10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2005

OR

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

For the transition period from                     to                    

Commission File Number 001-10109

BECKMAN COULTER, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-104-0600
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
4300 N. Harbor Boulevard,
Fullerton, California	92834-3100
(Address of principal executive offices)	(Zip Code)

(714) 871-4848

(Registrant’s telephone number, including area code)

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

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

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

The number of outstanding shares of the registrant’s common stock as of October 28, 2005 was 62,147,339 shares.

Part I. Financial Information

Item 1.Financial Statements

BECKMAN COULTER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
(unaudited)

	September 30, 2005				December 31, 2004
Assets
Current assets:
Cash and cash equivalents		$	59.3			$	67.9
Trade and other receivables, net		553.2				653.5
Inventories		507.3				463.2
Other current assets		96.4				95.0
Total current assets		1,216.2				1,279.6
Property, plant and equipment, net		488.8				443.8
Goodwill		460.2				392.1
Other intangibles, net		333.2				321.1
Other assets		340.3				358.4
Total assets		$	2,838.7			$	2,795.0
Liabilities and Stockholders’ Equity
Current liabilities:
Notes payable and current maturities of long-term debt		$	24.0			$	47.7
Accounts payable, accrued expenses and other liabilities		470.2				502.7
Income taxes payable		47.9				62.9
Total current liabilities		542.1				613.3
Long-term debt, less current maturities		648.7				611.7
Deferred income taxes		177.1				175.6
Other liabilities		291.8				300.1
Total liabilities		1,659.7				1,700.7
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.10 par value; authorized 10.0 shares; none issued		—				—
Common stock, $0.10 par value; authorized 150.0 shares; shares issued 67.2 and 66.8 at September 30, 2005 and December 31, 2004, respectively; shares outstanding 62.1 and 61.6 at September 30, 2005 and December 31, 2004, respectively		6.7				6.7
Additional paid-in capital		437.2				414.7
Retained earnings		924.0				820.8
Accumulated other comprehensive income (loss):
Cumulative foreign currency translation adjustment		47.8				81.0
Derivatives qualifying as hedges		(0.2		)		(9.4		)
Minimum pension liability adjustment		(3.2		)		(3.2		)
Treasury stock, at cost: 4.8 and 4.9 common shares at September 30, 2005 and December 31, 2004, respectively		(231.7		)		(214.4		)
Unearned compensation		(1.6		)		(1.9		)
Common stock held in grantor trust, at cost: 0.3 common shares at September 30, 2005 and December 31, 2004		(15.4		)		(15.4		)
Grantor trust liability		15.4				15.4
Total stockholders’ equity		1,179.0				1,094.3
Total liabilities and stockholders’ equity		$	2,838.7			$	2,795.0

See accompanying notes to condensed consolidated financial statements.

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BECKMAN COULTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except amounts per share and share data)
(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Sales	$	593.4		$	581.2		$	1,788.3		$	1,715.3
Cost of sales	317.6			301.7			956.3			896.3
Gross profit	275.8			279.5			832.0			819.0
Operating costs and expenses:
Selling, general and administrative	159.0			148.1			468.2			432.9
Research and development	51.6			51.5			149.7			146.2
Asset impairments	13.4			—			13.4			—
Restructuring charges	0.9			(0.3		)	0.9			(0.7		)
Total operating costs and expenses	224.9			199.3			632.2			578.4
Operating income	50.9			80.2			199.8			240.6
Non-operating (income) expenses:
Interest income	(5.0		)	(3.4		)	(13.4		)	(9.3		)
Interest expense	12.4			9.1			33.7			25.7
Other, net	(0.1		)	7.2			13.7			26.5
Total non-operating expenses	7.3			12.9			34.0			42.9
Earnings before income taxes	43.6			67.3			165.8			197.7
Income taxes	7.4			10.1			33.0			46.6
Net income	$	36.2		$	57.2		$	132.8		$	151.1
Basic earnings per share	$	0.58		$	0.93		$	2.13		$	2.45
Diluted earnings per share	$	0.56		$	0.87		$	2.05		$	2.30
Weighted average number of shares outstanding (in thousands):
Basic	62,361			61,392			62,216			61,711
Diluted	64,610			65,413			64,905			65,790
Dividends declared per share	$	0.14		$	0.13		$	0.42		$	0.35

See accompanying notes to condensed consolidated financial statements.

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BECKMAN COULTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)

	Nine Months Ended September 30,
	2005			2004
Net cash provided by operating activities	$	277.9		$	131.5
Cash Flows from Investing Activities:
Additions to property, plant and equipment	(155.7		)	(106.6		)
Acquisition of Agencourt Bioscience Corporation, net of cash acquired	(100.4		)	—
Payments for business acquisitions and technology licenses	(5.6		)	(8.3		)
Net cash used in investing activities	(261.7		)	(114.9		)
Cash Flows from Financing Activities:
Dividends to stockholders	(26.5		)	(22.6		)
Proceeds from issuance of stock	52.6			48.3
Repurchase of common stock as treasury stock	(64.0		)	(138.3		)
Repurchase of common stock held in grantor trust	—			(1.1		)
Notes payable borrowings, net	36.0			59.8
Long-term debt reductions	(19.2		)	(8.1		)
Debt acquisition costs	(0.7		)	—
Net cash used in financing activities	(21.8		)	(62.0		)
Effect of exchange rates on cash and cash equivalents	(3.0		)	2.1
Decrease in cash and cash equivalents	(8.6		)	(43.3		)
Cash and cash equivalents—beginning of period	67.9			74.6
Cash and cash equivalents—end of period	$	59.3		$	31.3

See accompanying notes to condensed consolidated financial statements.

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BECKMAN COULTER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.   Basis of Presentation and Accounting Policies

The management of Beckman Coulter, Inc. and its wholly-owned subsidiaries (the “Company”) prepared the accompanying Condensed Consolidated Financial Statements following the requirements of the Securities and Exchange Commission for interim reporting. As permitted under those rules, certain footnotes or other financial information normally required by accounting principles generally accepted in the United States have been condensed or omitted.

The financial statements include all normal and recurring adjustments that the management of the Company considers necessary for the fair presentation of its financial position and operating results. To obtain a more detailed understanding of the Company’s results, these Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and notes in the Company’s annual report on Form 10-K for the year ended December 31, 2004.

Revenues, expenses, assets and liabilities can vary between the quarters of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year.

Certain prior period amounts have been reclassified to conform to the current year presentation.

Principles of Consolidation

Prior to 2005, the Company subsidiaries outside of the United States (except Canada) had been included in the consolidated financial statements on the basis of fiscal years ending November 30 in order to facilitate timely consolidation. This one-month reporting lag was eliminated at the beginning of 2005 as it was no longer required in order to achieve a timely consolidation. Revenues for these entities were $43.2 million for the month of December 2004. The December 2004 net loss of $3.1 million for these entities, which was historically reported in the first quarter of the subsequent calendar year, was recorded as an adjustment to retained earnings on January 1, 2005.

Income Taxes

At the end of each interim reporting period an estimate is made of the effective tax rate expected to be applicable for the full year. The estimated effective tax rate is used to provide for income taxes on a year-to-date basis and the tax effect of any tax law changes or discrete events are reflected in the period in which they occur.

Stock Based Compensation

The Company accounts for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB No. 25”). Pursuant to APB No. 25, compensation related to stock options is the difference between the grant price and the fair market value of the underlying common shares at the grant date. Generally, the Company issues options to employees with a grant price equal to the market value of its common stock on the grant date. Accordingly, the Company has recognized no compensation expense on its stock option plans. The Company also does not recognize compensation expense on stock issued to employees under its stock purchase plan. Compensation expense resulting from grants of restricted stock is recognized during the period in which the service is performed by the employee. As reported in Note 2 “Recent Accounting Developments,” Statement of Financial Accounting Standards No. 123(R) “Share-Based Payment,” (“SFAS No. 123(R)”)

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requires companies to recognize in the statement of operations the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. This Statement is effective and will be adopted in the first quarter of 2006. The following table illustrates the effect on net income and earnings per share as if the fair value-based method provided by SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS No. 123”) had been applied for all outstanding and unvested awards each year (in millions, except amounts per share):

	Three Months Ended September 30,								Nine Months Ended September 30,
	2005				2004				2005				2004
Net income as reported		$	36.2			$	57.2			$	132.8			$	151.1
Stock-based employee compensation expense included in reported net income, net of tax		0.1				0.2				1.3				0.6
Pro forma compensation expense, net of tax		(1.8		)		(3.4		)		(20.6		)		(18.0		)
Pro forma net earnings		$	34.5			$	54.0			$	113.5			$	133.7
Earnings per share:
Basic—as reported		$	0.58			$	0.93			$	2.13			$	2.45
Basic—pro forma		$	0.55			$	0.88			$	1.82			$	2.17
Diluted—as reported		$	0.56			$	0.87			$	2.05			$	2.30
Diluted—pro forma		$	0.53			$	0.83			$	1.75			$	2.03

Included in reported net income for the nine months ended September 30, 2005 and above in “stock-based employee compensation expense included in reported net income, net of tax” is a $1.3 million pre-tax charge related to a modification of a previously granted restricted stock award for the Company’s former Chief Executive Officer (“CEO”) who retired in June 2005. Under the terms of this modification, 20,000 shares of restricted stock became immediately vested at June 30, 2005. These restricted stock awards would have vested through 2007 absent the modification.

2.   Recent Accounting Developments

Accounting Changes and Error Corrections

In May 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3,” (“SFAS No. 154”). This statement carries forward without change the guidance contained in APB Opinion No. 20 for reporting the correction of an error in previously issued financial statements and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 is not expected to have a significant impact on the Company’s results of operations or financial position.

Inventory Costs

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4,” (“SFAS No. 151”) to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) should be recognized as current period charges, and that fixed production overheads should be allocated to inventory based on normal capacity of production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 is not expected to have a significant impact on the Company’s results of operations or financial position.

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Share-Based Payment

In December 2004, the FASB issued SFAS No. 123(R). This Statement revises SFAS No. 123, and supersedes APB No. 25. SFAS No. 123(R) focuses primarily on the accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) requires companies to recognize in the statement of operations the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. This Statement is effective and will be adopted in the first quarter of 2006. See Note 1 “Basis of Presentation and Accounting Policies,” for the effect on net income and earnings per share as if the fair value-based method provided by SFAS No. 123 had been applied.

3.   Restructuring Activities and Asset Impairments

In July 2005, the Company announced a strategic reorganization of its business to combine its Biomedical Research Division and Diagnostic Division into a single company structure. As a result of these activities the Company expects to eliminate approximately a net 350 positions worldwide. The objective of the reorganization is to better enable the Company to leverage its personnel, technologies and products across the entire biomedical testing continuum. A charge of $0.9 million was taken for certain positions identified in September 2005, however the Company is in the process of evaluating these plans and expects to finalize them in the fourth quarter of 2005, at which time a charge of at least $30.0 million will be recorded for severance and related benefits. Additional charges may also be incurred in the fourth quarter of 2005 and into 2006 as other aspects of the reorganization are implemented.

As a result of the reorganization activities, the Company has decided to exit certain non-strategic products and products under development, as it was determined that it no longer had significant sales or cash flow expectations for these products. Accordingly, in September 2005, the Company recorded a $13.4 million charge to write-off patents and other related assets. The patent amounts were written down to their estimated fair values as determined by their discounted cash flows. This charge is primarily related to the decision to exit the Bovine Spongiform Encephalopathy (mad cow disease) project and a decision to discontinue certain products acquired in the 1997 acquisition of Saigan, Inc.

4.   Derivatives

The Company uses derivative financial instruments to hedge foreign currency and interest rate exposures. The Company’s objectives for holding derivatives are to minimize currency and interest rate risks using effective methods to eliminate or reduce the impacts of these exposures. The Company does not speculate in derivative instruments in order to profit from foreign currency exchange or interest rate fluctuations; nor does the Company enter into trades for which there are no underlying exposures. The following discusses in more detail the Company’s foreign currency and interest rate exposures and related derivative instruments.

Foreign Currency

The Company manufactures its products principally in the United States, but generated approximately 45% of its revenues in 2004 from sales made outside the United States by its international subsidiaries. Sales generated by the international subsidiaries generally are denominated in the subsidiary’s local currency, thereby exposing the Company to the risk of foreign currency fluctuations. In order to mitigate the impact of changes in foreign currency exchange rates, the Company uses derivative financial instruments (or “foreign currency contracts”) to hedge a significant portion of the foreign currency exposure resulting from intercompany sales to the Company’s international subsidiaries through their anticipated cash settlement date. These foreign currency contracts include forward and option contracts and are designated as cash flow hedges.

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The Company uses foreign currency swap contracts to hedge loans between subsidiaries. These foreign currency swap contracts are designated as fair value hedges.

Hedge ineffectiveness associated with the Company’s cash flow hedges was immaterial and no cash flow or fair value hedges were discontinued in the three and nine months ended September 30, 2005 and 2004.

Derivative gains and losses included in accumulated other comprehensive income are reclassified into other non-operating (income) expense upon the recognition of the hedged transaction. The Company estimates that $0.2 million of the unrealized loss ($0.1 million after tax) included in other comprehensive income at September 30, 2005 will be reclassified to other non-operating (income)expense within the next twelve months. The actual amounts that will be reclassified to earnings over the next twelve months will vary from this amount as a result of changes in market rates.

Interest Rate

The Company uses interest rate derivative contracts on certain borrowing transactions to hedge its exposure to fluctuating interest rates. Interest differentials paid or received under these contracts are recognized as adjustments to the effective yield of the underlying financial instruments hedged.

Pursuant to a reverse interest rate swap agreement associated with the Company’s $235.0 million Senior Notes due 2011, the Company receives an average fixed interest rate of 5.7% and pays a floating interest rate based on the LIBOR (3.8 % as set on August 15, 2005). These reverse interest rate swaps are designated as fair value hedges and are deemed perfectly effective. At September 30, 2005, the fair value of the reverse interest rate swaps, with a notional amount of $140.0 million, was $7.6 million and is included in other long-term assets. An offsetting $7.6 million credit is included in long-term debt as a fair value adjustment.

In March 1998, the Company entered into reverse interest rate swap contracts totaling $240.0 million associated with the issuance of the $240.0 million Senior Notes due 2008. In April 2002, the Company terminated these reverse interest rate swap contracts, resulting in a deferred gain of $10.4 million that is being amortized over the remaining term of the Senior Notes through March 2008.

In April 2002, the Company entered into reverse interest rate swap contracts totaling $235.0 million associated with the issuance of the $235.0 million Senior Notes due 2011. In September 2004, the Company terminated $95.0 million of these reverse interest rate swap contracts, resulting in a deferred gain of $9.5 million. This amount is being amortized over the remaining term of the Senior Notes through November 2011.

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5.   Comprehensive Income

The reconciliation of net income to comprehensive income is as follows (in millions):

	Three Months Ended September 30,								Nine Months Ended September 30,
	2005				2004				2005				2004
Net income		$	36.2			$	57.2			$	132.8			$	151.1
Foreign currency translation adjustment		(1.3		)		(2.1		)		(33.2		)		10.2
Derivatives qualifying as hedges:
Net derivative gains (losses), net of income taxes of $0.4 and $4.5 for the three and nine months ended September 30, 2005, respectively, and $0.8 and $0.2 for the three and nine months ended September 30, 2004, respectively		0.6				(1.1		)		6.7				(0.3		)
Reclassifications to non-operating income, net of income taxes of $0.1 and $1.6 for the three and nine months ended September 30, 2005, respectively, and $3.2 and $11.4 for the three and nine months ended September 30, 2004, respectively.		0.1				4.8				2.5				17.1
		0.7				3.7				9.2				16.8
Comprehensive income		$	35.6			$	58.8			$	108.8			$	178.1

6.Earnings Per Share

The following is a reconciliation of the numerators and denominators used in computing basic and diluted earnings per share (“EPS”) (in millions, except amounts per share):

	Three Months Ended September 30,
	2005								2004
	Net Income			Shares	Per Share Amount				Net Income			Shares	Per Share Amount
Basic EPS:
Net income		$	36.2	62.361		$	0.58			$	57.2	61.392		$	0.93
Effect of dilutive stock options		—		2.249		(0.02		)		—		4.021		(0.06		)
Diluted EPS:
Net income		$	36.2	64.610		$	0.56			$	57.2	65.413		$	0.87

	Nine Months Ended September 30,
	2005							2004
	Net Income		Shares	Per Share Amount				Net Income		Shares	Per Share Amount
Basic EPS:
Net income	$	132.8	62.216		$	2.13		$	151.1	61.711		$	2.45
Effect of dilutive stock options	—		2.689		(0.08		)	—		4.079		(0.15		)
Diluted EPS:
Net income	$	132.8	64.905		$	2.05		$	151.1	65.790		$	2.30

For the three and nine months ended September 30, 2005, there were 1.7 and 1.6 million shares, respectively, relating to the possible exercise of outstanding stock options excluded from the computation of diluted EPS as their effect would have been antidilutive. There were no antidilutive shares excluded from the computation of diluted EPS for 2004.

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7.Sale of Assets

During the nine months ended September 30, 2005 and 2004, the Company sold certain receivables (“Receivables”). The net book value of these financial assets sold during the nine months ended September 30, 2005 and 2004 was $100.6 million and $59.0 million, respectively, for which the Company received approximately $102.7 million and $58.8 million, respectively, in cash proceeds. In 2005, approximately $41.6 million of these sales took place in the U.S. with the balance in Japan. In 2004, the majority of these sales took place in Japan with a minor amount in the US. These transactions were accounted for as sales and as a result the related Receivables have been excluded from the accompanying condensed consolidated balance sheets.

The agreements underlying the Receivables sales in the United States contain provisions that indicate the Company is responsible for up to 15% of end-user customer payment defaults on sold Receivables. Accordingly, the Company accrued a reserve for the probable and reasonably estimable portion of these liabilities. Additionally, in the U.S. the Company services the sold Receivables whereby it continues collecting payments from the end user customer on behalf of the purchaser of the Receivables. The Company estimates the fair value of this service arrangement as a percentage of the sold Receivables and amortizes this amount to income over the estimated life of the service period. At September 30, 2005 and December 31, 2004, there was $1.1 million and $1.0 million, respectively of deferred service fees included in accrued expenses on the condensed consolidated balance sheets. For the three months ended September 30, 2005 and 2004, there was $0.2 million and $0.1 million, respectively of deferred service fees amortized to income. For the nine months ended September 30, 2005 and 2004, there was $0.3 million and $0.4 million, respectively of deferred service fees amortized to income.

8.Composition of Certain Financial Statement Items

Inventories consisted of the following (in millions):

	September 30, 2005			December 31, 2004
Finished products		$	344.2		$	315.9
Raw materials, parts and assemblies		136.7			123.6
Work in process		26.4			23.7
		$	507.3		$	463.2

Changes in the product warranty obligation were as follows (in millions):

	Three Months Ended				Nine Months Ended
	September 30, 2005				September 30, 2005
Beginning Balance		$	13.8			$	15.5
New warranties expense		16.4				46.8
Payments		(17.4		)		(49.5		)
Ending Balance		$	12.8			$	12.8

The Company records a liability for product warranty obligations at the time of sale based upon historical warranty experience. The term of the warranty is generally twelve months. The Company also records an additional liability for specific warranty matters when they become known and are reasonably estimable. The Company’s product warranty obligations are included in accrued expenses.

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9.Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the nine months ended September 30, 2005 were as follows (in millions):

	Total
Goodwill, December 31, 2004	$	392.1
Settlements of Coulter pre-acquisition tax contingencies	(10.0		)
Acquisitions	78.8
Currency translation adjustment	(0.7		)
Goodwill, September 30, 2005	$	460.2

Other intangible assets consisted of the following (in millions):

	September 30, 2005									December 31, 2004
	Gross Carrying Amount			Accumulated Amortization				Net		Gross Carrying Amount			Accumulated Amortization				Net
Amortized intangible assets:
Technology		$	65.2		$	(15.4	)	$	49.8		$	59.2		$	(22.6	)	$	36.6
Customer contracts		172.1			(52.4		)	119.7			167.1			(47.2		)	119.9
Other		45.0			(21.4		)	23.6			43.6			(19.1		)	24.5
		282.3			(89.2		)	193.1			269.9			(88.9		)	181.0
Unamortized intangible assets:
Tradename		73.5			—			73.5			73.5			—			73.5
Core technology		66.6			—			66.6			66.6			—			66.6
		$	422.4		$	(89.2	)	$	333.2		$	410.0		$	(88.9	)	$	321.1

Recorded intangible asset amortization expense for the three months ended September 30, 2005 and 2004 was $4.7 million and $3.6 million, respectively. For the nine months ended September 30, 2005 and 2004 recorded intangible amortization expense was $12.1 million and $10.2 million, respectively. Estimated intangible asset amortization expense (based on existing intangible assets) for the years ended December 31, 2005, 2006, 2007, 2008 and 2009 is $16.7 million, $16.6 million, $15.6 million, $15.0 million and $14.2 million, respectively.

10.Acquisition of Agencourt Bioscience Corporation

On May 31, 2005, pursuant to a stock purchase agreement, the Company completed the acquisition of all of the stock of Agencourt Bioscience Corporation (“Agencourt”), a leading provider of genomic services and nucleic acid purification products in the biomedical research market. The primary reason for the acquisition was to acquire Agencourt’s patented Solid Phase Reversible Immobilization (SPRI^®) technology which provides state-of-the-art results for the isolation and purification of RNA and DNA which the Company plans to use for automated sample preparation systems for biomedical research and molecular testing.

The purchase price was approximately $100.4 million, net of cash acquired, and was financed by our operating cash flows and borrowings under our credit facility. The terms of the agreement provide for additional contingent payments of up to $40.0 million through 2007 which are based on operating results and product development activities. As these payments occur, they will be accounted for as additional purchase price. In September 2005, $2.0 million of additional purchase price was accrued as the result of the delivery of the first product.

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Approximately $12.5 million of the purchase price was initially placed in an escrow account and was recorded in other assets on the Company’s condensed consolidated balance sheet. As stipulated in the purchase agreement, an additional $0.5 million of additional consideration was paid to the former shareholders of Agencourt and approximately $5.5 million of the escrow account was released in September 2005 as a result of the delivery of the final closing balance sheet of Agencourt. Payment of the remaining escrow account, approximately $7.0 million, is subject to certain indemnification obligations of Agencourt. The release of this escrow account, which could result in further adjustments to purchase price, will take place beginning in October 2006 through May 2008.

The results of operations of Agencourt have been included in the accompanying condensed consolidated financial statements from the date of the acquisition. Pro-forma results have not been presented as the results of Agencourt are not material in relation to the condensed consolidated financial statements of the Company.

11.   Retirement Benefits

The Company provides pension benefits covering the majority of its employees. Pension benefits for Beckman Coulter’s domestic employees are based on age, years of service and compensation rates. The Company’s funding policy is to provide currently for accumulated benefits, subject to federal regulations.

Certain of the Company’s international subsidiaries have separate pension plan arrangements, which include both funded and unfunded plans. Unfunded foreign pension obligations are recorded as a liability on the Company’s condensed consolidated balance sheets.

The Company’s Postretirement Plan provides certain healthcare and life insurance benefits for retired United States employees and their dependents. Eligibility under the Postretirement Plan and participant cost sharing is dependent upon the participant’s age at retirement, years of service and retirement date.

The following table lists the components of the net periodic benefit cost (in millions):

	Pension Plans
	Three Months Ended September 30,								Nine Months Ended September 30,
	2005				2004				2005				2004
Service cost		$	7.1			$	5.8			$	21.2			$	17.1
Interest cost		11.5				10.6				34.6				32.1
Expected return on plan assets		(15.6		)		(15.1		)		(46.8		)		(42.0		)
Amortization of prior service costs		0.4				0.6				1.3				1.9
Amortization of actuarial loss		3.1				2.0				9.3				5.4
Curtailment loss		—				—				4.0				—
Net periodic benefit cost		$	6.5			$	3.9			$	23.6			$	14.5

	Postretirement Plans
	Three Months Ended September 30,								Nine Months Ended September 30,
	2005				2004				2005				2004
Service cost		$	0.4			$	0.5			$	1.2			$	1.9
Interest cost		1.1				1.3				3.3				4.9
Amortization of prior service costs		(1.2		)		(1.2		)		(3.6		)		(3.6		)
Amortization of actuarial (gain) loss		(0.3		)		—				(0.9		)		0.8
Net periodic benefit cost		$	—			$	0.6			$	—			$	4.0

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In June 2005, in connection with the retirement of the Company’s former CEO, the Company recorded a $4.0 million curtailment charge related to his cash settlement election of an earned supplemental pension obligation.

12.   Commitments and Contingencies

The Company is involved in a number of lawsuits, which the Company considers ordinary and routine in view of its size and the nature of its business. The Company does not believe that any ultimate liability resulting from any of these lawsuits will have a material adverse effect on its results of operations, financial position or liquidity. However, the Company cannot give any assurances regarding the ultimate outcome of these lawsuits and their resolution could be material to the Company’s operating results for any particular period, depending upon the level of income for the period.

Cardbeck Miami Trust—In 1998, the Company entered into a sale-leaseback transaction with Cardbeck Miami Trust (“Cardbeck”) in connection with its Miami facility. In April 2005, Cardbeck notified the Company that it received an assessment from the State of Florida in the amount of $4.4 million for sales tax, interest and penalties related to payments made by the Company to Cardbeck from June, 2000 to February, 2005. The State of Florida has asserted that this transaction is subject to sales tax in accordance with applicable state laws and requested Cardbeck to pay this assessment. As part of its agreement with Cardbeck, the Company agreed to pay any non-income taxes incurred in connection with the transaction. The Company believes that, under Florida state law, this transaction is a financing transaction and is therefore not subject to sales tax under Florida’s Rental of Real Property law. The Company intends to vigorously defend this position which is based on relevant prior case law in the State of Florida and believes that this dispute will be ultimately adjudicated in favor of the Company. Accordingly, at September 30, 2005, no accrual has been made for this assessment.

Applera Corporation—In July 2002, Beckman Coulter filed a patent infringement action against Applera Corporation (“Applera”) in the U.S. District Court for the Central District of California. The complaint alleges that certain of the DNA sequencing instruments and thermal cyclers used for polymerase chain reaction (“PCR”) sold by Applera’s Applied Biosystems division infringe Beckman Coulter U.S. patents. The Company is seeking monetary damages and injunctive relief. Applera has responded to Beckman Coulter’s complaint by seeking a determination that the Beckman Coulter patents are invalid, unenforceable, and not infringed. Trial of the case is expected to begin February 27, 2006.

Hurricane Katrina—Beginning August 29, 2005, Hurricane Katrina severely impacted certain of the Company’s customers and leased equipment located in the gulf coast region. The Company continues to assess the estimate from the effects of Hurricane Katrina and has recorded a $4.9 million charge primarily to reserve for impaired receivables and write off damaged leased equipment. The Company does not expect significant insurance recoveries on these assets.

Other—In addition to the sales of certain receivables discussed in Note 7 “Sale of Assets,” the Company sells its instruments to a third-party financing company who then leases the instruments to an end user. Sales of instruments under this arrangement were $12.9 million and $27.5 million during the quarters ended September 30, 2005 and 2004, respectively and $46.4 million and $71.3 million during the nine months ended September 30, 2005 and 2004, respectively. The agreement underlying these sales indicates that the Company is responsible for up to 10% of end user customer defaults. Accordingly, the Company has accrued a reserve for the probable and reasonably estimable portion of these liabilities.

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13.   Business Segment Information

The Company is engaged primarily in the design, manufacture and sale of laboratory instrument systems and related products. Prior to the quarter ended September 30, 2005, the Company had two reportable segments: (1) Clinical Diagnostics, and (2) Biomedical Research. In the July 2005, the Company announced a reorganization whereby it will integrate the Clinical Diagnostics and Biomedical Research Divisions into a single company structure. The new structure creates four business centers focused on driving core product strategies. These business centers will be Chemistry Systems, Cellular Systems, Immunoassay Systems, and Discovery and Automation Systems. As a result of this activity, the Company has consolidated the two segments into one reportable operating segment. The Company’s CEO, who is also the Company’s chief operating decision maker, evaluates the Company’s various global product portfolios on a revenue basis, and profitability is evaluated on an enterprise-wide basis due to shared infrastructures.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005		2004
	(unaudited)						(unaudited)
Net sales (in millions):
Chemistry Systems		$	172.9		$	173.6	$	516.4	$	512.1
Cellular Systems		193.0			189.8		596.1		565.9
Immunoassay Systems		97.4			96.8		301.6		267.0
Discovery & Automation Systems		130.1			121.0		374.2		370.3
		$	593.4		$	581.2	$	1,788.3	$	1,715.3
Sales by geographic areas (in millions):
United States		$	323.0		$	322.4	$	936.5	$	955.5
International		270.4			258.8		851.8		759.8
		$	593.4		$	581.2	$	1,788.3	$	1,715.3

	September 30, 2005			December 31, 2004
Long-lived assets (in millions):
United States		$	1,365.6		$	1,271.4
International		256.9			244.0
		$	1,622.5		$	1,515.4

14.   Subsequent Events

On October 11, 2005, the Company acquired all of the stock of Diagnostic Systems Laboratories Corporation (“DSL’’) of Webster, Texas, for $138.0 million in cash. DSL is a leading provider of specialty immunoassays including proprietary technology for reproductive endocrinology and cardiovascular risk assessment. The Company plans to use the acquired technologies to enhance current immunoassay product offerings in reproductive endocrinology and cardiovascular diagnostics. The Company also plans to commercialize several of DSL’s manual tests on its automated platforms.

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

Overview

Beckman Coulter simplifies and automates laboratory processes used in all phases of the battle against disease. We design, manufacture and market systems that consist of instruments, chemistries, software and supplies that meet a variety of biomedical laboratory needs. Our products are used in a range of applications, from lab solutions used for pioneering medical research, clinical research and drug discovery to diagnostic systems found in hospitals and physicians’ offices to aid in patient care. We compete in a market segment that we estimate totaled approximately $40 billion in annual sales worldwide in 2004. We currently have products that address approximately half of that market.

Our product lines include virtually all blood tests routinely performed in hospital laboratories and a range of systems for medical and pharmaceutical research. We have more than 200,000 systems operating in laboratories around the world. The majority of our instruments are leased to customers under either operating-type lease (“OTL”) or sales-type lease (“STL”) arrangements while our products in the Discovery and Automation Systems product area are generally cash sales. In the second quarter of 2005, we reviewed our leasing policies and decided to emphasize lease contracts with terms that are expected to result in more operating-type leases. This shift, which is expected to impact the U.S most significantly, was begun in the third quarter of 2005. However, we were not able to fully implement this policy change to OTL arrangements due to a large number of customer orders containing STL terms that were already in progress at the beginning of the quarter. As a result, we had more STL contracts and higher related hardware revenues in the third quarter of 2005 than had previously been expected. Beginning in the fourth quarter of 2005, we expect the majority of our leases in the U.S. to be operating type leases.

Approximately 64% of our 2004 revenues came from after-market customer purchases of operating supplies, chemistry kits and service. We market our products in more than 130 countries, with approximately 45% of revenues in 2004 coming from sales outside the United States. Our strategy is to expand our market share as a leading provider of laboratory systems by the continued rollout of new products, enhancements of our current product offerings, and entries into new and growing market segments.

Our product areas serving the clinical diagnostics markets (Chemistry Systems, Immunoassay Systems, the majority of products within Cellular Systems and some of the products within Discovery and Automation Systems) have been experiencing modest growth as test volumes continue to increase as a result of factors such as an aging population, increasing expenditures on chronic diseases and other conditions requiring ongoing treatment (for example, diabetes, AIDS and cancer) and greater acceptance of Western medicine in emerging countries. Our customers are faced with increasing volumes of testing and a shrinking skilled labor pool while under constant pressure to contain costs. Consequently, it has become essential for manufacturers to provide cost-effective systems to remain competitive. A large number of the products in the Discovery and Automation Systems product area are dependent on academic research funding and capital spending in the biotechnology, pharmaceutical and clinical research markets. We are seeing an increase in pharmaceutical and biotechnology research and development investment along with a growing need to simplify and automate testing in the research markets. These trends are driving growth in certain areas of this market where we are focused on becoming a provider of solutions for our various customers.

Products such as the UniCel^® DxI 800 Access^® immunoassay systems, the recently introduced UniCel^® DxC 600 and 800 SYNCHRON^® clinical systems and the Power Processor front-end automation system provide our customers with a means to increase efficiency through automation and workstation consolidation. We believe these industry leading, high-throughput platforms have positioned us to gain market share in the coming years. To further the potential of these systems we are developing new assays internally, collaborating with external parties and pursuing business and technology acquisitions. In

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hematology, we continue to automate more of the testing process with recently introduced platforms to serve both high-volume hospital labs and small- to mid-sized labs.

To serve customers researching proteins and their roles in the health of the human body, we have a number of products useful in many phases of proteomic research including our ProteomeLab^™ PF 2D fractionation system, which simplifies and automates this type of research. We are also entering growing segments within the robotic automation market such as forensics, biological agent testing and molecular pathology. Our Cytomics FC 500 series of flow cytometers, which provide powerful cell analysis technology for disease and drug research, continue to be well accepted in the marketplace.

Our after-market sales of chemistry kits, supplies and service have allowed us to generate substantial operating cash flows. We have used this cash flow to facilitate growth in the business by developing, marketing and launching new products through internal development as well as business and technology acquisitions. We have also used our operating cash flows to repurchase shares of our common stock and pay regular quarterly dividends. Our shift to operating-type leases will require additional investment in our equipment subject to lease and will reduce our cash flows in the next several years as we shift to this model.

In order to continue to grow the Company, gain market share and remain competitive, we must continue to introduce new instrument and reagent technologies, acquire and defend intellectual property and invest in research and development. Otherwise, our current products could become technologically obsolete over time. We believe that our cash flow will enable us to continue to fund these activities. Additionally, we are subject to a number of risks and uncertainties that could hamper our efforts to successfully increase market share and expand into new markets such as general worldwide economic weakness, pressure on healthcare spending, constrained government research funding and our ability to obtain regulatory approvals for new products. We believe we are addressing these risks by providing our customers automated and cost effective solutions. A large number of our products require marketing authorizations from the U.S. Food & Drug Administration (“FDA”) and similar agencies in other countries. We believe that we have effective quality and compliance programs in place and have been successful in obtaining the necessary clearances for our new products from the FDA and other similar agencies.

Acquisitions

On May 31, 2005 the Company acquired all of the stock of Agencourt Bioscience Corporation (“Agencourt”) of Beverly, Massachusetts, a leading provider of genomic services and nucleic acid purification products in the biomedical research market. Agencourt’s patented Solid Phase Reversible Immobilization (SPRI^®) technology provides state-of-the-art results for the isolation and purification of RNA and DNA. We plan to use SPRI in automated sample preparation systems for biomedical research and molecular testing. In addition to this technology, the acquisition brings talented scientists and a services business that will give the Company a real-time window into evolving customer needs.

On October 11, 2005, the Company acquired all of the stock of Diagnostic Systems Laboratories Corporation (“DSL”) of Webster, Texas, for $138.0 million in cash. DSL is a leading provider of specialty immunoassays including proprietary technology for reproductive endocrinology and cardiovascular risk assessment. We plan to use the acquired technologies to enhance our current immunoassay product offerings in reproductive endocrinology and cardiovascular diagnostics. We also plan to commercialize several of DSL’s manual tests on our automated platforms.

Reorganization

On July 22, 2005, the Company announced a reorganization whereby it will integrate the Clinical Diagnostics and Biomedical Research Divisions into a single company structure that will create synergies and improve focus as we address the entire biomedical testing continuum. The new structure creates four business centers focused on driving core product strategies. These business centers will be Chemistry

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Systems, Cellular Systems, Immunoassay Systems, and Discovery and Automation Systems. In connection with the reorganization we have combined our two previous reportable segments, Clinical Diagnostics and Biomedical Research, into a single company structure resulting in one reportable segment. See Note 13 of the condensed consolidated financial statements for more information.

In the third quarter of 2005, in connection with the development of our reorganization plans, we decided to exit certain non-strategic products and products currently under development. To date, we have decided to exit our project related to Bovine Spongiform Encephalopathy (mad cow disease) and replace certain product technology acquired in our 1997 acquisition of Saigan, Inc. with improved technology from an outside vendor. As a result, it was determined that we no longer had significant sales and cash flow expectations for the related patent assets, and we recorded a $13.4 million charge to write-off the patent and other related assets.

As a result of the reorganization we expect to eliminate approximately a net 350 positions worldwide. The objective of the reorganization is to better enable us to leverage personnel, technologies and products across the entire biomedical testing continuum. We are in the process of evaluating these reorganization plans and expect to finalize them in the fourth quarter of 2005, at which time a charge of at least $30.0 million will be recorded for severance and related benefits. Additional charges may also be incurred in the fourth quarter of 2005 and into 2006 as other aspects of the reorganization are implemented.

Results of Operations

Revenues

The following provides product area and geographical sales information (dollar amounts in millions):

	Three Months Ended September 30,				Reported			Constant Currency
	2005		2004		Growth %			Growth %*
Chemistry Systems		$ 172.9		$ 173.6		(0.4	)		(0.7	)
Cellular Systems		193.0		189.8		1.7			1.2
Immunoassay Systems		97.4		96.8		0.6			0.3
Discovery and Automation Systems		130.1		121.0		7.5			7.5
Total		$ 593.4		$ 581.2		2.1			1.8
United States		323.0		322.4		0.2			0.2
International		270.4		258.8		4.5			3.8
		$ 593.4		$ 581.2		2.1			1.8

	Nine Months Ended September 30,		Reported			Constant Currency
	2005	2004	Growth %			Growth %*
Chemistry Systems	$  516.4	$  512.1		0.8			(0.7	)
Cellular Systems	596.1	565.9		5.3			4.0
Immunoassay Systems	301.6	267.0		12.9			11.3
Discovery and Automation Systems	374.2	370.3		1.1			(0.5	)
	$ 1,788.3	$ 1,715.3		4.3			2.8
United States	$  936.5	$  955.5		(2.0	)		(2.0	)
International	851.8	759.8		12.1			8.7
	$ 1,788.3	$ 1,715.3		4.3			2.8

*Constant currency growth is not a U.S. GAAP defined measure of revenue growth. Constant currency growth as presented herein represents:

Current period constant currency sales (see below) less prior year reported sales

Prior year reported sales

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We define constant currency sales as current period sales in local currency translated to U.S. dollars at the prior year’s foreign currency exchange rate. This measure provides information on sales growth assuming that foreign currency exchange rates have not changed between the prior year and the current period. Constant currency sales and constant currency growth as defined or presented by us may not be comparable to similarly titled measures reported by other companies. Additionally, constant currency sales is not an alternative measure of revenues on a U.S. GAAP basis.

As discussed above in the Overview, we are undergoing a shift from sales-type leases to operating-type leases. This increasing rate of operating-type leases has negatively impacted revenues in 2005. Under operating-type leases the recognition of instrument revenues and earnings are spread over the life of the lease arrangement, which is typically five years. By contrast, under sales-type leases the recognition of instrument revenues and earnings is at the inception of the lease. The change to operating-type leases was expected to result in a significant decrease in reported revenues in the last six months of 2005 and a resulting decrease in earnings relative to previous expectations. This shift was expected to most significantly impact the U.S. However, we had a significant number of customer orders that contained STL terms in progress at the beginning of the third quarter of 2005 which were finalized during the quarter. As result we have not yet fully experienced the expected decline in revenues and had higher hardware revenues in the third quarter of 2005 than we had previously expected.

While the shift to operating-type leases did have a significant negative impact on third quarter 2005 results, we expect results in the fourth quarter of 2005 to be more significantly impacted as the majority of our new leases in the U.S. are likely to be operating-type leases. This shift is expected to impact instrument related revenues within most product areas with the exception of some products within Discovery and Automation Systems. Over the longer term, we expect this change to improve competitiveness and operating efficiency.

A discussion of sales by major product area for the three and nine months ended September 30, 2005 follows:

Chemistry Systems

Sales were flat in Chemistry Systems for the three and nine months ended September 30, 2005 due primarily to the shift to OTL customer contracts as this product area is one of the most affected by the leasing policy change. Absent the leasing policy impact, placements of our new Unicel^® DxC 600 and 800 SYNCHRON^® systems are outperforming our expectations and are contributing to increased year-over-year system placements in Chemistry Systems. As a result of the unit placements we are also generating significantly more consumables revenue in this product area. Partially offsetting our growth in chemistry consumables was the impact of raw material supply problems with certain reagents. We do not expect these supply problems to have a significant impact on our operating results in future periods. Sales of our rapid test kits are also performing well compared to prior year, aided by the recent release of the Hemoccult^® ICT fecal occult blood testing kit.

Cellular Systems

Sales in Cellular Systems were up modestly for the three and nine months ended September 30, 2005. Sales in this area, which consist of hematology, coagulation and flow cytometry systems, are not as impacted as other product areas by the change in leasing policy due to the higher level of cash sales of these products that take place. Placements of FC 500 and XL cytometers and cell sorters contributed to growth in this area and were partially offset by declines due to the leasing policy changes.

Immunoassay Systems

Sales in Immunoassay Systems were relatively flat for the three months ended September 30, 2005 and up significantly for the nine months ended September 30, 2005 as this product area was also significantly

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impacted by the leasing policy change that began impacting revenues in the third quarter of 2005. We continue to experience solid placements of the UniCel^®DxI 800 Access^® Immunoassay System, and a related increase in reagent sales, as we increase our market share with this advanced high-throughput analyzer.

Discovery and Automation Systems

Sales in Discovery and Automation Systems were up significantly for the three months ended September 30, 2005 and flat for the nine months ended September 30, 2005. Sales in this area are less impacted by the leasing policy shift and were primarily a result of sales growth, for the quarter, in the Automation market, which was relatively flat for the nine month period. Automation sales take a considerable amount of time and effort to consummate and are therefore subject to significant quarter-to-quarter volatility. Lab automation continues to be a key emphasis for the Company and our overall strategy as our customers continue to focus on efficiency and cost savings that can be provided by increased automation. For the quarter and nine month period our ultra and high-performance and bench top centrifuges also contributed to sales growth in this product area.

Sales by Major Geography

Sales in the United States were up 0.2% and down 2.0% for the three and nine months ended September 30, 2005, respectively. The weakness in sales growth for the quarter and year to date was due primarily to the shift toward operating-type leases. Sales in Chemistry Systems, Cellular Systems and Immunoassay Systems were all negatively impacted by the leasing policy change while unit placements and reagent revenues were up across several product lines. Discovery & Automation revenues were up significantly for the three months ended September 30, 2005 aided by automation placements and sales growth in the life sciences markets.

International sales were up 4.5% and 12.1% in the three and nine months ended September 30, 2005, respectively, and up 3.8% and 8.7% in constant currency in the three and nine months ended September 30, 2005, respectively. International sales were led by results in Europe where we experienced growth in both Immunoassay Systems and Discovery and Automation in France and in our European dealer markets as our products continue to gain acceptance. Sales in Asia were aided by continued strength in China and South East Asia offset by a recent decline in demand in Japan for our Discovery products.

Gross profit

Gross profit as a percentage of sales (“gross margin”) was 46.5% and 48.1% for the three months ended September 30, 2005 and 2004, respectively. Gross margin was impacted by the following:

·currency which favorably impacted gross margin by 0.2 percentage points; and was offset by;

·higher costs in our service function as we invest more in personnel to support installation and training for our new instruments, which unfavorably impacted gross margin by 0.9 percentage points; and

·higher costs associated with freight and new product support, which unfavorably impacted gross margin by 0.9 percentage points.

Gross margin was 46.5% and 47.7% for the nine months ended September 30, 2005 and 2004, respectively. Gross margin was impacted by the following:

·currency which favorably impacted gross margin by 0.4 percentage points; and was offset by;

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·higher costs in our service function as we invest more in personnel to support installation and training for our new instruments, which unfavorably impacted gross margin by 0.4 percentage points;

·higher costs for freight and new product support, which unfavorably impacted gross margin by 0.9 percentage points; and

·unfavorable geographic mix, partially offset by higher product margins from an increase in the mix of revenues arising from higher profit consumables sales, which unfavorably impacted gross margin by 0.3 percentage points.

Operating Expenses

Selling, general and administrative (“SG&A”) expenses increased $10.9 million to $159.0 million or 26.8% of sales for the three months ended September 30, 2005 from $148.1 million or 25.5% of sales for the three months ended September 30, 2004. SG&A expenses increased $35.3 million to $468.2 million or 26.2% of sales for the nine months ended September 30, 2005 from $432.9 million or 25.2% of sales for the nine months ended September 30, 2004.

The increase in SG&A spending for the quarter was primarily a result of a $4.9 million charge to reserve for impaired receivables and to write-off damaged leased equipment as a result of Hurricane Katrina, which severely impacted our customers and leased equipment in the gulf coast region beginning August 29, 2005 as well as increased spending on selling and marketing activities related to our Chemistry, Immunoassay and other new product offerings.

For the nine months ended September 30, 2005, the increase in SG&A spending was primarily a result of a) the $4.9 million charge recorded as a result of Hurricane Katrina, described above; b) a $5.3 million charge in connection with the retirement of our former CEO as a result of supplemental pension plan elections and the acceleration of a restricted stock award in the second quarter of 2005; and c) a $1.7 million charge for a potential business development transaction that the Company decided not to pursue recorded in the second quarter of 2005; partially offset by d) a $2.6 million reduction of an environmental reserve in the second quarter of 2005 as a result of a decrease in the estimated costs of remediation.

Research and development (“R&D”) expenses increased $0.1 million to $51.6 million or 8.7% of sales for the three months ended September 30, 2005 from $51.5 million or 8.9% of sales for the three months ended September 30, 2004 and increased $3.5 million to $149.7 million or 8.4% of sales for the nine months ended September 30, 2005 from $146.2 million or 8.5% of sales for the nine months ended September 30, 2004. The increase in R&D spending is due primarily to the timing of certain projects and a general increase in the use of strategic product development relationships.

Restructuring Activities and Asset Impairments

As a result of the reorganization activities, the Company has decided to exit certain non-strategic products and products under development, as it was determined that it no longer had significant sales or cash flow expectations for these products. Accordingly, in September 2005, the Company recorded a $13.4 million charge to write-off patents and other related assets. Personnel related charges of $0.9 million were also taken for certain positions identified as part of the reorganization in September 2005.

Non Operating Income and Expenses

Interest income includes income from STL receivables. Interest income increased $1.6 million to $5.0 million in the third quarter of 2005 from $3.4 million in the third quarter of 2004 and increased

20

$4.1 million to $13.4 million in the nine months ended September 30, 2005 from $9.3 million in the nine months ended September 30, 2004, due primarily to retention of more of our STL receivables.

Interest expense increased $3.3 million to $12.4 million in the third quarter of 2005 from $9.1 million in the third quarter of 2004 and increased $8.0 million to $33.7 million in the nine months ended September 30, 2005 from $25.7 million in the nine months ended September 30, 2004 due primarily to a) credits to interest expense recorded in the quarters ended September 30, 2004 and June 30, 2004 ($1.0 million and $2.0 million, respectively) related to the successful resolution of certain segments of the IRS audits for the tax years 1998 through 2002, resulting in the elimination of the related interest accruals; and b) higher interest rates on the variable rate portion of our outstanding debt.

Other non-operating (income) expense was $(0.1) million and $7.2 million for the three months ended September 30, 2005 and 2004, respectively, and $13.7 million and $26.5 million for the nine months ended September 30, 2005 and 2004, respectively, and was comprised primarily of foreign exchange related expenses, which for the three and nine months ended September 30, 2005 were offset by a $1.3 million gain on the sale of STL receivables.

Income Taxes

At the end of each interim reporting period an estimate is made of the effective tax rate expected to be applicable for the full year. The rate determined is used to provide for income taxes on a year-to-date basis. The tax effect of any significant unusual items is reflected in the period in which they occur. The income tax rate, as a percentage of pre-tax income, was 17.0% for the third quarter of 2005, compared with 15.0% for the third quarter of 2004. The tax rate in 2005 was impacted by favorable IRS Notices relating to the American Jobs Creation Act of 2004 and geographic profit mix which includes the effect of the shift to operating-type leases. The tax rate in 2004 was favorably impacted by the resolution of certain segments of the Internal Revenue Service audit of the tax years ending in 1998 through 2002.

For the nine months ended September 30, 2005 the income tax rate, as a percentage of pre-tax income, was 19.9% compared with 23.6% for the nine months ended September 30, 2004. The 2005 year-to-date effective tax rate was impacted by favorable IRS Notices related to the American Jobs Creation Act of 2004, geographic profit mix and the final settlement, in the first quarter of 2005, of the remaining segments of the Internal Revenue Service audit of the Company for tax years 1998 through 2002. The tax rate in 2004 was favorably impacted by the resolution of certain segments of the Internal Revenue Service audit of the tax years ending in 1998 through 2002.

Our effective tax rate for the full year of 2005 could be impacted, either favorably or unfavorably, by a number of factors including, but not limited to, the statutory tax rates in countries in which our worldwide profits are earned, enactment of new tax laws, new interpretations of existing tax laws, tax rulings by, and tax audit settlements with, taxing authorities and our generation of tax credits.

Liquidity and Capital Resources

Liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate financing and to convert those assets that are no longer required in meeting existing strategic and financing objectives into cash. Therefore, liquidity cannot be considered separately from capital resources that consist of current and potentially available funds for use in achieving long-range business objectives and meeting our commitments.

Our business model, in particular sales from after-market kits, supplies and service, allows us to generate substantial operating cash flows. We anticipate our operating cash flows will continue to satisfy our working capital requirements without the need for substantial additional indebtedness. Additionally,

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we currently do not have plans to significantly reduce our long-term debt levels in the next twelve months due to the long-term maturities of our senior notes. This allows us to invest in areas that will help meet our strategic objectives. During the next twelve months, we anticipate using our operating cash flows:

·To reduce our borrowings under our credit facility that was drawn on to fund the acquisitions of Agencourt and DSL.

·To facilitate growth in the business by developing, marketing and launching new products. We expect new product offerings to come from existing R&D projects, business acquisitions and by gaining access to new technologies through license arrangements.

·To increase our capital expenditures for customer leased equipment as we continue to shift toward operating-type leases.

·To maintain and raise our quarterly dividend. Our dividend paid in the third quarter was $0.14 cents per share. In October 2005, the Company’s Board of Directors declared a quarterly cash dividend of $0.14 per share, payable on November 4, 2005 to stockholders of record on October 17, 2005.

·To continue to repurchase shares of our common stock. In January 2005, our Company’s Board of Directors approved a plan authorizing the repurchase of up to 2.5 million shares of our common stock through 2006. During the first six months of 2005, 0.9 million shares were repurchased for $61.2 million under this plan. No shares were repurchased in the three months ended September 30, 2005.

Cash flows provided by operating activities were $277.9 million in the first nine months of 2005 as compared to $131.5 million in the first nine months of 2004. The major contributors to this improvement in operating cash flows were a $40.0 million contribution to the U.S. Pension trust in 2004 that did not recur in 2005 and increased cash collections of accounts receivable, resulting in an improvement in the Company’s days’ sales outstanding. As discussed previously, we did not experience the level of transition from STL to OTL arrangements as previously expected due to the number of contracts with STL terms that were already in process at the beginning of the third quarter of 2005. As a result operating cash flows were stronger than expected.

Our customers may enter into three forms of lease transactions associated with our instruments which have different impacts on operating cash flows, revenues and earnings as follows:

·One form is an operating-type lease where the customer enters into a long-term contract to rent the instrument where we recognize revenue, earnings and operating cash flows over the life of the contract.

·A second form is a sales-type lease where the customer enters into a long-term contract to lease the instrument where we recognize instrument related revenue and earnings up front but receive operating cash flows over the life of the contract. At our initiative, we occasionally monetize the accounts receivable related to these sales-type lease arrangements. For the nine months ended September 30, 2005 and twelve months ended December 31, 2004 we received $43.8 million and $36.0 million, respectively, under this program in the US. (see Note 5 of our 2004 Form 10-K).

·A third form is an agreement with a third-party financing company who buys the instrument from us and in turn leases it to the end-user. Using this form, we recognize instrument revenue, earnings and operating cash flows at the time of sale. In the first nine months of 2005 and 2004 we received $46.4 million and $71.4 million, respectively, under this arrangement. To the extent the Company’s leasing policy changes, and as a result we do not engage in this third form of transaction going forward, revenue, earnings and operating cash flows could be reduced in the near term. However,

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over the long-term our aggregate revenue, earnings and operating cash flows under our customer contracts are expected to be unaffected. The Company estimates that operating cash flows could be reduced by up to $45 million in the remainder of 2005 and by up to $110 million in 2006, relative to 2004 when $110 million of cash flows were accelerated from future periods under this third form of transaction (see Note 15 of our 2004 Form 10-K). The Company plans to mitigate some of this impact on operating cash flows by continuing to monetize a portion of the U.S. accounts receivable related to sales-type lease arrangements, as described above in the description of the second form of lease transaction. At September 30, 2005 the balance of sales-type lease receivables in the U.S. was $103 million.

Investing activities used cash of $261.7 million and $114.9 million in the first nine months of 2005 and 2004, respectively. The increase was due primarily to the acquisition of Agencourt for $100.4 million and an increase in capital expenditures of $49.1 million from $106.6 million during the first nine months of 2004 to $155.7 million during the first nine months of 2005. This increase was primarily due to an increase in fixed assets for customer leased equipment, an increase in infrastructure related to insourcing of our U.S. distribution network and continued implementation of our global ERP system.

Financing activities used cash of $21.8 million in the first nine months of 2005 versus $62.0 million in 2004. The net decrease in cash outflows in 2005 is primarily due to a decrease in the amount of common stock purchased for treasury in 2005 compared to 2004, partially offset by a net decrease in borrowings.

On October 11, 2005, the Company acquired DSL of Webster, Texas for $138.0 million in cash. This transaction is being financed by available cash and additional borrowings under the Company’s credit facility (see below).

We are in the process of implementing an ERP system in order to achieve a single, globally integrated infrastructure. This includes functionality for Finance, Human Resources, Supply Chain, Order Management, Finished Goods Inventory Management, Sales and Service to replace or complement existing legacy systems and business processes. Since the inception of the program in 2000 through September 30, 2005, we have capitalized $132.4 million of costs associated with this ERP system, which includes $48.9 million of capitalized internal labor costs. Based on our geographic rollout strategy, as of September 30, 2005, we have essentially implemented functionality for Finance, Human Resources and certain purchasing systems for our global operations. Sales functionality has been implemented on a limited basis for our U.S. and Canadian operations. Systems for finished goods inventory and physical distribution have been implemented for Europe, including the deployment of systems for Sales, Service and Order Management in most entities in Europe. We expect that the majority of the work required to complete this phase of the global implementation of the new systems will take place through 2007. If we are unable to implement and effectively manage the transition to these new systems, our future consolidated operating results could be adversely affected.

In January 2005, the Company entered into an Amended and Restated Credit Agreement (the “Credit Facility”) that will terminate in January 2010. This agreement amended the Company’s then-existing $400 million unsecured Credit Facility (which was due to expire in July 2005) to now provide the Company with a $300 million revolving line of credit, which may be increased in $50 million increments up to a maximum line of credit of $500 million. Interest on advances is determined using formulas specified in the agreement, generally, an approximation of LIBOR plus a 0.275% to 0.875% margin. The Company also must pay a facility fee of 0.150% per annum on the aggregate average daily amount of each lender’s commitment. As of September 30, 2005, there was $30 million drawn on the $300 million Credit Facility.

Based upon current levels of operations and expected future growth, we believe our cash flows from operations together with available borrowings under our credit facility and other sources of liquidity will be adequate to meet our anticipated requirements for interest payments and other debt service obligations,

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working capital, capital expenditures, lease payments, pension contributions, future business acquisitions and other operating needs. There can be no assurance, however, that our business will continue to generate cash flow at or above current levels. Future operating performance and our ability to service or refinance existing indebtedness, will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.

At September 30, 2005, there have been no material changes in the Company’s significant contractual obligations and commitments as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2004.

Critical Accounting Policies

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Information with respect to the Company’s critical accounting policies which the Company believes could have the most significant effect on the Company’s reported results and require subjective or complex judgments by management is contained on pages 35 to 39 in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. Management believes that at September 30, 2005, there has been no material change to this information.

Recent Accounting Developments

See Note 2 of the condensed consolidated financial statements for information regarding recent accounting developments.

Forward-Looking Statements

This quarterly report contains forward-looking statements, including statements regarding, among other items:

·anticipated sales growth;

·the schedule for completion of our ERP program;

·our business strategy and anticipated developments in our markets;

·product development activities resulting from the Agencourt and DSL acquisitions;

·expected costs and benefits of the planned restructuring activities;

·the impact of shifting our lease agreements from predominantly sales-type leases to predominantly operating-type leases;

·our liquidity requirements and capital resources and the effects of litigation;

·planned increases in our quarterly dividend payout ratio; and

·our anticipated use of operating cash flows.

These forward-looking statements are based on our expectations and are subject to a number of risks and uncertainties, some of which are beyond our control. These risks and uncertainties include, but are not limited to:

·unanticipated delays in completing our ERP program;

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·loss of market share in our markets;

·the effects of potential healthcare reform in the countries in which we operate or sell products;

·unanticipated reductions in cash flows and difficulty in sales of assets as described in Note 7 of the condensed consolidated financial statements;

·the timing and extent of our change from structuring our lease agreements from predominately sales-type leases to operating-type leases;

·the amount and timing of the restructuring and related charges and savings; and

·other factors that cannot be identified at this time.

Although we believe we have the product offerings and resources required to achieve our objectives, actual results could differ materially from those anticipated by these forward-looking statements. There can be no assurance that events anticipated by these forward-looking statements will in fact transpire as expected.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

The U.S. Securities and Exchange Commission requires that registrants include information about potential effects of changes in currency exchange and interest rates in their Form 10-K filings. Several alternatives, all with some limitations, have been offered. The following discussion is based on a sensitivity analysis, which models the effects of fluctuations in currency exchange rates and interest rates. This analysis is constrained by several factors, including the following:

·it is based on a single point in time; and

·it does not include the effects of other complex market reactions that would arise from the changes modeled.

Although the results of the analysis may be useful as a benchmark, they should not be viewed as forecasts.

Our most significant foreign currency exposures relate to the Euro, Japanese Yen, British Pound Sterling and Canadian Dollar. As of September 30, 2005 and December 31, 2004, the notional amounts of all derivative foreign exchange contracts were $308.9 and $397.8 million, respectively. Notional amounts are stated in U.S. dollar equivalents at spot exchange rates at the respective dates. The net fair value of all these contracts as of September 30, 2005 and December 31, 2004 was $8.4 million and ($5.3) million, respectively. We estimated the sensitivity of the fair value of all derivative foreign exchange contracts to a hypothetical 10% strengthening and 10% weakening of the spot exchange rates for the U.S. dollar against the foreign currencies at September 30, 2005. The analysis showed that a 10% strengthening of the U.S. dollar would result in a gain from a fair value change of $22.1 million and a 10% weakening of the U.S. dollar would result in a loss from a fair value change of $10.7 million in these instruments. Losses and gains on the underlying transactions being hedged would largely offset any gains and losses on the fair value of derivative contracts. These offsetting gains and losses are not reflected in the above analysis. Significant foreign currency exposures at September 30, 2005 were not materially different than those at December 31, 2004.

Similarly, we performed a sensitivity analysis on our variable rate debt instruments and derivatives. A one percentage point increase or decrease in interest rates was estimated to decrease or increase this year’s pre-tax earnings by $0.5 million based on the amount of variable rate debt outstanding at September 30, 2005. This analysis includes the effect of our reverse interest rate swap derivatives, which changes the character of the interest rate on our long-term debt by effectively converting a fixed rate to a variable rate.

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Additional information with respect to our foreign currency and interest rate exposures are discussed in Note 4 of the condensed consolidated financial statements.

Item 4.Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of September 30, 2005, the end of the fiscal quarter covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level. There has been no change in the Company’s internal controls over financial reporting during the company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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Part II. Other Information

Item 1.Legal Proceedings

The Company is involved in a number of lawsuits, which the Company considers ordinary and routine in view of its size and the nature of its business. The Company does not believe that any ultimate liability resulting from any of these lawsuits will have a material adverse effect on its results of operations, financial position or liquidity. However, the Company cannot give any assurances regarding the ultimate outcome of these lawsuits, and their resolution could be material to the Company’s operating results for any particular period, depending upon the level of income for the period.

In 1998, the Company entered into a sale-leaseback transaction with Cardbeck Miami Trust (“Cardbeck”) in connection with the Company’s Miami facility. In April 2005, Cardbeck notified the Company that it had received an assessment from the State of Florida in the amount of $4.4 million for sales tax, interest and penalties related to payments made by the Company to Cardbeck from June, 2000 to February, 2005. The State of Florida has asserted that this transaction is subject to sales tax in accordance with applicable state laws and requested Cardbeck to pay this assessment. As part of its agreement with Cardbeck, the Company agreed to pay any non-income taxes incurred in connection with the transaction and Cardbeck has tendered the assessment to the Company. Cardbeck has also demanded that the Company take certain actions with respect to the assessment. The Company has filed an administrative appeal of the assessment, asserting that this transaction is more properly characterized as a financing transaction under Florida state law and is therefore not subject to sales tax under Florida’s Rental of Real Property law. It has also informed Cardbeck that the actions it is demanding are not consistent with the terms of the agreement between them. The Company intends to vigorously defend this position which is based on relevant prior case law in the State of Florida and believes that this dispute will be ultimately adjudicated in favor of the Company. Accordingly, at September 30, 2005, no accrual has been made for this assessment.

In July, 2002 Beckman Coulter, filed a patent infringement action against Applera Corporation (“Applera”) in the U.S. District Court for the Central District of California. The complaint alleges that certain of the DNA sequencing instruments and thermal cyclers used for polymerase chain reaction sold by Applera’s Applied Biosystems division infringe Beckman Coulter U.S. patents. The Beckman Coulter patents are Re 37, 606 and Re 37, 941 which claim replaceable gels used in capillary electrophoresis and 5,4211,980 which claims a heated cover in a thermal cycler. The Company is seeking monetary damages and injunctive relief. Applera has responded to Beckman Coulter’s complaint by seeking a determination that the Beckman Coulter patents are invalid, unenforceable, and not infringed. Trial of the case is expected to begin February 27, 2006.

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

The Company did not repurchase any of its common stock during the three months ended September 30, 2005.

Item 5.Other Information

On February 8, 2005, the Board of Directors of Beckman Coulter, Inc. announced that Board Member Betty Woods was elected non-executive chairman. Ms. Woods, an 11-year veteran of the Beckman Coulter Board, succeeded retiring Executive Chairman John P. Wareham. The appointment was effective April 7, 2005 at the annual stockholder’s meeting. On April 4, 2005 the Board of Directors amended Ms. Woods’ compensation schedule by increasing her cash compensation by $105,500.

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Item 6.Exhibits

2.1	Stock Purchase Agreement by and Among Beckman Coulter, Inc. as “Buyer” and Gopal Savjani, Rajesh Savjani and Anish Savjani as “Sellers” dated as of October 4, 2005.
10.1	Summary of Ms. Woods Compensation
15	Independent Accountants’ Review Report, November 3, 2005
15.1	Letter of Acknowledgement of Use of Report on Unaudited Interim Financial Information dated November 3, 2005
31	Rule 13a-14(a)/15d-14(a) Certifications
32	Section 1350 Certifications

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Signatures

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

	BECKMAN COULTER, INC.
	(Registrant)
Date: November 1, 2005	By	/s/ SCOTT GARRETT
	Scott Garrett
	Chief Executive Officer
Date: November 1, 2005	By	/s/ JAMES GLOVER
	James Glover
	Senior Vice President and Chief Financial Officer
Date: November 1, 2005	By	/s/ CAROLYN D. BEAVER
	Carolyn D. Beaver
	Vice President & Controller
	(Principal Accounting Officer)

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INDEX TO EXHIBITS

Exhibit No.	Description
2.1	Stock Purchase Agreement by and Among Beckman Coulter, Inc. as “Buyer” and Gopal Savjani, Rajesh Savjani and Anish Savjani as “Sellers” dated as of October 4, 2005.
10.1	Summary of Ms. Woods Compensation
15	Independent Accountants’ Review Report, November 3 , 2005
15.1	Letter of Acknowledgement of Use of Report on Unaudited Interim Financial Information dated November 3, 2005
31.	Rule 13a-14(a)/15d-14(a) Certifications
32.	Section 1350 Certifications

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EX-2.1

Exhibit 2.1

STOCK PURCHASE AGREEMENT

BY AND AMONG

BECKMAN COULTER, INC.

as “Buyer”

and

GOPAL SAVJANI, RAJEN SAVJANI, and ANISH SAVJANI

as “Sellers”

DATED AS OF OCTOBER 4, 2005

TABLE OF CONTENTS

1.1	Defined Terms
1.2	Terms Defined Elsewhere

ARTICLE 2 PURCHASE AND SALE OF SHARES
2.1	Sale and Purchase of Shares; Purchase Price
2.2	Closing Debt
2.3	Post-Closing Adjustment
2.4	Closing
2.5	Escrow Amount

3.1	Organization and Qualification
3.2	Authorization
3.3	Capitalization and Share Ownership
3.4	Indebtedness
3.5	Governmental Authorization; Noncontravention
3.6	Financial Statements; Undisclosed Liabilities
3.7	Absence of Certain Changes
3.8	Licenses
3.9	Litigation; Compliance with Laws
3.10	Employment Matters
3.11	Tax Matters
3.12	Real Property
3.13	Environmental Matters
3.14	Insurance
3.15	Intellectual Property
3.16	Employee Benefits
3.17	Material Contracts
3.18	Regulatory Matters
3.19	Foreign Corrupt Practices and International Trade Sanctions
3.20	Assets Other Than Real Property Interests
3.21	Affiliate Transactions
3.22	Finders and Brokers
3.23	Occupational Safety and Health
3.24	Supply Arrangements
3.25	Accounts Receivable
3.26	Inventory
3.27	No Additional Representations and Warranties

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER

4.1	Organization and Qualification
4.2	Authorization
4.3	Governmental Authorization; Noncontravention

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4.4	Absence of Litigation
4.5	No Buyer Stockholder Approval
4.6	Acquisition for Investment
4.7	Financial Ability
4.8	Brokers’ Fees

ARTICLE 5 COVENANTS AND ADDITIONAL AGREEMENTS

5.1	Conduct of Business of the Company
5.2	Access to Information
5.3	Notification
5.4	No Solicitation.
5.5	Commercially Reasonable Efforts; Consents
5.6	Employee Benefits
5.7	Control of the Company’s Business
5.8	Public Statement and Press Releases
5.9	Tax Matters

ARTICLE 6 CLOSING CONDITIONS

6.1	Conditions to Obligations of Each Party Under This Agreement
6.2	Additional Conditions to Obligations of Buyer
6.3	Additional Conditions to Obligations of Sellers

ARTICLE 7 SURVIVAL; INDEMNIFICATION

7.1	Survival of Representations, Warranties, Covenants and Agreements
7.2	Indemnification
7.3	Procedure for Claims between Parties
7.4	Defense of Third Party Claims

ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER

8.1	Termination
8.2	Effect of Termination

ARTICLE 9 GENERAL PROVISIONS

9.1	Amendments, Waivers
9.2	Entire Agreement
9.3	Binding Effect; Assignment
9.4	Headings; Certain Construction Rules
9.5	Notices
9.6	Governing Law; Consent to Jurisdiction; Waiver of Jury Trial
9.7	Gender, Tense, Etc
9.8	Severability
9.9	Expenses
9.10	No Third Party Rights
9.11	Specific Performance
9.12	Counterparts
9.13	Disclosure
9.14	Mutual Drafting
9.15	Sellers’ Representative

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Exhibit A	Form of Escrow Agreement
Exhibit B-1	Form of Gopal Savjani Non-Competition Agreement
Exhibit B-2	Form of Rajen Savjani Non-Competition Agreement
Exhibit B-3	Form of Anish Savjani Non-Competition Agreement
Exhibit C	Form of Spousal Consent

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STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT (this “Agreement”), dated effective as of October 4, 2005, is by and among BECKMAN COULTER, INC., a Delaware corporation (“Buyer”), and GOPAL SAVJANI, RAJEN SAVJANI and ANISH SAVJANI (“Sellers”).

RECITALS

A.Sellers own 23,763,000 shares of the common stock, no par value, of Diagnostic Systems Laboratories, Inc., a Texas corporation (the “Company”), which shares (the “Shares”) constitute all of the issued and outstanding shares of capital stock of the Company.

B.Sellers desire to sell to Buyer, and Buyer desires to purchase from Sellers, all of the Shares upon and subject to the terms and conditions set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and mutual covenants contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE 1
DEFINITIONS

1.1Defined Terms

For purposes of this Agreement, the term:

“Acquisition Proposal” means any offer or proposal made by a Person other than Buyer or any Affiliate thereof for or concerning: (i) a merger, consolidation, share exchange, business combination, reorganization, recapitalization or other similar transaction or series of related transactions involving any Seller, the Company or any of its Subsidiaries; (ii) any sale, lease, exchange, transfer or other disposition (including by way of merger, consolidation, license or exchange), in a single transaction or a series of related transactions, of the assets of the Company or any of its Subsidiaries constituting 5% or more of the consolidated assets of the Company or accounting for 5% or more of the consolidated revenues of the Company; (iii) any issuance, sale or other disposition of securities (or options, rights or warrants to purchase, or securities convertible into or exchangeable for, such securities) in each case by any Seller or the Company, including by way of or through a tender offer or similar device.

“Action” means any action, complaint, petition, investigation, suit or other proceeding, whether administrative, civil or criminal, in law or in equity, or before any arbitrator or Governmental Authority.

“Administrative False Claims Act” means Section 1128B(a) of the Social Security Act (42 U.S.C. §1320a-7b(a)).

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“Affiliate” means, with respect to any specified Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with, such specified Person.  For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Ancillary Agreements”  means the Escrow Agreement and the Non-Competition Agreements.

“Benefit Plans” means any employment or consulting agreement or any plan, program, arrangement, agreement or commitment, including any “employee benefit plan” as defined in Section 3(3) of ERISA, providing any of the following benefits to any current or former employee, consultant or director of the Company or any of its Subsidiaries, whether foreign or domestic: pension, retirement, savings, termination, retention, change in control, disability, medical, dental, accident, health or life insurance or other death benefits, profit sharing, stock option, restricted stock or other equity-based benefits, bonus or other incentive compensation, deferred compensation, severance, vacation, other welfare fringe benefit; provided that the term “Benefit Plan” shall not include a “multiemployer plan” as defined in Section 3(37) of ERISA.

“Business Day” means any day other than a Saturday or Sunday or a day on which national banking institutions in the City of New York, New York, Houston, Texas or Los Angeles, California are authorized or obligated by applicable Legal Requirements or executive order to be closed.

“Buyer Material Adverse Effect” means, with respect to Buyer, any change, effect, event, development or circumstance, individually or in the aggregate that would reasonably be expected to materially impair the validity or enforceability of this Agreement against Buyer or materially adversely affect or delay Buyer’s ability to consummate the transactions contemplated hereby or perform its obligations under this Agreement; provided, however, that the term “Buyer Material Adverse Effect” shall not include any change, effect or circumstance arising from:

(A)general economic, market or political conditions or changes generally applicable to the industries and markets in which Buyer operates (to the extent such events do not disproportionately affect Buyer, taken as a whole with its Subsidiaries, relative to other companies in such industry or markets); or

(B)changes generally applicable to the financial or securities markets (to the extent such events do not disproportionately affect Buyer, taken as a whole with its Subsidiaries, relative to other companies in such industry or markets).

“Civil False Claims Act” refers to 31 U.S.C. §§3729 et seq.

“CLIA” means the Clinical Laboratory Improvement Amendments of 1988 or any successor statutes.

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“Closing Date” means October 11, 2005, or such other date as is agreed to by the Parties.

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

“Company Board” means the Board of Directors of the Company.

“Company Common Stock” means the common stock of the Company.

“Company Material Adverse Effect” means, with respect to the Company, any change, effect, event, development or circumstance, individually or in the aggregate that:

(i)is, or would reasonably be expected to be, materially adverse to the assets, liabilities (contingent or otherwise), business, properties, results of operations or condition (financial or otherwise) of the Company and its Subsidiaries (taken as a whole);

(ii)would reasonably be expected to materially impair the Company and its Subsidiaries’ (taken as a whole) ability to conduct their business and operations after the Closing in substantially the same way as such business or operations are conducted immediately prior to the signing of this Agreement; or

(iii)would reasonably be expected to materially impair the validity or enforceability of this Agreement against Sellers or materially adversely affect or delay the ability of Sellers to consummate the transactions contemplated hereby or perform their obligations under this Agreement;

provided, however, that the term “Company Material Adverse Effect” shall not include any change, effect or circumstance arising from:

(A)general economic, market or political conditions or changes generally applicable to the industries and markets in which the Company operates (to the extent such events do not disproportionately affect the Company, taken as a whole with its Subsidiaries, relative to other companies in such industry or markets); or

(B)changes generally applicable to the financial or securities markets (to the extent such events do not disproportionately affect the Company, taken as a whole with its Subsidiaries, relative to other companies in such industry or markets).

“Confidentiality Agreement” shall mean the Confidentiality Agreement, dated as of February 8, 2005, between the Company and Buyer.

“Contracts” means any of the agreements, contracts, leases, powers of attorney, notes, bonds, loans, mortgages, indentures, evidence of indebtedness, purchase orders, letters of credit, settlement agreements, permits, concessions, franchise agreements, consulting agreements, development agreements, undertakings, covenants not to compete, employment agreements, licenses, instruments, obligations, commitments, understandings, policies and other executory commitments to which any Person is a party or to which any of the assets of such Person are subject, whether oral or written, express or implied.

3

“Controlled Substances Act” refers to 21 U.S.C. §§ 801 et seq.

“Employee” means any present director or employee of the Company or its Subsidiaries.

“Environment” means soil, land surface or subsurface strata, surface waters (including navigable water, ocean waters, streams, ponds, drainage basins, and wetlands), groundwater, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource.

“Environmental Claim” means any written notice, claim, demand, Action, request for information or other communication by (i) any Governmental Authority, (ii) any lessor of any leased property, or (iii) any other Person acting in the public interest, in each such case alleging Liability or potential Liability (including Liability or potential Liability for investigatory costs, cleanup costs, governmental response costs, natural resource damages, property damage, personal injury, fines or penalties) of the Company or any of its Subsidiaries arising out of, based on or resulting from the presence, discharge, emission, release or threatened release of any Hazardous Materials at any location owned, leased or operated by the Company or any of its Subsidiaries or at any location owned, leased or operated by another Person to whom the Company or any of its Subsidiaries may have delivered Hazardous Material or any other material subject to Environmental Law.

“Environmental Law” means any Legal Requirement that relates to protection of human health or the Environment, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act., the Resource Conservation and Recovery Act, the Clean Water Act, the Clean Air Act, the Toxic Substances Control Act, the Safe Drinking Water Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Emergency Planning and Community Right to Know Act, the Occupational Safety and Health Act, the Atomic Energy Act and any corresponding Texas statutes covering the same or similar subject matter, including but not limited to the Texas Solid Waste Disposal Act, the Texas Clean Water Act, the Texas Clean Air Act and similar or corresponding Legal Requirements applicable where any Real Property currently or previously owned or leased by Seller is located.

“Environmental Permits” means all permits, licenses, registrations and other governmental authorizations required under Environmental Laws for the Company and its Subsidiaries to conduct their operations and businesses.

“Equity Interest” means any share, capital stock, partnership, member or similar interest in any entity, and any option, warrant, right or security (including debt securities) convertible, exchangeable or exercisable therefor.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and, as the context requires, any rules or regulations promulgated thereunder.

“ERISA Affiliate” means any entity, whether or not incorporated, that is under common control with the Company within the meaning of § 4001 of ERISA or is part of a group that includes the Company and that is treated as a single employer under § 414 of the Code.

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“Escrow Agent” means Wells Fargo Bank, N.A., or such other escrow agent designated by Buyer and approved by Sellers (which approval shall not be unreasonably withheld or delayed).

“Escrow Fund” means the fund created by the Escrow Agent to hold the Escrow Amount pursuant to the Escrow Agreement.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, together with the rules and regulations of the SEC promulgated thereunder.

“Exclusion Laws” means Section 1128 of the Social Security Act (42 U.S.C. §1320a-7).

“Expenses” includes all out–of–pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants to a Party and its Affiliates) incurred by a Party or on its behalf in connection with or related to the authorization, preparation, negotiation, execution and performance of this Agreement and the transactions contemplated hereby.

“FDA” means the U.S. Food and Drug Administration.

“FDC Act” means the Federal Food, Drug and Cosmetic Act and the rules and regulations promulgated thereunder.

“Federal Anti-Kickback Statute” means Section 1128B(b) of the Social Security Act (42 U.S.C. §1320a-7b(b)).

“GAAP” means generally accepted accounting principles in the United States applied on a consistent basis.

“Governmental Authority” means any federal, state, local or foreign government or multi-national organization or body or any agency, authority, subdivision or instrumentality of any of the foregoing, including any court, tribunal, department, bureau, administrative agency, commission or board, or any quasi-governmental or private body duly exercising any regulatory, taxing, inspecting or other governmental authority.

“Hazardous Materials” means all hazardous or toxic substances, wastes, materials (whether solids, liquids or gases) or chemicals, petroleum (including crude oil or any fraction thereof) and petroleum products, asbestos and asbestos-containing materials, pollutants, contaminants and by-products regulated pursuant to or forming the basis of liability under any Environmental Law.

“HHS” means the U.S. Department of Health and Human Services and all agencies and offices thereof.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended from time to time, and the rules and regulations promulgated thereunder.

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“Indebtedness” means (i) indebtedness for borrowed money, including indebtedness evidenced by a note, bond, debenture or similar instrument, and any guarantees, endorsements or keep-well obligations or other contingent obligations in respect thereof, (ii) obligations to pay rent or other amounts under any lease of real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet under GAAP, or (iii) obligations in respect of outstanding letters of credit, acceptances and similar obligations created for the account of such Person.

“Indemnified Party” means a Buyer Indemnified Party or a Seller Indemnified Party in the exercise of their rights as such pursuant to this Agreement.

“Indemnifying Party” means a Buyer Indemnifying Party or a Seller Indemnifying Party in the satisfaction of their obligations as such pursuant to this Agreement.

“Intellectual Property” means patents, trademarks, service marks and trade names, domain names, copyrights, technology, know-how and processes.

“Intellectual Property Licenses” mean (A) licenses of Company Intellectual Property by the Company or any of its Subsidiaries to third parties, (B) licenses of Intellectual Property by third parties to the Company or any of its Subsidiaries, and (C) agreements between the Company or any of its Subsidiaries and third parties for the development of Intellectual Property.

“IRS” means the United States Internal Revenue Service.

“Key Employee” means Gopal Savjani, Shaila Gupta, Tom Verghese, William Finch and Holly Soehnge.

“Knowledge” or “Knowledge of the Company” means the collective actual knowledge of Gopal Savjani, Shaila Gupta, Tom Verghese, William Finch and Holly Soehnge, in each case after a reasonable investigation of the circumstances related thereto.

“Legal Requirement” means any statute, ordinance, code, law, rule, regulation, order, or other requirement, standard or procedure enacted or adopted by any Governmental Authority (including judicial decisions applying common law or interpreting any other Legal Requirement) applicable to a Person, its business, its products and its operations.

“Liability” means any direct or indirect liability, indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or endorsement of or by any Person of any type, whether accrued, absolute, contingent, matured, unmatured, liquidated, unliquidated, known or unknown.

“Liens” means, with respect to any property or asset, any mortgage, easement, lien, pledge (including any negative pledge), security interest or other encumbrance of any nature whatsoever in respect of such property or asset.

“Occupational Safety and Health Law” means any Legal Requirement designed to provide safe and healthful working conditions and to reduce occupational safety and health hazards, and any program, whether governmental or private (including those promulgated or sponsored by industry associations and insurance companies), designed to provide safe and healthful working conditions.

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“Party” means Buyer and/or Sellers, as the context provides.

“Permitted Liens” means (i) zoning restrictions, easements, rights-of-way or other restrictions imposed by Governmental Authority on the use of real property (that do not interfere with the use of such real property or the Company’s or its Subsidiaries’, as the case may be, operation of their respective business as currently operated), (ii) pledges or deposits by the Company or any of its Subsidiaries under workers compensation Legal Requirements, unemployment insurance Legal Requirements or similar legislation, or good faith deposits in connection with leases to which such entity is a party, or deposits to secure public or statutory obligations of such entity or deposits or cash or United States government bonds to secure surety or appeal bonds to which such entity is a party, or deposits as security for contested taxes or import or customs duties or for the payment of rent, in each case incurred or made in the ordinary course of business consistent with past practice, (iii) Liens of carriers, warehousemen, landlords and mechanics, in each case incurred in the ordinary course of business consistent with past practice that are not yet due and payable or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP, (iv) liens for Taxes, assessments or other governmental charges not yet due and payable or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP, and (v) similar Liens and encumbrances that are incurred in the ordinary course of business consistent with past practice and that do not in the aggregate materially detract from the value of such assets or properties or materially impair the use thereof in the operation of the business of the Company or any of its Subsidiaries.

“Person” means a natural person, corporation, partnership, limited partnership, limited liability company, trust or unincorporated organization or similar entity, or a Governmental Authority.

“Registered Proprietary Name” means all trademarks, trade names, brand names, and service marks registered by the Company or any of its Subsidiaries in any country throughout the world.

“SEC” means the United States Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended, together with the rules and regulations of the SEC promulgated thereunder.

“Seller Disclosure Schedule” means the schedules delivered by Sellers as of the date hereof setting forth the exceptions to the representations and warranties contained in Article 3 and certain other information required by this Agreement.  Unless otherwise specified, each reference in this Agreement to any numbered schedule is a reference to the corresponding numbered schedule which is included in the Seller Disclosure Schedule, or such other schedule as can be readily identified as relating to the same issue.

“Sellers’ Representative” means Gopal Savjani or such other person appointed pursuant to Section 9.15 hereof.

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“SOX” means the Sarbanes-Oxley Act of 2002.

“Stark Law” means Section 1877 of the Social Security Act (42 U.S.C. §1395nn).

“Subsidiary” means with respect to any first Person, another Person (i) of which at least 50% of the capital stock, voting securities, other ownership or equity interests having voting power under ordinary circumstances to elect directors or similar members of the governing body of such corporation or other entity (or, if there are no such voting interests, at least 50% of the equity interests) are owned or controlled, directly or indirectly, by such first Person or (ii) of which such first Person is a general partner or similar controlling member, or which such first Person is required by GAAP to consolidate into its financial statements and reports.

“Tax” or “Taxes” means all taxes of whatever kind or nature, including all federal, state, local, or foreign income, gross receipts, license, payroll, employment, unemployment, excise, occupation, windfall profits, customs duties, capital stock, franchise, profits, withholding, real property, personal property, sales, use, transfer, value added, alternative or add-on minimum, social security, or disability taxes, or other similar fees, assessments or charges of any kind whatsoever, including any interest, additions or penalties with respect thereto, whether disputed or not, imposed by any Governmental Authority or Tax authority (U.S. federal, state or local or non-U.S.).

“Tax Return” means any return, report, information return or other document (including any related or supporting information, any schedule or attachment thereto, and any amendment thereof) filed or required to be filed with any federal, foreign, state or local taxing authority in connection with the determination, assessment, collection, administration or imposition of any Taxes.

“Treasury Regulations” means the United States Treasury regulations promulgated under the Code.

“Unregistered Proprietary Name” means all trademarks, trade names, brand names, and service marks used by the Company or any of its Subsidiaries but not registered in any country throughout the world.

1.2Terms Defined Elsewhere.  The following terms are defined elsewhere in this Agreement, as indicated below:

“Accounting Principles”	Section 2.3(a)
“Accounts Receivable”	Section 3.25
“Agreement”	Preamble
“Base Stockholders’ Equity”	Section 2.3(e)
“Buyer Indemnified Parties”	Section 7.2(a)
“Buyer Indemnified Party”	Section 7.2(a)
“Buyer Indemnifying Party”	Section 7.2(c)
“Buyer”	Preamble
“Cash Escrow Amount”	Section 2.5
“Cash Purchase Price”	Section 2.1
“Closing”	Section 2.4

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“Closing Balance Sheet”	Section 2.3(a)
“Closing Balance Sheet Delivery Date”	Section 2.3(f)
“Closing Debt”	Section 2.2(a)
“Closing Stockholders’ Equity”	Section 2.3(d)
“Company Instruments”	Section 3.15(g)
“Company Intellectual Property”	Section 3.15(a)
“Company”	Recitals
“Continuing Employees”	Section 5.6(a)
“Damages”	Section 7.2(a)
“Escrow Account”	Section 2.5
“Escrow Agreement”	Section 6.2(i)
“Escrow Amount”	Section 2.5
“Financial Statements”	Section 3.6(a)
“Health Care Laws”	Section 3.18(b)
“Holder”	Section 2.2(a)
“Independent Accountant”	Section 2.3(a)
“Interim Financial Statements”	Section 3.6(a)
“Leased Real Property”	Section 3.12(b)
“Licenses”	Section 3.8
“Material Contracts”	Section 3.17(a)
“Net Cash Purchase Price”	Section 2.1
“Non-Competition Agreements”	Section 6.2(o)
“Notice”	Section 7.3(a)
“Objection Notice”	Section 7.3(d)
“Outside Date”	Section 8.1(b)
“Permissible Carrybacks”	Section 5.9(g)
“Post-Closing Tax Period”	Section 5.9(d)
“Pre-Closing Return”	Section 5.9(d)
“Purchase Price”	Section 2.1
“Regulatory Conditions”	Section 8.1(b)
“Representatives”	Section 5.4(a)
“Seller Indemnified Parties”	Section 7.2(c)
“Seller Indemnified Party”	Section 7.2(c)
“Seller Indemnifying Parties”	Section 7.2(a)
“Seller Indemnifying Party”	Section 7.2(a)
“Sellers”	Preamble
“Sellers’ Accountant”	Section 2.3(a)
“Shares”	Recitals
“Stockholders’ Equity Deficiency”	Section 2.3(b)
“Stockholders’ Equity Surplus”	Section 2.3(c)
“Tax Contest”	Section 5.9(d)
“Termination Date”	Section 8.1
“Third Party Claim”	Section 7.4(a)
“Threshold”	Section 7.2(d)(i)
“Transfer”	Section 5.10
“Transfer Taxes”	Section 5.9(e)
“Year-End Financial Statements”	Section 3.6(a)

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ARTICLE 2
PURCHASE AND SALE OF SHARES

2.1Sale and Purchase of Shares; Purchase Price.  Upon the terms and subject to the conditions contained in this Agreement, on the Closing Date, Sellers shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase from Sellers, the Shares, free and clear of all Liens.  The aggregate purchase price for the Shares (the “Purchase Price”) shall be equal to One Hundred Thirty Eight Million Dollars ($138,000,000) (the “Cash Purchase Price”) less the Closing Debt as described in Section 2.2 (the “Net Cash Purchase Price”).  The Purchase Price shall be subject to adjustment as described in Section 2.3.  On the Closing Date, upon the terms and subject to the conditions set forth in this Agreement, the Net Cash Purchase Price less the Escrow Amount (as defined in Section 2.5), will be delivered to Sellers and the Escrow Amount will be delivered to the Escrow Agent in accordance with Section 2.5.  The Net Cash Purchase Price less the Escrow Amount will be paid to the Sellers by wire transfer of immediately available funds to the bank accounts designated by each Seller and set forth on Schedule 2.1(a).  The Purchase Price will be allocated among Sellers in accordance with Schedule 2.1(b) attached hereto.

2.2Closing Debt.

(a)Not later than three (3) business days prior to the Closing Date, Sellers shall deliver to Buyer a pay-off demand letter, including wire instructions, from each holder (“Holder”) of Indebtedness of the Company as of the Closing Date.  Each pay-off demand letter shall set forth the amount required to be paid by the Company to such Holder in order to satisfy in full any and all obligations owed by the Company to such Holder as of the Closing Date and shall otherwise be in form and substance reasonably satisfactory to Buyer.  The sum of the amounts set forth in all of the pay-off demand letters delivered to Buyer shall constitute the “Closing Debt”.

(b)At the Closing, in consideration for the release of any Lien affecting the Company (or its stock or assets) which any Holder has imposed, Buyer shall pay in cash to such Holder the respective amount of such Closing Debt due to such Holder by wire transfer of immediately available funds to the bank account designated by such Holder in its pay-off demand letter.

(c)Not less than three (3) Business Days before the Closing, the Seller’s Representative shall provide Buyer with Sellers’ good faith estimate (which estimate will be based on reasonable assumptions) of the Closing Stockholder’s Equity of the Company as of the Closing Date, and thereafter (but prior to the Closing) Sellers may cause an amount of cash, cash equivalents and marketable securities (in each case as determined in accordance with GAAP) of the Company on hand as of the Closing Date (net of any amounts required to cover checks and similar instruments issued by the Company prior to the Closing Date which have not cleared as of the Closing Date) equal to the amount by which the estimated Closing Stockholder’s Equity exceeds the Base Stockholder’s Equity to be distributed to Sellers.  Sellers shall pay or, if applicable, reimburse Buyer for all Taxes resulting from the distributions made pursuant to the preceding sentence.

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2.3Post-Closing Adjustment.

(a)As promptly as practicable after the Closing Date (but in no event more than one hundred and twenty (120) days after the Closing Date), Buyer shall cause the Company to prepare and deliver to the Sellers’ Representative (i) the consolidated balance sheet of the Company and its Subsidiaries as of the close of business on the day immediately preceding the Closing Date (and without giving effect to any of the transactions contemplated hereby except for certain pro-forma adjustments as described in Schedule 2.3(a)(ii)) (the “Closing Balance Sheet”) and (ii) reasonably detailed schedules setting forth the calculation of the Closing Stockholders’ Equity (as defined below) as of such date.  The Closing Balance Sheet shall be prepared in accordance with GAAP applied in a manner consistent with the accounting principles (the “Accounting Principles”) applied in the preparation of the consolidated balance sheet of the Company and its Subsidiaries contained in the Year-End Financial Statements for the year ended December 31, 2004, a copy of which is attached hereto as Schedule 2.3(a)(i), where applicable, using the methodology set forth on Schedule 2.3(a)(ii) hereto.  To the extent there is any inconsistency between the methodology of GAAP applied in a manner consistent with the Accounting Principles and the methodology used on Schedule 2.3(a)(ii), the methodology used on Schedule 2.3(a)(ii) shall supersede and be the basis on which the Closing Balance Sheet is prepared.  The Parties agree that the Closing Stockholders’ Equity will be calculated to exclude all cash, cash equivalents and marketable securities of the Company distributed to Sellers pursuant to Section 2.2(c) and shall not give effect to any Indebtedness which is retired at Closing in accordance with Section 2.2.  The Sellers’ Representative and a firm of independent public accountants designated by Sellers (the “Sellers’ Accountant”) will be entitled to reasonable access during normal business hours to examine and make copies of the relevant records and working papers of the Company used to prepare the Closing Balance Sheet and calculate the Closing Stockholders’ Equity and Buyer shall use its commercially reasonable efforts to provide the Sellers’ Representative with access to the Company’s accounting personnel to discuss the preparation of the Closing Balance Sheet and the calculation of the Closing Stockholders’ Equity.  Sellers will be solely responsible for all costs of Sellers’ Accountant.  The Closing Balance Sheet and the Closing Stockholders’ Equity shall be deemed to be accepted by and shall be conclusive for the purposes of the adjustment described in Sections 2.3(b) and 2.3(c): (A) in their entirety upon the earlier to occur of (1) delivery by the Sellers’ Representative of a written notice to Buyer of Sellers’ acceptance of the Closing Balance Sheet and the Closing Stockholders’ Equity or (2) failure of the Sellers’ Representative to deliver within sixty (60) days after the date on which the Closing Balance Sheet is delivered to him the acceptance notice described in the preceding clause (A)(1) or the objection notice described in the following clause (B), or (B) in their entirety except to the extent, if any, that the Sellers’ Representative shall have delivered, within sixty (60) days after the date on which the Closing Balance Sheet is delivered to him, a written notice to Buyer stating each and every item in the Closing Balance Sheet or the calculation of the Closing Stockholders’ Equity, as applicable, to which Sellers take exception and dispute as not being in accordance with GAAP, the Accounting Principles or the methodology set forth in Schedule 2.3(a)(ii), or as having computational errors, specifying in reasonable detail the nature and extent of any such exception (it being understood that any amounts not so disputed shall be paid promptly in accordance with this Section 2.3).  If a change proposed by the Sellers’ Representative is disputed by Buyer, then Buyer and the Sellers’ Representative shall negotiate in good faith to resolve such dispute.  If, after a period of twenty (20) days following the date on which the Sellers’ Representative gives Buyer notice of any such proposed change, any such proposed change still remains disputed, then PricewaterhouseCoopers

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LLP, the “Independent Accountant” shall resolve such remaining disputes.  The Independent Accountant shall determine, based solely on the Closing Balance Sheet, the calculation of the Closing Stockholders’ Equity, this Section 2.3 and presentations by the Sellers’ Representative and Buyer, and not by additional independent review, only those issues still in dispute.  It is the intent of the Parties that the process set forth in this Section 2.3(a) and the activities of the Independent Accountant in connection herewith are not intended to be and, in fact, are not arbitration and that no formal arbitration rules shall be followed (including rules with respect to procedures and discovery).  The decision of the Independent Accountant shall be final and binding and shall be in accordance with the provisions of this Section 2.3(a).  All of the fees and expenses of the Independent Accountant, if any, shall be borne equally by Buyer, on the one hand, and Sellers, on the other hand; provided, however, that, if the Independent Accountant determines that either party’s position is totally correct, then the other party shall pay one hundred percent (100%) of the costs and expenses incurred by the Independent Accountant in connection with any such determination.

(b)In the event that there is a Stockholders’ Equity Deficiency (as defined below) with respect to the Company and its Subsidiaries in excess of $250,000, Sellers shall, on a joint and several basis, pay to Buyer an aggregate amount equal to the entire Stockholders’ Equity Deficiency by wire transfer of immediately available funds to a bank account designated by Buyer within ten (10) days of the Closing Balance Sheet Delivery Date (as defined below).  In the event that the Sellers fail to promptly make the payment required by this Section 2.3(b), Buyer shall be entitled to seek payment of such amount (or any unpaid portion thereof) directly from the Escrow Account and the Sellers’ Representative agrees, at the request of Buyer, to promptly execute joint written instructions to the Escrow Agent to deliver the Stockholders’ Equity Deficiency (or unpaid portion thereof) to Buyer in accordance herewith.  Thereafter, not later than two (2) Business Days following the payment of such funds from the Escrow Account, the Sellers shall, on a joint and several basis, reimburse the Escrow Account for the full amount of any monies paid therefrom in accordance with this Section 2.3(b).  The term “Stockholders’ Equity Deficiency” shall mean the amount, if any, by which the Closing Stockholders’ Equity is less than the Base Stockholders’ Equity.

(c)In the event that there is a Stockholders’ Equity Surplus (as defined below) with respect to the Company and its Subsidiaries in excess of $250,000, Buyer shall pay to the Sellers’ Representative (on behalf of Sellers) an aggregate amount equal to the entire Stockholders’ Equity Surplus by wire transfer of immediately available funds to a bank account designated by the Sellers’ Representative within ten (10) days of the Closing Balance Sheet Delivery Date.  The term “Stockholders’ Equity Surplus” shall mean the amount, if any, by which the Closing Stockholders’ Equity is greater than the Base Stockholders’ Equity.

(d)The term “Closing Stockholders’ Equity” shall mean the consolidated stockholders’ equity of the Company and its Subsidiaries as of the close of business on the day immediately preceding the Closing Date as set forth on the Closing Balance Sheet; provided that the Closing Stockholders’ Equity shall exclude all cash, cash equivalents and marketable securities distributed to Sellers pursuant to Section 2.2(c), and shall not give effect to any Indebtedness which is retired at Closing in accordance with Section 2.2 and will not give effect to any of the transactions contemplated hereby; provided, further, that if any change to the Closing Balance Sheet is agreed to by Buyer and the Sellers’ Representative in accordance with Section 2.3(a) or any dispute between Buyer and Sellers with respect to its Closing Balance Sheet is resolved in accordance with Section 2.3(a), then the Closing Stockholders’ Equity shall be calculated after giving effect to any such change or the resolution of any such dispute.

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(e)The term “Base Stockholders’ Equity” shall mean Fifteen Million Four Hundred Sixty Six Thousand and Fifty Four Dollars ($15,466,054).

(f)The term “Closing Balance Sheet Delivery Date” shall mean, with respect to the Company, the date on which its Closing Balance Sheet is accepted pursuant to clause (A) of Section 2.3(a); provided, however, that, if any change to its Closing Balance Sheet is agreed to by Buyer and the Sellers’ Representative in accordance with Section 2.3(a), then the date on which Buyer and the Sellers’ Representative agree in writing to such change shall be the Closing Balance Sheet Delivery Date; provided further, that, if any dispute with respect to its Closing Balance Sheet is resolved in accordance with Section 2.3(a), then the date on which the Independent Accountant delivers its decision with respect to such dispute shall be the Closing Balance Sheet Delivery Date.

(g)Any amounts paid pursuant to the terms of Section 2.3(b) or 2.3(c) shall be deemed to be adjustments to the Cash Purchase Price.

2.4Closing.  The purchase and sale of the Shares shall take place in person or by facsimile on the Closing Date at 10:00 a.m. PST, at the offices of Latham & Watkins LLP, 633 West Fifth Street, Suite 4000, Los Angeles, California 90071, or at such other time and place as Buyer and Sellers mutually agree upon in writing (which time and place are designated as the “Closing”).  At the Closing, Sellers shall deliver to Buyer one or more certificates representing the Shares against payment of the Purchase Price.

2.5Escrow Amount.  The “Escrow Amount” shall be Ten Million Dollars ($10,000,000) and shall be paid in cash (the “Cash Escrow Amount”).  Sellers hereby authorize and instruct Buyer, at the Closing, to deduct the Cash Escrow Amount from the Net Cash Purchase Price and deliver such funds to the Escrow Agent to be held in an escrow account (the “Escrow Account”), in accordance with the terms and conditions of the Escrow Agreement.  All interest earned on the Cash Escrow Amount shall be distributed by Escrow Agent to Sellers as promptly as practicable upon the receipt thereof upon the terms set forth in the Escrow Agreement.  Sellers shall be responsible for reporting and paying the applicable Taxes on interest earned on the Cash Escrow Amount.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS

Except as disclosed in the Seller Disclosure Schedule, Sellers hereby jointly and severally represent and warrant to Buyer that the statements contained in this Article 3 are true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article 3.

3.1Organization and Qualification.

(a)The Company is a corporation duly formed, validly existing and in good standing under the laws of the State of Texas and has all requisite corporate power and

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authority to own, lease and operate its properties and to carry on its business as currently conducted.  The Company is duly qualified or licensed to do business as a foreign corporation or other foreign legal entity and is in good standing in each jurisdiction where such qualification is necessary (except, in the case of good standing, for entities organized under the laws of any jurisdiction that does not recognize such concept), other than where the failure to be qualified, licensed or in good standing would not, individually or in the aggregate, have a Company Material Adverse Effect.  By letter dated September 30, 2005, complete and correct copies of the certificate of incorporation and bylaws of the Company, all as amended to date, have been delivered to Buyer.  The Company is not in violation of any of the provisions of its certificate of incorporation or its bylaws provided to Buyer.

(b)Each Subsidiary of the Company has been duly formed and is validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as currently conducted.  Each Subsidiary of the Company is duly qualified or licensed to do business as a foreign corporation or other foreign legal entity and is in good standing in each jurisdiction where such qualification is necessary (except, in the case of good standing, for entities organized under the laws of any jurisdiction that does not recognize such concept), other than where the failure to be qualified, licensed or in good standing would not, individually or in the aggregate, have a Company Material Adverse Effect.  Schedule 3.1(b) sets forth all Subsidiaries of the Company and, if the Company, together with its Subsidiaries, does not own all of the outstanding Equity Interests of such Subsidiary, the percentage of Equity Interests of such Subsidiary owned by the Company and its Subsidiaries.  Except as set forth in Schedule 3.1(b), the Company does not own, directly or indirectly, any Equity Interests of any Person.

3.2Authorization.

(a)Each Seller has all requisite power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is a party, to perform its obligations under this Agreement and the Ancillary Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby.  Each Seller has taken all action necessary to enter into this Agreement and the Ancillary Agreements to which it is a party, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder.  No takeover statute or similar statute or regulation relating to the Company or any of its Subsidiaries is applicable or purports to be applicable to the sale of Shares by Sellers to Buyer or to the other transactions contemplated by this Agreement and the Ancillary Agreements.

(b)Each Seller has duly executed and delivered this Agreement, and this Agreement constitutes the legally valid and binding obligation of each Seller (assuming due authorization, execution and delivery of this Agreement by Buyer), enforceable against each in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting generally the enforcement of creditors’ rights and remedies and general principles of equity, including any limitations on the availability of the remedy of specific performance or injunctive relief regardless of whether specific performance or injunctive relief is sought in a proceeding at law or in equity.

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(c)Each Seller will duly execute and deliver each of the Ancillary Agreements to which it is a party at Closing, and upon due execution and delivery by each Seller at Closing, each of the Ancillary Agreements will constitute the legally valid and binding obligation of each Seller party thereto (assuming due authorization, execution and delivery of each of the Ancillary Agreements by Buyer), enforceable against each in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting generally the enforcement of creditors’ rights and remedies and general principles of equity, including any limitations on the availability of the remedy of specific performance or injunctive relief regardless of whether specific performance or injunctive relief is sought in a proceeding at law or in equity.

3.3Capitalization and Share Ownership.  The authorized capital stock of the Company consists of 100,000,000 shares of Company Common Stock, 23,763,000 shares of which are issued and outstanding and 15,196,000 shares of which are held by the Company in its treasury.  Sellers are the record and beneficial owners and holders of all of the issued and outstanding shares of Company Common Stock, free and clear of all Liens.  All outstanding shares of the Company Common Stock are duly authorized, validly issued, fully paid and nonassessable, and no class of capital stock of the Company is entitled to any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the general corporate law of the state of incorporation of the Company, the Company’s certificate of incorporation, the Company’s bylaws or any Contract to which the Company is a party or otherwise bound.  Each of the outstanding Equity Interests in each Subsidiary of the Company is duly authorized, validly issued, fully paid and nonassessable and, except as indicated on Schedule 3.1(b), all such shares are owned by the Company and are owned free and clear of all Liens and are not subject to any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the Legal Requirements under which such Subsidiary is formed, the Subsidiary’s organizational documents or any Contract to which such Subsidiary is a party or otherwise bound.  There are no options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which the Company or any of its Subsidiaries is a party or by which any of them is bound (i) obligating the Company or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, Equity Interests or voting securities in the Company or any of its Subsidiaries, (ii) obligating the Company or any of its Subsidiaries to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking or (iii) that give any Person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights occurring to holders of Company Common Stock. There are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock or other Equity Interests of the Company or any of its Subsidiaries and, as of the date hereof, no irrevocable proxies have been granted with respect to, and no Contract to which the Company or any of its Subsidiaries is a party or otherwise bound restricts the voting or transfer of, the shares of the Company Common Stock or Equity Interests of Subsidiaries of the Company.  There are no bonds, debentures, notes or other Indebtedness of the Company or Subsidiary of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which shareholders of the Company may vote.

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3.4Indebtedness.  Schedule 3.4 hereto sets forth all of the agreements or instruments pursuant to which any of the Indebtedness of the Company and its Subsidiaries is outstanding.  There is no default or event of default under any such agreement or instrument, and no event has occurred, which, with notice or lapse of time or both, would be a default or event of default under any such agreement or instrument which would give the other party the right to accelerate any Indebtedness of the Company or any of its Subsidiaries.  As of the Closing, the Company will have no Indebtedness other than the Closing Debt.

3.5Governmental Authorization; Noncontravention.

(a)The performance by each Seller of his obligations under this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby require no consent, approval, authorization, qualification, order or permit of, action by or in respect of, or filing or registration with or notification to, any Governmental Authority, other than (i) compliance with any applicable requirements of the HSR Act or filings under the antitrust or anti-competition Legal Requirements of foreign countries, (ii) such other consents, approvals, authorizations and notifications as are set forth on Schedule 3.5(a) and (iii) such other items, the absence of which do not have and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

(b)Assuming compliance with the matters set forth in Section 3.5(a), and except as provided in Schedule 3.5(b), the execution, delivery and performance by each Seller of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby do not and will not contravene, conflict with or result in any violation, default (with or without notice or lapse of time, or both) or breach under, or give rise to a right of consent, termination, cancellation or acceleration of any material obligation or to loss of any material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any Person under, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries under (i) the certificate of incorporation, bylaws or similar organizational documents of the Company or any of its Subsidiaries, (ii) any Legal Requirement applicable to Sellers, the Company or its Subsidiaries or by which the respective properties or assets of the Company or its Subsidiaries are bound, or (iii) any material Contract binding upon the Company or any of its Subsidiaries or to which any of their respective properties or assets is subject.

3.6Financial Statements; Undisclosed Liabilities.

(a)Company Financial Statements.  The audited consolidated financial statements as of and for the fiscal years ended December 31, 2002, December 31, 2003 and December 31, 2004 (the “Year-End Financial Statements”) and unaudited consolidated interim financial statements of the Company (including any related notes and schedules) as of and for the three months ended March 31, 2005 (the “Interim Financial Statements” and together with the Year-End Financial Statements,  the “Financial Statements”) (A) fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the results of operations and changes in financial position for the periods or as of the dates then ended, and (B) have been prepared in accordance with past practice, applicable accounting requirements and GAAP during the periods involved (except as otherwise stated therein and subject to normal year-end audit adjustments in the case of the Interim

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Financial Statements) applied on a consistent basis during the periods involved.  The books and records of the Company and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements.

(b)No Undisclosed Liabilities.  Except (i) as set forth in the financial statements for the year ended December 31, 2004 and (ii) Liabilities which do not exceed $50,000 individually or $250,000 in the aggregate, the Company and its Subsidiaries do not have any Liability, whether accrued, contingent, absolute, determined, determinable or otherwise, other than (i) Liabilities incurred in the ordinary course of business since December 31, 2004, none of which have, individually or in the aggregate, a Company Material Adverse Effect (and none of which results from, arises out of or relates to any breach of any Contract, breach of warranty, tort, infringement or violation of Legal Requirements) or (ii) Liabilities otherwise set forth on Schedule 3.6(b).

(c)Accounting Controls.  The Company and, to its Knowledge, each of its Subsidiaries maintains a system of proper internal accounting controls sufficient for a non publicly traded company to provide management reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit the annual preparation of financial statements in conformity with GAAP and to maintain asset accountability on an annual basis; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; (iv) the recorded accountability for assets is compared with the existing assets at least annually and appropriate action is taken with respect to any differences and (v) accounts, notes and other receivables and inventory are recorded accurately in the year end financial statements.  The Company, as a non publicly traded company, is not required to comply with section 404 of SOX and does not represent that its internal accounting controls satisfy the requirements of SOX.

(d)Other.  There are no securitization transactions or “off-balance sheet arrangements” (as defined in Item 303(c) of Regulation S-K under the Securities Act) which have been entered into by the Company or its Subsidiaries.  Schedule 3.6(d) lists all non-audit services performed for the Company by the Company’s accountants.

3.7Absence of Certain Changes.  Except as disclosed in Schedule 3.7, or as otherwise expressly permitted by this Agreement, since December 31, 2004, the business of the Company and its Subsidiaries has been operated in the ordinary course and consistent with past practice and since such date there has not occurred:

(a)any Company Material Adverse Effect;

(b)any declaration, payment or setting aside for payment of any dividend or other distribution (whether in cash, stock or property or any combination thereof), in respect of the Company’s or any of its Subsidiaries’ capital stock or other Equity Interests, by the Company or any of its Subsidiaries (except to the Company) or any redemption, purchase or other acquisition by the Company or any of its Subsidiaries of any of its securities or any securities of the Company or any of its Subsidiaries, or any rights, options or warrants to acquire any such securities, except for shares of capital stock or Equity Interests of the Company or any of its Subsidiaries; provided, however, that on or before the Closing, the Company shall be permitted to dividend, distribute or otherwise transfer to Sellers cash, cash equivalents and marketable securities of the Company in accordance with Section 2.2(c);

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(c)any split, combination, subdivision or reclassification of any shares of capital stock or other Equity Interests of the Company or any of its Subsidiaries, or the issuance of any other securities in respect of, in lieu of, or in substitution for shares of capital stock or other Equity Interests of the Company or any of its Subsidiaries;

(d)any amendment or change to the Company’s or any of its Subsidiaries’ certificate of incorporation, bylaws or equivalent organizational documents;

(e)any change by the Company to its accounting methods, policies, practices, or principles, or any variation in its inventory practices in any material respect from its past practices, or any write up, write down or write off of the book value of any of the Company’s or any of its Subsidiaries’ assets;

(f)any issuance or grant by the Company or any of its Subsidiaries of any rights (including stock appreciation rights, phantom stock rights, stock based performance units, phantom stock, subscriptions, warrants, puts, calls, preemptive rights, options and other securities or rights that derive their value by reference to capital stock or other Equity Interests of the Company or its Subsidiaries), obligation to repurchase or redeem, or any other rights, or other agreements of any kind, relating to, or the value of which is tied to the value of, any of the outstanding, authorized but not issued, unauthorized or treasury shares of the capital stock or any other Equity Interests of the Company or any of its Subsidiaries;

(g)any employment agreement entered into (or amended or supplemented) by the Company or any of its Subsidiaries with any of their Key Employees, or the grant of any increase in compensation (including employee benefits) of any Key Employee of the Company or any Subsidiary, except for increases (A) in salary in the ordinary course of business and consistent with past practice, or (B) as required by any employment or other agreement, policy or plan in effect as of December 31, 2004;

(h)any material Indebtedness incurred and not discharged by the Company or any of its Subsidiaries, or any loans made or agreed to be made by or to the Company or any of its Subsidiaries, other than in the ordinary course of business and consistent with past practice;

(i)any (A) increase in benefits under any Benefit Plan, (B) increase in funding under any Benefit Plan, except as required by applicable Legal Requirements, (C) establishment, adoption, amendment (other than any amendment that would result in a reduction in the costs of such Benefit Plan) or termination of any collective bargaining agreement, Benefit Plan or any plan, agreement, program, policy, trust, fund or other arrangement that would be a Benefit Plan if it were in existence as of the date of this Agreement, (D) granting of any increase in the rates of salaries, compensation or fringe or other benefits payable to any Employee other than a Key Employee, except for increases that are required by applicable Legal Requirements, (E) payment of any bonus of any kind or amount whatsoever to any current or former director, officer or employee of the Company or any of its Subsidiaries, except as agreed by Contract or applicable Legal Requirements, (F) payment of any benefit or amount not required under any Benefit Plan as in effect on the date of this Agreement and/or as of the Closing, (G) payment or granting of any severance or termination pay or increase in any manner of the severance or termination pay of any current or former director, officer, employee or consultant of the Company or any of its Subsidiaries outside the ordinary course of business consistent with past

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practice (including size, timing and scope) or as required by Contract or Benefit Plan, (H) removal of any restrictions in any Benefit Plan or agreements or awards made thereunder or (I) material change to any actuarial or other assumption used to calculate funding obligations with respect to any Benefit Plan or change the manner in which contributions to any Benefit Plan are made or the basis on which such contributions are determined;

(j)any acquisition of any Equity Interest in any other Person or any direct or indirect acquisition, investment in, capital contributions to, any Person or division or business thereof (other than in or to a directly or indirectly wholly-owned Subsidiary of the Company);

(k)any adoption of a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its Subsidiaries;

(l)any loans or advances (other than customary travel and expense advances) made to any Person, or any cancellation of Indebtedness owed to the Company or any of its Subsidiaries;

(m)any material Tax election or settlement or compromise of any material Tax liability or refund by the Company or any of its Subsidiaries, other than Tax elections required by Legal Requirement, or change in any annual Tax accounting period or method of Tax accounting, filing of any material amendment to a Tax Return, entry into any closing agreement relating to any material Tax, surrender of any right to claim a material Tax refund, or consent to any extension or waiver of the statute of limitations period applicable to any material Tax claim or assessment;

(n)any revaluation by the Company or any of its Subsidiaries of any of the material assets of the Company or any of its Subsidiaries;

(o)any damage to or destruction or loss of any asset or property of the Company or any of its Subsidiaries, whether or not covered by insurance, materially and adversely affecting the properties, assets, business, financial condition or prospects of the Company and its Subsidiaries, taken as a whole;

(p)any sale, lease, mortgage, encumbrance or other disposition or subjection to any Lien (other than a Permitted Lien) of any property or asset of the Company or any of its Subsidiaries or interests therein (including securitizations), other than sales of inventory or obsolete equipment in the ordinary course of business consistent with past practice;

(q)any settlement of pending or threatened litigation involving the Company or any Subsidiary of the Company; or

(r)any agreement by the Company or any of its Subsidiaries to take any of the actions described in the foregoing.

3.8Licenses.  (i) The Company and each of its Subsidiaries, as applicable, holds, and has held since January 1, 2002, all licenses, permits, registrations, certificates, clearances, variances, certificates of occupancy, exceptions, franchises, entitlements, consents,

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orders, approvals or other similar authorizations of all Governmental Authorities materially necessary to own, lease or operate its properties and assets and to conduct its business as presently conducted (the “Licenses”), (ii) each of the Licenses is valid and in full force and effect and will continue to be in full force and effect immediately following the Closing, (iii) none of the Governmental Authorities that has issued any License has notified the Company or any of its Subsidiaries in writing or, to the Knowledge of the Company, otherwise (A) of its intent to modify, revoke, terminate, suspend or fail to renew any such License, now or in the future, excluding any notice that any such client may be up for periodic renewal, (B) that the Company or any of its Subsidiaries is in violation of the terms of any such License and no Action has been threatened with respect thereto, or (C) that any such License is invalid or may be subject to revocation, termination, suspension or adverse modification, (iv) to the Knowledge of the Company, there is not pending or threatened any proceeding, application, petition, objection or other pleading with any Governmental Authority that questions the validity of any of the Licenses or which presents a risk that, if accepted or granted, would result in the revocation, termination, suspension or any adverse modification of any Licenses, and (v) within the past five (5) years there has not occurred any violation of, suspension, reconsideration, imposition of penalties or fines, imposition of additional conditions or requirements, default (with or without notice or lapse of time or both) under, or event giving to others any right of termination, amendment or cancellation of, with or without notice or lapse of time or both, any such License.  There is no event which, to the Knowledge of the Company, would result in the revocation, termination, non-renewal or adverse modification of any such License.

3.9Litigation; Compliance with Laws.

(a)Litigation.  Except as set forth in Schedule 3.9(a), (i) there is no suit, claim, action, proceeding (at law or in equity), audit or investigation pending or, to the Knowledge of the Company, threatened, against the Company or any of its Subsidiaries or any of their respective properties or rights before or by any arbitrator, court or other Governmental Authority (including any for which the Company or its Subsidiaries may need to indemnify a third party), (ii) neither the Company, any of its Subsidiaries, nor any of its or their current or, to the Knowledge of the Company, former officers, directors, employees, agents or representatives, has been identified by any Governmental Authority as a subject or target of a government investigation, or otherwise been informed or become aware that their conduct is being investigated by a Governmental Authority, and (iii) neither the Company nor any of its Subsidiaries is subject to any outstanding judgment, writ, decree, injunction or order of any Governmental Authority or other arbitrator.  There are no suits, claims, actions, proceedings (at law or in equity) or investigations pending or, to the Knowledge of the Company, threatened, seeking to or that would reasonably be expected to prevent, hinder, modify, delay or challenge the transactions contemplated by this Agreement.  Except as set forth in Schedule 3.9(a), there is no pending suit, claim, action, proceeding (at law or in equity) brought by the Company against any Person.

(b)Compliance.  Except as set forth in Schedule 3.9(b), or except as set forth in Section 3.18 pertaining to compliance with Health Care Laws, to the Knowledge of the Company, the Company and its Subsidiaries are and at all times since January 1, 2002 have been in material compliance with all Legal Requirements applicable to them or their respective businesses or operations.  Neither the Company nor any of its Subsidiaries have received notification of any asserted present or past failure to comply with any such Legal Requirement.

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3.10Employment Matters.

(a)The Company, its Subsidiaries and all Benefit Plan fiduciaries are each in material compliance with all applicable Legal Requirements with respect to labor relations, employment and employment practices, occupational safety and health standards, terms and conditions of employment, wages and hours, human rights, pay equity, plant closings and workers’ compensation.  There is no material charge pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries alleging, with respect to any current or former employees or prospective employees of the Company or any of its Subsidiaries, and neither the Company nor any of its Subsidiaries has committed, (i) any material violation of any statute or regulation relating to employment or employment practices, including without limitation any labor, employment, fair employment practices, workers’ compensation, occupational safety, plant closings and wage and hours Legal Requirements and regulations or (ii) any unlawful discrimination in employment practices or any unfair labor practices, and there is no charge or complaint against the Company or any of its Subsidiaries pending before the National Labor Relations Board or any court, agency or other comparable judicial or arbitral body.

(b)Neither the Company nor any of its Subsidiaries is a party to, and no employees of the Company or any of its Subsidiaries are covered by, any collective bargaining agreement, works council agreement or other labor union agreement, and no collective bargaining agreement, works council agreement or other similar labor union agreement for employees of the Company or any of its Subsidiaries is currently being negotiated or pending negotiation by the Company or any of its Subsidiaries.

(c)There has not been a representation question respecting any of the employees of the Company or any of its Subsidiaries and, to the Knowledge of the Company, there are no campaigns being conducted to solicit cards from or otherwise organize employees of the Company or any of its Subsidiaries to authorize representation by any labor organization and there has been no labor strike, slow-down or other concerted work stoppage with respect to the business activities of the Company or any of its Subsidiaries since January 1, 2002 and, to the Knowledge of the Company, no such labor strike, slow-down, or other concerted work stoppage has been or is currently threatened.

(d)Neither the Company nor any of its Subsidiaries (i) is delinquent in payments to any of its employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed for it or amounts required to be reimbursed to such employees, (ii) is liable for any payment to any trust or other fund or to any Governmental Authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for employees (other than routine payments to be made in the ordinary course of business consistent with past practice), or (iii) has any material pending claims against it under any workers’ compensation plan or policy or for long-term disability.

(e)The Company and each of its Subsidiaries have withheld all amounts required by Legal Requirements or by agreement to be withheld from the wages, salaries, and other payments to employees and are not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing.

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(f)No employees of the Company or any of its Subsidiaries are in any material respect in violation of any term of any employment agreement, non-disclosure agreement, noncompetition agreement, or any restrictive covenant to a former employer relating to the right of any such employee to be employed by the Company or any of its Subsidiaries because of (i) the nature of the business conducted or presently proposed to be conducted by the Company or any of its Subsidiaries or (ii) the use of trade secrets or proprietary information of others.  No Key Employee of the Company or any of its Subsidiaries has given notice to the Company or any of its Subsidiaries that any such Key Employee intends to terminate his or her employment with the Company or any of its Subsidiaries.  Except as set forth in Schedule 3.10(f), there are no controversies pending or, to the Knowledge of the Company, threatened, between the Company or any of its Subsidiaries and any of their respective current or former employees, which controversies have resulted in or could reasonably be expected to result in an action, suit, proceeding, claim, arbitration or investigation before any Governmental Authority.

3.11Tax Matters.  Except as set forth on Schedule 3.11:

(a)Each of the Company and its Subsidiaries has timely filed all Tax Returns required to be filed, and all such Tax Returns are true, correct and complete in all material respects.  Each of the Company and its Subsidiaries has timely paid all Taxes which are due and payable pursuant to such Tax Returns except those which are currently being contested and for which adequate reserves have been established in the Financial Statements.  Neither the Company nor any of its Subsidiaries currently is the beneficiary of any extension of time within which to file any material Tax Return.  No written claim has ever been received by the Company, any Subsidiary or any representative thereof from a Tax authority in a jurisdiction where the Company and its Subsidiaries do not file Tax Returns that any of the Company or its Subsidiaries is or may be subject to taxation by that jurisdiction.

(b)The unpaid Taxes of the Company and its Subsidiaries did not, as of the date of the Interim Financial Statements, exceed the reserve for Tax liability (excluding any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the balance sheets (rather than in any notes thereto) contained in such financial statements.  Since the date of the Interim Financial Statements, neither the Company nor any of its Subsidiaries has incurred any liability for Taxes outside the ordinary course of business or otherwise inconsistent with past custom and practice.

(c)Each of the Company and its Subsidiaries has withheld and paid all Taxes required to be withheld and paid in connection with amounts paid and owing to any employee, independent contractor, creditor, stockholder or other third party (whether domestic or foreign).

(d)Neither the Company nor any of its Subsidiaries has received written notice of any proposed or determined Tax deficiency or assessment from any Governmental Authority.  As of the date hereof there are no audits, examinations, requests for information or other administrative proceedings pending or, based on written notice, threatened with respect to any of the Company or its Subsidiaries, and adequate provision for Taxes with respect to the audits, examinations or other proceedings set forth on Schedule 3.11 has been made and reflected on the Financial Statements.  No issues relating to Taxes of any of the Company or its Subsidiaries were raised by the relevant Tax authority in any completed audit or

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examination that would reasonably be expected to recur with a material adverse effect on Taxes in a later taxable period.  By letter dated September 30, 2005, Sellers have delivered to Buyer copies of federal, state and local income Tax Returns of each of the Company and its Subsidiaries and their predecessors for the years ended December 31, 2001, 2002, 2003 and will deliver promptly upon their availability, 2004, and have delivered complete and correct copies of all examination reports and statements of deficiencies assessed against or agreed to by any of the Company and its Subsidiaries or any predecessor, with respect to Taxes.  None of the Company, any of its Subsidiaries or any predecessor has waived any statute of limitations in respect of Taxes which remain outstanding, or agreed to any extension of time with respect to a Tax assessment or deficiency which remains outstanding, or has made any request in writing for any such extension or waiver which remains outstanding.

(e)There are no Tax sharing agreements or similar arrangements (including indemnity arrangements) with respect to or involving any of the Company and/or its Subsidiaries, and, after the Closing Date, none of the Company and its Subsidiaries shall be bound by any such Tax sharing agreements or similar arrangements or have any Liability thereunder for amounts due in respect of periods prior to the Closing Date.

(f)Except for the affiliated group of which the Company is the common parent, each of the Company and its Subsidiaries is not and has never been a member of an affiliated group of corporations within the meaning of Section 1504 of the Code or any group that has filed a combined, consolidated or unitary Tax Return.  Neither the Company nor any of its Subsidiaries has Liability for the Taxes of any Person other than the Company and its Subsidiaries (i) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign Legal Requirement), (ii) as a transferee or successor, (iii) by contract, or (iv) otherwise.

(g)Neither the Company nor any of its Subsidiaries has distributed any corporation in a transaction intended to qualify under Section 355 of the Code within the past two years, nor has the Company or any of its Subsidiaries been distributed in a transaction intended to qualify under Section 355 of the Code within the past two years.

(h)There are no Liens for Taxes upon any property or asset of any of the Company or its Subsidiaries, except for (i) Liens for Taxes not yet delinquent or (ii) Liens for Taxes contested in good faith and reserved against in accordance with GAAP and reflected in the Financial Statements.

(i)None of the Company nor any of its Subsidiaries (i) has consented at any time under former Section 341(f)(1) of the Code to have the provisions of former Section 341(f)(2) of the Code apply to any disposition of the assets of the Company or its Subsidiaries (or under any similar provision of state, local or foreign law); (ii) has agreed, or is or was required, to make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise (or by reason of any similar provision of state, local or foreign law); (iii) has ever been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code; (iv) has been a stockholder of a “controlled foreign corporation” as defined in Section 957 of the Code (or any similar provision of state, local or foreign Legal Requirement); (v) has ever made an election under Section 338 of the Code (or under any similar provisions of state, local or foreign Law); (vi) has been a “personal holding company” as defined

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in Section 542 of the Code (or any similar provision of state, local or foreign law); (vii) has been a stockholder in a “passive foreign investment company” within the meaning of Section 1297 of the Code; (viii) has been a partner for Tax purposes with respect to any joint venture, partnership, or other arrangement or contract which is treated by the parties as a partnership for Tax purposes; (ix) has owned a single member limited liability company which is treated as a disregarded entity, (x) has engaged in a trade or business, had a permanent establishment (within the meaning of an applicable Tax treaty) or has otherwise become subject to Tax jurisdiction in a country other than the country of its formation, (xi) has any excess loss account (as defined in Treasury Regulation Section 1.1502-19) with respect to the stock of any Subsidiary, or (xii) has any overall foreign loss as defined in Section 904(f) of the Code.

(j)Neither the Company nor any of its Subsidiaries has been a party to a “reportable transaction,” as such term is defined in Treasury Regulations Section 1.6011-4(b)(1) or to a transaction that is or is substantially similar to a “listed transaction,” as such term is defined in Treasury Regulations Section 1.6011-4(b)(2), or any other transaction requiring disclosure under analogous provisions of state, local or foreign Tax Legal Requirement.  The Company has disclosed on its federal income Tax Returns all positions that are required to be disclosed therein that could give rise to a substantial understatement of federal income Tax within the meaning of Section 6662 of the Code.

(k)None of the assets of the Company or any of its Subsidiaries is property which the Company or its Subsidiaries is required to treat as being owned by any other person pursuant to the so-called “safe harbor lease” provisions of the Code.

(l)None of the assets of the Company or any of its Subsidiaries directly or indirectly secures any debt the interest of which is tax exempt under Section 103(a) of the Code.

(m)None of the assets of the Company or any of its Subsidiaries is “tax-exempt use property” within the meaning of Section 168(h) of the Code.

(n)Each asset with respect to which the Company and its Subsidiaries claims depreciation, amortization, or similar expense for tax purposes is owned for tax purposes by either the Company or its Subsidiaries.

(o)There have been no prior ownership changes as defined in Section 382 of the Code with respect to the Company.

(p)Neither the Company nor any of its Subsidiaries is a party to any agreement, contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of any excess “parachute payments” within the meaning of Section 280(G) of the Code or any similar provision of foreign, state or local law.  If applicable prior to the Closing Date, the Sellers shall take the appropriate action to satisfy the requirements of Section 280(G)(b)(5)(B) of the Code.

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3.12Real Property.

(a)Neither the Company nor any of its Subsidiaries owns any real property, and neither the Company nor any of its Subsidiaries is a party to any agreement or option to purchase any real property or interest therein.

(b)Schedule 3.12(b) lists all real property that is leased by the Company or its Subsidiaries (the “Leased Real Property”).  The Leased Real Property comprises all of the real property used by the Company and its Subsidiaries.  Except as disclosed in Schedule 3.12(b), each of the Company and its Subsidiaries hold good and valid leasehold interests in the Leased Real Property, free and clear of all Liens, other than Permitted Liens or Liens encumbering a lessor’s interest in the Leased Real Property incurred by the lessor.  Each of the leases under which the Leased Real Property is held (A) is in full force and effect, and (B) is enforceable against the Company or its Subsidiary and, to the Knowledge of the Company, against the other party or parties thereto, in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting generally the enforcement of creditors’ rights and remedies and general principles of equity, including any limitations on the availability of the remedy of specific performance or injunctive relief regardless of whether specific performance or injunctive relief is sought in a proceeding at law or in equity.  No material default exists under any lease under which the Leased Real Property is held to which the Company or any of its Subsidiaries is a party and, to the Knowledge of the Company, no circumstance exists which, with the giving of notice, the passage of time or both, is reasonably likely to result in such a default.  The transactions contemplated by this Agreement do not require the consent of any other party to any lease under which Leased Real Property is held, will not result in a breach of or default under such lease, or otherwise cause such lease to cease to be legal, valid, binding, enforceable and in full force and effect on identical terms following the Closing.  There are no subleases, licenses, concessions or any other Contracts or agreements to which the Company or any of its Subsidiaries is a party granting to any Person or entity other than the Company or any of its Subsidiaries any right to the possession, use, occupancy or enjoyment of any of the Leased Real Property or any portion thereof and to the Knowledge of the Company, there are no easements, covenants, rights-of-way and other similar restrictions of record, if any, that, individually or in the aggregate, materially impair the continued use and operation of the Leased Real Property to which they relate in the conduct of the business of the Company and its Subsidiaries as presently conducted.  There are no material reciprocal easements, operating agreements, option agreements, rights of first refusal or rights of first offer with respect to any Leased Real Property.  All buildings, structures, fixtures, building systems and equipment, and all components thereof, included in the Leased Real Property are in good condition and repair and sufficient for the operation of the businesses of the Company and each of its Subsidiaries, and there are no physical conditions or defects at any of the Leased Real Property which, to the Knowledge of the Company, materially impair or would be reasonably expected to materially impair the continued operation of such facility as presently conducted.  As of the date hereof, there are no existing, or to the Knowledge of the Company, threatened or pending condemnation or eminent domain proceedings (or proceedings in lieu thereof) affecting the Leased Real Property or any portion thereof.  Neither the Company nor any of its Subsidiaries, as the case may be, has received any notice from any Person of any material defects or inadequacies in the Leased Real Property or any part thereof, which would adversely affect the insurability of the same or of any termination or threatened (in writing) termination of any policy of insurance relating to any such Leased Real

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Property.  The present use of the land, buildings, structures and improvements on the Leased Real Property are, in all material respects, in conformity with all Legal Requirements, including all applicable zoning laws, ordinances and regulations and with all registered deeds or other restrictions of record, and neither the Company nor any of its Subsidiaries, as the case may be, has received any written notice of violation thereof, except for such nonconformities or violations that would not, individually or in the aggregate, have a Company Material Adverse Effect.  Neither the Company nor any of its Subsidiaries, as the case may be, has received any written notice of any conflict or dispute with any Governmental Authority or other Person relating to any Leased Real Property or the activities thereon, other than where there is no current or reasonably likely material interference with the operations at the Leased Real Property as presently conducted (or as would be conducted at full capacity).

3.13Environmental Matters.  Except as disclosed in Schedule 3.13:

(a)the Company and its Subsidiaries are and always have been in material compliance with all Environmental Permits, and the Company and its Subsidiaries are in material compliance with all Environmental Laws;

(b)neither the Company nor any of its Subsidiaries has received any Environmental Claim that has not been fully resolved and, to the Knowledge of the Company, there are no threatened Environmental Claims against the Company or any of its Subsidiaries;

(c)neither the Company nor any of its Subsidiaries has entered into or agreed to any consent decree, order or agreement under any Environmental Law, and neither the Company nor any of its Subsidiaries is subject to any judgment, decree or order relating to compliance with any Environmental Law or to investigation, cleanup, remediation or removal of Hazardous Materials under any Environmental Law.

(d)To the Knowledge of the Company, there are no above-ground or underground storage tanks or known or suspected asbestos-containing materials on, under or about the Leased Real Property, nor, to the Knowledge of the Company, were there any underground storage tanks on, under or about any such Leased Real Property in the past;

(e)To the Knowledge of the Company, there is not now and has not been any Hazardous Materials used, generated, treated, stored, transported, disposed of, released, handled or otherwise existing on, under, about, or emanating from or to, any Leased Real Property, except in material compliance with all applicable Environmental Laws;

(f)there is no site to which the Company has transported or arranged for the transport of Hazardous Materials which, to the Knowledge of the Company, is or may become,  either with the giving of notice or the passage of time or both, the subject of any Environmental Claim; and

(g)complete and correct copies of the written reports, and all parts thereof, of all environmental audits or assessments which have been conducted at any Company (or any of its Subsidiaries) leased or operated property of which the Company has Knowledge, have been delivered to Buyer by letter dated September 30, 2005, and are identified in Schedule 3.13.

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3.14Insurance.

(a)The material assets and the business operations of the Company and each of its Subsidiaries are insured against claims, losses or damages in amounts that are sufficient to satisfy the insurance coverage requirements of any applicable Legal Requirements.  All such policies insuring such assets and business operations are in full force and effect.  By letter dated September 30, 2005, the Company has delivered to Buyer complete and correct copies of all insurance policies (including without limitation director and officer and employee and officer insurance policies), each of which is listed on Schedule 3.14.

(b)Excluding insurance policies that have expired and been replaced in the ordinary course of business consistent with past practice, as of the date of this Agreement, to the Knowledge of the Company, no threat in writing has been made to cancel (excluding cancellation upon expiration or failure to renew) any insurance policy of the Company or any of its Subsidiaries during the period of one year prior to the date hereof.  As of the date hereof, to the Knowledge of the Company, no event has occurred, including the failure by the Company or any of its Subsidiaries to give any notice or information or by giving any inaccurate or erroneous notice or information, which materially limits or impairs the rights of the Company or any of its Subsidiaries under any such insurance policies.

3.15Intellectual Property.

(a)The Company (either in its own right or through its Subsidiaries) owns, licenses or has valid rights to use all Intellectual Property and cell lines that, in each case, is necessary for use in the business, operations and products of the Company and its Subsidiaries, including (by way of example only and not limitation) products for the use of Inhibin as a diagnostic indicator for Down’s Syndrome and all other products that are presently being sold by the Company (the “Company Intellectual Property”).  Schedule 3.15(a) to this Agreement sets forth a true and complete list of all (i) U.S. and foreign patents and patent applications and for each, its number, issue date, title and priority information for each country in which such patent has been issued, or the application number, date of filing, title and priority information for each country in which a patent application is pending; (ii) Registered Proprietary Names, the registration number thereof, and, if applicable, the class of goods or the description of goods or services covered thereby, the countries in which such Registered Proprietary Name is registered, and the expiration date for each country in which such Registered Proprietary Name has been registered; (iii) Unregistered Proprietary Names and applications for registration of Unregistered Proprietary Names, the application serial number thereof, the date of filing, the countries in which such application was filed and, if applicable, the class of goods or the description of goods or services sought to be covered thereby, (iv) copyright registrations, the number and date of registration thereof for each country in which such copyright has been registered; (v) applications for registration of copyrights and the date and countries in which such application was filed and (vi) domain names and applications for registration of domain names, in each case included in the Company Intellectual Property.  Except as set forth in Schedule 3.15(a), the Company has all rights, priorities and privileges relating to the Intellectual Property it owns, whether arising under United States, multinational or foreign Legal Requirements or otherwise and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.  All of the issued patents in the Company Intellectual Property are currently in compliance with formal Legal Requirements (including payment of filing, examination, and maintenance fees and, where required, proofs of working or use).

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(b)The Company and/or one of its Subsidiaries is the exclusive owner of the entire and unencumbered right, title and interest in and to each item of the owned Company Intellectual Property.

(c)All of the owned Company Intellectual Property and, to the Knowledge of the Company, all of the licensed Company Intellectual Property is in good standing, without any unresolved challenge, and is valid and enforceable, and has not been adjudged invalid or unenforceable (except for challenges to validity that may be received in the ordinary course of the prosecution of patent applications in patent offices).

(d)Except as set forth on Schedule 3.15(d), no legal proceedings are pending or, to the Knowledge of the Company, are threatened against the Company or any of its Subsidiaries (i) based upon, challenging or seeking to deny or restrict the use by the Company of any of the Company Intellectual Property, (ii) alleging that any services provided by, processes used by, or products manufactured or sold or to be manufactured or sold by the Company or any of its Subsidiaries infringe or misappropriate any Intellectual Property right of any third party, or (iii) alleging that the Intellectual Property Licenses being licensed are in conflict with the terms of any third party license or other agreement.

(e)Schedule 3.15(e) contains a complete and accurate list and summary description (to the extent permitted under any restrictions in its agreements with third parties), including any royalties paid or received by the Company, of all agreements relating to Company Intellectual Property and cell lines to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound, except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available software programs with a value of less than $5,000 under which the Company or any of its Subsidiaries is the licensee.  There are no outstanding and, to the Knowledge of the Company, no threatened disputes or disagreements with respect to any such agreement.  To the Knowledge of the Company, except for the licenses set forth in Schedule 3.15(e), there are no items of Intellectual Property or cell lines owned by a party other than the Company or any of its Subsidiaries that are material to the business, operations or products of the Company or any of its Subsidiaries.

(f)Except as set forth on Schedule 3.15(f), to the Knowledge of the Company, there is no unauthorized use, improper disclosure, infringement or misappropriation of any Company Intellectual Property.

(g)To the Knowledge of the Company, all software developed by or for the Company and used on the instruments and systems sold, leased or otherwise distributed in the business of the Company or any of its Subsidiaries (“Company Instruments”) is free of all viruses, worms, trojan horses, and “time-clocks” and does not contain any bugs, errors, or problems that materially disrupt its operation or have a material adverse impact on the operation of other software programs or operating systems used by end users of such Company Instruments.

(h)The Company and its Subsidiaries have used reasonable precautions to maintain their material trade secrets in confidence, including entering into licenses and Contracts that generally require licensees, contractors and other third persons with access to such trade secrets to keep such trade secrets confidential.

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(i)Except as set forth in Schedule 3.15(i); (A) the Company has secured valid written assignments from all current and former consultants and employees who contributed to the creation or development of any owned Company Intellectual Property used in a product currently being sold by the Company or the rights to such contributions that the Company does not already own by operation of law; and (B) (x) there has been no misappropriation of any material trade secrets or other material confidential Company Intellectual Property by any Person, (y) no employee, independent contractor or agent of the Company or any of its Subsidiaries has misappropriated any trade secrets of any other Person in the course of such performance as an employee, independent contractor or agent, and (z) no employee, independent contractor or agent of the Company or any of its Subsidiaries is in default or breach of any term of any employment agreement, nondisclosure agreement, assignment of invention agreement or similar agreement or contract relating in any way to the protection, ownership, development, use or transfer of Company Intellectual Property.

(j)As of the date of this Agreement, (i) no written claim of invalidity or conflicting ownership rights with respect to any Company Intellectual Property has been made by a third party and no such Company Intellectual Property is the subject of any pending or, to the Knowledge of the Company, threatened action, suit, claim, investigation, arbitration, interference, opposition or other proceeding, (ii) (A) neither the Company nor any of its Subsidiaries, after the acquisition of such Subsidiary by the Company, has performed prior acts or is engaged in current conduct or use or authored or authorized any publication, or (B) to the Knowledge of the Company, there exists no publication or prior act or current use by any third party, that would void or invalidate any Company Intellectual Property used in a product currently being sold by the Company, and (iii) the execution, delivery and performance of this Agreement and the Ancillary Agreements and the transactions contemplated by this Agreement and the Ancillary Agreements by Sellers and the consummation of the transactions contemplated hereby and thereby, after acquisition of any required consents, will not breach, violate or conflict with any instrument, agreement or Contract that the Company or any of its Subsidiaries is party to and that concerns any Company Intellectual Property, will not cause the forfeiture or termination or give rise to a right of forfeiture or termination of any of the Company Intellectual Property or impair the right of Buyer to make, use, sell, license or dispose of, or to bring any Action for the infringement of, any Company Intellectual Property.

3.16Employee Benefits.

(a)Schedule 3.16(a) contains a true and complete list of each Benefit Plan which, is now or was within the past 6 years, maintained, sponsored or contributed to by the Company, any of its Subsidiaries or any ERISA Affiliate, or under which the Company, any of its Subsidiaries or any ERISA Affiliate has any obligation or liability, whether actual or contingent.  Schedule 3.16(a) separately identifies each Benefit Plan which is or was intended to be qualified under Section 401(a) of the Code.  By letter dated September 30, 2005, Sellers have provided to Buyer complete and correct copies of all Benefit Plans (including amendments) and, with respect thereto, all trust agreements, insurance contracts, other funding vehicles, determination letters issued by the IRS, the most recent annual reports (Form 5500 series) filed with the IRS or comparable foreign taxing authority, and the most recent actuarial report or other

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financial statement relating to such Benefit Plan, if any.  Neither the Company nor any of its Subsidiaries nor, to the Knowledge of the Company, any other Person, has any express or implied commitment, whether legally enforceable or not, to modify, change or terminate any Benefit Plan, other than with respect to a modification, change or termination required by ERISA, the Code or other applicable domestic or foreign Legal Requirements.

(b)Each Benefit Plan has been operated and administered in all material respects in accordance with its terms and in compliance with all applicable Legal Requirements (including but not limited to ERISA and the Code and any applicable foreign Legal Requirements), and all contributions required to be made under the terms of any of the Benefit Plans have been timely made.  With respect to the Benefit Plans, no event has occurred and there exists no condition or set of circumstances in connection with which the Company, any of its Subsidiaries or any ERISA Affiliate could be subject to any material liability (other than for routine benefit liabilities) under the terms of, or with respect to, such Benefit Plans, ERISA, the Code or any other applicable Legal Requirements.  Neither the Company nor any ERISA Affiliate has any liability under ERISA Section 502.

(c)Each Benefit Plan that is intended to be qualified under Section 401(a) of the Code is maintained pursuant to standardized prototype document approved by the IRS or has obtained a favorable determination letter from the IRS that the Benefit Plan is so qualified and all related trusts are exempt from U.S. federal income taxation under Section 501(a) of the Code, and, to the Knowledge of the Company, nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification or exemption.  Except as would not reasonably be expected to result in material liability to the Company, any of its Subsidiaries or an ERISA Affiliate, (i) there has been no prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code other than a transaction that is exempt under a statutory or administrative exemption) with respect to any Benefit Plan, (ii) no suit, administrative proceeding, action or other litigation has been brought, or to the Knowledge of the Company, is threatened, against or with respect to any such Benefit Plan, including without limitation any audit or inquiry by the IRS, United States Department of Labor, the Pension Benefit Guaranty Corporation or any comparable foreign agency (other than routine benefits claims), (iii) no breaches of fiduciary duty under which the Company, an ERISA Affiliate or a Benefit Plan fiduciary could reasonably be expected to incur a material liability have occurred, (iv) no lien on any assets of the Company or any of its Subsidiaries has been imposed under the Code, ERISA or any comparable foreign Legal Requirements with respect to any Benefit Plan, (v) all contributions, premiums and expenses to or in respect of each Benefit Plan have been timely paid in full or, to the extent not yet due, have been adequately accrued on the Company’s consolidated financial statements, (vi) all tax, annual reporting and other governmental filings required by ERISA, the Code or any comparable foreign Legal Requirements have been timely filed with the appropriate Governmental Authority and all required notices and disclosures have been timely provided to participants, (vii) all contributions and payments to each Benefit Plan are deductible under Code Sections 162 or 404, and (viii) no excise tax could be imposed upon the Company under Chapter 43 of the Code.

(d)Neither the Company nor any of its ERISA Affiliates sponsors, maintains, contributes to or has an obligation to contribute to, or has sponsored, maintained, contributed to or had an obligation to contribute to, during the past six years, any “employee pension benefit plan” (as defined in Section 3(2) of ERISA) that is (i) subject to Title IV of ERISA or Section 412 of the Code, (ii) a “multiemployer plan” as defined in Section 3(37) of ERISA, or (iii) a “multiple employer plan” (within the meaning of Section 413(c) of the Code).

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(e)Except as set forth in Schedule 3.16(e), neither the execution and delivery of this Agreement or the Ancillary Agreements, nor the consummation of the transactions contemplated hereby (including payment of any bonuses to Employees) or thereby will (either alone or in conjunction with any other event, such as a termination of employment), (i) result in any payment (including, without limitation, severance, unemployment compensation, parachute or otherwise) becoming due to any employee, officer or director of the Company or any of its Affiliates who is a “disqualified individual” (as such term is defined in Treasury Regulation Section 1.280G-1), (ii)  increase any benefits otherwise payable under any Benefit Plan, (iii) result in any acceleration of the time of payment, vesting or funding of any compensation, equity award or other benefit for any “disqualified individual,” (iv) result in any “parachute payment” under Section 280G of the Code (whether or not such payment is considered to be reasonable compensation for services rendered), or (v) cause any compensation payable by the Company or any of its Subsidiaries to fail to be deductible under Section 162(m) of the Code or any other provision of the Code.

(f)Except as required by applicable Legal Requirements, no Benefit Plan provides any of the following retiree or post-employment benefits to any Person: medical, disability or life insurance benefits.  There has been no communication to any employee, consultant or director of the Company or any of its Subsidiaries that would reasonably be expected to promise or guarantee any such retiree medical, disability or life insurance on any permanent basis.  The Company and each ERISA Affiliate are in compliance in all material respects with (i) the requirements of the applicable health care continuation and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and the regulations (including proposed regulations) thereunder and any similar state Law, and (ii) the applicable requirements of the Health Insurance Portability and Accountability Act of 1996, as amended, and the regulations (including the proposed regulations) thereunder, except as would not be reasonably expected to result in material liability to the Company or an ERISA Affiliate.

(g)Neither the Company nor any of its Subsidiaries maintains any plan, program or arrangement or is a party to any contract that provides any material benefits or provides for material payments to any Person in, based on or measured by the value of, any equity security of, or interest in, the Company or any of its Subsidiaries.  Neither the Company nor any of its Subsidiaries maintains any plan, program or arrangement or is a party to any contract that is a “nonqualified deferred compensation plan” within the meaning of Section 409A of the Code.

(h)Except as set forth on Schedule 3.16(h), no Indebtedness in excess of $25,000 is owed by any current or former employee, consultant or director of the Company or any of its Subsidiaries to the Company or any of its Subsidiaries.

3.17Material Contracts.

(a)Except as set forth in Schedule 3.17(a), and other than Contracts entered into after the date hereof, but only to the extent entering into such Contract is permitted by Section 5.1 hereof (such Contracts entered into after the date hereof being deemed to be set forth in Schedule 3.17(a) and included within the Material Contracts to the extent they would

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have been required to have been so listed and so included if entered into prior to the date hereof and provided Sellers promptly notify Buyer thereof), neither the Company nor any of its Subsidiaries is a party to or bound by (i) any non-competition agreement or any other agreement or obligation which limits or will limit the Company or any of its Affiliates or, after the Closing, Buyer or any of its Subsidiaries, from engaging in any business, (ii) any Contract that relates to any Indebtedness in excess of $100,000, (iii) any Contract that provides for aggregate payments to or from the Company or any of its Subsidiaries in excess of $100,000 in any twelve month period (to the extent allowed to be disclosed by the terms of such Contract), (iv) any Contract that cannot be terminated without penalty of less than $100,000 upon not more than 90 days prior written notice, (v) any Contract pursuant to which the Company or any of its Subsidiaries or any of Sellers has continuing obligations involving the payment of royalties or other amounts calculated based upon the revenues or income of the Company or any of its Subsidiaries, or income or revenues related to any product of the Company or any of its Subsidiaries, (vi) any leases and subleases of real property, (vii) any Contract that limits or purports to limit the ability of the Company or any of its Affiliates to compete in any line of business or to sell or represent competing products or with any Person or in any geographic area or during any period of time, (viii) any Contracts which are terminable upon, or prohibit, a change of ownership or control of the Company or any of its Subsidiaries, (ix) any Contract where, in settlement of an actual or threatened Action for patent infringement, trade secret misappropriation or similar intellectual property action, another Person agrees in writing not to contest the validity or ownership of Company Intellectual Property, (x) any Contracts with any Governmental Authority, (xi) any Contracts that result in any Person holding a power of attorney from the Company or any of its Subsidiaries that relates to the Company, any of its Subsidiaries or their respective businesses, (xii) any Contracts relating to employment or severance, or (xiii) any other Contract, whether or not made in the ordinary course of business consistent with past practice, that is material to the Company and its Subsidiaries, taken as a whole, or to the conduct of their respective businesses, or the absence of which would prevent or materially delay consummation of the transactions contemplated by this Agreement or the Ancillary Agreements or otherwise prevent or materially delay Sellers from performing their obligations under this Agreement or the Ancillary Agreements  (the contracts, agreements and commitments referred to in clauses (i) - (xiii), the “Material Contracts”).  Except as set forth on Schedule 3.17(a), (A) each of the Material Contracts is valid and binding on the Company or its applicable Subsidiary party thereto and, to the Knowledge of the Company, each other party thereto and is in full force and effect and represents the entire agreement among the parties with respect to the subject matter of such Material Contract and (B) neither the Company nor any of its Subsidiaries has violated any material provision of, or committed or failed to perform any act which, with or without notice, lapse of time or both, would constitute a material default under the provisions of any such Material Contract.  Neither the Company nor its Subsidiaries (i) have received any written or, to the Knowledge of the Company, other notice of termination or cancellation under any Material Contract, (ii) have received any notice of breach or default under any Material Contract, which breach (A) has not been cured or (B) the Company has not begun the process of curing and will not cure within a commercially reasonable time, (iii) have not materially complied with the terms of all Material Contracts, and (iv) have granted to any other third party any rights, adverse or otherwise, under any Material Contract that would constitute a breach of such Material Contract.  To the Knowledge of the Company, no counterparty to any Material Contract has violated any material provision of, or committed or failed to perform any act which, with or without notice, lapse of time or both would constitute a material default or other material breach under the provisions of a Material Contract.  Except as set forth on Schedule 3.17(a), neither the Company nor any of its Subsidiaries is a party to, or otherwise a guarantor of or liable with respect to, any interest rate, currency or other swap or derivative transaction.

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(b)With respect to any Contract, a portion of which cannot be disclosed to Buyer as of the date hereof, Schedule 3.17(b) sets forth such information regarding such Contract, without violating the provisions thereof, which would allow Buyer to identify and understand such Contract.  No such Contracts contain any restriction against a change of control of the Company, and the consummation of the transactions contemplated hereby shall not adversely effect any rights or remedies of the Company under such Contracts.

3.18Regulatory Matters.

(a)The Company has established and administers a compliance program (including a written compliance policy) applicable to the Company and all of its Subsidiaries (i) to assist the Company and the directors, officers and employees of the Company and its Subsidiaries in complying with applicable regulatory guidelines (including, without limitation, those administered by the FDA and HHS) applicable to the Company and its Subsidiaries or its and their business and (ii) to provide compliance policies governing applicable areas for in vitro diagnostics products and medical device companies (including, without limitation, pre-clinical and clinical testing, product design and development, product testing, product manufacturing, product labeling, product storage, pre-market clearance and approval, marketing, advertising and promotion, product sales and distribution, reimbursement, fraud and abuse, medical device recall and reporting regulations, and record keeping).

(b)Except as set forth in Schedule 3.18(b), the Company is in compliance in all material respects with the provisions of all Legal Requirements relating to the regulation of the Company’s products, including, without limitation, their design, development, manufacture, labeling, storage and transport, in all jurisdictions in which such acts or any of them occur or are reasonably likely to occur or such products or any of them are likely to be sold or used (including without limitation, the FDC Act, CLIA, Controlled Substances Act, Federal Anti-Kickback Statute, Stark Law, Civil False Claims Act, Administrative False Claims Act, Exclusion Laws and, for each of the foregoing, all comparable state Legal Requirements and the rules and regulations promulgated thereunder by FDA, HHS and any other comparable Governmental Authorities (collectively “Health Care Laws”).  All applications, submissions, information, claims, reports and statistics and other data and conclusions derived therefrom, utilized as the basis for or submitted in connection with any and all requests for authorizations, approvals, certificates, waivers, certifications, clearances, exemptions, notifications, consents, orders, registrations, licenses or permits of the FDA, HHS or comparable Governmental Authorities relating to the Company, its business and its products, when submitted to the FDA, HHS or other Governmental Authority were true, complete and correct in all material respects and in conformance with Legal Requirements as of the date of submission and any updates, changes, corrections or modification to such applications, submissions, information and data which were or are necessary or required to be filed, maintained, or furnished to the FDA, HHS or other Governmental Authorities have been timely filed, maintained, or furnished to the FDA, HHS and other Governmental Authorities and were true, complete and correct in all material respects and in conformance with Legal Requirements as of the date of submission.  The labeling claims made by the Company for the Company’s products are valid and supported by proper research design, testing, analysis and disclosure that conforms with Legal Requirements.

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(c)All pre-clinical and clinical trials conducted by the Company, its Subsidiaries and any third party engaged in the testing, manufacturing, storage, packaging, labeling, sale or distribution of a product under contract for the Company or one of its Subsidiaries have been, and are being conducted in compliance with all published recommendations of the FDA and all applicable Legal Requirements and guidances of the FDA or any other Governmental Authority, including the requirements of Good Laboratory Practices, investigational new drug requirements, Good Clinical Practice requirements (including Informed Consent, institutional review boards and other requirements relating to protection of human subjects contained in 21 C.F.R. Parts 50, 54, 56, 58 and 312), and federal and state Legal Requirements and guidances restricting the use and disclosure of individually identifiable health information.

(d)The Company’s activities, products and relevant facilities, as well as, to the Knowledge of the Company, its suppliers, distributors and other intermediaries, are in compliance with all applicable requirements of the FDC Act and implementing FDA regulations, including, without limitation, the registration, listing, labeling and manufacturing requirements of 21 C.F.R. Parts 807, 809.10 and 820, all to the extent applicable to in vitro diagnostic devices and accessories, except for noncompliance which is not known to Sellers or the Company.  The Company is not subject to any obligation arising under any consent decree, consent agreement, or warning letter issued by or entered into with the FDA or any other Governmental Authority or other notice, response or commitment made to the FDA or any other Governmental Authority.  By letter dated September 30, 2005, Sellers have delivered to Buyer complete and correct copies of all customer complaints relating to the Company’s products and all Medical Device Reports filed with the FDA within the last five years.  By letter dated September 30, 2005, Sellers have delivered to Buyer complete and correct copies of all warning letters, untitled letters, notices of inspectional observations (Form FDA 483s or their equivalent issued by the Texas Department of Health), or similar notices, or other correspondence relating to the Company’s products and its compliance with Legal Requirements from the FDA, the Texas Department of Health and any other Governmental Authority and all of the Company’s responses thereto within the last five years.

(e)Except as set forth in Schedule 3.18(e), no 510(k) applications for the Company’s products have been subjected to reevaluation or suspension of sale by the FDA and no products manufactured, marketed or sold by the Company have been recalled, suspended or subject to a field notification, field correction or safety alert or otherwise discontinued (whether voluntarily or otherwise) and no proceedings have occurred (whether completed or pending) seeking to recall, reclassify, re-label, suspend, or seize any product sold or proposed to be sold by the Company.  To the Knowledge of the Company, there are no facts which are reasonably likely to cause: (A) the recall, suspension, field notification, field correction, reclassification, re-labeling or safety alert of any product sold or intended to be sold by the Company; (B) a change in the marketing classification or a material change in labeling of any such products; or (C) a termination or suspension of marketing of any such products.

(f)All products being manufactured, distributed, or developed by the Company that are subject to the jurisdiction of the FDA, the In Vitro Diagnostics Directive issued by the European Union or the regulations issued by Koseisho are being manufactured, labeled, stored, tested, distributed, and marketed in material compliance with all applicable requirements and implementing regulations thereunder.

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(g)Except as set forth in Schedule 3.18(g), there are no non-clinical, pre-clinical or clinical trials or studies being conducted by or on behalf of the Company.  All pre-clinical trials and clinical trials conducted by or on behalf of the Company have been, and are being conducted in material compliance with experimental protocols, procedures and controls pursuant to accepted professional scientific standards and all applicable Legal Requirements relating thereto, including the FDC Act and its applicable implementing regulations at 21 C.F.R. Parts 50, 54, 56 and 812.

(h)Neither the Company nor, to the Knowledge of the Company, any of its officers, employees or agents has committed any act, made any statement, or failed to make any statement, that would be reasonably expected to provide a basis for the FDA to invoke its policy respecting “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities,” set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments thereto.

(i)Neither the Company nor, to the Knowledge of the Company, any of its officers, employees or agents has been convicted of any crime or engaged in any conduct that could result in a material debarment or exclusion (i) under 21 U.S.C. Section 335a or 42 U.S.C. Section 1320a-7, (ii) under any similar state Legal Requirement, or (iii) from participation in Medicare, Medicaid or any other state, federal or other governmental health care program in the United States or elsewhere.  No claims, actions, proceedings or investigations that could reasonably be expected to result in such a material debarment or exclusion are pending or threatened against the Company or, to the Knowledge of Company, any of its officers, employees or agents.

(j)Except as disclosed on Schedule 3.18(j), to the Knowledge of the Company there are no investigations, audits, actions or other proceedings pending with respect to a violation by the Company of any Health Care Law or any other legislation or regulation promulgated by any other Governmental Authority that reasonably would be expected to result in administrative, civil, or criminal liability.

(k)The Company and each of its Subsidiaries is in material compliance with all applicable FDA import and export requirements, including, but not limited to, import-for-export requirements, export notifications or authorizations and record keeping requirements.

3.19Foreign Corrupt Practices and International Trade Sanctions.  Except as disclosed in Schedule 3.19, neither the Company, nor any of its Subsidiaries, nor any of their respective directors, officers, agents, employees or any other Persons acting on their behalf has while so acting (i) violated the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-1 et seq., or any other similar applicable foreign, federal, or state Legal Requirement, (ii) made or provided, or caused to be made or provided, directly or indirectly, any payment or thing of value to a foreign official, foreign political party, candidate for office or any other person knowing that the person will pay or offer to pay the foreign official, party or candidate, for the purpose of influencing a decision, inducing an official to violate their lawful duty, securing any improper advantage, or inducing a foreign official to use their influence to affect a governmental decision, (iii) paid, accepted or received any unlawful contributions, payments, expenditures or gifts, (iv) violated or operated in noncompliance with any export restrictions, money laundering law, anti-terrorism law or regulation, anti-boycott regulations, embargo regulations or other applicable domestic or foreign Legal Requirements, or (v) participated in or cooperated with, an International Boycott as set forth in Section 999(b)(3) of the Code.

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3.20Assets Other Than Real Property Interests.  The Company and its Subsidiaries have good and marketable title to all of their respective material properties and assets, in each case free and clear of all Liens, except Permitted Liens.  This Section 3.20 does not relate to the Leased Real Property.

3.21Affiliate Transactions.  Except as set forth in Schedule 3.21 or benefits under the terms of any Benefit Plans, there are no contracts, commitments, agreements, arrangements or other transactions between the Company or any of its Subsidiaries, on the one hand, and any (i) Key Employee or director of the Company or any of its Subsidiaries, (ii) Sellers or (iii) any Affiliate of any Seller or, to the Knowledge of the Company, any Affiliate of any such Key Employee or director, on the other hand.

3.22Finders and Brokers.  No broker, finder or investment banker, financial advisor or other Personis entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Sellers, the Company or its Subsidiaries.

3.23Occupational Safety and Health.  The Company and its Subsidiaries are and have been since January 1, 2002 (except for any such failures as have been remedied) in material compliance with all Occupational Safety and Health Laws and have all of the material permits required by such Legal Requirements to operate their respective businesses.

3.24Supply Arrangements.  To the Knowledge of the Company, there are no facts or circumstances that have materially adversely affected or are reasonably likely to materially adversely affect the continued supply of the antibodies, antigens, labels and other active ingredients of the products of the Company.

3.25Accounts Receivable.  All accounts receivable of the Company and its Subsidiaries that are reflected on the Interim Financial Statements or on the accounting records of the Company and its Subsidiaries as of the Closing Date (collectively, the “Accounts Receivable”) represent or will represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business consistent with past practice.  Unless paid prior to the Closing Date, to the Knowledge of the Company, the Accounts Receivable are or will be as of the Closing Date current and collectible net of the respective reserves shown on the Interim Financial Statements or on the accounting records of the Company and its Subsidiaries as of the Closing Date (which reserves are believed to be adequate and calculated consistent with past practice).  There is no contest, claim, or right of set-off, other than returns in the ordinary course of business, under any Contract with any obligor of an Accounts Receivable relating to the amount or validity of such Accounts Receivable.  Schedule 3.25 contains a complete and accurate list of all Accounts Receivable as of the date of the Interim Financial Statements, which list sets forth the aging of such Accounts Receivable.

3.26Inventory.  All inventory of the Company and its Subsidiaries, whether or not reflected in the Interim Financial Statements, consists of a quality and quantity usable and salable in the ordinary course of business (it being understood that based on present usage rates, the inventory (including cell lines) of Inhibin Pty Limited may be of a quantity exceeding a one

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(1) year supply), except for obsolete items and items of below-standard quality, all of which do not exceed in the aggregate the reserves for inventory set forth on the balance sheet contained in the Interim Financial Statements, or have been written off or written down to net realizable value in the Interim Financial Statements or on the accounting records of the Company and its Subsidiaries as of the Closing Date, as the case may be.  All inventories not written off have been priced at the lower of cost or market value on a first in, first out basis.  The quantities of each item of inventory (whether raw materials, work-in-process, or finished goods) are not excessive, but are reasonable in the present circumstances of the Company and its Subsidiaries.

3.27No Additional Representations and Warranties.  Except as provided in this Article 3, neither the Company, any Subsidiary, any of their Affiliates, nor any of the Sellers has made, or is making, any representation or warranty whatsoever to the Buyer;  provided, that none of the representations or warranties of Sellers contained herein and none of the information contained in the Schedules when taken as a whole, contains, or on the Closing Date will contain, any untrue statement of a material fact or omits, or on the Closing Date will omit, to state a material fact required to be stated herein or therein in order to make the statements herein or therein, in light of the circumstances under which they were made, not misleading.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby represents and warrants to Sellers that the statements contained in this Article 4 are true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article 4):

4.1Organization and Qualification.  Buyer is a corporation duly formed, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as currently conducted, other than where the failure to be in good standing would, individually or in the aggregate, reasonably be expected to have a Buyer Material Adverse Effect.  Buyer is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary (except, in the case of good standing, for entities organized under the laws of any jurisdiction that does not recognize such concept), other than where the failure to be qualified, licensed or in good standing would not, individually or in the aggregate, reasonably be expected to have a Buyer Material Adverse Effect.  Complete and correct copies of Buyer’s certificate of incorporation and bylaws, all as amended to date, have been made available to Sellers.

4.2Authorization.

(a)Buyer has all requisite corporate power and corporate authority to execute and deliver this Agreement, to perform its obligations under this Agreement and to consummate the transactions contemplated hereby.  The execution, delivery and performance by Buyer of this Agreement and the Ancillary Agreements and the consummation by Buyer of the transactions contemplated hereby and thereby have been duly authorized by Buyer, and no other corporate proceedings on the part of Buyer are necessary to authorize this Agreement or the Ancillary Agreements or to consummate the transactions so contemplated.

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(b)Buyer has duly executed and delivered this Agreement, and this Agreement constitutes the legally valid and binding obligation of Buyer (assuming due authorization, execution and delivery of this Agreement by Sellers), enforceable against Buyer in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting generally the enforcement of creditors’ rights and remedies and general principles of equity, including any limitations on the availability of the remedy of specific performance or injunctive relief regardless of whether specific performance or injunctive relief is sought in a proceeding at law or in equity.

(c)Buyer will duly execute and deliver each Ancillary Agreement at Closing, and upon due execution and delivery by Buyer at Closing, each Ancillary Agreement will constitute the legally valid and binding obligation of Buyer (assuming due authorization, execution and delivery of each Ancillary Agreement by Sellers), enforceable against Buyer in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting generally the enforcement of creditors’ rights and remedies and general principles of equity, including any limitations on the availability of the remedy of specific performance or injunctive relief regardless of whether specific performance or injunctive relief is sought in a proceeding at law or in equity.

4.3Governmental Authorization; Noncontravention.

(a)The execution, delivery and performance by Buyer of this Agreement and the Ancillary Agreements and the consummation by Buyer of the transactions contemplated hereby and thereby require no consent, approval, authorization, order or permit of, action by or in respect of, or filing with or notification to, any Governmental Authority, other than (i) compliance with any applicable requirements of the HSR Act or filings under the antitrust or anti-competition laws of foreign countries, (ii) compliance with any applicable requirements of the Securities Act, the Exchange Act, and any other applicable securities Legal Requirements, and (iii) such other items the absence of which do not and would not reasonably be expected to have, individually or in the aggregate, a Buyer Material Adverse Effect.

(b)The execution, delivery and performance by Buyer of this Agreement and the Ancillary Agreements and the consummation by Buyer of the transactions contemplated hereby and thereby do not and will not contravene, conflict with or result in any violation, default (with or without notice or lapse of time, or both) or breach under, or give rise to a right of consent, termination, cancellation or acceleration of any obligation or to loss of any benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any Person under, or result in the creation of any Lien upon any of the properties or assets of Buyer under (i) the certificate of incorporation or bylaws of Buyer, (ii) any Legal Requirement applicable to Buyer or any of its Subsidiaries or by which its or their properties or assets are bound, (iii) any binding Contract, to which Buyer or any of its Subsidiaries is bound or by which any of its or their respective properties or assets is bound, other than such exceptions in the case of clauses (ii) and (iii) as do not have and would not reasonably be expected to have, individually or in the aggregate, a Buyer Material Adverse Effect.

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4.4Absence of Litigation.  No claim, action, proceeding or investigation is pending, or to the knowledge of Buyer, threatened, against Buyer or any of its Subsidiaries, before any court, arbitrator or administrative, governmental or regulatory authority or body which seeks to delay or prevent the consummation of the transactions contemplated hereby or under the Ancillary Agreements or which would reasonably be likely to materially and adversely affect or restrict Buyer’s ability to consummate the transactions contemplated hereby or under the Ancillary Agreements.

4.5No Buyer Stockholder Approval.  No vote or consent of the holders of any class or series of capital stock of Buyer is necessary to approve this Agreement or the transactions contemplated hereunder.

4.6Acquisition for Investment.  Buyer is an “accredited investor” (as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act) and is acquiring the Shares solely for its own account and not with a view to any distribution or other disposition thereof.  Buyer understands that (a) the Shares have not been registered under the Securities Act or registered or qualified under any applicable state securities laws in reliance upon specific exemptions therefrom, and (b) the Shares may not be transferred or sold except in a transaction registered or exempt from registration under the Securities Act, and registered or qualified or exempt from registration or qualification under any applicable state securities laws.

4.7Financial Ability.  Buyer has the financial resources necessary to consummate the transactions contemplated by this Agreement, including, without limitation, the ability to pay the Cash Purchase Price at Closing.

4.8Brokers’ Fees.  No broker, finder, investment banker or other person is entitled to any brokerage fee, finder’s fee or other commissions in connection with the transactions contemplated by this Agreement based upon arrangements made by Buyer.

ARTICLE 5
COVENANTS AND ADDITIONAL AGREEMENTS

5.1Conduct of Business of the Company.  During the period from the date of this Agreement and prior to the earlier of the Closing Date or the Termination Date, except (i) as specifically permitted by this Agreement; (ii) as required by applicable Legal Requirements or the regulations or requirements of any regulatory organization applicable to the Company or (iii) upon the prior written consent of Buyer (which consent shall not be unreasonably withheld or delayed), Sellers shall cause the Company and its Subsidiaries to carry on their respective businesses in the ordinary course consistent with past practice and use their respective commercially reasonable efforts to preserve intact their present business organizations, lines of business, rights and franchises and preserve their goodwill and business relationships with customers, suppliers, employees, licensors, licensees and others having business dealings with them.  In addition, and without limiting the generality of the foregoing, except (x) as specifically permitted by this Agreement, (y) as required by applicable Legal Requirements, or (z) unless Buyer expressly consents in writing in advance, Sellers shall cause the Company and its Subsidiaries not to:

(i)enter into or modify, amend or terminate or assign any rights or claims under any (A) Material Contract to which the Company or any of its Subsidiaries

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is a party or by which any such Person or its assets is bound, (B) any Intellectual Property License, (C) any Contract relating to Inhibin or (D) any Contract relating to the research, clinical trial, development, distribution, sale, supply, license, marketing, co-promotion or manufacturing of products or product candidates of the Company or any of its Subsidiaries or products or product candidates licensed by the Company or any of its Subsidiaries, or the Intellectual Property of the Company or any of its Subsidiaries, other than (1) confidentiality agreements entered into in the ordinary course of business consistent with past practice containing customary terms that do not impose any obligations on the Company or any of its Subsidiaries other than those relating to the treatment of confidential information, (2) consulting agreements entered into in the ordinary course of business consistent with past practice that individually have aggregate values of no more than $100,000 and (3) pursuant to any such Contracts currently in place (that have been disclosed in writing to Buyer prior to the date hereof) in accordance with their terms as of the date hereof;

(ii)fail to use reasonable efforts to maintain any of its Company Intellectual Property or fail to take such actions as are reasonable to enforce its material Intellectual Property rights or prosecute or maintain its Company Intellectual Property;

(iii)enter into any Contract containing any restriction on the ability of the Company or any of its Subsidiaries to assign its rights, interests or obligations thereunder, unless such restriction would not prohibit the assignment of such Contract to Buyer or any of its Subsidiaries in connection with or following the sale of the Shares by Sellers to Buyer and the other transactions contemplated by this Agreement;

(iv)(A) sell, lease, mortgage, encumber or otherwise dispose of or subject to a Lien (other than a Permitted Lien) or (B) authorize the sale, lease, mortgage, encumbrance or other disposition of or subjection to a Lien (other than a Permitted Lien), any properties or assets of the Company or any of its Subsidiaries or any interests therein (including securitizations), other than sales of inventory and obsolete equipment in the ordinary course of business consistent with past practice;

(v)sell, transfer or out-license to any Person or otherwise extend, amend, modify, abandon, or make part of the public domain any rights to the Company Intellectual Property of the Company or any of its Subsidiaries or disclose any trade secret or know how of the Company or any of its Subsidiaries, other than pursuant to (A) confidentiality agreements entered into in the ordinary course of business consistent with past practice containing customary terms that do not impose any obligations on the Company or its Subsidiaries other than those relating to the treatment of confidential information and (B) any such Contracts currently in place (that have been disclosed in writing to Buyer prior to the date hereof) in accordance with their terms as of the date of this Agreement;

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(vi)amend, change or propose to amend or change its certificate of incorporation, bylaws or equivalent organizational documents;

(vii)(A) split, combine, subdivide or reclassify any shares of its capital stock or other Equity Interests or issue or authorize the issuance of any other Equity Interests in respect of, in lieu of or in substitution for shares of its capital stock or other Equity Interests; (B) or declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof), in respect of its or its Subsidiaries’ capital stock, provided, however, the Company shall be permitted to distribute to its shareholders cash, cash equivalents and marketable securities in accordance with Section 2.2(c) without the consent of Buyer or (C) redeem, repurchase or otherwise acquire or offer to redeem, repurchase or otherwise acquire any of its securities or any securities of the Company or any of its Subsidiaries or any rights, options or warrants to acquire any such securities, except for (1) dividends paid by any Subsidiary that is, directly or indirectly, wholly owned by the Company, and (2) redemptions, purchases or other acquisitions of Equity Interests under the terms of any Benefit Plan or Contract existing on the date of this Agreement between the Company or any of its Subsidiaries and any director, officer, employee or consultant of the Company or any of its Subsidiaries;

(viii)issue, deliver, sell, pledge, encumber, subject to any Lien or otherwise grant or dispose of, or authorize the issuance, delivery, sale, pledge, encumbrance subjection to any Lien or grant or disposition of, any (A) shares of its capital stock of any class, other Equity Interests or voting securities of the Company or any of its Subsidiaries, (B) any securities convertible into or exercisable for, or any rights, warrants or options to acquire, any such capital stock, other Equity Interests or voting securities or (C) any phantom stock, phantom stock rights, stock based performance units or other securities that derive their value by reference to such capital stock, other Equity Interests or voting securities;

(ix)merge or consolidate with any Person, or enter into any agreement with respect to the voting of its capital stock or other securities held by the Company or any of its Subsidiaries;

(x)            (A) increase benefits under any Benefit Plan, (B) increase funding under any Benefit Plan, except as required by applicable Legal Requirements, (C) establish, adopt, enter into, amend or terminate any collective bargaining agreement, Benefit Plan or any plan, agreement, program, policy, trust, fund or other arrangement that would be a Benefit Plan if it were in existence as of the date of this Agreement, (D) grant any increase in the rates of salaries, compensation or fringe or other benefits payable to any Key Employee (other than as required by applicable Legal Requirements or pursuant to Contracts or Benefit Plans in effect as of the date hereof, in each case as disclosed in Schedule 5.1(x)(D)), (E) grant any increase in the rates of salaries, compensation or fringe or other benefits payable to any employee other than a Key Employee, except increases in the ordinary course of business consistent with past practice that are not generally made to a group of employees in an across-the-board manner and

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except for increases that are required by Legal Requirements or pursuant to Contracts or Benefit Plans in effect as of the date hereof that have been disclosed to Buyer, (F) pay any bonus of any kind or amount whatsoever to, any current or former director, officer or employee of the Company or any of its Subsidiaries, except for any bonus required by any Benefit Plan or pursuant to any Contract in effect as of the date hereof, in each case as disclosed in Schedule 5.1(x)(F), (G) pay any benefit or amount not required under any Benefit Plan as in effect on the date of this Agreement, (H) except as set forth on Schedule 5.1(x)(H), grant or pay any severance or termination pay or increase in any manner the severance or termination pay of any current or former director, officer, employee or consultant of the Company or any of its Subsidiaries outside the ordinary course of business consistent with past practice (including size, timing and scope), (I) remove any restrictions in any Benefit Plan or agreements or awards made thereunder, (J) take any action to secure, accelerate or accelerate the vesting of the payment after the Closing Date of compensation or benefits under any employee plan, agreement, contract or arrangement or Benefit Plan, (K) fail to take such action as would be reasonable under the circumstances to enforce any rights of the Company or any of its Subsidiaries under any employment agreement, severance agreement, noncompete agreement, nonsolicitation agreement, covenant not to disclose confidential information or other similar agreement with respect to any current or former employee or independent contractor of the Company or any of its Subsidiaries in effect as of the date of this Agreement or (L) materially change any actuarial or other assumption used to calculate funding obligations with respect to any Benefit Plan or change the manner in which contributions to any Benefit Plan are made or the basis on which such contributions are determined;

(xi)directly or indirectly acquire, make any investment in, or make any capital contributions to, any Person or division, business or equity interest of any Person (other than in or to a directly or indirectly wholly-owned Subsidiary of the Company);

(xii)(A) repurchase, incur, issue or modify any Indebtedness, (B) make any loans or advances to any Person or (C) cancel any Indebtedness owed to the Company or any of its Subsidiaries, except in the ordinary course of business consistent with past practice and, except, in the case of (A) and (B), (1) with respect to a direct or indirect wholly-owned Subsidiary of the Company, (2) amounts that do not exceed $100,000 in the aggregate and (3) loans, advances or short-term Indebtedness made or incurred in connection with the purchase of raw materials, equipment and supplies in the ordinary course of business consistent with past practice and in amounts and on terms consistent with past practices;

(xiii)         pay, pre-pay, discharge or satisfy any claim, Liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise) in excess of $250,000 in the aggregate, other than (A) the payment, discharge, settlement or satisfaction in accordance with their terms, of claims, liabilities, or obligations disclosed, reflected or reserved against in the Interim Financial Statements (for amounts not in excess of such reserves) or incurred since the date of such financial statements in the ordinary course of business consistent with past

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practice, (B) pursuant to existing Contracts or any additional Contracts permitted by this Section 5.1, and (C) in connection with, or as otherwise provided or contemplated by, this Agreement or any of the transactions expressly contemplated hereby;

(xiv)settle or compromise any litigation, investigation, arbitration, proceeding or claim (whether or not commenced prior to the date of this Agreement), and other than settlements or compromises of litigation where the amount paid (after giving effect to insurance proceeds actually received) in settlement or compromise does not exceed the Company’s reserves on its books therefor, or for any litigation for which the Company has not yet reserved in an amount therefor that does not exceed $100,000;

(xv)waive, release or assign any claims or rights of substantial value;

(xvi)waive any benefits of, fail to enforce, or agree to modify in any respect, or consent to any matter with respect to which consent is required (A) under any standstill or similar agreements prohibiting a third party from purchasing Equity Interests of the Company or any of its Subsidiaries to which the Company or any of its Subsidiaries is a party or (B) any material confidentiality or similar agreements to which the Company or any of its Subsidiaries is a party, other than in the ordinary course of business consistent with past practice;

(xvii)make or change any material income Tax election outside the ordinary course of business consistent with past practice, amend any material income Tax election, settle any material Tax liability, change any annual Tax accounting period, change any method of Tax accounting, file any material amendment to a Tax Return, enter into any closing agreement relating to any material Tax, surrender any right to claim a material Tax refund, or consent to any extension or waiver of the statute of limitations period applicable to any material Tax claim or assessment;

(xviii)except as may be required as a result of a change in applicable Legal Requirements, (A) change any of the accounting methods, practices or principles used by it, (B) write up, write down or write off the book value of any of its assets or (C) vary its inventory practices in any material respect from its past practices;

(xix)(A) accelerate or delay collection of notes or accounts receivable in advance of or beyond their regular due dates or the dates when the same would have been collected in the ordinary course of business consistent with past practice, (B) delay or accelerate payment of any account payable in advance of its due date or the date such liability would have been paid in the ordinary course of business consistent with past practice, or (C) vary the Company’s or any of its Subsidiaries’ practice with respect to the purchase of supplies and raw materials in any material respect from the Company’s or any of its Subsidiaries’ past practices;

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(xx)adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its Subsidiaries;

(xxi)make any new capital expenditure or expenditures (including leases and in-licenses), or enter into any Contract(s) providing for capital expenditures which, in the aggregate, are in excess of One Hundred Thousand Dollars ($100,000);

(xxii)take any action to exempt or make not subject to any state takeover law or state law that purports to limit or restrict business combinations or the ability to acquire or vote shares any Person (other than Buyer or any Subsidiary of Buyer) or any action taken thereby, which Person or action would have otherwise been subject to the restrictive provisions thereof and not exempt therefrom;

(xxiii)except for the payment of rent on the Company’s headquarter facility, enter into any transaction with, or make any payment to, any Affiliate of the Company or any director, officer, or beneficial owner of more than 5% of voting securities of the Company or any of its Subsidiaries, or any of their family members or Affiliates, other than (A) a wholly owned Subsidiary of the Company, (B) compensation for services permitted by the other provisions of this Section 5.1 and (C) to Key Employees, employees or directors in accordance with the terms of any Contract or compensation arrangement or Benefit Plan in effect on the date of this Agreement which was entered into in the ordinary course of business consistent with past practice and in accordance with Section 5.1(x);

(xxiv)change (including by way of amendment, modification, or failure to renew) any insurance coverage in any material respect;

(xxv)enter into, modify, amend or terminate any Material Contract or waive, release or assign any rights or claims thereunder, which if so entered into, modified, amended, terminated, waived, released or assigned would reasonably be expected to (i) adversely affect the Company or any of its Subsidiaries in any material respect, (ii) impair the ability of Sellers to perform their obligations under this Agreement or the Ancillary Agreements in any material respect, (iii) prevent or materially delay the consummation of the transactions contemplated by this Agreement or the Ancillary Agreements or (iv) limit or restrict Buyer or any of its successors and assigns from engaging or competing in any line of business or in any geographic area;

(xxvi)enter into any Contract which shall not terminate or be subject to termination for convenience, in each case, without cost, by the Company or any Subsidiary of the Company upon notice of 90 days or less;

(xxvii)      enter into any Contract to the extent consummation of the transactions contemplated by this Agreement or the Ancillary Agreements or compliance by Sellers with the provisions of this Agreement or the Ancillary Agreements would reasonably be expected to (i) conflict with, or result in a violation or breach of, or default (with or without notice or lapse of time, or both) under, such Contract,

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(ii) give rise to a right of, or result in, termination, cancellation or acceleration of any obligation or to the loss of a benefit under such Contract, or (iii) result in the creation of any Lien in or upon any of the properties or other assets of the Company or any Subsidiary of the Company under, or give rise to any increased, additional, accelerated, or guaranteed right or entitlements of any third party under, or result in any material alteration of, any provision of, such Contract;

(xxviii)enter into any strategic alliance, affiliate agreement or joint marketing arrangement or agreement;

(xxix)take any action that is intended to result in any of the conditions set forth in Article 6 not being satisfied; or

(xxx)authorize any of, or commit or agree to take any of, the foregoing actions.

5.2Access to Information.  Throughout the period prior to the earlier of the Closing Date or the Termination Date, Sellers shall cause the Company and each of its Subsidiaries to afford to Buyer, its officers, employees, counsel, financial advisors and other representatives, prompt, reasonable access during normal business hours (subject to reasonable notice and coordination) to all of the Company’s and its Subsidiaries’ properties, books, contracts, commitments, personnel and records as may be reasonably requested in connection with the sale of the Shares from Sellers to Buyer and the consummation of the other transactions contemplated hereby, and, during such period, Sellers shall cause the Company and each of its Subsidiaries to furnish as promptly as practicable to Buyer such information concerning the Company and its Subsidiaries’ businesses, properties, financial condition and the books and records relevant thereto or reflecting such condition, operations and personnel (including, if legally permitted, personnel records) as Buyer may from time to time reasonably request.  Buyer will use reasonable best efforts to minimize any disruption to the businesses of the Company and its Subsidiaries that may result from the requests for access, data and information hereunder.

Sellers will consult with Buyer regarding the business of the Company in a prompt manner and on a regular basis.  Sellers shall notify Buyer of, and keep Buyer informed of all material information regarding the Company’s business.

No investigation by Buyer pursuant to this Agreement or in connection with the transactions contemplated hereby shall affect the representations or warranties of Sellers contained in this Agreement.  Buyer will hold any information provided under this Section 5.2 in confidence to the extent required by, and in accordance with, the provisions of the Confidentiality Agreement, provided that Buyer and Sellers, on behalf of the Company, may disclose such information as may be necessary in connection with seeking any necessary consent, approval, authorization, qualification, or order of, or any exemption by, or the making of any material declaration, filing or registration with, any Governmental Authority that is required to be obtained or made by such party or any of its Subsidiaries in connection with the sale of the Shares from Sellers to Buyer and the consummation of the other transactions contemplated hereby.

5.3Notification.  Between the date of this Agreement and the Closing Date, Sellers will promptly notify Buyer in writing if any Seller becomes aware of any fact or condition that causes or constitutes a breach of any of Sellers’ representations and warranties as

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of the date of this Agreement, or if any Seller becomes aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition.  During the same period, Sellers will promptly notify Buyer of the occurrence of any breach of any covenant of Sellers in this Section 5 or of the occurrence of any event that may make the satisfaction of the conditions in Sections 6.1 or 6.2 impossible or unlikely.

5.4No Solicitation.

(a)From the date of this Agreement until the earlier of the Closing Date or the Termination Date, no Seller will, and Sellers will cause the Company and its Subsidiaries and Affiliates and the officers, directors, employees, investment bankers, attorneys, accountants, consultants or other agents, advisors or representatives (collectively, the “Representatives”) of the Company or any of its Subsidiaries or Affiliates not to, directly or indirectly:

(i)solicit, initiate or encourage or induce any inquiry with respect to, or the making, submission or announcement of, any Acquisition Proposal or the making of any proposal that would reasonably be expected to lead to, any Acquisition Proposal;

(ii)participate or engage in any discussions or negotiations regarding an Acquisition Proposal or furnish or disclose any non-public information relating to the Company or any of its Subsidiaries, or their businesses, assets, liabilities or prospects or afford access to the properties, books or records of the Company or any of its Subsidiaries to, any Person regarding an Acquisition Proposal;

(iii)enter into any letter of intent, agreement in principle, acquisition agreement, understanding or similar agreement contemplating or relating to an Acquisition Proposal; or

(iv)approve, endorse or recommend any Acquisition Proposal.

Without limiting the foregoing, it is agreed that any violation of the restrictions set forth in this Section 5.4 by any Representative of the Company, its Subsidiaries or its or their Affiliates, whether or not such Person is purporting to act on behalf of Sellers, the Company or its Subsidiaries or otherwise, shall be a breach of this Section 5.4 by Sellers.

(b)As promptly as practicable, and in any event within twenty–four hours, after receipt of any inquiry, any request for information, or the making of any proposal or offer that could reasonably be expected to lead to any Acquisition Proposal, Sellers shall provide Buyer with oral and written notice of the material terms and conditions of such inquiry, request, proposal or offer and the identity of the Person or group making any such inquiry, request, proposal or offer, a copy of all written materials provided in connection with such inquiry, request, proposal or offer and a written summary of any such inquiry, request, proposal or offer, if it is not in writing.  After receipt of the inquiry, request, proposal or offer, Sellers shall continue to provide Buyer prompt oral and written notice setting forth all such information as is reasonably necessary to keep Buyer informed in all material respects of the status and details

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(including material amendments or proposed material amendments) of any such inquiry, request, proposal or offer and shall promptly provide to Buyer a copy of all written materials subsequently provided in connection with such inquiry, request, proposal or offer and a summary of all oral proposals, requests or inquiries.

5.5Commercially Reasonable Efforts; Consents.

(a)Subject to the terms and conditions of this Agreement, Sellers shall cause the Company and each of its Subsidiaries to, and Buyer shall, and shall cause each of its Subsidiaries to, use their commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with Buyer, on the one hand, and Sellers, on the other hand, in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the sale of the Shares from Sellers to Buyer and the other transactions contemplated by this Agreement and the Ancillary Agreements, including (i) the obtaining of any necessary consent, authorization, order or approval of, or any exemption by, any Governmental Authority and/or any other public or private third party which is required to be obtained by the Company, Buyer or any of their respective Subsidiaries in connection with the sale of the Shares from Sellers to Buyer and the other transactions contemplated by this Agreement and the making or obtaining of all necessary filings and registrations with respect thereto, including filings under the HSR Act and any foreign counterpart thereto, and (ii) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement.

(b)Without limiting Section 5.5(a), to the extent not previously filed, Buyer and the Sellers’ Representative shall duly file with the U.S. Federal Trade Commission and the Antitrust Division of the Department of Justice, and in any applicable foreign jurisdiction with the appropriate Governmental Authority, the notification and report form required under the HSR Act or any other filing required under the antitrust or competition Legal Requirements of such foreign jurisdiction with respect to the transactions contemplated by this Agreement as promptly as practicable, and in any event within ten (10) days after the date of this Agreement.  Each such filing will be in compliance with the governing Legal Requirements.  Nothing in this Agreement shall be deemed to require Buyer to agree to, or proffer to, divest or hold separate any assets or other portion of any business of Buyer, the Company or any of their respective Subsidiaries.  The filing fees required to be paid in connection with the filing under the HSR Act shall be borne by Buyer.

(c)From the date of this Agreement until the Closing Date, Sellers and Buyer shall promptly notify the other in writing of any pending or threatened action, suit, arbitration or other proceeding or investigation by any Governmental Authority or any other Person (i) challenging or seeking damages in connection with the sale of the Shares from Sellers to Buyer or the consummation of the other transactions contemplated hereby or (ii) seeking to restrain or prohibit the sale of the Shares from Sellers to Buyer or the consummation of the other transactions contemplated hereby or otherwise limit the right of Buyer or its Subsidiaries to own or operate all or any portion of the businesses or assets of the Company or its Subsidiaries.

(d)Subject to applicable Legal Requirements, between the date of this Agreement and the Closing Date, if requested by Buyer, Sellers will consult and cooperate on matters relating to the integration of Buyer’s and the Company’s respective businesses and personnel following the Closing Date and will periodically meet to discuss and review such matters with Buyer.

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5.6Employee Benefits.

(a)As of the date determined by Buyer and subject to the terms of each applicable plan, Buyer shall provide each employee of the Company or any if its Subsidiaries (the “Continuing Employees”) with medical, dental and similar health, welfare and defined contribution retirement benefits that are in the aggregate substantially comparable to those provided to similarly situated employees of Buyer and its Subsidiaries, provided that nothing herein shall be construed to (i) obligate Buyer to provide the benefits described in this paragraph for any period beyond the Closing Date, or (ii) mean that Buyer cannot amend or terminate any of its benefit plans or programs.  Nothing in this subsection (a) shall be construed to cancel or impair existing contractual obligations of the Company or its Subsidiaries to any Employee in effect immediately prior to the Closing Date.

(b)If requested by Buyer at least one day prior to the Closing Date, Sellers shall cause the Company to terminate any and all Benefit Plans intended to qualify under Section 401(k) of the Code, effective not later than the last Business Day immediately preceding the Closing Date.  In the event that Buyer requests that such 401(k) plan(s) be terminated, Sellers shall provide Buyer with evidence that such 401(k) plan(s) have been terminated pursuant to resolution of the Company Board (the form and substance of which shall be subject to review and approval by Buyer) not later than the day immediately preceding the Closing Date.

(c)With respect to any benefit plan of Buyer in which Continuing Employees participate pursuant to Section 5.6(a) subsequent to the Closing Date, Buyer shall (i) waive all limitations as to pre-existing condition exclusions applicable to such Continuing Employees to the same extent such exclusions would have been waived or would otherwise not be excluded under the corresponding Benefit Plans in which such Continuing Employees were participating immediately prior to the Closing Date, and (ii) recognize all service of the Continuing Employees with the Company or any of its Subsidiaries for purposes of eligibility to participate and vesting under any employee benefit plan, severance policy, vacation, sick, holiday or other paid leave policy of Buyer in which such Continuing Employees may be eligible to participate after the Closing Date, (other than any defined benefit pension plan or nonqualified deferred compensation plan) in each case, to the same extent taken into account under the corresponding plan or policy in which such Continuing Employees participated immediately prior to the Closing Date, provided that this provision shall not be construed in any way that would result in a duplication of benefits.

(d)Nothing in this Agreement shall confer upon any Person any right to continued employment with Buyer, nor shall anything herein interfere with the right of Buyer to terminate the employment or services of any Person at any time following the Closing Date, with or without cause.  Nothing in this Agreement, express or implied, shall confer upon any Employee (or any of their respective beneficiaries) any rights or remedies under or by reason of this Agreement.

(e)It is Buyer’s intent to continue to employ all employees of the Company on substantially the same terms on which they are currently employed; provided that

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Buyer’s expressed intention as set forth in this Section 5.6(e) shall not constitute any commitment, Contract or understanding (express or implied) of any obligation on the part of Buyer or the Company to a post-Closing employment relationship of any fixed term or duration or upon any terms or conditions other than those that Buyer may establish pursuant to individual offers of employment.  Nothing in this Agreement shall be deemed to prevent or restrict in any way the right of Buyer to terminate, reassign, promote or demote any of the employees of the Company after the Closing or to change adversely or favorably the title, powers, duties, responsibilities, functions, locations, salaries, other compensation or terms or conditions of employment of such employees.

5.7Control of the Company’s Business.  Nothing contained in this Agreement shall give Buyer, directly or indirectly, the right to control or direct the Company’s operations prior to the Closing Date.

5.8Public Statement and Press Releases.  Each of Buyer, on the one hand, and Sellers, on the other hand, agrees that it shall not, without the prior written consent of the other Party, make any press release or other public statement concerning this Agreement or the transactions contemplated hereby; provided, however, that (i) the Parties shall mutually agree upon their respective initial press releases and on the employee communication regarding the execution of this Agreement and the transactions contemplated hereby, (ii) Sellers shall cooperate with Buyer with respect to employee communications and provide Buyer the reasonable opportunity to provide reasonable comments on all employee communications and to make its own communications to the Company’s employees regarding the transactions contemplated hereby and the integration of Buyer’s and the Company’s businesses, (iii) nothing in this Section 5.8 shall be deemed to prohibit any Party from making any disclosure which is consistent in all material respects with the press releases and employee communications issued by either Party pursuant to clause (i) or (ii), (iv) nothing in this Section 5.8 shall be deemed to prohibit Buyer from making any disclosure that its counsel deems required in order to fulfill Buyer’s disclosure obligations imposed by Legal Requirements, legal process or the rules of any national securities exchange or automated quotation system upon which Buyer’s common stock is traded; provided further, that Buyer may make any public statement in response to specific questions by the press, analysts, investors or those attending industry conferences or financial analyst conference calls, so long as any such statements are not inconsistent with previous press releases, public disclosures or public statements made by either Buyer or any Seller (including on behalf of the Company) and do not reveal non-public information regarding Sellers or the Company.

5.9Tax Matters.

(a)Tax Periods Ending on or Before the Closing Date. Seller shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for the Company and the Subsidiaries of the Company for all periods ending on or prior to the Closing Date which are filed after the Closing Date and shall, subject to Seller’s indemnification obligations set forth herein, pay or cause to be paid any Taxes due in respect of such Returns, except to the extent that such Taxes are reflected in the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income).  Seller shall permit the Buyer to review and comment on each such Tax Return described in the preceding sentence prior to filing and shall make such revisions to such Tax Returns as are reasonably requested by the Buyer.  Seller shall be paid all refunds of Taxes for periods (or portions thereof) ending on or prior to the Closing Date.

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(b)Tax Periods Beginning Before and Ending After the Closing Date.  Buyer shall prepare or cause to be prepared and file or cause to be filed any Tax Returns of the Company and the Subsidiaries of the Company for Tax periods which begin before the Closing Date and end after the Closing Date.  Sellers shall pay to Buyer within fifteen (15) days after the date on which Taxes are paid with respect to such periods an amount equal to the portion of such Taxes which relates to the portion of such Taxable period ending on the Closing Date, except to the extent that such Taxes are reflected in the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) reflected on the Closing Balance Sheet).  For purposes of the preceding sentence, Taxes shall be allocated in the manner set forth in the last sentence of Section 7.2(b).

(c)Cooperation on Tax Matters.  Buyer, on the one hand, and Sellers, on the other hand, shall cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax Returns pursuant to this Agreement and any audit, litigation or other proceeding with respect to Taxes.  Such cooperation shall include the retention and (upon the other Party’s request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.  Buyer and Sellers agree (A) to retain all books and records with respect to Tax matters pertinent to each of the Company and its Subsidiaries relating to any period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Buyer, any extensions thereof) of the respective periods, and to abide by all record retention agreements entered into with any Taxing authority, (B) to deliver or make available to Buyer, within sixty (60) days after the Closing Date, copies of all such books and records, and (C) to give the other Party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other Party so requests, Buyer, on the one hand, and Sellers, on the other hand, as the case may be, shall allow the other Party to take possession of such books and records at such other Party’s expense.  Buyer and Sellers further agree, upon request, to use their commercially reasonable efforts to obtain any certificate or other document from any Governmental Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, with respect to the transactions contemplated hereby).

(d)Contest Provisions.  If, subsequent to the Closing, any of Buyer, the Company or its Subsidiaries receives notice of a Tax Contest with respect to any Tax Return of the Company or any of its Subsidiaries for a Tax period or portion thereof ending on or before the Closing Date (a “Pre-Closing Return”), then within thirty (30) days after receipt of such notice, Buyer shall notify the Sellers’ Representative of such notice.  Sellers shall have the right to control the conduct and resolution of such Tax Contest, provided, however, that if any of the issues raised in such Tax Contest could have an impact on Taxes of the Company for a Tax period or portion thereof beginning on or after the Closing Date (a “Post-Closing Tax Period”), then Sellers shall afford Buyer the opportunity to control jointly the conduct and resolution of the portion of such Tax Contest which could have an impact on Taxes of the Company in any Post-Closing Tax Period.  If Sellers shall have the right to control the conduct and resolution of such Tax Contest but elect in writing not to do so, then Buyer shall have the right to control the

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conduct and resolution of such Tax Contest; provided that Buyer shall keep the Sellers’ Representative informed of all developments on a timely basis and Buyer shall not resolve such Tax Contest in a manner that could reasonably be expected to have an adverse impact on the Seller Indemnifying Parties’ indemnification obligations under this Agreement without receiving the Sellers’ Representative’s prior written consent, which shall not be unreasonably withheld.  Each Party shall bear its own costs for participating in such Tax Contest.  “Tax Contest” means any audit, other administrative proceeding or inquiry or judicial proceeding involving Taxes.

(e)Certain Taxes.  All transfer, documentary, sales, use, stamp, registration and other substantially similar Taxes and fees (including any penalties and interest) incurred in connection with this Agreement (collectively, “Transfer Taxes”) shall be paid by Buyer when due, and Buyer will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such Transfer Taxes and, if required by applicable law, Seller will, and will cause its affiliates to, join in the execution of any such Tax Returns and other documentation.

(f)Characterization of Payments. Any payments made to any Seller Indemnified Party or any Buyer Indemnified Party pursuant to Section 7.2 shall constitute an adjustment of the consideration paid for the Company Common Stock for Tax purposes and shall be treated as such by the Seller Indemnified Parties or the Buyer Indemnified Parties on their Tax Returns to the extent permitted by law.

(g)Carrybacks.  The Parties agree and acknowledge that any net operating losses or similar Tax attribute of the Company and its Subsidiaries is an asset of the Company and its Subsidiaries that (subject to any applicable limitations imposed by law) is being acquired by Buyer pursuant to this Agreement, and that Sellers shall not cause the Company and its Subsidiaries to carryback any such Tax attributes to prior years of the Company and its Subsidiaries or otherwise act so as to limit the ability of Buyer to use such attributes subsequent to the Closing unless required to do so by applicable tax law, other than any such net operating losses or similar Tax attributes attributable to the Company paying bonuses to Employees on or before the Closing (“Permissible Carrybacks”).  Any refund of Tax resulting from such Permissible Carrybacks shall be paid to Sellers if and when Buyer receives such actual cash Tax refund.

ARTICLE 6
CLOSING CONDITIONS

6.1Conditions to Obligations of Each Party Under This Agreement.  The respective obligations of each Party to effect the transactions contemplated herein shall be subject to the satisfaction at or prior to the Closing of the following conditions, any or all of which may be waived, in whole or in part, to the extent permitted by applicable law:

(a)No Order.  No Governmental Authority, nor any federal or state court of competent jurisdiction or arbitrator shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, judgment, injunction or arbitration award or finding or other order (whether temporary, preliminary or permanent), in any case which is in effect and which prevents or prohibits the sale of the Shares by Sellers to Buyer or any other transactions contemplated in this Agreement.

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(b)HSR Act.  All applicable waiting periods, together with any extensions thereof, under the HSR Act and the antitrust or competition Legal Requirements of any other applicable jurisdiction shall have expired or been terminated.

6.2Additional Conditions to Obligations of Buyer.  The obligations of Buyer to purchase the Shares and effect the other transactions contemplated herein are also subject to the following conditions, any or all of which may be waived, in whole or in part, to the extent permitted by applicable law:

(a)Share Certificates.  Sellers shall deliver to Buyer certificates representing 100% of the Shares, free and clear of any and all Liens and duly endorsed for transfer or accompanied by separate forms of stock assignments duly executed for transfer.

(b)Receipt.  Sellers shall deliver to Buyer a receipt for the Cash Purchase Price less the Escrow Amount.

(c)Representations and Warranties.  Each of the representations and warranties of the Company contained in this Agreement that are qualified by materiality or by Company Material Adverse Effect shall be true and correct as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except that those representations and warranties which address matters only as of a particular date need only be true and correct as of such date), and all representations and warranties of the Company which are not qualified by materiality or by Company Material Adverse Effect shall be true and correct in all material respects as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except that those representations and warranties which address matters only as of a particular date need only remain true and correct in all material respects as of such date).  Buyer shall have received a certificate signed by Sellers to that effect.

(d)Agreements and Covenants.  Sellers shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date.  Buyer shall have received a certificate signed by Sellers to that effect.

(e)Material Adverse Effect.  Since the date of this Agreement, there shall not have occurred any Company Material Adverse Effect.

(f)Governmental Proceedings.  No action or claim shall be pending or threatened before any court or quasi–judicial or administrative agency of any federal, state, local or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent consummation of any of the transactions contemplated by this Agreement or the Ancillary Agreements, (ii) cause any of the transactions contemplated by this Agreement or the Ancillary Agreements to be rescinded following consummation, (iii) affect adversely or materially limit the rights or powers of Buyer to own, operate or control the Company or (iv) otherwise have or reasonably be expected to have a Company Material Adverse Effect or a Buyer Material Adverse Effect, and no such injunction, judgment, order, decree, ruling or charge shall be in effect.

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(g)Consents.  Buyer shall have received, each in form and substance reasonably satisfactory to Buyer, (i) all consents, approvals and authorizations listed in Schedules 3.5(a) and 3.5(b) and (ii) all consents, approvals and authorizations of any Governmental Authority required to consummate the transactions contemplated hereby, in each case, without (A) the imposition of material adverse conditions, or (B) the requirement of expenditure of a material amount money by Buyer or the Company to a third party in exchange for any such consent or approval.

(h)No Claim Regarding Stock Ownership or Sale Proceeds.  There must not have been made or threatened by any Person any claim asserting that such Person (a) is the holder or the beneficial owner of, or has the right to acquire or to obtain beneficial ownership of, any capital stock of, or other voting, equity or ownership interest in, the Company or any of its Subsidiaries or (b) is entitled to any portion of the Purchase Price.

(i)Escrow Agreement.  Sellers shall have executed and delivered to Buyer a counterpart of an escrow agreement in substantially the form attached hereto as Exhibit A (the “Escrow Agreement”), which Escrow Agreement shall have been duly executed by the Escrow Agent.

(j)Resignation of Directors and Officers.  Buyer shall have received a written resignation from each of the officers and directors of the Company and its Subsidiaries effective as of the Closing Date in their capacity as such.

(k)Certificate of Incorporation.  Buyer shall have received a certified copy of the certificate of incorporation of the Company issued by the Secretary of State of the State of Texas.

(l)Certificate of Good Standing.  Buyer shall have received a long–form certificate of good standing with respect to the Company from the Secretary of State of the State of Texas and a certificate of good standing from the Secretary of State or its equivalent of each U.S. and foreign jurisdiction where the Company is qualified to operate as a foreign corporation or its equivalent, each dated as of a recent date and in event not more than one month prior to the Closing Date.  Each Subsidiary of the Company shall have received and Sellers shall have delivered to Buyer similar certifications from each jurisdiction where it is qualified to do business.

(m)Form W-9.  Each Seller shall have delivered to Buyer a properly completed and duly executed IRS Form W-9 (or suitable substitute form) establishing an exemption from backup withholding.

(n)Non–Competition Agreements.  Each Seller shall have executed and delivered to Buyer a Non–Competition Agreement in the respective forms attached hereto as Exhibits B-1,  B-2 and B-3 (the “Non-Competition Agreements”).

(o)401(k) Plans.  Buyer shall have received, in substance and form reasonably satisfactory to Buyer, evidence that any Benefit Plan that is a 401(k) plan has been terminated effective prior to the Closing pursuant to Section 5.6(b).

(p)License Agreement.  The Company shall have received the consent of each of Monash University, Prince Henry’s Institute of Medical Research and St. Vincent Institute of Medical Research to the July 19, 2005 amendment to that certain Inhibin Exploitation Agreement, dated as of October 25, 2001, by and between Inhibin Pty Ltd and Oxford Brookes University, pursuant to Article 3 of such amendment, in form and substance reasonably acceptable to Buyer.

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(q)Payoff Letters.  Buyer shall have received the payoff demand letters referred to in Section 2.2(a) from the Holders of Indebtedness of the Company, and upon payments of the amounts set forth therein, all such Indebtedness shall be extinguished.

(r)Lease.  Buyer shall have entered into a lease with the owner thereof for an initial term of five (5) years, with an option for the Buyer to extend the term for an additional two (2) years, for the Company’s facilities in Webster, Texas, on terms satisfactory to Buyer.

(s)Spousal Consent.  Each Seller shall cause his or her spouse to execute and deliver to Buyer a spousal consent in the form attached hereto as Exhibit C.

(t)Other Documents.  Sellers shall have delivered to Buyer such other documents as Buyer may reasonably request to evidence compliance with the conditions to this Agreement or which may otherwise be necessary to effect the transactions contemplated by this Agreement.

(u)Allocation of Purchase Price.  Buyer and Sellers shall have agreed to the allocation of the Purchase Price between the Shares and the Non-Competition Agreement.

6.3Additional Conditions to Obligations of Sellers.  The obligation of Sellers to sell the Shares and effect the other transactions contemplated in this Agreement is also subject to the following conditions, any or all of which may be waived, in whole or in part, to the extent permitted by applicable law:

(a)Representations and Warranties.  Each of the representations and warranties of Buyer contained in this Agreement that are qualified by materiality or by Material Adverse Effect shall be true and correct as of the date hereof and as of the Closing Dateas though made on and as of the Closing Date (except that those representations and warranties which address matters only as of a particular date need only be true and correct as of such date) and all representations and warranties of Buyer which are not qualified by materiality or by Material Adverse Effect shall be true and correct in all material respects as of the Closing Date as though made on and as of the Closing Date (except that those representations and warranties which address matters only as of a particular date need only remain true and correct in all material respects as of such date).  Sellers shall have received a certificate of an executive officer of Buyer to that effect.

(b)Agreements and Covenants.  Buyer shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date.  Sellers shall have received a certificate of an executive officer of Buyer to that effect.

(c)Escrow Agreement.  Buyer shall have executed and delivered to Sellers a counterpart of the Escrow Agreement, which Escrow Agreement shall have been duly executed by the Escrow Agent.

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(d)Other Documents.  Buyer shall have delivered to Sellers such other documents as Sellers may reasonably request to evidence compliance with the conditions to this Agreement or which may otherwise be necessary to effect the transactions contemplated by this Agreement.

(e)Material Adverse Effect  Since the date of the Agreement, there shall not have occurred any Buyer Material Adverse Effect.

(f)Governmental Proceedings.  No action or claim shall be pending or threatened before any court or quasi–judicial or administrative agency of any federal, state, local or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent consummation of any of the transactions contemplated by this Agreement or the Ancillary Agreements, (ii) cause any of the transactions contemplated by this Agreement or the Ancillary Agreements to be rescinded following consummation, or (iii) otherwise have or reasonably be expected to have a Company Material Adverse Effect or a Buyer Material Adverse Effect, and no such injunction, judgment, order, decree, ruling or charge shall be in effect.

(g)Lease.  Buyer shall have entered into a lease with the owner thereof for an initial term of five (5) years, with an option for the Buyer to extend the term for an additional two (2) years, for the Company’s facilities in Webster, Texas, on terms satisfactory to Savjani.

(h)Allocation of Purchase Price.  Buyer and Sellers shall have agreed to the allocation of the Purchase Price between the Shares and the Non-Competition Agreement.

ARTICLE 7
SURVIVAL; INDEMNIFICATION

7.1Survival of Representations, Warranties, Covenants and Agreements.

(a)Each Party shall be entitled to rely upon the representations and warranties contained in this Agreement and other documents delivered in connection with the transactions contemplated hereby without regard to such Party’s investigation, lack of investigation, knowledge, lack of knowledge or otherwise, and except as set forth in Section 7.1(b) of this Agreement, the representations, warranties, covenants and agreements of each Party shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any other Party, any Person controlling any such Party or any of their Representatives whether prior to or after the execution of this Agreement.

(b)The representations and warranties made by Sellers and Buyer in this Agreement, or in any Exhibit, Schedule or certificate delivered by Sellers or Buyer pursuant hereto, shall survive the Closing until (and claims based upon or arising out of such representations and warranties may be asserted at any time before) eighteen (18) months after the Closing Date; provided, however, that the representations and warranties of Sellers contained in Sections 3.2, 3.3, 3.11, 3.13, and 3.15, (or in any Exhibit, Schedule or certificate related thereto) shall survive until ninety (90) calendar days after the expiration of the applicable period of limitations (giving effect to any waivers or extensions thereof).  The covenants and other agreements of the Parties contained herein shall survive the Agreement indefinitely subject to

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their respective terms.  The termination of the representations and warranties provided herein shall not affect Buyer or Sellers in respect of any claim made in reasonable detail in a writing received by Sellers or Buyer, respectively, prior to the expiration of the applicable survival period provided herein.

7.2Indemnification.

(a)By Sellers.  Sellers (in such capacity, each a “Seller Indemnifying Party” and collectively, the “Seller Indemnifying Parties”) shall, jointly and severally, indemnify, save and hold harmless Buyer and its Affiliates and Representatives, and each of their successors and permitted assigns (each, a “Buyer Indemnified Party” and collectively, the “Buyer Indemnified Parties”) from and against any and all costs, losses (including lost profits), demands, claims, debts, actions, assessments, judgments, settlements, sanctions, obligations and other liabilities (whether absolute, accrued, contingent, fixed or otherwise, known or unknown, due or to become due or otherwise), monetary damages, fines, Taxes, fees, penalties, interest obligations, deficiencies and expenses (including amounts paid in settlement, interest, court costs, costs of investigation, fees and expenses of attorneys, accountants, financial advisors and other experts, and other expenses of litigation or preparation for litigation as incurred) (herein, “Damages”), incurred in connection with, arising out of, resulting from or incident to:

(i)any breach of any representation or warranty or the inaccuracy of any representation or warranty, made by Sellers in this Agreement or any Exhibit, Schedule, certificate or agreement delivered by Sellers pursuant hereto;

(ii)any breach of any covenant or agreement made, or to be performed, by Sellers in this Agreement or any Exhibit, Schedule, certificate or agreement delivered by Sellers pursuant hereto;

(iii)any lawsuit or claim brought against Sellers, the Company or any Subsidiary of the Company related to actions taken by Sellers, the Company or such Subsidiary of the Company (including by way of example only any products sold or services performed by the Company or any of its Subsidiaries) or the basis of which arose prior to the Closing (including any Damages suffered through and after the applicable survival period);

(iv)the fees and expenses of all accountants, brokers, financial advisors and legal counsel retained by Sellers in connection with this Agreement or the transactions contemplated hereby incurred or to be incurred by Sellers;

(v)subject to the Company’s existing policy on returns and warranties, any product shipped or manufactured by, or any services provided by, the Company or any of its Subsidiaries on or prior to the Closing Date; and

(vi)(A) any Benefit Plan or any other “employee benefit plan” within the meaning of Section 3(3) of ERISA maintained by, contributed to or to which there is or was an obligation to contribute to by the Company, any Subsidiary of the Company or any ERISA Affiliate and (B) any claim made with respect to employment or termination of employment, including failure to employ, prior to or on the Closing Date with the Company or any of its Subsidiaries, including, without limitation, any claim with respect to, relating to, arising out of or in connection with discrimination by the Company or wrongful discharge (including constructive discharge).

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(b)Tax Indemnification.  Subsequent to the Closing, the Seller Indemnifying Parties shall indemnify, save and hold Buyer harmless from and against any and all Damages incurred in connection with, arising out of, resulting from or incident to (i) any Taxes of any of the Company and the Subsidiaries of the Company with respect to any Tax year or portion thereof ending on or before the Closing Date (or for any Tax year beginning before and ending after the Closing Date to the extent allocable (as determined in the following sentence) to the portion of such period beginning before and ending on the Closing Date), except to the extent that such Taxes are reflected in the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) shown on the Closing Balance Sheet (rather than in any notes thereto),and (ii) the unpaid Taxes of any Person (other than the Company) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise.  For purposes of the preceding sentence, in the case of any Taxes that are imposed on a periodic basis and are payable for a Tax period that includes (but does not end on) the Closing Date, the portion of such Tax that relates to the portion of such Tax period ending on the Closing Date shall (i) in the case of any Taxes other than Taxes based upon or related to income or receipts, be deemed to be the amount of such Tax for the entire Tax period multiplied by a fraction the numerator of which is the number of days in the Tax period ending on the Closing Date and the denominator of which is the number of days in the entire Tax period, and (ii) in the case of any Tax based upon or related to income or receipts, be deemed equal to the amount which would by payable if the relevant Tax period ended on the Closing Date.

(c)By Buyer.  Buyer (in such capacity, the “Buyer Indemnifying Party”) shall indemnify, save and hold harmless Sellers and their successors and permitted assigns, (each, a “Seller Indemnified Party” and collectively, the “Seller Indemnified Parties”) from and against any and all Damages, incurred in connection with, arising out of, resulting from or incident to:

(i)any breach of any representation or warranty or the inaccuracy of any representation or warranty, made by Buyer in this Agreement or any Exhibit, Schedule, certificate or agreement delivered by Buyer pursuant hereto; and

(ii)any breach of any covenant or agreement made, or to be performed, by Buyer in this Agreement or any Exhibit, Schedule, certificate or agreement delivered by Buyer pursuant hereto.

(d)Limitations.

(i)            Threshold.  Notwithstanding anything to the contrary contained herein, (i) in seeking indemnification for Damages under Section 7.2(a)(i), no Buyer Indemnified Party will make a claim for Damages unless and until the Damages of all Buyer Indemnified Parties aggregate at least One Million Dollars ($1,000,000) (the “Threshold”) at which time the Indemnified Parties shall be entitled to indemnification for only the aggregate amount of such damages in excess of $1,000,000, and (ii) in seeking indemnification for Damages under

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Section 7.2(c)(i), no Seller Indemnified Party will make a claim for Damages unless and until the Damages of all Seller Indemnified Parties aggregate at least the Threshold; provided, however, that the Threshold will not apply to any claim for indemnification made by any Indemnified Party that results from: (A) fraud or willful breach hereof or (B) any Seller’s breach of the representations or warranties set forth in Sections 3.2, 3.3, and 3.11.

(ii)Cap.  No payment by any Indemnifying Party for Damages under Sections 7.2(a)(i) or 7.2(c)(i) shall be payable to any Indemnified Parties to the extent the aggregated claims for Damages of such Indemnified Parties exceeds in the case of claims against the Buyer Indemnifying Party or any Seller Indemnifying Party, an amount equal to Ten Million Dollars ($10,000,000).  The limitations of the indemnity obligations of the Indemnifying Parties set forth in this Section 7.2(d)(ii) shall not apply to any claim for indemnification made by any Indemnified Party that results from fraud or willful breach hereof or pursuant to Section 3.11 hereof.

(iii)In no event will any Indemnified Party be entitled to first make any claim for indemnity with respect to a particular matter following the expiration of the survival period applicable thereto as described in Section 7.1(b); provided, however, that neither (A) the termination of the representations, warranties, covenants or agreements contained herein, nor (B) the expiration of the indemnification obligations described above, will affect the rights of an Indemnified Party in respect of any claim made by such Indemnified Party prior to the expiration of the applicable survival period provided herein.

(e)Interpretation.

(i)The term “Damages” as used in this Section 7.2 is not limited to matters asserted by third parties against an Indemnified Party, but includes Damages incurred or sustained by the Indemnified Party in the absence of third party claims.  The indemnification provisions hereof shall be in addition to any other remedy available to any Indemnified Party.

(ii)For purposes of this Section 7.2, the representations, warranties, covenants or agreements of a Party contained in this Agreement or any Exhibit, Schedule, certificate or agreement delivered by such Party pursuant hereto shall be deemed not to be qualified by any limitation as to materiality or to whether or not any such breach results or may result in a Company Material Adverse Effect or a Buyer Material Adverse Effect, and Damages incurred or suffered arising out of any such misrepresentation or breach shall be determined without deduction on account of any materiality or Company Material Adverse Effect or a Buyer Material Adverse Effect qualification contained in any representation, warranty, covenant or agreement giving rise to the claim for indemnification hereunder.

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(iii)The amount of any Damages for which indemnification is provided under this Agreement (i) shall be net of any amounts actually recovered or received by the Indemnified Party or its Affiliates with respect to such Damages under insurance policies maintained by the Seller or, prior to the Closing, by the Company or its Subsidiaries, in each case with third party providers, net of reasonable out of pocket expenses actually incurred by the Indemnified Party in obtaining such recovery or proceeds and (ii) shall be net of any liability reflected on the Closing Balance Sheet specifically with respect to such matter and which has resulted in a downward adjustment to the Cash Purchase Price pursuant to Section 2.3.  Buyer will (and will cause the Company to) use its commercially reasonably efforts to seek recovery under the insurance policies referenced in the foregoing sentence; provided, however, that the Indemnified Party shall have no obligation to first submit or to collect upon any applicable insurance coverage as a precondition to making a claim for indemnification hereunder or obtaining indemnification for Damages therefor, and the Parties hereto agree, without limiting any other rights any Seller Indemnifying Party may have against Buyer, not to delay in any manner the payment to Buyer or any Buyer Indemnified Party of such indemnification based on Buyer’s non-fulfillment of the foregoing obligation at the time any such claim is made.  To the extent that any such insurance payment is actually recognized or realized in a period other than the period in which the related indemnification payment is sought or made pursuant to this Agreement, such payment shall not be taken into account in computing such payment hereunder; instead the Indemnified Party will pay over to the Escrow Agent (to the extent that (a) amounts have been paid to Buyer out of the Escrow Amount and (b) it is prior to the expiration of the escrow in accordance with the Escrow Agreement) or to the Indemnifying Party (in any other circumstance) the amounts of such insurance payments as and when they are actually recognized or realized.  If permitted under the terms of the applicable insurance policies, in lieu of the foregoing, the Indemnified Party may subrogate or assign its rights to recover under such insurance policies to the Sellers’ Representative (on behalf of the Sellers) or its designee.

(iv)Any indemnity payment under this Agreement shall be treated, to the extent permitted by law, as an adjustment to the Cash Purchase Price for all purposes.

7.3Procedure for Claims between Parties.

(a)If a claim for Damages is to be made by a Buyer Indemnified Party entitled to indemnification hereunder, Buyer shall give written notice (a “Notice”) to the Sellers’ Representative and, if applicable, the Escrow Agent as soon as practicable after such Buyer Indemnified Party becomes aware of any fact, condition or event which may give rise to Damages for which indemnification by a Buyer Indemnified Party may be sought under this Article 7.  If a claim for Damages is to be made by a Seller Indemnified Party entitled to indemnification hereunder, the Sellers’ Representative shall give such Notice to Buyer as soon as practicable after such Seller Indemnified Party becomes aware of any fact, condition or event which may give rise to Damages for which indemnification by a Seller Indemnified Party may be

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sought under this Article 7.  In each case, the Notice shall describe in reasonable detail the facts and circumstances known to the Indemnified Party that gave rise to such indemnification claim, and the amount or good faith estimate of the amount arising therefrom.  Any failure to submit a Notice of claim to the Sellers’ Representative or Buyer, as applicable, shall not relieve any Indemnifying Party of any liability hereunder, except to the extent that the Indemnifying Party demonstrates that the Indemnifying Party was actually prejudiced by such failure.

(b)Upon receipt by the Escrow Agent of a Notice from a Buyer Indemnified Party, the Escrow Agent shall, subject to the provisions of Section 7.3(d), release to Buyer, as promptly as practicable, a portion of the Escrow Fund equal to the amount of Damages specified in such Notice.

(c)Sellers shall be deemed to have accepted the Notice and to have agreed to pay the Damages at issue if the Sellers’ Representative does not send a notice of disagreement to Buyer within twenty (20) calendar days after receiving the Notice pursuant to Section 7.3(a).  If the Sellers’ Representative does not object in writing within the 20-day period after delivery by a Buyer Indemnified Party of the Notice, such failure to so object shall be an irrevocable acknowledgment by Sellers that the Buyer Indemnified Party is entitled to the full amount of the claim for Damages set forth in such Notice.

(d)For a period of twenty (20) days after receipt of a Notice from a Buyer Indemnified Party, the Escrow Agent shall make no release to Buyer of any Escrow Amount pursuant to Section 7.3(b) (other than the amount of any Damages agreed to by the Sellers’ Representative as provided below) unless the Escrow Agent shall have received written authorization from the Sellers’ Representative to make such release.  After the expiration of such twenty (20) day period, the Escrow Agent shall release a portion of the Escrow Fund equal to the amount of Damages claimed in the Notice; provided that no such payment may be made if the Sellers’ Representative shall object in a written statement to the claim made in the Notice (an “Objection Notice”), and such Objection Notice shall have been delivered to the Escrow Agent prior to the expiration of such twenty (20) day period.  The Sellers’ Representative shall, however, authorize the Escrow Agent to release a portion of the Escrow Fund equal to the amount of Damages claimed in any Notice to the extent the Sellers’ Representative does not dispute the amount of such Damages.

(e)Except for actions grounded in fraud, willful misconduct or deceit, the indemnification rights provided by this Article 7 shall be the sole and exclusive remedy to the Indemnified Party for breaches of this Agreement and for other matters pertaining to this Agreement and the transactions contemplated hereby.

7.4Defense of Third Party Claims.  Except as otherwise provided in Section 5.9(d) with respect to Tax Contests:

(a)If any lawsuit or enforcement action is filed against an Indemnified Party by any third party (each a “Third Party Claim”) for which indemnification under this Article 7 may be sought, Notice thereof shall be given by the Sellers’ Representative to Buyer or by Buyer to the Sellers’ Representative, as applicable, as promptly as practicable, but in any event within 90 days.  The Notice shall describe in reasonable detail the facts and circumstances known to the Indemnified Party that gave rise to such indemnification claim, and the amount or good faith estimate of the amount arising therefrom.  The failure of any Indemnified Party to give timely Notice hereunder shall not affect rights to indemnification hereunder, except to the extent that the Indemnifying Party was actually prejudiced by such failure.

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(b)After such Notice, if the recipient of the Notice acknowledges in writing to the sender that the applicable Indemnifying Parties are liable and have indemnity obligations for any Damages resulting from any such Third Party Claim, then the Indemnifying Party shall be entitled, if it so elects at its own cost, risk and expense, (i) to take control of the defense and investigation of such Third Party Claim, (ii) to employ and engage attorneys of its own choice (provided that such attorneys are reasonably acceptable to the Indemnified Party) to diligently handle and defend the same, unless the named parties to such action or proceeding include both one or more Indemnifying Parties and an Indemnified Party, and the Indemnified Party has been advised in writing by counsel that there may be one or more legal defenses available to such Indemnified Party that are different from or additional to those available to an applicable Indemnifying Party or there is otherwise a conflict of interest that exists or is reasonably likely to exist that would make it inappropriate, in the reasonable judgment of the Indemnified Party, for the same counsel to represent both the Indemnified Party and the Indemnifying Party, in which event such Indemnified Party shall be entitled, at the Indemnifying Party’s cost, risk and expense, to separate counsel of its own choosing, and (iii) to compromise or settle such claim, which compromise or settlement shall be made only with the written consent of the Indemnified Party, unless the Indemnified Party and its Affiliates are released in full in connection with the settlement, such consent not to be unreasonably withheld.  Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to assume the defense of any Third Party Claim if the Third Party Claim seeks an order, injunction or other equitable relief or relief for other than money damages against the Indemnified Party that the Indemnified Party reasonably determines, after conferring with outside counsel, cannot be separated from any related claim for money damages.  If such equitable relief or relief portion of the Third Party Claim can be so separated from that for money damages, the Indemnifying Party shall be entitled to assume the defense of the portion relating to money damages.  If the Indemnifying Party elects to assume the defense of a Third Party Claim, the Indemnified Party shall cooperate in all reasonable respects with the Indemnifying Party and its attorneys in the investigation, trial and defense of such Third Party Claim and any appeal arising therefrom; provided, however, that the Indemnified Party may, at its own cost, participate in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom and may, at its own expense, retain separate counsel of its choosing.  The Parties shall cooperate with each other in any notifications to insurers.

(c)If the Indemnifying Party fails to notify the Indemnified Party within ten (10) calendar days after receipt of the Notice that the Indemnifying Party elects to defend the Indemnified Party pursuant to this Section 7.4, or if the Indemnifying Party elects to defend the Indemnified Party pursuant to this Section 7.4 but fails to diligently prosecute or settle the Third Party Claim, then the Indemnified Party against which such claim has been asserted will have the right to undertake, at the Indemnifying Party’s cost, risk and expense, the defense, compromise or settlement of such Third Party Claim on behalf of and for the account and risk of the Indemnifying Parties.  The Indemnified Party shall have full control of such defense and proceedings; provided, however, that such claim shall not be compromised or settled without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed.  If the Indemnified Party assumes the defense of the claim, the Indemnifying Party shall cooperate with the Indemnified Party in such defense and make available to the Indemnified

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Party at the Indemnifying Party’s expense, all such witnesses, records, materials and information in the Indemnifying Party’s possession or under the Indemnifying Party’s control relating thereto as are reasonably required by the Indemnified Party, and the Indemnified Party will keep the Indemnifying Party reasonably informed of the progress of any such defense, compromise or settlement.  The Indemnifying Parties shall be liable for any settlement of any Third Party Claim effected pursuant to and in accordance with this Section 7.4 and for any final judgment (subject to any right of appeal), and each Indemnifying Party agrees to indemnify and hold harmless the Indemnified Party from and against any Damages by reason of such settlement or judgment.

(d)In the event Sellers have consented to any settlement pursuant to this Section 7.4 and the applicable Buyer Indemnified Party has elected to be paid such amount (or a portion thereof) out of the Escrow Amount, the Sellers’ Representative shall promptly deliver a notice to the Escrow Agent specifying the monetary amount such Buyer Indemnified Party has elected to paid out of the Escrow Amount and instruct the Escrow Agent to pay such amount out of the Escrow Fund to such Buyer Indemnified Party.

ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER

8.1Termination.  This Agreement may be terminated at any time prior to the Closing (any such date, the “Termination Date”):

(a)by mutual written consent of Buyer and the Sellers’ Representative;

(b)by written notice of either Buyer or the Sellers’ Representative, if the Closing shall not have occurred by February 1, 2006; provided, however, that such date may be extended by Buyer or the Sellers’ Representative (by providing written notice thereof to the other party within five Business Days prior to and including up to and including May 1, 2006, in the event all conditions to effect the transactions contemplated hereby other than those set forth in Section 6.1(a) or Section 6.2(f) (the “Regulatory Conditions”) have been or are capable of being satisfied at the time of such extension and the Regulatory Conditions have been or are reasonably capable of being satisfied on or prior to such date (the later of the foregoing dates, as they may be so extended, shall be referred to herein as the “Outside Date”); provided further, that the right to terminate this Agreement under this Section 8.1(b) shall not be available to any Party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date;

(c)by written notice of either Buyer or the Sellers’ Representative, if (i) any Governmental Authority shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling or other action shall have become final and nonappealable (which order, decree, ruling or other action the parties shall have used their commercially reasonable best efforts to resist, resolve or lift, as applicable) or (ii) any of the conditions set forth in Sections 6.1 or 6.2, in the case of Buyer, or Sections 6.1 or 6.3, in the case of the Sellers’ Representative, cannot be satisfied prior to the applicable termination date set forth in Section 8.1(c), provided, however, that the right to terminate this Agreement under this Section 8.1(c) shall not be available to any Party whose failure to fulfill any obligation under this Agreement hereunder has been the cause of, or resulted in, such order, decree, ruling or the taking of such other action or inability to satisfy any such condition;

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(d)by written notice of Buyer, (i) if since the date of this Agreement, there shall have been any event, development or change of circumstance that constitutes a Company Material Adverse Effect and such Company Material Adverse Effect is not cured in all material respects, or cannot be cured, within 30 days after written notice thereof or (ii) if (A)(1) Sellers have breached any covenant or agreement on the part of Sellers set forth in this Agreement or (2) any representation or warranty of Sellers shall have become untrue and (B) such breach or untrue statement is not cured, or cannot be cured, in all material respects, within thirty (30) days after written notice thereof; provided, in the case of both (i) and (ii) above, if such event, development, change, breach or untrue statement is capable of cure and Sellers have commenced but not completed such cure within the applicable cure period, Sellers shall be provided an additional ten (10) day period to complete the cure of such event, development, change, breach or untrue statement, as applicable, after which Buyer shall have the right, in the event such cure is not completed, to terminate this Agreement in accordance with this Section 8.1(d).

(e)by written notice of the Sellers’ Representative, if (i)(A) Buyer has breached any covenant or agreement on the part of Buyer set forth in this Agreement or (B) any representation or warranty of Buyer shall have become untrue and (ii) such breach or misrepresentation is not cured, or cannot be cured, in all material respects, within twenty (20) days after written notice thereof; provided, in the case of (i) above, if such breach or untrue statement is capable of cure and Buyer has commenced but not completed such cure within the applicable cure period, Buyer shall be provided an additional ten (10) day period to complete the cure of such breach or untrue statement, as applicable, after which Sellers shall have the right, in the event such cure is not completed, to terminate this Agreement in accordance with this Section 8.1(e).

8.2Effect of Termination.  In the event of termination of this Agreement as provided in Section 8.1 hereof, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Buyer or Sellers; provided, however, that each Party shall remain liable for any breaches of this Agreement or any certificate, agreement or other instruments delivered pursuant to this Agreement prior to its termination; and provided further, that, the provisions of Section 5.2, Section 5.8 and Article 9 hereof and this Section 8.2 shall remain in full force and effect and survive any termination of this Agreement pursuant to the terms of this Article 8 or otherwise.

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ARTICLE 9
GENERAL PROVISIONS

9.1Amendments, Waivers.  Subject to applicable Legal Requirements, this Agreement may only be amended pursuant to a written agreement executed by Buyer and the Sellers’ Representative, and no waiver of compliance with any provision or condition of this Agreement and no consent provided for in this Agreement shall be effective unless evidenced by a written instrument executed by the Party against whom such waiver or consent is to be effective.  No waiver of any term or provision of this Agreement shall be construed as a further or continuing waiver of such term or provision or any other term or provision.

9.2Entire Agreement.  This Agreement, the Ancillary Agreements, the Confidentiality Agreement and the Schedules to this Agreement constitute the entire agreement of the Parties and supersede any and all prior and contemporaneous agreements, memoranda, arrangements and understandings, both written and oral, between the Parties, or either of them, with respect to the subject matter hereof.

9.3Binding Effect; Assignment.  This Agreement shall be binding upon and inure to the benefit of and be enforceable by the Parties and their respective successors and permitted assigns.  No Party may assign its rights or delegate its obligations under this Agreement, whether by operation of law or otherwise, to any other Person without the express prior written consent of the other Parties except that Buyer may assign, in its sole discretion, any or all of its rights, interests and obligations under this Agreement to any entity that is wholly-owned directly or indirectly by Buyer without the consent of the Sellers’ Representative.  Any assignment or transfer that requires prior written consent of the other Parties made without such prior written consent shall be null and void.

9.4Headings; Certain Construction Rules.  The Article, Section and paragraph headings and the table of contents contained in this Agreement are for reference purposes only and do not form a part of this Agreement and do not in any way modify, interpret or construe the intentions of the Parties.  As used in this Agreement, unless otherwise provided to the contrary, (a) all references to days or months shall be deemed references to calendar days or months and (b) any reference to a “Section” or “Article” shall be deemed to refer to a section or article of this Agreement or a schedule to this Agreement.  The words “hereof,” “herein” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement.  Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” Unless otherwise specifically provided for herein, the term “or” shall not be deemed to be exclusive.

9.5           Notices.  All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given to a Party if delivered in person or on the next Business Day if sent by overnight delivery (providing proof of delivery) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice), or if by facsimile, upon confirmation of receipt:

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If to Buyer	Beckman Coulter, Inc
	4300 North Harbor Boulevard
	Fullerton, California 92834-3100
	Attention: General Manager
	Telephone: (714) 871-4848
	Telecopier:
With a copy (which shall not	Beckman Coulter, Inc
constitute notice) to:	4300 North Harbor Boulevard
	Fullerton, California 92834-3100
	Attention: General Counsel
	Telephone: (714) 773-6973
	Telecopier: (714) 773-7936
If to Sellers:	Sellers’ Representative
	Gopal Savjani
	445 Medical Center Boulevard
	Webster, Texas 77548-4217
	Telephone: (281) 332-9678
	Telecopier: (281) 554-9243
With a copy (which shall not
constitute notice) to:	Haynes and Boone, LLP
	1 Houston Center
	1221 McKinney, Suite 2100
	Houston, Texas 77010
	Attention: Arthur S. Berner, Esq.
	Telephone: 713-547-2526
	Telecopier: 713-236-5652

9.6Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.

(a)This Agreement and the transactions contemplated hereby, and all disputes between the Parties under or related to the Agreement or the facts and circumstances leading to its execution, whether in Contract, tort or otherwise, shall be governed by and construed and enforced in accordance with the laws of the State of Delaware, without giving effect to the conflicts of law provisions thereof.

(b)Each of the Parties hereby irrevocably and unconditionally submits, for itself and its property, to the jurisdiction of the Federal court of the United States of America, sitting in Wilmington, Delaware in any Action or proceeding arising out of or relating to this Agreement or the agreements delivered in connection herewith or the transactions contemplated hereby or thereby or for recognition or enforcement of any judgment relating thereto, and each of the Parties hereby irrevocably and unconditionally (a) agrees not to commence any such Action or proceeding except in such courts, (b) agrees that any claim in respect of any such Action or proceeding may be heard and determined in such court (c) waives,

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to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such Action or proceeding in any such court, and (d) waives, to the fullest extent permitted by applicable Legal Requirements, the defense of an inconvenient forum to the maintenance of such Action or proceeding in any such court.  Each of the Parties agrees that a final judgment in any such Action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable Legal Requirements.  Each Party irrevocably consents to service of process in the manner provided for notices in Section 9.5.  Nothing in this Agreement shall affect the right of any Party to serve process in any other manner permitted by applicable Legal Requirements.

(c)EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.  EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (B) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (C) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.6(c).

9.7Gender, Tense, Etc.  Where the context or construction requires, all words applied in the plural shall be deemed to have been used in the singular, and vice versa; the masculine shall include the feminine and neuter, and vice versa; and the present tense shall include the past and future tense, and vice versa.

9.8Severability.  If any provision or any part of any provision of this Agreement shall be void or unenforceable for any reason whatsoever, then such provision shall be stricken and of no force and effect.  However, unless such stricken provision goes to the essence of the consideration bargained for by a Party, the remaining provisions of this Agreement shall continue in full force and effect and, to the extent required, shall be modified to preserve their validity.  Upon such determination that any term or other provision or any part of any provision is void or unenforceable, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible.

9.9Expenses.  Except as otherwise specified herein, each Party shall pay its own Expenses.

9.10No Third Party Rights.  Nothing in this Agreement, whether express or implied, is intended to or shall confer any rights, benefits or remedies under or by reason of this

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Agreement on any Persons other than the Parties and their respective successors and permitted assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or Liability of any third party Persons to any Party, nor shall any provisions give any third party Persons any right or subrogation over or Action against any Party.

9.11Specific Performance.  The Parties agree that irreparable damage would occur in the event any of the provisions of this Agreement were not to be performed in accordance with the terms hereof and that the Parties shall be entitled to specific performance of the terms hereof, including without limitation Sellers’ obligation to reimburse the Escrow Account , if necessary, under Section 2.3(b), in addition to any other remedies at law or in equity.  Each Party agrees to waive any requirement for the posting of, or securing of, a bond in connection with any such remedy.

9.12Counterparts.  To facilitate execution, this Agreement may be executed in any number of counterparts (including by facsimile transmission), each of which shall be deemed to be an original, but all of which together shall constitute one binding agreement on the Parties, notwithstanding that not all Parties are signatories to the same counterpart.

9.13Disclosure.  The section, subsection, paragraph or clause references on any disclosure schedule correspond to the section, subsection, paragraph or clause references set forth in the Agreement; provided, however, that any matter described in any section of the Seller Disclosure Schedule may be deemed set forth for the purposes of other sections of the Seller Disclosure Schedule to the extent such disclosure is either (i) appropriately cross-referenced in the other applicable section(s) or (ii) it is readily apparent from such disclosure that the disclosure also relates to such other section(s) of the Seller Disclosure Schedule.  The inclusion of any matter on any disclosure schedule will not be deemed an admission by any party that such listed matter is material or that such listed matter has or would have a Company Material Adverse Effect or a Buyer Material Adverse Effect, as applicable.

9.14Mutual Drafting.  Each Party has participated in the drafting of this Agreement, which each Party acknowledges is the result of extensive negotiations between the Parties.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden or proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.

9.15Sellers’ Representative.

(a)Designation.  Each Seller hereby designates the Sellers’ Representative to act as such Seller’s authorized agent and attorney-in-fact, for and on behalf of such Seller, to take any actions and make and deliver any certificate, notice, consent, instruction or instrument required or permitted to be taken, made or delivered by Sellers under this Agreement or the Ancillary Agreements.  In connection therewith, the Sellers’ Representative may hire or retain such counsel, accountants and other professional advisors as the Sellers’ Representative determines to be necessary, advisable or appropriate in order to carry out his obligations hereunder, and may rely in good faith upon the advice received from any such Person.

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(b)Authority.  A decision, act, consent or instruction of the Sellers’ Representative shall constitute a decision of each Seller, and shall be final, binding and conclusive upon each Seller, and Buyer may rely upon any decision, act, consent or instruction of the Sellers’ Representative as being the decision, act, consent or instruction of each Seller.  Notices or communications to or from the Sellers’ Representative with respect to this Agreement or the Ancillary Agreements shall constitute notice to or from each Seller individually, and all Sellers, collectively.  The Sellers’ Representative agrees to promptly provide written notice to each Seller of all notices and communications given or received in his capacity as the Sellers’ Representative under this Agreement.  Buyer is relieved from any liability to any Person for any acts done by it in accordance with such decision, act, consent or instruction.  The Sellers’ Representative shall not be liable to any Seller for any action taken or omitted by it or any agent employed by it hereunder or under any other document entered into in connection herewith, except that the Sellers’ Representative shall not be relieved of any liability imposed by law for willful misconduct, gross negligence or bad faith.  Each Seller hereby severally, for itself only and not jointly and severally, agrees to indemnify and hold harmless the Sellers’ Representative against all expenses (including reasonable attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Sellers’ Representative in connection with any action, suit or proceeding to which the Sellers’ Representative is made a party by reason of the fact he is or was acting as the Sellers’ Representative pursuant to the terms of this Agreement.

(c)Election and Replacement.  If the Sellers’ Representative ceases to act as the Sellers’ Representative for any reason, the Sellers’ Representative or his agent shall immediately notify Buyer and Sellers in writing of such cessation and a majority of Sellers may appoint a successor Sellers’ Representative to fill the vacancy so created.  If a majority of Sellers has not appointed a successor Sellers’ Representative within fifteen (15) days of receipt by Sellers of such notice, the Sellers’ Representative shall designate a temporary successor to serve until such time as the majority appoints a successor, and shall advise Buyer and each Seller of such appointment by written notice.

(Signature page follows)

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

BUYER:
BECKMAN COULTER, INC.
By:	/s/ Scott Garrett
Name:	Scott Garrett
Title:	Chief Executive Officer
SELLERS
/s/ Gopal Savjani
Gopal Savjani
/s/ Rajen Savjani
Rajen Savjani
/s/ Anish Savjani
Anish Savjani

EX-10.1

Exhibit 10.1

Summary of Ms. Woods Compensation Agreement

On February 8, 2005, the Board of Directors of Beckman Coulter, Inc. announced that Board Member Betty Woods was elected non-executive chairman. Ms. Woods, an 11-year veteran of the Beckman Coulter Board succeeded retiring Executive Chairman John P. Wareham. The appointment was effective April 7, 2005 at the annual stockholder’s meeting. On April 4, 2005, the Board of Directors amended Ms. Woods compensation schedule by increasing her cash compensation by $105,500.

EX-15

Exhibit 15

Review Report of Independent Registered Public Accounting Firm

The Stockholders and Board of Directors
Beckman Coulter, Inc.:

We have reviewed the condensed consolidated balance sheet of Beckman Coulter, Inc. and subsidiaries as of September 30, 2005, and the related condensed consolidated statements of operations for the three-month and nine-month periods ended September 30, 2005 and 2004, and the related condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2005 and 2004. These condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Beckman Coulter, Inc. and subsidiaries as of December 31, 2004, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for the year then ended (not presented herein); and in our report dated February 21, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2004, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

Orange County, California

November 3, 2005

EX-15.1

Exhibit 15.1

November 3, 2005

Beckman Coulter, Inc.
4300 N. Harbor Boulevard
Fullerton, CA 92834-3100

Re:  Registration Statement No. 333-114457, 333-100904, 333-24851, 333-37429, 33-31573, 33-41519, 33-51506, 33-66990, 33-66988, 333-69291, 333-59099, 333-69249, 333-69251, 333-72896 and 333-72892

With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated November 3, 2005 related to our review of interim financial information.

Pursuant to Rule 436 under the Securities Act of 1933 (the “Act”), such report is not considered part of a registration statement prepared or certified by an independent registered public accounting firm, or a report prepared or certified by an independent registered public accounting firm within the meaning of Sections 7 and 11 of the Act.

/s/ KPMG LLP

Orange County, California

EX-31

Exhibit 31

Rule 13a-14(a)/15d-14(a) Certifications
Chief Executive Officer

I, Scott Garrett, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Beckman Coulter, Inc.

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 1, 2005	/s/ SCOTT GARRETT
	Scott Garrett
	Chief Executive Officer

Chief Financial Officer

I, James Glover, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Beckman Coulter, Inc.

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 1, 2005	/s/ JAMES GLOVER
	James Glover
	Senior Vice President and
	Chief Financial Officer

EX-32

Exhibit 32

Section 1350 Certifications
Chief Executive Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Beckman Coulter, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i)    the accompanying quarterly Report on Form 10-Q of the Company for the period ended September 30, 2005 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)   the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Date: November 1, 2005	/s/ SCOTT GARRETT
	Scott Garrett
	Chief Executive Officer

Chief Financial Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Beckman Coulter, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i)    the accompanying quarterly Report on Form 10-Q of the Company for the period ended September 30, 2005 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)   the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Date: November 1, 2005	/s/ JAMES GLOVER
	James Glover
	Senior Vice President and
	Chief Financial Officer