Share-Based Compensation

During 2005, the Company adopted the QIAGEN N.V. Amended and Restated 2005 Stock Plan (the Plan). The Plan allows for the granting of stock rights and incentive stock options, as well as non-qualified options, stock grants and stock based awards, generally with terms of up to 10 years, subject to earlier termination in certain situations. Generally, options granted prior to October 2004 vested over a three-year period. During 2004 and 2005, the Company accelerated the vesting of certain options. The vesting and exercisability of certain stock rights will be accelerated in the event of a Change of Control, as defined in the Plan. To date all grants have been at the market value on the grant date or at a premium above the closing market price on the grant date. The Company had approximately 17.7 million shares of common stock reserved and available for issuance under this plan at December 31, 2006.

During the years ended December 31, 2006 and 2005, the Company granted 201,500 and 2.7 million stock options, respectively. Following are the weighted-average assumptions used in valuing the stock options granted to employees for the years ended December 31:

2006 2005

Stock price volatility . . . 43% 52% Risk-free interest rate . . . 4.74% 4.02% Expected life (in years) . . . 6.00 4.26 Dividend rate . . . 0% 0% Forfeiture rate . . . 9% 0%

Forfeited and cancelled . . . (483,580) $16.511

Outstanding at December 31, 2006 . . . 11,716,539 $13.427 5.99 $44,268,117 Exercisable at December 31, 2006 . . . 11,499,364 $13.395 5.92 $44,166,577 Vested and expected to vest at December 31, 2006 . . . 11,684,835 $13.422 .03 $44,261,299

The weighted-average grant-date fair value of options granted during years ended December 31, 2006, 2005 and 2004 was $7.52, $5.82 and $6.82, respectively. The total intrinsic value of options exercised during the years ended December 31, 2006 was $12 million.

As a result of adopting SFAS No. 123(R) on January 1, 2006, the Company’s income before income taxes and net income for the year ended December 31, 2006, is approximately $326,000 and $214,000 lower, respectively, than if it had continued to account for share-based compensation under Opinion 25. The Company anticipates that the adoption will have a greater impact in future periods.

The unrecognized share based compensation expense related to employee stock option awards is approximately $701,000 and will be recognized over a weighted average period of approximately 1.7 years.

The following table illustrates the effect on net income and net income per share if the Company had applied the fair value recognition provisions of SFAS No. 123(R) to equity-based compensation for the years ended December 31, 2005 and 2004.

2005 2004

Net income, as reported . . . $ 62,225,000 $ 48,705,000 Deduct: Total stock-based employee compensation expense

determined under the fair value based method for all awards, net

of related tax effects . . . (13,835,000) (12,224,000) Pro forma net income . . . $ 48,390,000 $ 36,481,000 Earnings per share:

Basic—as reported . . . $ 0.42 $ 0.33 Basic—pro forma . . . $ 0.33 $ 0.25 Diluted—as reported . . . $ 0.41 $ 0.33 Diluted—pro forma . . . $ 0.32 $ 0.25 Prior to the adoption of SFAS 123(R), the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Consolidated Statement of Cash Flows. SFAS 123(R) requires the cash flows resulting from the tax benefits generated from tax deductions in excess of the compensation costs recognized for those options (excess tax benefits) to be classified as financing cash flows.

$ 6.024 - $ 8.940 1,289,563 4.17 Years $ 8.283 1,289,563 $ 8.283 $ 9.000 - $10.430 1,312,244 6.60 Years $10.155 1,296,569 $10.159 $10.610 - $11.750 1,233,310 7.96 Years $11.344 1,233,310 $11.344 $11.850 - $11.985 1,181,469 8.35 Years $11.968 1,181,469 $11.968 $12.110 - $13.150 1,171,411 7.68 Years $12.786 1,171,411 $12.786 $13.280 - $15.480 1,473,714 5.89 Years $14.830 1,423,714 $14.832 $15.810 - $20.563 1,278,561 4.89 Years $18.885 1,127,061 $19.928 $20.800 - $47.750 994,925 3.80 Years $33.453 994,925 $33.453 $49.750 - $49.750 29,670 3.58 Years $49.750 29,670 $49.750 $ 1.060 - $49.750 11,716,539 5.99 Years $13.427 11,499,364 $13.395

During the fourth quarters of 2005 and 2004, and considering the new accounting implications of SFAS No. 123(R), the Company accelerated the vesting of 1.2 million and 829,000 stock options, respectively. The 2005 acceleration applied to certain in-the-money options and to options held by Supervisory and Managing Board members. Under the accounting guidance of APB 25 and FASB Interpretation No. 44 “Accounting for Certain Transactions Involving Stock Compensation—An Interpretation of APB Opinion No. 25, “the 2005 acceleration of vesting did not result in any compensation expense as these options, after applying an estimate of the termination of services, had a de minimis intrinsic value. The 2004 acceleration applied to stock options that had a price greater than or equal to the fair market value of the Company’s common shares (out-of-the-money) as of the close of day that the plan was approved by the Supervisory Board, or $10.62. The accelerated options were given a sales restriction, such that any shares held through the exercise of an accelerated option could not be sold, prior to the original vesting date. Under the accounting guidance of APB 25, the 2004 acceleration of vesting did not result in any compensation expense as these options had no intrinsic value. The accelerations, however, will allow the Company to avoid recording approximately $2.8 million, after tax, of future compensation expense that would have been required to be recognized under SFAS No. 123(R). Upon adoption of SFAS No. 123(R) on January 1, 2006, the Company did not have any stock-based compensation expense from these accelerated options. The Supervisory Board took the action based on its belief that it is in the best interest of the Company’s shareholders and the Company as it will reduce reported compensation expense in future periods. The Company has worked with equity based compensation plan experts to evaluate its stock-based compensation plans and incentive strategies in light of the provisions of SFAS No. 123(R). The Company’s aim is to implement an equity based compensation plan structure that will give employees a long-term incentive arrangement while minimizing compensation expense.

18. Commitments and Contingencies