On September 25, 2006, Richard M. Shepperd was elected as the President and Chief Executive Officer of Bioanalytical Systems, Inc. (“BASi”), and BASi’s compensation committee determined Mr. Shepperd’s compensation, as set forth in Item 5.02 of BASi’s Form 8-K filed September 28, 2006.

On January 11, 2007, BASi’s board of directors ratified the compensation committee’s decision and approved a written employment agreement with Mr. Shepperd to memorialize the terms of his employment. BASi agreed to employ Mr. Shepperd as the President and Chief Executive Officer of BASi through February 28, 2007. After February 28, 2007, the employment agreement is automatically extended for successive three month periods, until such time as either Mr. Shepperd or BASi gives the other party thirty days’ written notice before the end of the term, at which time, the employment agreement will expire at the end of the then-current term. BASi agreed to pay Mr. Shepperd a base salary of $35,000.00 per month, plus a quarterly bonus equal to 10% of EBITDA, capped at $150,000 per quarter. Mr. Shepperd is also eligible for a discretionary, performance-based bonus determined by the board of directors to be paid at the end of his term of service. In addition to reimbursement of business expenses in accordance with BASi’s standard reimbursement policies, Mr. Shepperd will be entitled to reimbursement for reasonable living expenses in the Lafayette, Indiana area during the term of his employment, and reasonable travel expenses for travel to and from his residence in the Henderson, Nevada area once per month. Mr. Shepperd is subject to a confidentiality restriction during his employment and thereafter, and to non-solicitation restrictions with respect to customers and employees of BASi during his employment and for two years following termination.

BASi may terminate Mr. Shepperd’s employment, with or without cause, by providing five days’ written notice to Mr. Shepperd, in which event Mr. Shepperd will be paid his salary and a pro-rata portion of any quarterly bonus through the termination date, and will also be paid for all vacation time accrued as of the termination date.

On January 11, 2007, BASi’s bylaws were amended to create and set forth the following procedure by which shareholders may nominate directors.

Shareholders may nominate directors by providing timely written notice to BASi’s corporate secretary. The notice must be delivered to BASi’s executive offices (a) in the case of an annual meeting, not less than ninety days nor more than one hundred twenty days prior to the anniversary date of the immediately preceding annual meeting; and (b) in the case of a special meeting of shareholders called for the purpose of electing directors, not later than the close of business on the tenth day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs.