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FCPA Inquiry: Status Report for the

Board of Directors of Bio-Rad Laboratories, Inc.

June 4,2013




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I. Introduction

I1. Issue #1: CDG Distributor Agreements UNITED STATES DISTRICT COURT
II1. Issue #2: LSG Import/Export Sales Documents
IV. Other Issues Case No. 3:lS-cv-02356-JCS
Date Entered
V. Recommendations Deputy Clerk

Appendix A: BR-China Organizational Chart

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December 2011/January 2012: Steptoe & Johnson presented a report to the Board
and DOJ/SEC on its global investigation of possible FCPA violations by Bio-Rad.

As to Bio-Rads operations in China, Steptoe noted certain potential compliance risks and
recommended that they be reviewed by the Company, but reported that there was no
evidence of any payments constituting FCPA violations in Bio-Rads China sales.

" February 2013: Shortly before the Companys 10-K was to be filed, General Counsel
Sanford Wadler raised some additional issues to the Audit Committee. Since the
principal issues involved China, where Steptoe had already undertaken an extensive
review, the Audit Committee retained Davis Polk as a "second set of eyes."

February-June 2013: Davis Polk, working with Steptoe, investigated the issues raised
by Mr. Wadler concerning China operations.

May 2, 2013: Davis Polk provided the SEC/DOJ with a telephonic update on the
principal issues raised by Mr. Wadler and preliminary findings.

June 27, 2013: Davis Polk is scheduled to present a further report to the government.

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The issues raised by Mr. Wadler generally concerned the following:

= Distributor agreements with Chinese CDG distributors

= LSG sales into China through impoWexport ("I/E") companies
Sufficiency of resources in the Companys legal function
" Internal processes for taking reserves relating to intellectual property licenses
= Certain aspects of Bio-Rads French operations, including the reorganization and efficiency of the Legal team, and
payment of a bonus to a former employee prior to his termination
= Potential procedural irregularities regarding the sale of Company stock by an officer
= Due diligence on distributors, including difficulty of Legal obtaining information necessary to draft new agreements
in certain circumstances
= Isolated potential issues in other countries that arose in connection with the implementation of remedial measures
= Certain anonymous allegations re: China management

Certain of these issues were already under review by Latham and/or Company personnel, and others, in
Davis Polks view, were appropriately handled in the same manner.

With respect to the remaining issues, Davis Polk concluded, after interviews of personnel in Hercules,
that only the China issues warranted further investigation by Audit Committee counsel.

Davis Polk also concludedmwith the Audit Committees full agreement--that Steptoe should play an
active role in the review of the China issues, given Steptoes experience from the prior investigation.

It is Davis Polks view that the work to date, which has included numerous interviews and the review of
documents, has fulfilled the role of a "second set of eyes" with respect to the China issues.



The two main issues raised regarding Bio-Rads China operations:

Issue #1: Execution in 2012 of inconsistent Chinese- and English-language versions
of CDG distributor agreements
= Concern raised: May reflect an attempt to negate more robust anti-corruption provisions
contained in post-remediation English model of distributor agreement
Findinqs: No evidence to date that use of Chinese version was motivated by an intent to
evade anti-corruption provisions; Chinese agreement was based on an older, previously
approved Chinese version of the agreement; responsible sales personnel in China have
indicated they did not understand that it was inappropriate to use both versions
" Issue #2: Apparent inconsistencies in some of the documentation for Bio-Rads LSG
sales into China through liE companies, including with respect to products
purchased and pricing, and inability to obtain complete documentation of sales
Concern raised: May be indicative of corrupt payments to officials at end-users
= Findinqs: No evidence to date that the inconsistencies or documentation issues are
associated with any corrupt payments; they appear to be explained by routine
commercial practices

Conclusion: We have found no evidence to date of any violation--or attempted

violation--of the FCPA

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Document Review
Reviewed the English and Chinese versions of the CDG distributor agreements
executed by Bio-Rads China subsidiary ("BR-China")
Reviewed a representative sample of approximately 160 sets of sales documents for
LSG sales into China through liE companies between 2006 and 2010
Reviewed various additional documents, including certain relevant emails among Bio-
Rad personnel

Interviews of BR-China management and sales personnel in Shanghai and Hong Kong
(9 current or former employees, some more than once)
Interviews of corporate finance, legal, and other personnel in Hercules (11 current
employees, including Mr. Wadler)

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Issue #1

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Issue #1 Overview

Issue relates to BR-Chinas execution in 2012 of Chinese-language CDG

distributor agreements that differ in certain respects from the Companys
model English-language CDG distributor agreement
i Chinese version does contain anti-corruption provisions, but they are not as robust as
the anti-corruption language in the Companys new, post-remediation English model
E.g., Chinese version does not reference the FCPA or prohibit distributors from using third-
party sub-distributors
" Chinese agreements also include certain commercial terms (sales incentive provisions)
not contained in English versions

Concern raised was that Chinese agreements may reflect an attempt to

supersede the new English model so as to avoid its enhanced anti-
corruption language
" In particular, concern raised regarding potential use of sub-distributors contrary to
Company policy

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Issue #1 Relevant Background


BR-China makes most CDG sales through local distributors (Chinese companies)
CDG Distributor Aqreements: BR-China enters into form agreements with distributors to market
and sell CDG products in specified territories. Agreements are generally executed annually.
~ Sales Process: BR-China sells CDG products to distributors, which in turn sell the products to
end-users (e.g., hospital labs).

CDG products "i

CDG products I~ Distributor End-User
BR-China ~$ Distributor price/ (local Chinese ! $ Sale price
~ (e,g., hospital lab)
i~ company) [
Distributor agreement

Davis Polk
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Issue #1 Findings to Date

2010/2011 Pre-Remediation Chinese-Language Distributor Agreements

~= In 2010, prior to Steptoes investigation, BR-China entered into Chinese-language distributor
agreements that were translations of the English model in effect at the time.
The anti-corruption provision in the 2010 Chinese version is not without ambiguity, but appears to prohibit
(like the 2010 English model) gifts to Bio-Rad employees, not government officials.

= Chinesetrans~ati~n~fAckn~w~edgmentLetterattachedt~Chineseagreementsackn~w~edgesdistribut~r~s
obligation to comply with all applicable laws.
= In 2011, BR-China re-executed the Chinese translation with the same anti-corruption provision.
Based on interviews, we understand that this occurred early in 2011.
= As with prior years, the 2010 and 2011 Chinese distributor agreements included certain commercial terms
providing for sales incentive payments if targets were achieved.

Companys Adoption of Enhanced Anti-Corruption Provisions

= ByApd12011, as part of the remediation effort stemming from the investigation, Hercules Legal
had prepared a new model English-language distributor agreement containing more robust anti-
corruption language.
Explicitly prohibits payment of anything of value to a government official; specifically references FCPA
Prohibits use of sub-distributors absent Bio-Rads written consent; in the event Bio-Rad consents, distributor
must cause sub-distributor to comply with all anti-corruption obligations
Distributor must maintain accurate books and records
Bio-Rad has audit rights to inspect distributors books and records

DavisPolk ,0
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Issue #1 Findings to Date


2011 Chinese FCPA Letter Agreements

In April 2011, BR-China requested a translation of the new English distributor agreement sent by Legal. We understand
that the translation was in fact obtained by Legal, but was never sent to China.
In the interest of time, Legal provided BR-China with a 2-page letter agreement in Chinese that contained the same
enhanced anti-corruption clauses as in the full model agreement.
All 36 of BR-Chinas CDG distributors promptly executed the Chinese-language FCPA letter agreement, presumably as
a supplement to the existing Chinese distributor agreement.

"Distributor has and will comply with all governmental requirements, laws and
statutes, including, without limitation, the U.S, Foreign Corrupt Practices Act .... "

"Distributor has not, and will not, directly or indirectly.., make any offer, promise,
authorization or payment of anything of value . to any [Government Official].

"Distributor shall not appoint any sub-representative, agent, dealer or sub-distributor

to sell or distribute Bio-Rad products without the prior wdtten consent of Bio-Rad?

"Distributor shall keep and maintain its books, records and accounts in reasonable
detail to accurately reflect its activities and transactions .... "

"Bio-Rad or its designee shall have the dght at all reasonable times during business
hours to inspect and copy the accounts, books and records of Distributor. "

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Issue #1 Findings to Date

Later in 2011, BR-China also executed the new English model agreement
with its CDG distributors

In early 2012, BR-China again executed both the new English version of
the distributor agreement and the older, Chinese version with its CDG
distributors, just as it had done in 2011.

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Issue #1 Findings to Date


Since the 2012 Chinese version of the distributor agreement is based on the old translation, it
differs from the new 2012 English model with regard to anti-corruption provisions:

Anti-Corruption Provision Distributor Annual

(Section13) Handbook Acknowledgment Letter Compliance Certificate

ENGLISH Substantially identicalto 2011 . Attachment A Attachment B Attachment C

FCPA letter agreement "
Contains terms and conditions Cedifies that distributor has received and Requires distributor to
Specific reference to FCPA; of distributorship accepts Distributor Handbook annually certify
books and records provision; compliance with
Gives Bio-Rad dght to Acknowledges obligations to comply with
audit rights; prohibition of FCPA
terminate agreement if FCPA and not to engage third parties
sub-distributors absent Bio-
distributor breaches =Section absent Bio-Rads consent
Rads consent
13, Anti-corruption, Books and
Records, and Audit Rights

CHINESE Somewhat ambiguous, but Referenced but not attached Attachment D English version of
appears to prohibit distributor Compliance
Certifies that distributor has received and
from giving anything of value Certificate is attached
accepts Distributor Handbook
to a Bio-Rad employee to Chinese
Acknowledges obligation to comply with all
No FCPA reference, books agreements with 2,of
applicable laws
and records provision, audit the distributors
Does not include specific reference to
rights, or prohibition on sub-
FCPA or prohibition on using third parties
English version of Acknowledgment Letter
is attached to 2 of the Chinese agreements

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Issue #! Findings to Date

The Chinese agreements also include (as attachments) distributor sales incentive and
penalty provisions not contained in the new Legal-approved English version.

In January 2013, when incentive payments became due under the Chinese agreements, the
proposed payments were brought to the attention of Frank Gao (BR-China Financial
~ Mr. Gao recalled that in or around February 2012, Bio-Rad (Giovanni Magni of International Sales) had
announced that all sales incentive structures for distributors must be pre-approved.

" Mr. Gao asked for support for the proposed payments, and learned of the Chinese agreements.

Mr. Gao alerted George Cao (BR-China Commercial Manager), who informed Hercules.

Upon learning of the unauthorized commercial terms, BR-Chinas senior management

promptly disapproved them, and no incentive payments were made by the Company.

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Issue #1 Findings to Date


The Company took prompt, reasonable, and effective steps to ascertain whether
any corruption issue existed immediately upon learning of the inconsistent
Chinese distributor agreements.

" January 24, 2013: Hercules first learned of the Chinese agreements.

January 31: Legal engaged bilingual outside counsel to compare sample Chinese/English
versions of the agreements.
Based on that independent analysis (completed February 1), Legal perceived that the Chinese version was
based on the old translation of the pre-remediation English model.
m February 4: Legal collected all of the Chinese agreements from BR-China.

Legal confirmed that each distributor that signed Chinese version was subject to due diligence and also had
signed the approved 2012 English version.

" February 5: Legal spoke with the two BR-China CDG managers who signed the unauthorized
Chinese agreements (Xu Jingzhi and Wen Jie).

February 27: At Audit Committees request, Steptoe interviewed BR-China personnel in Shanghai
regarding the parallel agreements, including George Cao, Frank Gao, Xu Jingzhi, and Wen Jie.

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Issue #1 Findings to Date

February 28-March 1 : Legal asked George Cao, Frank Gao, Xu Jingzhi, and Wen Jie whether
they were aware of any CDG distributor engaging a sub-distributor. Each responded that he or
she was not.

March 1-11: BR-China obtained a written certification from each of the 35 current CDG
distributors that had signed a Chinese version of the 2012 distributor agreement, which confirmed
that it is selling Bio-Rads products directly (i.e., not through sub-distributors).

March 7: BR-China sales manager found no indication of any involvement by sub-distributors in

review of records for CDG shipments.

May 22: Davis Polk/Steptoe conducted additional interviews of George Cao, Frank Gao, and Xu

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Issue #1 Conclusions

Based on our review, there is no evidence to date that BR-Chinas execution of the
Chinese-language CDG distributor agreements is associated with any corrupt intent or

" No evidence that Chinese agreement was intended to permit corrupt conduct prohibited by new English
Chinese version simply based on most recent approved translation of the distributor agreement in BR-Chinas files
Despite request, translation of new English version was never provided
The two managers who signed the Chinese agreements have indicated that they did not appreciate that it was
inappropriate to use both versions of the agreement, as they had done in the pdor year
No evidence of any negotiation with distributors regarding anti-corruption Ianguage
Acknowledgment Letter attached to Chinese version certifies acceptance of Distributor Handbook, which allows Bio-
Rad to terminate for failure to comply with the new anti-corruption clause (Section 13) (Distributor Handbook not
translated, however)
m Distributors were willing to execute the 2011 Chinese-language FCPA letter agreements, as well as the 2011 and
2012 English-language distributor agreements, which contained the enhanced anti-corruption language
No evidence of intent to supersede--eg., both agreements dated as of January 1, 2012
, It is difficult to know whether, as a matter of law, a Chinese court would treat the Chinese version as prevailing given that
the agreements are dated contemporaneously. We have not felt a need to obtain a Chinese law opinion on this issue in
light of the findings to date--namely, no evidence of any intent to supersede the enhanced anti-corruption provisions.
I NO evidence that any distributor that signed Chinese version has used a sub-distributor
m Written certifications from CDG distributors
BR-China personnel not aware of any indication of sub-distributors

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Issue #2:


Issue #2 Overview

Issue relates to the documentation for LSG sales by Bio-Rad Pacific Ltd.
("BR-HK") into China through liE companies
= For some transactions, there are apparent inconsistencies in product lists and
prices reflected on different documents pertaining to the same sale
Concern raised was that these discrepancies may be indicative of corrupt
payments to officials at end-users
[] Concern also raised that Companys difficulty in retrieving certain end-user
documentation relating to LSG sales may be indicative of corruption

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_. I II "111111fll "rlrl"l

Issue #2: Relevant BackgroUnd


Until 2012, Bio-Rads LSG sales in China were made by BR-HK via the liE company
system using third-party Chinese agents to arrange the sales to end-users.
Beginning in 2012: shift to distributor model for China LSG sales
liE Companies: Chinese trading enterprises engaged as import agents by end-users, which
typically lack requisite import licenses
liE Sales Process:
I LSG products LSG products ]
i BR-HK ~ $ Sale price lie Company $ Sale price +
~ import fee I (e.g., university)

Purchase contract

(1 ~_.~o

Bio-Rads Agent
(local Chinese

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Issue #2: Relevant Background


Documentation for an LSG liE sale typically includes:

Order from End-User to A,qent
Initial order by which end-user asks one of BR-Chinas agents to procurecertain Bio-Rad products
Specifies products and prices, as well as any services agent may provide to end-user post-sale
Application for Contract Order
= Sent to BR-China by agent after it finalizes price and other terms with end-user
Names end-user and identifies I/E company to take the order

includes Commission Statement listing products/prices and stating amount of agents commission
Order Cover & Purchase Order
Internal Bio-Rad documents generated by BR-China Customer Service based on materials sent by
Lists products/prices, states certain terms of the transaction, and identifies end-user, I/E company, and

Purchase Contract between Bio-Rad and I/E Company

Contract between BR-HK and the I/E company importing the goods to end-user
= Specifies goods, prices, and other standard terms and conditions

Purchase Contract between I/E Company and End-User

= Specifies terms of transfer from I/E company to end-user

Issue #2 Relevant Background

Life Techs Demand for End-User Documentation

= In an unrelated royalty dispute, Life Technologies demanded LSG sales documentation for period
2006 to 2010 to confirm prices paid by end-users (on which royalties are calculated)
Bio-Rads Files
i BR-China and BR-HK maintain files on each I/E sale into China typically including copies of:
Application for Contract Order

~ Order Cover & Purchase Order

Contract between BR-HK and liE company

" BR-HKs files also typically include shipping documentation and letters of credit
Retrieval of End-User Documentation from Bio-Rads Agents
B Life Tech challenged adequacy of these documents as evidence of end-user price; demanded that
Bio-Rad produce end-user documentation
Contracts between liE company and end-user not ordinarily available to Bio-Rad or its agents
Order contracts between end-users and agents also not ordinarily within Bio-Rads possession
" Company was able to obtain end-user/agent documentation from its agents for many sales after
some delay

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Issue #2: Relevant Background


A representative sample of approximately 160 sets of the LSG liE sales

documents that were collected have been analyzed
[] Hercules Finance reviewed the 160 transactions for purposes of royalty audit; also visited
BR-China to speak directly with LSG sales personnel
Mr. Wadler subsequently raised concern that apparent inconsistencies in some of the
documentation may indicate corruption issue
Steptoe reviewed the 160 sets of sales documents--identified apparent inconsistencies
relating to product lists and prices for approximately 34 transactions
During the earlier investigation, Steptoe and Protiviti also reviewed hundreds of these sales in
connection with analyzing commissions, finding no evidence of improper payments
Davis Polk reviewed Steptoes analysis and has independently reviewed half of the 34 sets
of sales documents identified as containing possible discrepancies, and has found no
evidence to date of corruption; we are in the process of completing our analysis of all 34
Davis Polk and Steptoe conducted detailed interviews with responsible BR-China sales
personnel regarding apparent discrepancies in the documentation
Percenta,qe of Total liE Sales Reviewed
2009-2010: total of approx. 3,045 LSG liE sales into China for sales revenue of $83.3 million
Reviewed approx. 100 (3%) of those sales accounting for $2.7 million (3%) of sales revenue*
* Aggregate liE sales figures not available for 2006-2008

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Issue #2: Findings to Date

The apparent inconsistencies in product lists and pricing identified in the 34 sets
of sales documents generally fall into three overlapping categories

1) Grouping of products
Individual LSG products are often part of a package of products
E.g., a product system that includes power supply, reagents, test tubes
" Different documents for same sale may itemize/group products differently
Primary reason: regrouping of products to conform to customs and exemption categories
Total shipment price remains the same

2) Order partially filled by Bio-Rads agent

If agent already has some of products ordered by end-user in its inventory on-shore (e.g.,
consumables), agent may supply those products to end-user directly (cheaper to do so)
Such products would appear on order from end-user to agent but not on Purchase Order

3) "Free" products
BR-HK may provide small supporting products (e.g., test tubes) for no charge for commercial
relationship purposes
BR-China also sometimes approves discounts to agent price (on which agents commission is
based) in order to complete sale; agent must apply for discount and specific internal approval
process is in place
Small, low-cost supporting products will often be listed as "free" as a matter of customer relations

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Issue #2: Findings to Date


Apparent Discrepancy: The number of products and the catalog numbers on the
Purchase Order do not match the product list on the I/E Contract (e.g., S-1-RY).

Davis Polk
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Issue #2: Findings to Date

Explanation: Products are grouped differently to conform to customs or exemption

categories for import/export purposes. Smaller support items (e.g., power supplies,
consumables) are also sometimes grouped together with larger products in a package.







Davis Polk
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Issue #2: Findings to Date


Apparent Discrepancy: Items listed on the End-User/Agent Contract do not appear on

the Purchase Order (e.g., S-90-Baile).
J~nd-User/Agent Contrucl/

Purchase Order I

~ ~=.~L m~J exampJes in this sale of Iow-co~

~ ~P~ ~t~ ancilla~ ~ems provided for"free)

Computer and printer locally

procured by agent

Explanation: Agents sometimes partially fill orders from

their own inventories because it is cheaper to procure
certain goods locally (e.g., computers) and to store
certain goods in bulk locally (e.g., consumables).
Pricing will be adjusted accordingly or BR-China will
reimburse agent for cost of goods supplied by agent as
part of commission payment.

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Issue #2: Findings to Date

Apparent Discrepancy: Products listed for a price on the Purchase Order are shown as
"free" on the End-User/Agent Contract; total price is the same (e.g., S-28-Baile).
~ .~ ~ ,~.~ ~ ~_. [End-User/Agent Contract]
Purchase Order ~ .....
No ~.~

Explanation: Smaller, low-cost supporting
products will often be listed as "free" as a
matter of customer relations (here, test tubes
and accompanying caps for the tubes).

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Issue #2: Conclusions

Based on our review, there is no evidence to date that the apparent

inconsistencies in the LSG liE sales documents are associated with any
corrupt intent or conduct.
Magnitude of apparent discrepancies quite small
Standard commercial explanations
"Free" products are low-cost items incidental to main product sold
These products are not the sort of goods that could readily be diverted to officials at end-users
for personal benefit
No evidence that Companys difficulty in obtaining end-user documentation indicates
corruption risk
Documentation must be obtained from third-party Chinese agents who may not maintain good
Not surprising that large number of documents would be unobtainable given age of documents
(some dating to 2006)

Davis Polk
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Other Issues


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In April/May 2013, Hercules received several anonymous emails raising complaints

concerning China operations unrelated to the issues raised by Mr. Wadler.
Based on our review to date, the anonymous allegations appear to be meritless.
We have not found any evidence that they are indicative of any corruption.
Davis Polk and Steptoe interviewed Casey (Xiaoyan) Feng, who was identified by
the Company as the person who likely sent the anonymous emails.
Ms. Feng is a former Regional Sales Manager based in Beijing; she left the Company in mid-May.
BR-China management came to believe Ms. Feng was the person sending the emails principally
because she had a very close relationship with Beijing Yuan Ye ("Beijing YY"), a major China
distributor that Bio-Rad recently terminated--a decision the anonymous emails repeatedly
criticize--and because she had familiarity with China CIQ (Center for Inspections and
Quarantines), also a subject of the emails.
Ms. Feng denied any knowledge of the anonymous emails during her interview. However, we
believe she is likely the author based on some of the unique phrasing she used in her answers,
which was similar to language in the anonymous emails.
= Ms. Feng was unable to substantiate or clarify any of the allegations. We asked her multiple
times for any evidence of corruption, and she offered none.

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Other Issues

George Cao (BR-China Commercial Manager)

= Alle.qations: Generalized allegations of mismanagement and self-dealing, including at prior employer

J Findin,qs:
Headhunter performed basic background research and reference checks before Mr. Cao was hired (in June
2012); no other evidence to substantiate any claims

Jason Li (DR-China LSG Division Manager)

Allegations: Conclusory allegations that Mr. Li (1) forged his resume and (2) owns shares of two new

J Findings:
= Resume: Headhunter performed basic background research and reference checks before Mr. Li was hired
(in September 2012); statements by Mr. Li in his interview were consistent with his resume
VVhen asked about the forgery allegation, Ms. Feng said she believes some new LSG hires are not sufficiently
qualified--suggesting that the nature of the complaint (to the extent she made it) is not actual "forgery"
Ownership of distributors: Red Flag Groups due diligence report on the two distributors named in the
anonymous emails list their shareholders, which do not include Mr. Li; Mr. Li stated he is not aware of any
BR-China employee being invested in a distributor (which he said would result in the employees


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Other Issues

QX100 Transaction
= Allegations: In early 2013, BR-China lost 2 out of 3 bids (to Life Tech) for sale of QX100 (digital PCR) to China ClQ because
product was improperly overpriced
Public bidding process; bids are submitted by distributor, not Bio-Rad
According to BR-China management, the end-user price was well above distributor price in this instance largely because
distributor added a service warranty requested by China ClQ; distributor, not Bio-Rad, formulates end-user pdce
Mr. Li said that Life Tech misrepresented its product to win the bids--supported by complaint letter from distributor

Termination of Beijing YY
Alle,qations: Firing Beijing YY was a bad business decision motivated by Mr. Caos vaguely alleged "personal interests"

Mr. Cao and Mr. Li have provided several reasonable business explanations for fidng Beijing YY, including that it had become
too big, accounting for almost all North China sales, and thus threatened to dominate customer relationships
Replacement distributors have been chosen based on references and vetted through third-party due diligence

= Mr. Cao and Mr. Li conveyed that the transition away from Beijing YY is challenging, but that they believe it is in the best long-
term interests of the Company
Mr. Cao explained that his vision for BR-China is to increase its direct sales and rely less on third parties

Conclusion: The recent anonymous complaints appear to be unsubstantiated, and we have found
no evidence to date of corruption.

Davis Polk
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In light of our findings to date, we recommend taking the following steps in connection with the
issues investigated:
Inconsistent CDG DistributorA,qreements
Install Legal and Compliance personnel on the ground at BR-China in Shanghai dedicated to China operations and
improving information flow between BR-China and Hercules
Legal/Compliance presence in China might have prevented this issue from adsing or spotted it earlier
Fully supported by BR-China management
Institute policy of promptly providing BR-China business team with Legal-approved Chinese translation of model
distributor agreement each time it is updated
For 2013, require BR-Chinas CDG distributors to sign an updated, Legal-approved Chinese translation of the
current model distributor agreement containing the enhanced anti-corruption provisions
Consider seeking opinion from Chinese law firm regarding enforceability of agreement in China

~ Discrepancies in LSG liE Sales Documents

Enhance Corporates knowledge of BR-Chinas sales processes
Installation of Legal/Compliance personnel in Shanghai
Regular communications with and more visits to BR-China
Continue messaging to third parties that improper payments will not be tolerated
Continue to assess third-party relationships and to diligence prospective third parties
NB: As of 2012, BR-China shifted to the distributor model for LSG sales, but these recommendations regarding
Corporates knowledge of BR-Chinas business and continuing to vet third parties still apply
Anonymous Complaints
Institute policy of engaging due diligence firm to provide due diligence on management-level hires in China (as is
done for new distributors)

DavisPolk 30
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We recommend:
Complete our review of the 34 sets of LSG I/E sales documents for which Steptoe identified
apparent discrepancies
" Perform a similar review of additional LSG I/E sales documents subsequently received
" Follow up as necessary with employees
Respond, as appropriate, to any additional requests or inquiries from the government
" Continue to implement global compliance enhancements
Report our findings, as scheduled, to the government on June 27

Davis Polk
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Appendix A:

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Appendix A

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