICE, MAINTENANCE OR DEFECT IN THE EQUIPMENT OR THE OPERATION THEREOF. IN NO EVENT SHALL LESSOR BE LIABLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES (WHETHER UNDER THE UCC OR OTHERWISE), INCLUDING, WITHOUT LIMITATION, ANY LOSS, COST OR DAMAGE TO LESSEE OR OTHERS ARISING FROM ANY OF THE FOREGOING MATTERS, INCLUDING, WITHOUT LIMITATION, DEFECTS, NEGLIGENCE, DELAYS, FAILURE OF DELIVERY OR NON-PERFORMANCE OF THE EQUIPMENT. ANY WARRANTY BY THE SUPPLIER IS HEREBY ASSIGNED TO LESSEE BY LESSOR WITHOUT RECOURSE. SUCH WARRANTY SHALL NOT RELEASE LESSEE FROM ITS OBLIGATION TO LESSOR TO PAY RENT, TO PERFORM ALL OTHER OBLIGATIONS HEREUNDER AND TO KEEP, MAINTAIN AND SURRENDER THE EQUIPMENT IN THE CONDITION REQUIRED BY SECTIONS 12 AND 13 HEREOF. Lessee's execution and delivery of a Certificate of Acceptance shall be conclusive evidence as between Lessor and Lessee that the Items of Equipment described therein are in all of the foregoing respects satisfactory to Lessee, and Lessee shall not assert any claim of any nature whatsoever against Lessor based on any of the foregoing matters; provided, however, that nothing contained herein shall in any way bar, reduce or defeat any claim that Lessee may have against the Supplier or any other person (other than Lessor).

        3.         Non-Cancelable Lease.     THIS LEASE IS A NET LEASE AND LESSEE’S OBLIGATION TO PAY RENT AND PERFORM ITS OBLIGATIONS HEREUNDER ARE ABSOLUTE, IRREVOCABLE AND UNCONDITIONAL UNDER ANY AND ALL CIRCUMSTANCES WHATSOEVER AND SHALL NOT BE SUBJECT TO ANY RIGHT OF SET OFF, COUNTERCLAIM, DEDUCTION, DEFENSE OR OTHER RIGHT WHICH LESSEE MAY HAVE AGAINST THE SUPPLIER, LESSOR OR ANY OTHER PARTY. LESSEE SHALL HAVE NO RIGHT TO TERMINATE (EXCEPT AS EXPRESSLY PROVIDED HEREIN) OR CANCEL THIS LEASE OR TO BE RELEASED OR DISCHARGED FROM ITS OBLIGATION HEREUNDER FOR ANY REASON WHATSOEVER, INCLUDING, WITHOUT LIMITATION, DEFECTS IN, DESTRUCTION OF, DAMAGE TO OR INTERFERENCE WITH ANY USE OF THE EQUIPMENT (FOR ANY REASON WHATSOEVER, INCLUDING, WITHOUT LIMITATION, WAR, ACT OF GOD, STRIKE OR GOVERNMENTAL REGULATION), THE INVALIDITY, ILLEGALITY OR UNENFORCEABILITY (OR ANY ALLEGATION THEREOF) OF THIS LEASE OR ANY PROVISION HEREOF, OR ANY OTHER OCCURRENCE WHATSOEVER, WHETHER SIMILAR OR DISSIMILAR TO THE FOREGOING, WHETHER FORESEEN OR UNFORESEEN.

        4.         Definitions.     Unless the context otherwise requires, as used in this Lease, the following terms shall have the respective meanings indicated below and shall be equally applicable to both the singular and the plural forms thereof.

            (a)         “Applicable Law” shall mean all applicable Federal, state, local and foreign laws (including, without limitation, any Environmental Law, industrial hygiene and occupational safety or similar laws), ordinances, judgments, decrees, injunctions, writs and orders of any Governmental Authority and rules, regulations, orders, licenses and permits of any Governmental Authority.

            (b)         “Appraisal Procedure” shall mean the following procedure for obtaining an appraisal of the Fair Market Sales Value or the Fair Market Rental Value. Lessor shall provide Lessee with the names of three independent Appraisers. Within ten (10) business days thereafter, Lessee shall select one of such Appraisers to perform the appraisal. The selected Appraiser shall be instructed to perform its appraisal based upon the assumptions specified in the definition of Fair Market Sales Value or Fair Market Rental Value, as applicable, and shall complete its appraisal within twenty (20) business days after such selection. Any such appraisal shall be final, binding and conclusive on Lessee and Lessor and shall have the legal effect of an arbitration award. Lessee shall pay the fees and expenses of the selected Appraiser.

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            (c)         “Appraiser” shall mean a person engaged in the business of appraising property who has at least ten years’ experience in appraising property similar to the Equipment.

            (d)         “Authorized Signer” shall mean those officers of Lessee, set forth on an incumbency certificate (in form and substance satisfactory to Lessor) delivered by Lessee to Lessor, who are authorized and empowered to execute this Lease, the Equipment Schedules and all other documents the execution of which is contemplated hereby.

            (e)         “Certificate of Acceptance” shall mean a certificate of acceptance, in form and substance satisfactory to Lessor, executed and delivered by Lessee in accordance with Section 7 hereof indicating, among other things, that the Equipment described therein has been accepted by Lessee for all purposes of this Lease.

            (f)         “Default” shall mean any event or condition which, with the passage of time or the giving of notice, or both, would constitute an Event of Default.

            (g)         “Environmental Law” shall mean any federal, state, or local statute, law, ordinance, code, rule, regulation, or order or decree regulating, relating to or imposing liability upon a person in connection with the use, release or disposal of any hazardous, toxic or dangerous substance, waste, or material as same may relate to the Equipment or its operation.

            (h)         “Equipment” shall mean an item or items of personal property designated from time to time by Lessee which are described on an Equipment Schedule and which are being or will be leased by Lessee pursuant to this Lease, together with all replacement parts, additions and accessories incorporated therein or affixed thereto.

            (i)         “Equipment Group” shall consist of all Items of Equipment listed on a particular Equipment Schedule.

            (j)         “Equipment Location” shall mean the location of the Equipment, as set forth on an Equipment Schedule, or such other location (approved by Lessor) as Lessee shall from time to time specify in writing.

            (k)         “Equipment Schedule” shall mean each equipment lease schedule from time to time executed by Lessor and Lessee with respect to an Equipment Group, pursuant to and incorporating by reference all of the terms and conditions of this Master Equipment Lease Agreement

            (l)         “Event of Default” shall have the meaning specified in Section 22 hereof.

            (m)         “Fair Market Rental Value” or “Fair Market Sale Value” shall mean the value of each Item of Equipment for lease or sale, unless otherwise specified herein as determined between Lessor and Lessee, or, if Lessor and Lessee are unable to agree, pursuant to the Appraisal Procedure, which would be obtained in an arms-length transaction between an informed and willing lessor or seller (under no compulsion to lease or sell) and an informed and willing lessee or buyer (under no compulsion to lease or purchase). In determining the Fair Market Rental Value or Fair Market Sale Value of the Equipment, (a) such Fair Market Rental Value or Fair Market Sale Value shall be calculated on the assumption that the Equipment is in the condition and repair required by Sections 12 and 13 hereof, and (b) there shall be excluded from the calculation thereof the value of any upgrades and attachments made pursuant to Section 14 hereof in which the Lessor does not own an interest; provided, however, that, unless otherwise provided in such Section 22, for purposes of Section 22 of the Lease, Fair Market Sale Value of the Equipment shall be determined based upon the actual facts and circumstances then prevailing without regard to the assumptions in clause (a) above.

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            (n)         “Governmental Action” shall mean all authorizations, consents, approvals, waivers, filings and declarations of any Governmental Authority, including, without limitation, those environmental and operating permits required for the ownership, lease, use and operation of the Equipment.

            (o)         “Governmental Authority” shall mean any foreign, Federal, state, county, municipal or other governmental authority, agency, board or court.

            (p)         “Guarantor” shall mean any guarantor of Lessee's obligations hereunder.

            (q)         “Item of Equipment” shall mean each item of the Equipment.

            (r)         “Late Payment Rate” shall mean an annual interest rate equal to the lesser of 18% or the maximum interest rate permitted by Applicable Law.

            (s)         “Lease”, “hereof”, “herein” and “hereunder” shall mean, with respect to an Equipment Group, this Master Equipment Lease Agreement and the Equipment Schedule on which such Equipment Group is described, including all addenda attached thereto and made a part thereof.

            (t)         “Lien” shall mean all mortgages, pledges, security interests, liens, encumbrances, claims or other charges of any kind whatsoever.

            (u)         “Purchase Agreement” shall mean any purchase agreement or other contract entered into between the Supplier and Lessee for the acquisition of the Equipment to be leased hereunder.

            (v)         “Related Equipment Schedule” shall have the meaning set forth in Section 27 hereof.

            (w)         RESERVED.

            (x)          RESERVED.

            (y)         “Rent” shall mean the periodic rental payments due hereunder for the leasing of the Equipment, as set forth on the Equipment Schedules, and, where the context hereof requires, all such additional amounts as may from time to time be payable under any provision of this Lease.

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            (z)         “Rent Commencement Date” shall mean, with respect to an Equipment Group, the date on which Lessor disburses funds for the purchase of such Equipment Group, as determined by Lessor in its sole discretion.

            (aa)         “Rent Payment Date” with respect to an Equipment Group, shall have the meaning set forth in the Equipment Schedule associated therewith.

            (ab)         “Stipulated Loss Value” shall mean, as of any Rent Payment Date and with respect to an Item of Equipment, the amount determined by multiplying the Total Cost for such Item of Equipment by the percentage specified in the applicable Stipulated Loss Value Supplement opposite such Rent Payment Date.

            (ac)         “Stipulated Loss Value Supplement” with respect to an Equipment Group, shall have the meaning set forth in the Equipment Schedule associated therewith.

            (ad)         “Supplier” shall mean the manufacturer or the vendor of the Equipment, as set forth on each Equipment Schedule.

            (ae)         “Term” shall mean the Initial Term, as defined in Section 8 hereof, and any Renewal Term, as defined in Section 8 hereof.

            (af)         “Total Cost” shall mean, with respect to an Item of Equipment, (1) the acquisition cost of such Item of Equipment (including Lessor’s capitalized costs), as set forth on the Equipment Schedule on which such Item of Equipment is described, or (2) if no such acquisition cost is specified, the Supplier’s invoice price for such Item of Equipment plus Lessor’s capitalized costs, or (3) if no such acquisition cost is specified and no such invoice price is obtainable, an allocated price for such Item of Equipment based on the Total Cost of all Items of Equipment set forth on the Equipment Schedule on which such Item of Equipment is described, as determined by Lessor in its sole discretion.

        5.         Supplier Not an Agent.     LESSEE UNDERSTANDS AND AGREES THAT (i) NEITHER THE SUPPLIER, NOR ANY SALES REPRESENTATIVE OR OTHER AGENT OF THE SUPPLIER, IS (1) AN AGENT OF LESSOR OR (2) AUTHORIZED TO MAKE OR ALTER ANY TERM OR CONDITION OF THIS LEASE, AND (ii) NO SUCH WAIVER OR ALTERATION SHALL VARY THE TERMS OF THIS LEASE UNLESS EXPRESSLY SET FORTH HEREIN.

        6.         Ordering Equipment.     Lessee has selected and ordered the Equipment from the Supplier and, if appropriate, has entered into a Purchase Agreement with respect thereto. Lessor shall accept an assignment from Lessee of Lessee’s rights, but none of Lessee’s obligations, under any such Purchase Agreement. Lessee shall arrange for delivery of the Equipment so that it can be accepted in accordance with Section 7 hereof. If an Item of Equipment is subject to an existing Purchase Agreement between Lessee and the Supplier, Lessee warrants that such Item of Equipment has not been delivered to Lessee as of the date of the Equipment Schedule applicable thereto. If Lessee causes the Equipment to be modified or altered, or requests any additions thereto prior to the Rent Commencement Date, Lessee (i) acknowledges that any such modification, alteration or addition to an Item of Equipment may affect the Total Cost, taxes, purchase and renewal options, if any, Stipulated Loss Value and Rent with respect to such Item of Equipment, and (ii) hereby authorizes Lessor to adjust such Total Cost, taxes, purchase and renewal options, if any, Stipulated Loss Value and Rent as appropriate. Lessee hereby authorizes Lessor to complete each Equipment Schedule with the serial numbers and other identification data of the Equipment Group associated therewith, as such data is received by Lessor.

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        7.         Delivery and Acceptance.     Upon acceptance for lease by Lessee of any Equipment delivered to Lessee and described in any Equipment Schedule, Lessee shall execute and deliver to Lessor a Certificate of Acceptance. LESSOR SHALL HAVE NO OBLIGATION TO ADVANCE FUNDS FOR THE PURCHASE OF THE EQUIPMENT UNLESS AND UNTIL LESSOR SHALL HAVE RECEIVED A CERTIFICATE OF ACCEPTANCE RELATING THERETO EXECUTED BY LESSEE. Such Certificate of Acceptance shall constitute Lessee’s acknowledgment that such Equipment (a) was received by Lessee, (b) is satisfactory to Lessee in all respects and is acceptable to Lessee for lease hereunder, (c) is suitable for Lessee’s purposes, (d) is in good order, repair and condition, (e) has been installed and operates properly, and (f) is subject to all of the terms and conditions of this Lease (including, without limitation, Section 2 hereof).

        8.         Term; Survival.     With respect to any Item of Equipment, unless otherwise specified thereon, the initial term of this Lease (the “Initial Term”) shall commence on the date on which such Item of Equipment is delivered to Lessee, and, unless earlier terminated as provided herein, shall expire on the final Rent Payment Date for such Item of Equipment. With respect to an Item of Equipment, any renewal term of this Lease (individually, a “Renewal Term”), as contemplated hereby, shall commence immediately upon the expiration of the Initial Term or any prior Renewal Term, as the case may be, and, unless earlier terminated as provided herein, shall expire on the date on which the final payment of Rent is due and paid hereunder. All obligations of Lessee hereunder shall survive the expiration, cancellation or other termination of the Term hereof.

        9.         Rent.     With respect to Each Item of Equipment, Lessee shall pay the Rent set forth on the Equipment Schedule applicable to such Item of Equipment, commencing on the Rent Commencement Date, and, unless otherwise set forth on such Equipment Schedule, on the same day of each payment period thereafter for the balance of the Term. Rent shall be due whether or not Lessee has received any notice that such payments are due. All Rent shall be paid to Lessor at its address set forth on the Equipment Schedule, or as otherwise directed by Lessor in writing.

        10.         Location; Inspection; Labels.     The Equipment shall be delivered to the Equipment Location and shall not be removed therefrom without Lessor’s prior written consent. Lessor shall have the right to enter upon the Equipment Location and inspect the Equipment at any reasonable time. Lessor may, without notice to Lessee, remove the Equipment if the Equipment is, in the opinion of Lessor, being used beyond its capacity or is in any manner improperly cared for, abused or misused. At Lessor’s request, Lessee shall affix labels stating that the Equipment is owned by Lessor permanently in a prominent place on the Equipment and shall keep such labels in good repair and condition.

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        11.         Use; Alterations.     Lessee shall use the Equipment lawfully and only in the manner for which it was designed and intended and so as to subject it only to ordinary wear and tear. Lessee shall comply with all Applicable Law. Lessee shall immediately notify Lessor in writing of any existing, pending or threatened investigation, inquiry, claim or action by any Governmental Authority in connection with any Applicable Law or Governmental Action which could adversely affect the Equipment or this Lease. Lessee, at its own expense, shall make such alterations, additions or modifications or improvements to the Equipment as may be required from time to time to meet the requirements of Applicable Law or Governmental Action. Except as otherwise permitted herein, Lessee shall not make any alterations, additions, modifications or improvements to the Equipment without Lessor’s prior written consent.

        12.         Repairs and Maintenance.     Lessee, at Lessee’s own cost and expense, shall (a) keep the Equipment in good repair, good operating condition and working order and in compliance with the manufacturer’s specifications, and (b) enter into and keep in full force and effect during the Term hereof a maintenance agreement with the manufacturer of the Equipment, or a manufacturer-approved maintenance organization, to maintain, service and repair the Equipment so as to keep the Equipment in as good operating condition and working order as it was when it first became subject to this Lease and in compliance with the manufacturer’s specifications. Upon Lessor’s request, Lessee shall furnish Lessor with an executed copy of any such maintenance agreement. An alternate source of maintenance may be used by Lessee with Lessor’s prior written consent. Lessee, at its own cost and expense and within a reasonable period of time, shall replace any part of any Item of Equipment that becomes worn out, lost, stolen, destroyed, or otherwise rendered permanently unfit or unavailable for use (whether or not such replacement is covered by the aforesaid maintenance agreement), with a replacement part of the same manufacture, value, remaining useful life and utility as the replaced part immediately preceding the replacement (assuming that such replaced part is in the condition required by this Lease). Such replacement part shall be free and clear of all Liens. Notwithstanding the foregoing, this paragraph shall not apply to any Loss or Damage (as defined in Section 16 hereof) of any Item of Equipment.

        13.         Return of Equipment.     Upon the expiration (subject to Section 32 hereof and except as otherwise provided in an Equipment Schedule) or earlier termination of this Lease, Lessee, at its sole expense, shall return the Equipment to Lessor by delivering such Equipment F.A.S. or F.O.B. to such location or such carrier (packed for shipping) as Lessor shall specify. Lessee agrees that the Equipment, when returned, shall be in the condition required by Section 12 hereof. All components of the Equipment shall have been properly serviced, following the manufacturer’s written operating and servicing procedures, such that the Equipment is eligible for a manufacturer’s standard, full service maintenance contract without Lessor’s incurring any expense to repair or rehabilitate the Equipment. If, in the opinion of Lessor, any Item of Equipment fails to meet the standards set forth above, Lessee agrees to pay on demand all costs and expenses incurred in connection with repairing such Item of Equipment and restoring it so as to meet such standards, assembling and delivering such Item of Equipment. If Lessee fails to return any Item of Equipment as required hereunder, then, all of Lessee’s obligations under this Lease (including, without limitation, Lessee’s obligation to pay Rent for such Item of Equipment at the rental then applicable under this Lease) shall continue in full force and effect until such Item of Equipment shall have been returned in the condition required hereunder.

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        14.         Equipment Upgrades/Attachments.     In addition to the requirements of Section 11 hereof, Lessee, at its own expense, may from time to time add or install upgrades or attachments to the Equipment during the Term; provided, that such upgrades or attachments (a) are readily removable without causing material damage to the Equipment, (b) do not materially adversely affect the Fair Market Sale Value, the Fair Market Rental Value, residual value, productive capacity, utility or remaining useful life of the Equipment, and (c) do not cause such Equipment to become “limited use property” within the meaning of Revenue Procedure 76-30, 1976-2 C.B. 647 (or such other successor tax provision), as of the applicable delivery date or the time of such upgrade or attachment. Any such upgrades or attachments which are not required by Section 11 hereof and which can be removed without causing damage to or adversely affecting the condition of the Equipment, or reducing the Fair Market Sale Value, the Fair Market Rental Value, residual value, productive capacity, utility or remaining useful life of the Equipment shall remain the property of Lessee; and upon the expiration or earlier termination of this Lease and provided that no Event of Default exists, Lessee may, at its option, remove any such upgrades or attachments and, upon such removal, shall restore the Equipment to the condition required hereunder.

        15.         Sublease and Assignment.     (a) WITHOUT LESSOR’S PRIOR WRITTEN CONSENT, LESSEE SHALL NOT (i) ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS LEASE, THE EQUIPMENT OR ANY INTEREST THEREIN, OR (ii) SUBLET OR LEND THE EQUIPMENT TO, OR PERMIT THE EQUIPMENT TO BE USED BY, ANYONE OTHER THAN LESSEE OR LESSEE’S QUALIFIED EMPLOYEES.

            (b)         Lessor, at any time with or without notice to Lessee, may sell, transfer, assign and/or grant a security interest in this Lease, any Equipment Schedule or any Item of Equipment. In any such event, any such purchaser, transferee, assignee or secured party shall have and may exercise all of Lessor’s rights hereunder with respect to the items to which any such sale, transfer, assignment and/or security interest relates, and LESSEE SHALL NOT ASSERT AGAINST ANY SUCH PURCHASER, TRANSFEREE, ASSIGNEE OR SECURED PARTY ANY DEFENSE, COUNTERCLAIM OR OFFSET THAT LESSEE MAY HAVE AGAINST LESSOR. Lessee acknowledges that no such sale, transfer, assignment and/or security interest will materially change Lessee’s duties hereunder or materially increase its burdens or risks hereunder. Lessee agrees that upon written notice to Lessee of any such sale, transfer, assignment and/or security interest, Lessee shall acknowledge receipt thereof in writing and shall comply with the directions and demands of Lessor’s successor or assign.

        16.         Loss of or Damage to Equipment.     (a) Lessee shall bear the entire risk of loss, theft, destruction, disappearance of or damage to any and all Items of Equipment (“Loss or Damage”) from any cause whatsoever during the Term hereof until the Equipment is returned to Lessor in accordance with Section 13 hereof. No Loss or Damage shall relieve Lessee of the obligation to pay Rent or of any other obligation under this Lease.

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            (b)         In the event of Loss or Damage to any Item of Equipment, Lessee, at the option of Lessor, shall within thirty (30) days following such Loss or Damage: (1) place such Item of Equipment in good condition and repair, in accordance with the terms hereof; (2) replace such Item of Equipment with replacement equipment (acceptable to Lessor) in as good condition and repair, and with the same value, remaining useful economic life and utility, as such replaced Item of Equipment immediately preceding the Loss or Damage (assuming that such replaced Item of Equipment is the condition required by this Lease), which replacement equipment shall be free and clear of all Liens; or (3) pay to Lessor the sum of (i) all Rent due and owing hereunder with respect to such Item of Equipment (at the time of such payment) plus (ii) the Stipulated Loss Value as of the Rent Payment Date next following the date of such Loss or Damage with respect to such Item of Equipment, as set forth on the Schedule applicable thereto. Upon Lessor’s receipt of the payment required under subsection (3) above, Lessee shall be entitled to Lessor’s interest in such Item of Equipment, in its then condition and location, “as is” and “where is”, without any warranties, express or implied. If Lessee replaces the Item of Equipment pursuant to subsection (b) above, title to such replacement equipment shall immediately (and without further act) vest in Lessor and thereupon shall be deemed to constitute Items of Equipment and be fully subject to this Lease as if originally leased hereunder. If Lessee fails to either restore or replace the Item of Equipment pursuant to subsection (1) or (2) above, respectively, Lessee shall make the payment under subsection (3) above.

        17.         Insurance.     (a) Lessee, at all times during the Term hereof (until the Equipment shall have been returned to Lessor) and at Lessee’s own cost and expense, shall maintain (1) insurance against all risks of physical loss or damage to the Equipment (including theft and collision for Equipment consisting of motor vehicles) in an amount not less than the full replacement value thereof or the Stipulated Loss Value thereof, whichever is greater, and (2) commercial general liability insurance (including blanket contractual liability coverage and products liability coverage) for personal and bodily injury and property damage in an amount satisfactory to Lessor.

            (b)         All insurance policies required hereunder shall (1) require 30 days’ prior written notice of cancellation or material change in coverage to Lessor (any such cancellation or change, as applicable, not being effective until the thirtieth (30th) day after the giving of such notice); (2) name “KeyCorp and its subsidiaries and affiliated companies, including Key Corporate Capital Inc.” as an additional insured under the public liability policies and name Lessor as sole loss payee under the property insurance policies; (3) not require contributions from other policies held by Lessor; (4) waive any right of subrogation against Lessor; (5) in respect of any liability of any of Lessor, except for the insurers’ salvage rights in the event of a Loss or Damage, waive the right of such insurers to set-off, to counterclaim or to any other deduction, whether by attachment or otherwise, to the extent of any monies due Lessor under such policies; (6) not require that Lessor pay or be liable for any premiums with respect to such insurance covered thereby; (7) be in full force and effect throughout any geographical areas at any time traversed by any Item of Equipment; and (8) contain breach of warranty provisions providing that, in respect of the interests of Lessor in such policies, the insurance shall not be invalidated by any action or inaction of Lessee or any other person (other than Lessor) and shall insure Lessor regardless of any breach or violation of any warranty, declaration or condition contained in such policies by Lessee or by any other person (other than Lessor). Prior to the first date of delivery of any Item of Equipment hereunder, and thereafter not less than 15 days prior to the expiration dates of the expiring policies theretofore delivered pursuant to this Section, Lessee shall deliver to Lessor a duplicate original of all policies (or in the case of blanket policies, certificates thereof issued by the insurers thereunder) for the insurance maintained pursuant to this Section.

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        18.         General Tax Indemnification.     Lessee shall pay when due and shall indemnify and hold Lessor harmless from and against (on an after-tax basis) any and all taxes, fees, withholdings, levies, imposts, duties, assessments and charges of any kind and nature (together with interest and penalties thereon)(including, without limitation, sales, use, gross receipts, personal property, ad valorem, business and occupational, franchise, value added, leasing, leasing use, documentary, stamp or other taxes) imposed upon or against Lessor, Lessor’s assigns, Lessee or any Item of Equipment by any Governmental Authority with respect to any Item of Equipment or the manufacturing, ordering, sale, purchase, shipment, delivery, acceptance or rejection, ownership, titling, registration, leasing, subleasing, possession, use, operation, removal, return or other dispossession thereof or upon the rents, receipts or earnings arising therefrom or upon or with respect to this Lease, excepting only all Federal, state and local taxes on or measured by Lessor’s net income (other than income tax resulting from making any alterations, improvements, modifications, additions, upgrades, attachments, replacements or substitutions by Lessee). Whenever this Lease terminates as to any Item of Equipment, Lessee shall, upon written request by Lessor, advance to Lessor the amount determined by Lessor to be the personal property or other taxes on said item which are not yet payable, but for which Lessee is responsible, provided Lessor provides Lessee with copies of tax bills supporting Lessor’s request.

        19.         Lessor's Right to Perform for Lessee.     If Lessee fails to perform or comply with any of its obligations contained herein, Lessor may (but shall not be obligated to do so) itself perform or comply with such obligations, and the amount of the reasonable costs and expenses of Lessor incurred in connection with such performance or compliance, together with interest on such amount at the Late Payment Rate, shall be payable by Lessee to Lessor upon demand. No such performance or compliance by Lessor shall be deemed a waiver of the rights and remedies of Lessor or any assignee of Lessor against Lessee hereunder or be deemed to cure the default of Lessee hereunder.

        20.         Delinquent Payments; Interest.     If Lessee fails to pay any Rent or other sums under this Lease when the same becomes due, Lessee shall pay to Lessor a late charge equal to five percent (5%) of such delinquent amount. Such late charge shall be payable by Lessee upon demand by Lessor and shall be deemed Rent hereunder. In no event shall such late charge exceed the maximum amounts permitted under Applicable Law.

        21.         Personal Property; Liens.     Lessor and Lessee hereby agree that the Equipment is, and shall at all times remain, personal property notwithstanding the fact that any Item of Equipment may now be, or hereafter become, in any manner affixed or attached to real property or any improvements thereon. Lessee shall at all times keep the Equipment free and clear from all Liens. Lessee shall (i) give Lessor immediate written notice of any such Lien, (ii) promptly, at Lessee’s sole cost and expense, take such action as may be necessary to discharge any such Lien, and (iii) indemnify and hold Lessor, on an after-tax basis, harmless from and against any loss or damage caused by any such Lien.

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        22.         Events of Default; Remedies.     (a) As used herein, the term “Event of Default” shall mean any of the following events: (1) Lessee fails to pay any Rent within ten (10) days after the same shall have become due; (2) Lessee or any Guarantor becomes insolvent or makes an assignment for the benefit of its creditors; (3) a receiver, trustee, conservator or liquidator of Lessee or any Guarantor or of all or a substantial part of Lessee’s or such Guarantor’s assets is appointed with or without the application or consent of Lessee or such Guarantor, respectively; (4) a petition is filed by or against Lessee or any Guarantor under any bankruptcy, insolvency or similar legislation; (5) Lessee or any Guarantor violates or fails to perform any provision of either this Lease or any other loan, lease or credit agreement or any acquisition or purchase agreement with Lessor or any other party; (6) Lessee violates or fails to perform any covenant or representation made by Lessee herein; (7) any representation or warranty made herein or in any Lease, certificate, financial statement or other statement furnished to Lessor shall prove to be false or misleading in any material respect as of the date on which the same was made; (8) Lessee makes a bulk transfer of furniture, furnishings, fixtures or other equipment or inventory; or (9) there is a material adverse change in Lessee’s or any Guarantor’s financial condition since the first Rent Commencement Date of any Equipment Schedule executed in connection herewith. An Event of Default with respect to any Equipment Schedule hereunder shall, at Lessor’s option, constitute an Event of Default for all Equipment Schedules hereunder and any other agreements between Lessor and Lessee.

            (b)         Upon the occurrence of an Event of Default, Lessor may do one or more of the following as Lessor in its sole discretion shall elect: (1) proceed by appropriate court action or actions, either at law or in equity, to enforce performance by Lessee of the applicable covenants of this Lease or to recover damages for the breach thereof; (2) sell any Item of Equipment at public or private sale; (3) hold, keep idle or lease to others any Item of Equipment as Lessor in its sole discretion may determine; (4) by notice in writing to Lessee, terminate this Lease, without prejudice to any other remedies hereunder; (5) demand that Lessee, and Lessee shall, upon written demand of Lessor and at Lessee’s expense forthwith return all Items of Equipment to Lessor or its order in the manner and condition required by, and otherwise in accordance with all of the provisions of this Lease, except those provisions relating to periods of notice; (6) enter upon the premises of Lessee or other premises where any Item of Equipment may be located and, without notice to Lessee and with or without legal process, take possession of and remove all or any such Items of Equipment without liability to Lessor by reason of such entry or taking possession, and without such action constituting a termination of this Lease unless Lessor notifies Lessee in writing to such effect; (7) by written notice to Lessee specifying a payment date, demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such notice, as liquidated damages for loss of a bargain and not as a penalty, any unpaid Rent due prior to the payment date specified in such notice plus whichever of the following amounts Lessor, in its sole discretion, shall specify in such notice (together with interest on such amount at the Late Payment Rate from the payment date specified in such notice to the date of actual payment): (i) an amount, with respect to an Item of Equipment, equal to the Rent payable for such Item of Equipment for the remainder of the then current Term thereof, after discounting such Rent to present worth as of the payment date specified in such notice on the basis of a per annum rate of discount equal to five percent (5%) from the respective dates upon which such Rent would have been paid had this Lease not been terminated; or (ii) the Stipulated Loss Value, computed as of the payment date specified in such notice or, if such payment date is not a Rent Payment Date, the Rent Payment Date next following the payment date specified in such notice (provided, however, that, with respect to any Item of Equipment returned to or repossessed by Lessor, the amount recoverable under this clause (ii) shall be reduced (but not below zero) by an amount equal to the Fair Market Sales Value (taking into account its actual condition) of such Item of Equipment; (8) cause Lessee, at its expense, to promptly assemble any and all Items of Equipment and return the same to Lessor at such place as Lessor may designate in writing; and (9) exercise any other right or remedy available to Lessor under applicable law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof or to rescind this Lease. In addition, Lessee shall be liable, except as otherwise provided above, for any and all unpaid Rent due hereunder before or during the exercise of any of the foregoing remedies, and for legal fees and other costs and expenses incurred by reason of the occurrence of any Event of Default or the exercise of Lessor’s remedies with respect thereto, including without limitation the repayment in full of any costs and expenses necessary to be expended in repairing any Item of Equipment in order to cause it to be in compliance with all maintenance and regulatory standards imposed by this Lease. If an Event of Default occurs, to the fullest extent permitted by law, Lessee hereby waives any right to notice of sale and further waives any defenses, rights, offsets or claims against Lessor because of the manner or method of sale or disposition of any Items of Equipment. None of Lessor’s rights or remedies hereunder are intended to be exclusive of, but each shall be cumulative and in addition to any other right or remedy referred to hereunder or otherwise available to Lessor or its assigns at law or in equity. No express or implied waiver by Lessor of any Event of Default shall constitute a waiver of any other Event of Default or a waiver of any of Lessor’s rights.

– 11 –

        23.         Notices.     All notices and other communications hereunder shall be in writing and shall be transmitted by hand, overnight courier or certified mail (return receipt requested), postage prepaid. Such notices and other communications shall be addressed to the respective party at the address set forth above or at such other address as any party may from time to time designate by notice duly given in accordance with this Section. Such notices and other communications shall be effective upon receipt.

        24.         General Indemnification.     Lessee shall pay, and shall indemnify and hold Lessor harmless on an after-tax basis from and against, any and all liabilities, causes of action, claims, suits, penalties, damages, losses, costs or expenses (including attorneys’ fees), obligations, liabilities, demands and judgments, and Liens, of any nature whatsoever (collectively, a “Liability”) arising out of or in any way related to: (a) this Lease or any other written agreement entered into in connection with the transactions contemplated hereby and thereby (including, without limitation, a Purchase Agreement, if any) or any amendment, waiver or modification of any of the foregoing or the enforcement of any of the terms hereof or any of the foregoing, (b) the manufacture, purchase, ownership, selection, acceptance, rejection, possession, lease, sublease, operation, use, maintenance, documenting, inspection, control, loss, damage, destruction, removal, storage, surrender, sale, use, condition, delivery, nondelivery, return or other disposition of or any other matter relating to any Item of Equipment or any part or portion thereof (including, in each case and without limitation, latent or other defects, whether or not discoverable, any claim for patent, trademark or copyright infringement and any and all Liabilities in any way relating to or arising out of injury to persons, properties or the environment or any and all Liabilities based on strict liability in tort, negligence, breach of warranties or violations of any regulatory law or requirement, (c) a failure to comply fully with any Environmental Law with respect to the Equipment or its operation or use, and (d) Lessee’s failure to perform any covenant, or breach of any representation or warranty, hereunder; provided, that the foregoing indemnity shall not extend to the Liabilities to the extent resulting solely from the gross negligence or willful misconduct of Lessor. Lessee shall deliver promptly to Lessor (i) copies of any documents received from the United States Environmental Protection Agency or any state, county or municipal environmental or health agency and (ii) copies of any documents submitted by Lessee or any of its subsidiaries to the United States Environmental Protection Agency or any state, county or municipal environmental or health agency concerning the Equipment or its operation.

– 12 –

        25.         Severability; Captions.     Any provision of this Lease or any Equipment Schedule which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability shall not invalidate or render unenforceable such provision in any other jurisdiction. Captions are intended for convenience or reference only, and shall not be construed to define, limit or describe the scope or intent of any provisions hereof.

        26.         Lessor's Expense.     Lessee shall pay all costs and expenses of Lessor, including attorneys' fees and the fees of any collection agencies, incurred by Lessor in enforcing any of the terms, conditions or provisions hereof or in protecting Lessor's rights hereunder.

        27.         Related Equipment Schedules.     In the event that any Item of Equipment covered under any Equipment Schedule hereunder may become attached or affixed to, or used in connection with, Equipment covered under another Equipment Schedule hereunder (a “Related Equipment Schedule”), Lessee agrees that, if Lessee elects to exercise a purchase or renewal option under any such Equipment Schedule, or if Lessee elects to return the Equipment under any such Equipment Schedule pursuant to Section 13 hereof, then Lessor, in its sole discretion, may require that all Equipment leased under all Related Equipment Schedules be similarly disposed of.

        28.         Financial and Other Data.     During the Term hereof, Lessee shall furnish Lessor, as soon as available and in any event within 60 days after the end of each quarterly period (except the last) of each fiscal year, and, as soon as available and in any event within 120 days after the last day of each fiscal year, financial statements of Lessee and each Guarantor, in each case certified by an independent public accountant if customarily available or requested. Lessee shall also furnish such other financial reports, information or data as Lessor may reasonably request from time to time.

        29.         Commitment Fee Requirement.     An amount equal to the first periodic payment of Rent must accompany each Lessee proposal for an Equipment Schedule hereunder. THIS COMMITMENT FEE IS NONREFUNDABLE; provided, however, that, upon Lessor’s acceptance of Lessee’s proposal to enter into such Equipment Schedule, such commitment fee shall be applied to the first periodic payment of Rent thereunder.

– 13 –

        30.         No Affiliation with the Supplier.     Lessee hereby represents and warrants to Lessor that, except as previously disclosed in writing to Lessor, neither Lessee nor any of its officers or directors (if a corporation) or partners (if a partnership) has, directly or indirectly, any financial interest in the Supplier.

        31.         Representations and Warranties of Lessee.     Lessee represents and warrants that: (a) Lessee is a corporation duly organized and validly existing in good standing under the laws of the state of its incorporation; (b) the execution, delivery and performance of this Lease and all related instruments and documents: (1) have been duly authorized by all necessary corporate action on the part of Lessee, (2) do not require the approval of any stockholder, partner, trustee, or holder of any obligations of Lessee except such as have been duly obtained, and (3) do not and will not contravene any law, governmental rule, regulation or order now binding on Lessee, or the charter or by-laws of Lessee, or contravene the provisions of, or constitute a default under, or result in the creation of any lien or encumbrance upon the property of Lessee under, any indenture, mortgage, contract or other agreement to which Lessee is a party or by which it or its property is bound; (c) this Lease and all related instruments and documents, when entered into, will constitute legal, valid and binding obligations of Lessee enforceable against Lessee in accordance with the terms thereof; (d) there are no pending actions or proceedings to which Lessee is a party, and there are no other pending or threatened actions or proceedings of which Lessee has knowledge, before any court, arbitrator or administrative agency, which, either individually or in the aggregate, would adversely affect the financial condition of Lessee, or the ability of Lessee to perform its obligations hereunder; (e) Lessee is not in default under any obligation for the payment of borrowed money, for the deferred purchase price of property or for the payment of any rent under any lease agreement which, either individually or in the aggregate, would have the same such effect; (f) under the laws of the state(s) in which the Equipment is to be located, the Equipment consists solely of personal property and not fixtures; (g) the financial statements of Lessee (copies of which have been furnished to Lessor) have been prepared in accordance with generally acceptable accounting principles consistently applied (“GAAP”), and fairly present Lessee’s financial condition and the results of its operations as of the date of and for the period covered by such statements, and since the date of such statements there has been no material adverse change in such conditions or operations; (h) the address stated above is the chief place of business and chief executive office, or in the case of individuals, the primary residence, of Lessee; (i) Lessee does not conduct business under a trade, assumed or fictitious name; and (j) the Equipment is being leased hereunder solely for business purposes and that no item of Equipment will be used for personal, family or household purposes.

        32.         Renewal And Purchase Options.     With respect to an Equipment Schedule and the Equipment Group set forth thereon, Lessee shall have the purchase and renewal options set forth in such Equipment Schedule.

        33.         Lessee’s Waivers.     To the extent permitted by Applicable Law, Lessee hereby waives (a) any and all rights and remedies which it may now have or which at any time hereafter may be conferred upon it by statute (including, without limitation, Article 2A of the Uniform Commercial Code, as applicable) or otherwise, (1) which may limit or modify Lessor’s rights or remedies hereunder, (2) to terminate, cancel, quit, repudiate or surrender this Lease, except as expressly provided herein; (3) to reject, revoke acceptance or accept partial delivery of the Equipment; (4) to recover damages from Lessor for any breach of warranty or for any other reason provided, however, that no such waiver shall preclude Lessee from asserting any such claim against Lessor in a separate cause of action; or (5) to setoff or deduct all or any part of any claimed damages resulting from Lessor’s default, if any, under this Lease.

– 14 –

        34.         UCC Filings.     LESSEE HEREBY APPOINTS LESSOR OR ITS ASSIGNEE AS ITS TRUE AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO EXECUTE AND FILE ON BEHALF OF LESSEE ALL UCC FINANCING STATEMENTS WHICH IN LESSOR’S SOLE DISCRETION ARE NECESSARY OR PROPER TO SECURE LESSOR’S INTEREST IN THE EQUIPMENT IN ALL APPLICABLE JURISDICTIONS.

        35.         Miscellaneous.     Time is of the essence with respect to this Lease. Any failure of Lessor to require strict performance by Lessee or any waiver by Lessor of any provision herein shall not be construed as a consent or waiver of any provision of this Lease. Neither this Lease nor any Equipment Schedule may be amended except by a writing signed by Lessor and Lessee. This Lease and each Equipment Schedule shall be binding upon, and inure to the benefit of, the parties hereto, their permitted successors and assigns. This Lease will be binding upon Lessor only if executed by a duly authorized officer or representative of Lessor at Lessor’s address set forth above. This Lease, and all other documents (the execution and delivery of which by Lessee is contemplated hereunder), shall be executed on Lessee’s behalf by Authorized Signers of Lessee. THIS LEASE IS BEING DELIVERED IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.

        36.         Jury Trial Waiver.     LESSOR AND LESSEE HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH LESSOR OR LESSEE MAY BE PARTIES ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS LEASE. THIS WAIVER IS MADE KNOWINGLY, WILLINGLY AND VOLUNTARILY BY THE LESSOR AND THE LESSEE WHO EACH ACKNOWLEDGE THAT NO REPRESENTATIONS HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT.

        37.         More than One Lessee.     If more than one person or entity executes this Lease, each Equipment Schedule, and all addenda or other documents executed in connection herewith or therewith, as “Lessee,” the obligations of “Lessee” contained herein and therein shall be deemed joint and several and all references to “Lessee” shall apply both individually and jointly.

        38.         Quiet Enjoyment.     So long as no Event of Default has occurred and is continuing, Lessee shall peaceably hold and quietly enjoy the Equipment without interruption by Lessor or any person or entity claiming through Lessor.

– 15 –

        39.         Entire Agreement.     This Lease, together with all Equipment Schedules, riders and addenda executed by Lessor and Lessee collectively constitute the entire understanding or agreement between Lessor and Lessee with respect to the leasing of the Equipment, and there is no understanding or agreement, oral or written, which is not set forth herein or therein. By initialing below, Lessee hereby further acknowledges the conditions of this Section 39.

Lessee’s Initials:  /s/ DW

        40.         Execution in Counterparts.     This Master Equipment Lease Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument

         IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the day and year first above written.

Lessor:

KEYCORP LEASING, A DIVISION OF
KEY CORPORATE CAPITAL, INC.



By:  /s/ Donald C. Davis Name:  Donald C. Davis
Title:  Vice President
Lessee:

BIOANALYTICAL SYSTEMS, INC.




By:  /s/ Doug Wieten Name:  Doug Wieten
Title:  CFO

– 16 –

CERTIFICATE OF SECRETARY
OF
BIOANALYTICAL SYSTEMS INC

I, Candice Kissinger, the duly elected and qualified Secretary of Bioanalytical Systems Inc, (the “Corporation”), do hereby certify:

        a.         That attached hereto as Exhibit A are complete and correct copies of resolutions adopted by the Board of Directors of the Corporation, authorizing the actions referred to therein; said resolutions constitute all of the resolutions adopted by such Board of Directors relating to such matters; such resolutions have not been in any way modified, amended, annulled, rescinded or revoked and are in full force and effect as of the date hereof; and

        b.         The persons listed in Exhibit B attached hereto are duly qualified and acting officers of the Corporation, holding on the date hereof the offices set forth opposite their names and the signatures appearing opposite their names are the genuine signatures of such officers.

         IN WITNESS WHEREOF, I have hereunto signed my name this 17^th day of December, 1997.

/s/ Candice Kissinger Secretary

– 17 –

EXHIBIT A

RESOLUTION OF THE BOARD OF DIRECTORS
OF
BIOANALYTICAL SYSTEMS INC

DATED 12/17/1997

         WHEREAS, the Board of Directors of Bioanalytical Systems Inc (the “Corporation”) desire that the Corporation enter into an equipment leasing transaction with KeyCorp Leasing, a Division of Key Corporate Capital Inc. (“KCL”) as lessor, for the purpose of leasing the equipment (the “Equipment”) described in a Master Equipment Lease Agreement and various equipment schedules and other documents (including, without limitation, interim funding documents and bills of sale) from time to time entered into with respect thereto (collectively, the “Lease”);

         NOW, THEREFORE, BE IT RESOLVED, that (i) the execution and delivery of the Lease by the Corporation and the financing of the acquisition of the Equipment are hereby authorized, approved, ratified and confirmed in all respects, (ii) if the Corporation owns the Equipment, the sale of the Equipment to KCL is hereby authorized, approved, ratified and confirmed in all respects, and (iii) the Corporation hereby is, and the Authorized Officers (as defined below) hereby are, authorized and empowered to negotiate and enter into the Lease and such other documents, (including, without limitation, interim funding documents and bills of sale) as may be necessary, advisable, or proper in connection with the above transaction, and be it;

         FURTHER RESOLVED, that Doug Weiten, the Chief Financial Officer of the Corporation, and Candice Kissinger, the Secretary of the Corporation (herein the “Authorized Officers”) be, and hereby are, authorized to execute and deliver the Lease and any and all certificates, documents, instruments or other papers as may be necessary or desirable in order to consummate the transactions therein contemplated, and that all actions heretofore taken or taken hereinafter by the Authorized Officers in furtherance of the actions herein authorized are ratified, confirmed, adopted and approved in all respects.

EXHIBIT B

INCUMBENCY CERTIFICATE

Name:

Candice Kissinger Doug Wieten





Office:

Secretary CFO





Signature:

/s/ Candice Kissinger /s/ Doug Wieten

EX-10.10

Exhibit 10.10

CREDIT AGREEMENT

between

BIOANALYTICAL SYSTEMS, INC.

and

THE PROVIDENT BANK

Dated as of October 29, 2002

                                TABLE OF CONTENTS
                                -----------------


ARTICLE 1.     DEFINITIONS..................................................   1
  SECTION 1.1  DEFINED TERMS................................................   1
  SECTION 1.2  RULES OF CONSTRUCTION........................................  14
  SECTION 1.3  ACCOUNTING TERMS.............................................  14

ARTICLE 2.     CREDIT.......................................................  14
  SECTION 2.1  LINE OF CREDIT COMMITMENT....................................  14
  SECTION 2.2  INTEREST; UNUSED FEES AND RATE SELECTION.....................  14
      2.2.1.   LINE OF CREDIT - INTEREST....................................  14
      2.2.2.   GENERAL......................................................  14
      2.2.3.   UNUSED FEE/REDUCTION OF LINE OF CREDIT COMMITMENT............  14
      2.2.4.   INTEREST RATE SELECTION - EURODOLLAR RATE OPTION.............  15
  SECTION 2.3  PAYMENTS OF PRINCIPAL AND INTEREST...........................  15
      2.3.1.   LINE OF CREDIT...............................................  15
      2.3.2.   METHOD OF PAYMENT............................................  16
      2.3.3.   BANKING DAY..................................................  16
  SECTION 2.4  ISSUANCE OF LETTERS OF CREDIT................................  16
  SECTION 2.5  UNCONDITIONAL REIMBURSEMENT OBLIGATION.......................  17
  SECTION 2.6  RISK OF MISUSE OF LETTER OF CREDIT...........................  17
  SECTION 2.7  PREPAYMENT/EXIT FEE..........................................  18
  SECTION 2.8  USE OF PROCEEDS..............................................  18
  SECTION 2.9  METHOD OF ADVANCE............................................  18
      2.9.1.   LINE OF CREDIT...............................................  18
      2.9.2.   GENERAL......................................................  19
  SECTION 2.10 TAXES........................................................  19
      2.10.1.  GENERAL......................................................  19
      2.10.2.  TAX INDEMNITY................................................  19
  SECTION 2.11 YIELD PROTECTION.............................................  20
  SECTION 2.12 CHANGES IN CAPITAL ADEQUACY REGULATIONS......................  20
  SECTION 2.13 FUNDING INDEMNIFICATION......................................  21
  SECTION 2.14 AVAILABILITY OF TYPES OF ADVANCES............................  21
  SECTION 2.15 BANK STATEMENTS; SURVIVAL OF INDEMNITY.......................  21

ARTICLE 3.     SECURITY AND GUARANTY........................................  22
  SECTION 3.1  SECURITY.....................................................  22
  SECTION 3.2  ADDITION OF GUARANTORS; ADDITION OF PLEDGED CAPITAL STOCK
               AND OTHER COLLATERAL.........................................  22
  SECTION 3.3  ADDITIONAL COLLATERAL/SETOFF.................................  23

ARTICLE 4.     REPRESENTATIONS AND WARRANTIES...............................  23
  SECTION 4.1  DUE ORGANIZATION.............................................  23
  SECTION 4.2  DUE QUALIFICATION............................................  23
  SECTION 4.3  CORPORATE POWER..............................................  23
  SECTION 4.4  CORPORATE AUTHORITY..........................................  23
  SECTION 4.5  FINANCIAL STATEMENTS.........................................  23
  SECTION 4.6  NO MATERIAL ADVERSE CHANGE...................................  23
  SECTION 4.7  SUBSIDIARIES.................................................  23

  SECTION 4.8  BINDING OBLIGATIONS..........................................  24
  SECTION 4.9  MARKETABLE TITLE.............................................  24
  SECTION 4.10 INDEBTEDNESS.................................................  24
  SECTION 4.11 DEFAULT......................................................  24
  SECTION 4.12 TAX RETURNS..................................................  24
  SECTION 4.13 LITIGATION...................................................  24
  SECTION 4.14 ERISA........................................................  24
  SECTION 4.15 FULL DISCLOSURE..............................................  25
  SECTION 4.16 CONTRACTS OF SURETY..........................................  25
  SECTION 4.17 LICENSES.....................................................  25
  SECTION 4.18 COMPLIANCE WITH LAW..........................................  25
  SECTION 4.19 FORCE MAJEURE................................................  25
  SECTION 4.20 MARGIN STOCK.................................................  25
  SECTION 4.21 APPROVALS....................................................  26
  SECTION 4.22 INSOLVENCY...................................................  26
  SECTION 4.23 REGULATION...................................................  26
  SECTION 4.24 ENVIRONMENTAL MATTERS........................................  26
  SECTION 4.25 CONDITIONS PRECEDENT.........................................  28
  SECTION 4.26 GENERAL......................................................  28

ARTICLE 5.     COVENANTS....................................................  28
  SECTION 5.1  NEGATIVE COVENANTS...........................................  28
      5.1.1.   DISPOSE OF COLLATERAL........................................  28
      5.1.2.   FURTHER ENCUMBER.............................................  28
      5.1.3.   CONDUCT OF BUSINESS; SUBSIDIARIES; ACQUISITIONS..............  28
      5.1.4.   PURCHASE STOCK...............................................  29
      5.1.5.   SELL AND LEASEBACK...........................................  29
      5.1.6.   BORROWINGS/SUBORDINATED DEBT PAYMENTS........................  29
      5.1.7.   INVESTMENTS..................................................  29
      5.1.8.   GUARANTEES...................................................  29
      5.1.9.   CHANGE NAME OR PLACE OF BUSINESS.............................  29
      5.1.10.  SPECIAL CORPORATE TRANSACTIONS...............................  30
      5.1.11.  ACCOUNTING POLICIES..........................................  30
      5.1.12.  CHANGE OF BUSINESS...........................................  30
      5.1.13.  BENEFIT PLANS................................................  30
      5.1.14.  ADVERSITY....................................................  30
      5.1.15.  DIVIDENDS/DISTRIBUTIONS......................................  30
      5.1.16.  RESTRICTIVE AGREEMENTS.......................................  30
      5.1.17.  TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES................  30
  SECTION 5.2  AFFIRMATIVE COVENANTS........................................  30
      5.2.1.   FINANCIAL REPORTING..........................................  31
      5.2.2.   GOOD STANDING................................................  32
      5.2.3.   TAXES, ETC...................................................  32
      5.2.4.   MAINTAIN PROPERTIES..........................................  33
      5.2.5.   INSURANCE....................................................  33
      5.2.6.   BOOKS AND RECORDS............................................  33
      5.2.7.   REPORTS......................................................  33

      5.2.8.   LICENSES.....................................................  33
      5.2.9.   NOTICE OF MATERIAL ADVERSE CHANGE............................  34
      5.2.10.  COMPLIANCE WITH LAW..........................................  34
      5.2.11.  TRADE ACCOUNTS...............................................  34
      5.2.12.  USE OF PROCEEDS..............................................  34
      5.2.13.  LOAN PAYMENTS................................................  34
      5.2.14.  ENVIRONMENTAL MATTERS........................................  34
      5.2.15.  BANKING RELATIONSHIP.........................................  34
      5.2.16.  SUBORDINATED DEBT............................................  35
      5.2.17.  EQUIPMENT APPRAISAL..........................................  35
      5.2.18.  SALE OF REAL ESTATE..........................................  35
  SECTION 5.3  FINANCIAL COVENANTS..........................................  35
      5.3.1.   FUNDED DEBT RATIO............................................  35
      5.3.2.   TOTAL DEBT RATIO.............................................  35
      5.3.3.   FIXED CHARGE COVERAGE RATIO..................................  35
      5.3.4.   CURRENT RATIO................................................  35
      5.3.5.   CAPITAL EXPENDITURES.........................................  35

ARTICLE 6.     CONDITIONS PRECEDENT.........................................  35
  SECTION 6.1  CONDITIONS TO INITIAL ADVANCE................................  35
      6.1.1.   AUTHORIZATION................................................  36
      6.1.2.   INSURANCE....................................................  36
      6.1.3.   LOAN DOCUMENTS...............................................  36
      6.1.4.   INCUMBENCY...................................................  36
      6.1.5.   LEGAL MATTERS................................................  36
      6.1.6.   BORROWING BASE, ETC..........................................  36
      6.1.7.   OPINIONS OF COUNSEL..........................................  36
      6.1.8.   LANDLORD WAIVERS.............................................  36
      6.1.9.   UCC SEARCHES/LIFE INSURANCE QUESTIONNAIRE....................  36
      6.1.10.  FEES.........................................................  36
      6.1.11.  REGULATION U.................................................  37
      6.1.12.  NO DEFAULT...................................................  37
      6.1.13.  CONSENTS.....................................................  37
      6.1.14.  FIELD AUDIT..................................................  37
      6.1.15.  INTERCREDITOR AGREEMENT......................................  37
      6.1.16.  ADDITIONAL DOCUMENTATION.....................................  37
  SECTION 6.2  CONDITIONS TO SUBSEQUENT ADVANCES............................  37
      6.2.1.   NO DEFAULT...................................................  37
      6.2.2.   REPRESENTATIONS AND WARRANTIES...............................  37
      6.2.3.   LEGAL MATTERS................................................  37
  SECTION 6.3  GENERAL......................................................  37

ARTICLE 7.     DEFAULT......................................................  37

ARTICLE 8.     REMEDY.......................................................  39
  SECTION 8.1  ACCELERATION.................................................  39
  SECTION 8.2  DEPOSIT TO SECURE REIMBURSEMENT OBLIGATIONS..................  39
  SECTION 8.3  SUBROGATION..................................................  40
  SECTION 8.4  REMEDY.......................................................  40
  SECTION 8.5  PRESERVATION OF RIGHTS.......................................  40

ARTICLE 9.     GENERAL PROVISIONS...........................................  40
  SECTION 9.1  BENEFIT OF AGREEMENT.........................................  40
  SECTION 9.2  SURVIVAL OF REPRESENTATIONS..................................  40
  SECTION 9.3  GOVERNMENTAL REGULATION......................................  41
  SECTION 9.4  CONFLICT.....................................................  41
  SECTION 9.5  CHOICE OF LAW................................................  41
  SECTION 9.6  HEADINGS.....................................................  41
  SECTION 9.7  ENTIRE AGREEMENT.............................................  41
  SECTION 9.8  EXPENSES.....................................................  41
  SECTION 9.9  INDEMNIFICATION..............................................  42
  SECTION 9.10 CONFIDENTIALITY..............................................  42
  SECTION 9.11 GIVING NOTICE................................................  42
  SECTION 9.12 COUNTERPARTS.................................................  42
  SECTION 9.13 INCORPORATION BY REFERENCE...................................  42
  SECTION 9.14 TIME OF ESSENCE..............................................  43
  SECTION 9.15 NO JOINT VENTURE.............................................  43
  SECTION 9.16 RELATIONSHIP OF PARTIES; RELEASE OF CONSEQUENTIAL DAMAGES....  43
  SECTION 9.17 SEVERABILITY.................................................  43
  SECTION 9.18 GENDER.......................................................  43
  SECTION 9.19 WAIVER AND AMENDMENT.........................................  43
  SECTION 9.20 BANK NOT IN CONTROL..........................................  43
  SECTION 9.21 WAIVER OF JURY TRIAL.........................................  43

Schedule 1 Permitted Encumbrances

Schedule 4.7 Subsidiaries

Schedule 4.10 and 5.1.6 Other Indebtedness

Schedule 4.13 Material Pending or Threatened Litigation

Schedule 5.1.7 Existing Investments


Exhibit A - Credit Note

Exhibit B - General Security Agreement

Exhibit C - Policy Assignment

Exhibit D - Form of 6% Subordinated Convertible Note

CREDIT AGREEMENT

         THIS CREDIT AGREEMENT, dated as of October 29, 2002, is between BIOANALYTICAL SYSTEMS, INC. and THE PROVIDENT BANK. The parties agree as follows:

ARTICLE 1.         DEFINITIONS

         Section 1.1   Defined Terms.    As used herein:

        “Accounts”, “Chattel Paper”, “Deposit Accounts”, “Documents”, “Equipment”, “Fixtures”, “General Intangibles”, “Goods”, “Instruments”, “Inventory” and “Proceeds” shall have the meanings ascribed in the Security Agreements.

        “Acquisition” means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which Borrower or any of its Subsidiaries (a) acquires any going business or all or substantially all of the assets of any firm, corporation or division thereof, whether through purchase of assets, merger or otherwise or (b) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage of voting power) of the outstanding equity interests of another Person.

        "Advance" means a disbursement of proceeds of the Facilities.

        “ Affiliate” means, with respect to any Person, any other Person (a) directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with, such Person, and (b) that directly or indirectly owns more than Ten Percent (10%) of any class of the voting securities or capital stock of or equity interests in such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise.

         "Agreement" means this Credit Agreement, as amended from time to time.

        “ Applicable Fee” means the per annum fee payable to Bank, which shall be based on the Funded Debt Ratio and determined by reference to the following table:

                                Applicable Fee          Applicable Fee for              Applicable Fee for
     Funded Debt Ratio         for Non-Use Fees      Standby Letters of Credit     Commercial Letters of Credit
     -----------------         ----------------      -------------------------     ----------------------------

Equal to or greater than             .50%                      3.50%                        2.00%
4.00 to 1.0

Less than 4.00 to 1.00 and           .25%                      3.00%                        2.00%
equal to or greater than
3.50 to 1.0

Less than 3.50 to 1.0 and            .25%                      2.50%                        2.00%
equal to or greater than
2.50 to 1.0

Less than 2.50 to 1.0                .25%                      2.00%                        2.00%

         The Applicable Fee shall initially be determined based on a Funded Debt Ratio of 2.50 to 1.0. The Applicable Fee shall be adjusted quarterly (upwards or downwards, as appropriate) based upon the Funded Debt Ratio determined from the Financial Statements for the immediately preceding fiscal quarter and upon the closing of any permitted Acquisition. The adjustment (upwards or downwards, as appropriate), if any, to the Applicable Fee shall be effective on the fifth (5th) Banking Day after delivery of the Financial Statements. In the event Bank has not received the required Financial Statements pursuant to Section 5.2.1 hereof within the time periods provided therein, the highest Funded Debt Ratio set forth in the foregoing table shall be conclusively presumed to be correct until the fifth (5th) Banking Day after Bank receives such Financial Statements, at which time the Applicable Fee shall be adjusted based upon the Funded Debt Ratio determined from such Financial Statements. In no event shall the Applicable Fee be adjusted downward if there exists a Default on the date on which such downward adjustment would otherwise become effective until such time as the Default has been cured, waived or ceases to exist. The provisions of this definition are not intended to, and shall not be construed to, authorize any violation by Borrower of any financial covenant contained in Article 5 hereof or to constitute a waiver thereof or any commitment by Bank to waive any violation by Borrower of any financial covenant contained in Article 5 hereof.

         “Applicable Margin” means the incremental margin to be paid by Borrower on the Advances hereunder, which margin shall be based on the Funded Debt Ratio and determined by reference to the following table:

                                              Applicable Margin         Applicable Margin
                                                  for Prime              for  Eurodollar
         Funded Debt Ratio                       Rate Advances            Rate Advances
         -----------------                    -----------------         -----------------

         Equal to or greater
         than 4.00 to 1.0                            1.25%                      3.50%

         Less than 4.00 to 1.0 and
         equal to or greater
         than 3.50 to 1.0                             .75%                      3.00%

         Less than 3.50 to 1.0 and                    .50%                      2.50%
         equal to or greater than 2.50 to 1.0

         Less than 2.50 to 1.0                        -0-                       2.00%

–2–

         The Applicable Margin shall initially be determined based on a Funded Debt Ratio of 2.50 to 1.0. The Applicable Margin shall be adjusted quarterly (upwards or downwards, as appropriate) based upon the Funded Debt Ratio determined from the Financial Statements for the immediately preceding fiscal quarter and upon the closing of any permitted Acquisition. The adjustment (upwards or downwards, as appropriate), if any, to the Applicable Margin shall be effective on the fifth (5th) Banking Day after delivery of the Financial Statements. In the event Bank has not received the required Financial Statements pursuant to Section 5.2.1 hereof within the time periods provided therein, the highest Funded Debt Ratio set forth in the foregoing table shall be conclusively presumed to be correct until the fifth (5th) Banking Day after Bank receives such Financial Statements, at which time the Applicable Margin shall be adjusted based upon the Funded Debt Ratio determined from such Financial Statements. In no event shall the Applicable Margin be adjusted downward if there exists a Default on the date on which such downward adjustment would otherwise become effective until such time as the Default has been cured, waived or ceases to exist. The provisions of this definition are not intended to, and shall not be construed to, authorize any violation by Borrower of any financial covenant contained in Article 5 hereof or to constitute a waiver thereof or any commitment by Bank to waive any violation by Borrower of any financial covenant contained in Article 5 hereof.

         “Approved PKL Acquisition” means the Acquisition by Borrower of Pharmakinetics Laboratories, Inc., pursuant to a merger agreement dated June 20, 2002, as amended by instrument dated July 24, 2002, and as may be further amended with the written consent of Bank, and as described in Borrower’s Form S-4 filed September 13, 2002, but only if Borrower’s 6% Subordinated Convertible Note to be issued to certain shareholders of Pharmakinetics Laboratories, Inc. is in the form attached hereto as Exhibit D.

         “Approved LCR Acquisition” means the Acquisition of all the outstanding capital stock of LC Resources, Inc., pursuant to the terms of that Letter of Intent dated July 1, 2002, between Borrower and LC Resources, Inc. (or upon such other terms as Bank agrees in writing), but only if Borrower’s obligations under its promissory note to LC Resources are subordinated to Bank upon the same subordination terms as are required by Bank with respect to the Approved PKL Acquisition.

         “Bank” means The Provident Bank, its successors and assigns.

         “Banking Day” means a day on which the principal domestic office of Bank is open for the purpose of conducting substantially all of its business activities.

         “Borrower” means Bioanalytical Systems, Inc., an Indiana corporation.

         “Borrowing Base” means, on any date of determination, an amount equal to (a) Eighty Percent (80%) of Borrower’s Eligible Accounts, plus (b) the lesser of (i) Fifty Percent (50%) of Borrower’s raw materials and finished goods Eligible Inventory or (ii) Sixty-Seven Percent (67%) of Borrower’s Eligible Accounts, minus (c) the maximum credit limit under Borrower’s corporate credit card issued by Bank, plus (d) the sum of (i) One Million Five Hundred Thousand Dollars ($1,500,000), minus (ii) the product of (A) Twenty-Five Thousand Dollars ($25,000), multiplied by (B) as of any relevant date, the number of full calendar months that have elapsed after the month of October 2002. (For example, in June, 2003, the amount added as part of the Borrowing Base under clause (d) above will be One Million Five Hundred Thousand Dollars ($1,500,000) minus One Hundred Seventy-Five Thousand Dollars ($175,000) (seven times Twenty-Five Thousand Dollars ($25,000)), or a total of One Million Three Hundred Twenty-Five Thousand Dollars ($1,325,000)).

–3–

         “Capitalized Expenditures” means, without duplication, any expenditures for any purchase or other acquisition of any asset which would be classified as a fixed or capital asset on a balance sheet of Borrower prepared in accordance with GAAP.

         “Capitalized Lease” means any lease of property which would be capitalized on a financial statement of a Person prepared in accordance with GAAP.

         “Capitalized Lease Obligations” means the amount of the obligations of a Person under Capitalized Leases which are shown as liabilities on a balance sheet of such Person prepared in accordance with GAAP.

         “CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.

         “CERCLIS” means the Comprehensive Environmental Response Compensation Liability Information System List under CERCLA.

         “Change” shall have the meaning ascribed thereto in Section 2.11 hereof.

         “Change in Control” means (a) the acquisition by any Person or two or more Persons acting in concert (other than (i) current shareholders of Borrower as of the date of this Agreement and their respective legal heirs and any trusts created for the benefit of such Persons or (ii) any employee or director benefit plan or stock plan of Borrower or any trustee or fiduciary with respect to any such plan when acting in that capacity or any trust related to any such plan), of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of twenty percent (20%) or more of the outstanding shares of voting stock of Borrower; or (b) the occurrence during any period of twelve (12) consecutive months, commencing before or after the date of this Agreement, pursuant to which individuals who on the first day of such period were directors of Borrower (together with any replacement or additional directors who were nominated or elected by Borrower’s nominating committee or by a majority of directors then in office) cease to constitute a majority of the Board of Directors of Borrower.

         “Code” means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time.

         “Compliance Certificate” means a Compliance Certificate, in the form prescribed by Bank, duly executed by the chief executive or chief financial officer of Borrower.

         “Credit Note” means the Promissory Note, in substantially the form of Exhibit A hereto, duly executed by Borrower to Bank to evidence Advances under the Line of Credit, including any amendment, modification, renewal, extension or replacement thereof.

         “Current Assets” means all assets of a Person which would, in accordance with GAAP, be classified as current assets of an entity conducting a business the same as or similar to that of such Person.

–4–

         “Current Liabilities” means all liabilities of a Person which would, in accordance with GAAP, be classified as current liabilities of an entity conducting a business the same as or similar to that of such Person, including, without limitation, all lease rental payments and all fixed prepayments of and sinking fund payments with respect to any Indebtedness required to be made within one (1) year from the date of determination.

         “Default” means any of the events specified in Article 7 hereof.

         “EBITDA” means, as of any date of determination, with respect to Borrower, the sum of (a) net income, plus (b) to the extent deducted in determining net income, income taxes paid or accrued, plus (c) depreciation, amortization and other non-cash charges shown as a charge against earnings for such period, minus (plus) (d) to the extent included (deducted) in determining net income, any gain (loss) which may be treated as an extraordinary item under GAAP or realized upon the sale or other disposition of any Property that is not sold in the ordinary course of business, plus (e) interest expense, minus (f) interest income, plus (g) fees and expenses incurred in connection with the Approved PKL Acquisition, the Approved LCR Acquisition, the Facilities, and the financings provided by Union Planters Bank, National Association and Fifth Third Bank, Indiana in an aggregate amount not exceeding Five Hundred Thousand Dollars ($500,000), plus (h) severance payments made in 2002 in an aggregate amount not exceeding Two Hundred Thousand Dollars ($200,000); in each instance determined for the trailing four (4) quarter period ending on the date of determination. EBITDA shall be calculated in accordance with GAAP and determined from the Financial Statements.

         “Eligible Accounts” means, on any date of determination, all Accounts then owned by Borrower, which conforms with the representations and warranties set forth in Borrower’s Security Agreement and which is not subject to any prior Lien, except (a) Accounts outstanding more than ninety (90) days from the date of invoice; (b) all Accounts of any account debtor if Twenty Percent (20%) or more of the amount owing by such account debtor is more than ninety (90) days past due from the date of invoice; (c) all Accounts of the account debtor which Bank reasonably deems unacceptable because of the credit-worthiness of the account debtor; (d) Accounts of account debtors who are also creditors of Borrower to the extent of the amount owed to such account debtors; (e) Accounts owned by account debtors who are Affiliates of Borrower; (f) Accounts for uncompleted sales, including pre-billings, consignment sales, and guaranteed sales; (g) progress billings other than a portion of a sale pursuant to a purchase order which has been shipped and has been recorded as an Account; (h) Accounts of account debtors who are Governmental Authorities, unless proper assignments to Bank have been completed; (i) Accounts not denominated in U.S. Dollars; (j) Accounts of account debtors who are non-residents of the United States, unless collateralized by an acceptable letter of credit or guaranty, and other than large foreign pharmaceutical companies having a rating of “A-or better” by S & P or “A-3 or better” by Moody’s; (k) Accounts with respect to which the account debtor is located in Minnesota (or any other jurisdiction which adopts a statute or other requirement with respect to which any Person that obtains business from within such jurisdiction or is otherwise subject to such jurisdiction’s tax law requiring such Person to file a Business Activity Report or make any other required filings in a timely manner in order to enforce its claims in such jurisdiction’s courts or arising under such jurisdiction’s laws); provided, however, such receivables shall nonetheless be eligible if Borrower has filed a Business Activity Report (or other applicable report or filing) with the applicable state office by the time required or is qualified to do business in such jurisdiction and, at the time the receivable was created, was qualified to do business in such jurisdiction or had on file with the applicable state office a current Business Activity Report (or other applicable report or filing); (l) Accounts to such extent such Accounts are subject to known payments, adjustments or credits; and (m) Accounts, or any portion thereof, which are considered uncollectible for any reason, including, without limitation, Inventory returned, rejected, repossessed, lost or damaged. Notwithstanding the foregoing exclusions of Eligible Accounts, Bank will consider including Accounts up to one hundred twenty (120) days past due for S & P “A-or better” rated account debtors or Moody’s “A-3 or better” rated account debtors.

–5–

         “Eligible Inventory” means, on any date of determination, that portion of Inventory owned by Borrower consisting of raw materials and finished goods (i) on which Bank has a first (1st) and prior lien, (ii) which conforms with the representations and warranties set forth in Borrower’s Security Agreement, (iii) which is not obsolete or slow moving, (iv) which is not in transit, (v) which is not placed on consignment, (vi) which is not stored with any bailee, warehouseman or other party, (vii) which does not constitute labor, overhead or miscellaneous charges, and (viii) which Bank has not otherwise reasonably determined unacceptable.

         “Environmental Laws” means all provisions of laws, statutes, ordinances, rules, regulations, permits, licenses, judgments, writs, injunctions, decrees, orders, awards and standards promulgated by any Governmental Authority concerning the protection of, or regulation of the discharge of substances into, the environment or concerning the health or safety of persons with respect to environmental hazards, and includes, without limitation, the Hazardous Materials Transportation Act, 42 U.S.C. § 1801 et seq., the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.§ 9601 et seq., the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and the Solid and Hazardous Waste Amendments of 1984, 42 U.S.C. § 6901 et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. § 1251 et seq., the Clean Air Act of 1966, as amended, 42 U.S.C. § 7401 et seq., the Toxic Substances Control Act of 1976, 15 U.S.C. § 2601 et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. § 7401 et seq., the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. § 651 et seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. § 11001 et seq., the National Environmental Policy Act of 1975, 42 U.S.C. § 4321 et seq., the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. § 300(f) et seq., and any similar or implementing state law, and all amendments, rules, and regulations promulgated thereunder.

         “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time-to-time.

–6–

         “ERISA Affiliate” means any trade or business, whether or not incorporated, which together with the subject Person would be treated as a single employer under ERISA.

         “Eurodollar Base Rate” means, with respect to a Eurodollar Rate Advance for any specified Interest Period, the applicable British Bankers’ Association Interest Settlement Rate for deposits in U.S. dollars appearing on Reuters Screen FRBD as of 11:00 a.m. (London time) two (2) Banking Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period, provided that, (a) if Reuters Screen FRBD is not available to Bank for any reason, the applicable Eurodollar Base Rate for the relevant Interest Period shall instead be the applicable British Bankers’ Association Interest Settlement Rate for deposits in U.S. dollars as reported by any other generally recognized financial information service as of 11:00 a.m. (London time) two (2) Banking Days prior to the first day of such Interest Period, and (b) if no such British Bankers’ Association Interest Settlement Rate is available to Bank, the applicable Eurodollar Base Rate for the relevant Interest Period shall instead be the rate determined by Bank, in its sole discretion, to be the rate at which deposits in U.S. Dollars are offered to first-class banks in the London interbank market at approximately 11:00 a.m. (London time) for the relevant Interest Period two Banking Days prior to the first day of such Interest Period. Such determination by Bank shall be presumed correct absent manifest error.

         “Eurodollar Rate” means, with respect to a Eurodollar Rate Advance for the relevant Interest Period, the Eurodollar Base Rate applicable to such Interest Period plus the then Applicable Margin. The Eurodollar Rate shall be rounded to the next higher multiple of 1/100 of 1% if the rate is not such a multiple.

         “Eurodollar Rate Advance” means an Advance which bears interest at the Eurodollar Rate.

         “Facilities” means the Line of Credit, and any other credit facility provided by Bank from time to time pursuant to this Agreement.

         “Financial Contract” of a Person means (a) any exchange-traded or over-the-counter futures, forward, swap or option contract or other financial instrument with similar characteristics, (b) any agreements, devices or arrangements providing for payments related to fluctuations of interest rates, exchange rates or forward rates, including, but not limited to, interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, or (c) to the extent not otherwise included in the foregoing, any Rate Hedging Agreement.

         “Financial Statements” means, as the context may require, (a) the financial statements of Borrower as of June 30, 2002, and/or (b) the similar financial statements of Borrower furnished from time to time pursuant to Section 5.2.1 hereof; in all cases together with any accompanying notes or other disclosures to such financial statements, and any other documents or data furnished to Bank in connection therewith.

–7–

         “Fixed Charge Coverage Ratio” means, with respect to Borrower, (a) the sum of (i) EBITDA, minus (ii) Unfunded Capital Expenditures, plus (iii) Rentals, divided by (b) the sum of (i) interest expense, plus (ii) mandatory payments of all long term Indebtedness, plus (iii) taxes paid, plus (iv) Rentals; in each instance determined for the trailing four (4) quarter period ending on the date of determination, except that for purposes of determining the Fixed Charge Coverage Ratio (aa) for the fiscal period ending December 31, 2002, Unfunded Capital Expenditures and mandatory payments of all long term Indebtedness shall be determined by multiplying such amounts for the quarter-annual period then ending by a factor of 4, (bb) for the fiscal period ending March 31, 2003, Unfunded Capital Expenditures and mandatory payments of all long term Indebtedness shall be determined by multiplying such amounts for the semi-annual period then ending by a factor of 2, and (cc) for the fiscal period ending June 30, 2003, Unfunded Capital Expenditures and mandatory payments of all long term Indebtedness shall be determined by multiplying such amounts for the three quarter-annual period then ending by a factor of 1.33. The Fixed Charge Coverage Ratio shall be determined from the Financial Statements.

         “Funded Debt Ratio” means, with respect to Borrower, as of the last day of any fiscal quarter and as of the closing of any permitted Acquisition, the ratio of (a) interest bearing Indebtedness minus, to the extent included in interest bearing Indebtedness, Subordinated Debt to (b) EBITDA. The Funded Debt Ratio shall be determined from the Financial Statements.

         “GAAP” means generally accepted accounting principles in the United States of America in effect from time to time as promulgated by the Financial Accounting Standards Board and recognized and interpreted by the American Institute of Certified Public Accountants.

         “Governmental Authority” means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government, including, without limiting the generality of the foregoing, any agency, body, commission, court or department thereof whether federal, state, local or foreign.

         “Guarantors” means any U.S. Subsidiaries of Borrower.

         “Guaranty” means any Guaranty duly executed by a U.S. Subsidiary of Borrower, in the form prescribed by Bank, including any amendment or modification thereof.

         “Hazardous Materials” mean (a) any “hazardous substance,” as defined by CERCLA, (b) any “hazardous waste,” as defined by the Resource Conservation and Recovery Act, as amended, (c) any petroleum product, or (d) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance within the meaning of any other federal, state or local law, regulation, ordinance or requirement (including consent decrees and administrative orders) relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material, all as amended or hereafter amended.

–8–

         “Indebtedness” of a Person means such Person’s (a) obligations for borrowed money, (b) obligations representing the deferred purchase price of Property or services (other than trade payables arising in the ordinary course of such Person’s business payable on terms customary in the trade), (c) obligations, whether or not assumed, secured by any Lien upon or in Property owned by the subject Person or payable out of the proceeds or production from Property now or hereafter owned or acquired by such Person, (d) obligations which are evidenced by notes, acceptances, or other instruments, (e) Capitalized Lease Obligations, (f) indebtedness or other obligations of any other Person for borrowed money or for the deferred purchase price of property or services, the payment or collection of which the subject Person has guaranteed (except by reason of endorsement for collection in the ordinary course of business) or in respect of which the subject Person is liable, contingently or otherwise, including, without limitation, liability by way of agreement to purchase, to provide funds for payment, to supply funds to or otherwise to invest in such other Person, or otherwise to assure a creditor against loss, (g) reimbursement or other obligations in connection with letters of credit, (h) obligations in connection with Sale and Leaseback Transactions, (i) any Net Mark-To-Market Exposure of Rate Hedging Agreements or other Financial Contracts, and (j) any other transaction which is the functional equivalent of, or takes the place of borrowing, but which would not constitute a liability on a balance sheet of such Person prepared in accordance with GAAP.

         “Intercreditor Agreement” means the Intercreditor Agreement of even date herewith between Union Planters Bank, National Association and Bank, as amended from time to time.

         “Interest Period” means, with respect to a Eurodollar Rate Advance, a period of one (1), two (2) or three (3) months commencing on a Banking Day selected by Borrower pursuant to this Agreement. Such Interest Period shall end on (but exclude) the day which corresponds numerically to such date one, two or three months thereafter; provided, however, that if there is no such numerically corresponding day in such next, second or third succeeding month, such Interest Period shall end on the last Banking Day of such next, second or third succeeding month, as the case may be. If an Interest Period would otherwise end on a day which is not a Banking Day, such Interest Period shall end on the next succeeding Banking Day; provided, however, that if said next succeeding Banking Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Banking Day.

         “Investments” of a Person means any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade) or contribution of capital by such Person; stocks, bonds, mutual funds, partnership interests, notes, debentures or other securities owned by such Person; any deposit accounts and certificates of deposit owned by such Person; and structured notes, derivative financial instruments and other similar instruments or contracts owned by such Person.

         “Letters of Credit” means all standby and commercial Letters of Credit now and hereafter issued by Bank from time to time at the request of and for the account of Borrower, including any renewal, replacement, substitution, extension or modification thereof.

–9–

         “Lien” means any lien (statutory or other), security interest, mortgage, pledge, hypothecation, assignment for the purpose of security, deposit arrangement for the purpose of security, encumbrance or preference, priority or other security agreement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement).

         “Line of Credit” means the secured revolving line of credit to Borrower in the maximum principal amount of Six Million Dollars ($6,000,000), governed by this Agreement, including any renewal or extension thereof.

         “Line of Credit Maturity Date” means September 30, 2005.

         “Loan Documents” means this Agreement, the Credit Note, the Security Agreement, the Policy Assignment, any Guaranty, any UCC Financing Statements and all other documents executed and delivered by Borrower or the Subsidiaries to govern, evidence or secure the Facilities.

         “Loss” shall have the meaning ascribed in Section 9.9 hereof.

         “Material Adverse Effect” means any event, circumstance or condition that could reasonably be expected to have a material adverse effect on (a) the business, operations, financial condition, Properties or prospects of Borrower and its Subsidiaries, taken as a whole, (b) the ability of Borrower to perform the Obligations, (c) the validity or enforceability of any of the Loan Documents, or any material provision thereof or any material transaction contemplated thereby, or (d) the rights and remedies of Bank under any of the Loan Documents.

         “Moody's” means Moody's Investors Service, Inc.

         “Net Mark-to-Market Exposure” of a Person means, as of any date of determination, the excess (if any) of all unrealized losses over all unrealized profits of such Person arising from Rate Hedging Agreements, where “unrealized losses” means the fair market value of the cost to such Person of replacing such Rate Hedging Agreement as of the date of determination (assuming the Rate Hedging Agreement were to be terminated as of that date), and “unrealized profits” means the fair market value of the gain to such Person of replacing such Rate Hedging Agreement as of the date of determination (assuming such Rate Hedging Agreement were to be terminated as of that date).

         “Net Worth” means the excess of a Person’s total assets over such Person’s total liabilities, as shown on the balance sheets furnished to Bank from time to time pursuant to Section 5.2.1 hereof.

         “New Subsidiary” has the meaning ascribed thereto in Section 5.1.3 hereof.

         “Obligations” means all unpaid principal and accrued and unpaid interest on the Credit Note, actual and contingent reimbursement obligations under the Letters of Credit, all accrued and unpaid fees hereunder, obligations of Borrower to Bank or an affiliate of Bank in respect of any Rate Hedging Obligations, and all other obligations, indemnities and liabilities of Borrower to Bank of every type and description, direct or indirect, joint, several or joint and several, absolute or contingent, arising in connection with the Facilities, due or to become due, now existing or hereafter arising and whether or not contemplated by Borrower or Bank as of the date hereof, including, without limitation, any Advances pursuant to any amendment of this Agreement, all reasonable costs of collection and enforcement of any and all thereof, including reasonable attorney fees.

–10–

         “Operating Lease” of a Person means any lease of Property (other than a Capitalized Lease) by such Person as lessee.

         “PBGC” means the Pension Benefit Guaranty Corporation established pursuant to ERISA, or any successor entity.

         “Permissible Increment” means a minimum principal amount of One Million Dollars ($1,000,000) and minimum increments of Five Hundred Thousand Dollars ($500,000) above One Million Dollars ($1,000,000).

         “Permitted Encumbrances” means (a) Liens for taxes or assessments which are not yet due, Liens for taxes or assessments or Liens of judgments which are being contested, appealed or reviewed in good faith by appropriate proceedings which prevent foreclosure of any such Lien or levy of execution thereunder and against which Liens, if any, adequate insurance or reserves have been provided; (b) pledges or deposits to secure payment of workers’ compensation obligations and deposits or indemnities to secure public or statutory obligations or for similar purposes; (c) those minor defects which in the opinion of Bank’s counsel do not materially affect title to the collateral for the Obligations; (d) Liens in favor of Bank; (e) Liens imposed by law, such as carrier’s, warehousemen’s and mechanic’s liens and other similar Liens arising in the ordinary course of business which secure payment of obligations not more than sixty (60) days past due; (f) utility easements, building restrictions, zoning ordinances and such other encumbrances or charges against real Property as are of a nature generally existing with respect to real Properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of Borrower; (g) lessors’ interests under Capitalized Leases now existing; (h) subject to the Intercreditor Agreement, the mortgage liens and assignment of rents in favor of Union Planters Bank, National Association encumbering the UPB Priority Collateral, as defined in the Intercreditor Agreement; (i) the mortgage lien in favor of Fifth Third Bank, Indiana (Central) encumbering the Baltimore, Maryland real estate to be acquired by Borrower as part of the Approved PKL Acquisition; and (j) those further encumbrances (if any) shown on Schedule 1 attached hereto.

         “Person” means and includes an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated association and a Governmental Authority.

         “Plan” means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which a Borrower may have any liability.

         “Policy Assignment” means the Assignment of Life Insurance Policy as Collateral, in substantially the form of Exhibit C hereto, duly executed by Borrower to Bank to secure the Obligations, including any amendment or modification thereof.

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         “Prime Rate” means the rate of interest quoted and announced as its prime rate by Bank, through its usual and customary procedures as established from time to time by Bank in its sole discretion with no responsibility to consult with or notify Borrower in connection with any changes in such procedures or rate, and for any specific time shall mean the prime rate then most recently announced as the prime rate of Bank, changing when and as such prime rate changes.

         “Prime Rate Advance” means any Advance when and to the extent that the interest rate thereof is determined by reference to the Prime Rate.

         “Property” of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person.

         “Qualified Investments” means (a) short term obligations of, or fully guaranteed by, the United States of America, (b) commercial paper rated A-1 or better by S&P or P-1 or better by Moody’s, (c) demand deposit accounts maintained in the ordinary course of business, and (d) certificates of deposit issued by commercial banks having capital and surplus in excess of One Hundred Million Dollars ($100,000,000).

         “Rate Hedging Agreement” means an agreement, device or arrangement providing for payments which are related to fluctuations of interest rates, exchange rates or forward rates, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants.

         “Rate Hedging Obligations” of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all Rate Hedging Agreements, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any Rate Hedging Agreement.

         “Rentals” means, as of the last day of any fiscal quarter of Borrower, the aggregate amount of rental expense (as determined in accordance with GAAP) under any Operating Lease for the four (4) consecutive fiscal quarters ending on the date of determination.

         “Reserves” means the maximum reserve requirement, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) with respect to “Eurocurrency liabilities” or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined or category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents.

         “S & P” means Standard and Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc.

         “Sale and Leaseback Transaction” means any sale or other transfer of any property by any Person with the intent to lease such property as lessee.

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         “Security Agreement” means the General Security Agreement, in substantially the form of Exhibit B hereto, duly executed by Borrower in favor of Bank to secure the Obligations, including any amendment or modification thereof.

         “Subordinated Debt” means Indebtedness of Borrower that is subordinated in writing to the full, final and irrevocable payment of the Obligations, in form and substance acceptable to Bank pursuant to either a Subordination Agreement or the documents evidencing such Indebtedness, provided Bank has specifically agreed in writing that such Indebtedness constitutes Subordinated Debt (which agreement Bank will not unreasonably refuse to make, delay making, or make conditional upon other terms).

         “Subordination Agreement” means each Subordination Agreement executed by a holder of Subordinated Debt, in the form prescribed by Bank, including any amendment or modification thereof.

         “Subsidiaries” means, as to any Person, (a) a corporation of which shares of stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the Board of Directors or other managers of such corporation are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person, and (b) any partnership, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a Fifty Percent (50%) equity interest.

         “Tangible Net Worth” means on any date of determination, the amount by which (a) Net Worth, exceeds (b) the sum of (i) all assets which would be classified as intangible assets under GAAP, including, without limitation, goodwill (whether representing the excess of cost over book value of assets acquired or otherwise), patents, tradenames, copyrights, franchises, operating permits, unamortized debt discount and expense, organization costs, and research and development costs, (ii) treasury stock and minority interests in subsidiaries or other entities, (iii) cash set apart and held in a sinking or other similar fund established for the purpose of redemption or other retirement of capital stock, and (iv) to the extent not otherwise deducted, reserves for depreciation, depletion, obsolescence and/or amortization of properties and all other reserves or appropriations of retained earnings which, in accordance with GAAP, should be established in connection with the business conducted by the subject Person, and (v) any revaluation or other write-up in book value of assets.

         “Taxes” shall have the meaning ascribed in Section 2.10 hereof.

         “Total Debt Ratio” means, with respect to Borrower, the ratio of (a) Indebtedness divided by (b) the sum of (i) Tangible Net Worth plus (ii) Subordinated Debt. The Total Debt Ratio shall be determined from the Financial Statements.

         “Type” means, with respect to any Advance, its nature as a Prime Rate Advance or a Eurodollar Rate Advance.

         “Unfunded Capital Expenditures” means capital expenditures not funded by long term Indebtedness, as shown on the balance sheet furnished to Bank from time to time pursuant to Section 5.2.1 hereof.

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         “Unmatured Default” means any event which with notice, or lapse of time, or both, would constitute a Default.

         “U.S. Subsidiary” means a Subsidiary organized or incorporated within the United States of America or within any United States territories or possessions.

         Section 1.2   Rules of Construction.    The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. Use of the terms “herein” “hereof”, and “hereunder” shall be deemed references to this Agreement in its entirety and not to the Section clause in which such term appears.

         Section 1.3   Accounting Terms.    All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistent with those applied in the preparation of the Financial Statements.

ARTICLE 2.         CREDIT

         Section 2.1   Line of Credit Commitment.    Subject to the terms and conditions of this Agreement, Bank shall make Advances under the Line of Credit available to Borrower in a maximum principal amount equal to the lesser of: (a) Six Million Dollars ($6,000,000), or (b) the Borrowing Base. Advances under the Line of Credit shall be evidenced by the Credit Note.

         Section 2.2   Interest; Unused Fees and Rate Selection.   

                 2.2.1.         Line of Credit - Interest. Prior to maturity or Default, the outstanding principal balance of Advances under the Line of Credit shall bear interest at a per annum rate equal to the Prime Rate plus the Applicable Margin, except that, at the option of Borrower as exercised as provided in Section 2.2.4 hereof, the outstanding principal balance of Advances under the Line of Credit in Permissible Increments may accrue interest at the Eurodollar Rate. At the expiration of each Interest Period, unless Borrower selects the Eurodollar Rate option as provided in Section 2.2.4 hereof, interest shall again accrue at a per annum rate equal to the Prime Rate plus the Applicable Margin.

                 2.2.2.         General. Interest shall be due and payable for the exact number of days principal is outstanding and shall be calculated on the basis of a three hundred sixty (360) day year. Any change in the interest rates occasioned by a change in the Prime Rate shall be effective on the same day as the change in the Prime Rate. After the maturity of any Facility, whether by acceleration or otherwise, and while and so long as there shall exist any uncured Default, the Facilities shall bear interest at a per annum rate equal to Four Percent (4%) above the otherwise applicable rates.

                 2.2.3.         Unused Fee/Reduction of Line of Credit Commitment. Borrower shall pay to Bank from and after the date hereof until the date on which Bank’s commitment under the Line of Credit is terminated in whole, an unused fee accruing at the rate of the Applicable Fee per annum on the average daily unborrowed portion of the Line of Credit minus outstanding Letters of Credit. All such unused fees payable under this clause shall be payable quarterly in arrears on the last day of each fiscal quarter of Borrower occurring after the date hereof (with the first such payment being calculated for the period from the date hereof and ending on December 31, 2002), and, in addition, on the date on which the Bank’s commitment under the Line of Credit is terminated in whole. Such unused fee shall be calculated on the basis of the actual number of days elapsed and a three hundred sixty (360) day year. Borrower may permanently reduce the Bank’s commitment under the Line of Credit, in whole or in part, in integral multiples of One Million Dollars ($1,000,000), upon at least three (3) Banking Days’ written notice to Bank, which notice shall specify the amount of any such reduction; provided, however, that the amount of Bank’s commitment under the Line of Credit may not be reduced below the aggregate principal amount outstanding thereunder.

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                 2.2.4.         Interest Rate Selection - Eurodollar Rate Option. A Eurodollar Rate may be elected only in accordance with the following procedures and subject to other conditions contained in this Agreement:

                 (a)         No Eurodollar Rate may be elected at any time a Default or an Unmatured Default exists.

                 (b)         Borrower shall notify Bank of its election or renewal of a Eurodollar Rate prior to 11:00 a.m. (Indianapolis time) not less than three (3) Banking Days prior to the commencement of the applicable Interest Period therefor specifying (i) the election or renewal date, (ii) the amount of the Advance (or Advances taken together) elected or renewed which amount shall be in a Permissible Increment, and (iii) the duration of the Interest Period selected to apply thereto.

                 (c)         An election of a Eurodollar Rate may be communicated by telephone or by telex, facsimile machine or other form of written electronic communication, or by a writing delivered to Bank. Borrower shall confirm in writing any election communicated by telephone. Bank shall be entitled to rely on any verbal communication of the election of a Eurodollar Rate which is received by a designated employee of Bank from anyone reasonably believed in good faith by such employee to be authorized.

                 (d)         Not more than three (3) Eurodollar Rate Advances may be selected at any one time to apply thereto.

         Section 2.3   Payments of Principal and Interest.

                 2.3.1.         Line of Credit. Interest only on the outstanding balance of Advances under the Line of Credit from time to time throughout the term of the Line of Credit shall be due and payable (a) on the last day of each calendar month with respect to each Prime Rate Advance, and (b) on the last day of an applicable Interest Period with respect to a Eurodollar Rate Advance. From time to time during the term of the Line of Credit, Borrower shall make principal payments in an amount sufficient that the outstanding principal balance of Advances under the Line of Credit shall not exceed the Borrowing Base. The entire principal balance of Advances under the Line of Credit, together with all accrued and unpaid interest thereon, and all fees and charges payable in connection therewith, shall be due and payable on the Line of Credit Maturity Date.

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                 2.3.2.         Method of Payment. All payments of principal and interest hereunder shall be made in immediately available funds to Bank at Bank’s address set forth on the signature page hereof or at any other place specified in writing by Bank to Borrower, by Noon (Indianapolis time) on the date when due. Borrower authorizes Bank to charge the account of Borrower maintained with Bank for each payment of principal, interest and fees as it becomes due hereunder.

                 2.3.3.         Banking Day. If any installment of principal or interest provided herein becomes due and payable on a date other than a Banking Day, the maturity of the installment of principal or interest shall be extended to the next succeeding Banking Day, and interest shall be payable during such extension of maturity.

         Section 2.4    Issuance of Letters of Credit. Subject to the terms and conditions hereof, the Line of Credit, at the option of Borrower upon delivery of a proper Letter of Credit Application, in the form prescribed by Bank, may also be utilized in the form of Letters of Credit issued by Bank for the account of Borrower. Each Letter of Credit shall have an expiration date not later than twelve (12) months from the date of issuance. The aggregate of the Letters of Credit outstanding at any time plus the aggregate amount of unreimbursed drawings under the Letters of Credit shall not exceed the lesser of the unborrowed available portion of the Line of Credit or One Million Dollars ($1,000,000). The amount of any Letter of Credit outstanding at any time for all purposes hereof shall be the maximum amount which could be drawn thereunder under any circumstances from and after the date of determination. The Letters of Credit and each unreimbursed drawing thereunder shall count against and reduce the available amount under the Line of Credit by the amount of any Letter of Credit outstanding unless and until such Letter of Credit expires by its terms or otherwise terminates or the amount of a drawing thereunder is reimbursed, in which event the Line of Credit shall be reinstated by the amount of such Letter of Credit or the amount of such reimbursement, as the case may be. Each such Letter of Credit shall conform to the general requirements of Bank for the issuance of such credits, as to form and substance, shall be subject to the Uniform Customs and Practices for Documentary Credits (1993 Revision) International Chamber of Commerce Publication No. 500 and shall be a letter of credit which Bank may lawfully issue. If and to the extent a drawing is at any time made under any Letter of Credit, Borrower agrees to pay to Bank immediately and unconditionally upon demand for reimbursement, in lawful money of the United States, an amount equal to each amount which shall be so drawn, together with interest from the date of such drawing to and including the date such payment is reimbursed to Bank or converted to an Advance under the Line of Credit as provided herein. Until demand for reimbursement, such interest shall be calculated at a variable per annum rate equal to the Prime Rate plus the Applicable Margin, and interest shall be calculated after such demand at a variable per annum rate equal to the Prime Rate plus the Applicable Margin plus Four Percent (4%). All such interest shall be calculated on the basis that an entire year’s interest is earned in three hundred sixty (360) days. Bank shall convert automatically the reimbursement obligations of Borrower arising out of any such drawing into Advances under the Line of Credit so long as the Line of Credit has not expired, and Borrower hereby irrevocably authorizes Bank to refinance, without notice to Borrower, the reimbursement obligation of Borrower arising out of any such drawing into Advances under the Line of Credit, evidenced by the Credit Note and for all purposes under, on and subject to the terms and conditions of this Agreement, without regard to the conditions precedent to making an Advance under the Line of Credit or to any requirement of this Agreement that each Advance be a minimal amount or multiple. This Agreement and the other Loan Documents shall supersede any terms of any letter of credit applications or other documents which are irreconcilably inconsistent with the terms hereof or thereof. Borrower agrees to pay to Bank, at the time of issuance, Letter of Credit fees equal to the Applicable Fee of the face amount of each commercial Letter of Credit and the Applicable Fee per annum of each standby Letter of Credit. Such Letter of Credit fees shall be due and payable upon issuance and thereafter quarterly in advance on the first day of each calendar quarter and shall be calculated on the basis that an entire year consists of three hundred sixty (360) days. Such fees shall not be reduced or refundable for any reason. Borrower shall also pay Bank’s reasonable and customary costs of issuing, servicing, and negotiating draws under the Letters of Credit. Borrower hereby authorizes Bank to collect such fees by deducting the amount thereof from any account of Borrower at Bank.

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         Section 2.5    Unconditional Reimbursement Obligation. The obligations of Borrower to reimburse any drawing under the Letters of Credit shall be absolute, unconditional and irrevocable and shall be paid and performed strictly in accordance with the terms of this Agreement, as applicable, under all circumstances, whatsoever, including, without limitation, the following:

                 (a)         any lack of validity or enforceability of any Letter of Credit or any Loan Document;

                 (b)         any amendment or waiver of or consent to departure from the terms of any Loan Document;

                 (c)         the existence of any claim, setoff, defense or other right which Borrower may have at any time against the beneficiary of a Letter of Credit, any transferee thereof, Bank or any other Person, whether in connection with the Loan Documents, any Letter of Credit or any unrelated transaction;

                 (d)         any statement, draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever;

                 (e)         the surrender or impairment of any security for the performance or observance of the terms of the Loan Documents or any Letter of Credit; or

                 (f)         any circumstance, happening or omission whatsoever, whether or not similar to any of the foregoing, including, without limitation, those matters described in Section 2.6 hereof.

         Section 2.6    Risk of Misuse of Letter of Credit. Except as expressly set forth herein, Borrower assumes all risk for the acts, omissions and/or misrepresentations of the parties benefited by a Letter of Credit. Neither Bank nor any of its affiliates or correspondents shall be responsible for the validity, sufficiency, truthfulness or genuineness of any document required to draw under a Letter of Credit even if such document should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged, provided only that the document appears on its face to be in accordance with the terms of such Letter of Credit and provided Bank is not grossly negligent or engaging in willful misconduct, or for failure of any draft to bear reference or adequate reference to a Letter of Credit or failure of any Person to note the amount of any draft on a Letter of Credit or to surrender or take up a Letter of Credit, each of which provisions may be waived by Bank, or for errors, omissions, interruptions, or delays in transmission or delivery of any messages or documents. Without limiting the generality of the foregoing, Borrower agrees that any action taken by Bank or any of its correspondents under or in connection with any Letter of Credit, if taken in good faith and without gross negligence, shall be binding upon Borrower and shall not put Bank or any such correspondent under any resulting liability to Borrower, and Borrower likewise agrees as to any omission unless in breach of good faith or grossly negligent. Bank is expressly authorized to honor any request for payment which is made under and in compliance with the terms of a Letter of Credit without regard to and without any duty on its part to inquire into the existence of any disputes or controversies between Borrower and the beneficiary of a Letter of Credit or any other Person or into the respective rights, duties or liabilities of any of them or whether any facts or occurrences represented in any of the documents presented under a Letter of Credit are true and correct. No Person, other than the parties hereto, shall have any rights of any nature under this Agreement or by reason hereof. In no event shall Bank’s reliance and payment against documents presented under any Letter of Credit appearing on its face to substantially comply with the terms thereof be deemed to constitute gross negligence or willful misconduct.

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         Section 2.7    Prepayment/Exit Fee. Subject to the provisions of this Agreement, Borrower may borrow, pay, reborrow and repay the available principal amount of the Line of Credit at any time, and from time to time, in any multiple, without premium or penalty, except that Eurodollar Rate Advances may only be prepaid on the last day of the applicable Interest Period therefor. In the event the Line of Credit or this Agreement is terminated prior to September 30, 2005 as a result of the Line of Credit being refinanced with funds provided by a financial institution other than Bank, Borrower shall pay Bank an exit fee in the amount of One Hundred Fifty Thousand Dollars ($150,000).

         Section 2.8    Use of Proceeds. The proceeds of Advances under the Line of Credit shall be used for working capital purposes of Borrower and its U.S. Subsidiaries (including refinancing certain existing indebtedness to Bank One, NA), and may be used to pay closing costs related to the Approved PKL Acquisition, and to fund the Approved LCR Acquisition.

         Section 2.9    Method of Advance.

                 2.9.1.         Line of Credit. Except as to autoline Advances (if applicable), Borrower shall give Bank telephonic, telex or telegraphic notice of its intention to borrow under the Line of Credit by not later than 10:00 o’clock a.m. (Indianapolis time) on the proposed borrowing date which shall be a Banking Day, subject to Section 2.2.4 hereof with respect to Eurodollar Rate Advances. Each request once received by Bank shall be irrevocable, subject to Section 2.13 hereof. Borrower agrees that Bank may rely on any such telephonic, telex, or telegraphic notices made by any Person whom Bank in good faith believes to be authorized. If Bank requests, each requested Advance based on telephonic notice shall be confirmed in writing by Borrower. In the event any notice by such means shall conflict with the written confirmation, such notice shall govern if Bank has acted in good faith in reliance thereon. Each request shall in and of itself constitute a representation and warranty on behalf of Borrower that no Default or Unmatured Default has occurred and is continuing or would result from the making of the requested Advance and that the requested Advance shall not cause the principal balance of the Line of Credit to exceed the maximum amount available under the Line of Credit from time to time. Other than autoline Advances and subject to Section 2.2.4 hereof with respect to Eurodollar Rate Advances, the principal amount of Advances under the Line of Credit made on any borrowing date shall be in minimum amounts of Fifty Thousand Dollars ($50,000) and in integral multiples of One Thousand Dollars ($1,000) in excess thereof.

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                 2.9.2.         General. All Advances by Bank under the Facilities and payments by Borrower on the Facilities shall be recorded by Bank on its books and records, and the principal amount outstanding from time to time, plus interest payable thereon, shall be determined from the books and records of Bank. The books and records of Bank shall be presumed prima facie correct as to such matters.

         Section 2.10   Taxes.

                 2.10.1.         General. All payments by Borrower under this Agreement or the Credit Note shall be made free and clear of, and without deduction or withholding for, any present or future income, stamp or other taxes, levies, duties, imposts, charges or fees or any related penalties, interest or other liabilities (“Taxes”). If any Taxes are required to be deducted or withheld from any amount payable to Bank under this Agreement or the Credit Note, Borrower shall pay additional amounts so that the amount received by Bank after the deduction of such Taxes (including Taxes on such additional amounts) equals the amount that the Bank would have received if no Taxes had been deducted. Borrower shall pay to the appropriate taxing authority all Taxes required to be deducted or withheld. Within thirty (30) days after paying any such Taxes, Borrower shall deliver to Bank the original or a certified copy of the receipt for such payment. Borrower shall not be required to pay additional amounts to Bank on account of any Taxes, including, but not limited to, income taxes, imposed solely by reason of a present or past connection between Bank and the jurisdiction imposing such Taxes (except a connection arising solely from the execution, delivery, performance, enforcement of or the receipt of payments under this Agreement or the Credit Note).

                 2.10.2.         Tax Indemnity. Borrower shall indemnify Bank against any Taxes imposed on (and any related expenses reasonably incurred by) Bank on account of the execution, delivery, performance or enforcement of or the receipt of payments under this Agreement or the Credit Note other than Taxes imposed solely by reason of the cause specified in the last sentence of Section 2.10.1 hereof. Borrower also shall pay and indemnify Bank against any stamp or other documentary, excise or property taxes or similar levies, imposts, or charges (or any related liability) arising from the execution, delivery, registration, performance or enforcement of this Agreement or the Credit Note.

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         Section 2.11    Yield Protection. If, on or after the date of this Agreement, the adoption of any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any change in the interpretation or administration thereof by any governmental or quasi-governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Bank with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency:

                 (a)        subjects Bank to any Taxes, or changes the basis of taxation of payments (other than with respect to Taxes imposed only by reason of the cause specified in the last sentence of Section 2.10.1 hereof) to Bank in respect of its Eurodollar Rate Advances, or

                 (b)         imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, Bank (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Rate Advances), or

                 (c)         imposes any other condition the result of which is to increase the cost to Bank of making, funding or maintaining its Eurodollar Rate Advances or reduces any amount receivable by Bank in connection with its Eurodollar Rate Advances, or requires Bank to make any payment calculated by reference to the amount of Eurodollar Rate Advances held or interest received by it, by an amount deemed material by Bank,

and the result of any of the foregoing is to increase the cost to Bank of making or maintaining its Eurodollar Rate Advances or Commitment or to reduce the return received by Bank in connection with such Eurodollar Rate Advances or Bank’s commitment, then, within fifteen (15) days of demand by Bank, Borrower shall pay Bank such additional amount or amounts as will compensate Bank for such increased cost or reduction in amount received.

         Section 2.12    Changes in Capital Adequacy Regulations. If Bank determines the amount of capital required or expected to be maintained by Bank or any corporation controlling Bank is increased as a result of a Change, then, within fifteen (15) days of demand by Bank, Borrower shall pay Bank the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which Bank determines is attributable to this Agreement, the Facilities or its commitment to make Advances hereunder (after taking into account Bank’s policies as to capital adequacy). “Change” means (a) any change after the date of this Agreement in the Risk-Based Capital Guidelines, or (b) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by Bank or any corporation controlling Bank. “Risk-Based Capital Guidelines” means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled “International Convergence of Capital Measurements and Capital Standards,” including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. The obligations of Borrower under this Section shall survive payment of the Obligations and termination of this Agreement.

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         Section 2.13    Funding Indemnification. If any payment of a Eurodollar Rate Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Rate Advance is not made on the date specified by Borrower for any reason other than default by Bank, or Borrower attempts to revoke (expressly, by later inconsistent notices or otherwise) in whole or in part any notice stated herein to be irrevocable (Bank having in its sole discretion the option (a) to give effect to such attempted revocation and obtain indemnity under this Section, or (b) to treat such attempted revocation as having no force or effect, as if never made), Borrower will indemnify Bank for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain such Eurodollar Rate Advance.

         Section 2.14    Availability of Types of Advances. If Bank determines that maintenance of its Eurodollar Rate Advances would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if Bank determines that (a) deposits of a type and maturity appropriate to match fund Eurodollar Rate Advances are not available or (b) the interest rate applicable to a Type of Advance does not accurately reflect the cost of making or maintaining such Advance, then Bank shall suspend the availability of the affected Type of Advance and require any affected Eurodollar Rate Advances to be repaid or converted to Prime Rate Advances, subject to the payment of any funding indemnification amounts required by Section 2.13.

         Section 2.15    Bank Statements; Survival of Indemnity. To the extent reasonably possible, Bank shall designate an alternate lending installation with respect to its Eurodollar Rate Advances to reduce any liability of Borrower to Bank under Section 2.11 or to avoid the unavailability of Eurodollar Rate Advances under Section 2.14, so long as such designation is not, in the judgment of Bank, disadvantageous to Bank. Bank shall deliver a written statement to Borrower as to the amount due, if any, under Section 2.11, Section 2.12 or Section 2.13. Such written statement shall set forth in reasonable detail the calculations upon which Bank determined such amount and shall be final, conclusive and binding on Borrower in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Rate Advance shall be calculated as though Bank funded its Eurodollar Rate Advance through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate Advance, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement of Bank shall be payable on demand after receipt by Borrower of such written statement. The obligations of Borrower under Section 2.11, Section 2.12 and Section 2.13 shall survive payment of the Obligations and termination of this Agreement.

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ARTICLE 3.         SECURITY AND GUARANTY

         Section 3.1    Security. The Obligations shall be secured by the following:

                 (a)         the Security Agreement constituting a first priority security interest in all Accounts, Inventory, General Intangibles, Chattel Paper, Equipment, Goods, Deposit Accounts, Instruments, Investment Property (provided that only 65% of Borrower’s interest in non-U.S. Subsidiaries shall be pledged), Documents and all other personal property of Borrower (excluding Fixtures) now owned or hereafter acquired and all Proceeds thereof;

                 (b)         the Policy Assignment constituting collateral assignment to Bank of an acceptable life insurance policy owned by Borrower insuring the life of Peter Kissinger in the face amount of not less than One Million Dollars ($1,000,000); and

                 (c)         such other security interests as may be described in the Loan Documents.

         Section 3.2    Addition of Guarantors; Addition of Pledged Capital Stock and other Collateral. Borrower shall cause each U.S. Subsidiary that is a Subsidiary as of the date of this Agreement or at any time thereafter, to deliver to Bank an executed Guaranty and appropriate corporate resolutions, opinions and other documentation in form and substance reasonably satisfactory to Bank, such Guaranty and other documentation to be delivered to Bank as promptly as possible but in any event (a) within two (2) Banking Days after the date of the consummation of a permitted Acquisition involving such Subsidiary and (b) otherwise within thirty (30) days of determination that a Subsidiary needs to be added as a Guarantor. Simultaneously with any Subsidiary becoming a Guarantor, Borrower shall (or, if the capital stock of such Subsidiary is owned by another Subsidiary, shall cause such other Subsidiary to) deliver to Bank an executed supplement to the existing Security Agreement or a new Pledge Agreement, together with appropriate corporate resolutions, opinions, stock certificates, UCC filings or amendments and other documentation, in each case in form and substance reasonably satisfactory to Bank and Bank shall be reasonably satisfied that it has a first priority perfected pledge of all of the outstanding capital stock of each U.S. Subsidiary and 65% of the outstanding capital stock of each non-U.S. Subsidiary, in either case, owned by Borrower and its Subsidiaries. Simultaneously with any U.S. Subsidiary becoming a Guarantor, Borrower shall, or shall cause such U.S. Subsidiary to, (i) execute and deliver a Security Agreement (and deliver the other documents required thereby) and such other collateral documents as Bank may require in its sole and reasonable discretion; and (ii) deliver such other documentation as Bank may reasonably require in connection with the foregoing, including, without limitation, appropriate UCC financing statements, UCC searches, certified resolutions and other organizational and authorizing documents of such U.S. Subsidiary, favorable opinions of counsel to such U.S. Subsidiary (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to above and the perfection of Bank’s liens thereunder) and other items of the types required to be delivered by Borrower pursuant to Section 6.1 as of the closing date, all in form, content and scope reasonably satisfactory to Bank.

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         Section 3.3    Additional Collateral/Setoff. Borrower hereby grants to Bank (and any participant of the Facilities), as additional security for the Obligations, a continuing lien upon all monies, securities and other property of Borrower now or hereafter held or received by, or in transit to, Bank from or for Borrower. Bank (and any such participant of the Facilities) is authorized at any time and from time to time while there exists a Default, without notice to Borrower, and shall have the right to setoff, appropriate and apply its own debt or liability to Borrower, or to any other Person liable for the Obligations, in whole or partial payment of any Obligation in such order or manner as Bank may reasonably determine, without any requirements of mutual maturity.

ARTICLE 4.         REPRESENTATIONS AND WARRANTIES

         Borrower represents, covenants and warrants to Bank as follows:

         Section 4.1    Due Organization. Borrower is a corporation duly organized and validly existing under the laws of the State of Indiana.

         Section 4.2    Due Qualification. Borrower and each Subsidiary is qualified, in good standing and authorized to do business as a foreign corporation or limited liability company in such other states wherein the failure to so qualify would have a Material Adverse Effect.

         Section 4.3    Corporate Power. Borrower possesses the requisite power to enter into the Loan Documents, as applicable, to borrow thereunder, to execute and deliver the Loan Documents and to perform its respective obligations thereunder.

         Section 4.4    Corporate Authority. Borrower has taken the necessary corporate action to authorize the execution and delivery of the Loan Documents, as applicable, and the borrowings thereunder and the granting of the security interests therein, and none of the provisions of the Loan Documents violate, breach, contravene, conflict with, or cause a default under any provision of the articles of incorporation, or by-laws of Borrower or any provision of any existing note, bond, mortgage, debenture, indenture, trust, license, lease, instrument, decree, order, judgment, or agreement to which Borrower is a party or by which it or its assets may be bound or affected, which in any case is reasonably likely to have a Material Adverse Effect.

         Section 4.5    Financial Statements. The Financial Statements were prepared in accordance with GAAP consistent with prior years, unless specifically otherwise noted thereon, and fairly present in all material respects the financial condition of Borrower as of the date thereof and the results of its operations for the period then ended, and no material adverse change in the financial condition of Borrower has occurred since the date of the Financial Statements.

         Section 4.6    No Material Adverse Change. The information submitted by Borrower to Bank discloses all known or anticipated material liabilities, direct or contingent, of Borrower as of the dates thereof, and, to the best knowledge of Borrower, since such dates, there has been no material adverse change in Borrower’s financial condition.

         Section 4.7    Subsidiaries. Except as disclosed on Schedule 4.7 hereto, Borrower has no Subsidiaries.

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         Section 4.8    Binding Obligations. Each of the Loan Documents, when issued for value, will constitute a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as the same may be limited by reorganization, bankruptcy, insolvency, moratorium or other laws affecting generally the enforcement of creditors’ rights.

         Section 4.9    Marketable Title. Borrower and each Subsidiary has good and marketable title to all of its real Property and good title to all of its other Properties shown on the Financial Statements, except such Properties as have been disposed of since the date of the Financial Statements in the ordinary course of business. Except for Permitted Encumbrances, (a) the assets of Borrower and the Subsidiaries are not subject to any Lien and the security interests in favor of Bank under the Loan Documents will constitute first, senior and prior perfected security interests in the collateral therein described, and (b) no financing statement or similar instrument which names Borrower or its Subsidiaries as debtor or relates to any of its Property, has been filed in any state or other jurisdiction and remains unreleased, and Borrower and its Subsidiaries have not signed any financing statement or similar instrument or security agreement authorizing the secured party thereunder to file any such financing statement or similar instrument.

         Section 4.10    Indebtedness. Except as shown on the Financial Statements, except as set forth on Schedule 4.10 hereto, and except for trade debt incurred in the ordinary course of business since the date of the Financial Statements, neither Borrower nor any Subsidiary has any outstanding Indebtedness.

         Section 4.11    Default. Neither Borrower nor any Subsidiary has committed or suffered to exist any default or any circumstance which with notice, lapse of time, or both, would constitute a default under the terms and conditions of any trust, debenture, indenture, note, bond, instrument, mortgage, lease, agreement, order, decree, or judgment to which Borrower or a Subsidiary is a party or by which it or its assets may be bound or affected, which in any case is reasonably likely to have a Material Adverse Effect.

         Section 4.12    Tax Returns. All tax returns or reports of Borrower and its Subsidiaries required by law have been filed, and all taxes, assessments, contributions, fees and other governmental charges (other than those presently payable without penalty or interest and those currently being contested in good faith and against which adequate reserves have been established) upon Borrower, its Subsidiaries or their assets, properties or income, which are payable, have been paid, except for the failure to file or pay that are not reasonably likely to have a Material Adverse Effect.

         Section 4.13    Litigation. Except as set forth on any Schedule 4.13 hereto, no litigation or proceeding of any Governmental Authority or other Person is presently pending or, to Borrower’s knowledge, threatened, nor has any claim been asserted, against Borrower or its Subsidiaries which, if adversely determined, is reasonably likely to have a Material Adverse Effect.

         Section 4.14    ERISA. Borrower and each ERISA Affiliate is in compliance in all material respects with all applicable provisions of ERISA, and neither Borrower nor any ERISA Affiliate has incurred any liability to the PBGC. Neither a “reportable event”, nor a “prohibited transaction”, has occurred under, nor has there occurred any complete or partial withdrawal from, nor has there occurred any other event which would constitute grounds for termination of or the appointment of a trustee to administer any “employee benefit plan” (including any “multi-employer plan”) maintained for employees of Borrower or any ERISA Affiliate, all within the meanings ascribed by ERISA.

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         Section 4.15    Full Disclosure. No information, exhibit, memorandum, or report (excluding estimated future operating results) furnished by Borrower to Bank in connection with the negotiation of the Facilities contains any material misstatement of fact, or omits to state any material fact necessary to make the statements contained therein not materially misleading in light of the circumstances when made, and all estimated future operating results, if furnished, were prepared on the basis of assumptions, data, information, tests or other conditions believed to be valid or accurate or to exist at the time such estimates were prepared and furnished. To Borrower’s knowledge, there presently exists no fact or circumstance relative to Borrower or its Subsidiaries, whether or not disclosed, which is presently anticipated to have a Material Adverse Effect.

         Section 4.16    Contracts of Surety. Except for the endorsements of Borrower or a Subsidiary of negotiable instruments for deposit or collection in the ordinary course of business and except the Guaranty, neither Borrower nor any Subsidiary is a party to any contract of guaranty or surety.

         Section 4.17    Licenses. Borrower and each Subsidiary possesses such franchises, licenses, permits, patents, copyrights, trademarks, and consents of appropriate Governmental Authorities to own its property (including any assets acquired pursuant to the Approved PKL Acquisition and the Approved LCR Acquisition) and as are necessary to carry on its business, except where the failure to obtain any of the foregoing, singularly or in aggregate, is not reasonably likely to have a Material Adverse Effect.

         Section 4.18    Compliance with Law. Borrower and each Subsidiary is in substantial compliance with all applicable requirements of law and of all Governmental Authorities noncompliance with which is reasonably likely to have a Material Adverse Effect.

         Section 4.19    Force Majeure. Neither the business nor the properties of Borrower or a Subsidiary are presently affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty that is reasonably likely to have a Material Adverse Effect.

         Section 4.20    Margin Stock. Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of the Facilities will be used, either directly or indirectly, for the purpose, whether immediate, incidental or remote, of purchasing or carrying any margin stock or of extending credit to others for the purpose of purchasing or carrying any margin stock, and Borrower shall furnish to Bank, upon its request, a statement in conformity with the requirements of Federal Reserve Board Form U-1 referred to in Regulation U. Further, no part of the proceeds of the Facilities will be used for any purpose that violates, or which is inconsistent with, the provisions of Regulations T, U or X of the Board of Governors.

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         Section 4.21    Approvals. No authorization, consent, approval or any form of exemption of any Governmental Authority is required in connection with the execution and delivery by Borrower of the Loan Documents, the borrowings and performance by Borrower thereunder or the issuance of the Credit Note.

         Section 4.22    Insolvency. Borrower and each Subsidiary is not “insolvent” within the meaning of that term as defined in the Federal Bankruptcy Code and each is able to pay its debts as they mature.

         Section 4.23    Regulation. Borrower is not an “investment company” within the meaning of the Investment Company Act of 1940, as amended, or a “holding company” or an “affiliate of a holding company” or a “subsidiary of a holding company” within the meanings of the Public Utility Holding Company Act of 1935, as amended.

         Section 4.24    Environmental Matters. In the ordinary course of its business, Borrower conducts an ongoing review of the effect of Environmental Laws on the business, operations and Properties of Borrower and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including any capital or operating expenditures required for clean-up or closure of Properties presently owned or operated, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by Environmental Laws or as a condition of any license, permit or contract any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, Borrower has reasonably concluded that Environmental Laws cannot reasonably be expected to have a Material Adverse Effect. Borrower has not received any notice to the effect that its operations are not in compliance with any of the requirements of applicable Environmental Laws or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any Hazardous Materials. Except as disclosed in writing to Bank as of the date of this Agreement, to the best of its knowledge (provided that clause (e) below is not subject to any such knowledge qualification except as specifically provided in clause (e)):

                 (a)         All facilities and Property (including underlying groundwater) owned, leased or operated by Borrower and its Subsidiaries have been, and continue to be, owned, leased or operated by Borrower or such Subsidiary in compliance with all applicable Environmental Laws, except for incidences of noncompliance which, singly or in the aggregate, have not, or may not reasonably be expected to have, a Material Adverse Effect;

                 (b)         There have been no past unresolved, and there are no pending or threatened,

                 (i)         claims, complaints, notices or inquiries, to, or requests for information received by, Borrower and its Subsidiaries with respect to any alleged violation of any Environmental Law, that, singly or in the aggregate, have had, or may reasonably be expected to have, a Material Adverse Effect, or

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                 (ii)         claims, complaints, notices or inquiries to, or requests for information received by, Borrower and its Subsidiaries regarding potential liability under any Environmental Law or under any common law theories relating to operations or the condition of any facilities or Property by Borrower or such Subsidiary that, singly or in the aggregate, have had, or may reasonably be expected to have, a Material Adverse Effect.

                 (c)         There have been no releases of Hazardous Materials, at, on or under any Property now or previously owned or leased by Borrower or its Subsidiaries that, singly or in the aggregate, have had, or may reasonably be expected to have, a Material Adverse Effect;

                 (d)         Borrower and each Subsidiary has been issued and is in compliance with all permits, certificates, approvals, licenses and other authorizations relating to environmental matters and necessary for its business, the noncompliance with which, singly or in the aggregate, has not had, or is not reasonably expected to have, a Material Adverse Effect;

                 (e)         No Property now or previously owned, leased or operated by Borrower or its Subsidiaries is listed or, to the best knowledge of Borrower, proposed for listing on the National Priorities List pursuant to CERCLA (or any similar Environmental Law) or on the CERCLIS or on any other federal or state list of sites requiring investigation or clean-up, to the extent that any such listing, singly or in the aggregate, has had, or may reasonably be expected to have, a Material Adverse Effect;

                 (f)         There are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any Property now or previously owned, leased or operated by a Borrower or its Subsidiaries that, singly or in the aggregate, have had, or may reasonably be expected to have had, a Material Adverse Effect;

                 (g)         Neither Borrower nor any Subsidiary has directly transported or directly arranged for the transportation of any Hazardous Material to any location (i) which is listed or proposed for listing on the National Priorities List pursuant to CERCLA (or any similar Environmental Law) or on the CERCLIS or on any federal or state list, to the extent that any such listing, singly or in the aggregate, has had, or may reasonably be expected to have, a Material Adverse Effect, or (ii) which is the subject of federal, state or local enforcement actions or other investigations which may lead to claims against Borrower or such Subsidiary for any remedial work, damage to natural resources or personal injury, including claims under any Environmental Law, to the extent that such claims, singly or in the aggregate, has had, or may reasonably be expected to have, a Material Adverse Effect;

                 (h)         There are no polychlorinated biphenyl, radioactive materials or friable asbestos present at any Property now or previously owned or leased by Borrower or its Subsidiaries that, singly or in the aggregate, have had, or may reasonably be expected to have, a Material Adverse Effect; and

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                 (i)         No condition exists at, on or under any Property now or previously owned or leased by Borrower or its Subsidiaries which, with the passage of time, or the giving of notice or both, would give rise to material liability under any Environmental Law that, singly or in the aggregate may reasonably be expected to have a Material Adverse Effect.

         Section 4.25    Conditions Precedent. Each item furnished to Bank pursuant to Section 6.1 hereof is a true and correct copy thereof, has not been modified or amended and is in full force and effect on the date hereof.

         Section 4.26    General. All statements contained in any certificate or financial statement delivered by or on behalf of Borrower to Bank under any Loan Document shall constitute representations and warranties made by Borrower hereunder.

ARTICLE 5.         COVENANTS

         Section 5.1    Negative Covenants. Until the Obligations shall have been fully and finally paid and performed, and so long as any commitment of Bank is outstanding, without the prior written consent of Bank, Borrower shall not and shall not permit any Subsidiary to:

                 5.1.1.         Dispose of Collateral. Sell, transfer, lease or otherwise dispose of any collateral granted or pledged to Bank, or discount, with or without recourse, any Accounts, except (a) for sales from Inventory in the ordinary course of business, (b) as otherwise provided in the Security Agreement and (c) the write-off of uncollectible Accounts in the ordinary course of business.

                 5.1.2.         Further Encumber. Except for Permitted Encumbrances, create or suffer to exist any Lien upon any of its Properties, whether now owned or hereafter acquired.

                 5.1.3.         Conduct of Business; Subsidiaries; Acquisitions.

                 (a)         Neither Borrower nor any of its Subsidiaries shall engage in any business other than the businesses engaged in by Borrower on the date hereof, those business engaged in by the entities acquired in the Approved PKL Acquisition, the Approved LCR Acquisition or in other Acquisitions approved in writing by Bank, and any business or activities which are substantially similar, related or incidental thereto.

                 (b)         Borrower shall not create, acquire or capitalize any Subsidiary (a “New Subsidiary”) after the date hereof pursuant to any transaction unless such transaction is permitted by or not otherwise prohibited by this Agreement and upon the creation or acquisition of each New Subsidiary, Borrower shall cause each New Subsidiary to promptly deliver to Bank the documents, instruments and agreements required pursuant to Section 3.3 hereof. After the formation or acquisition of any New Subsidiary permitted hereunder, if requested by Bank, Borrower shall provide a supplement to Schedule 4.7 to this Agreement.

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                 (c)         Borrower shall not and shall not permit any of its Subsidiaries to make any Acquisitions, except so long as there then exists no Default and no Default would be occasioned thereby and subject to compliance with the other provisions of this Agreement, the Approved PKL Acquisition and the Approved LCR Acquisition.

                 5.1.4.         Purchase Stock. Purchase, redeem, retire or otherwise acquire any outstanding shares of its capital stock.

                 5.1.5.         Sell and Leaseback. Other than a leaseback of the real estate sold in accordance with Section 5.2.18 hereof, enter into any Sale and Leaseback Transaction.

                 5.1.6.         Borrowings/Subordinated Debt Payments. Create, incur, assume or suffer to exist any Indebtedness, except (a) trade accounts and normal business accruals payable in the ordinary course of business, (b) Indebtedness to Bank, (c) Subordinated Debt, (d) Indebtedness owed to Union Planters Bank, National Association in the maximum principal amount of Ten Million Dollars ($10,000,000), (e) Indebtedness owed to Fifth Third Bank, Indiana (Central) in the maximum principal amount of Three Million Five Hundred Thousand Dollars ($3,500,000), and (f) as set forth on Schedule 5.1.6 hereto. Borrower and its Subsidiaries shall not make any payment in respect of any of the Subordinated Debt, except (i) as permitted in the applicable Subordination Agreement, or (ii) pursuant to the terms of the documents evidencing Subordinated Debt that Bank has specifically approved in writing to constitute Subordinated Debt, notwithstanding the absence of a Subordination Agreement.

                 5.1.7.         Investments. Make any Investment, except (a) advances to trade debtors in the ordinary course of business, (b) Qualified Investments, (c) existing Investments described on Schedule 5.1.7 hereto, (d) Investments to and in (i) a U.S. Subsidiary that is a Guarantor, or (ii) foreign Subsidiaries in an amount at any time not exceeding One Million Five Hundred Thousand Dollars ($1,500,000) in the aggregate in addition to the existing investments in foreign Subsidiaries shown on Schedule 5.1.7, provided that in any case under clause (d) above there exists no Default or Unmatured Default at the time of, or after giving effect to, such Investment and provided the Subsidiary is not “insolvent” at the time of such Investment nor rendered “insolvent” (as such terms are used in the Federal Bankruptcy Code) by such Investment, and loans and advances to Borrower by a Guarantor, and (e) loans to Pharmakinetics Laboratories, Inc. in an aggregate amount not exceeding Five Hundred Thousand Dollars ($500,000) secured by a first priority security interest in all personal property.

                 5.1.8.         Guarantees. Assume, guarantee or otherwise become liable as a guarantor or surety for the obligations of any Person, except (a) the endorsements by Borrower of negotiable instruments for deposit or collection in the ordinary course of business, and (b) those in favor of Bank.

                 5.1.9.         Change Name or Place of Business. Change its name or principal place of business, except on not less than thirty (30) days prior written notice to Bank.

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                 5.1.10.         Special Corporate Transactions. Engage in any transaction with any Person other than in the ordinary course of business.

                 5.1.11.         Accounting Policies. Change its fiscal year or any of its significant accounting policies, except to the extent necessary to comply with GAAP.

                 5.1.12.         Change of Business. Make any material change in the nature of its business as carried on as of the date of this Agreement, other than as a result of the Approved PKL Acquisition or the Approved LCR Acquisition.

                 5.1.13.         Benefit Plans. Permit any condition to exist in connection with any employee benefit plan which might constitute grounds for the PBGC to institute proceedings to have the employee benefit plan terminated or a trustee appointed to administer the employee benefit plan; or engage in, or permit to exist or occur any other condition, event or transaction with respect to any employee benefit plan which could result in Borrower incurring any material liability, fine or penalty.

                 5.1.14.         Adversity. Permit any event to occur or condition to exist which has a Material Adverse Effect.

                 5.1.15.         Dividends/Distributions. Declare or pay any dividend or make any distribution on account of stock, in cash or other property.

                 5.1.16.         Restrictive Agreements. Enter into any agreement (excluding any restrictions existing under the Loan Documents) prohibiting (a) the creation or assumption of any lien upon any of its Property, (b) the ability of Borrower to amend or otherwise modify this Agreement or any other Loan Document, or (c) the ability of any Subsidiary to make any payment, directly or indirectly, to Borrower by way of advances, repayments of loans or advances or otherwise.

                 5.1.17.         Transactions with Shareholders and Affiliates. Neither Borrower nor any of its Subsidiaries shall directly or indirectly enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder or holders of any of the capital stock of Borrower, or with any Affiliate of Borrower which is not its Subsidiary, on terms that are less favorable to Borrower or any of its Subsidiaries, as applicable, than those that might be obtained in an arm’s length transaction at the time from Persons who are not such a holder or Affiliate.

         Section 5.2    Affirmative Covenants. Until the Obligations shall have been fully and finally paid and performed, and so long as any commitment of Bank is outstanding, unless expressly waived in writing by Bank, Borrower shall:

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                 5.2.1.         Financial Reporting. Furnish or caused to be furnished to Bank:

                 (a)         as soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year, consolidated and consolidating financial statements of Borrower, including a balance sheet, statement of income and retained earnings and a statement of cash flows, with accompanying notes to financial statements, all prepared in accordance with GAAP on a consolidated basis consistent with prior years unless specifically noted thereon, accompanied by the unqualified opinion of Ernst & Young or other independent certified public accountants acceptable to Bank and shall state that such financial statements fairly present in all material respects the consolidated financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flows for the periods indicated in conformity with GAAP and that the examination by such accountants in connection with such consolidated and consolidating financial statements has been made in accordance with generally accepted auditing standards, and further accompanied by the certificate of the chief financial officer of Borrower that there exists no Default or Unmatured Default under the Loan Documents, or if any Default or Unmatured Default exists, stating the nature and status thereof;

                 (b)         as soon as possible, but in any event within thirty (30) days after the end of each month, similar consolidated financial statements of Borrower as of the end of such month and the results of its operations for the portion of the fiscal year then elapsed, prepared and signed by the chief financial officer of Borrower, all prepared in accordance with GAAP on a consolidated basis consistent with prior periods, unless specifically otherwise noted thereon, except for the omission of full footnotes which may be required under GAAP and subject to normal year end adjustments, and accompanied by the certificate of the chief financial officer of Borrower that there exists no Default or Unmatured Default under the Loan Documents or if any Default or Unmatured Default exists, stating the nature and status thereof;

                 (c)         as soon as possible, but in any event within five (5) days after Borrower becomes aware thereof, a written statement signed by the chief executive or chief financial officer of Borrower as to the occurrence of any Default or Unmatured Default stating the specific nature thereof, Borrower’s intended action to cure the same and the time period in which such cure is to occur;

                 (d)         as soon as possible, but in any event within thirty (30) days after the commencement thereof, a written statement describing any litigation instituted by or against Borrower, its Subsidiaries or any Affiliate which, if adversely determined, may have a Material Adverse Effect;

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                 (e)         within ten (10) Banking Days after the end of each calendar month, a Borrowing Base Certificate, in the form prescribed by Bank, executed by the chief financial officer of Borrower, evidencing the Borrowing Base as of the close of the immediately preceding calendar month, showing the calculation thereof, the outstanding principal amount of the Facilities (including, without limitation, Letters of Credit) and such other information as Bank may reasonably request;

                 (f)         within ten (10) Banking Days after the end of each calendar month, a certificate setting forth, as of the end of such immediately preceding month, an accounts receivable aging statement and an accounts payable aging statement of Borrower;

                 (g)         within thirty (30) days after the end of each calendar month, a Compliance Certificate, in form and substance acceptable to Bank, showing Borrower’s compliance with the financial covenants set forth in Section 5.3 hereof;

                 (h)         as soon as possible, but in any event within ten (10) days after Borrower becomes aware thereof, a written statement describing any reportable event or prohibited transaction which has occurred with respect to any employee benefit plan and the action which Borrower proposes to take with respect thereto;

                 (i)         as soon as practicable, but in any event within ten (10) days after the filing with the Securities and Exchange Commission, or any successor thereto, or any states’ securities regulatory authority, copies of all registration statements and all periodic and special reports required or permitted to be filed under federal or state securities laws and regulations;

                 (j)         as soon as practicable, but any event within ten (10) days after receipt by Borrower, a copy of any notice, complaint, Lien, inquiry or claim (i) to the effect that Borrower is or may be liable to any Person as a result of the release by Borrower, or any other Person of any Hazardous Substance into the environment, or (ii) alleging any violation of any Environmental Law by Borrower, which, in either case, could reasonably be expected to have a Material Adverse Effect; and

                 (k)         such other information as Bank may from time to time reasonably request.

                 5.2.2.         Good Standing. Maintain, and cause each Subsidiary to maintain, its corporate existence and right to do business in its state of organization and in such other states wherein non-qualification is reasonably likely to have a Material Adverse Effect.

                 5.2.3.         Taxes, Etc. Pay and discharge, and cause each Subsidiary to pay and discharge, all taxes, assessments, judgments, orders, and governmental charges or levies imposed upon it or on its income or profits or upon its property prior to the date on which penalties attach thereto and all lawful claims which, if unpaid, may become a Lien or charge upon its Property, provided that Borrower and its Subsidiaries shall not be required to pay any tax, assessment, charge, judgment, order, levy or claim, if such payment is being contested diligently, in good faith, and by appropriate proceedings which will prevent foreclosure or levy upon its Property and adequate reserves against such liability have been established.

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                 5.2.4.         Maintain Properties. Maintain, and cause each Subsidiary to maintain, all Properties and assets used by, or useful to, it in the ordinary course of its business in good working order and condition, ordinary wear and tear excepted, and suitable for the purpose for which it is intended, and from time to time, make any necessary repairs and replacements.

                 5.2.5.         Insurance. Maintain, and cause each Subsidiary to maintain, in full force and effect public liability insurance, business interruption insurance, worker’s compensation insurance and casualty insurance policies with coverages and with such companies as are reasonably acceptable to Bank. Each such policy providing liability coverage shall be endorsed to reflect Bank as an additional insured, and each such policy covering Properties pledged as collateral to Bank shall have a lender’s loss payable clause in favor of Bank, and a copy of each policy, accompanied by a certificate of coverage issued by the insurance carrier, shall be delivered to Bank. Such policy shall stipulate that the insurance cannot be cancelled or materially modified without thirty (30) days’ prior written notice to Bank and shall insure Bank notwithstanding the act or neglect of Borrower or its Subsidiaries.

                 5.2.6.         Books and Records. Keep proper books of account in which full, true and correct entries will be made of all dealings and transactions of and in relation to the business and affairs of Borrower and its Subsidiaries, and, at all reasonable times, and as often as Bank may request, permit authorized representatives of Bank to (a) have access to the premises and Properties of Borrower and its Subsidiaries and to the records relating to the operations of Borrower and its Subsidiaries; (b) make copies of or excerpts from such records; (c) discuss the affairs, finances and accounts of Borrower with and be advised as to the same by the chief executive and financial officers of Borrower; and (d) audit and inspect such books, records, accounts, memoranda and correspondence at all reasonable times, to make such abstracts and copies thereof as Bank may deem necessary, and to furnish copies of all such information to any proposed purchaser of or participant in the Facilities.

                 5.2.7.         Reports. File, and cause each Subsidiary to file, as appropriate, on a timely basis, annual reports, operating records and any other reports or filings required to be made with any Governmental Authority, except to the extent the failure to so file any of the foregoing, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect.

                 5.2.8.         Licenses. Maintain, and cause each Subsidiary to maintain, in full force and effect all operating permits, licenses, franchises, and rights used by it in the ordinary course of business, except to the extent the failure to so maintain any of the foregoing, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect.

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                 5.2.9.         Notice of Material Adverse Change. Give prompt notice in writing to Bank of the occurrence of any development, financial or otherwise, including pending or threatened litigation which is reasonably likely to have a Material Adverse Effect.

                 5.2.10.         Compliance with Law. Comply, and cause each Subsidiary to comply, in all material respects, with all laws, ordinances, rules, regulations and other legal requirements applicable to it, including, without limitation, all Environmental Laws and ERISA.

                 5.2.11.         Trade Accounts. Pay, and cause each Subsidiary to pay, all trade accounts in accordance with standard industry practices.

                 5.2.12.         Use of Proceeds. Use the proceeds of the Facilities solely for the purposes herein described.

                 5.2.13.         Loan Payments. Duly and punctually pay or cause to be paid principal and interest on the Facilities in lawful money of the United States at the time and places and in the manner specified herein according to the stated terms and the true intent and meaning hereof.

                 5.2.14.         Environmental Matters. (a) Use, operate and maintain, and cause each Subsidiary to use, operate and maintain, all of its Properties in material compliance with all applicable Environmental Laws, keep or acquire all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in material compliance therewith, and handle all Hazardous Substances in material compliance with all applicable Environmental Laws, (b) within ninety (90) days after filing thereof, have dismissed with prejudice any actions or proceedings against Borrower or a Subsidiary relating to compliance with Environmental Laws which, in the reasonable opinion of Bank, is reasonably likely to have a Material Adverse Effect, and (c) diligently pursue cure of any material underlying environmental problem which forms the basis of any claim, complaint, notice, Lien, inquiry, proceeding or action referred to in Section 5.2.1(j) hereof. If Borrower or a Subsidiary is notified of any event described in Section 5.2.1(j) hereof, Borrower shall, upon the request of Bank, establish appropriate reserves against such potential liabilities and engage a firm or firms of engineers or environmental consultants appropriately qualified to determine as quickly as practical the extent of contamination and the potential financial liability of Borrower or its Subsidiary with respect thereto, and Bank shall be provided with a copy of any report prepared by such firm or by any Governmental Authority as to such matters as soon as any such report becomes available to Borrower or such Subsidiary. The selection of any engineers or environmental consultants engaged pursuant to the requirements of this Section shall be subject to the approval of Bank, which approval shall not be unreasonably withheld or delayed.

                 5.2.15.         Banking Relationship. Maintain its primary banking accounts with Bank, including, without limitation, operating, lockbox and autoline accounts. Borrower shall maintain a minimum balance on account with Bank at all times of not less than One Hundred Thousand Dollars ($100,000).

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                 5.2.16.         Subordinated Debt. At all times, cause the Subordinated Debt to be subordinated to the full, final and irrevocable payment of the Obligations, in form and substance acceptable to Bank.

                 5.2.17.         Equipment Appraisal. Within forty-five (45) days of the date hereof, furnish Bank an appraisal of Borrower’s Equipment, prepared by an independent appraiser acceptable to Bank, showing a forced liquidation value of not less than Two Million Five Hundred Thousand Dollars ($2,500,000).

                 5.2.18.         Sale of Real Estate. Within one hundred eighty (180) days of the closing of the Approved PKL Acquisition, cause the real estate acquired in such Acquisition to be sold for fair market value.

         Section 5.3    Financial Covenants. Until the Obligations shall have been fully and finally paid and performed and so long as any commitment of Bank is outstanding, unless expressly waived in writing by Bank, Borrower shall:

                 5.3.1.         Funded Debt Ratio. Maintain its Funded Debt Ratio at not greater than (a) 3.75 to 1.00 at each fiscal quarter ending through and including December 31, 2002, (b) 3.50 to 1.00 as of March 31, 2003 and June 30, 2003, (c) 3.00 to 1.00 as of September 30, 2003, (b) 2.50 to 1.00 as of December 31, 2003 and at each fiscal quarter ending thereafter through and including September 30, 2004, and (c) 2.00 to 1.00 as of December 31, 2004 and as of each fiscal quarter ending thereafter.

                 5.3.2.         Total Debt Ratio. Maintain its Total Debt Ratio at not greater than (a) 2.00 to 1.00 at all times through and including September 30, 2003, (b) 1.75 to 1.00 as of October 1, 2003 and at all times through and including September 30, 2004, and (c) 1.50 to 1.00 as of October 1, 2004 and at all times thereafter.

                 5.3.3.         Fixed Charge Coverage Ratio. Maintain its Fixed Charge Coverage Ratio at not less than 1.20 to 1.00 at each fiscal quarter end.

                 5.3.4.         Current Ratio. Maintain its ratio of Current Assets to Current Liabilities of not less than 1.15 to 1.00 at all times.

                 5.3.5.         Capital Expenditures. Not make any Unfunded Capital Expenditures, including Capitalized Lease Obligations, exceeding One Million Six Hundred Thousand Dollars ($1,600,000) on a consolidated basis for Borrower and its Subsidiaries during any fiscal year.

ARTICLE 6.         CONDITIONS PRECEDENT

         Section 6.1    Conditions to Initial Advance. The obligation of the Bank to make the initial Advance under the Facilities is subject to satisfaction of each of the following conditions precedent:

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                 6.1.1.         Authorization. Bank shall have received and approved, certified copies of Borrower’s and each Guarantor’s articles of incorporation and by-laws, all as amended, accompanied by a recent certificate of good standing issued by the appropriate official of its place of organization and certificates of good standing from those states in which Borrower or a Guarantor owns property or maintains an office and a certified copy of resolutions adopted by Borrower’s and each Guarantor’s Board of Directors authorizing the Facilities and specifying the names and capacities of those persons authorized to execute and deliver the Loan Documents.

                 6.1.2.         Insurance. Borrower shall have furnished to Bank evidence of the insurance required by this Agreement.

                 6.1.3.         Loan Documents. Each of the Loan Documents, in the form prescribed by Bank, shall have been executed and delivered by Borrower and the Guarantors, as applicable, to Bank, and the other loan documents and guaranties required by this Agreement, in the form prescribed by Bank, shall have been executed and delivered by the appropriate parties thereto.

                 6.1.4.         Incumbency. Bank shall have received an Incumbency Certificate, executed by the Secretary or Assistant Secretary of Borrower and each Guarantor which shall identify the name and title and bear the signature of the officers of Borrower and such Guarantor authorized to sign the Loan Documents, and Bank shall be entitled to rely upon such certificate until informed of any change in writing by Borrower.

                 6.1.5.         Legal Matters. All legal matters incident to the Loan Documents and the making of Advances shall be reasonably satisfactory to Bank and its counsel.

                 6.1.6.         Borrowing Base, Etc. Satisfactory certificates as to Borrowing Base, and such other certificates as Bank may reasonably require, shall have been executed by the appropriate officers of Borrower and delivered to Bank.

                 6.1.7.         Opinions of Counsel. Bank shall have received the favorable written opinion(s) of counsel to Borrower and the Guarantors, dated of even date herewith, as to those matters which Bank may reasonably require.

                 6.1.8.         Landlord Waivers. Borrower shall have used commercially reasonable best efforts to procure landlord and warehousemen lien waivers, in the form prescribed by Bank, pursuant to which its various landlords and warehousemen shall have waived all liens or other rights of detainer against its assets constituting collateral for the Obligations.

                 6.1.9.         UCC Searches/Life Insurance Questionnaire. Bank shall have received satisfactory return after search in accordance with the Uniform Commercial Code in such governmental offices as Bank shall have deemed appropriate, and Bank shall have received a satisfactory life insurance questionnaire with respect to the life insurance policy to be assigned to Bank.

                 6.1.10.         Fees. Borrower shall have paid Bank a non-refundable facility fee of Twenty-Eight Thousand One Hundred Twenty-Five Dollars ($28,125), a field audit fee of Five Thousand Dollars ($5,000), and Borrower shall have reimbursed Bank for all reasonable legal fees and other reasonable out-of-pocket expenses of Bank in connection with the Facilities.

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                 6.1.11.         Regulation U. Bank shall have received such certificates and other documents as it shall have deemed reasonably appropriate as to compliance with Regulations U, T and X of the Board of Governors of the Federal Reserve System.

                 6.1.12.         No Default. As of the date hereof, and after giving effect to the initial funding of the Facilities, there shall not exist a Default or Unmatured Default, and Bank shall have received evidence satisfactory to Bank that the transactions contemplated by this Agreement do not create a default under any agreement to which Borrower is a party.

                 6.1.13.         Consents. All consents necessary for the secured financing transaction contemplated by this Agreement pursuant to the Loan Documents shall have been obtained.

                 6.1.14.         Field Audit. Bank shall have completed, to its satisfaction, a field audit of Borrower's financial and accounting records, books, journals, orders and receipts.

                 6.1.15.         Intercreditor Agreement. Bank and Union Planters Bank, National Association shall have entered into the Intercreditor Agreement.

                 6.1.16.         Additional Documentation. Bank shall have received such other documents, instruments, financing statements, waivers, certificates, reaffirmations, consents and opinions as it may request.

         Section 6.2    Conditions to Subsequent Advances. Prior to each subsequent Advance under the Line of Credit or the issuance of a Letter of Credit:

                 6.2.1.         No Default. No Default or Unmatured Default shall have occurred and be continuing.

                 6.2.2.         Representations and Warranties. Each representation and warranty contained in Article 4 shall be true and correct as of the date of such Advance, except to the extent any such representation or warranty relates solely to an earlier date and except for changes reflecting transactions permitted by this Agreement.

                 6.2.3.         Legal Matters. All legal matters incident to the making of such Advance shall be reasonably satisfactory to Bank and its counsel.

         Section 6.3    General. Each request for an Advance shall constitute a representation and warranty by Borrower that the applicable conditions contained in this Section 6.3 have been satisfied.

ARTICLE 7.         DEFAULT

        The occurrence of any of the following events shall be deemed a Default hereunder:

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                 (a)         any representation or warranty made by or on behalf of Borrower, any Subsidiary or any Affiliate to Bank under or in connection with any Loan Document or any subordination agreement shall be false in any material respect as of the date on which made;

                 (b)         Borrower fails to make any payment of principal of or interest on the Facilities or any fee or other payment Obligation in connection with the Facilities when due;

                 (c)         the breach of any of the covenants contained in Section 5.2.2, 5.2.4, 5.2.7, 5.2.8, 5.2.10, 5.2.11 or 5.2.14 which breach remains uncured for a period of thirty (30) days after written notice to Borrower; or the breach of any other covenant contained in Article 5 hereof;

                 (d)         the breach of any other terms or provisions of the Loan Documents (other than a breach which constitutes a Default under Article 7(a), (b) or (c) above) not cured within thirty (30) days after written notice from Bank to Borrower specifying such breach;

                 (e)         the failure of Borrower or any Subsidiary to pay any other Indebtedness when due or within any applicable grace or cure period; or the breach by Borrower or any Subsidiary of any term, provision or condition contained in any agreement under which any such Indebtedness was created or is governed, which constitutes a default thereunder, or any other event shall occur or condition exist, the effect of which is to cause, or to permit the holder or holders of such Indebtedness to cause such Indebtedness to become due prior to its stated maturity, or any Indebtedness shall be declared to be due and payable or required to be prepaid or repurchased (other than by a regularly scheduled payment) prior to the stated maturity thereof;

                 (f)         Borrower or any Subsidiary shall (i) have an order for relief entered with respect to it under the Federal Bankruptcy Code, (ii) not pay, or admit in writing its inability to pay, its debts generally as they become due, (iii) make an assignment for the benefit of creditors, (iv) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any substantial part of its property, (v) institute any proceeding seeking an order for relief under the Federal Bankruptcy Code or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, or (vi) suspend operations as presently conducted or discontinue doing business as an ongoing concern;

                 (g)         without the application, approval or consent of Borrower or any Subsidiary, a receiver, trustee, examiner, liquidator or similar official shall be appointed for Borrower or such Subsidiary or any substantial part of its Property, or a proceeding described in item (f) above shall be instituted against Borrower or any Subsidiary and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of sixty (60) consecutive days;

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                 (h)         any Governmental Authority shall condemn, seize or otherwise appropriate, or take custody or control of all or any substantial portion of the Property of Borrower or any Subsidiary;

                 (i)         Borrower or any Subsidiary shall fail within thirty (30) days to pay, bond or otherwise discharge any judgment or order for the payment of money which is not stayed on appeal or otherwise appropriately contested in good faith, or any attachment, levy or garnishment is issued against any Property of Borrower or such Subsidiary;

                 (j)         if there occurs a Change in Control;

                 (k)         there occurs a “reportable event” or a “prohibited transaction” under, or any complete or partial withdrawal from, or any other event which would constitute grounds for termination of or the appointment of a trustee to administer, any “plan” maintained by Borrower or any ERISA Affiliate for the benefit of its “employees” (as such terms are defined in ERISA) which will have a Material Adverse Effect;

                 (l)         any Loan Document shall for any reason fail to create a valid and perfected first priority security interest in any collateral purported to be covered thereby (except as permitted by the terms of any Loan Document), or any Loan Document shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of, or the security interest created under, any Loan Document; or

                 (m)         any Guaranty or any material provision thereof shall cease to be in full force or effect, or any guarantor fails to promptly perform under its Guaranty, or any guarantor terminates or revokes or attempts to terminate or revoke its Guaranty; or the breach by a guarantor of any other term or provision of any Loan Document to which it is a party not cured within thirty (30) days after written notice from Bank.

ARTICLE 8.         REMEDY

         Section 8.1    Acceleration. If any Default described in Article 7 item (f) or (g) occurs, the Facilities and the commitment of Bank to make Advances under the Facilities shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of Bank. If any other Default occurs, Bank may terminate its commitments hereunder and declare the Obligations to be due and payable, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which Borrower hereby expressly waives.

         Section 8.2    Deposit to Secure Reimbursement Obligations. When any Default or Unmatured Default has occurred and is continuing, Bank may demand that Borrower immediately pay to Bank an amount equal to the aggregate outstanding amount of the Letters of Credit and Borrower shall immediately upon any such demand make such payment. Borrower hereby irrevocably grants to Bank a security interest in all funds deposited to the credit of or in transit to any deposit account or fund established pursuant to this Section 8.2, including, without limitation, any investment of such fund. Borrower hereby acknowledges and agrees that Bank would not have an adequate remedy at law for failure by Borrower to honor any demand made under this Section 8.2 and Bank shall have the right to require Borrower specifically to perform its undertakings in this Section 8.2 whether or not any draws have been made under the Letters of Credit. In the event Bank makes a demand pursuant to this Section 8.2, and Borrower makes the payment demanded, Bank agrees to invest the amount of such payment for the account of Borrower and at Borrower’s risk and direction in short-term investments reasonably acceptable to Bank.

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         Section 8.3    Subrogation. Bank shall, to the extent of any payments made by Bank under the Letters of Credit that are not reimbursed to Bank, be subrogated to all rights of the beneficiary of the Letters of Credit as to all obligations of Borrower with respect to which such payment shall have been made by Bank.

         Section 8.4    Remedy. Upon the occurrence and during the continuance of a Default, Bank may immediately proceed to exercise all remedies available to it under the Loan Documents or otherwise under applicable law. No right or remedy conferred upon or reserved to Bank under the Loan Documents is intended to be exclusive of any other available remedy or right, but each and every remedy shall be cumulative and concurrent and shall be in addition to every other remedy now or hereafter existing at law or in equity. No single or partial exercise of any power or right shall preclude any further or other exercise of any power or right.

         Section 8.5    Preservation of Rights. No delay or omission of Bank to exercise any power or right under the Loan Documents shall impair such power or right or be construed to be a waiver of any Default or an acquiescence therein, and any single or partial exercise of any power or right shall not preclude other or further exercise thereof or the exercise of any other power or right. No Advance hereunder shall constitute a waiver of any of the conditions of Bank’s obligation to make further Advances, nor, in the event Borrower is unable to satisfy any such condition, shall a waiver of such condition in any one instance have the effect of precluding Bank from thereafter declaring such inability to be a Default hereunder, unless such condition was permanently expressly waived in writing by Bank. No course of dealing shall be binding upon Bank.

ARTICLE 9.         GENERAL PROVISIONS

         Section 9.1    Benefit of Agreement. Bank will accept the Credit Note as evidence of loans made in the ordinary course of its commercial banking business. The terms and provisions of this Agreement, the Credit Note and the other Loan Documents shall be binding upon and inure to the benefit of Borrower and Bank and their respective successors and assigns of their entire interests, except that Borrower shall not have the right to assign this Agreement.

         Section 9.2    Survival of Representations. All representations, warranties and agreements of Borrower contained in the Loan Documents shall survive delivery of the Credit Note and the making of the Facilities.

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         Section 9.3    Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, Bank shall not be obligated to extend credit to Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation.

         Section 9.4    Conflict. This Agreement and the other Loan Documents shall be interpreted, wherever possible, in a manner consistent with one another, but in the event of any irreconcilable inconsistency, this Agreement shall control.

         Section 9.5    Choice of Law. The Loan Documents (other than those containing a contrary express choice of law provision) and the rights and obligations of the parties thereunder and hereunder shall be governed by, and construed and interpreted in accordance with the laws of the State of Indiana (but giving effect to federal laws applicable to national banks), notwithstanding the fact that Indiana conflict of law rules might otherwise require the substantive rules of law of another jurisdiction to apply. Borrower hereby consents to the jurisdiction of any state or federal court located within Marion County, Indiana. All service of process may be made by messenger, certified mail, return receipt requested or by registered mail directed to Borrower at the address indicated aside its signature to this Agreement, and Borrower otherwise waives personal service of any and all process made upon Borrower. Borrower waives any objection which Borrower may have to any proceeding commenced in a federal or state court located within Marion County, Indiana, based upon improper venue or forum non conveniens. Nothing contained in this Section shall affect the right of Bank to serve legal process in any other manner permitted by law or to bring any action or proceeding against Borrower or its property in the courts of any other jurisdiction.

         Section 9.6    Headings. Section headings in the Loan Documents are for convenience of reference only and shall not govern the interpretation of any of the provisions of the Loan Documents.

         Section 9.7    Entire Agreement. The Loan Documents embody the entire agreement and understanding between Borrower and Bank and supersede all prior agreements and understandings between Borrower and Bank relating to the subject matter thereof.

         Section 9.8    Expenses. Borrower shall reimburse Bank and its participants for any and all reasonable costs, charges and out-of-pocket expenses (including reasonable attorneys’ fees and time charges of attorneys for Bank), paid or incurred by Bank and its participants in connection with the preparation, review, execution, delivery, amendment, modification, administration, collection and enforcement of the Facilities and/or the Loan Documents and in connection with the conduct by Bank’s internal auditors of periodic field and servicing audits of Borrower, provided, so long as no Default exists, that Borrower shall not be responsible for the payment of more than one audit per fiscal year and the cost per audit shall not exceed Five Thousand Dollars ($5,000). Bank may pay or deduct from the loan proceeds any of such expenses, and any proceeds so applied shall be deemed to be Advances under this Agreement evidenced by the Credit Note and secured by the Loan Documents, and shall bear interest at the rate of interest provided in the Credit Note.

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         Section 9.9    Indemnification. Borrower agrees to indemnify Bank, and its successors and assigns (including any purchaser of a participation in the Facilities), and their directors, officers and employees, against all losses, claims, costs, damages, liabilities and expenses, including, without limitation, all expenses of litigation or preparation therefor (a “Loss”), which they may pay or incur in connection with or arising out of the direct or indirect application of the proceeds of the Facilities hereunder. The indemnity set forth herein shall be in addition to any other Obligations of Borrower to Bank hereunder or at common law or otherwise, and shall survive any termination of this Agreement, the expiration of the obligation of Bank to make the Facilities and the payment of all Obligations.

         Section 9.10    Confidentiality. Bank agrees to treat all information received by it in connection with the Loan Documents (except such information which is generally available or has been made available to the public) as confidential, provided, however, that nothing in this Section 9.10 shall prohibit Bank from, or subject Bank to liability for, disclosing any such information to any Governmental Authority to whose jurisdiction Bank is subject, and provided further that Bank may provide such information to proposed purchasers of or participants in the Facilities from time to time.

         Section 9.11    Giving Notice. Any notice required or permitted to be given under this Agreement may be, and shall be deemed effective if made in writing and delivered to the recipient’s address, telex number or facsimile number addressed to Borrower or Bank at the addresses indicated aside their signatures to this Agreement by any of the following means: (a) hand delivery, (b) United States first class mail, postage prepaid, (c) registered or certified mail, postage prepaid, with return receipt requested, (d) by a reputable rapid delivery service, (e) by telegraph or telex when delivered to the appropriate office for transmission, charges prepaid, with request for assurance of receipt in a manner typical with respect to communication of that type or (f) by facsimile transmission if the transmitting party receives confirmation of successful transmission. Notice made in accordance with this Section shall be deemed given upon receipt if delivered by hand or wire transmission, three (3) Banking Days after mailing if mailed by first class, registered or certified mail, or one (1) Banking Day after deposit with an overnight courier service if delivered by overnight courier. Borrower and Bank may each change the address for service of notice upon it by a notice in writing to the other parties hereto.

         Section 9.12    Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by Borrower and Bank.

         Section 9.13    Incorporation by Reference. All Exhibits hereto are incorporated herein by this reference. Each of the other Loan Documents shall be made subject to all of the terms, covenants, conditions, obligations, stipulations and agreements contained in this Agreement to the same extent and effect as if fully set forth therein, and this Agreement is made subject to all of the terms, covenants, conditions, obligations, stipulations and agreements contained in the other Loan Documents to the same extent and effect as if fully set forth therein. The provisions of this Agreement, including, without limitation, provisions relating to maintenance of insurance, are in addition to, and not a limitation upon, the requirements of any other Loan Document or any subordination agreement.

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         Section 9.14    Time of Essence. Time is of the essence under the Loan Documents.

         Section 9.15    No Joint Venture. Notwithstanding anything to the contrary herein contained or implied, Bank, by this Agreement, or by any action pursuant hereto, shall not be deemed to be a partner of, or a joint venturer with, Borrower, and Borrower hereby indemnifies and agrees to defend and hold Bank harmless, including the payment of reasonable attorneys’ fees, from any Loss resulting from any judicial construction of the parties’ relationship as such.

         Section 9.16    Relationship of Parties; Release of Consequential Damages. The relationship between Borrower and Bank shall be solely that of borrower and lender. Bank shall not have any fiduciary responsibilities to Borrower. Bank undertakes no responsibility to Borrower to review or inform Borrower of any matter in connection with any phase of Borrower’s business or operations. Bank shall not have any liability with respect to, and Borrower hereby waives, releases and agrees not to sue for, any special or consequential damages suffered by it in connection with, arising out of, or in any way related to the Loan Documents or the transactions contemplated thereby.

         Section 9.17    Severability. In the event any provision of this Agreement or any of the Loan Documents shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not affect the validity, enforceability or legality of the remaining provisions hereof or thereof, all of which shall continue unaffected and unimpaired thereby.

         Section 9.18    Gender. As used herein, the masculine gender shall be deemed to include the feminine and the neuter and the singular number shall also include the plural.

         Section 9.19    Waiver and Amendment. Borrower and Bank may enter into agreements supplemental hereto for the purpose of adding or modifying provisions of this Agreement or changing the respective rights, powers, privileges, duties, liabilities, covenants or obligations of Bank or Borrower or waiving any Default hereunder, provided, however, that no such agreements supplemental shall be binding unless in writing and duly signed by the parties hereto, and then only to the extent specifically set forth therein.

         Section 9.20    Bank Not in Control. None of the covenants or other provisions contained in the Loan Documents shall, or shall be deemed to, give Bank the right or power to exercise control over the affairs and/or management of Borrower, the power of Bank being limited to the right to exercise the remedies provided in the Loan Documents, provided, however, that if Bank becomes the owner of any stock or other equity interest in any Person, whether through foreclosure or otherwise, Bank shall be entitled (subject to requirements of law) to exercise such legal rights as it may have by virtue of being the owner of such stock or other equity interest in such Person.

         Section 9.21    Waiver Of Jury Trial. BANK AND BORROWER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY, INTENTIONALLY, UNCONDITIONALLY AND IRREVOCABLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF EITHER OF THEM. NEITHER BANK NOR BORROWER SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY EITHER BANK OR BORROWER EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY BOTH OF THEM.

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         IN WITNESS WHEREOF, Borrower and Bank have caused this Agreement to be executed by their respective officers duly authorized as of the date first above written.

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SIGNATURE PAGE OF
BIOANALYTICAL SYSTEMS, INC.
TO CREDIT AGREEMENT

	"BORROWER" BIOANALYTICAL SYSTEMS, INC. By:  /s/ Peter T. Kissinger Its:  Chairman & Chief Executive Officer
Address: 2701 Kent Avenue West Lafayette, IN 47906 Attention:  President Facsimile:  (765) 497-1102

SIGNATURE PAGE OF
THE PROVIDENT BANK
TO CREDIT AGREEMENT

	"BANK" THE PROVIDENT BANK By:  /s/ Jeffrey A. Salesman Its:  Vice President
Address: The Guaranty Building, Suite 400 20 N. Meridian St. Indianapolis, Indiana 46204 Attention:  Jeff Salesman Facsimile:  317-822-9800

EX-10.11

Exhibit 10.11

GENERAL SECURITY AGREEMENT

         THIS GENERAL SECURITY AGREEMENT (“Security Agreement”) is made as of the 29th day of October, 2002, by BIOANALYTICAL SYSTEMS, INC., an Indiana corporation, having its chief executive offices at 2701 Kent Avenue, West Lafayette, Indiana (Taxpayer I.D. No. 35-1345024) (the “Borrower”), in favor of THE PROVIDENT BANK, having a notice address of One East Fourth Street, Cincinnati, Ohio 45202 (the “Bank”).

ARTICLE 1.         DEFINITIONS

Section 1.1   Defined Terms.    As used herein:

         “Accounts”, “Inventory”, “Equipment”, “Fixtures”, “General Intangibles”, “Chattel Paper”, “Documents”, “Goods”, “Deposit Accounts”, “Instruments”, “Investment Property” and “Proceeds” shall mean all of Borrower’s such property within the meanings ascribed in the Indiana Uniform Commercial Code, as in effect from time to time.

        “Account Debtor” shall have the meaning ascribed in the Indiana Uniform Commercial Code, as in effect from time to time.

        “Collateral” shall mean all of the Borrower’s property or rights in which a security interest is granted hereunder.

        “Collateral Account” shall mean the Deposit Account more fully described in Section 4.5.

        “Control” shall have the meaning ascribed in the Indiana Uniform Commercial Code, as in effect from time to time.

        “Credit Agreement” shall mean the Credit Agreement executed between the Borrower and the Bank of even date, as amended from time to time.

        “Foreign Subsidiaries” shall have the meaning set forth in Part B of Schedule 4 hereto.

        “Intellectual Property” shall mean all intellectual property of the Borrower, including, without limitation, (a) all patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); (b) all trademarks, service marks, trade dress, trade names, and corporate names and all the goodwill and quality control standards associated therewith; (c) all registered and unregistered statutory and common law copyrights; (d) all registrations, applications and renewals for any of the foregoing; (e) all trade secrets, confidential information, ideas, formulae, compositions, knowhow, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, improvements, proposals, technical and computer data, financial, business and marketing plans, and customer and supplier lists and related information; (f) all other proprietary rights (including, without limitation, all computer software and documentation and all license agreements and sublicense agreements to and from third parties relating to any of the foregoing); (g) all copies and tangible embodiments of the foregoing in whatever form or medium; (h) all damages and payments for past, present and future infringements of the foregoing; (i) all royalties and income due with respect to the foregoing; and (j) the right to sue and recover for past, present and future infringements of the foregoing.

GENERAL SECURITY AGREEMENT

        “Liabilities” shall mean (a) all Obligations including all future advances; (b) all other time to time obligations of the Borrower to the Bank of every type and description, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and whether or not contemplated by the Borrower or the Bank as of the date of this Security Agreement, including, without limitation, any modification, extension, or addition to or of the Obligations or the Credit Agreement and any overlying advances, out of formula advances and overdrafts made or permitted in connection with the Obligations or other Liabilities; and (c) any duty of the Borrower to act or to refrain from acting in connection with any Liability.

         “Obligations” shall have the meaning ascribed in the Credit Agreement.

         “Schedule of Accounts” shall have the meaning ascribed in Section 4.3.

        “Stock Rights” means any securities, dividends or other distributions and any other right or property which the Borrower shall receive or shall become entitled to receive for any reason whatsoever with respect to, in substitution for or in exchange for any securities or other ownership interests in a corporation, partnership, joint venture or limited liability company constituting Collateral and any securities, any right to receive securities and any right to receive earnings, in which the Borrower now has or hereafter acquires any right, issued by an issuer of such securities, other than securities that would cause Borrower’s pledge to Bank to exceed Sixty-Five Percent (65%) of Borrower’s interest in Foreign Subsidiaries.

         Section 1.2   Incorporation of Credit Agreement Definitions.     Other capitalized terms used herein and not specifically herein defined shall have the meanings ascribed to them in the Credit Agreement.

         Section 1.3   Terms Defined in the Indiana Uniform Commercial Code.    Terms defined in the Indiana Uniform Commercial Code which are not otherwise defined in this Security Agreement are used herein as defined in the Indiana Uniform Commercial Code, as in effect from time to time.

ARTICLE 2.         SECURITY INTEREST IN COLLATERAL

         As security for the payment and performance of the Liabilities, the Bank shall have, and the Borrower does hereby grant to the Bank, a continuing security interest in the following Collateral:

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         (a) All Accounts, Deposit Accounts, General Intangibles, Documents, Instruments, Investment Property, Chattel Paper and any other similar rights of the Borrower however created or evidenced, whether now existing or hereafter owned, acquired, created, used, or arising, specifically including, without limitation, claims, leases, agreements, license agreements, licensing fees, royalties, policies, credit insurance, guaranties, letters of credit, advices of credit, binders or certificates of insurance, deposits, documents of title, securities, security interests, licenses, goodwill, tax refunds (federal, state or local), customer lists, franchises, franchise rights, drawings, designs, marketing rights, computer programs, artwork, databases and other like business property rights, all applications to acquire such rights, for which application may at any time be made by the Borrower, together with any and all books and records pertaining thereto and any right, title or interest in any Inventory which gave rise to an Account, and all Intellectual Property throughout the world, but specifically excluding the shares of capital stock or other equity interest of Borrower in the Foreign Subsidiaries;

         (b) All Inventory, whether now existing or hereafter acquired and wherever located, specifically including, without limitation, all merchandise, personal property, raw materials, work in process, finished Goods, materials and supplies of every nature usable or useful in connection with the manufacturing, packing, shipping, advertising, selling, leasing or furnishing of any of such Inventory and all materials of the Borrower used or consumed or to be used or consumed in the Borrower’s business, together with any and all books and records pertaining thereto;

         (c) All Equipment, Goods and all other tangible personal property of the Borrower of every kind or nature, whether now owned or hereafter acquired, wherever located, specifically including, without limitation, all machinery, trucks, boats, barges, on and off the road vehicles, forklifts, tools, dies, jigs, presses, appliances, implements, improvements, accessories, attachments, parts, components, partitions, systems, and apparatus, but specifically excluding Fixtures;

         (d) Sixty-Five Percent (65%) of the outstanding capital stock or other equity interests of each Foreign Subsidiary owned by Borrower;

         (e) All products and Proceeds of each of the foregoing, specifically including, without limitation, (i) any and all Proceeds of any insurance, indemnity, warranty or guaranty payable to the Borrower from time to time, (ii) any and all payments of any form whatsoever made or due and payable to the Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the foregoing by any Governmental Authority or any Person acting under color of Governmental Authority, (iii) to the extent of the value of Collateral, claims arising out of the loss, nonconformity, or interference with the use of, defects or infringement of rights in, or damage to, the Collateral, (iv) any Stock Rights, and (v) any and all other amounts from time to time paid or payable under or in connection with any of the foregoing, whether or not in lieu thereof;

         (f) All renewals, extensions, replacements, modifications, additions, improvements, accretions, accessions, betterments, substitutions, replacements, annexations, tools, accessories, parts and the like now in, attached to or which may hereafter at any time be placed in or added to any Collateral, whether or not of like kind; and

         (g) All rights, remedies, claims and demands under or in connection with each of the foregoing.

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ARTICLE 3.         REPRESENTATIONS AND WARRANTIES

        To induce the Bank to enter into the Credit Agreement and to make each and every loan and other financial accommodation thereunder, the Borrower represents and warrants to the Bank that, except as may otherwise be provided in the Credit Agreement:

         Section 3.1   Names of Borrower.   The exact corporate name of the Borrower and its state of organization are each correctly stated in the preamble to this Security Agreement. Set forth on Schedule 1 hereto is a true, accurate and complete list of all previous legal names of the Borrower and all past and present assumed (or fictitious) names and tradenames of the Borrower for the past six (6) years.

         Section 3.2   Prior Combinations.   Except as set forth on Schedule 1 hereto, the Borrower has not ever been conducted as a partnership or proprietorship, no entity has merged into the Borrower or has been consolidated with the Borrower, and no entity has sold substantially all of its assets to the Borrower or sold assets to the Borrower outside the ordinary course of such entity’s business.

         Section 3.3   Chief Executive Office, etc.   The Borrower’s chief executive office and taxpayer identification number are set forth in the preamble to this Security Agreement. Subject to Section 4.1 hereof, Borrower maintains all of its records with respect to its Accounts at such address. Borrower has not at any time within the past four (4) months maintained its chief executive office or its records with respect to Accounts at any other location.

         Section 3.4   Title to Collateral.   Except for Intellectual Property, which is separately addressed in Section 3.6 below, all Collateral is lawfully owned by the Borrower, free and clear of any prior security interest, pledge, sale, assignment, transfer or other encumbrance other than Permitted Encumbrances; the Borrower has the unencumbered right to pledge, sell, assign or transfer the Collateral subject to the Permitted Encumbrances and to subject the Collateral to the security interest in favor of the Bank herein; except in respect of Permitted Encumbrances, no financing statement covering all or any portion of the Collateral is on file in any public office other than in favor of the Bank; and the security interest herein constitutes a legal and valid, first priority security interest in the Collateral.

         Section 3.5   Representations Regarding Accounts.   Except for Permitted Encumbrances, each Account (a) is a valid Account representing an undisputed, bona fide right to payment from the Account Debtor named therein for Goods sold or leased, for Intellectual Property licensed, or for services rendered, whether or not such right to payment has been earned by performance; (b) is free and clear of any agreement wherein the Account Debtor may claim a deduction or discount; and (c) is free and clear of all set-offs or counterclaims.

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         Section 3.6   Representations Regarding Intellectual Property.   Schedule 2 hereto contains a complete and accurate list as of the date hereof of all patented and registered Intellectual Property owned by the Borrower and of all pending applications for the registration of other Intellectual Property owned or filed by the Borrower. Schedule 2 also contains a complete and accurate list of all licenses and other rights granted by the Borrower to any third party with respect to the Intellectual Property and licenses and other rights granted by any third party to the Borrower. Except for Permitted Encumbrances and except as may be set forth in Schedule 2 (a) the Borrower owns and possesses all right, title and interest in and to, or has a valid and enforceable license to use, all of the Intellectual Property necessary for the operation of the Borrower’s business as presently conducted or proposed to be conducted; (b) no claim by any third party contesting the validity, enforceability, use or ownership of any Intellectual Property has been made, is currently outstanding or, to the Borrower’s knowledge, is threatened, and, to the Borrower’s knowledge, there are no grounds for any such claim; (c) the Borrower has not received any notice of, nor is the Borrower aware of any facts which indicate the likelihood of, any material infringement or misappropriation by, or conflict with, any third party with respect to any Intellectual Property, nor has the Borrower received any claim of infringement or misappropriation of, or other conflict with, any intellectual property rights of any third party; (d) the Borrower has not materially infringed, misappropriated or otherwise conflicted with any intellectual property rights of any third party, nor is Borrower aware of any material infringement, misappropriation or conflict which will occur as a result of the continued operation of the business of the Borrower as presently conducted or proposed to be conducted; (e) the Borrower has made or will timely make all necessary filings and recordations (except user filings) and has paid or will pay all required fees and taxes to record and maintain its ownership in its Intellectual Property throughout the world to the extent necessary to conduct Borrower’s business as currently being conducted or proposed to be conducted; and (f) no consents are required on any licenses listed on Schedule 2 hereto, except as set forth on Schedule 2, to the grant of the security interests to, and the exercise of the rights and remedies of, the Bank.

         Section 3.7   Representations Regarding Contracts and Leases.   All leases of real or personal property and all contracts to which the Borrower is a party are in full force and effect. To the best of Borrower’s knowledge, no Person is challenging or disputing the validity or enforceability of any such leases or contracts, and the Borrower is not in material default under any such leases or contracts.

         Section 3.8   Representations Regarding Equipment and Inventory.   Schedule 3 is a true and correct list of all locations where Equipment and Inventory of the Borrower is located (except Inventory in transit) and all locations where Equipment and Inventory of the Borrower has been located in the four (4) months immediately preceding the date of this Agreement. Borrower has not purchased any Inventory in a transaction subject to the bulk transfer laws of any state or otherwise outside the ordinary course of the Inventory seller’s business.

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         Section 3.9   Representations Regarding Investment Property.   The Borrower is the direct and beneficial owner of each type of Investment Property listed on Schedule 4 hereto as being owned by it, free and clear of any liens, encumbrances or security interests except for the security interest granted to the Bank. The Borrower further represents and warrants that (i) all such Investment Property which are shares of stock in a corporation or ownership interests in a partnership or limited liability company have been (to the extent such concepts are relevant with respect to such Investment Property) duly and validly issued, are fully paid and non-assessable, (ii) this pledge of such Investment Property will not violate the proscriptions or require the consent, license, filing, report, permit, exemption, regulation or approval, of any Governmental Authority or other Person or violate any provision of law, (iii) such ownership of pledged Investment Property represent, in the case of U.S. Subsidiaries, One Hundred Percent (100%) of the issued and outstanding ownership of such U.S. Subsidiaries, and, in the case of Foreign Subsidiaries, Sixty-Five Percent (65%) of the issued and outstanding ownership of such Foreign Subsidiaries (iv) such Investment Property has not been materially altered and all signatures thereon are genuine, (v) there exists no default by an issuer under any of such Investment Property with respect thereto, (vi) no insolvency proceedings have been instituted with respect to the issuer of such Investment Property (vii) the Borrower has executed no instrument of any kind assigning any of such Investment Property or the liability of any issuer thereon, or with respect thereto, which remains in effect, (viii) none of the issuers of such Investment Property have any obligation, commitment, subscription, option, warrant or other rights outstanding entitling the holder thereof to purchase or otherwise acquire any capital stock of such issuer, and (ix) with respect to any certificates delivered to the Bank representing an ownership interest in a partnership or limited liability company, either such certificates are Securities as defined in Article 8 or 8.1 (as applicable) of the Uniform Commercial Code of the applicable jurisdiction as a result of actions by the issuer or otherwise, or, if such certificates are not Securities, the Borrower has so informed the Bank so that the Bank may take steps to perfect its security interest therein as a General Intangible.

ARTICLE 4.         AGREEMENTS CONCERNING ACCOUNTS

         Section 4.1   Location.   The Borrower will give the Bank written notice of each office of the Borrower at which records of the Borrower relative to Accounts are kept. Except where such notice is given, all records of the Borrower relative to Accounts are and will be kept at the chief executive office of the Borrower.

         Section 4.2   Returns and Repossessions.   Prior to the occurrence of a Default or Unmatured Default, the Borrower may grant, in the ordinary course of business, to any Account Debtor, any rebate, refund or adjustment to which such Account Debtor may be lawfully entitled and may accept, in connection therewith, the return of Goods, the sale or lease of which shall have given rise to the obligation of the Account Debtor, subject, however, to the Bank’s security interest therein and in any Proceeds arising from the disposition thereof. After the occurrence of a Default or an Unmatured Default, no discount, credit or allowance shall be granted by the Borrower to any Account Debtor, and no return of Goods shall be accepted by the Borrower without the Bank’s prior written consent.

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         Section 4.3   Schedule of Accounts.   Upon request by the Bank, the Borrower will, from time to time, deliver to the Bank a schedule identifying each Account (“Schedule of Accounts”), together with such schedules and certificates and reports relative to all or any of the Collateral and the items or amounts received by the Borrower in full or partial payment or otherwise, as Proceeds of any of the Collateral. Each Schedule of Accounts or other schedule, certificate or report shall be executed by its duly authorized officer and shall be in the form specified by the Bank. Any Schedule of Accounts identifying any Account shall be accompanied, if the Bank requests, (a) by a true and correct copy of the invoice evidencing such Account, (b) by evidence of shipment, delivery or performance, and (c) if such request shall be made after the occurrence of a Default or an Unmatured Default, by a duly executed assignment of such Account from the Borrower to the Bank; provided, however, that the Borrower’s failure to execute and deliver any such Schedule of Accounts and/or assignment shall not affect or limit the Bank’s security interest or other rights in and to Accounts, and provided, further, that a proper assignment of any Account wherein the United States Government is the Account Debtor may be requested by the Bank at any time whether or not there shall have occurred a Default or Unmatured Default.

         Section 4.4   Verification of Accounts.   After the occurrence of a Default, the Bank, its officers, agents, attorneys, and accountants, may verify Accounts and returned and repossessed Goods under reasonable procedures, directly with the Account Debtor or by other methods, and the Borrower shall furnish to the Bank upon request additional Schedules of Accounts, together with all notes or other papers evidencing the same and any guaranty, securities or other information relating thereto, and shall do, make and deliver all such additional and further acts, things, deeds, assurances and instruments as the Bank may reasonably require.

         Section 4.5   Collateral Account.   After the occurrence and during the continuance of any Default or Unmatured Default, the Borrower (a) will, upon the written request of the Bank, deposit all checks, drafts, cash remittances and other Proceeds in payment of Accounts in a special collateral account (“Collateral Account”) maintained with the Bank and thereafter keep segregated any such checks, drafts, cash remittances or other Proceeds in trust for the benefit of the Bank until deposited in the Collateral Account with the Bank; (b) will, upon the written request of the Bank, note the security interest of the Bank on all records relative to the Collateral including, without limitation, any invoice which evidences an Account; (c) will, upon the written request of the Bank, give notice of the Bank’s security interest to Account Debtor and other obligors to the Borrower; (d) agrees that all checks and other Instruments received by the Bank after the occurrence and during the continuance of any Default or Unmatured Default as Proceeds of Accounts will be credited upon receipt to the Liabilities in such order as the Bank may determine, subject to final payment; and (e) will, whenever the Borrower obtains possession (by return, repossession or otherwise) of any Goods, the sale or lease of which shall have given rise to any of the Collateral, upon the Bank’s written request, segregate, label and hold such Goods as subject to the security interest of the Bank hereunder, and will, at its own expense, dispose of such Goods in such manner as the Bank may from time to time direct. After the occurrence and during the continuance of any Default or Unmatured Default, the Bank may notify any Account Debtor to make payment directly to the Bank of any amounts due or to become due and enforce the collection of any Accounts by suit or otherwise and surrender, release or exchange all or any part thereof, or compromise or extend or renew for a period (whether or not longer than the original period) any indebtedness thereunder or evidenced thereby. Such notice may require the Account Debtor or other obligor to pay the Account or other obligation directly to the Bank. Any Proceeds shall be deposited in the form received except for the endorsement of the Borrower where required, which endorsement the Bank is authorized to make on the Borrower’s behalf and shall be held by the Bank as security for all Liabilities, and the Bank may at any time and from time to time apply all or any portion of the funds on deposit in the Collateral Account against the Liabilities, the order of application to be at the discretion of the Bank.

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         Section 4.6   Accounts Owed by the Federal Government.   If any Account shall arise out of a contract with the United States of America, or any department, agency, subdivision, or instrumentality thereof, the Borrower shall promptly notify the Bank thereof in writing and shall take all other action requested by the Bank to protect the Bank’s security interest in such Account under the provisions of the federal Assignment of Claims Act, as amended.

         Section 4.7   Assignment of Security Interests.   If, at any time the Borrower shall take and perfect a security interest in any property of an Account Debtor or any other Person to secure payment or performance of an Account, the Borrower shall promptly assign such security interest to the Bank.

ARTICLE 5.         AGREEMENTS CONCERNING CERTAIN COLLATERAL

         Section 5.1   Maintenance of Intellectual Property.   Unless otherwise agreed in writing by the Bank, Borrower shall have the duty to do any and all acts which are necessary to preserve and maintain all material rights in the Intellectual Property. Borrower will give proper statutory notice in connection with the use of its Intellectual Property. Borrower has used, and will continue to use for the duration of this Agreement, consistent standards of quality in its manufacture or creation of products sold under its trademarks. The Borrower shall not abandon any of the Intellectual Property nor permit the expiration of any material Intellectual Property registrations, except where occasioned by non-use, without the written consent of the Bank. Borrower shall do any and all acts reasonably required by the Bank to ensure Borrower’s compliance with this Section 5.1. Any reasonable expenses incurred in connection with the Intellectual Property shall be borne by Borrower.

         Section 5.2    After-Acquired Intellectual Property. If the Borrower obtains rights to any new Intellectual Property, the provisions of this Security Agreement shall automatically apply thereto. With respect to any new applications for Intellectual Property, the issuance of any new registration for Intellectual Property, and renewals or extensions of any of the foregoing, the Borrower shall give the Bank prompt written notice thereof in writing.

         Section 5.3    Opposition Proceedings. Unless and until there shall have occurred and be continuing a Default, Borrower shall retain the legal and equitable title to the Intellectual Property and shall have the right to bring any opposition proceedings, cancellation proceedings or lawsuit in its own name to enforce, protect and use the Intellectual Property in the ordinary course of its business, but shall not be permitted, except with the prior written consent of the Bank, to sell, assign, transfer or otherwise encumber the Intellectual Property, other than licensings or other dispositions in the ordinary course of business or to resolve litigation or disputed claims brought or made by unrelated parties.

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         Section 5.4    Verification of Intellectual Property. After the occurrence of a Default, the Bank, its officers, agents, attorneys and accountants, may verify the Intellectual Property and all licenses and other agreements with respect thereto, under reasonable procedures, directly with licensees or by other methods, and the Borrower shall furnish to the Bank upon request schedules of Intellectual Property and licenses, together with other information relating thereto, and shall do, make and deliver all such additional and further acts, things, deeds, assurances and instruments as the Bank may reasonably require with respect to the Intellectual Property, including, without limitation, the licenses. The Borrower shall promptly notify the Bank, if it knows that any material application or registration relating to Intellectual Property may become abandoned or dedicated to the public, or of any material adverse determination or development (including any claim) regarding the Intellectual Property or any material license with respect thereto, or regarding its right to register, keep and maintain the same, or if it knows that a material item of Intellectual Property is materially infringed or misappropriated by a third party, and, in any such event, unless (a) the Bank, or (b) the Board of Directors of the Borrower in the exercise of its reasonable business judgment after having considered the advice of reputable intellectual property counsel shall have determined that litigation is inappropriate or unadvisable, promptly sue for infringement or misappropriation.

         Section 5.5    Supplemental Documentation. Concurrently with the execution of this Security Agreement, and from time to time hereafter upon request of the Bank, the Borrower shall execute and deliver to the Bank supplemental security agreements relating to any or all registered patents, trademarks, tradenames, copyrights and applications for any of the foregoing, in a form satisfactory to the Bank and suitable for recording in the records of the registering Governmental Authority.

         Section 5.6    Contracts and Leases. The Borrower shall perform, when due, each of its obligations under all contracts, leases and other agreements (including, without limitation, all license agreements) to which the Borrower is a party, and, immediately upon learning of any material default by any party under any such contract, lease or other agreement, the Borrower shall give written notice thereof to the Bank, together with a description as to the nature and status thereof. After the occurrence of any Default or Unmatured Default, the Borrower shall not amend, modify, supplement or otherwise agree to any change in any contract, lease or other agreement or waive any provision thereof, without the prior written consent of the Bank.

         Section 5.7    Deposit Accounts. The Borrower will (i) upon the Bank’s request, cause each bank or other financial institution in which it maintains (a) a Deposit Account to enter into a control agreement with the Bank, in form and substance satisfactory to the Bank in order to give the Bank Control of the Deposit Account or (b) other deposits (general or special, time or demand, provisional or final) to be notified of the security interest granted to the Bank hereunder and cause each such bank or other financial institution to acknowledge such notification in writing, and (ii) upon the Bank’s request after the occurrence and during the continuance of a Default, deliver to each such bank or other financial institution a letter, in form and substance acceptable to the Bank, transferring ownership of the Deposit Account to the Bank or transferring dominion and control over each such other deposit to the Bank until such time as no Default exists.

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         Section 5.8   Letter-of-Credit Rights. The Borrower will, upon the Bank’s request, cause each issuer of a letter of credit to consent to the assignment of proceeds of the letter of credit in order to give the Bank Control of the letter-of-credit rights to such letter of credit.

         Section 5.9    Uncertificated Securities. The Borrower will permit the Bank from time to time to cause the appropriate issuers (and, if held with a securities intermediary, such securities intermediary) of uncertificated securities which are Collateral to mark their books and records with the numbers and face amounts of all such uncertificated securities and all rollovers and replacements therefor to reflect the Lien of the Bank granted pursuant to this Security Agreement. The Borrower will take any actions necessary to cause the issuers of uncertificated securities which are Collateral and which are Securities to cause the Bank to have and retain Control over such Securities.

         Section 5.10   Stock and Other Ownership Interests.

                 (a)         Changes in Capital Structure of Issuers. The Borrower will not (i) cause any issuer of privately held corporate securities or other ownership interests in a corporation, partnership, joint venture or limited liability company constituting Collateral to dissolve, liquidate, retire any of its capital stock or other Instruments or Securities evidencing ownership, reduce its capital or merge or consolidate with any other entity, or (ii) vote any of the Instruments or Securities in favor of any of the foregoing.

                 (b)         Issuance of Additional Securities. The Borrower will not cause the issuer of privately held corporate securities or other ownership interests in a corporation, partnership, joint venture or limited liability company constituting Collateral to issue any such securities or other ownership interests, any right to receive the same or any right to receive earnings, except to the Borrower.

                 (c)         Registration of Pledged Securities. The Borrower will permit any registerable Collateral to be registered in the name of the Bank or its nominee at any time after the occurrence of a Default or at any time if necessary to perfect the Bank’s security interest in such registerable Collateral.

                 (d)         Exercise of Rights in Pledged Securities. The Borrower will permit the Bank or its nominee at any time after the occurrence of a Default, without notice, to exercise all voting and corporate rights relating to the Collateral, including, without limitation, exchange, subscription or any other rights, privileges, or options pertaining to any corporate securities or other ownership interests in or of a corporation, partnership, joint venture or limited liability company constituting Collateral and the Stock Rights as if it were the absolute owner thereof.

ARTICLE 6.         AGREEMENTS CONCERNING INVENTORY

         Section 6.1   Locations. Borrower will give the Bank written notice of each location at which Inventory is or will be kept at all times. Except where such notice is given and except for Inventory sold in the ordinary course of business, all Inventory is and shall be kept at the locations set forth on Schedule 3 hereto.

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         Section 6.2   Sales of Inventory.   The Borrower may, in the ordinary course of business, at its own expense, sell, lease or furnish under contracts of sale or service, any of the Inventory normally held by the Borrower for such purpose (a sale in the ordinary course of business does not include a transfer in total or partial satisfaction of a debt), and use and consume, in the ordinary course of business, any raw materials, work-in-process or materials normally held by it for such purpose.

         Section 6.3     Condition of Inventory; Books and Records.   Borrower shall keep all Inventory in good order and condition and shall maintain full, accurate and complete books and records with respect to Inventory at all times.

         Section 6.4    Warehousemen and Landlords.   Borrower shall not store any material portion of its Inventory with any bailee, warehouseman, or similar party without the Bank’s prior written consent. If Inventory is so stored, Borrower will, concurrently with storing such Inventory, cause such bailee, warehouseman, or similar party to issue and deliver to the Bank, in a form acceptable to the Bank, warehouse receipts in the Bank’s name evidencing the storage of the Inventory. The Borrower shall provide the Bank with copies of all agreements between the Borrower and any bailee, warehouseman, or similar party and shall deliver to the Bank a landlord’s or warehouseman’s lien waiver in a form acceptable to the Bank, prior to entering into any material lease for warehouse storage or business facilities.

         Section 6.5    Consigned Inventory.   If at any time any of the Inventory is placed by the Borrower on consignment with any consignee, Borrower shall, prior to delivery of such consigned Inventory, (a) provide Bank with all consignment agreements and other instruments and documentation to be used in connection with such consignment (all of which shall be in a form acceptable to the Bank); (b) prepare, execute and file appropriate financing statements with respect to any consigned Inventory showing the consignee as debtor, the Borrower as secured party, and the Bank as assignee of the secured party; (c) prepare, execute and file appropriate financing statements with respect to any consigned Inventory showing the Borrower, as debtor, and the Bank, as secured party; (d) conduct a search of all UCC filings made against the consignee in all jurisdictions in which Inventory to be consigned is to be located while on consignment, and furnish copies of such results to the Bank; and (e) notify in writing all creditors of the consignee that are or may be holders of security interests in the Inventory to be consigned that the Borrower expects to deliver certain Inventory to the consignee.

         Section 6.6   Compliance with Law.   Borrower shall substantially comply in all material respects with all federal, state and local laws, regulations, rulings and orders applicable to the Borrower for its assets or business. Without limiting the generality of the foregoing, Borrower shall comply with all requirements of the federal Fair Labor Standards Act, as amended, in the conduct of its business and the production of Inventory. Borrower shall notify the Bank immediately of any violation by Borrower of the Fair Labor Standards Act, and the absence of such notice shall constitute Borrower’s continuing representation that all Inventory then existing has been produced in compliance with the Fair Labor Standards Act.

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ARTICLE 7.         AGREEMENTS CONCERNING EQUIPMENT

         Section 7.1   Locations.   Borrower will give the Bank written notice of each location at which Equipment is or will be kept at all times. Except where such notice is given, the Equipment will be kept at locations set forth on Schedule 3 hereto. Schedule 3 sets forth all locations at which Equipment of the Borrower is located and the name and owner of record of the real estate at each location if the Borrower is not the owner of record.

         Section 7.2   Condition.   The Borrower will keep the Equipment in good order and repair, ordinary wear and tear excepted, and will not waste or destroy the Equipment or any portion thereof, except in the case of obsolete Equipment which is no longer used or useful in Borrower’s business.

         Section 7.3   Titled Equipment.   If Borrower now or hereafter has any vehicles, aircraft, watercraft, or other Equipment for which a certificate of title has been issued by a Governmental Authority, the Borrower shall immediately deliver to the Bank, properly endorsed, each certificate of title or application for title or other evidence of ownership for each such item of Equipment, and the Borrower shall take all actions necessary to have the Bank’s security interest properly recorded on each such certificate of title and shall take all other steps necessary to perfect the Bank’s security interest in such Equipment.

         Section 7.4   Compliance with Laws.   The Borrower will not use the Equipment in material violation of any statute, rule, regulation or ordinance or any policy of insurance thereon. Borrower will neither use the Equipment nor permit the Equipment to be used, for any unlawful purpose or contrary to any statute, law, ordinance or regulation relating to the registration, use, operation or control of the Equipment.

         Section 7.5   Transfers of Equipment.   Borrower may from time to time substitute Equipment, provided that (a) the substituted Equipment is not subject to any lien or other encumbrance and has a fair market value at least equal to the fair market of the Equipment for which it is substituted; (b) the marketability and operating integrity of Borrower’s Equipment after such substitution is not impaired; (c) the Equipment substituted for is no longer used or useful in the operation of Borrower’s business and is sold in arm’s length transaction in exchange for money or money’s worth at least equal to the fair market value of such Equipment substituted for; and (d) no Default or Unmatured Default has occurred and is continuing.

         Section 7.6   Fixtures.   The Borrower shall not permit any item of Equipment to become a Fixture to real estate or an accession to any other property not subject to the Bank’s security interest herein without the prior written consent of the Bank.

ARTICLE 8.         GENERAL PROVISIONS CONCERNING COLLATERAL

         Section 8.1   Title to After-Acquired Collateral.   All Collateral acquired after the date hereof will be acquired by the Borrower free of any lien, security interest or encumbrance, except Permitted Encumbrances.

GENERAL SECURITY AGREEMENT Page 12

         Section 8.2   Further Assurances.   The Borrower agrees to do such reasonable acts and things and deliver or cause to be delivered such other documents as the Bank may deem necessary to establish and maintain a valid security interest in the Collateral (free of all other liens and claims except Permitted Encumbrances) to secure the payment and performance of the Liabilities and to defend title to the Collateral against any Person claiming any interest therein adverse to the Bank. The Borrower authorizes the Bank, at the expense of the Borrower, to execute and file a financing statement or statements on its behalf in those public offices deemed advisable or necessary by the Bank to protect the security interests of the Bank herein granted. If permitted by law, the Borrower agrees that a carbon, photographic or other reproduction of this Security Agreement or of a financing statement may be filed as a financing statement.

         Section 8.3   Insurance.

                 (a)         The Borrower shall have and maintain at all times, with respect to Inventory and Equipment, insurance written by companies acceptable to the Bank covering risks customarily insured against by companies engaged in business similar to that of the Borrower in reasonable amounts, containing such terms, in such form, and for such periods customarily maintained by companies engaged in business similar to that of the Borrower. Such insurance shall be payable to the Borrower and the Bank as their interests may appear.

                 (b)         In addition to the insurance requirements set forth in Section 8.3(a), the Borrower will carry any other insurance and amounts for periods as may be reasonably required by the Bank, and will deliver to the Bank, not less than five (5) days prior to the expiration of any such policy of insurance, renewals or new policies in like amounts covering the same risks.

                 (c)         All such insurance policies shall carry standard, non-contributory lender’s loss payable clauses and breach of warranty endorsements, in favor of the Bank. The insurance certificates evidencing the Borrower’s compliance with the above shall be deposited with the Bank, and in the event the Borrower fails to file and maintain such insurance, the Bank may, at its option, purchase such insurance and the cost of such insurance shall become a Liability secured by these presents and all sums expended shall bear interest at the highest Default rate of interest set forth in the Credit Agreement until paid. If requested by the Bank, the Borrower shall deliver certified copies of such policies to the Bank. The Borrower shall pay all insurance premiums promptly when due and shall provide substitute policies of insurance should the Bank at any time reject, for reasonable cause, any such policies of insurance furnished by the Borrower. The Borrower hereby assigns to the Bank the proceeds of all such insurance, including, without limitation, any premium refunds, to the extent of the Liabilities, shall direct the insurer to make payment of any losses or refunds directly to the Bank, and appoints the Bank its attorney-in-fact to endorse any draft, check or other form of payment made by such insurer. So long as there then exists no Default, the Bank shall remit any insurance proceeds less than Two Hundred Thousand Dollars ($200,000) to the Borrower. Any insurance proceeds not remitted to the Borrower shall be applied to the outstanding Liabilities, in the order of preference determined by the Bank.

         Section 8.4   Collection of Collateral.   The Borrower will, at its own expense, endeavor to collect, as and when due, all amounts due with respect to any Collateral including the taking of such action with respect to such collection as the Bank may reasonably request or, in the absence of such request, as the Borrower may deem advisable.

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         Section 8.5   Bank May Defend Title.   In the event the Borrower fails to pay any taxes, assessments, premiums, or fees, or fails to discharge any liens or claims against the Collateral required to be paid or discharged by the Borrower, or fails to purchase, maintain and file with the Bank any insurance required by this Security Agreement, or if any such insurance is inappropriate to the situation, in the Bank’s reasonable discretion, the Bank may, without demand or notice, pay any such taxes, assessments, premiums or fees, or pay, acquire, satisfy or discharge any liens or claims asserted against the Collateral (without any obligation to determine the validity thereof), or purchase any such insurance. All sums so expended by the Bank shall become a Liability secured by these presents and shall bear interest at the highest Default rate of interest set forth in the Credit Agreement until paid.

         Section 8.6    Negotiable Collateral.   If any Collateral, including Proceeds, consists of a letter of credit, advice of credit, Instrument, certificates of deposit, negotiable Documents, chattel paper or similar property, the Borrower shall, immediately upon receipt thereof, endorse and assign such Collateral, and deliver actual physical possession thereof, to the Bank, and prior to such delivery, shall hold such property in trust for the Bank. Schedule 5 hereto is a true and correct list of all such negotiable Collateral owned by the Borrower, other than money. The Borrower will give the Bank written notice each time it acquires such additional negotiable Collateral, other than money.

         Section 8.7   Contracts.   The Borrower shall remain liable to perform its obligations under any contracts included in the Collateral to the extent as though this Security Agreement had not been entered into, and the Bank shall not have any obligation under any such contracts by reason of this Agreement.

         Section 8.8   Accounting System.    Borrower shall maintain a standard and modern system of accounting in accordance with GAAP which contains information pertaining to the Collateral that may from time to time be requested by the Bank.

         Section 8.9   Inspection of Collateral and Records.   During Borrower’s usual business hours, the Bank may inspect and examine the Collateral and check and test the same as to quality, quantity, value, and condition. The Bank shall also have the right at any time or times hereafter, during Borrower’s usual business hours or during the usual business hours of any third party having control over the records of the Borrower, to inspect Borrower’s books and records in order to verify the amount or condition of, or any other matter relating to, the Collateral and Borrower’s financial condition and to copy and make extracts from such books and records. Borrower waives the right to assert a confidential relationship, if any, it may have with any accounting firm in connection with any information requested by the Bank pursuant to this Security Agreement and agrees that the Bank may directly contact any such accounting firm in order to obtain such information.

         Section 8.10   Transfer of Collateral.   Borrower shall not sell, lease, license, transfer or otherwise dispose of any interest in any Collateral except (a) sales of Inventory in the ordinary course of business pursuant to Section 6.2, (b) licensings and other dispositions of Intellectual Property in the ordinary course of business pursuant to Section 5.3, (c) dispositions of Equipment in accordance with Section 7.5, and (d) the writeoff of uncollectible Accounts in the ordinary course of business.

GENERAL SECURITY AGREEMENT Page 14

ARTICLE 9.         REMEDY

         Section 9.1   Remedies Generally; Power of Sale.   Upon the occurrence of any Default and at any time thereafter, the Bank shall have all rights and remedies available at law or in equity including, without limitation, the rights and remedies of a secured party under the Indiana Uniform Commercial Code, as in effect from time to time (regardless of whether the Code has been enacted in the jurisdiction where rights or remedies are asserted), including, without limitation, the right to take possession of the Collateral, and for that purpose the Bank may, so far as the Borrower can give authority therefor, enter upon any premises on which the Collateral may be situated and remove the same therefrom. The Bank shall give to the Borrower at least ten (10) days’ prior written notice of the time and place of any public sale of Collateral or of the time after which any private sale or any other intended disposition is to be made. The Bank may in its discretion transfer any securities or other property constituting Collateral into its own name or that of its nominee and receive the income thereon and hold the same as security for Liabilities or apply it on principal or interest due on Liabilities. In the event that the Bank takes possession of any Intellectual Property, the goodwill associated with any trademarks, tradenames, trade dress, and service marks of the Borrower shall be transferred to the Bank.

         Section 9.2   Deposits.   Any and all Deposit Accounts, deposits or other sums at any time credited by or due from the Bank to the Borrower shall at all times constitute security for any and all Liabilities, and the Bank may apply or set off such deposits or other sums against Liabilities at any time in Default whether or not the Liabilities are then due or other Collateral is considered by the Bank to be adequate.

         Section 9.3   Waiver and Amendment.   Except as otherwise expressly set forth herein, to the extent permitted by law, the Borrower waives demand, notice, protest, notice of acceptance of this Security Agreement, notice of loans made, credit extended, Collateral received or delivered or other action taken in reliance hereon and all other demands and notices of any description. With respect to both Liabilities and Collateral, the Borrower assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange, or release of Collateral, to the addition or release of any party or person primarily or secondarily liable, to the acceptance of partial payments thereon and the settlement, compromise or adjustment of any thereof, all in such manner and at such time or times as the Bank may deem advisable. Except as otherwise provided by law, the Bank shall have no duty as to the collection or protection of the Collateral, or any income therefrom, nor as to the preservation of rights against prior parties nor as to the preservation of any rights pertaining thereto beyond the safe custody thereof. The Bank may exercise its rights with respect to Collateral without resorting or regard to other Collateral or sources of reimbursement for any Liability. The Bank shall not be deemed to have waived any of these rights upon or under Liabilities or Collateral unless such waiver be in writing and signed by the Bank. No delay or omission on the part of the Bank in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not be construed as a bar to the exercise of any right on any future occasion. All rights and remedies of the Bank as to the Liabilities or Collateral whether evidenced hereby or by any other instrument or papers shall be cumulative and may be exercised singly, successively or together. The Bank may, from time to time, without notice to the Borrower (a) retain or obtain a security interest in any property of any other Person, in addition to the Collateral, to secure any of the Liabilities; (b) retain or obtain the primary or secondary liability of any party or parties, in addition to the Borrower with respect to any of the Liabilities; (c) extend or renew for any period (whether or not longer than the original period) or release or compromise any liability of any party or parties primarily or secondarily liable to the Bank under the Credit Agreement; (d) release its security interest in any of the property securing any of the Liabilities and permit any substitution or exchange for any such property; and (e) resort to the Collateral for the payment of any of the Liabilities whether or not it shall have resorted to any other property or shall have proceeded against any party primarily or secondarily liable for any of the Liabilities. The Bank shall not, under any circumstances, or in any event whatsoever, have any liability for any error or omission or delay of any kind occurring in the liquidation of any Collateral, including the settlement or collection of any Account or for any damage resulting therefrom, except liability resulting from any act or omission by the Bank which constitutes wilful misconduct. This Security Agreement may be amended only by a writing duly signed by the Bank and the Borrower.

GENERAL SECURITY AGREEMENT Page 15

         Section 9.4   Expenses; Proceeds of Collateral.   The Borrower shall pay to the Bank on demand any and all reasonable out-of-pocket expenses, including reasonable attorneys’ fees, incurred or paid by the Bank in protecting the Collateral or the existence, perfection or priority of the Bank’s security interest therein. After deducting all of such expenses, the residue of any Proceeds of collection or sale of the Collateral shall be applied to the payment of principal or interest on Liabilities in such order of preference as the Bank may determine, and any excess shall be returned to the Borrower.

         Section 9.5   Power of Attorney.   The Borrower hereby irrevocably appoints the Bank and the Bank’s designees from time to time its true and lawful attorneys-in-fact, with full power of substitution in the premises upon the occurrence of a Default (a) to demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose or realize upon the Collateral in such manner as the Bank may determine, whether or not the Collateral is then due; (b) to receive, open, and dispose of mail addressed to the Borrower; (c) to endorse notes, checks, drafts, money orders, Documents or other evidences of payment, shipment or storage or any form of Collateral on behalf of and in the name of the Borrower; (d) to sign and send on behalf of the Borrower any invoice or bill of lading relating to any Account, on drafts against customers, on schedules and assignments of Accounts, on notices of assignment, financing statements and other public records, on verifications of Accounts and on notices to customers; (e) to sign the Borrower’s name to the proofs of claim against any Account Debtor on behalf of the Borrower; (f) to notify the post office authorities to change the address for delivery of the Borrower’s mail to an address designated by the Bank; (g) to endorse Borrower’s name on all applications, documents, papers, certificates and instruments necessary or expedient for the Bank to use the Intellectual Property, or necessary or expedient to grant or issue any exclusive or nonexclusive license under the Intellectual Property to anyone else, or necessary or expedient for the Bank to assign, pledge, convey or otherwise transfer title in, or dispose of, the Intellectual Property to anyone else, for the purpose of recording, registering, filing or accomplishing any other formula with respect to the Intellectual Property; and (h) to do all things necessary to carry out this Security Agreement. The Borrower hereby ratifies and approves all acts of such attorneys. Neither the Bank nor any attorney will be liable for any acts or omissions nor for any error of judgment or mistake of fact or law, absent gross negligence, bad faith or wilful misconduct. This power, being coupled with an interest, is irrevocable until the Liabilities have been fully satisfied. Notwithstanding anything herein to the contrary, no attorney acting pursuant to this Section 9.5 shall have any authority to confess judgment on behalf of the Borrower.

GENERAL SECURITY AGREEMENT Page 16

         Section 9.6   License.   Borrower hereby grants to the Bank a license to use, without charge, Borrower’s Intellectual Property and other Collateral in completing production of, advertising for sale, or selling any Collateral after any Default, and all of the Borrower’s rights under all licenses and franchise agreements shall, in such event, inure to the Bank’s benefit. In addition, the Borrower shall, upon request by the Bank, make available such personnel in Borrower’s employ on the date of any Default as the Bank may reasonably designate to permit the Bank to continue, directly or indirectly, to produce, advertise and sell the Collateral sold by the Borrower under any Intellectual Property or license. The license herein shall include the right of the Bank to use, assign, license or sublicense any of the Borrower’s Intellectual Property, including in such license reasonable access as to all media in which any of the licensed items may be recorded or stored; provided that the Bank shall comply with all pre-existing quality control standards and trademark use requirements of the Borrower. No agreements hereafter entered into by the Borrower shall prohibit, restrict or impair the rights of the Bank granted hereunder.

         Section 9.7   Reinstatement.   If, at any time after payment in full by the Borrower of all Liabilities and termination of the Bank’s security interest, any payments on the Liabilities previously made by the Borrower or any other Person must be disgorged by the Bank for any reason whatsoever, including, without limitation, the insolvency, bankruptcy or reorganization of the Borrower or such Person, this Security Agreement and the Bank’s security interests herein shall be reinstated as to all disgorged payments as though such payments had not been made, and the Borrower shall sign and deliver to the Bank all documents, and shall do such other acts and things, as may be necessary to re-perfect the Bank’s security interest.

         Section 9.8   No Marshaling.   The Borrower, on its own behalf and on behalf of its successors and assigns, hereby expressly waives all rights, if any, to require a marshaling of assets by the Bank or to require the Bank’s first resort to some or any portion of the Collateral before foreclosing upon, selling or otherwise realizing on any other portion thereof.

ARTICLE 10.         MISCELLANEOUS PROVISIONS

         Section 10.1   Priority.   Unless otherwise expressly provided, the security interest hereby created shall be pro rata on par with any prior security interests in the Collateral now or hereafter existing in favor of the Bank.

GENERAL SECURITY AGREEMENT Page 17

         Section 10.2   Governing Law.   This Security Agreement and all rights and obligations hereunder, including matters of construction, validity and performance, shall be governed by the Uniform Commercial Code and other applicable laws of the State of Indiana, without regard to conflict of law principles.

         Section 10.3   Severability.   Whenever possible each provision of this Security Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition without invalidating the remainder of such provision or the remaining provisions of this Security Agreement. The Borrower recognizes that the Bank has relied on this Security Agreement in extending credit to the Borrower and agrees that such reliance by the Bank shall be sufficient consideration for this Security Agreement.

         Section 10.4   Binding on Successors.    The rights and privileges of the Bank shall inure to the benefit of its respective successors and assigns.

         Section 10.5   Chattel Mortgage.    This Security Agreement shall also constitute a chattel mortgage and an assignment of rents.

         SECTION 10.6   WAIVER OF JURY TRIAL.   BANK AND BORROWER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF EITHER OF THEM. NEITHER BANK NOR BORROWER SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY EITHER BANK OR BORROWER EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY BOTH OF THEM.

[THIS SPACE LEFT INTENTIONALLY BLANK]

GENERAL SECURITY AGREEMENT Page 18

        IN WITNESS WHEREOF, the Borrower and the Bank have caused this Security Agreement to be executed by their respective officers duly authorized as of the date first above written.

BIOANALYTICAL SYSTEMS, INC.
and Indiana corporation



By:  /s/ Peter T. Kissinger Printed:  Peter T. Kissinger Title:  CHM & CEO

STATE OF INDIANA	)
	)  SS:
COUNTY OF TIPPECANOE	)

         Before me, a Notary Public in and for said County and State, personally appeared Peter T. Kissinger, known to me to be the CHM/CEO of BIOANALYTICAL SYSTEMS, INC., and acknowledged the execution of the foregoing for and on behalf of said corporation.

         Witness my hand and Notarial Seal, this 28th day of October, 2002.

	/s/  Jeri A. Ungersma Notary Public - Signature Jeri A. Ungersma Notary Public - Printed
My Commission Expires: July 17, 2008	My County of Residence: Tippecanoe

GENERAL SECURITY AGREEMENT Page 19

ACCEPTED: THE PROVIDENT BANK



By:  /s/ Jeffrey A. Salesman, VP Printed:  Jeffrey A. Salesman Title:  Vice President

GENERAL SECURITY AGREEMENT Page 20

EX-10.12

Exhibit 10.12

TRADEMARK SECURITY AGREEMENT

         THIS TRADEMARK SECURITY AGREEMENT ("Security Agreement"), dated October 29, 2002 is made by and between BIOANALYTICAL SYSTEMS, INC., an Indiana corporation (the "Borrower") and THE PROVIDENT BANK (the "Bank");

WITNESSETH:

         WHEREAS, pursuant to a certain Credit Agreement executed between the Borrower and the Bank dated as of October 29, 2002 (as the same may be amended from time to time, the “Credit Agreement”), the Bank has agreed to make certain loans and to provide other financial accommodations to the Borrower; and

         WHEREAS, in connection with the Credit Agreement, the Borrower has executed and delivered to the Bank, a certain General Security Agreement dated as of October 29, 2002 (as the same may be hereafter amended or modified, the “General Security Agreement”); and

         WHEREAS, in order to perfect the Bank’s security interest granted under the General Security Agreement, the Borrower is required to execute and deliver this Security Agreement;

         NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Borrower hereby grants to the Bank a continuing security interest in the Trademark Collateral listed on Schedule 1 hereto, to secure payment, performance and observance of the Obligations; and the Borrower further agrees as follows:

         1.        Definitions.   Terms used herein, and not specifically herein defined, shall have the meanings ascribed to them in the General Security Agreement or, by reference in the General Security Agreement, in the Credit Agreement.

         2.        Purpose.   This Trademark Security Agreement has been executed and delivered by the Borrower to the Bank, for the purpose of registering the grant of security interest herein with the United States Patent and Trademark Office or with such other Governmental Authorities as may have jurisdiction over the Trademark Collateral within or without the United States of America.

         3.        Incorporation by Reference.   The security interest herein has been granted as a supplement to, and not in limitation of, the security interest granted to the Bank under the General Security Agreement. The General Security Agreement and all rights and remedies of the Bank thereunder shall remain in full force and effect in accordance with its terms. This Security Agreement is made subject to all the terms, covenants, conditions, obligations, stipulations and agreements contained in the General Security Agreement to the same extent and effect as if fully set forth herein, and the General Security Agreement is subject to all the terms, covenants, conditions, obligations, stipulations and agreements contained in this Security Agreement to the same extent and effect as if fully set forth therein. In the event of any irreconcilable inconsistency between the terms of the General Security Agreement and this Security Agreement, the General Security Agreement shall control.

         4.        Counterparts. This Security Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute but one and the same document.

TRADEMARK SECURITY AGREEMENT Page 1

         IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed and delivered by their respective officers duly authorized as of the day and year first above written.

BIOANALYTICAL SYSTEMS, INC.



By:  /s/ Peter T. Kissinger Its:  CHM/CEO

STATE OF INDIANA	)
	)  SS:
COUNTY OF TIPPECANOE	)

         Before me, a Notary Public in and for said County and State, personally appeared Peter T. Kissinger, known to me to be the CHM/CEO of Bioanalytical Systems, Inc., and acknowledged the execution of the foregoing for and on behalf of said corporation.

         Witness my hand and Notarial Seal, this 28th day of October, 2002.

	/s/ Jeri A. Ungersma Notary Public - Signature Jeri A. Ungersma Notary Public - Printed
My Commission Expires: July 17, 2008	My County of Residence: Tippecanoe

TRADEMARK SECURITY AGREEMENT Page 2

ACCEPTED: THE PROVIDENT BANK



By:  /s/ Jeffrey A. Salesman, VP Its:  Vice President

STATE OF INDIANA	)
	)  SS:
COUNTY OF MARION	)

         Before me, a Notary Public in and for said County and State, personally appeared Jeffrey A. Salesman, known to me to be a Vice President of The Provident Bank, and acknowledged the execution of the foregoing for and on behalf of said bank.

         Witness my hand and Notarial Seal, this 29th day of October, 2002.

	/s/ Cheryl G. Croghan Notary Public - Signature Cheryl G. Croghan Notary Public - Printed
My Commission Expires: 10-27-2007	My County of Residence: Marion

TRADEMARK SECURITY AGREEMENT Page 3

EX-10.13

Exhibit 10.13

PATENT SECURITY AGREEMENT

        THIS PATENT SECURITY AGREEMENT (“Security Agreement”), dated as of October 29, 2002 is made by and between BIOANALYTICAL SYSTEMS, INC., an Indiana corporation (“Borrower”), and THE PROVIDENT BANK, an Ohio banking corporation, having a notice address of One East Fourth Street, Cincinnati, Ohio 45202 (“Bank”);

WITNESSETH:

        WHEREAS, pursuant to a certain Credit Agreement executed between Borrower and Bank dated as of October 29, 2002 (as the same may be amended from time to time, the “Credit Agreement”), Bank has agreed to make certain loans and to provide other financial accommodations to Borrower; and

        WHEREAS, in connection with the Credit Agreement, Borrower has executed and delivered to Bank a certain General Security Agreement dated as of October 29, 2002 (as the same may be hereafter amended or modified, the “General Security Agreement”); and

        WHEREAS, in order to perfect the Bank’s security interest granted under the General Security Agreement, the Borrower is required to execute and deliver this Security Agreement;

        NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, in order to secure payment, performance and observance of the Obligations under the Credit Agreement, Borrower hereby grants, assigns and conveys to Bank a continuing security interest in the following (the “Patent Collateral”):

        a.         The entire right, title and interest of Borrower in and to the patents and patent applications listed on Schedule 1 hereto (collectively, the "Patents");

        b.         All proceeds of the Patent Collateral, including, without limitation, license royalties and the proceeds of infringement suits;

        c.         The right (but not the obligation) to sue for past, present and future infringements of the Patent Collateral throughout the world, subject to the occurrence and continuance of a Default under the Credit Agreement; and

        d.         All reissues, divisions, continuations, renewals, extensions and continuations-in-part of any of the Patent Collateral;

        and Borrower further agrees as follows:

        1.         Definitions.  Terms used herein, and not specifically herein defined, shall have the meanings ascribed to them in the Credit Agreement.

        2.         Purpose.  This Security Agreement has been executed and delivered by Borrower to Bank for the purpose of registering the grant of security interest herein with the United States Patent and Trademark Office or with such other Governmental Authorities as may have jurisdiction over the Patent Collateral within or without the United States of America.

PATENT SECURITY AGREEMENT

        3.         Representations.

        (a)   The Patents are subsisting and have not been adjudged invalid or unenforceable, in whole or in part;

        (b)   To the best of Borrower's knowledge, each of the Patents is valid and enforceable;

        (c)   Except as otherwise disclosed to Bank in writing, Borrower is the sole and exclusive owner of the entire and unencumbered right, title and interest in and to each of the Patents, free and clear of any liens, charges and encumbrances, including, without limitation, pledges, assignments, licenses, shop rights and covenants by Borrower not to sue third persons; and

        (d)   Borrower has the unqualified right to enter into this Security Agreement and perform its terms and has entered and will enter into written agreements with each of its present and future employees, agents and consultants which will enable it to comply with the covenants herein contained.

         Except as specifically set forth above, Borrower does not warrant that the Patents might not be declared invalid if challenged in court.

        4.         Dispositions.  Borrower agrees that, until all of the Obligations shall have been satisfied in full, it will not sell, assign or otherwise encumber the Patent Collateral without the prior written consent of the Bank; provided however, that nothing contained herein shall prohibit Borrower from granting licenses under the Patents in the ordinary course of its business.

        5.         Additional Patent Collateral.  If, before the Obligations shall have been fully, finally and irrevocably paid in full and all of the commitments of Bank shall have been terminated, Borrower shall obtain rights to any patentable invention, or become entitled to the benefit of any patent application or patent for any reissue, division, continuation, renewal, extension or continuation-in-part of any patent or any improvement of any patent, the provisions of this Security Agreement shall automatically apply thereto, and Borrower shall give to Bank prompt written notice thereof. Borrower agrees to enter into modifications to this Security Agreement to amend Schedule 1 to include any future Patent Collateral under this Section 5 for the purpose of recording Bank’s security interest under this Security Agreement against such Patent Collateral. Borrower shall prosecute diligently in a manner consistent with sound commercial practices any patent applications and shall take all necessary action to maintain and preserve all rights in the Patent Collateral.

        6.         Rights and Remedies.  If any Default under the Credit Agreement shall have occurred and be continuing, Bank shall have, in addition to all other rights and remedies given it by this Security Agreement, those allowed by law and the rights and remedies of a secured party under the Uniform Commercial Code as enacted in any jurisdiction in which the Patent Collateral may be located and, without limiting the generality of the foregoing, Bank may immediately, without demand of performance and without other notice (except as set forth next below) or demand whatsoever to Borrower, all of which are hereby expressly waived, and without advertisement, sell at public or private sale or otherwise realize upon, in Indianapolis, Indiana, or elsewhere, the whole or from time to time any part of the Patent Collateral, or any interest which the Borrower may have therein, and after deducting from the proceeds of sale or other disposition of the Patent all expenses (including all reasonable expenses for brokers’ fees and legal services), shall apply the residue of such proceeds toward the payment of the Obligations. Any remainder of the proceeds after payment in full of the Obligations shall be paid over to the Borrower. Notice of any sale or other disposition of the Patent Collateral shall be given to Borrower at least ten (10) days before the time of any intended public or private sale or other disposition of the Patent Collateral is to be made, which Borrower hereby agrees shall be reasonable notice of such sale or other disposition. At any such sale or other disposition, any holder of any note or Bank may, to the extent permissible under applicable law, purchase the whole or any part of the Patent Collateral sold, free from any right of redemption on the part of Borrower, which right is hereby waived and released.

PATENT SECURITY AGREEMENT Page 2

        7.         Power of Attorney.  Borrower hereby authorizes and empowers Bank, upon the occurrence and during the continuance of a Default under the Credit Agreement, to make, constitute and appoint any officer or agent of Bank as Borrower’s true and lawful attorney-in-fact, with power to endorse Borrower’s name on all applications and other documents necessary for Bank to use the Patent Collateral or to grant any exclusive or non-exclusive license under the Patent Collateral to any third Person, or to assign, pledge, convey or otherwise transfer title in, or dispose of, the Patent Collateral to any third Person. This power shall be deemed coupled with an interest and shall be irrevocable for the term of this Security Agreement.

        8.         Fees and Expenses.  Any and all fees, costs and expenses, of whatever kind or nature, including the reasonable attorney’s fees and legal expenses incurred by Bank in connection with the preparation of this Security Agreement and all other documents relating hereto and the consummation of this transaction, the filing or recording of any documents (including all taxes in connection therewith) in public offices, the payment or discharge of any taxes, counsel fees, maintenance fees, encumbrances or otherwise protecting, maintaining or preserving the Patent Collateral, or in defending or prosecuting any actions or proceedings arising out of or related to the Patent Collateral, shall be borne and paid by Borrower on demand by Bank and until so paid shall be added to the principal amount of the Obligations and shall bear interest at the highest rate prescribed in the Credit Agreement.

        9.         Patent Applications.  Borrower shall have the duty to prosecute diligently any patent applications of the Patents pending as of the date of this Security Agreement or thereafter until the Obligations shall have been paid in full, to make application on unpatented but patentable inventions unless it is inconsistent with sound commercial practices to do so and to preserve and maintain all rights in patent applications and patents of the Patent Collateral, including, without limitation, the payment of all maintenance fees. Any expenses incurred in connection with such an application shall be borne by Borrower. Borrower shall not abandon any right to file a patent application, or any pending patent application or patent without the consent of Bank, which consent shall not be unreasonably withheld.

        10.         Preservation of Rights.  No course of dealing between Borrower and Bank, nor any failure to exercise nor any delay in exercising, on the part of Bank, any right, power or privilege hereunder or under the Credit Agreement shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

PATENT SECURITY AGREEMENT Page 3

        11.         Remedies Cumulative.  All of Bank's rights and remedies with respect to the Patent Collateral, whether established hereby or by the Credit Agreement, or by any other agreements or by law shall be cumulative and may be exercised singularly or concurrently.

        12.         Severability.  The provisions of this Security Agreement are severable, and if any clause or provision shall be held invalid and unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any clause or provision of this Security Agreement in any jurisdiction.

        13.         Amendment.  This Security Agreement is subject to modification only by a writing signed by the parties.

        14.         Successors and Assigns.  The benefits and burdens of this Security Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties.

        15.         Incorporation by Reference.  The security interest herein has been granted as a supplement to, and not in limitation of, the security interest granted to Bank under the General Security Agreement. The General Security Agreement and all rights and remedies of Bank thereunder shall remain in full force and effect in accordance with its terms. This Security Agreement is made subject to all the terms, covenants, conditions, obligations, stipulations and agreements contained in the General Security Agreement to the same extent and effect as if fully set forth herein, and the General Security Agreement is subject to all the terms, covenants, conditions, obligations, stipulations and agreements contained in this Security Agreement to the same extent and effect as if fully set forth therein. In the event of any irreconcilable inconsistency between the terms of the General Security Agreement and this Security Agreement, the General Security Agreement shall control.

        16.         Counterparts.  This Security Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute but one and the same document.

        17.         Headings.  Section headings in this Security Agreement are for convenience of reference only and shall not govern the interpretation of any of the provisions of this Security Agreement.

        18.         Choice of Law.  This Security Agreement and the rights and obligations of the parties hereunder shall be governed by, and construed and interpreted in accordance with the laws of the State of Indiana.

PATENT SECURITY AGREEMENT Page 4

         IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed and delivered by their respective officers duly authorized as of the day and year first above written.

BIOANALYTICAL SYSTEMS, INC.



By:  /s/ Peter T. Kissinger Its:  CHM/CEO

STATE OF INDIANA	)
	)  SS:
COUNTY OF TIPPECANOE	)

         Before me, a Notary Public in and for said County and State, personally appeared Peter T. Kissinger, known to me to be the CHM/CEO of Bioanalytical Systems, Inc., and acknowledged the execution of the foregoing for and on behalf of said corporation.

         Witness my hand and Notarial Seal, this 28th day of October, 2002.

	/s/ Jeri A. Ungersma Notary Public - Signature Jeri A. Ungersma Notary Public - Printed
My Commission Expires: July 17, 2008	My County of Residence: Tippecanoe

PATENT SECURITY AGREEMENT Page 5

ACCEPTED: THE PROVIDENT BANK



By:  /s/ Jeffrey A. Salesman, VP Its:  Vice President

STATE OF INDIANA	)
	)  SS:
COUNTY OF MARION	)

         Before me, a Notary Public in and for said County and State, personally appeared Jeffrey A. Salesman, known to me to be a Vice President of The Provident Bank, and acknowledged the execution of the foregoing for and on behalf of said bank.

         Witness my hand and Notarial Seal, this 29th day of October, 2002.

	/s/ Cheryl G. Croghan Notary Public - Signature Cheryl G. Croghan Notary Public - Printed
My Commission Expires: 10-27-2007	My County of Residence: Marion

EX-10.14

Exhibit 10.14

COMMERCIAL LOAN
NOTE NO. __________________

PROMISSORY NOTE

$6,000,000.00 Date:  October 29, 2002
Indianapolis, Indiana

        The undersigned, for value received, promises to pay to the order of The Provident Bank, at any of its offices, the sum of Six Million Dollars ($6,000,000) (the “Maximum Credit”) or so much thereof as is lent by the holder pursuant to the provisions hereof, together with interest until demand or maturity at the rates and on the dates set forth in the Agreement (hereinafter defined) computed on the basis of a year of 360 days for the actual number of days elapsed, and after default hereunder, demand or maturity, whether at stated maturity or by acceleration, at a rate four (4) percentage points greater than the otherwise applicable rate (the “Default Rate”). Interest shall be due and payable on the first day of each month and at maturity and as otherwise provided in the Agreement. Principal shall be due and payable on the Line of Credit Maturity Date and the undersigned shall make such mandatory principal payments as are required to be made under Section 2.3.1 of the Agreement.

        The undersigned hereby states that the purpose of the loan evidenced by this Note is for working capital purposes.

        This Note is issued pursuant to, is entitled to the benefit of, and is subject to the provisions of that certain Credit Agreement between Borrower and Bank as of even date herewith (as the same may be amended from time to time, the “Agreement”). Advances under this Note shall be made in accordance with the Agreement. The Agreement, among other things, contains a description of the collateral securing this Note, the definitions of the proper nouns used herein and provisions for acceleration upon the happening of certain stated events.

        Notwithstanding anything to the contrary contained herein or in any other agreement between the undersigned and the holder, if this Note provides that the principal hereof is payable on demand, then this Note is a demand Note due and owing immediately, without prior demand of the holder and immediate action to enforce its payment may be taken at any time, without notice and without reason. If any payment of principal or interest is not paid when due, or if the holder deems itself insecure for any reason, including but not limited to, the insolvency, bankruptcy, business failure, death, default in the payment of other obligations or receivership of or concerning any maker, guarantor or indorser hereof, this Note shall, if payable other than on demand, at the option of its holder, become immediately due and payable, without demand or notice. The undersigned shall promptly provide such financial information as the holder shall reasonably request from time to time.

Page 1 of a Note Containing Three Pages dated October 29, 2002 from BIOANALYTICAL SYSTEMS, INC. to THE PROVIDENT BANK.

        As collateral security for the payment of the amounts from time to time owing hereunder, Borrower and all indorsers hereby grants to the holder a security interest in (i) all property in which the holder now or hereafter holds a security interest pursuant to any and all assignments, pledges and security agreements between the undersigned and the holder and (ii) all accounts, securities and properties now or hereafter in the possession of the holder and in which the undersigned or any indorsers have any interest. Upon this Note becoming due under any of its terms and provisions, and not being fully paid and satisfied, the total sum then due hereunder may, at any time and from time to time, be charged against any account or accounts maintained with the holder hereof by any of the undersigned or any indorser, without notice to or further consent from any of them, and the undersigned and all indorsers agree to be and remain jointly and severally liable for all remaining indebtedness represented by this Note in excess of the amount or amounts so applied.

        There will be a minimum finance charge of $50.00 for each billing period. Prime rate is that annual percentage rate of interest which is established by The Provident Bank from time to time as its prime rate, whether or not such rate is publicly announced, and which provides a base to which loan rates may be referenced. Prime rate is not necessarily the lowest lending rate of The Provident Bank. A rate based on the prime rate will change each time and as of the date that the prime rate changes. If any payment of principal or interest in not paid when due or if the undersigned shall otherwise default in the performance of its obligations hereunder or under any other note or agreement with the holder, the holder at its option, may charge and collect, or add to the unpaid balance hereof, a late charge up to the greater of $250 or .1% of the unpaid balance of this Note at the time of such delinquency for each such delinquency to cover the extra expense incident to handling delinquent accounts, and/or increase the interest rate on the unpaid balance to the Default Rate. The holder may charge interest at the rate provided herein on all interest and other amounts owing hereunder which are not paid when due.

        The undersigned, all indorsers hereof, any other party hereto, and any guarantor hereof (collectively “Obligors”) each (i) waive(s) presentment, demand, notice of demand, protest, notice of protest and notice of dishonor and any other notice required to be given by law in connection with the delivery, acceptance, performance, default or enforcement of this Note, of any indorsement or guaranty of this Note or of any document or instrument evidencing any security for payment of this Note; (ii) waive(s) any and all rights and relief under valuation and appraisement laws; and (iii) consent(s) to any and all delays, extensions, renewals or other modifications of this Note or waivers of any term hereof or release or discharge by the holder of any of Obligors or release, substitution or exchange of any security for the payment hereof or the failure to act on the part of the holder or any indulgence shown by the holder, from time to time and in one or more instances, (without notice to or further assent from any of Obligors) and agree(s) that no such action, failure to act or failure to exercise any right or remedy, on the part of the holder shall in any way affect or impair the obligations of any Obligors or be construed as a waiver by the holder of, or otherwise affect, any of the holder’s rights under this Note, under any indorsement or guaranty of this Note or under any document or instrument evidencing any security for payment of this Note. The undersigned and all indorsers further agree to reimburse the holder for all advances, charges, costs and expenses, including reasonable attorneys’ fees, incurred or paid in exercising any right, power or remedy conferred by this Note, or in the enforcement thereof. If the undersigned are more than one (1), the liability of the undersigned hereon is joint and several, and the term “undersigned”, as used herein, means any one or more of them.

Page 2 of a Note Containing Three Pages dated October 29, 2002 from BIOANALYTICAL SYSTEMS, INC. to THE PROVIDENT BANK.

        All payments under this Note shall be made without relief from, or the benefit of, valuation and appraisement laws.

        THE PROVISIONS OF THIS NOTE SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF INDIANA. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR THE HOLDER TO EXTEND CREDIT TO BORROWER, AND AFTER HAVING THE OPPORTUNITY TO CONSULT COUNSEL, THE UNDERSIGNED AND ALL INDORSERS HEREBY EXPRESSLY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATED TO THIS NOTE OR ARISING IN ANY WAY FROM ANY INDEBTEDNESS OR OTHER TRANSACTIONS INVOLVING THE HOLDER AND THE UNDERSIGNED, THE UNDERSIGNED HEREBY DESIGNATE(S) ALL COURTS OF RECORD SITTING IN INDIANAPOLIS, INDIANA AND HAVING JURISDICTION OVER THE SUBJECT MATTER, STATE AND FEDERAL, AS FORUMS WHERE ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING FROM OR OUT OF THIS NOTE, ITS MAKING, VALIDITY OR PERFORMANCE, MAY BE PROSECUTED AS TO ALL PARTIES, THEIR SUCCESSORS AND ASSIGNS, AND BY THE FOREGOING DESIGNATION THE UNDERSIGNED CONSENT(S) TO THE JURISDICTION AND VENUE OF SUCH COURTS.

        IN WITNESS WHEREOF, Borrower has caused this Note to be executed by its duly authorized officer as of the day and year first hereinabove written.

BIOANALYTICAL SYSTEMS, INC.



By:  /s/ Peter T. Kissinger Printed:  Peter T. Kissinger Title:  CHM/CEO Address:  2701 Kent Avenue
                West Lafayette, IN 47906

Page 3 of a Note Containing Three Pages dated October 29, 2002 from BIOANALYTICAL SYSTEMS, INC. to THE PROVIDENT BANK.

EX-10.15

Exhibit 10.15

LOAN AGREEMENT

         THIS AGREEMENT is made this 29th day of October, 2002 by and among UNION PLANTERS BANK, N.A., a national banking association BIOANALYTICAL SYSTEMS, INC., an Indiana corporation ("BAS"), and BAS EVANSVILLE, INC., an Indiana corporation ("BAS Evansville").

RECITALS

        A.         Borrowers have requested certain credit facilities for the purpose of refinancing existing indebtedness and funding construction in West Lafayette and Mount Vernon, Indiana.

        B.         Lender has agreed to provide the credit facilities requested by Borrowers, upon the terms and subject to the conditions set forth in this Agreement.

TERMS

         In consideration of the premises and the mutual promises set forth in this Agreement, and subject to the terms and conditions set forth in this Agreement, the parties agree as follows:

        1.         Definitions. As used herein:

            a.         “ADA Agreement” means the agreement concerning compliance with the Americans with Disabilities Act more particularly described in Section 5(a), including any amendment, modification or replacement thereof.

            b.         “Advance” means a disbursement of the proceeds of a Loan.

            c.         “Agreement” or “Loan Agreement” means this Loan Agreement, as amended from time to time.

            d.         “Borrower” or “Borrowers” means, individually and collectively as the context requires, BAS and BAS Evansville.

            e.         “Business Day” means a day on which the principal domestic office of the Bank is open for the purpose of conducting substantially all of its business activities.

            f.         “Environmental Certificate” means the certificate concerning environmental matters described in Section 5(a).

            g.         “Financing Statements” shall have the meaning ascribed to such term in Section 5(a), including any amendment, modification or replacement thereof.

            h.         “Fixtures” shall have the meaning ascribed to such term in the Indiana Uniform Commercial Code, as in effect from time to time.

            i.         “GAAP” means generally accepted accounting principles in the United States of America from time to time as promulgated by the Financial Accounting Standards Board and recognized and interpreted by the American Institute of Certified Public Accountants.

            j.         “Indebtedness” means the debt obligation evidenced by the Promissory Notes.

            k.         “Instruments” means the Promissory Notes, the Mortgage (West Lafayette), the Mortgage (Mount Vernon), the Rent Assignment (West Lafayette), the Rent Assignment (Mount Vernon), the ADA Agreement, the Environmental Certificate, the Financing Statements and any and all other loan instruments, agreements and documents evidencing, securing or related to the Loans.

            l.         “Lender” means Union Planters Bank, N.A., a national banking association, its successors and assigns.

            m.         “Loan Closing” means the closing of the Loans as more particularly described in Section 5.

            n.         “Loan (Mount Vernon)” means the secured construction/term loan more particularly described in Section 4, including any extension or renewal thereof.

            o.         “Loan (West Lafayette)” means the secured construction/term loan more particularly described in Section 3, including any extension or renewal thereof.

            p.         “Loan (Mount Vernon) Conversion Date” means April 18, 2003, the date on which Borrowers may no longer receive advances on the Loan (Mount Vernon) Promissory Note and by which the construction of the Project (Mount Vernon) shall be substantially complete.

            q.         “Loan (West Lafayette) Conversion Date” means April 18, 2004, the date on which BAS may no longer receive advances on the Loan (West Lafayette) Promissory Note and by which the construction of the Project (West Lafayette) shall be substantially complete.

            r.         “Loan (Mount Vernon) Maturity Date” means May 1, 2008, the date on which the indebtedness evidenced by the Loan (Mount Vernon) Promissory Note is due and payable in full.

            s.         “Loan (West Lafayette) Maturity Date” means November 1, 2012, the date on which the indebtedness evidenced by the Loan (West Lafayette) Promissory Note is due and payable in full.

            t.         “Loan (Mount Vernon) Promissory Note” means the promissory note more particularly described in Section 5(a), including any amendment, modification, renewal, extension or replacement thereof.

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            u.         “Loan (West Lafayette) Promissory Note” means the promissory note more particularly described in Section 5(a), including any amendment, modification, renewal, extension or replacement thereof.

            v.         “Loans” means, collectively, the Loan (Mount Vernon), the Loan (West Lafayette) and the Term Loan.

            w.         “Material Adverse Effect” means any event, circumstance or condition that could reasonably be expected to have a material adverse effect on (a) the business, operations, financial condition, properties or prospects of Borrowers, (b) the ability of Borrowers to perform their respective obligations under the Instruments, (c) the validity or enforceability of any of the Instruments, or any material provision thereof or any transaction contemplated thereby, or (d) the rights and remedies of Lender under any of the Instruments.

            x.         “Mortgage (Mount Vernon)” means the mortgage and security agreement described in Section 5(a), including any amendment, modification or replacement thereof.

            y.         “Mortgage (West Lafayette)” means the mortgage and security agreement described in Section 5(a), including any amendment, modification or replacement thereof.

            z.         “Permitted Exceptions” means (a) the lien of current real property taxes not then due and payable, (b) leases to tenants, copies of which have been provided to Lender, and (c) easements and restrictions and other matters that are described in the title insurance commitment for the Real Estate (Mount Vernon) or the Real Estate (West Lafayette), as applicable, as exceptions which are acceptable to Lender in its sole discretion.

            aa.         “Project (Mount Vernon)” means the construction of a new office/laboratory facility located at 1024 Middle Mount Vernon Road, Mount Vernon, Indiana.

            bb.         “Project (West Lafayette)” means the expansion of BAS'S existing facility located at 2700, 2701 and 2801 Kent Avenue, West Lafayette, Indiana.

            cc.         “Promissory Notes” means the Loan (Mount Vernon) Promissory Note, the Loan (West Lafayette) Promissory Note and the Term Loan Promissory Note.

            dd.         “Real Estate” means, collectively, the Real Estate (Mount Vernon) and the Real Estate (West Lafayette).

            ee.         “Real Estate (Mount Vernon)” means the real estate commonly known as 1024 Middle Mount Vernon Road, Mount Vernon, Indiana, and described on the attached Schedule A-2.

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            ff.         “Real Estate (West Lafayette)” means the real estate commonly known as 2700, 2701 and 2801 Kent Avenue, West Lafayette, Indiana, and described on the attached Schedule A-1.

            gg.         “Rent Assignment (Mount Vernon)” means the collateral assignment of rents and leases described in Section 5(a), including any amendment, modification or replacement thereof.

            hh.         “Rent Assignment (West Lafayette)” means the collateral assignment of rents and leases described in Section 5(a), including any amendment, modification or replacement thereof.

            ii.         “Subordinated Debt” means indebtedness of a Borrower expressly subordinated to the Indebtedness, in form and substance acceptable to Lender.

            jj.         “Term Loan” means the loan more particularly described in Section 2, including any renewal or extension thereof.

            kk.         “Term Loan Maturity Date” means November 1, 2012, when the indebtedness evidenced by the Term Loan Promissory Note is due and payable in full.

            ll.         “Term Loan Promissory Note” means the promissory note more particularly described in Section 5(a), including any amendment, modification, renewal, extension or replacement thereof.

        2.         Term Loan. Lender will lend to BAS, for the purpose of refinancing existing indebtedness up to Five Million Four Hundred Ten Thousand Dollars and No Cents ($5,410,000.00), in the form of a term loan, upon the terms set forth in the attached Schedule C.

        3.         (Loan West Lafayette). Lender will lend to BAS, for the purpose of funding the Project (West Lafayette), up to Two Million Two Hundred Fifty Thousand Dollars and No Cents ($2,250,000.00), in the form of a non-revolving construction line of credit/term loan, upon the terms set forth in the attached Schedule E.

        4.         Loan (Mount Vernon). Lender will lend to Borrowers, for the purpose of funding the Project (Mount Vernon), up to Two Million Three Hundred Forty Thousand Dollars and No Cents ($2,340,000.00), in the form of a non-revolving construction line of credit/term loan, upon the terms set forth in the attached Schedule K.

        5.         Loan Closing; Disbursement.

            a.         Loan Closing. The Loan Closing will be concurrent with the execution of this Agreement. At the Loan Closing, the applicable Borrower will execute and deliver to Lender, or when applicable, cause to be delivered to Lender:

            1. Term Loan Promissory Note: a promissory note from BAS in form acceptable to Lender and substantially in the form of the attached Schedule D, evidencing the Term Loan Indebtedness;

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            2. Loan (West Lafayette) Promissory Note: a promissory note from BAS in form acceptable to Lender and substantially in the form of the attached Schedule F, evidencing the Loan (West Lafayette) Indebtedness;

            3. Loan (Mount Vernon) Promissory Note: a promissory note from Borrowers in form acceptable to Lender and substantially in the form of the attached Schedule L, evidencing the Loan (Mount Vernon) Indebtedness;

            4. Mortgage (West Lafayette): a mortgage from BAS in form acceptable to Lender and substantially in the form of the attached Schedule G, granting to Lender a first priority mortgage and security interest upon the Real Estate (West Lafayette) and all Fixtures thereon, as security for payment of the Indebtedness and performance of Borrowers' obligations hereunder and under the Instruments;

            5. Mortgage (Mount Vernon): a mortgage from BAS Evansville in form acceptable to Lender and substantially in the form of the attached Schedule M, granting to Lender a first priority mortgage and security interest upon the Real Estate (Mount Vernon) and all Fixtures thereon, as security for payment of the Indebtedness and performance of Borrowers' obligations hereunder and under the Instruments;

            6. Assignment of Rents and Leases (West Lafayette): an assignment of rents and leases from BAS in form acceptable to Lender and substantially in the form of the attached Schedule H, granting to Lender a first priority security interest in the leases of all or any portion of the Real Estate (West Lafayette) and in the rents payable thereunder, as security for payment of the Indebtedness and performance of Borrowers’ obligations hereunder and under the Instruments;

            7. Assignment of Rents and Leases (Mount Vernon): an assignment of rents and leases from BAS Evansville in form acceptable to Lender and substantially in the form of the attached Schedule N, granting to Lender a first priority security interest in the leases of all or any portion of the Real Estate (Mount Vernon) and in the rents payable thereunder, as security for payment of the Indebtedness and performance of Borrowers’ obligations hereunder and under the Instruments;

            8. ADA Agreement: an agreement concerning compliance with the Americans with Disabilities Act from Borrowers, in form acceptable to Lender and substantially in the form of the attached Schedule I;

– 5 –

            9. Environmental Certificate: a certificate concerning environmental matters from Borrowers, in form acceptable to Lender and substantially in the form of the attached Schedule J; and

            10. UCC-1 Financing Statements: a UCC-1 Financing Statement from Borrowers in favor of Lender in form acceptable to Lender, as security for payment of the Indebtedness in respect of the Loan (Mount Vernon) and performance of Borrowers’ obligations hereunder and under the Instruments, and a UCC-1 Financing Statement from BAS in favor of Lender in form acceptable to Lender, as security for payment of the Indebtedness in respect of the Term Loan and the Loan (West Lafayette) and performance of BAS’s obligations hereunder and under the Instruments (collectively, the “Financing Statements”).

         At or before the Loan Closing, Borrowers also shall satisfy the applicable requirements set forth in the attached Schedule B.

            b.         Disbursement.

            1. Term Loan: Subject to satisfaction of the applicable requirements set forth in the attached Schedule B and so long as there exists no Event of Default or no Event of Default would be occasioned by the making of the Term Loan, the proceeds of the Term Loan shall be disbursed to BAS at the Loan Closing or at such other time as shall be mutually agreed by BAS and Lender.

            2. Loan (West Lafayette). Upon BAS’s request at or after the Loan Closing and upon satisfaction of the applicable requirements of the attached Schedule B (but not more frequently than monthly), Lender will make an Advance under the Loan (West Lafayette) Promissory Note in an amount equal to the out-of-pocket costs incurred by BAS through the request date in construction of the Project (West Lafayette). Not less than three (3) Business Days prior to each such Advance, BAS shall satisfy the applicable requirements set forth in the attached Schedule B. However, (a) Lender’s obligation to disburse any such requested Advance will be subject to satisfactory inspection of the Real Estate (West Lafayette) by Lender or its representative; and (b) if on the date that any such Advance is to be disbursed, an Event of Default under this Agreement has occurred and is continuing, or if Borrowers are in default in the payment of any indebtedness owed by them to Lender, Lender will be relieved of its obligation to disburse any Advance and of all further obligations hereunder.

– 6 –

            3. Loan (Mount Vernon). Upon Borrowers’ request at or after the Loan Closing and upon satisfaction of the applicable requirements of the attached Schedule B (but not more frequently than monthly), Lender will make an Advance under the Loan (Mount Vernon) Promissory Note in an amount equal to the amounts to be refinanced and the out-of-pocket costs incurred by Borrowers through the request date in construction of the Project (Mount Vernon). Not less than three (3) Business Days prior to each such Advance, Borrowers shall satisfy the applicable requirements set forth in the attached Schedule B. However, (a) Lender’s obligation to disburse any such requested Advance will be subject to satisfactory inspection of the Real Estate (Mount Vernon) by Lender or its representative; and (b) if on the date that any such Advance is to be disbursed, an Event of Default under this Agreement has occurred and is continuing, or if Borrowers are in default in the payment of any indebtedness owed by them to Lender, Lender will be relieved of its obligation to disburse any Advance and of all further obligations hereunder.

        6.         Fees and Expenses. Borrowers agree, forthwith upon demand of Lender, to reimburse Lender for all costs and expenses Lender incurs in connection with the Loans, whether or not such Loans shall close, including, without limitation, Lender’s reasonable attorneys’ fees, appraisal fees, title insurance premiums, environmental investigation and report fees, survey fees, recording and filing fees incurred in documentation of the Loans and in the perfection of Lender’s security interests granted herein or in the Instruments, and fees in connection with the administration and enforcement of the Loans. BAS also agrees to pay to Lender at the Loan Closing a nonrefundable commitment fee of Twelve Thousand Six Hundred Sixty-Two Dollars and Fifty Cents ($12,662.50) in respect of the Term Loan and Eleven Thousand Two Hundred Fifty Dollars and No Cents ($11,250.00) in respect of the Loan (West Lafayette). In addition, Borrowers agree to pay to Lender at the Loan Closing a nonrefundable commitment fee of Eleven Thousand Dollars and No Cents ($11,000.00). Lender acknowledges receipt of Ten Thousand Dollars and No Cents ($10,000.00) from BAS, which amount shall be applied first to unreimbursed expenses and then to BAS’s obligations for payment of the commitment fees.

           7.         Borrowers’ Representations and Warranties. To induce Lender to enter into this Agreement and disburse the proceeds of the Loans to the applicable Borrower(s), each Borrower represents and warrants to Lender that each of the following statements is true and correct as of the date hereof and each of them will continue to be true and correct as of the date of the Loan Closing, and as of the date of each disbursement of proceeds of the Loans:

                    a.         Marketable title in fee simple to the Real Estate (Mount Vernon) is vested in BAS Evansville, and marketable title to the other collateral given to secure payment of the Indebtedness is vested in BAS Evansville, free and clear of any and all conflicting claims of ownership, and free from any and all mortgages, encumbrances, liens, security interests, leases, licenses, easements, restrictions, except for Permitted Exceptions, and Borrowers will defend the Real Estate (Mount Vernon) and the other collateral against any person claiming an interest in such Real Estate (Mount Vernon) or collateral adverse to the interest of Lender;

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                    b.         Neither Borrower has made or assumed an assignment of rents from or leases of the Real Estate (Mount Vernon), except the Rent Assignment (Mount Vernon);

                    c.         None of the provisions of this Agreement contravenes or is in conflict with or creates an event of default under any provision of any existing material indenture or agreement to which either Borrower is a party;

                    d.         Each financial statement of Borrowers delivered to Lender was prepared in accordance with GAAP consistent with prior years, unless specifically otherwise noted thereon, and fairly and completely present in all material respects the financial condition of Borrowers as of the date thereof and the results of their operations for the period then ended, and discloses all known or anticipated material liabilities, direct or contingent, of Borrowers. No Material Adverse Effect has occurred subsequent to the date of the most recent financial statements of Borrowers delivered to Lender.

                    e.         There are no actions, suits, proceedings or investigations pending or, to Borrowers’ knowledge, threatened against either Borrower or any of their respective properties in any court or administrative agency, and neither Borrower is in violation of any outstanding decree or order of any court or administrative agency;

                    f.         This Agreement and the Instruments evidence a business loan exempt from the Federal Truth-In-Lending Act (15 USC 1601, et seq.), the Federal Reserve Bank's Regulation Z (12 CFR 226, et seq.), and the Indiana Uniform Consumer Credit Code (IC 24-4.5-1-101, et seq.).

                    g.         Neither Borrower is an “investment company” within the meaning of the Investment Company Act of 1940, as amended, or a “holding company” or an “affiliate of a holding company” or a “subsidiary of a holding company” within the meanings of the Public Utility Holding Company Act of 1935, as amended.

        8.         BAS’s Representations and Warranties. To induce Lender to enter into this Agreement and disburse the proceeds of the Loans to BAS, BAS represents and warrants to Lender that each of the following statements is true and correct as of the date hereof and each of them will continue to be true and correct as of the date of the Loan Closing, and as of the date of each disbursement of proceeds of the Loans:

                    a.         Marketable title in fee simple to the Real Estate (West Lafayette) is vested in BAS, and marketable title to the other collateral given to secure payment of the Indebtedness is vested in BAS, free and clear of any and all conflicting claims of ownership, and free from any and all mortgages, encumbrances, liens, security interests, leases, licenses, easements, restrictions, except for Permitted Exceptions, and BAS will defend the Real Estate (West Lafayette) and the other collateral against any person claiming an interest in such Real Estate (West Lafayette) or collateral adverse to the interest of Lender;

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                    b.         BAS has not made or assumed an assignment of rents from or leases of the Real Estate (West Lafayette), except the Rent Assignment (West Lafayette);

        9.         Borrowers' Affirmative Covenants. Borrowers agree that until the Indebtedness is paid in full:

                    a.         Borrowers will pay each installment of the Indebtedness in respect of the Loan (Mount Vernon) and BAS will pay each installment of the Indebtedness in respect of the Term Loan and the Loan (West Lafayette) promptly when due and in any event within any applicable grace periods;

                    b.         Borrowers will pay, promptly when due and before any penalty attaches for nonpayment, all real and personal property taxes, assessments and charges assessed against the Real Estate (Mount Vernon), and BAS will pay, promptly when due and before any penalty attaches for nonpayment, all real and personal property taxes, assessments and charges assessed against the Real Estate (West Lafayette);

                    c.         Borrowers will maintain the buildings and other improvements now or hereafter located on the Real Estate (Mount Vernon) and the fixtures now or hereafter affixed thereto, and keep them in good repair and sightly condition, and BAS will maintain the buildings and other improvements now or hereafter located on the Real Estate (West Lafayette) and the fixtures now or hereafter affixed thereto, and keep them in good repair and sightly condition;

                    d.         Borrowers will cause any lien (including, without limitation, any judgment, attachment, execution, mechanic’s lien, or federal or state income tax lien), other than the lien of property taxes and assessments, which may attach to the Real Estate (Mount Vernon) to be satisfied and released within sixty (60) days after attachment, except for liens contested in good faith in an appropriate proceeding with respect to which Borrowers have given Lender such assurances as Lender deems necessary under the circumstances;

                    e.         BAS will cause any lien (including, without limitation, any judgment, attachment, execution, mechanic’s lien, or federal or state income tax lien), other than the lien of property taxes and assessments, which may attach to the Real Estate (West Lafayette) to be satisfied and released within sixty (60) days after attachment, except for liens contested in good faith in an appropriate proceeding with respect to which BAS has given Lender such assurances as Lender deems necessary under the circumstances;

                    f.         Borrowers will comply in all material respects with all federal, state and municipal laws, ordinances, rules and regulations applicable to the ownership and operation of the Real Estate (Mount Vernon), and BAS will comply in all material respects with all federal, state and municipal laws, ordinances, rules and regulations applicable to the ownership and operation of the Real Estate (West Lafayette);

                    g.         Upon two days notice, Borrowers will allow Lender and its representatives to inspect the Real Estate (Mount Vernon) and BAS will allow Lender and its representatives to inspect the Real Estate (West Lafayette) at all reasonable times;

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                    h.         BAS will promptly commence and diligently proceed with the construction of the Project (West Lafayette) in accordance with the plans and specifications therefor, and will complete the Project (West Lafayette) no later than the Loan (West Lafayette) Conversion Date; and

                    i.         Borrowers will promptly commence and diligently proceed with the construction of the Project (Mount Vernon) in accordance with the plans and specifications therefor, and will complete the Project (Mount Vernon) no later than the Loan (Mount Vernon) Conversion Date.

        10.         Borrowers' Financial Covenants. Borrowers agree that until the Indebtedness is paid in full:

                    a.         Accounting Records.

            1. Borrowers will keep proper books of account in which full, true and correct entries will be made of all receipts and expenses related to the ownership and operation of the Real Estate (Mount Vernon), and permit Lender upon request from time to time to review such books of account.

            2. BAS will keep proper books of account in which full, true and correct entries will be made of all receipts and expenses related to the ownership and operation of the Real Estate (West Lafayette), and permit Lender upon request from time to time to review such books of account.

                    b.         Debt Service Coverage Ratio. Borrowers will not permit Borrowers’ Debt Service Coverage Ratio to fall below 1.2:1.0 at any time. “Debt Service Coverage Ratio” means the ratio, as computed from time to time from the consolidated financial statements of Borrowers, of (i) Borrowers’ net cash flow for the immediately preceding twelve (12) months, to (ii) Borrowers’ debt service requirement for the preceding twelve (12) months. For this purpose, “net cash flow” means net earnings before interest, depreciation and amortization; and “Borrowers’ debt service requirement” means the sum of all payments under the Loans of interest and principal on outstanding Indebtedness payable (or to be paid) in the preceding twelve (12) months.

                    c.         Annual Financial Statements. Borrowers will furnish to Lender as soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year of Borrowers, consolidated and consolidating financial statements of Borrower, certified after audit by independent certified public accountants acceptable to Lender, including a balance sheet, statement of income and retained earnings and a statement of cash flows, with accompanying notes and footnote disclosures to financial statements, accompanied by the unqualified opinion of such accountants that such financial statements fairly present in all material respects the financial condition of Borrowers as of the date thereof and the results of their operations for the period then ended, all prepared in accordance with GAAP consistent with prior years unless specifically noted thereon, and accompanied by the certificate of an officer of BAS familiar with such matters that there exists no Event of Default under the Instruments, or if any Event of Default exists, stating the nature and status thereof.

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                    d.         Accounts. Borrowers will establish and maintain one or more deposit accounts with Lender within forty-five (45) days after the date hereof or such other time as the parties to this Agreement shall mutually agree.

        11.         Negative Covenants. Borrowers agree that, until the Indebtedness is paid in full, neither Borrower will, without the prior written consent of Lender:

                    a.         commit waste on, or permit waste to be committed on, or abandon the Real Estate, or permit any nuisance or unlawful activity to be carried on the Real Estate;

                    b.         convey, sell, donate, lease, or otherwise transfer (except as set forth herein with respect to eminent domain proceedings), or dispose of (or enter into any contract or agreement to convey, sell, donate, lease, or otherwise transfer or dispose of, or grant any option to purchase, lease or otherwise acquire) the Real Estate or any interest therein, other than leases to tenants for terms, including renewal and extension options, approved in advance in writing by Lender;

                    c.         grant a second or subordinate mortgage on or security interest in the Real Estate or the fixtures affixed thereto, or become security on a recognizance or other bond, or otherwise encumber the Real Estate;

                    d.         construct, remodel, alter or demolish any building or other improvement located on the Real Estate, or incur obligations for such purposes, except for the Project (Mount Vernon) and the Project (West Lafayette); or

                    e.         create, incur, assume or suffer to exist any indebtedness except (a) trade accounts and normal business accruals payable in the ordinary course of business, (b) purchase money indebtedness, (c) indebtedness to The Provident Bank and any other lender so long as Lender and such other lenders are parties to an intercreditor agreement in form and substance acceptable to Lender, (d) Subordinated Debt, and (e) indebtedness set forth in Schedule 11(e).

        12.         Indemnification by Borrowers. Borrowers will indemnify Lender against and hold it harmless from any and all claims, demands, liabilities, damages, actions, suits, judgments, fines, penalties, loss, cost and expense (including, without limitation, reasonable attorneys’ fees) arising or resulting from, or suffered, sustained or incurred by Lender as a result (direct or indirect) of, the untruth or inaccuracy of either of Borrowers’ representations and warranties set forth herein or in any Instrument or the breach of any of the covenants of either or both Borrowers set forth herein or in any Instrument.

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        13.         Insurance.

                    a.         At all times during the term of the Loan (Mount Vernon), Borrowers shall provide, maintain and keep in force policies of insurance on the Real Estate (Mount Vernon) and all Fixtures located thereon as follows:

            1. Builder's Risk insurance with limits of coverage of not less than Two Million Three Hundred Forty Thousand Dollars and No Cents ($2,340,000.00);

            2. Comprehensive general liability insurance covering its ownership and operation of the Real Estate (Mount Vernon) (and any common areas on adjoining properties) with limits of coverage not less than $1,000,000.00 in aggregate, $1,000,000 for personal injury and $1,000,000 for each occurrence, and $10,000 for medical expenses (any one person);

            3. Insurance on all buildings and improvements located on the Real Estate (Mount Vernon) and all Fixtures located thereon, in the full replacement value thereof (but not less than $2,340,000) against loss or damage resulting from fire, smoke, explosion, lightning, tornado, windstorm, hail, aircraft, vehicles, riot, riot attending a strike, civil commotion, vandalism, malicious mischief and such other risks as Lender may reasonably require;

            4. If it is determined that the Real Estate (Mount Vernon) lies in a flood zone, as determined by the United States Department of Housing and Urban Development, flood insurance shall be obtained at Borrowers’ expense. The amount of flood insurance shall be the lesser of (i) the aggregate principal amount of the Loan (Mount Vernon), or (ii) the maximum amount of flood insurance available; and

            5. Such other insurance as Lender may reasonably require.

                    b.         At all times during the term of the Term Loan and the Loan (West Lafayette), BAS shall provide, maintain and keep in force policies of insurance on the Real Estate (West Lafayette) and all Fixtures located thereon as follows:

            1. Builder's Risk insurance with limits of coverage of not less than Two Million Two Hundred Fifty Thousand Dollars and No Cents ($2,250,000.00);

            2. Comprehensive general liability insurance covering its ownership and operation of the Real Estate (West Lafayette) (and any common areas on adjoining properties) with limits of coverage not less than $1,000,000.00 in aggregate, $1,000,000 for personal injury and $1,000,000 for each occurrence, and $10,000 for medical expenses (any one person);

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            3. Insurance on all buildings and improvements located on the Real Estate (West Lafayette) and all Fixtures located thereon, in the full replacement value thereof (but not less than $7,660,000) against loss or damage resulting from fire, smoke, explosion, lightning, tornado, windstorm, hail, aircraft, vehicles, riot, riot attending a strike, civil commotion, vandalism, malicious mischief and such other risks as Lender may reasonably require;

            4. If it is determined that the Real Estate (West Lafayette) lies in a flood zone, as determined by the United States Department of Housing and Urban Development, flood insurance shall be obtained at BAS’s expense. The amount of flood insurance shall be the lesser of (i) the aggregate principal amounts of the Term Loan and the Loan (West Lafayette), or (ii) the maximum amount of flood insurance available; and

            5. Such other insurance as Lender may reasonably require.

                    c.         All policies of insurance to be provided hereunder shall be from companies and in form and amount satisfactory to Lender with Standard Mortgagee Clauses (without contribution) attached to all policies in favor of and in form satisfactory to Lender, including a provision requiring that the coverages evidenced thereby shall not be terminated or materially modified without at least thirty (30) days’ prior written notice to Lender, and shall have deductibles not in excess of an amount reasonably acceptable to Lender. All policies required by this Agreement shall be written by a company or companies authorized to write such insurance in the State of Indiana and have a Best’s Key Rating Guide of A-, IX or better. Borrowers shall have all such insurance made payable to Lender and Borrowers as their interests may appear. Borrowers shall deliver to Lender original or duplicate policies, or certified copies of relevant policies if insurance is provided through blanket policies, evidencing the insurance described herein. In addition, where the original policy is unavailable, Borrowers shall provide to Lender an ACORD 27 (EPI) form with respect to casualty and, if applicable, rent loss insurance and an ACORD 25-S (COI) form with respect to liability insurance. At least ten (10) days prior to the expiration or cancellation of any such policy, Borrowers shall submit to Lender evidence showing payment of premiums required to continue existing insurance in force or new policies and certificates showing premiums paid in compliance with the foregoing provisions. If Borrowers shall fail to provide insurance and evidence thereof as required hereby, Lender may obtain it at Borrowers’ expense. Any amounts paid by Lender for any such policy shall be treated as an advance.

                    d.         Neither Borrower shall procure separate insurance concurrent in coverage or contributing in the event of loss with the insurance coverage required to be maintained hereunder unless Lender is included thereon under a Standard Mortgagee Clause acceptable to Lender. Borrowers shall immediately notify Lender whenever any such separate insurance is procured and shall promptly deliver to Lender the policy or policies of insurance. In the event of a foreclosure or transfer of title to the Real Estate, in lieu of foreclosure, or by purchase at foreclosure sale, all interest in any insurance policies in force shall pass to Lender, transferee or purchaser as the case may be.

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                    e.         All policies of insurance required by the terms of this Agreement shall contain an endorsement or agreement by the insurer that any loss will be payable in accordance with the terms of such policy notwithstanding any act or negligence of a Borrower which might otherwise result in forfeiture of said insurance and the further agreement of the insurer waiving all rights of setoff, counterclaim or deduction against such Borrower.

        14.         Events of Default; Acceleration. The entire Indebtedness will, at the option of Lender, be immediately due and payable upon the occurrence of any of the following "Events of Default":

                    a.         Borrowers fail to pay any installment of the Indebtedness in respect of the Loan (Mount Vernon) within ten (10) days after the same is due;

                    b.         BAS fails to pay promptly when due any installment of the Indebtedness in respect of the Term Loan or the Loan (West Lafayette) within ten (10) days after the same is due;

                    c.         Either Borrower makes any materially incorrect or misleading representation in any financial statements or other information delivered to Lender;

                    d.         Any of the representations or warranties made in this Agreement or in the other Instruments are or prove to have been false in any material respect;

                    e.         Either Borrower fails to observe or perform any obligation to be observed or performed by such party under this Agreement or the other Instruments and fails to cure such default after thirty (30) days written notice; provided that is such default cannot reasonably be cured within such thirty (30) day period and such Borrower will have commenced to cure such default within such thirty (30) day period and thereafter diligently and expeditiously proceeds to cure the same, such thirty (30) day period will be extended for so long as it will require such Borrower in the exercise of due diligence to cure such default, but in any event no longer than sixty (60) days after such written notice;

                    f.         A judgment is entered against either Borrower or any injunction, attachment, or garnishment is issued against any assets of either Borrower and such injunction, attachment, or garnishment has a Material Adverse Effect upon such Borrower;

                    g.         Either Borrower fails to pay when due or within any applicable grace period any indebtedness under any existing or future agreement for borrowed money pursuant to which such Borrower has incurred indebtedness;

                    h.         Either Borrower makes an assignment for the benefit of creditors; consents to the appointment of a custodian, receiver or trustee for itself or for a substantial part of such party’s assets; or commences any proceeding under any bankruptcy, reorganization, liquidation, insolvency or similar laws of any jurisdiction;

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                    i.         A custodian, receiver or trustee is appointed for either Borrower or for a substantial part of either Borrower's assets without such Borrower's consent and is not removed within sixty (60) days after such appointment;

                    j.         Proceedings are commenced against either Borrower under any bankruptcy, reorganization, liquidation, insolvency or similar laws of any jurisdiction, and such proceedings remain undismissed for sixty (60) days after commencement, or such Borrower consents to such proceedings;

                    k.         Either Borrower is dissolved; or

                    l.         All or any part of the Real Estate or any interest therein is transferred without Lender’s prior written consent, said consent being in Lender’s sole discretion.

         Upon the occurrence of any such Event of Default and the failure to cure such Event of Default within the time period, if any, set forth herein or in the applicable Instrument, and at any time thereafter so long as the default continues, unless such rights are waived by Lender, Lender shall have the right, in addition to any other rights set forth in the Instruments, to:

                    aa.         terminate this Agreement and its obligations hereunder;

                    bb.         declare the entire Indebtedness to be immediately due and payable;

                    cc.         declare defaults and exercise any or all of the remedies available to it under any or all of the Instruments;

                    dd.         exercise its right of setoff against any and all sums (including amounts on deposit) owed by Lender to either Borrower; and

                    ee.         exercise any other right or remedy available to it at law or in equity.

The foregoing remedies will be cumulative and not exclusive, and may be exercised at any time and from time to time as the occasion arises.

        15.         Lender’s Right to Cure. Upon the occurrence of an Event of Default, Lender may, at its option and without notice, advance for the account of Borrowers such sum or sums as may be reasonably necessary to cure such Event of Default. All sums so advanced, together with interest thereon from the date of advancement at a rate equal to four percent (4%) per annum over the highest rate of interest then in effect as provided in the Promissory Notes will become part of the Indebtedness, and will be immediately due and payable without notice or demand.

        16.         Waivers. Each Borrower waives any demand, notice, protest, notice of acceptance of this Agreement, notice of loans made, credit extended, collateral received or delivered or other action taken in reliance hereon and all other demands and notices of any description. With respect to the Loans and the collateral given to secure repayment thereof, each Borrower assents to any extension or postponement of the time of payment or other indulgence, to any substitution, exchange, or release of collateral, to the addition or release of any party or operation primarily or secondarily liable, to the acceptance of partial payments thereon and the settlement, compromise or adjustment of any of the foregoing, all in such manner and at such time or times as Lender may deem advisable. Lender will have no duty as to the preservation of rights against prior parties, nor as to the preservation of any rights pertaining thereto beyond the safe custody thereof. Lender may exercise its rights with respect to the collateral without resorting or regard to other collateral or sources of reimbursement for the Loans. Lender will not be deemed to have waived any of its rights under this Agreement unless such waiver is in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right will operate as a waiver of such right of any other right and a waiver on any one occasion will not be construed as a bar to or waiver of any right on any future occasion.

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        17.         Notices. All notices to be given pursuant to this Agreement will be sufficient if given by personal service, or by guaranteed overnight delivery service, or by postage prepaid mailing by certified or registered mail with return receipt requested, to the parties as set forth below, or to such other address as a party may request by notice given pursuant to this Section. Any time period provided in the giving of any notice hereunder shall commence upon the date of personal service, the day after delivery to the guaranteed overnight delivery service, or two (2) days after mailing certified or registered mail. However, any failure to give notice in accordance with the terms of this Section will not invalidate such notice if such notice was in fact in writing and actually received by the party to whom it was directed.

BORROWERS:	Bioanalytical Systems, Inc. 2701 Kent Avenue West Lafayette, Indiana 47906 Attention: Douglas P. Wieten BAS Evansville, Inc. 10424 Middle Mt. Vernon Road Mount Vernon, Indiana 47620 Attention: Michael P. Sylvon, Ph.D.
LENDER:	UNION PLANTERS BANK, N.A 437 South Street P.O. Box 780 Lafayette, IN 47902-0780 Attention: Daniel R. House

        18.         Uniform Commercial Code Article 9. In connection with the perfection of Lender’s security interest in collateral under Article 9 of the Uniform Commercial Code (any term used in the Uniform Commercial Code and not otherwise defined in this Agreement has the meaning given to the term in the Uniform Commercial Code, as amended from time to time),

                    a.         Each Borrower represents and warrants to Lender that such Borrower is a corporation duly organized and existing under the laws of the State of Indiana.

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                    b.         BAS'S exact legal name and the address of BAS's chief executive office is as follows:

                                                        Bioanalytical Systems, Inc.
                                                        2701 Kent Avenue
                                                        West Lafayette, Indiana 47906.

                    c.         BAS Evansville's exact legal name and the address of BAS Evansville's chief executive office is as follows:

                                                        BAS Evansville, Inc.
                                                        10424 Middle Mt. Vernon Rd.
                                                        Mt. Vernon, IN 47620

                    d.         Each Borrower covenants that such Borrower will not change the state of such Borrower’s incorporation or organization, the location of such Borrower’s chief executive office, or such Borrower’s legal name without providing Lender with at least thirty (30) days prior written notice.

                    e.         Borrowers authorizes Lender to file the Financing Statements describing the Fixtures and any or all other collateral. Additionally, Borrowers authorize Lender to file Financing Statements describing any agricultural liens or other statutory liens held by Lender.

                    f.         Borrowers shall have possession of all collateral, except where expressly provided otherwise in this Agreement or where Lender chooses to perfect its security interest by possession in addition to the filing of the Financing Statements. Where collateral is in the possession of a third party, the applicable Borrower will join with Lender in notifying the third party of Lender’s interest and obtaining an acknowledgment from third party that it is holding the collateral for the benefit of Lender.

        19.         WAIVER OF JURY TRIAL. THE PARTIES, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE PROMISSORY NOTES, THE INSTRUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS, WHETHER ORAL OR WRITTEN, OR ACTIONS OF ANY PARTY. NONE OF THE PARTIES SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY ANY OF THE PARTIES EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL PARTIES.

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        20.         Miscellaneous.

                    a.         If at any time or times by assignment or otherwise Lender transfers the Loans and any collateral therefor, such transfer will carry with it Lender’s powers and rights under this Agreement with respect to the Loans and collateral transferred, and the transferee will become vested with said powers and rights whether or not they are specifically referred to in the transfer;

                    b.         To the extent that a Borrower makes a payment to Lender or Lender enforces its security interest and lien or exercises its right of setoff, and such payment(s) or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or are required to be repaid to any party, then to the extent of such recovery, the Loans or the part thereof originally intended to be satisfied will be revived and continued in full force and effect as if such payment had not been made or such setoff or enforcement had not occurred and will be Loans secured by the collateral;

                    c.         This Agreement and all rights and obligations hereunder, including matters of construction, validity and performance, will be governed by the Uniform Commercial Code and other applicable laws of the State of Indiana. Whenever possible each provision of this Agreement will be interpreted in such a manner as to be effective and valid upon applicable law, but if any provision of this Agreement will be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition without invalidating the remainder of such provision or the remaining provisions of this Agreement;

                    d.         All rights and privileges of Lender hereunder will inure to the benefit of its successors and assigns;

                    e.         Neither Borrower shall have the right to assign any of such Borrower’s rights or delegate any of such Borrower’s obligations hereunder without the prior written consent of Lender.

                    f.         The parties agree to be bound by any and all additional conditions, covenants, representations and warranties which are set forth in the Instruments to the same extent as if set forth herein;

                    g.         This Agreement is intended by the parties to incorporate their entire understanding with respect to the subject matter hereof, and may not be contradicted by evidence of any prior agreement or contemporaneous oral agreement, including, without limitation, any commitment letter or agreement previously executed by the parties or any of them.

                    h.         Lender may take or release any security, may release any party liable for any Indebtedness under this Agreement, may grant extensions, renewals, or indulgences with respect to such Indebtedness, and may apply any security therefor held by it to the satisfaction of such Indebtedness without prejudice to any of its rights hereunder.

                    i.         The Indebtedness and all other sums payable hereunder will be payable without relief from valuation and appraisement laws, and with reasonable attorneys’ fees and costs of collection.

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         MADE on the date first above written.

LENDER:

UNION PLANTERS BANK, N.A.



By:  /s/ Daniel R. House Daniel R. House, Senior Vice President

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BORROWERS:

BIOANALYTICAL SYSTEMS, INC.



By:  /s/ Peter T. Kissinger Peter T. Kissinger, Ph.D.,
Chairman and Chief Executive Officer


BAS EVANSVILLE, INC.



By:  /s/ Peter T. Kissinger Peter T. Kissinger, President

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EX-10.16

Exhibit 10.16

REAL ESTATE MORTGAGE AND SECURITY AGREEMENT
[FIXTURE FILING]
(West Lafayette)

THIS INDENTURE WITNESSETH

that in consideration of the sum of Ten Dollars ($10.00) and other sufficient consideration, receipt whereof is hereby acknowledged,

Bioanalytical Systems, Inc., an Indiana corporation
("Mortgagor")

MORTGAGES and WARRANTS to

UNION PLANTERS BANK, N.A.
a national banking association
("Mortgagee")

the real estate which is described on Exhibit A attached hereto (the “Property”), together with the buildings, structures and other improvements now or hereafter situated on or used in connection therewith, all rights, privileges, interests, easements, tenements, hereditaments and appurtenances thereunto appertaining, all fixtures and appliances (including signs) now or hereafter attached thereto or used in connection therewith, and the rents, issues, income and profits thereof (the Property together with all of the foregoing are referred to herein collectively as the “Mortgaged Property”), and grants to Mortgagee a security interest therein.

        Mortgagor further grants to Mortgagee a security interest, mortgage and lien on:

        A.         All Fixtures (as defined in the Indiana Uniform Commercial Code, as in effect from time to time) and any additions to, substitutions for, changes in or replacements of the whole or any part thereof, including without limitation all wall-safes, built-in furniture and installations, shelving, partitions, vaults, elevators, dumb-waiters, awnings, window shades, venetian blinds, light fixtures, fire hoses and brackets and boxes for the same, fire sprinklers, alarm systems, drapery rods and brackets, screens, water heaters, incinerators, wall coverings, carpeting, linoleum, tile, other floor coverings of whatever description, communication systems, all specifically designed installations and furnishings, store maintenance and other supplies and all other Fixtures, now or at any time hereafter placed upon or used in any way in connection with the ownership, operation or maintenance of the Mortgaged Property or any portion thereof and owned by Mortgagor or in which Mortgagor now has or hereafter acquires an interest and all building materials now or hereafter delivered to the Mortgaged Property and intended to be installed or placed in or about the Mortgaged Property (hereinafter referred to as the “Personal Property”). Notwithstanding the breadth of the foregoing, the Personal Property shall not include: (i) equipment, (ii) personal property which may be owned by lessees or other occupants and their customers or which may be leased by such lessees or other occupants of the Mortgaged Property from third parties, unless such personal property is subsequently acquired by Mortgagor; (iii) material, equipment, tools, machinery or other personal property which is brought upon the Mortgaged Property only for use in construction, maintenance or repair and which is not intended to remain after the completion of such construction, maintenance or repair and which is not necessary for ownership, occupancy or property maintenance of the Mortgaged Property; or (iv) such items of tangible personal property which have not been purchased or installed with the proceeds of the Notes (as hereinafter defined) and with respect to which Mortgagee shall have executed express, written agreements to subordinate Mortgagee’s lien or security interest in such tangible personal property.

        B.         All right, title and interest of Mortgagor, now owned or hereafter acquired, in and to any land lying within the right-of-way of any street, road, alley or public place, opened, proposed or vacated, by law or otherwise, and all easements and rights-of-way, public or private, tenements, hereditaments, appendages, rights and appurtenances now or hereafter located upon the Mortgaged Property or now or hereafter used in connection with or now or hereafter belonging or appertaining to the Mortgaged Property, all of which shall be included within the definition of “Mortgaged Property”.

        C.         All judgments, settlements and any and all proceeds derived from such hereafter entered or made as a result of or in lieu of taking of the Mortgaged Property, any part thereof, interest therein or any rights appurtenant thereto under the power of eminent domain or purchase in lieu thereof, or for any damages, whether caused by such taking or otherwise, to the Mortgaged Property, including change of grade of streets, curb cuts or other right of access for any public use or purpose under any law.

        D.         All rents, income, profits, revenues, royalties, bonuses, rights, accounts, contract rights, insurance policies and proceeds thereof, general intangibles and benefits of the Mortgaged Property or the Personal Property or arising from any lease or similar agreement pertaining thereto, and all right, title and interest of Mortgagor in and to all leases of the Mortgaged Property or the Personal Property now or hereafter entered into and all right, title and interest of Mortgagor thereunder, including, without limitation, cash or securities deposited thereunder to secure performance by lessees of their obligations thereunder, whether said cash or securities are to be held until the expiration of the terms of said leases or applied to one or more of the installments of rent coming due immediately prior to the expiration of said terms with the right to receive and apply the same to said indebtedness (the “Rents and Profits”).

        E.         All proceeds from the conversion, voluntary or involuntary, of any of the foregoing into cash or liquidated claims.

        F.         All contract rights relating to all or any part of the Mortgaged Property, including, but not limited to construction agreements.

– 2 –

         All of the foregoing, together with the Mortgaged Property, are sometimes collectively referred to as the “Collateral.”

         Reference is hereby made to that certain Loan Agreement made on October 29, 2002 among Mortgagor and BAS Evansville, Inc., an Indiana corporation (“BAS Evansville”), as Borrowers and Mortgagee as Lender (as may be amended from time to time, the “Loan Agreement”). The terms and conditions of such Loan Agreement are incorporated into this Mortgage by this reference.

         This Mortgage is made, and the security interest granted herein is granted, to secure the following:

        AA.         the payment, promptly when due, of all of the loan indebtedness (including interest and reasonable attorneys’ fees and costs of collection) now or hereafter arising under the Loan Agreement and the Instruments, as defined therein (whether or not evidenced by promissory notes made pursuant thereto), including without limitation, (1) the Loan (West Lafayette) Promissory Note dated concurrently herewith executed by Mortgagor in the amount of Two Million Two Hundred Fifty Thousand Dollars and No Cents ($2,250,000.00) the last installment of which is due and payable on or before November 1, 2012 (the “Loan (West Lafayette) Note”); (2) the Loan (Mount Vernon) Promissory Note dated concurrently herewith executed by Mortgagor and BAS Evansville in the amount of Two Million Three Hundred Forty Thousand Dollars and No Cents ($2,340,000.00) the last installment of which is due and payable on or before April 1, 2008; and (3) the Term Loan Promissory Note dated concurrently herewith executed by Mortgagor in the amount of Five Million Four Hundred Ten Thousand Dollars and No Cents ($5,410,000.00) the last installment of which is due and payable on or before November 1, 2012, including all extensions, modifications, consolidations, and renewals of each of the foregoing (such promissory notes referred to collectively as the “Notes”),

        BB.         one or more future advances to Mortgagor and/or BAS Evansville in an aggregate amount not to exceed Ten Million Dollars ($10,000,000) in excess of the original indebtedness evidenced by the Notes, which future advances shall, in each instance, be secured by this Mortgage in accordance with I.C. 32-8-11-9. Such future advances, with interest thereon, shall be secured by this Mortgage, whether made (i) under one or more of the Notes, or (ii) under any substitution, renewal, replacement or modification agreements or notes stating that such agreements or notes are secured by this Mortgage, it being understood by all parties that the advancement of additional funds, as provided for above, remains discretionary with Mortgagee and is not obligatory,

        CC.         the observance and performance of all other obligations to be observed and performed by Mortgagor under the Loan Agreement, under any agreement or instrument executed pursuant to the Loan Agreement, or under this Mortgage, and

        DD.         all costs and expenses incurred in the collection and enforcement of the indebtedness and obligations secured hereby, and all costs and expenses incurred in the foreclosure of this Mortgage, including (without limitation) reasonable attorneys’ fees, costs of environmental assessments, costs of abstracting or title insurance, appraisal fees, expenses of survey and expenses of publication of notice.

– 3 –

        1.         Perfection of Security Interest in Fixtures. Mortgagor further grants to Mortgagee a security interest, mortgage and lien on the Collateral and this Mortgage is intended to also serve as a Security Agreement. With respect to all fixtures included within the definition of the Mortgaged Property hereunder and with respect to all Personal Property which are or are to become fixtures, this Mortgage will constitute a financing statement under the Indiana Uniform Commercial Code. It is intended that as to such fixtures and the proceeds thereof, this Mortgage will be effective as a financing statement filed as a fixture filing in the real estate records of the county in which the Real Estate is located. The Real Estate affected by this Mortgage is described in Exhibit A. The owners of record of such Real Estate is Mortgagor. Information concerning the interest of Mortgagee in such fixtures may be obtained from Mortgagee at its address set forth in this Mortgage. Mortgagor hereby authorizes Mortgagee to execute and file (in such offices as may be necessary for the purpose) any additional financing statements as it may deem appropriate to perfect the security interest in fixtures or personal property granted herein, without Mortgagor’s signature thereon. For purposes of this fixture filing, Mortgagor is the Debtor and Mortgagee is the Secured Party.

        2.         Default. Upon the occurrence of an Event of Default (as defined in the Loan Agreement), Mortgagee may (at its option) without notice or demand, declare the entire balance of said indebtedness to be immediately due and payable and may forthwith commence an action to foreclose this Mortgage in any court of competent jurisdiction. And it is further agreed that, in such foreclosure action, Mortgagee will be entitled as a matter of right to the appointment, ex parte and without notice, of a receiver to take possession of the Mortgaged Property, and to receive and collect the income, rents, issues and profits thereof, and to lease the same if the same is not then under lease, and all sums received and collected by said receiver will be applied first to the payment of the costs and expenses of such receivership, next to the costs (including reasonable attorneys’ fees) of said foreclosure action, next to the payment of unpaid real estate taxes and assessments, next to the payment of interest accrued in the indebtedness secured hereby, and finally to the payment of the unpaid principal balance of the indebtedness secured hereby. The foregoing remedies will be in addition to all other remedies available to Mortgagee at law or in equity.

        3.         Effect of Waiver or Release. The failure of Mortgagee to exercise any right or remedy available to it hereunder will not constitute a waiver of such right or remedy for any continuing or repeated default, and will not bar Mortgagee from the exercise of such right or remedy or any other right or remedy available to it hereunder.

        4.         Notices. All notices to be given pursuant to this Mortgage will be sufficient if given by personal service, or by guaranteed overnight delivery service, or by postage prepaid mailing by certified or registered mail with return receipt requested, to the parties as set forth below, or to such other address as a party may request by notice given pursuant to this Section. Any time period provided in the giving of any notice hereunder shall commence upon the date of personal service, the day after delivery to the guaranteed overnight delivery service, or two (2) days after mailing certified or registered mail. However, any failure to give notice in accordance with the terms of this Section will not invalidate such notice if such notice was in fact in writing and actually received by the party to whom it was directed.

– 4 –

Mortgagor:	Bioanalytical Systems, Inc. 2701 Kent Avenue West Lafayette, Indiana 47906 Attention: Douglas P. Wieten
Mortgagee:	UNION PLANTERS BANK, N.A. 437 South Street P.O. Box 780 Lafayette, IN 47902-0780 Attention: Daniel R. House

        5.         Collection Costs. Mortgagor will be obligated to pay any and all costs incurred in the collection of the indebtedness secured hereby and in the foreclosure of this Mortgage and the sale of the Mortgaged Property as such costs are incurred. As used herein, the term “costs incurred in collection” means all costs and expenses reasonably incurred by Mortgagee in or in connection with the foreclosure of this Mortgage or the sale of the Mortgaged Property, including (without limitation) court costs, sheriff’s or marshal’s fees, fees for publication of notice, reasonable attorneys’ fees, abstracting fees, title insurance premiums, appraisal fees, surveyor’s fees, environmental assessment fees and costs incurred in remediating any contamination of the Mortgaged Property.

        6.         Valuation and Appraisement. All sums payable under this Mortgage shall be without relief from valuation and appraisement laws.

        7.         Eminent Domain. Mortgagor, immediately upon obtaining knowledge of the institution of any proceeding for the taking of the Mortgaged Property or any portion thereof under the power of eminent domain, shall notify Mortgagee thereof. Mortgagee may, at its option, appear in and prosecute, in its own name, any action or proceeding, or make any compromise or settlement in connection with such proceeding, and Mortgagor appoints Mortgagee as Mortgagor’s true and lawful attorney for such purposes, such power being coupled with an interest. After deducting all of its expenses, including reasonable attorneys’ fees, Mortgagee may elect, in its sole discretion and notwithstanding the fact that the security given hereby may not be impaired by a partial condemnation, to apply any part or all of the proceeds of the award, in such order as Mortgagee may determine, in reduction of the Indebtedness, whether due or not. Any application of all or a portion of the proceeds of any such award to the Indebtedness shall not cure or waive any default hereunder or invalidate any act done pursuant to any notice of default. Mortgagor agrees to execute such further assignments of any compensation, award, damages, right of action and proceeds as Mortgagee may require.

        8.         Damage or Destruction. Mortgagor will give Mortgagee prompt notice of damage to or destruction of any improvements on the Mortgaged Property or to personal property used in the operation of the Mortgaged Property and in case of loss covered by policies of insurance, Mortgagee is hereby authorized to make proof of loss if not promptly made by Mortgagor or the lessees under any lease of any portion of the Mortgaged Property (“Lease” or “Leases”). Any expenses incurred by Mortgagee in the collection of insurance proceeds, together with interest thereon from the date of such expense at the highest default rate set forth in the Notes, shall be added to and become a part of the Indebtedness and shall be reimbursed by Mortgagor to Mortgagee immediately upon demand. Such net proceeds may be applied by Mortgagee, upon or in reduction of the Indebtedness then most remotely to be paid, without a prepayment fee, or to the cost of rebuilding or restoration of the improvements on the Mortgaged Property. However, if Mortgagee shall require that the improvements on the Mortgaged Property be repaired or rebuilt, then the repair, restoration, replacement or rebuilding of the improvements on the Mortgaged Property shall be to a condition of at least equal value as prior to such damage or destruction, and such net proceeds of insurance shall be made available therefor under the conditions and in the manner set forth below.

– 5 –

         So long as there exists no Event of Default (as defined in the Loan Agreement), and provided any loss or damage cannot, in the sole judgment of Mortgagee, result in the termination, cancellation or modification of the Leases (if any), and if the Leases so require and the insurers do not deny liability as to the insureds, such insurance proceeds, after deducting expenses incurred in collection, shall be made available under the conditions and in the manner specified in the following paragraph, for the repair, restoration, replacement or rebuilding of improvements on the Mortgaged Property to a condition of at least equal value as existed prior to such damage or destruction. Otherwise, such net proceeds may be applied by Mortgagee, in its sole discretion, upon and in reduction of the Indebtedness then most remotely to be paid in inverse chronological order, or to the cost of rebuilding or restoration of the Mortgaged Property or personal property. However, if Mortgagee shall require that the Mortgaged Property be repaired or rebuilt in accordance with this Agreement, such net proceeds of insurance shall be made available therefor under the conditions and in the manner set forth below.

         Insurance proceeds made available for restoration, repair, replacement or rebuilding of the improvements on the Mortgaged Property shall be disbursed from time to time (provided no default exists in the or in this Agreement or in any of the Instruments or any Lease at the time of each disbursement), after first deducting the expenses of disbursement including, without limitation, reasonable attorneys’ fees, costs of title insurance, escrows and closings by the title company and fees and expenses of the disbursing party, upon the disbursing party being provided with satisfactory evidence of the cost of completion of such work and of the diligent and timely prosecution thereof and with architect’s certificates, waivers of lien, contractors’ and subcontractors’ sworn statements and other evidence of costs and payments so that the disbursing party can verify that the amounts disbursed from time to time are represented by completed and in place work and that said work is free and clear of all mechanics’ lien claims. No payment made prior to the final completion of such restoration, repair, replacement or rebuilding shall exceed ninety percent (90%) of the value of the work performed from time to time and at all times the undisbursed balance of such proceeds remaining in the hands of the disbursing party, together with funds deposited for the purpose or irrevocably committed for such purpose, shall be sufficient in the reasonable judgment of Mortgagee, to pay for the cost of completion of all such restoration, repair, replacement or rebuilding. Mortgagee may require that plans and specifications for the restoration, repair, replacement or rebuilding be submitted to and approved by Mortgagee prior to the commencement of the work. Any surplus which may remain out of said insurance proceeds after payment of costs of building and restoration may, at the option of Mortgagee, be applied either on account of the Indebtedness then most remotely to be paid in inverse chronological order, without a prepayment fee, or be paid to any person or persons otherwise entitled thereto. Application or release of proceeds under the provisions hereof shall not cure or waive any default hereunder or invalidate any act done pursuant to any notice of default. No interest shall be allowed on account of any such proceeds or other funds held in the hands of Mortgagee or the disbursing party.

– 6 –

        9.         Construction Mortgage. This Mortgage is a construction mortgage and it secures obligations incurred to finance the construction of improvements on the Property, including certain costs incurred in planning, architectural and engineering studies, zoning and similar expenses. It is understood and agreed that funds to be advanced evidenced by the Loan (West Lafayette) Note are to be used in the construction of improvements on the Property in accordance with the Loan Agreement.

        10.         Waiver of Jury Trial. MORTGAGOR AND MORTGAGEE, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS MORTGAGE, THE LOAN AGREEMENT, INSTRUMENTS, OR ANY OTHER RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS, WHETHER ORAL OR WRITTEN, OR ACTIONS OF EITHER OF THEM. NEITHER MORTGAGOR OR MORTGAGEE SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY EITHER MORTGAGOR OR MORTGAGEE EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY BOTH OF THEM.

        11.         Miscellaneous. This Mortgage will inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. This Mortgage and all rights and obligations hereunder, including matters of construction, validity and performance, will be governed by the Uniform Commercial Code and other applicable laws of the State of Indiana. Whenever possible each provision of this Mortgage will be interpreted in such a manner as to be effective and valid upon applicable law, but if any provision of this Mortgage will be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition without invalidating the remainder of such provision or the remaining provisions of this Mortgage.

         IN WITNESS WHEREOF, the undersigned have set their hands and affixed their seals hereunto this 29th day of October, 2002.

BIOANALYTICAL SYSTEMS, INC.



By:  /s/ Peter T. Kissinger Peter T. Kissinger, Ph.D.,
Chairman and Chief Executive Officer

– 7 –

STATE OF INDIANA	)
	)	SS:
COUNTY OF TIPPECANOE	)

         Before me, the undersigned Notary Public, personally appeared Peter T. Kissinger, Ph.D., as Chairman and Chief Executive Officer of Bioanalytical Systems, Inc., an Indiana corporation, who on behalf of Bioanalytical Systems, Inc. acknowledged the execution of the foregoing instrument and swore to the truth of the statements made therein.

         Witness my hand and Notarial Seal this 29th day of October, 2002.

SEAL

	/s/ Amy J. Hughes Notary Public Signature Amy J. Hughges Printed Name
My Commission Expires:  December 2, 2008 County of Residence:  Tippecanoe

This instrument was prepared by:  Carolyn H. Andretti, of the firm of Stuart & Branigin LLP, 8888 Keystone Crossing, Suite 1401, Indianapolis, Indiana 46240. Telephone: (317) 574-7245; Facsimile: (317) 574-7050, Email: cha@stuartlaw.com

– 8 –

Legal Description
BAS West Lafayette, Indiana
Commitment No. 20021104OUN

Parcel I:    2701-2801 Kent Avenue, West Lafayette, Indiana

Lot Numbered One (1) in BAS Subdivision as per the plat thereof dated March 17, 1997, recorded April 8, 1997, Plat Cabinet E, Page 156, Document Number 9706303 in the Office of the Recorder of Tippecanoe County, Indiana. Located in the City of West Lafayette, Wabash Township, Tippecanoe County, Indiana.

Parcel II:    2700 Kent Avenue, West Lafayette, Indiana

Part of Lot No. 5 in McClure Park Subdivision, Part Two (2), as platted in part of the Northeast Quarter of Section 12, Township 23 North, Range 5 West, Wabash Township, Tippecanoe County, Indiana, described as follows: Commencing at the northeastern corner of the Northeast Quarter of said Section 12; thence South 00°-00’ East 378.85 feet; thence South 89°-42’ West 728.50 feet; thence South 00°-00’ East 68.77 feet to the point of beginning of this description; thence South 00°-00’ East 261.00 feet to the northern right-of-way line of Montgomery Street; thence along the northern right-of-way line of Montgomery Street the following two courses, southwesterly on a curve to the left having a radius of 885.59 feet, an arc length of 268.42 feet; South 67°-17' West 99.91 feet; thence northwesterly on a curve to the right having a radius of 35.00 feet, an arc length of 49.76 feet to the eastern right-of-way line of Kent Avenue; thence North 31°15’ West along the eastern right-of-way line of Kent Avenue 368.16 feet; thence North 58°-45’ East 58.00 feet; thence North 89°-25’ East 536.44 feet to the point of beginning, containing 3.59 acres, more or less.

The above legal description modernized by Survey No. 94-157, dated April 26, 1994, prepared by Ronald E. Wharry, L.S., Moses Surveying. Said legal description being described as follows:

A part of Lot number 5 in McClure Park Subdivision, Part 2, as the same is recorded in Plat Book 8, page 46, being more particularly described as follows:

From the NE corner of the NE 1/4, Sec. 12, T23N, R5W, 2^nd P.M., Wabash Township, Tippecanoe County, marked by an iron county marker, proceed thence South (assumed bearings) a distance of 444.36 feet along the east line of said quarter, also being along the approximate centerline of Yeager Road; thence S 89° 30’ 02” W a distance of 728.42 feet to the point of beginning, being the SE corner of Lot number 3 in the Cumberland Technology Subdivision, marked by an iron pipe; thence (1) S 0° 03’ 47” W a distance of 260.57 feet to the north right-of-way line of Montgomery Street, marked by an iron bar; thence (2) westerly a distance of 268.42 feet along a non-tangent curve to the left, having a radius of 885.59 feet and whose chord bears S 75° 50’ 49” W a distance of 267.39 feet along said Montgomery Street to an iron bar; thence (3) S 67° 37’ 42” W a distance of 99.91 feet along said Montgomery Street to a non-tangent curve to the right, marked by an iron bar; thence (4) West and northerly along said curve a distance of 49.76 feet, having a radius of 35.00 feet and whose chord bears N 71° 47’ 03” W a distance of 45.67 feet along said Montgomery Street into the northeasterly right-of-way of Kent Avenue, marked by an iron bar; thence (5) N 31° 10’ 23” W a distance of 368.16 feet along said Kent Avenue to an iron pipe; thence (6) N 58° 49' 32” E a distance of 58.00 feet to an iron pipe; thence (7) S 89° 30’ 02” E a distance of 536.30 feet to the point of beginning, containing 3.588 acres.

EX-10.17

Exhibit 10.17

REAL ESTATE MORTGAGE AND SECURITY AGREEMENT
[FIXTURE FILING]
(Mount Vernon)

THIS INDENTURE WITNESSETH

that in consideration of the sum of Ten Dollars ($10.00) and other sufficient consideration, receipt whereof is hereby acknowledged,

BAS EVANSVILLE, INC., an Indiana corporation
("Mortgagor")

MORTGAGES and WARRANTS to

UNION PLANTERS BANK, N.A.
a national banking association
("Mortgagee")

the real estate which is described on Exhibit A attached hereto (the “Property”), together with the buildings, structures and other improvements now or hereafter situated on or used in connection therewith, all rights, privileges, interests, easements, tenements, hereditaments and appurtenances thereunto appertaining, all fixtures and appliances (including signs) now or hereafter attached thereto or used in connection therewith, and the rents, issues, income and profits thereof (the Property together with all of the foregoing are referred to herein collectively as the “Mortgaged Property”), and grants to Mortgagee a security interest therein.

         Mortgagor further grants to Mortgagee a security interest, mortgage and lien on:

        A.         All Fixtures (as defined in the Indiana Uniform Commercial Code, as in effect from time to time) and any additions to, substitutions for, changes in or replacements of the whole or any part thereof, including without limitation all wall-safes, built-in furniture and installations, shelving, partitions, vaults, elevators, dumb-waiters, awnings, window shades, venetian blinds, light fixtures, fire hoses and brackets and boxes for the same, fire sprinklers, alarm systems, drapery rods and brackets, screens, water heaters, incinerators, wall coverings, carpeting, linoleum, tile, other floor coverings of whatever description, communication systems, all specifically designed installations and furnishings, store maintenance and other supplies and all other Fixtures, now or at any time hereafter placed upon or used in any way in connection with the ownership, operation or maintenance of the Mortgaged Property or any portion thereof and owned by Mortgagor or in which Mortgagor now has or hereafter acquires an interest and all building materials now or hereafter delivered to the Mortgaged Property and intended to be installed or placed in or about the Mortgaged Property (hereinafter referred to as the “Personal Property”). Notwithstanding the breadth of the foregoing, the Personal Property shall not include: (i) equipment, (ii) personal property which may be owned by lessees or other occupants and their customers or which may be leased by such lessees or other occupants of the Mortgaged Property from third parties, unless such personal property is subsequently acquired by Mortgagor; (iii) material, equipment, tools, machinery or other personal property which is brought upon the Mortgaged Property only for use in construction, maintenance or repair and which is not intended to remain after the completion of such construction, maintenance or repair and which is not necessary for ownership, occupancy or property maintenance of the Mortgaged Property; or (iv) such items of tangible personal property which have not been purchased or installed with the proceeds of the Notes (as hereinafter defined) and with respect to which Mortgagee shall have executed express, written agreements to subordinate Mortgagee’s lien or security interest in such tangible personal property.

        B.         All right, title and interest of Mortgagor, now owned or hereafter acquired, in and to any land lying within the right-of-way of any street, road, alley or public place, opened, proposed or vacated, by law or otherwise, and all easements and rights-of-way, public or private, tenements, hereditaments, appendages, rights and appurtenances now or hereafter located upon the Mortgaged Property or now or hereafter used in connection with or now or hereafter belonging or appertaining to the Mortgaged Property, all of which shall be included within the definition of “Mortgaged Property.”

        C.         All judgments, settlements and any and all proceeds derived from such hereafter entered or made as a result of or in lieu of taking of the Mortgaged Property, any part thereof, interest therein or any rights appurtenant thereto under the power of eminent domain or purchase in lieu thereof, or for any damages, whether caused by such taking or otherwise, to the Mortgaged Property, including change of grade of streets, curb cuts or other right of access for any public use or purpose under any law.

        D.         All rents, income, profits, revenues, royalties, bonuses, rights, accounts, contract rights, insurance policies and proceeds thereof, general intangibles and benefits of the Mortgaged Property or the Personal Property or arising from any lease or similar agreement pertaining thereto, and all right, title and interest of Mortgagor in and to all leases of the Mortgaged Property or the Personal Property now or hereafter entered into and all right, title and interest of Mortgagor thereunder, including, without limitation, cash or securities deposited thereunder to secure performance by lessees of their obligations thereunder, whether said cash or securities are to be held until the expiration of the terms of said leases or applied to one or more of the installments of rent coming due immediately prior to the expiration of said terms with the right to receive and apply the same to said indebtedness (the “Rents and Profits”).

        E.         All proceeds from the conversion, voluntary or involuntary, of any of the foregoing into cash or liquidated claims.

        F.         All contract rights relating to all or any part of the Mortgaged Property, including, but not limited to construction agreements.

– 2 –

         All of the foregoing, together with the Mortgaged Property, are sometimes collectively referred to as the “Collateral.”

         Reference is hereby made to that certain Loan Agreement made on October 29, 2002 among Mortgagor and Bioanalytical Systems, Inc., an Indiana corporation (“BAS”), as Borrowers and Mortgagee as Lender (as may be amended from time to time, the “Loan Agreement”). The terms and conditions of such Loan Agreement are incorporated into this Mortgage by this reference.

         This Mortgage is made, and the security interest granted herein is granted, to secure the following:

        AA.         the payment, promptly when due, of all of the loan indebtedness (including interest and reasonable attorneys’ fees and costs of collection) now or hereafter arising under the Loan Agreement and the Instruments, as defined therein (whether or not evidenced by promissory notes made pursuant thereto), including without limitation: (1) the Loan (West Lafayette) Promissory Note dated concurrently herewith executed by BAS in the amount of Two Million Two Hundred Fifty Thousand Dollars and No Cents ($2,250,000.00) the last installment of which is due and payable on or before November 1, 2012 (the “Loan (West Lafayette) Note”); (2) the Loan (Mount Vernon) Promissory Note dated concurrently herewith executed by Mortgagor and BAS in the amount of Two Million Three Hundred Forty Thousand Dollars and No Cents ($2,340,000.00) the last installment of which is due and payable on or before April 1, 2008; and (3) the Term Loan Promissory Note dated concurrently herewith executed by BAS in the amount of Five Million Four Hundred Ten Thousand Dollars and No Cents ($5,410,000.00) the last installment of which is due and payable on or before November 1, 2012, including all extensions, modifications, consolidations, and renewals of each of the foregoing (such promissory notes referred to collectively as the “Notes”),

        BB.         one or more future advances to Mortgagor and/or BAS in an aggregate amount not to exceed Ten Million Dollars ($10,000,000) in excess of the original indebtedness evidenced by the Notes, which future advances shall, in each instance, be secured by this Mortgage in accordance with I.C. 32-8-11-9. Such future advances, with interest thereon, shall be secured by this Mortgage, whether made (i) under one or more of the Notes, or (ii) under any substitution, renewal, replacement or modification agreements or notes stating that such agreements or notes are secured by this Mortgage, it being understood by all parties that the advancement of additional funds, as provided for above, remains discretionary with Mortgagee and is not obligatory,

        CC.         the observance and performance of all other obligations to be observed and performed by Mortgagor under the Loan Agreement, under any agreement or instrument executed pursuant to the Loan Agreement, or under this Mortgage, and

        DD.         all costs and expenses incurred in the collection and enforcement of the indebtedness and obligations secured hereby, and all costs and expenses incurred in the foreclosure of this Mortgage, including (without limitation) reasonable attorneys’ fees, costs of environmental assessments, costs of abstracting or title insurance, appraisal fees, expenses of survey and expenses of publication of notice.

– 3 –

        1.         Perfection of Security Interest in Fixtures. Mortgagor further grants to Mortgagee a security interest, mortgage and lien on the Collateral and this Mortgage is intended to also serve as a Security Agreement. With respect to all fixtures included within the definition of the Mortgaged Property hereunder and with respect to all Personal Property which are or are to become fixtures, this Mortgage will constitute a financing statement under the Indiana Uniform Commercial Code. It is intended that as to such fixtures and the proceeds thereof, this Mortgage will be effective as a financing statement filed as a fixture filing in the real estate records of the county in which the Real Estate is located. The Real Estate affected by this Mortgage is described in Exhibit A. The owners of record of such Real Estate is Mortgagor. Information concerning the interest of Mortgagee in such fixtures may be obtained from Mortgagee at its address set forth in this Mortgage. Mortgagor hereby authorizes Mortgagee to execute and file (in such offices as may be necessary for the purpose) any additional financing statements as it may deem appropriate to perfect the security interest in fixtures or personal property granted herein, without Mortgagor’s signature thereon. For purposes of this fixture filing, Mortgagor is the Debtor and Mortgagee is the Secured Party.

        2.         Default. Upon the occurrence of an Event of Default (as defined in the Loan Agreement), Mortgagee may (at its option) without notice or demand, declare the entire balance of said indebtedness to be immediately due and payable and may forthwith commence an action to foreclose this Mortgage in any court of competent jurisdiction. And it is further agreed that, in such foreclosure action, Mortgagee will be entitled as a matter of right to the appointment, ex parte and without notice, of a receiver to take possession of the Mortgaged Property, and to receive and collect the income, rents, issues and profits thereof, and to lease the same if the same is not then under lease, and all sums received and collected by said receiver will be applied first to the payment of the costs and expenses of such receivership, next to the costs (including reasonable attorneys’ fees) of said foreclosure action, next to the payment of unpaid real estate taxes and assessments, next to the payment of interest accrued in the indebtedness secured hereby, and finally to the payment of the unpaid principal balance of the indebtedness secured hereby. The foregoing remedies will be in addition to all other remedies available to Mortgagee at law or in equity.

        3.         Effect of Waiver or Release. The failure of Mortgagee to exercise any right or remedy available to it hereunder will not constitute a waiver of such right or remedy for any continuing or repeated default, and will not bar Mortgagee from the exercise of such right or remedy or any other right or remedy available to it hereunder.

        4.         Notices. All notices to be given pursuant to this Mortgage will be sufficient if given by personal service, or by guaranteed overnight delivery service, or by postage prepaid mailing by certified or registered mail with return receipt requested, to the parties as set forth below, or to such other address as a party may request by notice given pursuant to this Section. Any time period provided in the giving of any notice hereunder shall commence upon the date of personal service, the day after delivery to the guaranteed overnight delivery service, or two (2) days after mailing certified or registered mail. However, any failure to give notice in accordance with the terms of this Section will not invalidate such notice if such notice was in fact in writing and actually received by the party to whom it was directed.

– 4 –

Mortgagor:	BAS Evansville, Inc. 10424 Middle Mt. Vernon Road Mount Vernon, Indiana 47620 Attention:  Michael P. Sylvon, Ph.D.
Mortgagee:	UNION PLANTERS BANK, N.A. 437 South Street P.O. Box 780 Lafayette, IN 47902-0780 Attention:  Daniel R. House

        5.         Collection Costs. Mortgagor will be obligated to pay any and all costs incurred in the collection of the indebtedness secured hereby and in the foreclosure of this Mortgage and the sale of the Mortgaged Property as such costs are incurred. As used herein, the term “costs incurred in collection” means all costs and expenses reasonably incurred by Mortgagee in or in connection with the foreclosure of this Mortgage or the sale of the Mortgaged Property, including (without limitation) court costs, sheriff’s or marshall’s fees, fees for publication of notice, reasonable attorneys’ fees, abstracting fees, title insurance premiums, appraisal fees, surveyor’s fees, environmental assessment fees and costs incurred in remediating any contamination of the Mortgaged Property.

        6.         Valuation and Appraisement. All sums payable under this Mortgage shall be without relief from valuation and appraisement laws.

        7.         Eminent Domain. Mortgagor, immediately upon obtaining knowledge of the institution of any proceeding for the taking of the Mortgaged Property or any portion thereof under the power of eminent domain, shall notify Mortgagee thereof. Mortgagee may, at its option, appear in and prosecute, in its own name, any action or proceeding, or make any compromise or settlement in connection with such proceeding, and Mortgagor appoints Mortgagee as Mortgagor’s true and lawful attorney for such purposes, such power being coupled with an interest. After deducting all of its expenses, including reasonable attorneys’ fees, Mortgagee may elect, in its sole discretion and notwithstanding the fact that the security given hereby may not be impaired by a partial condemnation, to apply any part or all of the proceeds of the award, in such order as Mortgagee may determine, in reduction of the Indebtedness, whether due or not. Any application of all or a portion of the proceeds of any such award to the Indebtedness shall not cure or waive any default hereunder or invalidate any act done pursuant to any notice of default. Mortgagor agrees to execute such further assignments of any compensation, award, damages, right of action and proceeds as Mortgagee may require.

        8.         Damage or Destruction. Mortgagor will give Mortgagee prompt notice of damage to or destruction of any improvements on the Mortgaged Property or to personal property used in the operation of the Mortgaged Property and in case of loss covered by policies of insurance, Mortgagee is hereby authorized to make proof of loss if not promptly made by Mortgagor or the lessees under any lease of any portion of the Mortgaged Property (“Lease” or “Leases”). Any expenses incurred by Mortgagee in the collection of insurance proceeds, together with interest thereon from the date of such expense at the highest default rate set forth in the Notes, shall be added to and become a part of the Indebtedness and shall be reimbursed by Mortgagor to Mortgagee immediately upon demand. Such net proceeds may be applied by Mortgagee, upon or in reduction of the Indebtedness then most remotely to be paid, without a prepayment fee, or to the cost of rebuilding or restoration of the improvements on the Mortgaged Property. However, if Mortgagee shall require that the improvements on the Mortgaged Property be repaired or rebuilt, then the repair, restoration, replacement or rebuilding of the improvements on the Mortgaged Property shall be to a condition of at least equal value as prior to such damage or destruction, and such net proceeds of insurance shall be made available therefor under the conditions and in the manner set forth below.

– 5 –

         So long as there exists no Event of Default (as defined in the Loan Agreement), and provided any loss or damage cannot, in the sole judgment of Mortgagee, result in the termination, cancellation or modification of the Leases (if any), and if the Leases so require and the insurers do not deny liability as to the insureds, such insurance proceeds, after deducting expenses incurred in collection, shall be made available under the conditions and in the manner specified in the following paragraph, for the repair, restoration, replacement or rebuilding of improvements on the Mortgaged Property to a condition of at least equal value as existed prior to such damage or destruction. Otherwise, such net proceeds may be applied by Mortgagee, in its sole discretion, upon and in reduction of the Indebtedness then most remotely to be paid in inverse chronological order, or to the cost of rebuilding or restoration of the Mortgaged Property or personal property. However, if Mortgagee shall require that the Mortgaged Property be repaired or rebuilt in accordance with this Agreement, such net proceeds of insurance shall be made available therefor under the conditions and in the manner set forth below.

         Insurance proceeds made available for restoration, repair, replacement or rebuilding of the improvements on the Mortgaged Property shall be disbursed from time to time (provided no default exists in the or in this Agreement or in any of the Instruments or any Lease at the time of each disbursement), after first deducting the expenses of disbursement including, without limitation, reasonable attorneys’ fees, costs of title insurance, escrows and closings by the title company and fees and expenses of the disbursing party, upon the disbursing party being provided with satisfactory evidence of the cost of completion of such work and of the diligent and timely prosecution thereof and with architect’s certificates, waivers of lien, contractors’ and subcontractors’ sworn statements and other evidence of costs and payments so that the disbursing party can verify that the amounts disbursed from time to time are represented by completed and in place work and that said work is free and clear of all mechanics’ lien claims. No payment made prior to the final completion of such restoration, repair, replacement or rebuilding shall exceed ninety percent (90%) of the value of the work performed from time to time and at all times the undisbursed balance of such proceeds remaining in the hands of the disbursing party, together with funds deposited for the purpose or irrevocably committed for such purpose, shall be sufficient in the reasonable judgment of Mortgagee, to pay for the cost of completion of all such restoration, repair, replacement or rebuilding. Mortgagee may require that plans and specifications for the restoration, repair, replacement or rebuilding be submitted to and approved by Mortgagee prior to the commencement of the work. Any surplus which may remain out of said insurance proceeds after payment of costs of building and restoration may, at the option of Mortgagee, be applied either on account of the Indebtedness then most remotely to be paid in inverse chronological order, without a prepayment fee, or be paid to any person or persons otherwise entitled thereto. Application or release of proceeds under the provisions hereof shall not cure or waive any default hereunder or invalidate any act done pursuant to any notice of default. No interest shall be allowed on account of any such proceeds or other funds held in the hands of Mortgagee or the disbursing party.

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        9.         Construction Mortgage. This Mortgage is a construction mortgage and it secures obligations incurred to finance the construction of improvements on the Property, including certain costs incurred in planning, architectural and engineering studies, zoning and similar expenses. It is understood and agreed that funds to be advanced evidenced by the Loan (West Lafayette) Note are to be used in the construction of improvements on the Property in accordance with the Loan Agreement.

        10.         Waiver of Jury Trial. MORTGAGOR AND MORTGAGEE, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS MORTGAGE, THE LOAN AGREEMENT, INSTRUMENTS, OR ANY OTHER RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS, WHETHER ORAL OR WRITTEN, OR ACTIONS OF EITHER OF THEM. NEITHER MORTGAGOR OR MORTGAGEE SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY EITHER MORTGAGOR OR MORTGAGEE EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY BOTH OF THEM.

        11.         Miscellaneous. This Mortgage will inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. This Mortgage and all rights and obligations hereunder, including matters of construction, validity and performance, will be governed by the Uniform Commercial Code and other applicable laws of the State of Indiana. Whenever possible each provision of this Mortgage will be interpreted in such a manner as to be effective and valid upon applicable law, but if any provision of this Mortgage will be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition without invalidating the remainder of such provision or the remaining provisions of this Mortgage.

         IN WITNESS WHEREOF, the undersigned have set their hands and affixed their seals hereunto this 29th day of October, 2002.

BAS EVANSVILLE, INC.



By:  /s/ Peter T. Kissinger Peter T. Kissinger, Ph.D.,
President

– 7 –

STATE OF INDIANA	)
	)	SS:
COUNTY OF TIPPECANOE	)

         Before me, the undersigned Notary Public, personally appeared Peter T. Kissinger, Ph.D., as President of BAS Evansville, Inc., an Indiana corporation, who on behalf of BAS Evansville, Inc. acknowledged the execution of the foregoing instrument and swore to the truth of the statements made therein.

         Witness my hand and Notarial Seal this 29th day of October, 2002.

SEAL

	/s/ Amy J. Hughes Notary Public Signature Amy J. Hughes Printed Name
My Commission Expires:  December 2, 2008 County of Residence:  Tippecanoe

This instrument was prepared by:  Carolyn H. Andretti, of the firm of Stuart & Branigin LLP, 8888 Keystone Crossing, Suite 1401, Indianapolis, Indiana 46240. Telephone: (317) 574-7245; Facsimile: (317) 574-7050, Email: cha@stuartlaw.com

– 8 –

Legal Description
BAS Evansville, Inc. an Indiana Corp. (parcel A & B)
BAS Evansville, Inc. an Indiana Corp. (parcel C)

Parcel A

Part of Section 26, Township 6 South, Range 12 West of the Second Principal Meridian, lying in Marrs Township, Posey County, Indiana, containing 3.643 acres, more or less, and more particularly described as follows:

Commencing at a three-quarter inch iron pin marking the center of Section 26, Township 6 South, Range 12 West, thence West along the East-West centerline of said section 24.00 feet to the POINT OF BEGINNING OF THIS DESCRIPTION: thence North 20.00 feet; thence East 24.00 feet to the North-South centerline of said section; thence North 00 degrees 04 minutes 42 seconds West along said North-South centerline 430.00 feet; thence East 264.83 feet; thence South 00 degrees 06 minutes 01 second East 450.00 feet to a one-half inch iron pin on said East-West centerline; thence West along said East-West centerline 135.00 feet; thence South 271.45 feet to a point in Middle Mt. Vernon Road, thence North 77 degrees 03 minutes 12 seconds West along said road 133.39 feet to said North-South centerline; thence North 62 degrees 40 minutes 00 seconds west along said road 27.05 feet; thence North 229.14 feet to the point of beginning.

Parcel B

Tract I:
The East Half (E/2) of the East Half (E/2) of the Northwest Quarter (NW/4) of Section Twenty-six (26), Township Six (6) South, Range Twelve (12) West.

ALSO Part of the Northwest Quarter of the Southwest Quarter of Section Twenty-six (26), Township Six (6) South, Range Twelve (12) West, more particularly described as follows, to wit:

Beginning at the Northeast corner of the Southwest Quarter (SW/4) of Section Twenty-six (26). Township Six (6) South, Range Twelve (12) West, thence west along the half section line 26 rods to a stake; thence in a southeasterly direction to a stake on the East line of the said Southwest Quarter (SW/4), which is 15 rods south of said northeast corner of the said Southwest Quarter; thence north 15 rods to the place of beginning.

EXCEPT A strip of land 24 feet wide off of the east side of the following tract; Beginning at the northeast corner of the Southwest Quarter of Section 26, Township 6 South, Range 12 West, from thence west along the half section line 26 rods to a stake, from thence in a southeasterly direction to a stake on the east line of the said Southwest Quarter which is 15 rods south of said northeast corner; thence north 15 rods to the place of beginning.

ALSO EXCEPT Beginning at the southeast corner of the East Half of the East Half of the Northwest Quarter of Section 26, Township 6 South, Range 12 West; thence west 24 feet; thence North 20 feet; thence east 24 feet; thence south 20 feet to the place of beginning.

EXCEPTING THEREFROM so much of subject property as was conveyed to T.P.S. Inc., by Quitclaim Deed dated October 24, 1980 and recorded in Deed Record 131, Page 449, in the Office of the Recorder of Posey County, Indiana.

Tract II:
Part of the West Half (W/2) of the Northeast Quarter (NE/4) of Section Twenty-six (26), Township Six (6) South, Range Twelve (12) West in Posey County, Indiana, more particularly described as follows:

Beginning at a stone marking the Southwest corner of the said Half Quarter Section and measuring thence North along the West line thereof One Thousand Three Hundred Twenty (1,320) feet; thence East and parallel to the South line thereof Two Hundred Sixty-five (265) feet; thence South and parallel to the West line of said Half Quarter Section, One Thousand and Three Hundred Twenty (1,320) feet to a point on the South line of said Half Quarter Section; thence West along the said South line Two Hundred Sixty-five (265) feet to the place of beginning.

ALSO a strip of land 24 feet wide off the East side of the following tract; Beginning at the Northeast corner of the Southwest Quarter of Section 26, Township 6 South, Range 12 West, from thence west along the Half Section line 26 rods to a stake, from thence in a southeasterly direction to a stake on the east line of the said Southwest Quarter to a point 15 rods south of said northeast corner; thence north 15 rods to the place of beginning.

ALSO Beginning at the southeast corner of the East Half of the East Half of the Northwest Quarter of Section 26, Township 6 South, Range 12 West, thence west 24 feet; thence North 20 feet, thence east 24 feet, thence South 20 feet to the place of beginning.

EXCEPTING THEREFROM so much of subject property as was conveyed by James Anthony Botta, Jr. to John Busey Botta, by Deed dated November 1, 1994 and recorded in Deed Record 185, Page 720, in the office of the Recorder aforesaid.

Tract III:
Property as shown by survey by John H. Leffel dated April 19, 1994, in the Northeast Quarter of Section 26, Township 6 South, Range 12 West of the Second Principal Meridian, lying in Marrs Township, Posey County, Indiana, and more particularly described as follows:

Commencing at a 3/4 inch iron pin marking the Southwest Corner of the West Half of the Northeast Quarter of Section 26, Township 6 South, Range 12 West; thence North 00° 04’ 42” West along the Western Boundary of said Half Quarter Section 1319.79 feet to a ¾ inch iron pipe; thence North 89° 26’ 56” East 264.50 feet to a ¾ inch pipe marking the POINT OF BEGINNING; thence continuing along said Northern boundary 199.04 feet to a ¾ inch iron pipe; thence South 00° 06’ 01” East 895.48 feet to a 5/8 inch Rebar; thence South 89° 29’ 56” West 199.04 feet to a 5/8 inch Rebar, thence North 00° 06’ 01” West 895.48 feet to the POINT OF BEGINNING.

ALL OF THE FOREGOING TRACTS I, II and III also being the same as the following:
Part of Section 26, Township 6 South, Range 12 West of the Second Principal Meridian, lying in Marrs Township, Posey County, Indiana, and being more particularly described as follows:

Beginning at a three-quarter inch iron pin marking the center of Section 26, Township 6 South, Range 12 West; thence South 00 degrees 00 minutes 00 seconds West along the North/South Centerline of said section 241.56 feet to the center of Middle Mt. Vernon Road; thence North 62 degrees 40 minutes 00 seconds West along the center of said road 342.11 feet; thence North 52 degrees 32 minutes 00 seconds West along the center of said road 21.00 feet; thence north 53 degrees 24 minutes 30 seconds West along the center of said road 120.44 feet; thence North 66 degrees 52 minutes 00 seconds West along the center of said road 75.00 feet; thence North 80 degrees 07 minutes 30 seconds West along the center of said road 81.51 feet; thence North 82 degrees 57 minutes 30 seconds West along the center of said road 103.80 feet to the Western Boundary of the East Half of the East Half of the Northwest Quarter of said section; thence North 00 degrees 00 minutes 00 seconds East along said Western Boundary 2625.17 feet to the Northwest corner of said half half quarter section; thence North 90 degrees 00 minutes 00 seconds East along the Northern Boundary of said section 668.77 feet to the Northeast corner of said quarter section; thence South 00 degrees 04 minutes 33 seconds West along said section centerline 1361.44 feet to a three-quarter inch iron pipe; thence North 89 degrees 29 minutes 56 seconds East 463.54 feet; thence South 00 degrees 06 minutes 01 seconds East 895.48 feet to a five-eighths inch rebar; thence South 89 degrees 29 minutes 56 seconds West 199.04 feet to a five-eighths inch rebar; thence North 00 degrees 06 minutes 01 second West 23.38 feet; thence South 90 degrees 00 minutes 00 seconds West 264.83 feet to said section centerline; thence South 00 degrees 04 minutes 42 seconds East along said section centerline 450.00 feet to the point of beginning, containing 51.537 acres, more of less.

EXCEPT part of the Northwest quarter and part of the Southwest Quarter in Section 26, Township 6 South, Range 12 West, described as follows:

Beginning at the Southeast corner of the Northwest quarter of Section 26, Township 6 South, Range 12 West, thence West along the half-section line 200 feet to a point; thence North 500 feet to a point; thence East 200 feet to the half-section line separating the Northwest quarter from the Northeast quarter of said Section 26; thence South along said half-section line 500 feet to the point of beginning, containing 2.296 acres, more or less.

ALSO EXCEPT a strip of land 200 feet wide off of the East side of the following tract:

Beginning at the Northeast corner of the Southwest Quarter of Section 26, Township 6 South, Range 12 West; from thence West along the half-section line 26 rods to a stake; from thence in a Southeasterly direction to a stake on the East line of the said Southwest Quarter which is 15 rods to a point of beginning, containing in said strip of land 0.872 acre, more or less.

Parcel C

Part of the Northwest Quarter and part of the Southwest Quarter in Section Twenty-six (26), Township Six (6) South, Range twelve (12) West, described as follows:

Beginning at the Southeast corner of the Northwest Quarter (NW ¼) of Section Twenty-six (26), Township Six (6) South, Range Twelve (12) West, thence West along the Half-Section line 200 feet to a point, thence North 500 feet to a point, thence East 200 feet to the Half-Section line separating the Northwest Quarter (NW ¼) from the Northeast Quarter (NE ¼) of said Section Twenty-six (26), thence South along said Half-Section line 500 feet to the point of beginning.

ALSO, a strip of land 200 feet wide off of the East side of the following tract:

Beginning at the Northeast corner of the Southwest Quarter (SW ¼) of Section Twenty-six (26), Township Six (6) South, Range Twelve (12) West, from thence West along the Half-Section line Twenty-six (26) rods to a stake, from thence in a Southeasterly direction to a stake on the East line of the said Southwest Quarter which is 15 rods to a point of beginning.

EXCEPT a strip of land 24 feet wide off of the East side of the following tract:

Beginning at the Northeast corner of the Southwest Quarter of Section 26, Township Six (6) South, Range 12 West, from thence West along the Half-Section line 26 rods to a stake, from thence in a Southeasterly direction to a stake on the East line of the said Southwest Quarter which is 15 rods to the place of beginning, containing One and One-Fifth Acres, more or less.

ALSO EXCEPT, beginning at the Southeast corner of the East Half of the East Half of the Northwest Quarter of Section 26, Township 6 South, Range 12 West; thence West 24 feet; thence North 20 feet; thence South 20 feet to the place of beginning.

EX-10.18

Exhibit 10.18

PROMISSORY NOTE
(Term Loan)

$5,410,000.00 Indianapolis, Indiana
October 29, 2002

         FOR VALUE RECEIVED the undersigned Bioanalytical Systems, Inc., an Indiana corporation (“Maker”) promises to pay to the order of Union Planters Bank, N.A. (“Payee”), on or before November 1, 2012 (the “Maturity Date”), the principal sum of Five Million Four Hundred Ten Thousand Dollars and No Cents ($5,410,000.00) or such lesser sum as is indicated on Payee’s records as having been disbursed by Payee to or for the benefit of Maker, together with interest prior to the Maturity Date, upon the terms set forth in this Promissory Note.

        1.         Definitions.    In addition to the terms defined elsewhere in this Promissory Note, the following terms have the meanings indicated for purposes of this Promissory Note:

                 a.         "Loan Agreement" means that certain Loan Agreement of even date herewith among Maker and BAS Evansville, Inc., as Borrowers, and Payee, as Lender, as may be amended from time to time.

         Capitalized terms used in this Promissory Note and not otherwise defined in this Promissory Note shall have the meanings ascribed to such terms in the Loan Agreement.

        2.         Interest.    Interest shall accrue on any principal balance outstanding hereunder from and including the date hereof at a rate per annum equal to the Fixed Rate. All computations of interest and fees under this Agreement shall be made on the basis of a year of three hundred sixty (360) days and calculated for the actual days elapsed. Any change in the rate of interest occasioned by a change in the Prime Rate shall be effective on the same day as the change in the Prime Rate.

        3.         Repayment. Maker will repay this Loan in consecutive monthly installments of principal and interest, based on the applicable interest rate and the months remaining in an amortization period that begins on the date hereof and extends for a period of two hundred forty (240) months thereafter. Maker’s said installment payments shall commence on December 1, 2002, and shall continue on the first day of each calendar month until the Maturity Date. On the Maturity Date, the balance, plus accrued interest, then unpaid shall be due and payable immediately. To the extent that the amortization period extends beyond the Maturity Date, the final payment on the Maturity Date will be a balloon payment in an amount sufficient to repay all remaining indebtedness under this Promissory Note. Principal and interest payments after any change in the applicable interest rate or any partial prepayment will be calculated based on the number of months remaining in the two hundred forty (240) month amortization period of this Promissory Note at such time.

         In any and all events, the entire remaining balance of this Promissory Note is due and payable on the Maturity Date. Acceptance by Payee of any payment which is less than payment in full of all amounts due and owing at such time shall not constitute a waiver of Payee’s right to receive payment in full at such or any other time.

         Each payment of principal and interest due under this Promissory Note shall be made by Maker to Payee at any of its offices. All sums paid on this Promissory Note shall be applied first to fees and costs of Payee in connection with the enforcement of the terms and conditions of the Loan Agreement and this Promissory Note, second to interest accrued to the date of payment, and finally to principal. Each payment due under this Promissory Note shall be made without set-off or counterclaim in immediately available funds on a Business Day not later than 3:30 p.m. Lafayette, Indiana time. All sums received after such time shall be deemed received on the next Business Day. If any installment of principal or interest under this Promissory Note is payable on a day other than a Business Day, the maturity of such installment shall be extended to the next succeeding Business Day, and interest shall be payable during such extension of maturity.

         All sums payable hereunder will be payable with attorneys’ fees and costs of collection and without relief from valuation and appraisement laws. Maker and all endorsers hereof hereby severally waive presentment for payment, protest, notice of protest, notice of non-payment and all other notices or demands in connection with the delivery, acceptance, performance, default, endorsement or guaranty of this Promissory Note, notice of loans made, credit extended, collateral received or delivered, or other action taken in reliance hereon and all other demands and notices of any description. Further, Maker and all endorsers hereof hereby severally consent to extensions of time with respect to sums payable hereunder and any collateral for this indebtedness. Maker consents to any extension or postponement of the time of payment or any other indulgence to any substitution, exchange or release of or failure to perfect any security interest in such collateral, to the adding or release of any party or person primarily or secondarily liable, to the acceptance of partial payment thereon, and the settlement, compromise or adjustment of any thereof, all in such manner and at such time as Payee may deem advisable.

        4.         Prepayment. Maker may prepay all or any part of the principal balance of this Promissory Note at any time without premium or penalty. Amounts prepaid may not be reborrowed.

        5.         Default Rate and Late Charge. After maturity (by acceleration or otherwise) the unpaid balance (both principal and unpaid pre-maturity interest) shall bear interest at a Default Rate equal to four percent (4%) over the rate of interest in effect immediately prior to maturity. If any payment under this Promissory Note is not received by the holder hereof within fifteen (15) calendar days after the payment is due, Maker will pay to the holder hereof a late charge of the lesser of five percent (5.0%) of the overdue payment amount or One Thousand Dollars and No Cents ($1,000.00).

        6.         Notices. All notices to be given pursuant to this Promissory Note will be sufficient if given by personal service, or by guaranteed overnight delivery service, or by postage prepaid mailing by certified or registered mail with return receipt requested, to the parties as set forth below, or to such other address as a party may request by notice given pursuant to this Section. Any time period provided in the giving of any notice hereunder shall commence upon the date of personal service, the day after delivery to the guaranteed overnight delivery service, or two (2) days after mailing certified or registered mail. However, any failure to give notice in accordance with the terms of this Section will not invalidate such notice if such notice was in fact in writing and actually received by the party to whom it was directed.

– 2 –

MAKER:	Bioanalytical Systems, Inc. 2701 Kent Avenue West Lafayette, Indiana 47906 Attention:  Douglas P. Wieten
LENDER:	UNION PLANTERS BANK, N.A. 437 South Street P.O. Box 780 Lafayette, IN 47902-0780 Attention:  Daniel R. House

        7.         Governing Law. This Promissory Note and all rights and obligations hereunder, including matters of construction, validity and performance, will be governed by the Uniform Commercial Code and other applicable laws of the State of Indiana. Whenever possible each provision of this Promissory Note will be interpreted in such a manner as to be effective and valid upon applicable law, but if any provision of this Promissory Note will be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition without invalidating the remainder of such provision or the remaining provisions of this Promissory Note.

        8.         Setoff. Payee shall have the right at any time to apply Payee’s own debt or liability to Maker or to any other party liable on this Promissory Note in whole or partial payment of this Promissory Note or other present or future liabilities of Maker to Payee, without any requirement of mutual maturity.

        9.         Related Documents. This Promissory Note is made pursuant to the Loan Agreement and is secured by the real estate mortgages and other security instruments therein referred to. The terms, conditions and definitions of the Loan Agreement are incorporated in this Promissory Note by this reference. If any installment due on this Promissory Note is not paid when due, or if there should be an Event of Default under the Loan Agreement which is not cured within the grace period (if any) allowed for the cure thereof, the unpaid principal balance hereof together with interest accrued thereon, at the option of the holder hereof, immediately become due and payable without notice or demand.

         The real estate mortgages and other security instruments referred to in the preceding paragraph may also secure the payment of other obligations of Maker. A default in the payment of any of such other obligations, after any applicable notice and periods of grace or cure, shall constitute a default hereunder. Nothing herein shall in any way lessen or impair the rights of the holder with respect to this Promissory Note. This Promissory Note and the other obligations referred to above shall remain separate obligations of Maker and shall be separately enforceable according to their respective terms. The holder may institute separate proceedings with respect to each simultaneously or in such order and such times as the holder may elect. The pendency of any proceedings with respect to this Promissory Note or other obligation shall not be grounds for the abatement or for hindering, delaying or preventing any proceedings with respect to any other obligation. Default under each shall constitute a separate cause of action and the institution of proceedings upon one, but not all, shall not be construed as splitting a cause of action by the holder.

– 3 –

        10.         Waiver. Each endorser and any other party liable on this Promissory Note severally waives demand, presentment, notice of dishonor and protest, and consents to any extension or postponement of time of its payment without limit as to the number or period, to any substitution, exchange or release of all or any part of the collateral, to the addition of any party, and to the release or discharge of, or suspension of any rights and remedies against, any person who may be liable for the payment of this Promissory Note. No delay on the part of Payee in the exercise of any right or remedy shall operate as a waiver. No single or partial exercise by Payee of any right or remedy shall preclude any other future exercise of it or the exercise of any other right or remedy. No waiver or indulgence by Payee of any default shall be effective unless in writing and signed by Payee, nor shall a waiver on one occasion be construed as a bar to or waiver of that right on any future occasion.

        11.         Miscellaneous. This Promissory Note shall be binding on Maker and Maker’s successors, and shall inure to the benefit of Payee, its successors and assigns. Any reference to Payee shall include any holder of this Promissory Note. Section headings are for convenience of reference only and shall not affect the interpretation of this Promissory Note. This Promissory Note, the Loan Agreement and the Instruments embody the entire agreement between Maker and Payee regarding the terms of the loan evidenced by this Promissory Note and supersede all oral statements and prior writings relating to that Loan.

        12.         WAIVER OF JURY TRIAL. MAKER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS PROMISSORY NOTE, THE INSTRUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS, WHETHER ORAL OR WRITTEN, OR ACTIONS OF PAYEE. MAKER SHALL NOT SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY PAYEE EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY PAYEE.

         IN WITNESS WHEREOF, Maker has executed this Promissory Note this 29^th day of October, 2002.

BIOANALYTICAL-SYSTEMS. INC.



By:  /s/ Peter T. Kissinger Peter T. Kissinger, Ph.D.
Chairman and Chief Executive Officer

– 4 –

Schedule E
to
Loan Agreement among Union Planters Bank, N.A.,
Bioanalytical Systems, Inc. and BAS Evansville, Inc.

Terms of Loan (West Lafayette)

Loan Amount:

$2,250,000.00

Interest Rate:

Prior to the Loan (West Lafayette) Conversion Date and so long as there exists no Event of Default, the outstanding principal balance of the Loan (West Lafayette) shall bear interest at a variable rate which is equal to the rate of interest announced from time to time by Union Planters Bank, N.A. (or any financial institution which may succeed to the commercial lending business of Union Planters Bank, N.A.) as its prime rate (“Prime Rate”), which rate shall change on the same date as the date of each change in said Prime Rate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. BORROWER WILL SELECT ONE OF THE FOLLOWING OPTIONS AND NOTIFY LENDER OF ITS SELECTION AT LEAST THIRTY (30) DAYS PRIOR TO THE LOAN (WEST LAFAYETTE) CONVERSION DATE:

1. The Prime Rate.

2. A fixed rate which is equal to the then current weekly or monthly average, as selected by Lender in its sole discretion, of the one (1) year U.S. Treasury Constant Maturity Index as published by The Federal Reserve Board of the United States in the most recent H.15 on or before fifteen days prior to the Loan (West Lafayette) Conversion Date, plus 225 basis points.

3. A fixed rate which is equal to the then current weekly or monthly average, as selected by Lender in its sole discretion, of the three (3) year U.S. Treasury Constant Maturity Index as published by The Federal Reserve Board of the United States in the most recent H.15 on or before fifteen days prior to the Loan (West Lafayette) Conversion Date, plus 250 basis points.

4. A fixed rate which is equal to the then current weekly or monthly average, as selected by Lender in its sole discretion, of the five (5) year U.S. Treasury Constant Maturity Index as published by The Federal Reserve Board of the United States in the most recent H.15 on or before fifteen days prior to the Loan (West Lafayette) Conversion Date, plus 275 basis points.

If the Federal Reserve Board of the United States discontinues publication of the H.15, Lender in its sole discretion will select another authoritative source for the applicable index.

Maturity: November l, 2012

Amortization Period: 240 months

Advances: Prior to the Loan (West Lafayette) Conversion Date, Borrower may request and receive Advances under the Loan (West Lafayette) Promissory Note so long as the balance outstanding at any one time does not exceed the lesser of (a) Two Million Two Hundred Fifty Thousand Dollars and No Cents ($2,250,000.00) or (b) Seventy-Five percent (75%) of the value of the Real Estate (West Lafayette) as determined by an independent appraiser acceptable to Lender.

Payments: Borrower shall pay the principal amount of the Loan (West Lafayette) Promissory Note, and accrued interest thereon, as follows:

(1) Prior to the Loan (West Lafayette) Conversion Date, consecutive monthly payments of interest only, commencing December 1, 2002;

(2) Commencing on the Loan (West Lafayette) Conversion Date, and continuing until the Loan (West Lafayette) Maturity Date, consecutive monthly installments of principal and interest based on the applicable interest rate and the years remaining under the amortization period, and

(3) On the Loan (West Lafayette) Maturity Date, the principal balance, plus accrued interest, then unpaid shall be due and payable immediately. To the extent that the amortization period exceeds the Loan (West Lafayette) Maturity Date, the final payment on the Loan (West Lafayette) Maturity Date will be a balloon payment in an amount sufficient to repay all remaining indebtedness under the Loan (West Lafayette) Promissory Note.

(4) Principal and interest payments after any change in the interest rate or partial prepayments will be calculated based on the number of years remaining under the amortization period of the Loan (West Lafayette) Promissory Note at the time of such change.

Prepayments: Borrower shall have the right to prepay all or any portion of the amount outstanding under the Loan (West Lafayette) Promissory Note accruing interest at the Prime Rate at any time without premium or penalty. In all other cases, Borrower may prepay all or any part of the principal balance of the Loan (West Lafayette) Promissory Note on one Business Day’s notice provided that, in addition to all principal, accrued and unpaid interest and costs owing at the time of prepayment, Borrower pays a prepayment premium equal to:

[A]  The NPV (NPV calculations will be based on the original contracted Loan (West Lafayette) Promissory Note rate) of interest that would have accrued on the amount prepaid (under the original terms and conditions of the Loan (West Lafayette) Promissory Note) at the original LIBOR / SWAP rate through the maturity date:

Minus

[B]  The NPV (NPV calculations will be based on the current LIBOR / SWAP rate concurrent with the date of prepayment) of interest that would have accrued on the amount prepaid (under the original terms and conditions of the Loan (West Lafayette) Promissory Note) at the current LIBOR / SWAP rate through the maturity date.

[A] - [B] = Prepayment Premium

In no event shall the prepayment premium be less than zero. Borrower’s notice of its intent to prepay shall be irrevocable. If the balance of the Loan (West Lafayette) Promissory Note is accelerated in accordance with the terms of the Loan (West Lafayette) Promissory Note, the resulting balance due shall be considered a prepayment due and payable as of the date of acceleration.

Borrower agrees that the prepayment premium is a reasonable estimate of loss and not a penalty. The prepayment premium is payable as liquidated damages for the loss of bargain, and its payment shall not in any way reduce, affect or impair any other obligation of Borrower under the Loan (West Lafayette) Promissory Note. As used herein, the following terms have the following definitions:

NPV:     Net Present Value

LIBOR/SWAP:    LIBOR (London Interbank Offered Rate) is fixed each morning by the British Bankers Association (BBA). The LIBOR / SWAP rates to be used will be on the day of prepayment. Union Planters Corporation uses the LIBOR / SWAP as shown in Bloomberg (USSWAP Mid) (day count adjusted from actual/360 to actual/actual).

Bloomberg:     Is an independent source for LIBOR/SWAP rates which Union Planters Corporation and most well respected financial institutions subscribe to. Type USSWAP<GO> to see the US Government Composite rate screen.

EX-10.19

Exhibit 10.19

PROMISSORY NOTE
(Loan (Mount Vernon))

$2,340,000.00 Indianapolis, Indiana
October 29, 2002

         FOR VALUE RECEIVED the undersigned Bioanalytical Systems, Inc. and BAS Evansville, Inc., both Indiana corporations (collectively, “Makers”), individually, jointly and severally promise to pay to the order of Union Planters Bank, N.A. (“Payee”), on or before May 1, 2008 (the “Maturity Date”), the principal sum of Two Million Three Hundred Forty Thousand Dollars and No Cents ($2,340,000.00) or such lesser sum as is indicated on Payee’s records as having been disbursed by Payee to or for the benefit of Makers, together with interest prior to the Maturity Date, upon the terms set forth in this Promissory Note.

        1.         Definitions. In addition to the terms defined elsewhere in this Promissory Note, the following terms have the meanings indicated for purposes of this Promissory Note:

            a.         “l Year TCMI” means a Fixed Rate which is equal to the then current weekly or monthly average, as selected by Lender in its sole discretion, of the one (1) year U.S. Treasury Constant Maturity Index as published by The Federal Reserve Board of the United States in the most recent H.15 on or before fifteen days prior to the Conversion Date, which rate will change at the end of each such one (1) year interest rate period. If the Federal Reserve Board of the United States discontinues publication of the H.15, Lender in its sole discretion will select another authoritative source for said index.

            b.         “3 Year TCMI” means a Fixed Rate which is equal to the then current weekly or monthly average, as selected by Lender in its sole discretion, of the three (3) year U.S. Treasury Constant Maturity Index as published by The Federal Reserve Board of the United States in the most recent H.15 on or before fifteen days prior to the Conversion Date, which rate will change at the end of each such three (3) year interest rate period. If the Federal Reserve Board of the United States discontinues publication of the H.15, Lender in its sole discretion will select another authoritative source for said index.

            c.         “5 Year TCMI” means a Fixed Rate which is equal to the then current weekly or monthly average, as selected by Lender in its sole discretion, of the five (5) year U.S. Treasury Constant Maturity Index as published by The Federal Reserve Board of the United States in the most recent H.15 on or before fifteen days prior to the Conversion Date, which rate will change at the end of each such five (5) year interest rate period. If the Federal Reserve Board of the United States discontinues publication of the H.15, Lender in its sole discretion will select another authoritative source for said index.

            d.         "Advance" means a disbursement made to Makers, or either of them, pursuant to this Promissory Note.

            e.         “Applicable Margin” means, as applicable, a margin of (i) Two and One Fourth Percent (2.25%) over the 1 Year TCMI, (ii) Two and One Half Percent (2.50%) over the 3 Year TCMI, and (iii) Two and Three Fourths Percent (2.75%) over the 5 Year TCMI.

            f.         "Conversion Date" means April 18, 2003.

            g.         “Fixed Rate” means, as may be selected by Makers, or either of them, on or before fifteen days prior to the Conversion Date, (i) the 1 Year TCMI plus the Applicable Margin, (ii) the 3 Year TCMI plus the Applicable Margin, or (iii) the 5 Year TCMI plus the Applicable Margin.

            h.         “Loan Agreement” means that certain Loan Agreement of even date herewith among Makers, as Borrowers, and Payee, as Lender, as may be amended from time to time.

            i.         “Prime Rate” means that rate of interest announced from time to time by Union Planters Bank, N.A. (or any financial institution which may succeed to the commercial lending business of Union Planters Bank, N.A.) as its prime rate, which rate shall change on the same date as the date of each change in said Prime Rate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate.

         Capitalized terms used in this Promissory Note and not otherwise defined in this Promissory Note shall have the meanings ascribed to such terms in the Loan Agreement.

        2.         Requests for Advances. Subject to the terms of the Loan Agreement, until the Conversion Date, Makers, or either of them, may request and receive Advances under this Promissory Note so long as the balance outstanding at any one time does not exceed the face amount of this Promissory Note (i.e., Two Million Three Hundred Forty Thousand Dollars and No Cents ($2,340,000.00). However, at no time during the term of this Promissory Note may the aggregate Advances under this Promissory Note exceed Eighty Percent (80%) of the value of the Real Estate (Mount Vernon) as determined by an independent appraiser acceptable to Lender.

        3.         Construction Loan. Payee has approved a Loan to Makers in a principal amount not to exceed the face amount of this Promissory Note. The Loan is in the form of Advances made from time to time by Payee to Makers. This Promissory Note evidences Makers’ obligation to repay those Advances. The aggregate principal amount of debt evidenced by this Promissory Note shall be the amount reflected from time to time in the records of Payee but shall not exceed the face amount of this Promissory Note.

        4.         Interest. Prior to the Conversion Date, interest on this Promissory Note shall accrue at the Prime Rate. On and after the Conversion Date, interest on this Promissory Note shall accrue at the Prime Rate unless Maker selects a Fixed Rate on or before fifteen days prior to the Conversion Date. All computations of interest and fees under this Agreement shall be made on the basis of a year of three hundred sixty (360) days and calculated for the actual days elapsed. Any change in the rate of interest occasioned by a change in the Prime Rate shall be effective on the same day as the change in the Prime Rate.

– 2 –

        5.         Repayment. Makers will repay the principal amount of this Promissory Note, and accrued interest thereon, as follows:

            (a)         Prior to the Conversion Date, consecutive monthly payments of interest only on the first day of each month, commencing December 1, 2002;

            (b)         Makers will repay this Loan in consecutive monthly installments of principal and interest, based on the applicable interest rate and the months remaining in an amortization period that begins on the date hereof and extends for a period of one hundred eighty (180) months thereafter. Makers’ said installment payments shall commence on the Conversion Date, and shall continue on the first day of each calendar month until the Maturity Date. On the Maturity Date, the balance, plus accrued interest, then unpaid shall be due and payable immediately. To the extent that the amortization period extends beyond the Maturity Date, the final payment on the Maturity Date will be a balloon payment in an amount sufficient to repay all remaining indebtedness under this Promissory Note. Principal and interest payments after any change in the applicable interest rate or any partial prepayment will be calculated based on the number of months remaining in the one hundred eighty (180) month amortization period of this Promissory Note at such time.

            (c)         In any and all events, the entire remaining balance of this Promissory Note is due and payable on the Maturity Date. Acceptance by Payee of any payment which is less than payment in full of all amounts due and owing at such time shall not constitute a waiver of Payee’s right to receive payment in full at such or any other time.

         Each payment of principal and interest due under this Promissory Note shall be made by Makers to Payee at any of its offices. All sums paid on this Promissory Note shall be applied first to fees and costs of Payee in connection with the enforcement of the terms and conditions of the Loan Agreement and this Promissory Note, second to interest accrued to the date of payment, and finally to principal. Each payment due under this Promissory Note shall be made without set-off or counterclaim in immediately available funds on a Business Day not later than 3:30 p.m. Lafayette, Indiana time. All sums received after such time shall be deemed received on the next Business Day. If any installment of principal or interest under this Promissory Note is payable on a day other than a Business Day, the maturity of such installment shall be extended to the next succeeding Business Day, and interest shall be payable during such extension of maturity.

         All sums payable hereunder will be payable with attorneys’ fees and costs of collection and without relief from valuation and appraisement laws. Makers and all endorsers hereof hereby severally waive presentment for payment, protest, notice of protest, notice of non-payment and all other notices or demands in connection with the delivery, acceptance, performance, default, endorsement or guaranty of this Promissory Note, notice of loans made, credit extended, collateral received or delivered, or other action taken in reliance hereon and all other demands and notices of any description. Further, Makers and all endorsers hereof hereby severally consent to extensions of time with respect to sums payable hereunder and any collateral for this indebtedness. Each Maker consents to any extension or postponement of the time of payment or any other indulgence to any substitution, exchange or release of or failure to perfect any security interest in such collateral, to the adding or release of any party or person primarily or secondarily liable, to the acceptance of partial payment thereon, and the settlement, compromise or adjustment of any thereof, all in such manner and at such time as Payee may deem advisable.

– 3 –

        6.         Prepayment. Makers shall have the right to prepay all or any portion of the amount outstanding under this Promissory Note accruing interest at the Prime Rate at any time without premium or penalty. In all other cases, Makers may prepay all or any part of the principal balance of this Promissory Note on one Business Day’s notice provided that, in addition to all principal, interest and costs owing at the time of prepayment, Makers pay a prepayment premium equal to:

[A] The NPV (NPV calculations will be based on the original contracted Promissory Note rate) of interest that would have accrued on the amount prepaid (under the original terms and conditions of this Promissory Note) at the original LIBOR/SWAP rate through the maturity date:

Minus

[B] The NPV (NPV calculations will be based on the current LIBOR / SWAP rate concurrent with the date of prepayment) of interest that would have accrued on the amount prepaid (under the original terms and conditions of this Promissory Note) at the current LIBOR / SWAP rate through the maturity date.

[A] - [B] = Prepayment Premium

In no event shall the prepayment premium be less than zero. Makers’ notice of their intent to prepay shall be irrevocable. If the balance of this Promissory Note is accelerated in accordance with the terms of this Promissory Note, the resulting balance due shall be considered a prepayment due and payable as of the date of acceleration.

Makers agree that the prepayment premium is a reasonable estimate of loss and not a penalty. The prepayment premium is payable as liquidated damages for the loss of bargain, and its payment shall not in any way reduce, affect or impair any other obligation of Makers under this Promissory Note. As used herein, the following terms have the following definitions:

NPV:  Net Present Value

LIBOR/SWAP:  LIBOR (London Interbank Offered Rate) is fixed each morning by the British Bankers Association (BBA). The LIBOR / SWAP rates to be used will be on the day of prepayment.

Union Planters Corporation uses the LIBOR / SWAP as shown in Bloomberg (USSWAP Mid) (day count adjusted from actual/360 to actual/actual).

Bloomberg:  Is an independent source for LIBOR / SWAP rates which Union Planters Corporation and most well respected financial institutions subscribe to. Type USSWAP<GO> to see the US Government Composite rate screen.

– 4 –

        7.         Default Rate and Late Charge. After maturity (by acceleration or otherwise) the unpaid balance (both principal and unpaid pre-maturity interest) shall bear interest at a Default Rate equal to four percent (4%) over the rate of interest in effect immediately prior to maturity. If any payment under this Promissory Note is not received by the holder hereof within ten (10) calendar days after the payment is due, Makers will pay to the holder hereof a late charge of the lesser of Five Percent (5%) of the amount due or One Thousand Dollars and No Cents ($1,000.00).

        8.         Notices. All notices to be given pursuant to this Promissory Note will be sufficient if given by personal service, or by guaranteed overnight delivery service, or by postage prepaid mailing by certified or registered mail with return receipt requested, to the parties as set forth below, or to such other address as a party may request by notice given pursuant to this Section. Any time period provided in the giving of any notice hereunder shall commence upon the date of personal service, the day after delivery to the guaranteed overnight delivery service, or two (2) days after mailing certified or registered mail. However, any failure to give notice in accordance with the terms of this Section will not invalidate such notice if such notice was in fact in writing and actually received by the party to whom it was directed.

MAKERS:	Bioanalytical Systems, Inc. 2701 Kent Avenue West Lafayette, Indiana 47906 Attention: Douglas P. Wieten BAS Evansville, Inc. 10424 Middle Mt. Vernon Road Mount Vernon, Indiana 47620 Attention:  Michael P. Sylvon, Ph.D.
LENDER:	UNION PLANTERS BANK, N.A. 437 South Street P.O. Box 780 Lafayette, IN 47902-0780 Attention:  Daniel R. House

        9.         Governing Law. This Promissory Note and all rights and obligations hereunder, including matters of construction, validity and performance, will be governed by the Uniform Commercial Code and other applicable laws of the State of Indiana. Whenever possible each provision of this Promissory Note will be interpreted in such a manner as to be effective and valid upon applicable law, but if any provision of this Promissory Note will be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition without invalidating the remainder of such provision or the remaining provisions of this Promissory Note.

        10.         Evidence of Credit Extensions. Payee shall record the date, amount and maturity of each Advance and the amount of each payment of principal and interest made by Maker with respect thereto, in its records, and Payee’s record shall be conclusive absent manifest error. Any statement of Payee to Maker setting forth Maker’s account regarding the Advances and payments shall be considered true and correct and binding on Maker unless Payee is notified in writing of any discrepancy or exception within thirty (30) days from the mailing by Payee to Maker of any such monthly statement. Notwithstanding the foregoing, the failure to make, or an error in making, a notation with respect to any Advance shall not limit or otherwise affect the obligation of Maker hereunder or under this Promissory Note.

– 5 –

        11.         Setoff. Payee shall have the right at any time to apply Payee’s own debt or liability to Maker or to any other party liable on this Promissory Note in whole or partial payment of this Promissory Note or other present or future liabilities of Maker to Payee, without any requirement of mutual maturity.

        12.         Related Documents. This Promissory Note is made pursuant to the Loan Agreement and is secured by the real estate mortgages and other security instruments therein referred to. The terms, conditions and definitions of the Loan Agreement are incorporated in this Promissory Note by this reference. If any installment due on this Promissory Note is not paid when due, or if there should be an Event of Default under the Loan Agreement which is not cured within the grace period (if any) allowed for the cure thereof, the unpaid principal balance hereof together with interest accrued thereon, at the option of the holder hereof, immediately become due and payable without notice or demand.

         The real estate mortgages and other security instruments referred to in the preceding paragraph may also secure the payment of other obligations of Maker. A default in the payment of any of such other obligations after any applicable notice and periods of grace or cure shall constitute a default hereunder. Nothing herein shall in any way lessen or impair the rights of the holder with respect to this Promissory Note. This Promissory Note and the other obligations referred to above shall remain separate obligations of Maker and shall be separately enforceable according to their respective terms. The holder may institute separate proceedings with respect to each simultaneously or in such order and such times as the holder may elect. The pendency of any proceedings with respect to this Promissory Note or other obligation shall not be grounds for the abatement or for hindering, delaying or preventing any proceedings with respect to any other obligation. Default under each shall constitute a separate cause of action and the institution of proceedings upon one, but not all, shall not be construed as splitting a cause of action by the holder.

        13.         Waiver. Each endorser and any other party liable on this Promissory Note severally waives demand, presentment, notice of dishonor and protest, and consents to any extension or postponement of time of its payment without limit as to the number or period, to any substitution, exchange or release of all or any part of the collateral, to the addition of any party, and to the release or discharge of, or suspension of any rights and remedies against, any person who may be liable for the payment of this Promissory Note. No delay on the part of Payee in the exercise of any right or remedy shall operate as a waiver. No single or partial exercise by Payee of any right or remedy shall preclude any other future exercise of it or the exercise of any other right or remedy. No waiver or indulgence by Payee of any default shall be effective unless in writing and signed by Payee, nor shall a waiver on one occasion be construed as a bar to or waiver of that right on any future occasion.

– 6 –

        14.         Miscellaneous. This Promissory Note shall be binding on Maker and Maker’s successors, and shall inure to the benefit of Payee, its successors and assigns. Any reference to Payee shall include any holder of this Promissory Note. Section headings are for convenience of reference only and shall not affect the interpretation of this Promissory Note. This Promissory Note, the Loan Agreement and the Instruments embody the entire agreement between Maker and Payee regarding the terms of the loan evidenced by this Promissory Note and supersede all oral statements and prior writings relating to that Loan.

        15.         WAIVER OF JURY TRIAL. MAKER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS PROMISSORY NOTE, THE INSTRUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS, WHETHER ORAL OR WRITTEN, OR ACTIONS OF PAYEE. MAKER SHALL NOT SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY PAYEE EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY PAYEE.

         IN WITNESS WHEREOF, Makers have executed this Promissory Note this 29th day of October, 2002.

BIOANALYTICAL SYSTEMS. INC.



By:  /s/ Peter T. Kissinger Peter T. Kissinger, Ph.D.,
Chairman and Chief Executive Officer


BAS EVANSVILLE, INC.



By:  /s/ Peter T. Kissinger Peter T. Kissinger, Ph.D.,
President

– 7 –

EX-13

Exhibit 13

vir-tu•o-so: a brilliant, skillful performer

BASi: a company of virtuosos

TABLE OF CONTENTS

Financial Data	1
President's Podium	2
Prelude	4
Quarterly Financial Data	9
Analysis of Financial Condition, Results of Operations	10
Balance Sheets	18
Statements of Operations	19
Statements of Shareholders' Equity	20
Statements of Cash Flow	21
Notes to Financial Statements	22
Report of Independent Auditors	33
Corporation Information	34

"Music is the universal language of mankind."
- Henry Wadsworth Longfellow (1807-1882)

photo on preceding page:  Long Center for The Performing Arts, Lafayette, Indiana

SELECTED CONSOLIDATED FINANCIAL DATA

                                                       Year Ended September 30,
                                      --------------------------------------------------------
                                        2002        2001        2000         1999        1998
                                      --------------------------------------------------------
                                               (in thousands, except per share data)

STATEMENT OF OPERATIONS DATA:
  Service revenue                     $ 16,140    $ 15,202    $ 10,999    $  9,993    $  7,609
  Product revenue                       10,373      10,073       8,224       9,858      10,616
                                      --------    --------    --------    --------    --------
     Total revenue                      26,513      25,275      19,223      19,851      18,225
  Cost of service revenue               11,556       9,660       9,245       6,499       4,598
  Cost of product revenue                4,393       3,495       2,974       3,943       3,911
                                      --------    --------    --------    --------    --------
     Total cost of revenue              15,949      13,155      12,219      10,442       8,509
                                      --------    --------    --------    --------    --------
  Gross profit                          10,564      12,120       7,004       9,409       9,716
                                      --------    --------    --------    --------    --------
  Operating expenses:
  Selling                                2,940       3,204       3,400       3,943       4,524
  Research and development               1,521       1,611       1,806       1,955       2,165
  General and administrative             4,476       3,815       2,990       2,550       2,336
                                      --------    --------    --------    --------    --------
     Total operating expenses            8,937       8,630       8,196       8,448       9,025
                                      --------    --------    --------    --------    --------
  Operating income (loss)                1,627       3,490      (1,192)        961         691
  Other income (expense), net              (80)       (383)       (621)       (114)        (25)
                                      --------    --------    --------    --------    --------
  Income (loss) before income taxes      1,547       3,107      (1,813)        847         666
  Income taxes (benefit)                   481       1,340        (431)        277         254
                                      --------    --------    --------    --------    --------
  Net income (loss)                   $  1,066    $  1,767    $ (1,382)   $    570    $    412
                                      ========    ========    ========    ========    ========
   Net income (loss per share)
     Basic                            $    .23    $    .39    $   (.30)   $    .13    $    .10
     Diluted                          $    .23    $    .38    $   (.30)   $    .12    $    .09
  Weighted average common
  Shares outstanding
     Basic                               4,576       4,565       4,550       4,506       4,117
     Diluted                             4,625       4,600       4,550       4,676       4,403


                                                           September 30,
                                      --------------------------------------------------------
                                        2002        2001        2000         1999        1998
                                      --------------------------------------------------------
                                                          (in thousands)

BALANCE SHEET DATA:
  Working capital                     $   (911)   $  2,535    $    931    $  4,275    $  3,286
  Property and equipment, net           22,824      18,922      18,913      17,355      14,551
  Total assets                          33,463      27,977      26,897      26,321      22,280
  Long-term debt, less
     Current portion                     3,247       3,144       3,638       4,112       1,124
  Convertible preferred shares             ---         ---         ---         ---         ---
  Shareholders' equity                  18,898      17,830      16,062      17,421      16,844

The above is selected audited consolidated financial data of the Company for the five years ended September 30, 2002. The data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” found on page ten and the consolidated financial statements of Bioanalytical Systems, Inc. and notes contained in this report.

– 1 –

My band is my instrument." - Duke Ellington (1899-1974)

FROM THE PRESIDENTS PODIUM

This is the spot in the annual report where the conductor is asked to toot his horn. However, I believe the preponderance of evidence is that CEOs are overrated. Great companies result primarily from great products and services coming together with great customers at the right time. This takes people who are engaged, and who anticipate change and make it happen. They then start over because complacency is the worst enemy of a technology business in a free market. We can never get comfortable and put down our spyglass to the future.

I like the current environment. When there is discomfort, there is opportunity. We are expanding aggressively but with focus and cost controls to allow for some setbacks. FY’02 brought surprises from terrorist threats, creative accounting and disappointments in the pharmaceutical/biotech sectors. These environmental factors required us to make adjustments along the way. We missed our sales and earnings targets, but we stay the course. The allegro movement is yet to come.

Developing drugs that are safe and effective is an arduous process, made more complicated by the reality that nothing is entirely safe or effective and we must make some choices and manage risk. It is clear that many disagree about these choices and their relationships to healthcare costs. Nevertheless, we need to charge ahead and do our best, because doing nothing is the worst choice. While many life science companies have been adversely affected in the recent slow-down of equity markets, I believe the basic concept remains the same. Greater understanding of the causes of disease will result from the new tools to study genetics and proteins, and this greater understanding will result in more potent, safer and more effective pharmaceuticals. Coupled to this trend are the increasing collaborations between companies of all sizes, as knowledge surpasses things in the definition of value. Outsourcing and licensing (both inward and outward) replace vertical integration. While it has been an unsettling time for many, these fundamentals seem irreversible over the next five years and beyond.

Our services and products are designed to participate in the life science revolution and take it across the bridge from theory to clinical practice while maintaining the highest level of regulatory compliance. What we do at BASi is not highly speculative. It must be done in order to move a new drug substance toward approval as weak candidates are discarded. We are fortunate to be paid for such a significant cause that impacts millions of lives.

As I have been reporting to shareholders all year, our repertoire of services has been prudently expanded both by internal investments and by acquisitions. We are ready to be a much larger company in the years ahead. As you will note from the embellishment of our logo, we transition from BAS to the new BASi, denoting our growth and evolution into a mid-size provider of tools and services to the pharmaceutical industry.

Peter T Kissinger

President, Chairman and CEO

Dr. Peter T. Kissinger, trumpeter, scientist and CEO

Our Mission
We will advance health care through innovative science. Alliances, research
services and unique products define our role in the worldwide effort to
understand disease and develop therapeutic solutions.

– 2 –

"To play great music, you must keep your eyes on a distant star."
- - Yehudi Menuhin (1916-1999)

PRELUDE

The Garage Band

In musical terms, BASi started out as a garage band, has developed into a harmonious chamber ensemble and is now well on its way to becoming a full-fledged symphony orchestra. The company began with Pete Kissinger’s winning high school science project, an analytical tool to monitor trace chemicals. That evolved into a career and a corporation and earned Pete a worldwide reputation as a virtuoso scientist. As a young professor, Pete combined a few novel discoveries into an invention that revolutionized neuroscience, the electrochemical detector, which enabled researchers to monitor chemicals in the brain at barely discernable levels. It is still widely used today to monitor patients for adrenal cancers and hypertension and to aid researchers in understanding the underlying causes of central nervous system disorders.

Originally working in his garage, Pete and a very small staff designed and built a striking array of chemical separation tools, electrochemical analyzers, membrane sampling probes and animal research tools. From that small beginning, BASi grew into a respected manufacturer of equipment used largely for research and development in the pharmaceutical industry.

In the mid-80s, we coined the trade name BAS Analytics to denote a small group within our instrument applications department who provided fee-based analytical services. Later, in 1988, several major pharmaceutical companies encouraged BASi to create a contract research business, building on our instrument manufacturing legacy. That business has grown rapidly, fueled by strategic acquisitions, until, in 2002, it represents 60 percent of our total business. BASi focuses on pharmaceutical development. We carry drugs from discovery, when a new molecule is first thought to have potential as a drug, through clinical trials, when a new drug is introduced to humans and where safety and effectiveness are established. We have targeted early, technically challenging steps in the drug development process and are paid for our work whether a drug ultimately reaches the market or not.

In 2000, BASi introduced the Culex® robotic containment system for animal models of disease that streamlines some outmoded early screening systems and methods. The process of developing a new drug is long and can easily cost more than $500 million. The pharmaceutical industry is under pressure to deliver more new drugs faster and at lower cost while meeting stringent FDA requirements. Culex simplifies and accelerates the first-in-life step of the process and reduces cost significantly, operating 24/7 with minimal human input. It improves the quality and efficiency of early animal research and reduces use of, and stress to, laboratory animals. It helps a pharmaceutical company learn much earlier in the development process whether a drug will ever be viable in the marketplace, potentially saving tens of millions of research dollars. The BASi approach is to obtain more information in parallel rather than in a series of studies that are often poorly coordinated.

The Chamber Ensemble

BASi has a staff of dedicated virtuoso scientists, engineers and other professionals, all working in harmony, and we have strategic alliances with other life science companies and universities in the U. S. and Europe. We are recognized worldwide for our contributions to drug development. BASi has provided technologies and services to most of the top 25 pharmaceutical companies who relied upon us in their development of drugs. BASi has contributed to the realization of treatments for psychiatric and neurological disorders such as depression, schizophrenia, Parkinson’s and Alzheimer’s diseases, as well as for diabetes, HIV and infectious diseases. These drugs offer relief to more than 40 million people in the U.S. alone who are afflicted with these conditions.

BASi is unique in that we are both a manufacturer and a contract research organization (“CRO”). This duet makes us stronger in both areas. We supply many of the core analytical instruments used in contract research. Much of what we learn in our contract research is applied to develop

and improve the products we manufacture, and vice versa. The Culex is the most recent example of this synergy. Sales of Culex disposables have grown by over 50 percent, and new variations of the Culex have just been introduced to the market.

– 3 –

"If only the whole world could feel the power of harmony. "
- - Wolfgang Amadeus Mozart (1756-1791)

The Symphony Orchestra

Our business model is simple. We believe the new discovery tools of the last decade, combined with patent challenges for many leading drugs, are the prelude to many new opportunities and a robust future for BASi. Our unique role is our focus on developing innovative services and products that increase efficiency and reduce costs associated with taking new drugs to market. We have a strong acquisition program to supplement sustained growth and will continue our associations with other life sciences companies through the Pharmaceutical Industry Contract Research Alliance and new strategic alliances in the U.S. and Europe. In 2002 we expanded capacity in two of our locations, and another purpose-built expansion is under way in West Lafayette. In 2003 BASi will offer greater capacity and a broader range of services and products, quickly moving closer and closer toward establishing the company as a mid-size provider of tools and services for drug development.

A Duet Pushing the Limits of Science

Two of BASi’s talented scientists conducted a study in 2002 that absolutely pushed the limits of science and analytical techniques, using the newest and most sensitive equipment currently available. Senior Scientist Dr. Mark Gehrke developed the method, and Project Director Brian Engel managed a study that analyzed nearly 10,000 melatonin specimens from more than 200 subjects over a period of three months. The study required measurements as small as 0.5 parts per trillion. Such a concentration is hard to imagine, but putting it in another perspective, that is the equivalent of locating 1 apple out of 4 billion barrels, or moving 1 inch in a journey of 32 million miles!

This study required tremendous imagination and knowledge in its development, and hard work, skill and very careful management in its execution. Such work builds on our past experience and creates greater expectations, requirements and challenges for the future. BASi is indeed among those leading the way in moving the pharmaceutical industry ahead further and faster.

Mark Gehrke and Brian Engel are always striving
to get the greatest results from their instruments.

The Culex Crescendo

The Culex® Automated Blood Sampler was developed using input from BASi customers and from our own in-house research teams. Through ongoing research, we continue to broaden Culex capabilities, using it in combination with other equipment, such as the BASi Vetronics ECG monitor, and by exploring previously untried techniques which take us to higher and higher notes. Every day we are learning ways to get more and better data from fewer animals. Our research scientists are working with our design engineers to translate what we learn into refining and improving the product. Along with growing sales of Culex® units and support equipment and supplies, there is a dramatic increase in the number of clients who have asked BASi to conduct their Culex-related pharmacokinetic research projects for them in our laboratories. The demand for such work has pushed us well beyond current capacity, and so in 2002 we began building new laboratories at our West Lafayette Corporate Center. The facility is dedicated to Culex contract work and internal exploratory research. This is another example of the synergy between instrument and contract research business groups, complementing one another for a stronger BASi.

Clarinetist, horsewoman, lover of animals and outdoor activities, and in vivo research technician, Rita Hilt is a woman of varied talents and interests. At BASi, she is one of our Culex virtuosos, conducting and managing research projects, installing new units in customers’ labs and training new users.

An Upbeat Tempo in Evansville

Currently there are no completely satisfactory alternatives to animal models that simulate the overwhelming complexity of living systems in the development of new drugs. Experts say it will be many years before new drugs can be introduced to humans without first monitoring their effectiveness and safety in animals. BASi excels in animal science and analytical science, and our focus is always on reducing the number of animals used, increasing the quality of the data obtained and using alternative methods whenever possible. At the same time, humane treatment, health and welfare are primary concerns of all BASi animal care staff. A tremendous number of new potential drugs, plus a growing trend among pharmaceutical companies to outsource research work, and increasingly stringent regulatory requirements have combined to push BASi’s Evansville laboratories to their limits, resulting in a construction program in 2002 that doubled capacity to meet growing demand.

– 4 –

"...hot or cool man, jazz is jazz."
- Louis Armstrong (1900-1971)

BASi is committed to both human and animal health. Our Vetronics Division develops and sells instruments used in veterinary clinics and pharmaceutical research facilities to ensure the health of companion animals and to monitor the safety and effectiveness of new drugs for both animals and humans. The Vetronics ventilator, for instance, is used in surgery for a wide variety of animals, including exotics such as sea turtles and boa constrictors.

Guitarist, marathon runner, attending veterinarian and study director at BASi-Evansville, Dr. Robert Rose worked 16 years in clinical veterinary practice where he gained a strong understanding of peoples’ commitment to, and concern about, animals.

Reaching for the High Notes in Pharmaceutical Research

Contract service providers such as BASi who support the pharmaceutical industry face enormous challenges in satisfying clients while meeting all relevant regulatory requirements and accreditation standards. Analytical science needed to create and develop new drugs is evolving quickly, becoming ever more complex. BASi and the service providers like us have the foresight, knowledge and ability to lead the way.

Housed in what was once a U.S. World War II military hospital in Warwickshire, England is BASi’s new state-of-the-art biomarker laboratory, developed in 2002 under the direction of John Allinson. Biomarkers are naturally-occurring substances in humans that signal the body’s response to a drug, or drugs. The number of possible biomarkers in our bodies is virtually limitless. Measuring biomarkers is critical to pharmaceutical research and development because biomarkers indicate whether disease is present, how effective a drug is in controlling a disease and whether a drug has any toxic effects on the body. One example of a biomarker is glucose, which shows the effects of insulin.

Specific biomarkers are related to specific diseases. One biomarker in particular may be a better indicator than other biomarkers for each disease. Glucose is the preferred biomarker for diabetes, and monitoring glucose communicates how well that disease is being controlled. The BASi biomarker laboratory identifies the one biomarker that best indicates success of a specific drug. That means researchers will quickly learn how effective the drug is in controlling the targeted disease. Some other biomarkers can also indicate any toxic effects at a very early stage. This information gives the pharmaceutical company the opportunity to make a decision earlier in the development process about whether a drug will become viable in the market, potentially saving tens of millions of research dollars. Unlike glucose, most biomarkers are complex proteins determined by sophisticated immunoassay methods. Thus, BASi adds a new instrument to our ensemble.

A maestro of more than one area, John Allinson used his 30 years of experience in analytical and clinical pathology to get the BASi biomarkers lab up and running. He has used those same skills to develop the first genetic screening service for German Shepherds which he runs from his home. John also judges dog shows and appears on British “telly” as a pet rescue consultant.

– 5 –

QUARTERLY FINANCIAL DATA
         UNAUDITED (AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

FOR THE QUARTER ENDED IN FISCAL 2002
- ------------------------------------
                                             December 31          March 31           June 30          September 30
                                             -----------          --------           -------          ------------
Total revenue                                 $ 6,023             $ 7,385           $ 6,576             $ 6,529
Gross profit                                    2,556               3,147             2,492               2,369
Net income                                        247                 519               281                  19
Basic Net income per common share                 .05                 .11               .06                 0.0
outstanding(1)
Diluted net income per common share               .05                 .11               .06                 0.0
outstanding(1)


FOR THE QUARTER ENDED IN FISCAL 2001
- ------------------------------------
                                             December 31          March 31           June 30          September 30
                                             -----------          --------           -------          ------------
Total revenue                                 $ 5,426             $ 6,842           $ 6,400             $ 6,607
Gross profit                                    2,422               3,472             3,100               3,126
Net income                                        195                 582               515                 475
Basic Net income per common share                 .04                 .13               .11                 .10
outstanding(1)
Diluted net income per common share               .04                 .13               .11                 .10
outstanding(1)

⁽¹⁾    The sum of the net income per common share may not equal the annual net income per share due to interim quarter rounding.

"People who make music together cannot be enemies, at least not while the music lasts."
- Paul Hindemith (1895-1963)

– 6 –

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with Selected Consolidated Financial Data and BASi’s Consolidated Financial Statements and notes thereto included elsewhere in this Report. In addition to the historical information contained herein, the discussions in this Report may contain forward-looking statements that involve risks and uncertainties which are discussed in Exhibit 99 to BASi’s Form 10-K filed with the Securities Exchange Commission. BASi’s actual results could differ materially from those discussed herein.

Overview

BASi provides a broad range of value-added services and products focused on chemical analysis to the worldwide pharmaceutical, medical device and biotechnology industries. BASi’s customer-focused approach and its high-quality services and products enable it to serve as a value-added partner in solving complex scientific problems by providing cost-effective results to its customers on an accelerated basis. Founded in 1974 in Lansing, Michigan and relocated to West Lafayette, Indiana in 1975, BASi has experienced growth primarily through internal expansion supplemented by strategic acquisitions. As part of its internal growth strategy, BASi has developed technical specialties in such areas as chromatography, electrochemistry, in vivo sampling and mass spectrometry. BASi’s growth has strategically positioned it to take advantage of globalization in the marketplace and to provide new services and areas of technical expertise to its customers.

Throughout its history, BASi has taken steps to position itself as a global leader in the analytical chemistry field. Development of BASi’s infrastructure began in 1975 when it established relationships with several customers and multiple international distributors. In 1981, BASi increased its sphere of influence to include Japan with the creation of BAS Japan, an independent distributor. In 1988, BASi enhanced its computer software expertise by acquiring Interactive Microware, Inc. in State College, Pennsylvania. In 1988, BASi began offering contract services to customers that lacked the time or expertise to perform certain analyses using BASi’s analytical products. In 1995, BASi acquired a distributor, BAS Instruments Ltd., to further solidify its presence in the United Kingdom. In 1998, BASi acquired a manufacturer of veterinary monitoring and diagnostic equipment, BAS Vetronics, to provide additional preclinical support. In 1998, BASi acquired a contract services firm, BAS Analytics Ltd., to offer local service in the United Kingdom. In 2000, BASi also acquired a contract services firm, BAS Evansville, to offer preclinical services. In December 2002, BASi acquired a contract services firm, BASi Northwest Laboratories. In June 2002, BASi entered into a merger agreement with PharmaKinetics Laboratories, Inc.

Revenues are derived principally from (i) analytical services provided to customers, and (ii) the sale of BASi’s analytical instruments and other products. Both methods of generating revenue utilize BASi’s ability to identify, isolate and resolve client problems relating to the separation and quantification of individual substances in complex mixtures. BASi supports the pharmaceutical industry by focusing on analytical chemistry for biomedical research, diagnostics, electrochemistry and separations science. BASi’s analytical products are sold primarily to pharmaceutical firms and research organizations. Principal customers include scientists engaged in drug metabolism studies, as well as those engaged in basic neuroscience research. BASi was the first to commercialize the liquid chromatograph and electrochemistry technology which is now the worldwide standard for the determination of neurotransmitter substances. Research products include in vivo sampling devices, reagent chemicals, electrochemical apparatus and sensors.

BASi’s management believes that fluctuations in BASi’s quarterly results are caused by a number of factors, including BASi’s success in attracting new business, the size and duration of service contracts, the timing of its clients’ decisions to enter into new contracts, the cancellation or delays of ongoing contracts, the timing of acquisitions and other factors, many of which are beyond BASi’s control. In fiscal 2002, 24% of BASi’s total revenue was derived from customers located outside the United States. These markets tend to be much more volatile than the United States market. Significant governmental, regulatory, political, economic and cultural issues or changes could adversely affect the growth or profitability of BASi's business activities in any such market.

– 7 –

Critical Accounting Policies

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Liquidity and Capital Resources” discusses the consolidated financial statements of BASi, which have been prepared in accordance with accounting principles generally accepted in the United States. Preparation of these financial statements requires management to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. Certain significant accounting policies applied in the preparation of the financial statements require management to make difficult, subjective or complex judgments, and are considered critical accounting policies by BASi. BASi has identified the following areas as critical accounting policies.

Revenue Recognition

The majority of BASi’s service contracts involve the processing of bioanalytical samples for pharmaceutical companies. These contracts generally provide for a fixed fee for each sample processed and revenue is recognized under the specific performance method of accounting. Under the specific performance method, revenue and related direct costs are recognized when services are performed. BASi’s other service contracts generally consist of pre-clinical trial studies for pharmaceutical companies. Service revenue is recognized based on the ratio of direct costs incurred to total estimated direct costs under the proportional performance method of accounting. Losses on contracts are provided in the period in which the loss becomes determinable. Revisions in profit estimates are reflected on a cumulative basis in the period in which such revisions become known. The establishment of contract prices and total contract costs involves estimates made by BASi at the inception of the contract period. These estimates could change during the term of the contract which could impact the revenue and costs reported in the consolidated financial statements. Projected losses on contracts are provided for in their entirety when known.

Service contract fees received upon acceptance are deferred and classified within customer advances until earned. Unbilled revenues represent revenues earned under contracts in advance of billings.

Impairment of Long-Lived Assets, Including Goodwill

The carrying value of long-lived assets, including goodwill, is periodically reviewed by management. If management’s review indicates that the carrying value may be impaired, then the impairment amount will be written off. Impairment accounting is governed by Statement of Financial Accounting Standards (“SFAS”) No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of.” Significant subjective estimates are required to calculate expected future cash flows and the fair market values to which asset net book values are compared. SFAS No. 121 requires that whenever events or circumstances indicate that BASi may not be able to recover the net book value of its long-lived assets through future cash flows, an assessment must be performed of expected future cash flows, and undiscounted estimated future cash flows must be compared to the net book value of these assets to determine if impairment is indicated. Application of SFAS No. 121 requires the use of significant judgment and preparation of numerous significant estimates. Although BASi believes that its estimates of cash flows in the application of SFAS No. 121 were reasonable and were based upon all available information, including extensive historical cash flow data about the prior use of its assets, such estimates nevertheless required substantial judgments and were based upon material assumptions about future events.

In June 2001, the FASB issued SFAS No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets.” Under the new rules, goodwill and indefinite-lived intangible assets are no longer amortized, but are reviewed annually for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. BASi will apply the new accounting rules beginning October 1, 2002, and will perform the first of the required impairment tests of goodwill and indefinite-lived intangible assets as of October 1, 2002, and has not yet determined what the effect of these tests will be on the earnings and financial position of BASi.

– 8 –

Income Tax Accounting

Income taxes are accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes.” SFAS No. 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities. These deferred taxes are measured by applying the provisions of tax laws in effect at the balance sheet date.

BASi recognizes deferred tax assets in its balance sheet which typically represent items deducted currently in the financial statements that will be deducted in future periods in tax returns. In accordance with SFAS No. 109, a valuation allowance is recorded against these deferred tax assets to reduce the total deferred tax assets to an amount that will, more likely than not, be realized in future periods. The valuation allowance is based, in part, on management’s estimate of future taxable income, the expected utilization of tax loss carryforwards and the expiration dates of tax loss carryforwards. Significant assumptions are used in developing the analysis of future taxable income for purposes of determining the valuation allowance for deferred tax assets which, in the opinion of management, are reasonable under the circumstances.

Undistributed earnings in BASi’s foreign subsidiaries are considered by management to be permanently reinvested in such subsidiaries. Consequently, United States deferred tax liabilities on such earnings have not been recorded. Management believes that such United States taxes would be largely offset by foreign net operating loss carryforwards in applicable foreign jurisdictions.

Results of Operations

The following table sets forth, for the periods indicated, certain statement of operations data as a percentage of total revenue.

                  Percentage of Revenue Year Ended September 30,
                  ----------------------------------------------

                                        2002             2001              2000
                                       -----------------------------------------
Service revenue                         60.9%            60.1%             57.2%
Product revenue                         39.1             39.9              42.8
                                       -----------------------------------------
     Total revenue                     100.0            100.0             100.0
Cost of service revenue                 43.6             38.2              48.1
Cost of product revenue                 16.6             13.8              15.5
                                       -----------------------------------------
     Total cost of revenue              60.2             52.0              63.6
                                       -----------------------------------------
Gross profit                            39.8             48.0              36.4
Operating expenses:
Selling                                 11.1             12.7              17.7
Research and development                 5.7              6.4               9.4
General and administrative              16.9             15.1              15.6
                                       -----------------------------------------
     Total operating expenses           33.7             34.2              42.7
Operating income (loss)                  6.1             13.8              (6.3)
Other income (expense), net             (0.3)            (1.5)             (3.2)
                                       -----------------------------------------
Income (loss) before
     Income taxes                        5.8             12.3              (9.5)
Income taxes (benefit)                   1.8              5.3              (2.2)
                                       -----------------------------------------
Net income (loss)                        4.0%             7.0%             (7.3)%
                                       =========================================

– 9 –

Year Ended September 30, 2002, Compared with Year Ended September 30, 2001

Total revenue for the year ended September 30, 2002 increased 4.9% to $26.5 million from $25.3 million for the year ended September 30, 2001. Service revenue increased to $16.1 million for the year ended September 30, 2002 from $15.2 million for the year ended September 30, 2001, primarily as a result of additional bioanalytical service contracts. Product revenue increased to $10.4 million for the year ended September 30, 2002 from $10.1 million for the year ended September 30, 2001, primarily due to European product sales of the Culex® Automated Blood Sampling System.

Costs of revenue increased 21.3% to $15.9 million for the year ended September 30, 2002 from $13.2 million for the year ended September 30, 2001. This increase of $2.7 million was largely due to an increase in both staffing costs and the number of employees on staff in the services segment. Costs of revenue for BASi’s services segment increased to 71.6% as a percentage of services revenue for the year ended September 30, 2002 from 63.5% of services revenue for the year ended September 30, 2001, due, again, to an increase in both staffing costs and the number of employees on staff in the segment. Costs of revenue for BASi’s products segment increased to 42.3% as a percentage of product revenue for the year ended September 30, 2002 from 34.7% of product revenue for the year ended September 30, 2001, due primarily to a change in product mix.

Selling expenses for the year ended September 30, 2002 decreased by 8.2% to $2.9 million from $3.2 million during the year ended September 30, 2001, due to decreased foreign commission expense. Research and development expenses, which are net of grant reimbursements, for the year ended September 30, 2002 decreased 5.6% to $1.5 million from $1.6 million for the year ended September 30, 2001. The decrease of $90,000 is primarily due to an increase in grant reimbursements of $540,000 from $240,000 for the years ended September 30, 2002 and 2001, respectively. General and administrative expenses, for the year ended September 30, 2002 increased 17.3% to $4.5 million from $3.8 million for the year ended September 30, 2001, primarily as a result of an increase on both staffing costs and the number of employees on staff.

Other income (expense), net, was $(80,000) in the year ended September 30, 2002 as compared to $(384,000) in the year ended September 30, 2001, as a result of the decrease in interest expense due primarily to a decrease in interest rates.

BASi’s effective tax rate for 2002 was 30.9%, compared to 43.1% for fiscal 2001. This decrease was primarily due to the utilization of foreign net operating losses.

Year Ended September 30, 2001, Compared with Year Ended September 30, 2000

Total revenue for the year ended September 30, 2001 increased 31.5% to $25.3 million from $19.2 million for the year ended September 30, 2000. Service revenue increased to $15.2 million for the year ended September 30, 2001 from $11.0 million for the year ended September 30, 2000, primarily due to an increased number of bioanalytical, preclinical and pharmaceutical analysis contract services. Product revenue increased to $10.1 million for the year ended September 30, 2001 from $8.2 million for the year ended September 30, 2000, primarily due to the Culex® Automated Blood Sampling System, epsilon™ and related products.

Costs of revenue increased 7.7% to $13.2 million for the year ended September 30, 2001 from $12.2 million for the year ended September 30, 2000. This increase of $1.0 million was due to the increase in corresponding revenue. Costs of revenue for BASi’s services decreased to 63.5% as a percentage of services revenue for the year ended September 30, 2001 from 84.1% of services revenue for the year ended September 30, 2000, due to additional bioanalytical, preclinical and pharmaceutical analysis service revenue without a comparable increase in corresponding labor costs. Costs of revenue for BASi’s products decreased to 34.7% as a percentage of product revenue for the year ended September 30, 2001 from 36.2% of product revenue for the year ended September 30, 2000, primarily due to a change in product mix.

Selling expenses for the year ended September 30, 2001 decreased 5.8% to $3.2 million from $3.4 million during the year ended September 30, 2000, due to decreased foreign commission expense. Research and development expenses, which are net of grant reimbursements, for the year ended September 30, 2001 decreased 10.8% to $1.6 million from $1.8 million for the year ended September 30, 2000, due to the increase in grant reimbursements of $240,000 from $125,000 for the years ended September 30, 2001 and 2000, respectively. General and administrative expenses for the year ended September 30, 2001 increased 27.6% to $3.8 million from $3.0 million for the year ended September 30, 2000, primarily due to organizational restructuring of our preclinical operation, increased health care costs and the increase in utilities.

Other income (expense), net, was $(384,000) in the year ended September 30, 2001 as compared to $(621,000) in the year ended September 30, 2000, as a result of the decrease in interest expense due to decreased use of the line of credit.

BASi’s effective tax rate for 2001 was 43.1%, compared to 23.8% for fiscal 2000. This increase was primarily due to the increase in earnings and the impact of nondeductible foreign losses incurred in fiscal 2001.

– 10 –

Liquidity and Capital Resources

Comparative Cash Flow Analysis

Since its inception, BASi’s principal sources of cash have been cash flow generated from operations and funds received from bank borrowings and other financings. At September 30, 2002, BASi had cash and cash equivalents of $826,000, compared to cash and cash equivalents of $374,000 at September 30, 2001. The increase in cash resulted primarily from increased borrowings.

BASi’s net cash provided by operating activities was $2,032,000 for the year ended September 30, 2002. Cash provided by operations during the year ended September 30, 2002 consisted of net income of $1,066,000, non-cash charges of $1,987,000 and a net decrease of $1,021,000 in operating assets and liabilities. The most significant item affecting the change in operating assets and liabilities was an increase in prepaid expenses and other assets of $438,000 at September 30, 2002 from $232,000 at September 30, 2001.

Cash used by investing activities increased to $5,262,000 for the year ended September 30, 2002 from $1,628,000 for the year ended September 30, 2001, primarily due to capital expenditures for construction projects in Evansville and West Lafayette, Indiana. Cash provided by financing activities for the year ended September 30, 2002 was $3,697,000, due to additional borrowings on the line of credit and increased long-term debt. BASi’s net cash provided by operating activities was $4,028,000 for the year ended September 30, 2001. Cash provided by operations during the year ended September 30, 2001 consisted of net income of $1,767,000, non-cash charges of $2,143,000, and a net decrease of $118,000 in operating assets and liabilities. The most significant item affecting the change in operating assets and liabilities was an increase in accounts payable of $1,220,000 at September 30, 2001.

Cash used by investing activities decreased to $1.6 million for the year ended September 30, 2001 from $2.0 million for the year ended September 30, 2000, primarily due to payments relating to the acquisition of T.P.S., Inc. in the year ended September 30, 2000. Cash used by financing activities for the year ended September 30, 2001 was $2.5 million, due to payments on the line of credit and increased long-term debt.

Capital Resources

Total expenditures by BASi for property and equipment were $4.7 million, $1.7 million and $1.6 million in fiscal 2002, 2001 and 2000, respectively. Expenditures made in connection with the expansion of BASi’s operating facilities in West Lafayette and Evansville, Indiana and in the United Kingdom and purchases of laboratory equipment account for the largest portions of these expenditures in each year. The capital investments relate to the purchase of additional laboratory equipment corresponding to anticipated increases in research services to be provided by BASi. BASi expects to make other investments to expand its operations through internal growth and strategic acquisitions, alliances and joint ventures.

During 2001, BASi commenced construction to expand facilities at its preclinical site in Evansville, Indiana. Construction of these preclinical facilities is expected to be completed in February 2003 at a total cost of $3.5 million. During 2002, BASi began expanding facilities at its site in West Lafayette, Indiana. Construction on the West Lafayette facilities is expected to have a total cost of $4.0 million. BASi obtained financing for these construction projects with a bank (discussed below).

On December 13, 2002, BASi acquired LC Resources, Inc. (“LCR”), a privately-held company based in Walnut Creek, California. BASi purchased all of the outstanding shares of LCR for $2.5 million, subject to adjustment for certain changes in net tangible assets of LCR. BASi paid cash of $125,000 at closing with the remainder of the purchase price to be paid through promissory notes, bearing interest at 10% per annum, and maturing on October 1, 2007. The holders of the notes will have the option to require BASi to repay up to 20% of the outstanding principal balance of the notes on each October 1 prior to maturity, commencing October 1, 2003. These notes are subordinated to senior bank debt (discussed below).

On June 20, 2002, BASi and PharmaKinetics Laboratories, Inc. (“PKLB”) entered into a merger agreement that will result in PKLB becoming a wholly-owned subsidiary of BASi. In connection with the merger, BASi will issue 6% Subordinated Convertible Notes in an aggregate principal amount of approximately $4.0 million to the holders of PKLB Class A Preferred shares. No principal payments will be due on these notes until 2008. No interest will be paid or accrued on the notes for one year after the date of issuance. The notes are convertible into BASi common shares at the option of the holder at any time after the first anniversary of the date of issuance at a price of $16.00 per share.

– 11 –

Between June and September 2002, BASi loaned PKLB a total of $408,000 for working capital purposes. On November 14, 2002, PKLB executed a Secured Convertible Revolving Note in the principal amount of up to $925,000 payable to BASi to replace the existing notes payable to BASi and to allow PKLB to borrow additional amounts to cover short-term operating requirements. The note issued to BASi carries an annual interest rate of 8%, and all principal and accrued interest is due and payable on May 1, 2003. The outstanding principal amount of the note to BASi is convertible by BASi at any time into PKLB common stock at a price of $0.1585 per common share, which price represents the average of the closing prices for PKLB’s common shares as reported by Nasdaq for the twenty (20) trading days ended November 8, 2002. All PKLB common shares held by BASi as of the effective time of the merger will be cancelled. The note to BASi is secured by a security interest in favor of BASi in all of the assets of PKLB pursuant to a Security Agreement between PKLB, as debtor, and BASi, as secured party. PKLB Limited Partnership, a subsidiary of PKLB, guaranteed repayment of the note to BASi, pursuant to the terms of an Unconditional Guaranty dated as of November 14, 2002, and pledged certain real property located in Baltimore, Maryland to BASi as security for its guaranty pursuant to the terms of an Indemnity Deed of Trust.

BASi’s credit agreement (discussed below) limits the amount that can be loaned to PKLB prior to the closing of the merger to the amount of the Secured Convertible Revolving Note. If the merger is consummated, BASi expects to expend additional amounts to pay trade payables and other obligations of PKLB and to fund PKLB’s continuing operations. BASi intends to fund these expenses using cash from operations and borrowings under the line of credit. BASi’s credit agreement also requires BASi to sell the Baltimore, Maryland real property within 180 days following its acquisition of PKLB. BASi intends to use the net proceeds from the sale to pay down the line of credit. BASi management believes that sale of the building will enable it to fund PKLB operations until such time as the cash flow generated from those operations becomes adequate to support the operations.

On October 29, 2002, BASi obtained new credit agreements with two different banks that completely refinanced and replaced all outstanding bank debt arrangements that were in place at September 30, 2002. These new credit agreements provide for a $6.0 million revolving line of credit with a bank and a mortgage note and two construction term loans payable with another bank aggregating $10.0 million. Borrowings under these new credit agreements are collateralized by substantially all assets related to BASi’s operations, all common stock of BASi’s United States subsidiaries and 65% of the common stock of its non-United States subsidiaries, and the assignment of a life insurance policy on BASi’s Chairman and CEO. Under the terms of these credit agreements, BASi has agreed to restrict advances to foreign subsidiaries, limit additional indebtedness and capital expenditures as well as to comply with certain financial covenants outlined in the borrowing agreements. These financial covenants include: maintenance of a certain ratio of interest bearing indebtedness (not including subordinated debt) to earnings before income taxes, depreciation, amortization, and interest expense (“EBITDA”); maintenance of a certain ratio of total indebtedness to tangible net worth and subordinated debt; maintenance of a certain ratio of EBITDA to certain identified fixed charges; maintenance of a certain ratio of current assets to current liabilities; limits on the amount of capital expenditures that can be made using funds other than long-term indebtedness in a single fiscal year; and maintenance of a certain ratio of net cash flow to debt servicing requirements. These new credit agreements contain cross-default provisions. Details of each debt issue are discussed below.

BASi’s revolving line of credit expires September 30, 2005. The maximum amount available under the terms of the agreement is $6.0 million with outstanding borrowings limited to the borrowing base as defined in the agreement. Interest accrues monthly on the outstanding balance at the bank’s prime rate to prime rate plus 125 basis points, or at the Eurodollar rate plus 200 to 350 basis points, as elected by BASi, depending upon the ratio of BASi’s interest bearing indebtedness (less subordinated debt) to EBITDA. BASi pays a fee equal to 225 to 50 basis points, depending upon the same financial ratios, on the unused portion of the line of credit.

BASi has a $5,410,000 commercial mortgage with a bank. The mortgage note requires 119 monthly principal payments of $22,542 plus interest, followed by a final payment for the unpaid principal amount of $2,727,502 due November 1, 2012. Interest is charged at the prime rate.

BASi has a $2,250,000 construction loan with a bank which expires November 1, 2012. The loan requires interest payments only until completion of the project in West Lafayette, Indiana. Interest is charged at the prime rate.

BASi has a $2,340,000 construction loan with a bank which expires May 1, 2008. The loan requires interest payments only until completion of the project in Evansville, Indiana. Interest is charged at the prime rate.

– 12 –

To obtain the foregoing new credit agreements, BASi entered into an agreement with Periculum Capital Company, LLC (“Periculum”). Under the terms of the agreement, BASi paid $300,000 in fees to Periculum upon closing of the refinancing.

BASi is required to make cash payments in the future on debt and lease obligations. The following table summarizes the BASi’s contractual term debt and lease obligations at December 31, 2002 (reflective of the refinancing of debt that occurred on October 29, 2002 and the issuance of notes payable to acquire LCR) and the effect such obligations are expected to have on its liquidity and cash flows in future periods (amounts in thousands).

                                       Payments due for fiscal years ending September 30:

                                   2003     2004-2005     2006-2007     After 2007       Total
                                   ----     ---------     ---------     ----------       -----
Mortgage note payable              $253      $  552          $552        $ 4,053        $ 5,410
Subordinated debt                   ---         ---           ---          2,375          2,375*
Capital lease obligations           302         127           ---            ---            429
Operating leases                    200         435           432             36          1,103
                                   ----      ------          ----        -------        -------
                                   $755      $1,114          $984        $ 6,464        $ 9,317

*    This amount reflects the subordinated notes issued to the shareholders of LCR in connection
     with the  acquisition of LCR by BASi in December 2002. The principal  amount of these notes
     will be reduced to reflect  certain changes in the net tangible asset value of LCR prior to
     the closing of the  acquisition.  The holders of these notes have the right to require BASi
     to prepay 20% of the principal amount of the notes each year prior to maturity.

BASi's borrowings under its revolving line of credit for working capital needs, borrowings to fund capital expenditures using construction loans and the 6% subordinated notes payable that may be issued in connection with the merger with PKLB will each affect BASi's liquidity and cash flows in future periods. These obligations are not reflected in the above schedule. The covenants in BASi's credit agreement requiring the maintenance of certain ratios of interest bearing indebtedness (not including subordinated debt) to EBITDA and net cash flow to debt servicing requirements may restrict the amount BASi can borrow to fund future operations, acquisitions and capital expenditures.

After September 30, 2002, BASi borrowed additional funds to continue construction on its West Lafayette expansion project. In order to better assure compliance with the covenants in the credit agreement, construction on this project has been delayed and management does not expect to make significant borrowings in connection with this project until cash flow improves. BASi has formulated and begun to implement a plan to reduce debt and improve its cash flow to better enable it to satisfy the credit agreement covenants in the future. The plan includes, but is not limited to, headcount reductions and other cost-saving measures at its West Lafayette and McMinville, Oregon facilities, the sale of real estate assets in West Lafayette, and the delay of construction of its West Lafayette expansion project. Further, BASi believes compliance with loan covenants will be achieved and will take necessary action, including deferral of the PKLB acquisition, if deemed necessary, to remain compliant.

BASi intends to issue additional subordinated debt of approximately $4.0 million in connection with the contemplated acquisition of PKLB. This indebtedness will not require any payments of principal or interest by BASi during the first year after it is issued, and will not affect BASi's compliance with the leverage covenant in its credit agreement. However, as discussed above, BASi will use cash from operations and amounts available under its credit agreement to pay trade payables and other obligations of PKLB and to fund PKLB's future operations. To offset these requirements, BASi intends to sell a building owned by PKLB and located in Baltimore, Maryland and to apply the net proceeds from the sale to reduce amounts outstanding under the credit agreement.

Based on its current business activities, BASi believes cash generated from its operations, amounts available under its existing bank line of credit and credit facility, and the proposed action plan will be sufficient to fund BASi's working capital and capital expenditure requirements for the foreseeable future and through September 30, 2004.

Inflation

BASi believes that inflation has not had a material adverse effect on its business, operations or financial condition.

New Accounting Pronouncements

Please refer to the Notes to Consolidated Financial Statements for a discussion of recently issued accounting standards.

[Page left blank intentionally]

– 13 –

CONSOLIDATED BALANCE SHEETS

                                                                             SEPTEMBER 30,
                                                             -----------------------------------------
                                                                  2002                         2001
                                                             -------------                ------------
ASSETS
Current assets:
  Cash and cash equivalents                                  $     825,964                $    373,738
  Accounts receivable
     Trade                                                       3,699,554                   3,634,143
     Grants                                                        115,592                     116,719
     Unbilled revenues and other                                   739,008                     514,997
  Inventories                                                    2,624,050                   2,391,081
  Deferred income taxes                                            455,033                     442,903
  Refundable income taxes                                           51,952                     325,001
  Prepaid expenses                                                 282,906                      71,062
                                                             -------------                ------------
Total current assets                                             8,794,059                   7,869,644
Property and equipment
  Land and improvements                                            495,624                     495,624
  Buildings and improvements                                    14,475,933                  13,507,731
  Machinery and equipment                                       13,363,055                  10,795,295
  Office furniture and fixtures                                  1,114,157                   1,092,452
  Construction in process                                        2,359,211                     112,790
                                                             -------------                ------------
                                                                31,807,980                  26,003,892
  Less accumulated depreciation and amortization                (8,983,937)                 (7,082,300)
                                                             -------------                ------------
                                                                22,824,043                  18,921,592
                                                             -------------                ------------
Goodwill, less accumulated amortization of
  and $280,871 in 2001  $360,167 in 2002                           883,628                     962,924
Other assets                                                       960,881                     222,494
                                                             -------------                ------------
Total assets                                                 $  33,462,611                $ 27,976,654
                                                             =============                ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                           $   2,459,325                $  2,618,788
  Income taxes payable                                              41,488                     176,000
  Accrued expenses                                                 752,934                     746,741
  Customer advances                                              1,285,311                   1,063,467
  Revolving line of credit                                       3,749,373                     235,687
  Current portion of capital lease obligations                   1,137,925                     261,123
  Current portion of long-term debt                                278,928                     233,328
                                                             -------------                ------------
Total current liabilities                                        9,705,284                   5,335,134
Capital lease obligations, less current portion                    123,371                     402,276
Long-term debt, less current portion                             3,123,756                   2,741,684
Deferred income taxes                                            1,611,836                   1,667,231
Shareholders' equity
  Preferred Shares
     Authorized shares- 1,000,000
     Issued and outstanding shares - none                              ---                         ---
  Common shares, no par value
     Authorized shares - 19,000,000
     Issued and outstanding shares -
        4,578,516 in 2002 and 4,569,416 in 2001                  1,014,206                   1,012,190
  Additional paid-in capital                                    10,520,839                  10,506,200
  Retained earnings                                              7,411,111                   6,344,666
  Accumulated other comprehensive loss                             (47,792)                    (32,727)
                                                             -------------                ------------
Total shareholders' equity                                      18,898,364                  17,830,329
                                                             -------------                ------------
Total liabilities and shareholders' equity                   $  33,462,611                $ 27,976,654
                                                             =============                ============

See accompanying notes.

– 14 –

CONSOLIDATED STATEMENTS OF OPERATIONS

                                                           YEAR ENDED SEPTEMBER 30,
                                                ------------------------------------------------
                                                    2002              2001              2000
                                                ------------      ------------      ------------
Service revenue                                 $ 16,139,602      $ 15,202,066      $ 10,999,609
Product revenue                                   10,373,444        10,072,582         8,223,692
                                                ------------      ------------      ------------
     Total revenue                                26,513,046        25,274,648        19,223,301
Cost of service revenue                           11,556,269         9,660,288         9,245,380
Cost of product revenue                            4,393,009         3,494,258         2,973,787
                                                ------------      ------------      ------------
     Total cost of revenue                        15,949,278        13,154,546        12,219,167
                                                ------------      ------------      ------------
Gross profit                                      10,563,768        12,120,102         7,004,134
Operating expenses:
  Selling                                          2,939,929         3,204,056         3,400,273
  Research and development                         1,521,001         1,611,045         1,805,933
  General and administrative                       4,476,105         3,814,601         2,990,234
                                                ------------      ------------      ------------
     Total operating expenses                      8,937,035         8,629,702         8,196,440
                                                ------------      ------------      ------------
Operating income (loss)                            1,626,733         3,490,400        (1,192,306)
Interest income                                        3,492             5,910            15,483
Interest expense                                    (205,002)         (417,211)         (553,715)
Other income (expense)                               135,099            46,479           (34,067)
Loss on sale of property and equipment               (12,883)          (18,671)          (48,708)
                                                ------------      ------------      ------------
Income (loss) before income taxes                  1,547,439         3,106,907        (1,813,313)
Income taxes (benefit)                               480,994         1,340,150          (431,303)
                                                ------------      ------------      ------------
Net income (loss)                               $  1,066,445      $  1,766,757      $ (1,382,010)
                                                ============      ============      ============
Net income (loss) per share:
  Basic                                         $       0.23      $       0.39      $      (0.30)
  Diluted                                       $       0.23      $       0.38      $      (0.30)
Weighted average common shares outstanding:
  Basic                                            4,575,995         4,564,620         4,550,336
  Diluted                                          4,625,381         4,600,498         4,550,336

See accompanying notes.

– 15 –

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                                                                           ACCUMULATED
                                                                                             OTHER
                                                              ADDITIONAL                  COMPREHENSIVE      TOTAL
                                      PREFERRED   COMMON       PAID-IN       RETAINED        INCOME       SHAREHOLDERS'
                                        SHARES    SHARES       CAPITAL       EARNINGS        (LOSS)          EQUITY
                                      --------- -----------   -----------   -----------   ------------    -------------

BALANCE AT SEPTEMBER 30, 1999           $---    $   999,992   $10,481,978   $ 5,959,919   $    (20,595)   $17,421,294
 Comprehensive income (loss)
  Net loss                               ---            ---           ---    (1,382,010)           ---     (1,382,010)
  Other comprehensive loss:
    Foreign currency translation
     adjustments                         ---            ---           ---           ---         (2,851)        (2,851)
                                                                                                          -----------
 Total comprehensive loss                                                                                  (1,384,861)
 Exercise of stock options               ---         10,698        14,527           ---            ---         25,225
                                      --------- -----------   -----------   -----------   ------------    -----------
    BALANCE AT SEPTEMBER 30, 2000        ---    $ 1,010,690    10,496,505     4,577,909        (23,446)    16,061,658
 Comprehensive income (loss)
  Net income                             ---            ---           ---     1,766,757            ---      1,766,757
  Other comprehensive loss:
    Foreign currency translation
     adjustments                         ---            ---           ---           ---         (9,281)        (9,281)
                                                                                                          -----------
 Total comprehensive income                                                                                 1,757,476
 Exercise of stock options               ---          1,500         9,695           ---            ---         11,195
                                      --------- -----------   -----------   -----------   ------------    -----------
    BALANCE AT SEPTEMBER 30, 2001        ---      1,012,190    10,506,200     6,344,666        (32,727)    17,830,329
 Comprehensive income (loss)
  Net income                             ---            ---           ---     1,066,445            ---      1,066,445
  Other comprehensive loss:
    Foreign currency translation
     Adjustments                         ---            ---           ---           ---        (15,065)       (15,065)
  Total comprehensive income                                                                                1,051,380
                                                                                                          -----------
 Exercise of stock options               ---          2,016        14,639           ---            ---         16,655
                                      --------- -----------   -----------   -----------   ------------    -----------
    BALANCE AT SEPTEMBER 30, 2002       $---    $ 1,014,206   $10,520,839   $ 7,411,111   $    (47,792)   $18,898,364

See accompanying notes.

– 16 –

CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                          YEAR ENDED SEPTEMBER 30,
                                                              -------------------------------------------------
                                                                   2002              2001              2000
                                                              -------------      ------------      -------------
OPERATING ACTIVITIES
Net income (loss)                                             $   1,066,445      $   1,766,757     $ (1,382,010)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
  Depreciation and amortization                                   2,042,004          1,761,709        1,636,413
  Loss on sale of property and equipment                             12,883             18,671           48,708
  Deferred income taxes                                             (67,525)           362,313         (237,330)
  Changes in operating assets and liabilities:
     Accounts receivable                                           (288,295)          (903,212)         534,160
     Inventories                                                   (232,969)          (156,437)        (440,878)
     Prepaid expenses and other assets                             (438,227)          (232,425)         108,828
     Accounts payable                                              (428,391)         1,220,462         (787,123)
     Income taxes payable                                           138,537            162,086         (313,347)
     Accrued expenses                                                 6,193            127,743         (337,834)
     Customer advances                                              221,844            (99,885)         631,253
                                                              -------------      -------------     ------------
Net cash provided (used) by operating activities                  2,032,499          4,027,782         (539,160)

Investing Activities
Capital expenditures                                             (4,684,278)        (1,673,411)      (1,572,627)
Proceeds from sale of property and equipment                         16,663             45,425           13,972
Loans to PharmaKinetics Laboratories, Inc.                         (407,858)               ---              ---
Payments for purchase of net assets from
  TPS., Inc. net of cash acquired                                       ---                ---         (446,469)
Deferred acquisition costs
  for PharmaKinetics Laboratories, Inc.                            (186,625)               ---              ---
                                                              -------------      -------------     ------------
Net cash used by investing activities                            (5,262,098)        (1,627,986)      (2,005,124)

Financing Activities
Borrowings on line of credit                                      4,635,321          1,003,428        2,784,572
Payments on line of credit                                       (1,121,635)        (3,035,022)        (781,199)
Payments on capital lease obligations                              (261,123)          (239,916)        (220,432)
Borrowings of long-term debt                                        680,000                ---              ---
Payments of long-term debt                                         (252,328)          (234,097)        (707,841)
Net proceeds from the exercise of stock options                      16,655             11,195           25,225
                                                              -------------      -------------     ------------
Net cash provided (used) by financing activities                  3,696,890         (2,494,412)       1,100,325
Effect of exchange rate changes                                     (15,065)            (9,281)          (2,815)
                                                              -------------      -------------     ------------
Net increase (decrease) in cash and cash equivalents                452,226           (103,897)      (1,446,774)
Cash and cash equivalents at beginning of year                      373,738            477,635        1,924,409
                                                              -------------      -------------     ------------
Cash and cash equivalents at end of year                      $     825,964      $     373,738     $    477,635
                                                              =============      =============     ============

See accompanying notes.

– 17 –

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.        Significant Accounting Policies

Nature of Business

Bioanalytical Systems, Inc. and its subsidiaries (“BASi”) engage in laboratory services, consulting and research related to analytical chemistry and chemical instrumentation. BASi also manufactures scientific instruments for use in the determination of trace amounts of organic compounds in biological, environmental and industrial materials. BASi also sells its equipment and software for use in industrial, government and academic laboratories. BASi’s customers are located throughout the world.

Principles of Consolidation

The consolidated financial statements include the accounts of BASi and its wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated.

Cash Equivalents

BASi considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

Financial Instruments

Financial instruments that subject BASi to credit risk consist principally of trade accounts receivable. BASi performs periodic credit evaluations of its customers’ financial conditions and generally does not require collateral on trade accounts receivable.

BASi’s cash and cash equivalents, accounts receivable, accounts payable and certain other accrued liabilities are all short-term in nature and their carrying amounts approximate fair value. BASi’s bank debt has primarily variable interest rates, thus their carrying amounts approximate fair value.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out (“LIFO”) method.

Long-Lived Assets, Including Goodwill

The carrying value of long-lived assets, including goodwill, is periodically reviewed by management in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” Under the provisions of the statement, BASi evaluates its long-lived assets in light of events and circumstances that may indicate that the remaining estimated useful life may warrant revision or that the remaining value may not be recoverable. When factors indicate that long-lived assets should be evaluated for possible impairment, BASi uses an estimate of the related cash flows over the remaining life of the asset in measuring whether that asset is recoverable. To the extent an impairment has occurred, the excess of the carrying value of the long-lived assets over their estimated fair value will be charged to operations. BASi evaluates long-lived assets and goodwill for impairment under this methodology. As of September 30, 2002, an impairment of the carrying value of long-lived assets, including goodwill, has not occurred.

Property And Equipment

Property and equipment are recorded at cost, including interest capitalized in connection with the construction of major facilities. Depreciation, including amortization on capital leases, is computed using the straight-line method over the estimated useful lives of 3 through 40 years. Expenditures for maintenance and repairs are charged to expense as incurred.

– 18 –

Revenue Recognition

The majority of BASi’s service contracts involve the processing of bioanalytical samples for pharmaceutical companies. These contracts generally provide for a fixed fee for each sample processed and revenue is recognized under the specific performance method of accounting. Under the specific performance method, revenue and related direct costs are recognized when services are performed. BASi’s other service contracts generally consist of pre-clinical trial studies for pharmaceutical companies. Service revenue is recognized based on the ratio of direct costs incurred to total estimated direct costs under the proportional performance method of accounting. Losses on contracts are provided in the period in which the loss becomes determinable. Revisions in profit estimates are reflected on a cumulative basis in the period in which such revisions become known.

Service contract fees received upon acceptance are deferred and classified within customer advances until earned. Unbilled revenues represent revenues earned under contracts in advance of billings.

BASi product revenue is derived primarily from sales of equipment utilized for analytical testing. Revenue from equipment not requiring installation, testing or training is recognized upon shipment to customers. One BASi product includes internally developed software and requires installation, testing and training, which occur concurrently. Revenue is recognized upon completion of the installation, testing and training.

Advertising Expense

BASi expenses advertising costs as incurred. Advertising expense was $266,225, $195,833 and $306,737 for 2002, 2001 and 2000, respectively.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets.” Under the new rules, goodwill and indefinite-lived intangible assets are no longer amortized, but are reviewed annually for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, BASi will apply the new accounting rules beginning October 1, 2002. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of $77,000 ($.02 per share) per year. BASi will perform the first of the required impairment tests of goodwill and indefinite-lived intangible assets as of October 1, 2002, and has not yet determined what the effect of these tests will be on the earnings and financial position of BASi.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supercedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” and also supercedes the accounting and reporting provisions of Accounting Principals Board (“APB”) Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for segments of a business to be disposed of. Among its many provisions, SFAS No. 144 retains the fundamental requirements of both previous standards; however, it resolves significant implementation issues related to FASB Statement No. 121 and broadens the separate presentation of discontinued operations in the income statement required by APB Opinion No. 30 to include a component of an entity (rather than a segment of a business). The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001, with early application encouraged. BASi does not believe, based on current circumstances, the effect of adoption of SFAS No. 144 will be material.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections." SFAS No. 145 rescinds both SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment to that Statement, SFAS No.64, "Extinguishments of Debt Made to Satisfy Sinking Fund Requirements." SFAS No. 4 required that all gains and losses from the extinguishment of debt be aggregated and, if material, be classified as an extraordinary item, net of the related income tax effect. Upon the adoption of SFAS No. 145, all gains and losses on the extinguishment of debt for periods presented in the financial statements will be classified as extraordinary items only if they meet the criteria in APB No. 30. The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 and SFAS No. 64 shall be applied for fiscal years beginning after May 15, 2002. BASi does not believe, based on current circumstances, the effect of adoption of SFAS No. 145 will be material.

– 19 –

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 nullifies Emerging Issues Task Force (“EITF”) Issue No, 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 generally requires companies to recognize costs associated with exit activities when they are incurred rather than at the date of a commitment to an exit or disposal plan and is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. BASi is currently evaluating the effects, if any, that this standard will have on its results of operations and financial position.

On December 31, 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS No. 148 amends SFAS No. No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, “Interim Financial Reporting,” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While SFAS No. 148 does not amend SFAS No. 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS No. 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS No. 123 or the intrinsic value method of APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 148’s amendment of the transition and annual disclosure requirements of SFAS No. 123 are effective for fiscal years ending after December 15, 2002. SFAS No. 148’s amendment of the disclosure requirements of APB Opinion No. 28 is effective for financial reports containing consolidated financial statements for interim periods beginning after December 15, 2002.

Use Of Estimates

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

Stock Options

In accordance with SFAS No. 123, “Accounting for Stock-Based Compensation,” BASi uses the intrinsic value method to account for stock options, consistent with the existing rules established by APB Option No. 25, “Accounting for Stock Issued to Employees.”

2.        Earnings per Share

Basic earnings per share is computed on the basis of the weighted average number of common shares outstanding. Diluted earnings per share is computed on the basis of the weighted average number of common and common equivalent shares outstanding. Common equivalent shares include the dilutive effect of employee and director options to purchase common shares and convertible preferred shares, which are assumed to be converted. The dilutive effect of employee and director options to purchase common shares was to increase the weighted average number of common shares outstanding by 49,386 and 35,878 shares in 2002 and 2001, respectively. There was no dilutive effect of employee and director options to purchase common shares for 2000.

3.        Commitments

On June 20, 2002, BASi and PharmaKinetics Laboratories, Inc., a Maryland corporation (“PKLB”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) which provides for, subject to the terms and conditions set forth therein, the merger of PKLB and Acquisition (the “Merger”). As of the effective date of the Merger, shares of PKLB common stock outstanding will be converted into shares of BASi common stock at a rate of one BASi share for each 12 PKLB shares; shares of PKLB Series A convertible preferred stock will be converted into 6% subordinated convertible promissory notes issued by BASi in an aggregate principal amount of $4,000,000; and shares of PKLB Series B convertible preferred stock will be converted into shares of BASi common stock at the same ratios as shares of PKLB common stock. The promissory notes issued in the merger mature on January 1, 2008, will not bear interest for the first year following the effective date of the merger, and will be convertible at the option of the holder into BASi common stock at a conversion price of $16.00 per share. The transaction is subject to approval by the BASi board of directors and customary closing conditions, including registration of the BASi securities to be issued in the merger and the approval of PKLB’s shareholders. The merger is currently expected to close prior to March 31, 2003. Holders of more than 85% of PKLB’s Class A convertible preferred stock have agreed to vote those shares in favor of the merger. During the year ended September 30, 2002, BASi made unsecured loans to PKLB aggregating $408,000. The terms of these loans were modified in November 2002 (see Note 11). The outstanding balances on these loans is included in other assets at September 30, 2002.

– 20 –

4.        Inventories

Inventories at September 30 consisted of the following:

                                                      2002            2001
                                                  ----------      ----------
                        Raw materials             $1,347,184      $1,322,182
                        Work in progress             338,996         302,706
                        Finished goods             1,090,914         876,646
                                                  ----------      ----------
                                                   2,777,094       2,501,534
                        LIFO reserve                (153,044)       (110,453)
                                                  ----------      ----------
                                                  $2,624,050      $2,391,081
                                                  ==========      ==========

5.        Debt Arrangements

                                                               2002              2001
                                                            ----------        ----------

     Long-term  debt consisted of the following at
     September 30:

     Mortgage  note  payable  to bank,  payable in
     monthly  principal  installments  of  $19,444
     plus  interest  at the  one-month  LIBOR rate
     plus 200 basis points (3.28% at September 30,
     2002).  Repaid  with  new  borrowings  from a
     different bank on October 29, 2002.                    $2,741,684        $2,975,012

     Mortgage  note  payable  to bank,  payable in
     monthly principal installments of $3,800 plus
     interest at the one-month LIBOR rate plus 200
     basis points  (3.28% at September  30, 2002).
     Repaid with new  borrowings  from a different
     bank on October 29, 2002.                                 661,000               ---
                                                            ----------        ----------
                                                             3,402,684         2,975,012
     Less current portion                                      278,928           233,328
                                                            ----------        ----------
                                                            $3,123,756        $2,741,684
                                                            ==========        ==========

BASi had a revolving line of credit that allowed for borrowings of up to $3,500,000. Interest accrued monthly on the outstanding balance at the bank’s prime rate minus 25 to plus 75 basis points or at the London Interbank Offered Rate (LIBOR) plus 200 to 300 basis points, as elected by BASi, depending upon certain financial ratios. As of September 30, 2002 and 2001, interest on the entire outstanding balance was based on the prime rate minus 25 basis points (4.50% and 5.25%, respectively). The balance outstanding on this line of credit at September 30, 2002 was $3,749,373, including $249,373 of cash overdrafts. This line of credit was repaid with new borrowings from a different bank on October 29, 2002.

Cash interest payments of $250,615, $329,544 and $498,513 were made in 2002, 2001 and 2000, respectively. Cash interest payments for 2002 included interest of $39,644, which was capitalized. These amounts included interest required to be paid on a portion of the undistributed earnings of a subsidiary, which qualifies as a domestic international sales corporation.

Subsequent Event-Debt Arrangements

On October 29, 2002, BASi obtained new credit agreements with two different banks that completely refinanced and replaced all outstanding bank debt arrangements that were in place at September 30, 2002. These new credit agreements provide for a $6 million revolving line of credit with a bank and a mortgage note payable and two construction term loans payable with another bank aggregating $10 million. Borrowings under these new credit agreements are collateralized by substantially all assets related to BASi’s operations and all common stock of BASi’s United States subsidiaries and 65% of the common stock of its non-United States subsidiaries, and the assignment of a life insurance policy on BASi’s Chairman and CEO. Under the terms of these credit agreements, BASi has agreed to restrict advances to subsidiaries, limit additional indebtedness and capital expenditures as well as to comply with certain financial covenants outlined in the borrowing agreements. These new credit agreements contain cross-default provisions. Details of each debt issue are discussed below.

– 21 –

On October 29, 2002 BASi obtained a revolving line of credit which expires September 30, 2005. The maximum amount available under the terms of the agreement is $6 million with outstanding borrowings limited to the borrowing base as defined in the agreement. Interest accrues monthly on the outstanding balance at the bank’s prime rate to prime rate plus 125 basis points or at the Eurodollar rate plus 200 to 350 basis points, as elected by BASi, depending upon certain financial ratios. BASi pays a fee equal to 0.25 to 0.5 basis points, depending on certain financial ratios, on the unused portion of the line of credit.

On October 29, 2002 BASi obtained a $5,410,000 commercial mortgage with a bank. The mortgage note requires 119 monthly principal payments of $22,542 plus interest, followed by a final payment for the unpaid principal amount of $2,727,502 due November 1, 2012. Interest is charged at the prime rate.

On October 29, 2002 BASi obtained a $2,250,000 construction loan with a bank which expires November 1, 2012. Proceeds from this loan will be used to fund the expansion of BASi’s facilities in West Lafayette, Indiana. The loan requires interest payments only until completion of the project in West Lafayette, Indiana. Interest is charged at the prime rate.

On October 29, 2002 BASi obtained a $2,340,000 construction loan with a bank which expires May 1, 2008. Proceeds from this loan will be used to fund the expansion of BASi’s facilities in Evansville, Indiana. The loan requires interest payments only until completion of the project in Evansville, Indiana. Interest is charged at the prime rate. To obtain the foregoing new credit agreements, BASi entered into an agreement with PericuIum Capital Company, LLC (“Periculum”). Under the terms of the agreement, BASi paid $300,000 in fees to Periculum upon closing of the refinancing.

6.        Lease Arrangements

BASi has capital lease arrangements to finance the acquisition of equipment. Future minimum lease payments, based upon scheduled payments under the lease arrangements as of September 30, 2002 are as follows:

             2003                                           1,161,235
             2004                                             126,932
                                                          -----------
             Total minimum lease payments                   1,288,167
             Amounts representing interest                    (26,870)
                                                          -----------
             Present value of minimum lease payments        1,261,297
             Less current portion                          (1,137,925)
                                                          -----------
                                                          $   123,372
                                                          ===========

The total amount of property and equipment capitalized under capital lease obligations as of September 30, 2002 and 2001 was $2,776,645 and $1,917,625, respectively, including $859,020 capitalized under a capital lease line (discussed below). Accumulated amortization on capital leases at September 30, 2002 and 2001 was $1,041,348 and $855,100, respectively.

BASi had a $1,500,000 lease line for equipment with a bank. On November 15, 2002 BASi sold the equipment to a bank and is leasing the equipment back under an operating lease (see Note 11).

BASi leases office space tinder a noncancelable operating lease that terminates in 2004. This lease contains renewal options ranging from one to five years. Total rental expense was $20,080, $22,903 and $32,499 in 2002, 2001 and 2000, respectively.

Future minimum lease payments at September 30, 2002 are as follows:

             2003              $ 19,890
             2004                 3,315
                               --------
                               $ 23,205
                               ========

– 22 –

7.        Income Taxes

Significant components of BASi's deferred tax liabilities and assets as of September 30 are as follows:

                                                          2002           2001
                                                          ----           ----
        Deferred tax liabilities:
           Tax over book depreciation                  $1,498,289     $1,383,003
           Deferred DISC income                           113,547        170,321
                                                       ----------     ----------
        Total deferred liabilities                      1,611,836      1,553,324
        Deferred tax assets:
           Inventory pricing                              129,745        123,008
           Accrued vacation                               169,985        155,935
           Tax credit carry forward                           ---         32,587
           Accrued expense and other--net                 155,303         17,466
           Foreign net operating loss                     289,861        484,314
                                                       ----------     ----------
        Total deferred tax assets                         744,894        813,310
        Valuation allowance for
           Deferred tax assets                           (289,861)      (484,314)
                                                       ----------     ----------
        Net deferred tax assets                           455,033        328,996
                                                       ----------     ----------
        Net deferred tax liabilities                   $1,156,803     $1,224,328
                                                       ==========     ==========

Significant components of the provision (benefit) for income taxes are as follows:

                                    2002            2001          2000
                                    ----            ----          ----
        Current:
            Federal               $223,761      $  680,469     $(245,378)
            State                  310,724         297,368        51,405
            Foreign                 14,034             ---           ---
                                  --------      ----------     ---------
        Total current              548,519         977,837      (193,973)
        Deferred:
            Federal                (60,603)        337,601      (230,925)
            State                   (6,922)         24,712        (6,405)
                                  --------      ----------     ---------
        Total deferred             (67,525)        362,313      (237,330)
                                  --------      ----------     ---------
                                  $480,994      $1,340,150     $(431,303)
                                  ========      ==========     =========
 

The effective income tax rate varied from the statutory federal income tax rate as follows:

                                                             2002           2001          2000
                                                             ----           ----          ----
        Statutory federal income tax rate                    34.0%          34.0%         34.0%
        Increases (decreases):
            Amortization of goodwill and
               other nondeductible expenses                   2.2            0.9          (0.6)
            Benefit of foreign sales corporation, net        (2.4)          (0.9)          1.5
            State income taxes, net of federal tax            9.3            5.8          (1.6)
        benefit
            Research and development credit                  (0.8)          (1.0)          ---
            Nondeductible (deductible) foreign losses       (12.5)           3.4         (11.5)
            Other                                             1.1            0.9           2.0
                                                            -----           ----          ----
                                                             30.9%          43.1%         23.8%
                                                            =====           ====          ====

In fiscal 2002, 2001 and 2000, BASi's foreign operations generated an income (loss) before income taxes of $621,699, $(359,297) and $(612,496), respectively.

Payments made in 2002, 2001 and 2000 for income taxes amounted to $270,300, $1,095,000 and $67,000, respectively.

BASi has foreign net operating loss carryforwards aggregating $906,000 that begin to expire in fiscal 2021.

– 23 –

8.        Stock Option Plans

During fiscal 1990, BASi established an Employee Incentive Stock Option Plan whereby options to purchase shares of BASi's common shares at fair market value can be granted to employees of BASi. Options granted become exercisable in four equal installments beginning two years after the date of the grant. The plan terminated in 2000.

BASi adopted new stock option plans, discussed below, in connection with its initial public offering and accordingly does not plan to grant any more options pursuant to the plans discussed above.

During fiscal 1998, BASi established an Employee Stock Option Plan whereby options to purchase shares of BASi's common shares at fair market value can be granted to employees of BASi. Options granted become exercisable in four equal installments beginning two years after the date of grant. The plan terminates in fiscal 2008.

During fiscal 1998, BASi established an Outside Director Stock Option Plan whereby options to purchase shares of BASi's common shares at fair market value can be granted to outside directors. Options granted become exercisable in four equal installments beginning two years after the date of grant. The plan terminates in fiscal 2008.

A summary of BASi's stock option activity and related information for the years ended September 30 is as follows:

                                     2002                    2001                      2000
                            --------------------      -------------------       -------------------
                                        Weighted                 Weighted                  Weighted
                                         Average                  Average                   Average
                                        Exercise                 Exercise                  Exercise
                             Options      Price       Options      Price        Options     Price
                            --------------------      -------------------       -------------------
Outstanding--
  beginning of year          124,964      $ 4.39      134,235      $ 4.27       206,299     $ 3.35
Exercised                     (9,100)       1.83       (6,771)       1.65       (48,296)      0.52
Granted                          ---         ---          ---         ---         5,000       2.88
Terminated                    (2,750)       4.93       (2,500)       5.00       (28,768)      3.75
                            --------                  -------                   -------
Outstanding--
  end of year                113,114      $ 4.59      124,964      $ 4.39       134,235     $ 4.27
                            ========                  =======                   =======



                                   Weighted                                    Weighted
                    Number          Average      Weighted       Number          Average
  Range of       Outstanding       Remaining      Average    Exercisable       Remaining
  Exercise       September 30,    Contractual    Exercise    September 30,    Contractual
   Prices            2002            Life          Price         2002            Life
- ------------     -------------    -----------    --------    -------------    -----------

$1.51 - 2.10        31,114            .50          $1.72        31,114           $1.72
$2.11 - 8.00        82,000           5.84          $5.68        51,250           $5.93
                   -------                                      ------
                   113,114                                      82,364
                   =======                                      ======

– 24 –

Disclosure of pro forma information regarding net income and earnings per share is required by SFAS No. 123 as if BASi has accounted for its employee stock options granted subsequent to December 31, 1994, under the fair value method as defined by that Statement. The fair value for options granted by BASi was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

     Risk-free interest rate                           5.50%
     Dividend yield                                    0.00%
     Volatility factor of the expected market
       Price of BASi's common stock                    0.53 (0.53 in 2001 and 2000)
     Expected life of the options (years)              7.0

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including expected stock price volatility. Because BASi’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the related vesting period. BASi’s pro forma information giving effect to the estimated compensation expense related to stock options is as follows:

                                                   2002          2001           2000
                                                ----------    ----------   -----------
    Pro forma net income (loss)                 $1,046,189    $1,746,501   $(1,415,284)
    Pro forma net income (loss) per share            $0.23          0.38        $(0.31)

The weighted average fair value of options granted was $1.64 in 2000. No options were granted in 2002 or 2001.

9.        Retirement Plan

Effective July 1, 1984, BASi established an Internal Revenue Code Section 401 (k) Retirement Plan (the "Plan") covering all employees over twenty-one years of age with at least one year of service. Under the terms of the Plan, BASi contributes 2% of each participant's total wages to the Plan. The Plan also includes provisions for various contributions which may be instituted at the discretion of the Board of Directors. The contribution made by the participant may not exceed 20% of the participant's annual wages. BASi made no discretionary contributions under the plan in 2002, 2001 and 2000. Contribution expense was $369,023, $324,674 and $256,107 in 2002, 2001 and 2000, respectively.

10.        Segment Information

BASi operates in two principal segments - analytical services and analytical products. BASi's analytical services unit provides analytical chemistry support on a contract basis directly to pharmaceutical companies. BASi's analytical products unit provides liquid chromatography, electrochemical and physiological monitoring products to pharmaceutical companies, universities, government research centers and medical research institutions. BASi evaluates performance and allocates resources based on these segments. The accounting policies of these segments are the same as those described in the summary of significant accounting policies.

– 25 –

                                                     Year Ended September 30,
                                         -----------------------------------------------
                                            2002                 2001               2000
                                         -----------------------------------------------
OPERATING SEGMENTS                                         (in thousands)
REVENUE
Service                                  $ 16,140             $ 15,202          $ 10,999
Product                                    10,373               10,073             8,224
                                         --------             --------          --------
                                         $ 26,513             $ 25,275          $ 19,223

OPERATING INCOME (LOSS)
Service                                  $  1,142             $  2,629          $   (409)
Product                                       485                  861              (783)
                                         --------             --------          --------
Total operating income (loss)               1,627                3,490            (1,192)
Corporate expenses                            (80)                (383)             (621)
                                         --------             --------          --------
Income (loss) before income taxes        $  1,547             $  3,107          $ (1,813)
                                         ========             ========          ========

IDENTIFIABLE ASSETS
Service                                  $ 22,255             $ 18,396          $ 17,772
Product                                    11,208                9,581             9,125
                                         --------             --------          --------
Total assets                             $ 33,463             $ 27,977          $ 26,897
                                         ========             ========          ========

                                                     Year Ended September 30,
                                         -----------------------------------------------
                                            2002                 2001               2000
                                         -----------------------------------------------
DEPRECIATION AND AMORTIZATION                              (in thousands)
Service                                  $  1,518             $  1,242          $  1,218
Product                                       524                  520               418
                                         --------             --------          --------
Total depreciation
  and amortization                       $  2,042             $  1,762          $  1,636
                                         ========             ========          ========

CAPITAL EXPENDITURES
Service                                  $  3,843             $  1,584          $  1,269
Product                                       841                   89               304
                                         --------             --------          --------
Total capital expenditures               $  4,684             $  1,673          $  1,573
                                         ========             ========          ========

                                                     Year Ended September 30,
                                         -----------------------------------------------
                                            2002                 2001               2000
                                         -----------------------------------------------
GEOGRAPHIC INFORMATION                                     (in thousands)
Sales to external customers:
North America                            $ 20,238             $ 20,536          $ 13,891
Pacific Rim:
     Japan                                    273                  242               580
     Other                                    640                  660               232
Europe                                      4,401                2,337             2,317
Other                                         961                1,500             2,203
                                         --------             --------          --------
                                         $ 26,513             $ 25,275          $ 19,223
                                         ========             ========          ========
Long-lived assets:
North America                            $ 22,700             $ 18,691          $ 18,467
Europe                                      1,969                1,416             1,575
                                         --------             --------          --------
                                         $ 24,669             $ 20,107          $ 20,042
                                         ========             ========          ========

– 26 –

Major Customers

During 2002, 2001 and 2000, a major United States-based pharmaceutical company accounted for approximately 19.0%, 18.9% and 21.0%, respectively, of BASi’s total revenues and 15.7% and 23.6% of total trade accounts receivable at September 30, 2002 and 2001, respectively.

During 2002, 2001 and 2000, another major United States-based pharmaceutical company accounted for approximately 9.3%, 11.7% and 12.2%, respectively, of BASi’s total revenues and 6.3% and 10.7% of total trade accounts receivable at September 30, 2002 and 2001, respectively.

11.        Subsequent Events—Unaudited

On November 15, 2002 BASi obtained a $1,500,000 lease line for equipment with a bank. At November 30, 2002, $1,090,000 was utilized, including $859,020 under a sale-leaseback arrangement (see Note 6). The lease requires 60 payments of $17,820.

Between June and September 2002, BASi loaned PKLB a total of $408,000 for working capital purposes (see Note 3). On November 14, 2002, PKLB executed a Secured Convertible Revolving Note in the principal amount of up to $925,000 payable to BASi to replace the existing notes payable to BASi and to allow PKLB to borrow additional amounts to cover short-term operating requirements. The note is secured by real estate, carries an annual interest rate of 8%, and all principal and accrued interest is due and payable on May 1, 2003. The outstanding principal amount of the note to BASi is convertible by BASi at any time into PKLB common stock at a price of $0.1585 per common share, which price represents the average of the closing prices for PKLB’s common shares as reported by Nasdaq for the twenty (20) trading days ended November 8, 2002.

On December 13, 2002 BASi acquired LC Resources, Inc., a privately-held company based in Walnut Creek, California. Under the agreement, BASi purchased all of the outstanding shares of LC Resources, Inc. (“LCR”) for $2.5 million, subject to adjustment for certain changes in net tangible assets of LCR. BASi paid cash of $125,000 at closing with the remainder of the purchase price to be paid through promissory notes bearing interest at 10% per annum, maturing on October 1, 2007. The notes are subordinate to BASi’s senior bank debt (see Note 5). The holders of the notes will have the option to require BASi to repay up to 20% of the outstanding principal balance of the notes on each October 1 prior to maturity, commencing October 1, 2003.

– 27 –

REPORT OF INDEPENDENT AUDITORS

Board Of Directors And Shareholders
Bioanalytical Systems, Inc.

We have audited the accompanying consolidated balance sheets of Bioanalytical Systems, Inc. as of September 30, 2002 and 2001, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended September 30, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bioanalytical Systems, Inc. at September 30, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2002 in conformity with accounting principles generally accepted in the United States.

Indianapolis, Indiana
November 1, 2002

– 28 –

Board Of Directors

Peter T. Kissinger, Ph.D.
Chairman, President and Chief Executive Officer

Ronald E. Shoup, Ph.D.
Chief Operating Officer, BASi Contract Research Services

Candice B. Kissinger
Senior Vice President, Marketing

William E. Baitinger
Special Assistant to the Vice President For Research,
Purdue University

John A. Kraeutler
President and Chief Operating Officer,
Meridian Bioscience, Inc.

W Leigh Thompson, Ph.D., M.D.
Chief Executive Officer
Profound Quality Resources, Inc.


Executive Management

Peter T Kissinger, Ph.D.
Chairman, President and Chief Executive Officer

Ronald E. Shoup, Ph.D.
Chief Operating Officer, BASi Contract Research Services

Douglas P Wieten
Chief Financial Officer and Treasurer
Vice President, Finance

Candice B. Kissinger
Senior Vice President, Marketing

Craig S. Bruntlett, Ph.D.
Senior Vice President, International Sales

Donnie A. Evans
Vice President, Engineering

Stephen Geary, Ph.D.
Vice President, U.S. Sales and Marketing

Lina L. Reeves-Kerner
Vice President, Human Resources

Michael P. Silvon, Ph.D.
Vice President, Planning; and Development

Michelle L. Troyer
Corporate Controller


Scientific Advisory Board

Daniel Armstrong, Ph.D.
R. Graham Cooks, Ph.D.
William R. Heineman, Ph.D.
Jean-Michel Kauffman, Ph.D.
Susan Lunte, Ph.D.
Mark Meyerhoff, Ph.D.
W. Leigh Thompson, Ph.D., M.D.
Patrick Murphy, Ph. D.

– 29 –

CORPORATE INFORMATION

Annual Meeting Of Shareholders

February 20, 2003
West Lafayette, Indiana


Auditors

Ernst & Young LLP
Indianapolis, Indiana


Transfer Agent

Corporate Trust Department
National City Bank
1900 East 9th Street
Cleveland, Ohio 44114


Common Shares

Bioanalytical Systems, Inc. common shares are traded on the Nasdaq National Market under the symbol BASI.

The following table sets forth by calendar quarter the high and low sales prices of the common shares on the Nasdaq National Market System. The approximate number of holders of common shares is 1,700.

      Fiscal         1st Quarter      2nd Quarter      3rd Quarter      4th Quarter
      ------         -----------      -----------      -----------      -----------

      2002
      High             9.400             7.710             6.970           4.850
      Low              5.170             6.500             5.100           3.000

      2001
      High             2.781             3.875             9.040          13.900
      Low              2.125             2.313             3.000           5.000

The Company has not paid any cash dividends on its common shares for the two most recent fiscal years. The Company has no intention to pay cash dividends in the foreseeable future.

Inquiries

A copy of the Company’s 2002 Form 10-K Annual Report filed with the Securities and Exchange Commission is available without charge upon written request, and by visiting www.bioanalytical.com/investlannual.html. Media inquiries and requests for the 10-K and investor’s kits should be directed to:

Corporate Communications Director
Bioanalytical Systems, Inc.
2701 Kent Avenue
West Lafayette, IN 47906 USA

Inquiries from shareholders, security analysts, portfolio managers, registered representatives and other interested parties should be directed to:

BASi Investor Relations
Nasdaq: BASI
765-463-4527
www.bioanalytical.com

– 30 –

EX-21

Exhibit 21.1 - Subsidiaries of the Registrant

                     Name Jurisdiction of Organization

Bioanalytical Systems, Ltd.	United Kingdom
BAS Instruments, Ltd.	United Kingdom
BAS Analytics, Ltd.	United Kingdom
BAS Evansville, Inc.	Evansville, IN USA
LC Resources, Inc. 1	McMinnville, OR

¹    LC Resources, Inc. was acquired by the Company on December 13, 2002.

EX-23.1

Exhibit 23.1 - Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-56123) pertaining to the Bioanalytical Systems, Inc. 1997 Employee Incentive Stock Option Plan and in the Registration Statement (Form S-8 No. 333-56127) pertaining to the 1997 Bioanalytical Systems, Inc. Outside Director Stock Option Plan of our report dated November 1, 2002, with respect to the consolidated financial statements of Bioanalytical Systems, Inc. incorporated by reference in its 2002 Annual Report (Form 10-K) for the year ended September 30, 2002 filed with the Securities and Exchange Commission.

	/s/  Ernst & Young LLP
Indianapolis, Indiana January 13, 2003

EX-99.1

Exhibit 99.1 — Risk Factors

Forward-Looking Statements

From time to time, the Company may make or publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, and similar matters. Such statements are necessarily estimates reflecting the Company’s best judgment based on current information. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Such statements are usually identified by the use of words or phases such as “believes,” “anticipates,” “expects,” “estimates,” “planned,” “outlook,” and “goal.” Because forward-looking statements involve risks and uncertainties, the Company’s actual results could differ materially. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements.

While it is impossible to identify all such factors, the risks and uncertainties that may affect the operations, performance and results of the Company’s business include the following:

1. The Company’s revenues are highly dependent on research and development expenditures and compliance testing expenditures by the pharmaceutical and biotechnology industries. Decreases in such expenditures, including those resulting from a general economic decline in these industries, would decrease the demand for the services and products provided by the Company and could have a material adverse effect on the Company.

2. The Company’s new product, Culex^® Automated Blood Sampler device, is a significant new product. Non-acceptance or major difficulties with the device could have a material adverse effect on the Company’s gross profit.

3. The Company has benefited from the growing tendency of companies to engage independent organizations to conduct development and testing projects. Any reduction in the outsourcing of research, development or testing activities, or any reduction in public funding of science and technology would decrease the demand for the services and products provided by the Company and could have a material adverse effect on the Company’s business, operations and financial condition.

4. During 2002, 2001 and 2000, Pfizer accounted for approximately 19.0%, 18.9% and 21.0%, respectively, of the Company’s total revenue and 15.7% and 23.6% of total trade accounts receivable at September 30, 2002 and 2001, respectively. During 2002, 2001 and 2000, Pharmacia accounted for approximately 9.3%, 11.7% and 12.2%, respectively, of the Company’s total revenues, and 6.3% and 10.7% of total trade accounts receivable at September 30, 2002 and 2001, respectively. During 2002, Pfizer and Pharmacia announced their intention to merge, but to date, this merger has not affected the Company’s relationship with these former customers who now are a single customer. There can be no assurance that the Company’s business will not continue to be dependent on continued relationships with the combined Pfizer/Pharmacia or other clients, or that annual results will not be dependent on the performance of a few large projects. In addition, there can be no assurance that significant clients in any one period will continue to be significant clients in other periods.

5. The Company’s business is labor intensive and involves delivery of highly specialized professional services. The Company’s future growth and success depends in large part upon its ability to attract, train, manage and retain highly skilled professional, scientific and technical operating staff. There is significant competition from the Company’s competitors as well as from the in-house research departments of pharmaceutical and biotechnology companies and other enterprises for employees with the skills required to perform the services offered by the Company. Although the Company has confidentiality agreements with its scientific and technical operating personnel, the Company does not have in place covenants not to compete that would directly preclude its employees from being employed by a competitor. There can be no assurance that the Company will be able to attract, train, manage and retain a sufficient number of highly skilled employees in the future or that it will continue to be successful in training, retaining and managing its current employees. The loss of a significant number of employees or the Company’s inability to hire sufficient numbers of qualified employees could have a material adverse effect on the Company’s ability to obtain and perform contracts to provide it services.

6. The Company relies to a significant extent on a number of key executives, including Peter T. Kissinger, Ph.D., its President and Chairman of the Board. The Company maintains key man life insurance on Dr. Kissinger in the amount of $1.0 million. The loss of the services of any of the Company's key executives could have a material adverse effect on the Company.

7. The Company’s business depends in part on government regulation of the drug development process by the United States and foreign governments. More stringent governmental regulation of the drug development process increases the need for the types of services and products provided or produced by the Company. Recently legislation has been proposed that would substantially modify the current requirements for FDA administration of the drug and device approval process. Under the proposed legislation, applications for approval of new drugs could be made to private accredited facilities in lieu of the FDA. As a result, the number of clinical trials of new drugs would be reduced and other rules administered by the FDA would be simplified. Any change in the scope of regulatory requirements or the introduction of simplified drug or device approval procedures could decrease the demand for the Company’s services and adversely affect the Company’s revenues.

8. The Company’s revenues are dependent, in part, upon continued compliance with governmental requirements applicable to facilities and techniques used in the manufacture of products for clinical use and the provision of services. The Company’s facilities are subject to scheduled periodic regulatory inspections to ensure compliance with FDA requirements. Failure on the part of the Company to comply with applicable requirements could result in the termination of ongoing research, the discontinuance of selected operations of the Company, the disqualification of data for submission to regulatory authorities and fines and penalties being assessed against the Company.

9. Risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any damages that result. Such damages could have a material adverse effect on the Company’s business and results of operations.

10. With respect to its products, the Company primarily competes with several large equipment manufacturers and, with respect to its services, the Company primarily competes against in-house research departments of pharmaceutical and biotechnology companies and other full-service CROs. Many of the Company’s competitors possess substantially greater capital, technical and other resources than the Company. The Company’s failure to compete effectively in any one or more of these areas could have a material adverse effect on the Company’s business, operations and financial condition.

11. Generally, the Company’s service contracts are terminable by the client upon written notice at any time. In fiscal year 2002 approximately 61% of revenues were from contract services. Most service contracts have cancellation charges. Those charges vary, depending on the type of service provided and the investment in materials and the facilities and people committed. Cancellation fees after contract signing but before study commencement can vary from $5,000 to $30,000, depending on the total contracted costs of the study and how much notice is given before the study is scheduled to begin. In virtually all recorded studies cancelled while in progress, the Company has recovered all prepaid costs, normally 25% to 50% of total project costs. Additional charges are often also applied. Contracts may be terminated for a variety of reasons, including the client’s decision to forego a particular study, failure of products to satisfy safety requirements, and/or unexpected or undesired product testing results. The loss of business from a significant client or the cancellation of a major contract or series of commitments could have a material adverse effect on the Company’s revenues.

12. The Company’s business is dependent, in part, on its ability to obtain patents in various jurisdictions on its current and future technologies and products, to defend its patents and protect its trade secrets and to operate without infringing on the proprietary rights of others. There can be no assurance that the Company’s patents will not be challenged by third parties or that, if challenged, those patents will be held valid. In addition, there can be no assurance that any technologies or products developed by the Company will not be challenged by third parties owning patent rights and, if challenged, will be held not to infringe on those patent rights. The expense involved in any patent litigation can be significant. The Company also relies on unpatented proprietary technology, and there can be no assurance that others will not independently develop or obtain similar products or technologies.

13. In certain circumstances the Company seeks to manage its liability risk through contractual provisions with clients requiring the Company to be indemnified by the client or covered by clients’ product liability insurance policies. Although most of the Company’s clients are large, well-capitalized companies, the financial performance of these indemnities is not secured. Therefore, the Company bears the risk that the indemnifying party may not have the financial ability to fulfill its indemnification obligations or the liability would exceed the amount of applicable insurance. Furthermore, the Company could be held liable for errors and omissions in connection with the services it performs. There can be no assurance that the Company’s insurance coverage will be adequate, or that insurance coverage will continue to be available on terms acceptable to the Company, or that the Company can obtain indemnification arrangements or otherwise be able to limit its liability risk.

14. The Company’s growth strategy includes making selective strategic acquisitions of assets or business entities engaged in similar or complementary lines of business, including the acquisition of certain assets of LC Resources, Inc. completed in December 2002. If the Company issues its common shares in these acquisitions, the voting power of existing shareholders of the company will be diluted. Moreover, depending on the level of earnings of the target company and the number of shares of the Company issued in the transactions, the Company’s earnings per share may also be diluted. The Company and other companies in the industry have encountered the following difficulties in implementing strategic acquisitions: (i) identification, negotiation, completion and integration of these acquisitions require significant commitments of capital and management time and attention; (ii) expected benefits from the acquisition may not be fully realized, or realized within the expected time frame, or at all, due to lower than expected revenues following the merger; (iii) there may be greater than expected costs or difficulties related to completing the acquisition and, following the acquisition, to the integration of the businesses. Failure to successfully implement or integrate one or more strategic acquisitions may have a material adverse effect on the business and financial condition of the Company.

15. The Company’s business may become subject to other risk factors which may be identified from time to time in the Company’s periodic SEC filings and other public announcements.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statement. The Company does not intend to update forward-looking statements.

EX-99.2

Exhibit 99.2

I, Peter T. Kissinger, the Chairman of the Board; President; and Chief Executive Officer of Bioanalytical Systems, Inc., certify that (i) the Annual Report on Form 10-K for the year ended September 30, 2002, (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Bioanalytical Systems, Inc. as of the dates and for the periods set forth therein.

/s/  Peter T. Kissinger Chairman of the Board;
President and
Chief Executive Officer
January 13, 2003

EX-99.3

Exhibit 99.3

I, Douglas P. Wieten, the Vice President, Finance; Chief Financial Officer and Treasurer of Bioanalytical Systems, Inc., certify that (i) the Annual Report on Form 10-K for the year ended September 30, 2002, (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Bioanalytical Systems, Inc. as of the dates and for the periods set forth therein.

/s/  Douglas P. Wieten Vice President, Finance;
Chief Financial Officer and Treasurer
January 13, 2003