10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended June 30, 2006

OR

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

For the transition period from                     to                     

Commission file number 0-28194

DIGENE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	52-1536128
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
1201 Clopper Road
Gaithersburg, Maryland	20878
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (301) 944-7000

Securities registered pursuant to Section 12(g) of the Act:	Common Stock, par value $.01 per share
	(Title of Class)

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

     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 þ No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “Accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer o Accelerated filer þ Non-accelerated filer 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 þ

     As of December 31, 2005, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $584,088,850. Such aggregate market value was computed by reference to the closing price of the Common Stock as reported on the NASDAQ National Market on December 31, 2005.

     As of September 7, 2006, 23,591,984 the registrant’s Common Stock were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the following documents are incorporated by reference in this Report on Form 10-K:

     1) The registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be filed not later than 120 days after the close of the fiscal year (incorporated into Part III).

Table of Contents

		Page
PART I
ITEM 1.	Business		1
ITEM 1A.	Risk Factors		27
ITEM 1B.	Unresolved Staff Comments		36
ITEM 2.	Properties		36
ITEM 3.	Legal Proceedings		37
ITEM 4.	Submission of Matters to a Vote of Our Stockholders		37
	Executive Officers of Digene		38
PART II
ITEM 5.	Market for Our Common Equity and Related Stockholder Matters		40
ITEM 6.	Selected Consolidated Financial Data		41
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk		55
ITEM 8.	Financial Statements and Supplementary Data		56
ITEM 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure		84
ITEM 9A.	Controls and Procedures		84
ITEM 9B.	Other Information		84
PART III
ITEM 10.	Directors and Executive Officers of the Registrant		85
ITEM 11.	Executive Compensation		85
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		85
ITEM 13.	Certain Relationships and Related Transactions		85
ITEM 14.	Principal Accountant Fees and Services		85
PART IV
ITEM 15.	Exhibits and Financial Statement Schedules		86

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PART I

ITEM 1. BUSINESS

Overview

     We develop, manufacture and market our proprietary gene-based diagnostic tests for the screening, monitoring and diagnosis of human diseases. Our primary focus is in women’s cancers and infectious diseases. We have applied our proprietary Hybrid Capture^® technology to develop a successful diagnostic test for human papillomavirus (HPV), which is the primary cause of cervical cancer and is found in greater than 99% of all cervical cancer cases. Our HPV testing products, which are the only Food and Drug Administration (FDA)-approved tests for the detection of HPV, are each a reproducible, objective test for the primary cause of cervical cancer. We have created, and are continuing to expand, the worldwide market for HPV testing.

     Our patented Hybrid Capture platform has been optimized for high-throughput, cost-effective cervical cancer screening and other gynecologic applications. Hybrid Capture is a signal amplification technology that combines the convenience of a direct probe test with the sensitivity of an amplification test, requires minimal sample preparation and provides objective test results.

     In creating the worldwide market for HPV testing we have focused our activities on four aspects of the market: seeking FDA approval for our products, supporting the clinical validation of HPV testing, including pursuit of clinical practice guidelines from recognized professional associations, educating healthcare professionals and womens’ health leaders as to the benefits of HPV testing, and seeking reimbursement approval for the use of our tests, both in the United States and internationally. We continue to focus our activities on increasing access to and use of our HPV test products in the United States and internationally.

     In fiscal 2006, revenue from our HPV testing products was approximately $134,361,000.

     Our goal is to become a global leader in gene-based testing systems for women’s cancers and infectious diseases. Our strategy is to leverage both our position as a pioneer in the HPV testing market, and our Hybrid Capture technology to develop additional tests for the early detection of disease. We have established relationships with clinical laboratories, physicians and other healthcare professionals, developed primarily through our HPV test product marketing efforts, which will help us sell our products.

     For the future, we intend to focus our activities in the following four areas:

• building our U.S. HPV testing business to increase our share of the potential market

• capitalizing on international opportunities for HPV testing in Europe and the rest of the world

• investing in research and development of our next generation products

• building our pipeline and portfolio of diagnostic tests through in-licensing and acquisitions

     In addition to our HPV test products, our diagnostic test product portfolio includes gene-based tests for the detection of chlamydia (CT), gonorrhea (GC), cytomegalovirus (CMV) and hepatitis B virus (HBV). We also develop and sell to clinical laboratories the equipment, instrumentation and accessories

used to perform clinical specimen testing with our diagnostic tests, including the Rapid CaptureÒ System, an automated specimen processing system. During fiscal 2006 we also acquired the exclusive rights to market and distribute the Signature^® cystic fibrosis (CF) screening products being developed by Asuragen, Inc.

Recent Developments

     In June 2006, we announced that Evan Jones, our Chairman and Chief Executive Officer, will be retiring from Digene during fiscal 2007 after selection of a new Chief Executive Officer. Mr. Jones will remain as a member of our Board of Directors through 2008. In August 2006, we announced that Charles Fleischman, our President, Chief Operating Officer, Chief Financial Officer and a director has resigned from such offices, with the effective date of his resignation as Chief Financial Officer on October 1, 2006, and his resignation from the other offices and as a director on October 31, 2006. On October 1, 2006, Joseph P. Slattery will become Chief Financial Officer. He is currently our Senior Vice President, Finance and Information Services.

     The Nominating and Corporate Governance Committee of our Board of Directors is serving as a search committee for candidates for our Chief Executive Officer position. The committee has retained SpencerStuart, an executive search firm, to assist in the identification of candidates for such position.

Our Products

     Diagnostic tests are used to inform physicians of the presence of a disease or a disease-causing agent and provide critical information necessary for treatment. Diseases today are primarily classified based on physiological symptoms and indirect measurements that are obtained using conventional diagnostic methods that may bear little relationship to the underlying mechanism or cause of the disease.

     In many cases, conventional diagnostic tests also lack the clinical sensitivity and specificity to provide definitive diagnoses during the early stages of disease. Clinical sensitivity is typically regarded as the measure of a test’s ability to accurately detect the presence of disease. A false negative test result can lead to providing a negative or normal diagnosis to a patient who has the disease. Clinical specificity is typically regarded as the measure of a test’s ability to correctly identify the absence of disease when it is not present. A false positive test result can lead to providing a positive or abnormal diagnosis to a patient who does not have disease. We believe clinical sensitivity and specificity can be greatly enhanced by using gene-based information.

     We expect gene-based diagnostic tests to create a fundamental shift in both the practice of medicine and the economics of the diagnostics industry. Gene-based diagnostic tests are expected to create an increased emphasis on preventative and predictive molecular medicine. Physicians will be able to use these tests for the early detection of disease and to treat patients on a personalized basis, allowing them to select the most effective therapy with the fewest side effects. In addition, the relatively straight-forward format and significant automation capabilities of our tests allow ease of laboratory use, reducing overall processing costs.

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     The following tables describe the diagnostic test kit products and principal instrumentation we market and sell, and our products in development.

Diagnostic Test Kits:

Product	Target	Market	Marketed Since
The Digene HPV Test (hc2 High-Risk HPV DNA Test) (1)(2)	HPV	Worldwide	2000 in U.S. (from June 2003 as the “DNAwithPap Test” also known as the hc2 High-Risk HPV DNA Test) July 2003 in Europe
hc2 HPV Test (3)	HPV	Worldwide	1995
hc2 CT Test	Chlamydia	Worldwide	1998 in Europe; 1999 in U.S.
hc2 GC Test	Gonorrhea	Worldwide	1999
hc2 CT/GC Test	Chlamydia and Gonorrhea from same sample	Worldwide	1999 in Europe; 2000 in U.S.
hc1 CMV Test	Cytomegalovirus	U.S., Asia/Pacific (4)	1998
hc2 HBV Test	Hepatitis B virus	Asia, primarily Korea; U.S. (4)	1995

Instrumentation and Accessories:

Product	Market	Marketed Since:
Rapid Capture System	U.S., Europe	May 2004 in U.S.; March 2005 in Europe
Hybrid Capture Microplate System	Worldwide	1995

Products in Development:

Product	Description
hc4	Fully automated screening and genotyping platform. Development work ongoing.
HPV genotyping products	Potential uses of these products include HPV genotyping in connection with HPV vaccines and revised patient care management. First product launched in fiscal 2006; others expected to be available over the next few years.
Automated sample preparation processor	Automates the front-end processing of relevant types of cervical specimens from ThinPrep® PreservCytTM Solution (Cytyc Corporation). Expected commercial launch in calendar 2007.
Signature® Cystic Fibrosis tests (5)	Molecular diagnostic tests for Cystic Fibrosis. Expected FDA submission in fiscal 2007.
FAST HPV Test	HPV screening test for use in resource-constrained countries being developed by Digene under the product development and commercialization agreement with PATH.

(1)	Detects high-risk HPV types only.
(2)	Outside of the United States, this test is marketed under the name DNAPap and in this Form 10-K when we refer to “The Digene HPV Test” we also mean the DNAPap Test.

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(3)	Detects high-risk and low-risk HPV types.
(4)	In December 2003 we ceased all marketing and sales in Europe and Canada of our diagnostic test products for cytomegalovirus and Hepatitis B virus, and in June 2005 we ceased sales of the hc2 HBV Test in the United States.
(5)	In March 2006 we entered into an exclusive worldwide agreement with Asuragen, Inc. to market and distribute Asuragen’s Signature Cystic Fibrosis screening products.

     Our HPV Tests. There are more than 70 distinct HPV types, approximately 23 of which are specific to the female genital tract. HPV types that infect the genital tract can be divided into two categories, high-risk and low-risk, which indicate the relative chances of developing cervical cancer. Cancer-causing HPV types have been found in more than 99% of cervical cancers.

     Our hc₂ HPV Test contains individual RNA probes that are mixed into cocktails of the thirteen most significant cancer-causing, high-risk papillomavirus types (types 16, 18, 31, 33, 35, 39, 45, 51, 52, 56, 58, 59 and 68), and low-risk HPV types which are not linked to the development of cervical cancer (types 6, 11, 42, 43 and 44). The Digene HPV Test contains individual RNA probes of the thirteen most significant cancer-causing, high-risk HPV types. Each of our HPV test products use a signal amplification process to detect small amounts of the HPV DNA collected from the cells of the cervix. Each test kit consists of RNA probes to specific HPV types, antibodies, detection reagents and a 96-well microplate coated with antibodies.

     Each of our HPV test products is prescribed by a gynecologist or other healthcare professional. The healthcare professional collects the specimen by inserting a collection brush into the cervix, rotating the brush to collect cells, removing it and placing it into a transport tube device. The device is then sent to the laboratory, where it is processed and tested with our test kits by a lab technician and specialized software programs provided with our Hybrid Capture 2 systems to generate qualitative patient test results indicating presence or absence of HPV DNA in the cervical specimen. The laboratory subsequently reports these test results to the physician using standard reporting procedures and the physician advises the woman of the test results and the appropriate follow-up action or treatment, if any. The entire process can be completed in one day but is typically performed in two to three days. When our test is used with an FDA-approved liquid-based Pap test, the entire process is the same except that only one specimen is collected for both our HPV test and the Pap test, permitting the laboratory to perform HPV testing without the need for additional specimen collection.

     Since infection with HPV is necessary for the development of essentially all cervical cancer, testing with our HPV test products identifies women at high risk for the development of cervical disease and cervical cancer. This predictive nature of HPV testing permits healthcare professionals to classify women who test negative for HPV as being unlikely to develop cervical disease in the foreseeable future. Such classification may safely permit increased screening intervals, within the current guidelines, for such women, saving costs for the healthcare provider and permitting the allocation of resources to those women who currently have cervical disease or are at significant risk for developing cervical disease in the future.

     We believe the higher clinical sensitivity and negative predictive value (the measure of how often a negative test result correctly identifies the absence of disease) of our HPV tests may reduce the overall patient management costs and eliminate costs associated with late diagnosis of disease, equivocal test results and false negative diagnoses. This potential for cost reduction arises because the higher accuracy reduces the need for follow-up exams, allows healthcare resources to focus on patients who have, or are at an increased risk of developing disease and minimizes the expenditure of resources on those patients at least risk.

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     Our Chlamydia and Gonorrhea Tests. Chlamydia is the most common bacterial sexually transmitted disease in the United States and is a major health problem worldwide, with approximately 89 million new cases reported annually. Genital chlamydia infection, if left untreated, has serious potential consequences, including infertility, ectopic pregnancy, cervicitis and pelvic inflammatory disease. Gonorrhea, with approximately 62 million new cases reported annually worldwide, is the second-most common bacterial sexually transmitted disease in the United States and may result in severe genital complications in both women and men if left untreated. If properly detected, both chlamydia and gonorrhea are easily treatable with low-cost antibiotic therapy. Nevertheless, routine and broad-based screening for chlamydia and gonorrhea has been limited by the insufficient sensitivity of some culture methods, the invasive and cumbersome specimen collection methods frequently used and the time and cost associated with performing these tests.

     Our chlamydia and gonorrhea tests are prescribed and performed by a gynecologist or other healthcare professional using the same methods used to perform our HPV tests. We have the only test cleared by the FDA (our hc₂ CT/GC Test) for the simultaneous detection of chlamydia and gonorrhea infections from a single patient sample from which HPV may also be detected using our HPV tests. We believe the ability to perform multiple tests from a single patient specimen provides greater convenience to patients and their physicians and reduces healthcare costs by decreasing the frequency of patient visits and testing. Clinical studies on women have indicated that our hc₂ CT Test is capable of detecting chlamydia in up to 98% of the cases in which the bacterium is present and our hc₂ GC Test is capable of detecting gonorrhea in up to 92% of the cases in which the bacterium is present. We also offer our hc₂ CT/GC Test which can be used to test for both infections from the same sample, needing only to confirm the presence of chlamydia and/or gonorrhea by follow-up testing of CT/GC positive specimens with our hc₂ CT Test and hc₂ GC Test.

     Our Blood Virus Tests. Blood viruses, such as hepatitis B virus and cytomegalovirus, are leading causes of morbidity and death. Antiviral therapies have been developed to treat the diseases caused by these viruses. To maximize the efficacy of these expensive and sometimes toxic therapies, physicians rely on viral load monitoring to measure the level of virus present in the patient. By measuring viral load and identifying patients who are not responding to therapy early in their treatment, physicians can tailor antiviral therapies through monitoring of individual responses, recognize when a patient develops drug resistance and project how quickly the infection will progress to chronic disease. Rapid, accurate and ongoing detection of blood viruses and monitoring of viral load are essential for effective patient management.

     We have developed unique testing products using our Hybrid Capture technology to detect the presence of cytomegalovirus and hepatitis B virus. Our hc₁ CMV Test is the only DNA test cleared for the detection of cytomegalovirus by the FDA. Our hc₂ HBV Test is currently available primarily in Asia.

     Our Instrumentation and Accessory Products. We manufacture, or have manufactured for us, instrumentation and accessories for performing our tests in clinical laboratories. For our hc₁ and hc₂ tests, we offer a manual Hybrid Capture system that includes a DML 2000 luminometer, plate washers, microplate heaters and additional accessories. We also offer our Rapid Capture System, which is an automated pipetting and microplate handling platform developed for high volume diagnostic testing using our Hybrid Capture technology. In 2001 we received FDA clearance for use of the Rapid Capture System with our diagnostic tests for chlamydia and gonorrhea and in May 2004 we received FDA approval for use of the Rapid Capture System for HPV testing. Using our Rapid Capture System, a single laboratory technician can perform over 350 tests in a single laboratory shift. Our HPV test products are approved, and our chlamydia and gonorrhea tests products are 510(k)-cleared, by the FDA for use with the Rapid Capture System.

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     Our Products in Development. Please see below under the headings “Research and Development of Next Generation Products” and “In-Licensing and Acquisitions” for a description of our products in development.

Cervical Cancer Screening

     Traditional Diagnostic Testing in Cervical Cancer Screening. Worldwide, cervical cancer affects over 400,000 women annually and, after breast cancer, is the second most common malignancy found in women. The treatment of cervical cancer after it reaches the advanced stage may require chemotherapy, radiation treatment or surgery, including hysterectomy. If detected in the precancerous stage, a vast majority of cervical cancer cases are preventable. In the United States, there are approximately 10,000 newly diagnosed cases of cervical cancer per year. The United States has a relatively low incidence of cervical cancer due to widespread use of cervical cancer screening methods and significant expenditures on screening infrastructure, which includes sophisticated laboratory facilities, highly trained cytotechnologists and extensive regulatory oversight. Nonetheless, approximately 3,700 women in the United States die annually of this preventable disease. Outside the United States, limited resources and underdeveloped or non-standardized testing infrastructure often lead to underdiagnosis of cervical disease, resulting in a significantly higher incidence of cervical cancer.

     Pap tests have been the principal method for cervical cancer screening since the 1940s. Between 50 and 55 million Pap tests are performed annually in the United States, and we believe that an additional 60 to 100 million are performed annually in the rest of the world. Pap test results fall into three broad categories: normal, abnormal and equivocal, or ASC-US (Atypical Squamous Cells of Undetermined Significance). An equivocal classification is given to Pap test results that cannot be definitively classified as either normal or abnormal; this classification occurs in approximately 5% to 7% of all cases.

     Women with normal Pap test results typically do not undergo follow-up treatment beyond routine Pap testing, unless there are other indicators of increased risk for disease such as being HPV-positive, which could necessitate more frequent follow-up testing for women over 30. A diagnostic follow-up alternative for women with abnormal Pap tests is a colposcopic examination (visual examination of the cervix with the aid of a colposcope). Many women also undergo biopsy at the time of colposcopy, and may go on to have any suspected lesions ablated (physically removed with a scalpel or cauterizing instrument). Women with equivocal Pap test results may undergo HPV testing and/or repeat Pap testing; thereafter, an abnormal or positive result from either would necessitate a follow-up colposcopy.

     Although the use of the Pap test has been successful in reducing deaths due to cervical cancer in the United States, Pap testing has significant limitations, including results leading to false negative diagnoses, failure to identify cervical disease in a significant number of women, limited predictive value and inability to detect the presence of the cancer-causing types of HPV, the primary cause of cervical cancer. Consequently, Pap testing does not allow the clinician to identify women with no overt signs of cervical disease but who are at increased risk for developing cervical disease or cervical cancer in the future.

     HPV Testing in Cervical Cancer Screening. In 1999, the Journal of Pathology reported that HPV, a sexually transmitted virus, is the primary cause of cervical cancer and that 99.7% of cervical cancers contain cancer-causing HPV. Persistent infection with cancer-causing HPV types is a necessary precursor to virtually all cervical cancer. A positive HPV test result is more meaningful with increasing age because HPV infection is more likely to be persistent in more mature women. Clinical studies have shown that approximately 20% of women age 30 and older with cancer-causing HPV have high-grade

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cervical disease. Additionally, women age 30 and older with persistent HPV infection and who do not have cervical disease are at significant risk of developing cervical disease in the future.

     In 2002, the Journal of the American Medical Association, (JAMA), published Consensus Guidelines recommending testing for HPV in the management of women with ASC-US Pap test results. These “2001 Consensus Guidelines” were sponsored by the American Society for Colposcopy and Cervical Pathology (ASCCP), and state that for managing women with ASC-US results, HPV testing is the “preferred approach” when it can be performed directly from a liquid-based Pap test, also known as “reflex” HPV testing, or when the HPV testing specimen can be collected during the initial office visit. Since the publication of these guidelines in 2002, we believe that the use of HPV testing as a follow-up to an ASC-US Pap test result has become the standard of care and that HPV testing is used in approximately 75% of such cases in the United States.

     In July 2003, the American College of Obstetricians and Gynecologists (ACOG) published recommendations for cervical cancer screening that include the use of an FDA-approved high-risk HPV DNA test for women age 30 and older. The Digene HPV Test is the only FDA-approved high-risk HPV DNA test. In April 2005, ACOG issued a “Level A” designation – ACOG’s highest level of recognition – that HPV testing together with a Pap test is more sensitive than a Pap test alone.

     We believe The Digene HPV Test, when used in conjunction with the Pap test for women age 30 and over, or as a follow-up to an equivocal Pap test for women independent of age, enhances cervical cancer screening by overcoming the shortcomings of the Pap test alone. The Digene HPV Test:

• demonstrates increased clinical sensitivity for high-grade cervical disease, thereby increasing the number of women correctly diagnosed with disease;

• detects the presence of the cancer-causing types of HPV and allows the clinician to identify women who, despite no overt signs of cervical disease, are at higher risk for developing cervical disease or cervical cancer in the future;

• is a reproducible and objective test method that reduces or eliminates the subjectivity inherent with Pap testing; and

• with its increased clinical performance, may also permit the healthcare professional to contain or reduce costs associated with cervical cancer screening by more accurately identifying women with cervical disease, or those who are at increased risk for cervical disease, permitting healthcare professionals to more accurately direct diagnostic screening and follow-up medical intervention.

Clinical Validation of HPV Testing in Cervical Cancer Screening

     Over the last several years, many general population screening studies using our HPV test products have been conducted by prominent medical professionals and academic and government institutions throughout the world, including the National Cancer Institute, Columbia University, Kaiser Permanente Medical Group and the Cleveland Clinic Foundation. Many of these studies assessed the usefulness of our HPV test products in comparison to the Pap test for women age 30 and older. These studies demonstrate the superior performance of our HPV test products when used for primary general population screening alone, or in combination with Pap test, to detect underlying cervical disease as compared with the Pap test alone. A meta-analysis of multiple studies published in the August 2003 Archives of Pathology and Laboratory Medicine shows that women age 30 and older who test negative for HPV and have normal Pap test results are not likely to have cervical disease currently and are at very

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low risk of developing cervical disease in the future. Women age 30 and older who test positive for high-risk HPV are at significant risk of developing cervical disease or cancer. A second, independently conducted meta-analysis published in the April 2006 International Journal of Cancer, comprising eleven European and North American studies involving more than 60,000 women, shows that testing for high-risk types of HPV is a consistently more sensitive tool for cervical cancer screening as compared to the Pap test alone. Other examples of published clinical validation studies have been described in our prior Form 10-K filings, which are available on the SEC’s website at www.sec.gov.

U.S. HPV Testing

     The FDA has approved two separate uses for our HPV testing products:

• In March 2003, the FDA approved the use of our hc₂ High-Risk HPV DNAâ Test as a primary adjunctive screening test to be performed in conjunction with the Pap test for women age 30 and older and used as an aid in cervical cancer screening programs to assess patient risk of developing disease caused by high-risk HPV infection. We market this high-risk HPV test under a number of product names in the United States and abroad, including the DNAwithPapâ, the DNAPap™ and The Digene^® HPV Test. All references in this Form 10-K using these product names refer to our hc₂ High-Risk HPV DNA Test.

• In March 1999, the FDA approved the use of our hc₂ HPV Test, an earlier version of The Digene HPV Test, as a follow-up to an equivocal Pap test result for women, independent of age.

     Over the last several years, and particularly in fiscal 2006, the majority of our sales and marketing investments have been directed to the launch of The Digene HPV Test in the United States for both FDA-approved indications.

     Increasing awareness of the benefits of HPV testing, including the ability to use our HPV testing products as part of an accurate assessment of the risk of developing cervical disease or cancer, is the key step in our demand-creation marketing campaign for our HPV test products. Our strategy has involved:

• improving and refining our clinician sales organization’s effectiveness in increasing the knowledge base of healthcare professionals;

• establishing widespread laboratory distribution for our HPV test products through direct sales programs, strategic alliances with major diagnostic companies and co-marketing programs with clinical reference laboratories;

• continuing a direct-to-consumer advertising campaign in the United States, designed to create awareness of the HPV-cervical cancer link and the beneficial role of The Digene HPV Test;

• investing in accredited continuing medical education (CME) programs and hospital grand rounds to build understanding of the clinical utility of HPV testing among clinicians;

• sponsoring, or participating in, major multi-center clinical trials to establish the clinical utility and cost effectiveness of our tests;

• promoting the presentation and publication of clinical trial results at prestigious meetings and in leading medical and healthcare journals, while communicating the results to the public and healthcare professionals;

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• working with managed care providers, national governments and reimbursement agencies to establish reimbursement; and

• supporting women’s health advocacy groups to call for widespread use of HPV testing and to educate consumers about the benefits of such testing.

     The following table provides information regarding our revenues and assets. For further information regarding our product sales, including revenues from our principal products, our HPV test products, as well as profits and losses from operations for the last three fiscal years, see our consolidated financial statements in Item 8 of this Form 10-K.

Significant Product Revenues and Assets

	Fiscal 2004		%			Fiscal 2005		%			Fiscal 2006		%
	($ in thousands)
Product revenues from U.S. operations	$	65,655		74	%	$	86,928		77	%	$	121,392		80	%
Product revenues from Non U.S. operations		23,160		26	%		26,291		23	%		29,436		20	%
Revenues from HPV test products worldwide		74,581		84	%		97,437		86	%		134,361		88	%
Assets located in U.S.		92,506		90	%		92,654		87	%		217,082		94	%
Assets located outside U.S.		10,764		10	%		14,191		13	%		14,804		6	%

     Our commercialization plan for the United States consists of five key activities, all of which progressed significantly in fiscal 2006.

     First, we continue to pursue and receive support of governmental agencies, medical societies and physician groups regarding the efficacy of HPV testing using The Digene HPV Test (DNAwithPap). Second, we have established formalized programs to co-market The Digene HPV Test with our laboratory partners to physicians and payors. Third, we have implemented physician education programs, which are driven by our physician detailing organization and third-party organizations, working independently, to educate physicians and women about the proper use of the combined tests. Fourth, we have established, and continue to work to establish, comprehensive health insurance reimbursement for our products. And fifth, we partner with women’s advocacy groups, and have continued our own direct-to-consumer awareness campaigns to educate the public about the benefits of HPV testing. These five key elements of our Digene HPV Test commercialization plan are coordinated and balanced with our overall demand creation marketing plan.

     Acceptance of our HPV and other testing products by clinical reference laboratories, hospitals and integrated health networks is key to helping to increase clinician use of our testing products. We have developed strong relationships with these important customers through a direct laboratory-focused sales force supported by internal and field-based technical and customer service representatives. At the end of fiscal 2006, we had existing contracts with the majority of the major U.S. national and regional reference laboratory providers, and estimate that more than 300 clinical laboratories in the United States provided testing using our HPV, chlamydia, gonorrhea and cytomegalovirus testing products. The largest laboratory providers in the United States, such as Quest Diagnostics and Laboratory Corporation of America (LabCorp), all have active programs for automatic (or “reflex”) HPV testing for women with equivocal results from specimens collected using Cytyc Corporation’s ThinPrep Pap^® Test. In addition, several national and regional reference and hospital clinical laboratories are actively working to build awareness of the clinical value of primary HPV testing with a Pap test in women age 30 and over.

     To enhance the knowledge base of clinicians and to provide for physician-directed marketing of our products, in May 2003 we entered into an agreement with PDI, Inc. (“PDI”), under which PDI established a Digene sales organization dedicated to educating U.S. physicians, nurses and other healthcare professionals about the benefits of The Digene HPV Test. Under the PDI agreement, our sales

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force grew from 32 sales professionals in fiscal 2003 to 64 sales professionals and seven field-based managers in 2005. Beginning in fiscal 2005 we assumed responsibility for the direct management of this sales team, by hiring the managers and all of the representatives, a process we completed during fiscal 2006. Our sales force, as of June 30, 2006, consisted of 63 sales professionals and seven field-based managers. The efforts of our sales force are supplemented by a diverse educational-outreach program. In fiscal 2006, approximately 8,000 practicing clinicians participated in one or more Digene-sponsored CME and/or grand round programs. In fiscal 2007, we plan to continue these activities.

     Our ability to secure adequate reimbursement from government and third-party payors is an important element of our sales and marketing plan. In the United States, all of our FDA-approved products have some level of reimbursement coverage for their FDA-approved indications. This has been supported by the American Medical Association, which assigned specific Current Procedural Terminology (CPT) codes – necessary for reimbursement – for HPV testing. The Centers for Medicare and Medicaid Services also has established Medicaid and Medicare reimbursement for our HPV test products. In terms of indication, coverage for HPV testing as a follow-up test for equivocal Pap results is estimated at 80% penetration. Coverage for HPV primary screening testing in women age 30 and older, in conjunction with a Pap test is available from payors that provide health insurance to an estimated 225 million “covered lives” in the United States. Our effort to extend access to HPV testing has been helped by Women in Government, a bipartisan, non-profit organization representing the nation’s more than 1,600 elected state-level women legislators, which in 2004 launched a 10-year campaign to eliminate cervical cancer. Women in Government is supporting initiatives by state legislators to introduce and pass bills and resolutions calling for greater education and access to new technologies such as HPV testing. By the end of fiscal 2006, 39 of these laws and resolutions had passed, including five that call for mandated coverage of primary HPV testing.

     In March 2005, we launched a direct-to-consumer (DTC) advertising campaign designed to educate women about the link between HPV and cervical cancer and the availability of The Digene HPV Test. To date, the DTC campaign has included advertisements placed in nine national magazines and a 30-second television ad aired in ten major metropolitan markets — Atlanta, Baltimore, Philadelphia, Boston, Chicago, Houston, Dallas, New York City, San Francisco and Washington, D.C. We believe, based on our product ordering patterns, that our DTC campaign has been successful in increasing awareness among women in the targeted markets about the benefits of HPV testing and has had a direct impact on the increase of orders by clinical laboratories. We plan to continue the DTC campaign during fiscal 2007 — the extent of the campaign will be determined on a quarter-by-quarter basis.

     We are also analyzing and planning for the impact HPV vaccines will have on the HPV testing market. In June 2006, Merck & Co., Inc. received FDA approval for its HPV vaccine product, and is now in the process of launching its marketing campaign in the U.S. to clinicians and consumers. GlaxoSmithKline has an HPV vaccine product candidate in the FDA approval process. We expect that there will be an increased awareness of the causal link between HPV infection and the risk of developing cervical cancer as a result of these marketing campaigns. Even with the availability of HPV vaccines, we believe the need for HPV testing and screening will remain for the foreseeable future because the vaccines do not cover all cancer-causing HPV types, and the vaccines are approved for women younger than the approved population for adjunctive screening. There may also be a use for pre- or post-vaccination HPV testing; such use will need to be determined through additional clinical research. We believe our HPV technologies, including our HPV genotyping products in development, position us to be a leader in such HPV testing.

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International Markets

     Internationally, we continue to make progress in increasing the market penetration of our HPV testing products in cervical cancer screening programs throughout Europe, Latin America, and the Asia/Pacific region. In such markets we sell The Digene HPV Test under the DNAPap test trademark. We have direct, company-controlled sales operations in Europe and Brazil, and also make extensive use of independent distributors in other international markets. In fiscal 2006, we increased overall international revenue from our HPV test products by approximately 12% over the prior year.

     We have established reimbursement for HPV (triage) testing in major European countries and continue to work towards our goal of establishing available reimbursement for HPV primary stand-alone screening. We have also established reimbursement for our marketed products in major European countries, Mexico, Brazil, Australia and major Asian countries. We also work with our distribution networks in smaller markets to establish reimbursement from third-party payors in their respective territories, and with government and ministry officials to establish appropriate reimbursement coverage for our marketed products.

     As we continue to grow the international sales of our products, we anticipate that changes in the rate of exchange for foreign currencies into U.S. dollars may have an adverse impact on our revenues.

     Europe. We believe that approximately 45 to 55 million Pap tests are performed annually in Europe, and that cervical cancer screening using stand-alone HPV testing has potential for more widespread acceptance. In fiscal 2002 we made the decision to establish our own sales, marketing, distribution, warehousing and customer support infrastructure in Europe for the sale of our HPV test products. Since that time, we have established Digene subsidiaries in Germany, France, Italy, Spain, the United Kingdom and Switzerland, which currently sell our products into 13 European countries. We also have established an extensive, third-party distributor network that markets our products in 25 additional countries in Europe, the Middle East and Africa.

     In the European market we face a number of challenges including: the lack of clinical guidelines and/or government public funding for HPV primary screening; strong resistance from some current participants in the pathology, cytology and gynecology infrastructure to HPV testing; limited reimbursement in certain countries; and competition from emerging, non-validated technologies. Although we sustained losses from our European operations as a whole in fiscal 2006, we believe the transition from a distributor sales model to a combination of Digene-managed direct sales and a third-party distributor network under company control will be a key to accelerating our market penetration in the future. This approach should allow for better control of our marketing programs, higher test kit margins and improved customer support. In addition, we believe that progress in Europe will be driven by our coordinated sales and marketing programs, which include comprehensive physician and laboratory marketing and education, continued support of primary screening trials, public awareness campaigns and lobbying public health and government contacts for acceptance and funding of HPV primary screening.

     As part of an ongoing effort, we are involved in several clinical studies throughout Europe designed to demonstrate the clinical utility of HPV testing for primary screening. In June 2006, a large randomized study of more than 33,000 women was published in the Journal of the National Cancer Institute by Ronco et al. The study, which was funded in part by the European Union and The Italian Ministry of Health, demonstrated that The Digene HPV Test was approximately 40% more sensitive than conventional cytology, and approximately 30% more sensitive than liquid cytology, for the detection of high grade cervical disease and cancer. We are aware that a similar study (called ARTISTIC) of 24,500 women is underway in the United Kingdom. Initial data have been published showing that The Digene HPV Test detected 96% of high-grade cervical disease and cancers. The authors concluded that HPV

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testing is practicable as a primary routine screening test. Another example of our progress in Europe is the January 2006 announcement by Deutsche BKK, a major public-health insurance provider in central Germany, of the decision to implement the first cervical cancer screening program in the Wolfsburg region. The protocol being used for this screening requires the use of The Digene HPV Test as an adjunct to cytology for all women 30 years of age and older.

     Latin America. In Brazil, we market our products directly through our majority-owned subsidiary, Digene do Brasil LTDA. The products we market include our gene-based diagnostic test products and our proprietary Universal Collection Medium (UCM™), which enables both cytology and HPV DNA testing to be done from one patient sample. This product was launched in 2002. In other countries in Latin America we contract with specific distributors to sell our products. We first began to market our products in these regions during 2003. Our primary markets are Mexico, Colombia and Costa Rica and secondary markets include Peru, Argentina, Chile, Ecuador, and Venezuela.

     We believe we have potential for growth in Latin America, due to the high cervical cancer rates in the population, the key relationships we are building with governments in various countries, a growing government awareness that current methods of detection are not successful in the population, and the lack of alternative HPV testing products. The challenges we face include the lack of direct control that results from reliance on distributor relationships, the cost of our test compared to conventional cytology and colposcopy, the lack of general consumer awareness about HPV, a lack of screening infrastructure, and the reluctance of distributors and laboratories to invest in instrumentation.

     Asia/Pacific. The Asia/Pacific market encompasses approximately 770 million women age 30 to 60. We are concentrating our efforts in Korea, Japan, China, Australia, Taiwan and Hong Kong, and work in these countries through established distributor arrangements. Some OB/GYN societies within the region have recognized the potential role of HPV testing in cervical cancer screening, but no organizations have published guidelines as of yet. Reimbursement is highly varied in the Asia/Pacific region. In Japan, there is regulatory approval for marketing our hc₂ HPV, chlamydia and gonorrhea tests. Our hc₂ HPV Test also is registered with the People’s Republic of China State Food and Drug Administration, and HPV testing reimbursement has been established in Beijing, Shanghai and Guangzhou. In Australia, there are currently recommendations for post-disease treatment management using our HPV test products.

     Historically, the Asia/Pacific region suffers from a lack of screening infrastructure and cytology expertise. The female population is becoming increasingly aware of the benefits of cervical cancer screening. Alternatives, including liquid cytology and polymerase chain reaction (PCR) HPV testing, are becoming available in the Asia/Pacific region. We have implemented a series of programs and activities focused on key markets in this region and intend to coordinate speaker programs to help increase awareness of HPV testing and its advantages, to conduct focused lobbying activities along with direct government contact, and may explore direct-to-consumer activities and educational events. There also are opportunities in the region for sales of our tests for chlamydia and gonorrhea.

Research and Development of Next Generation Products

     One of our key goals is to continually expand our core technology and expertise in molecular diagnostics in order to remain at the forefront of DNA testing for infectious diseases and to capture new high-growth and high-margin market opportunities. To achieve this goal, we have invested aggressively in research and development and particularly in clinical trials to validate the performance of our products, product candidates and new indications for our products.

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     Our core research efforts for next generation technologies include research programs for improved molecular diagnostic assay systems for detection of HPV and other targets in the area of women’s cancers and infectious diseases, and research on our next generation nucleic acid detection technology. During fiscal 2006, our research and development activities were concentrated on platform technology, including adaptations of such technology, and improvements to our diagnostic test and equipment products. We focused on four areas: (1) core research efforts for next generation technologies; (2) new product development activities; (3) support and improvement of existing product lines and equipment offerings; and (4) support of regulatory submissions seeking approval to market our existing products with procedural improvements and/or for additional uses and indications in the U.S. and abroad. Because our research and development expenditures tend to benefit multiple product offerings, we do not track and maintain research and development expenses on a per-product or per-disease target basis.

     We are developing HPV genotyping products, the first of which was introduced in 2006, and others of which are planned for commercialization over the next few years. We believe HPV genotyping products provide healthcare professionals with additional diagnostic assistance for women with HPV positive, Pap test negative results. HPV genotyping products allow the clinician to determine the presence of the specific HPV type, which allows for more specific assessment of the risk of developing cervical disease.

     In 2003, we entered into a collaborative product development and commercialization agreement with PATH (Program for Appropriate Technology in Health) to develop a rapid-batch HPV test product for resource-constrained countries and that program is ongoing. In conjunction with PATH, we jointly fund the efforts subject to certain maximum funding obligations and we perform the product development and commercialization activities. We expect to have a prototype for initial clinical evaluation during calendar 2006.

     Product development activities are currently focused on simplifying and improving the efficiency of cervical specimen processing procedures and thereby increasing Hybrid Capture 2 assay throughput; these development efforts include a new batch preparation method for processing liquid-based cytology specimens for Hybrid Capture testing. In support of this new method, we collected data supporting a pre-market approval supplement (PMAS) for hc₂ HR HPV testing of ThinPrep^® PreservCyt^TM Solution (Cytyc Corporation) specimens processed with this new method; the PMAS was submitted to the FDA on June 30, 2006. Work is also progressing on a specimen preparation system which automates the front-end processing of relevant types of cervical specimens. This specimen preparation system is being developed to provide clinical laboratories with a streamlined means to prepare samples for transfer to our Rapid Capture System and is expected to be commercialized in calendar 2007.

     We remain active in our efforts to expand HPV testing capabilities for additional liquid-based cytology media, including the SurePath^TM collection and preservative medium (TriPath Imaging). The FDA review process is ongoing with regard to TriPath Imaging’s PMAS supporting the use of SurePath specimens with the hc2 HR HPV Test that was submitted to the FDA in December 2005, and TriPath Imaging is responding to the FDA’s request for information. Other activities relevant to this program continue as part of the collaboration between Digene and TriPath Imaging.

     We spent approximately $10,744,000, or 12% of total revenues, $12,964,000, or 11% of total revenues, and $17,922,000, or 12% of total revenues, on research and development in fiscal 2004, 2005 and 2006 respectively.

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     In-Licensing and Acquisitions

     We continually explore opportunities to acquire related businesses or in-license products or technologies. Our activities in this area are primarily focused on women’s health and molecular diagnostics companies, products and technologies that can leverage our global distribution infrastructure, expand the product offerings for our laboratory and physician sales force in the United States, or provide additional targets for our next-generation nucleic acid detection technology platform.

     In May 2005, we signed a license agreement with Luminex Corporation under which we acquired non-exclusive worldwide rights to commercialize certain in vitro clinical diagnostic tests using Luminex’s xMAP^® multiplex liquid bead-based array technology, which enables testing for multiple markers or diseases at a single time. We believe this license agreement marks an important milestone in the development of our hc4 platform. For example, one of our HPV genotyping products in development is a Luminex-based multiplex genotyping test for up to 19 HPV types employing a modified configuration of our GP5+/6+ primers, and we intend to use the xMAP technology with respect to the Asuragen Signature Cystic Fibrosis products described below.

     To continue expanding our product portfolio offerings, in March 2006 we entered into an exclusive, worldwide agreement with Asuragen, Inc. to market and distribute Asuragen’s Signature Cystic Fibrosis (CF) screening products. Under the agreement, we have the exclusive rights to market and distribute Asuragen’s Signature CF products worldwide. In addition, Asuragen will develop, for our exclusive distribution, the next generation CF test, Signature CF Expand, which expands the mutation panel to include ethnic-specific mutations that can be adapted for use in carrier screening and may find additional utility for neonatal and newborn testing. We will have the right of first refusal on future genetic test products developed by Asuragen. The Signature products utilize the Luminex xMAP technology.

     Cystic fibrosis is the most common autosomal recessive disease in the Caucasian population with a prevalence estimate of 1 in every 2,500 to 3,300 live births. In April 2001, the American College of Medical Genetics and ACOG issued statements and developed guidelines for population CF carrier screening. Those guidelines include recommendations for genetic screening for CF mutations should be offered to identify carriers among adults with a positive family history of CF, partners of individuals with CF, women planning a pregnancy and women seeking prenatal care.

     We believe that the Signature CF screening products represent an important and useful addition to our portfolio offerings to the OB/GYN healthcare professionals targeted by our sales force professionals and to our laboratory partners. In fiscal 2007, we anticipate that Asuragen will conduct the clinical trials necessary to support the submission of a 510(k) pre-market notification to the FDA.

     On June 30, 2006, we entered into a non-exclusive sublicense agreement with Abbott Laboratories pursuant to which we obtained sublicense rights in the field of human in vitro diagnostics under U.S. Patent No. 5,582,989 and foreign counterparts that generally disclose and claim certain inventions characterized as “Multiplex Genomic DNA Amplification for Deletion Detection.” We anticipate this technology may be important in future multiplex applications.

     Our ability to continue to grow may depend upon identifying and successfully acquiring attractive acquisition opportunities, effectively integrating such opportunities, achieving cost efficiencies and managing these acquisitions as part of our business. In November 2005 we completed a capital raising transaction in an underwritten public offering of our common stock. Part of the proceeds of that offering may be used for such potential acquisition and in-licensing opportunities.

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Our Markets and Competition

     Globally, The Digene HPV Test holds a strong competitive position due to our clinically validated and patent-protected Hybrid Capture platform and high-volume automation instrumentation, the breadth of our intellectual property rights to high-risk HPV types, our ability to test for HPV, chlamydia and gonorrhea from the same sample, our strong regulatory position, our success in obtaining reimbursement for our products, and our marketing focus that includes programs designed to educate healthcare professionals and consumers about the benefits of HPV testing. Digene is currently the only market participant with FDA-approved HPV DNA test products. For detection of HPV, we sell our products in the United States for the two FDA-approved indications: adjunctive primary screening with a Pap test for women age 30 and older, and follow-up testing of equivocal Pap test results in women of any age. In Europe and the rest of the world, HPV testing is in varying stages of research and adoption, with most use limited to follow-up for equivocal Pap tests. We are aware of an increasing number of clinical trials being conducted to explore use of HPV testing for primary screening, both with a Pap test or as a stand-alone initial test, as well as for proof of clearance or cure after treatment for diagnosed cervical disease or cancer.

     We believe we have a competitive advantage because our HPV test products are FDA-approved for two indications and because, as clinical studies have shown, our HPV test products, used in conjunction with the Pap test, enable excellent diagnostic capabilities due to high clinical sensitivity and high negative predictive value. None of our competitors methodologies have demonstrated similar clinical sensitivity. Some of our competitors stress the analytical sensitivity of their product offerings, but we believe it is important to distinguish between clinical sensitivity and analytical sensitivity. Clinical sensitivity is a measure of a test’s ability to accurately detect the presence of disease. Analytical sensitivity is simply the lower limit of a test’s ability to detect a given analyte, in this case HPV DNA. Although clinical sensitivity is a function of analytical sensitivity, analytical sensitivity alone is not a sufficient measure of a test’s clinical value. Cervical cancer is generally not present unless HPV DNA has reached a critical limit of viral load in tissues, thus the cutoff value of a test is a very important attribute relating to clinical sensitivity and specificity. Due to the high prevalence of HPV infection in specific populations and the transient nature of this infection in those populations, most of which does not lead to disease, HPV tests should not have excessive analytical sensitivity as this has the potential to increase the number of clinical false positive results. A large volume of clinical validation data exists which has shown that obtaining a positive result with our HPV test reflects the presence of clinically relevant HPV infection, which is a very strong indicator of the risk of developing cervical disease or cancer. Conversely, but equally as important, the high negative predictive value of our HPV test demonstrates that a negative HPV test result is a strong indicator that neither cervical cancer nor its cause is present, offering greater reassurance to women and their physicians, alleviating patient anxiety, and reducing healthcare costs.

     We compete with well established diagnostic technologies such as cytology and, particularly in Europe, from emerging alternative HPV testing approaches such as research-based PCR, other indicators of disease and other “home brew” testing methods developed by laboratories. With the increasing acceptance of the importance of HPV testing, we expect such competition will intensify. In the United States, which is our largest market, our competitors include molecular diagnostic companies such as Roche Diagnostics, Third Wave Technologies, Inc. and Ventana Medical Systems, Inc., which are developing or marketing HPV products that have not been approved by the FDA, and manufacturers of liquid-based Pap tests, such as Cytyc Corporation and TriPath Imaging. The Pap test, and related follow-up diagnostic procedures, such as colposcopy and biopsy, have a long history of use, are widely accepted, inexpensive (in the case of the Pap test) and, with regular use, may be adequate screening tests for cervical cancer. When The Digene HPV Test is marketed as an adjunct to the Pap test for primary screening, it is sometimes perceived as adding unnecessary expense and counseling time to such accepted

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cervical cancer screening methodology. In addition, technological advancements designed to improve the quality of sample collection and preservation, as well as to reduce Pap testing’s susceptibility to human error, may increase physician reliance on the Pap test and solidify its market position. These factors may inhibit significant market acceptance of The Digene HPV testing products for primary cervical cancer screening, and many of our sales and marketing programs are focused on educating healthcare professionals and consumers about the advantages of HPV testing.

     Approximately 55 million Pap tests are performed annually in the United States. We believe the potential U.S. HPV testing market is approximately 35 million tests conducted annually, either adjunctively with a Pap test, as follow-up testing for women with abnormal or equivocal Pap test results, or as “proof of cure.” We assume some extension of screening intervals as part of this market estimation, but believe the size of the overall market potential may grow in the future if we pursue approval for use of our HPV test product for stand-alone primary cervical cancer screening. At the end of fiscal 2006, we estimated our penetration of this potential HPV testing market to be approximately 18% in the United States.

     We estimate that an additional 60 to 100 million Pap tests are performed annually in the rest of the world, in those countries where a cytology infrastructure exists. We believe the current HPV testing market is limited to follow-up testing for women with equivocal or abnormal Pap test results. However, in the future, we expect such global HPV testing market to expand as primary cervical cancer screening, either with a Pap test or as a stand-alone, gains acceptance on a country-by-country basis, particularly in countries without existing cytology infrastructure.

     In June 2002, Institut Pasteur announced that it had transferred its HPV intellectual property estate to F. Hoffman-La Roche Ltd. (Roche), including assignment of a cross-license agreement between Digene and Institut Pasteur. Based on Roche’s description of the virus types it has acquired or otherwise has access to, and despite our continuing exclusive access to several high-risk HPV types, we believe Roche has the ability to develop an HPV test that could be competitive with Digene products in the future. Roche currently is marketing a PCR-based HPV testing product in Europe, as well as technology for HPV genotyping. Roche is substantially larger and better capitalized than Digene, can offer an HPV test as part of a broader menu, and has existing customer relationships in the gene-based probe diagnostics business. If Roche receives FDA approval for an HPV test, we may not be able to compete in a way that will allow us to substantially increase our share of the HPV testing market. However, we believe there are a number of technical hurdles that Roche must overcome before its HPV testing products can become truly competitive and that we retain advantages in the clinical validation of our products and our success in obtaining product-specific reimbursement approvals. In February 2005, Roche entered into an agreement with Gen-Probe Incorporated (Gen-Probe), under which Roche will manufacture and supply DNA probes for use in Gen-Probe HPV test kits. According to publicly available filings with the Securities and Exchange Commission, the agreement calls for Gen-Probe to pay Roche up to $30 million for access to Roche proprietary HPV types, including those transferred from Institut Pasteur. Such agreement may also lead to increased competition in our market.

     With respect to our other diagnostic test products, the medical diagnostics and biotechnology industries are subject to intense competition. Some of our products, such as our tests for chlamydia, gonorrhea, hepatitis B virus and cytomegalovirus, compete against existing screening, monitoring and diagnostic technologies, including tissue culture and antigen-based diagnostic methodologies. Our competitors in the United States and abroad for gene-based diagnostic probes include Roche Diagnostics, Abbott Laboratories, Bayer Corporation, Chiron Corporation and Gen-Probe. Other companies, including large, well-capitalized pharmaceutical and biotechnology companies, may enter the market in the future. We believe the primary competitive factors in the market for gene-based probe diagnostics and other screening devices are clinical validation, performance and reliability; ease of use; standardization; cost;

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proprietary position; the competitor’s share of the existing market; access to distribution channels; regulatory approvals; and availability of reimbursement. For the CT/GC market specifically, the key challenge for Digene is our current lack of a urine-based indication for our test, which we intend to address as part of our next generation platform offering.

     Our existing and potential competitors may be in the process of seeking FDA or foreign regulatory approvals for their respective products and/or may enjoy substantial advantages over us in terms of research and development expertise, experience in conducting clinical trials, experience in regulatory matters, manufacturing efficiency, name recognition, sales and marketing expertise, and distribution channels. In addition, many of these companies may have established third-party reimbursement for their existing products. We may not be able to continue to compete effectively against existing or future competitors, which may have a material adverse effect on our business, financial condition and results of operations.

Intellectual Property

     Patents and other proprietary rights are essential to our business. We own or have license rights to over 150 patents and patent applications. Our most significant patent rights relate to our Hybrid Capture technology and HPV types.

     Hybrid Capture Technology

     Our Hybrid Capture technology combines two of the most significant technologies in the life sciences industry, DNA/RNA probes and monoclonal/polyclonal antibodies, to allow rapid, standardized gene-based testing in virtually any laboratory setting. In May 2001, we received a United States patent for our Hybrid Capture assay from the United States Patent and Trademark Office. Foreign counterparts of this patent application have been granted to us in Europe, Japan and Australia. We have also filed United States patent applications relating to other aspects of our Hybrid Capture technology. The earliest of these Hybrid Capture assay patents will expire in the United States in 2018 and in Europe in 2012. In addition, in connection with our settlement of litigation with Enzo Biochem, Inc. and Enzo Life Sciences, Inc. in October 2004, we obtained an irrevocable non-exclusive license to use certain technologies in connection with our Hybrid Capture products. We had an exclusive license with the University of Hawaii for two patents covering monoclonal antibodies for the detection of RNA:DNA hybrid complexes, which patents expired in March 2005. We have non-exclusive reseller rights to the chemiluminescent substrates (used to create a chemical reaction that produces light in connection with our Hybrid Capture signal amplified molecular technology) included in our Hybrid Capture test products under our long-term supply agreement with Applied Biosystems. Such agreement includes certain license rights to manufacture the product in the event the manufacturer is not able to do so.

     We believe our Hybrid Capture patent estate provides us with exclusivity, and that expiration of individual patents, including the expiration of the University of Hawaii patents, will not have a material adverse impact on our business. We have not out-licensed our Hybrid Capture technology to any third party and believe our know-how and the complexity of our technology make it difficult for others to replicate our Hybrid Capture technology.

     Rights to HPV Types

     There are more than 70 distinct HPV types, approximately 23 of which are specific to the female genital tract. HPV types that infect the genital tract can be divided into two categories, high-risk (potentially cancer-causing) and low-risk. Of the 23 HPV types specific to the female genital tract, 13 are commonly recognized as high-risk. High-risk HPV types have been found in more than 99% of cervical cancers.

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     The following table provides information regarding the HPV types included in our HPV test products.

HPV Type(s)	Summary Description	Status	Patents
HPV 16, 18, 31, 45, 51, 59	In public domain; Digene has ownership of unique genetic material	high-risk	Not applicable.
HPV 33, 39	Institut Pasteur issued patents; cross-licensed to Digene	high-risk	Cross-license rights under multiple patents for HPV 33 and HPV 39. U.S. and European patents will expire between 2007 and 2017.
HPV 35, 56	Digene issued patents; cross-licensed to Institut Pasteur	high-risk	Digene holds one U.S. patent to HPV 35 (expires May 2007) and multiple patents related to HPV 56 (expire between October 2007 and May 2008).
HPV 52	Georgetown-issued patents; exclusively licensed to Digene	high risk	License under multiple issued patents. U.S. patent expires in 2014, European patents in October 2009 and Japanese patent in 2009.
HPV 58	Kanebo issued patent; exclusively licensed to Digene	high-risk	Patent expires in February 2009.
HPV 68	Institut Pasteur issued U.S. patent; exclusively licensed to Digene	high-risk	Patent expires in February 2017.
HPV 6, 11	In public domain; Digene has ownership of unique genetic material	low-risk	Not applicable.
HPV 42	Institut Pasteur issued patents; cross-licensed to Digene	low-risk	Cross-license rights under multiple issued patents. U.S. patents will expire between 2012 and 2016 and European patents will expire between 2007 and 2012.
HPV 43, 44	Digene issued patents; cross-licensed to Institut Pasteur	low-risk	Digene held one U.S. patent to HPV 43 (expired June 2006), and holds one patent to HPV 44 (expires June 2007).

     Through our owned patents, license agreements described further below and access to other HPV types, we have rights to or access to the 13 commonly recognized high–risk HPV types. We believe we have access to more high–risk HPV types than other companies currently offering or developing HPV tests. Some of these HPV types are the subject of multiple patents. As our issued patents and exclusive license rights expire, or are terminated, other companies will gain access to such high–risk HPV types, but we do not believe the expiration of the earliest to expire patents will have a material impact on us.

     We are party to a cross license agreement with Institut Pasteur, under which we obtained a worldwide non-exclusive license to United States patents and patent applications and corresponding

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foreign patents and patent applications, relating to HPV types 33, 39 and 42. In return, we granted to Institut Pasteur a worldwide non-exclusive license to our three owned United States patents and corresponding foreign patents and applications relating to HPV types 35, 43 and 56. We granted Institut Pasteur the right to extend the scope of its non-exclusive license to include the United States patent and corresponding patent applications relating to HPV type 44 at such time as Institut Pasteur discovers and develops an additional HPV type which is equivalent in value to HPV type 44. If such extension is granted, we will receive a license to the new HPV type discovered and developed by Institut Pasteur. Under the cross license agreement, Institut Pasteur has the right to grant a sublicense of its rights under the cross license agreement, without the right to grant further sublicenses, to Beckman Instruments (now known as Beckman Coulter, Inc.) and to affiliates of Institut Pasteur. Under the cross license agreement, both parties are restricted from granting any additional licenses to the HPV types subject to the cross licenses but are entitled to assign their rights, subject to all restrictions. We believe that the cross license agreement terminates on the last to expire of the underlying patent rights. Any prior termination of the cross license could have a material adverse effect on our business, financial condition and results of operations. In June 2002, we were notified by Institut Pasteur that it had transferred to F. Hoffman-La Roche Ltd. (Roche) the HPV intellectual property estate of Institut Pasteur, which included an assignment of the cross license agreement to Roche. On September 25, 2002, Ventana Medical Systems, Inc. publicly announced that it had acquired Beckman Coulter, Inc.’s HPV business and corresponding assets, including the assignment of the HPV intellectual property portfolio acquired by Beckman Coulter, Inc. from Institut Pasteur through a 1991 sublicense agreement. We are currently party to a patent infringement action with Ventana Medical Systems and Beckman Coulter related to these matters. Please see Item 3. “Legal Proceedings,” for a description of such litigation.

     On April 5, 2000, we entered into an exclusive worldwide license with Institut Pasteur relating to the genetic sequence of HPV types 68 and 70 (including the use of the United States patent relating thereto issued November 9, 1999 and expiring in 2017) and the detection of HPV types 68 and 70 using DNA testing methods. Under the license we can use our rights to develop and sell products using the licensed technology and pay royalties on such products. The term of the license expires upon expiration of the licensed patent, except that it continues for the commercial life of the products in countries where there is no licensed patent.

     Through a Settlement and License Agreement with Georgetown University, which replaces a previous license between us and Georgetown University, we obtained exclusive, irrevocable, worldwide rights to a U.S. patent and corresponding foreign patents and patent applications relating to HPV type 52 and to a U.S. patent and corresponding foreign patents relating to the use of the L1 gene sequence to detect specific HPV types. The licenses granted under the Settlement and License Agreement with Georgetown will terminate upon the last to expire of the licensed patent rights. The L1 gene sequence-related patent will expire in 2008 in the United States and expired in March 2006 in Europe. We are obligated to make royalty payments to Georgetown University based on the percentage of net sales (as defined in the Settlement and License Agreement) of products incorporating the licensed technologies. The Settlement and License Agreement was entered into in connection with the settlement of litigation between us and Georgetown University in July 2005. Please see Item 3. “Legal Proceedings,” for a description of such settlement.

     Through a license with Kanebo, Ltd., we have obtained exclusive worldwide rights (except for Japan where Kanebo retained the right to grant a non-exclusive sublicense to Toray Industries, Inc.) to use HPV type 58 provided by Kanebo to develop, manufacture, use, distribute and sell products. Unless terminated earlier, the Kanebo license agreement will expire on January 1, 2010.

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     Other Intellectual Property

     In May 2005, through an agreement with Luminex Corporation, we acquired non-exclusive worldwide rights to commercialize certain in vitro clinical tests for use in women’s health diagnostics using Luminex’s xMAP multiplex liquid bead-based array technology, which enables testing for multiple markers or diseases at a single time. As described above, under “Research and Development of Next Generation Products,” we are using the xMAP technology in our next generation of Hybrid Capture products. This license agreement represents an important element in our hc4 platform development efforts. The term of the license expires upon expiration of the last of the licensed patents under the agreement.

     The use of trademarks is important to help promote name recognition for us and our product offerings. We have developed a portfolio of trademarks for which we are pursuing or have received registrations, in the U.S. and elsewhere. We have programs in place to monitor any unauthorized use of our trademarks, or the use of marks confusingly similar to our marks. To date we have not experienced any significant issues related to our trademark estate.

     Our principal trademarks include:

Registered Trademarks:	DIGENE
	DIGENE DESIGN
	DNA WITH PAP
	HC2 HIGH-RISK HPV DNA TEST
	HYBRID CAPTURE
	RAPID CAPTURE
Additional Trademarks:	DNAPAP
	UCM
	HC2
	THE DIGENE HPV TEST & logo
	THE HPV TEST & logo

Facilities and Manufacturing

     We lease a facility in Gaithersburg, Maryland, comprising a total of 111,000 square feet for our corporate headquarters and manufacturing operations pursuant to a Lease Agreement dated March 2, 1998, as amended, between Digene and ARE-Metropolitan Grove I, LLC, as Landlord. Approximately 45% of such space is dedicated to our manufacturing, quality control and shipping activities. We currently run one manufacturing and product shipment shift per workday and have the capacity to add additional shifts as required.

     On November 15, 2005, we and the Landlord executed the Fourth Amendment to the Lease. The Amendment provides for us to expand the rented premises to 143,585 rentable square feet. The additional space will be used for manufacturing and research and development space. Under the Amendment, we and the Landlord are contributing financing to fund the expansion construction and outfitting, for which construction is expected to be substantially completed by September 20, 2006. In addition, the initial term of the Lease has been extended until ten years after the earlier of substantial completion of the expansion work or September 20, 2006, and we have the ability to extend the lease for two additional five-year terms. We believe that we have sufficient manufacturing capacity to satisfy demand through the

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completion of this expansion and, post expansion, we expect to be able to expand our production capability to satisfy demand for the foreseeable future.

     We lease office and sales operations facilities in the United Kingdom, Germany, Switzerland, France, Brazil and Italy, which leases run in length from one year to ten years, and Spain which runs month-to-month. We also utilize a third-party warehouse facility in Germany to support our European operations.

     We have established a quality control program, including a set of standard manufacturing and documentation procedures, intended to ensure that our products are manufactured and tested in accordance with the FDA’s Quality System Regulations, which imposes current Good Manufacturing Practice requirements. We received ISO 9001 certification in 1999, transitioned to ISO 13485 certification in 2003 and obtained ISO 13485:2003 certification in November 2005. As part of our quality assessment procedures, we periodically evaluate the performance of our raw material suppliers, potential new alternative sources of such materials, and the risks and benefits of reliance on our existing suppliers.

     We combine more than 200 biological reagents, inorganic and organic reagents and kit components to manufacture our finished diagnostic test kits. Biological reagents include DNA and RNA probes, antibodies and detection reagents. These biological reagents are currently manufactured in our Gaithersburg facility, which received validation approval from the FDA in September 2000 or by third-party vendors. We purchase many of these components and reagents, which are readily available from a variety of manufacturers and outside suppliers.

     Several key components of our products come from, or are manufactured for us by, a single supplier or limited number of suppliers. This applies in particular to the following items: chemiluminescent substrates included in our diagnostic test kits (used to create a chemical reaction that causes light in connection with our Hybrid Capture signal amplified molecular technology), our Rapid Capture System that serves as the automation platform developed for large-scale diagnostic testing using our Hybrid Capture technology, the 96-well microplate used by laboratories to run our diagnostic test products, the Digene Microplate Luminometer that provides the results of all of our microplate-based diagnostic tests, and the collection tubes, plus cervical sampler brushes we provide as part of cervical sampler kits that we sell with our HPV testing products. We have been able, to date, to enter into long-term contracts with these single source or key suppliers. In some cases, however, the supplier of a key component is not required to supply us with specified quantities over longer periods of time or set-aside part of its inventory for our forecasted requirements. We have not arranged for alternative supply sources for these components and it may be difficult to find alternative suppliers, if at all. If our product sales increase beyond the forecast levels, or if our suppliers are unable or unwilling to supply us key components on a timely basis, we may be unable to satisfy product demand.

     In addition, if any of the components of our products are no longer available in the marketplace, we may be forced to further develop our products or technology to incorporate alternate components. The incorporation of new components into our products may require us to seek approvals from the FDA or foreign regulatory agencies prior to commercialization.

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Regulatory Approvals

     Receipt and maintenance of regulatory authorization to market and sell our products is vital to our success. The following table summarizes the regulatory approvals and clearances we have received to date for our principal products.

Product	Regulatory Status
hc2 High-Risk HPV DNA Test	FDA approved in March 2003 for adjunctive screening with Pap for women age 30 and older; FDA approved in March 2000 for follow-up to an equivocal Pap test for all women; CE-marked for use either as an adjunctive or stand-alone primary screen in the European Union; registered for use in Japan, Canada, the Russian Federation, Argentina, Chile, Colombia, Costa Rica and Ecuador. New distributor registration pending in Mexico. Marketed under the name The Digene HPV Test in the United States and DNAPap in the rest of the world.
hc2 HPV Test	FDA approved in March 1999 for detection of high and low risk HPV for follow-up to an equivocal Pap test for all women (the preceding hc1 version of this test was approved for this same indication in March 1995 and use of Cytyc Corporation’s PreservCyt specimens was approved in August 1997); CE-marked for use either as an adjunctive or stand-alone primary screen in the European Union; registered for use in Japan, Canada, the Russian Federation, Argentina, Chile, Colombia, Costa Rica and Ecuador. New distributor registration pending in Mexico.
hc2 CT Test	FDA 510(k) marketing clearance granted in October 1999; CE-marked for use in the European Union and the additional indication for use of Cytyc Corporation’s PreservCyt specimens in April 2005; marketing clearance obtained in Brazil and Argentina (1999), and in Japan (October 2001) and India (March 2001).
hc2 GC Test	FDA 510(k) marketing clearance granted in November 1999; CE-marked for use in the European Union and the additional indication for use of Cytyc Corporation’s PreservCyt specimens was attained in April 2005; marketing clearance obtained in Brazil and Argentina (1999), and in Japan (October 2001) and India (March 2001).
hc2 CT/GC Test	FDA 510(k) marketing clearance granted in February 2000; CE-marked for use in the European Union and the additional indication for use of Cytyc Corporation’s PreservCyt specimens in April 2005; marketing clearance obtained in Brazil and Argentina (1999), and in Japan (October 2001) and India (March 2001).
hc1 CMV Test	FDA 510(k) marketing clearance granted in September 1998.
Rapid Capture System	FDA 510(k) marketing clearance for chlamydia and gonorrhea testing granted in September 2001 and approved for HPV testing in May 2004; CE-marking for use with CT/GC testing was obtained March 2004 and for HPV testing in January 2005.
Hybrid Capture Microplate System	U.S. commercialization authority provided de facto as part of the diagnostic test kit FDA approvals and clearances; original CE mark certification completed as part of the diagnostic test kits.

     In addition to seeking regulatory authorizations for our own products, we work with other companies to seek regulatory approval for use of their specimen collection products to provide the specimens necessary to perform our diagnostic tests. For example, during fiscal 2003 and 2004 we worked with TriPath Imaging to complete the necessary clinical studies to support a pre-market approval supplement (PMAS) seeking FDA approval of the use of our hc₂ HPV Test with TriPath Imaging’s

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SurePath Test Pack sample collection system. In February 2005, TriPath Imaging withdrew the PMAS after TriPath Imaging and the FDA agreed that additional clinical information and analysis would be required. This additional information was collected and submitted to the FDA in December 2005. We continue to work with TriPath Imaging as they respond to the FDA’s request for information as part of the most recent FDA review.

Government Regulation

     The medical devices marketed and manufactured by us are subject to extensive regulation by the FDA and, in most instances, by foreign regulatory authorities. Pursuant to the Federal Food, Drug, and Cosmetic Act, and the related regulations, the FDA regulates product development, product testing, product labeling, product storage, pre-market clearance or approval, manufacturing, advertising, promotion, product sales and distribution of medical devices. Noncompliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recalls or seizures of products, total or partial suspension of production, failure of the government to grant pre-market clearance or pre-market approval for devices, withdrawal of marketing clearances and/or approvals and criminal prosecution. The FDA also has the authority to request repair, replacement or refund of the cost of any device that we manufacture or distribute.

     Before a new device can be introduced into the market, the manufacturer generally must obtain pre-market approval through the filing of a pre-market approval application (PMA) or, if pre-market approval through the pre-market approval requirements is not necessary, pre-marketing clearance through the filing of a 510(k) notification is usually required.

     In the United States, medical devices and diagnostics are classified into one of three classes (class I, II or III), on the basis of the controls deemed necessary by the FDA to reasonably assure their safety and effectiveness. Under FDA regulations, class I devices are subject to general controls (for example, labeling and adherence to quality and safety requirements), and class II devices are subject to general and special controls (for example, performance standards, post-market surveillance, patient registries and FDA guidance). Generally, class III devices are those which must receive pre-market approval by the FDA to ensure their safety and effectiveness (for example, life-sustaining, life-supporting and implantable devices, or new devices which have not been found substantially equivalent to legally marketed devices). Our HPV test products are subject to pre-market approval requirements and our diagnostic tests for chlamydia, gonorrhea and cytomegalovirus are subject to the 510(k) marketing clearance requirements. The regulatory requirements for our instrumentation, including our manual Hybrid Capture system and Rapid Capture System, are predicated upon the diagnostic test products with which they are used.

     Generally, a PMA must be filed for a proposed new device unless the applicant can show, under FDA regulations, that the proposed device is “substantially equivalent” to a legally marketed class I or class II device. A PMA must be supported by valid scientific evidence, including preclinical and clinical trial data, to demonstrate the safety and effectiveness of the device. The PMA must also contain the results of relevant bench tests, laboratory and animal studies, if applicable, a complete description of the device and its components, and a detailed description of the methods, facilities and controls used to manufacture the device, in addition to device labeling and advertising literature.

     If a PMA is accepted for filing, the FDA begins an in-depth review of the submission. FDA review of a PMA generally takes one to two years from the date the PMA is accepted for filing, but may take significantly longer. The pre-market approval review process includes a pre-approval inspection of the manufacturer’s facilities to ensure that the facilities are in compliance with the applicable quality and safety requirements. In addition, an advisory committee made up of clinicians and/or other appropriate experts is typically convened to evaluate the application and make recommendations to the FDA as to whether the device should be approved. The pre-market approval process can be expensive, uncertain and lengthy.

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     Modifications to a device that is the subject of an approved PMA, its labeling or manufacturing process may require approval by the FDA of PMA supplements or new PMA applications. PMA supplements often require the submission of the same type of information required for an initial PMA application, but limited to the information necessary to support the proposed change.

     A 510(k) clearance will be granted if the submitted information establishes that the proposed device is “substantially equivalent” to a legally marketed class I or II medical device or to a pre-amendment class III medical device (i.e., on the market on or before May 28, 1976) for which the FDA has not called for compliance with pre-market approval requirements. It generally takes from three to six months from the date of submission to obtain a 510(k) clearance, but can take twelve months or longer depending on any additional information requested by the FDA. The FDA may determine that a proposed device is not substantially equivalent to a legally marketed device or that additional information or data is needed before a substantial equivalence determination can be made, either of which could delay market introduction of a new product. A request for additional data may require that clinical studies of the device’s safety and effectiveness be performed. Additionally, any modifications or enhancements that could significantly affect the safety or effectiveness of the device or that constitutes a major change to the intended use of the device will require a new 510(k) notification or PMA supplement.

     Clinical investigations of in vitro diagnostic tests are exempt from the FDA’s investigational device exemption requirements if the investigations meet certain exemption criteria. As an in vitro diagnostic test manufacturer, we must establish distribution controls to assure that in vitro diagnostic tests distributed for the purpose of conducting clinical investigations are used only for that purpose and are not improperly commercialized.

     We are exporting our hc₂ HPV Test as a stand-alone primary cervical cancer screening test prior to obtaining PMA approval for this use in the United States. We are also exporting our hc₂ HBV Test for clinical use abroad, primarily in the Asia/Pacific region. Exportation of our hc₂ HPV Test as a primary cervical cancer screening test and export of our hc₂ HBV Test can be undertaken without prior FDA approval of a PMA provided, among other things, that:

• the marketing of these tests is not contrary to the laws of the country to which they are intended for import,

• they are manufactured in substantial conformance with the quality and safety requirements of the Federal Food, Drug, and Cosmetic Act, and

• we have valid marketing authorization by any member country of the European Union, Australia, Canada, Israel, Japan, New Zealand, Switzerland or South Africa.

     We also must provide the FDA with simple notification indicating the products exported and the countries to which they are exported. FDA approval must be obtained for exports of products subject to the PMA requirements if these export conditions are not met.

     Any products manufactured or distributed by us pursuant to FDA clearances or approvals are subject to pervasive and continuing regulation by the FDA, including record keeping requirements and reporting of adverse experiences with the use of the device. Device manufacturers are required to register their establishments and list their devices with the FDA and are subject to periodic inspections by the FDA and certain state agencies.

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     The Federal Food, Drug, and Cosmetic Act requires devices to be manufactured in accordance with the applicable quality and safety requirements, which impose certain procedural and documentation requirements on us with respect to our manufacturing and quality assurance activities. Noncompliance with the applicable quality and safety requirements can result in, among other things, fines, injunctions, civil penalties, recalls or seizures of products, total or partial suspension of production, failure of the government to grant pre-market clearance or pre-market approval for devices, withdrawal of marketing approvals and criminal prosecution.

     The FDA actively enforces regulations prohibiting the promotion of devices for unapproved (or “off label”) uses and the promotion of devices for which pre-market clearance or approval has not been obtained. Any failure by us to comply with these requirements can result in regulatory enforcement action by the FDA and possible limitations on the promotion and/or sale of our products.

     Both Digene and the products we produce and market are subject to a variety of state laws and regulations. Applicable state or local regulations may hinder our ability to market our products in those states or localities. As a manufacturer, we are also subject to numerous federal and Maryland State and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. We may be required to incur significant costs to comply with such laws and regulations in the future, particularly if substantial changes are made to such laws or regulations.

     The introduction of our developmental stage test products in foreign markets will also subject us to foreign regulatory clearances, which may impose additional substantial costs and burdens. International sales of medical devices are subject to the regulatory requirements of each country or defined economic region, such as the European Union. The regulatory review process varies from country to country and many countries also impose product standards, packaging requirements, labeling requirements and import restrictions on devices. In addition, each country or economic region has its own tariff regulations, duties and tax requirements.

     We must comply with similar registration requirements of foreign governments and with import and export regulations when distributing our products to foreign nations. Each foreign country’s regulatory requirements for product approval and distribution are unique and may require the expenditure of substantial time, money and effort. The regulation of medical devices in a number of such jurisdictions, particularly in the European Union, continues to develop and new laws or regulations may have a material adverse effect on our business, financial condition and results of operations. Noncompliance with state, local, federal, or foreign regulatory requirements can result in fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, delay or denial or withdrawal of pre-market clearance or approval of devices and criminal prosecution.

     The approval by the FDA and foreign government authorities is unpredictable and uncertain, and the necessary approvals or clearances may not be granted on a timely basis or at all. Delays in receipt of, or a failure to receive, such approvals or clearances could have a material adverse effect on our business, financial condition and results of operations.

Employees

     At June 30, 2006, we had 490 employees, including 65 in research and development, 109 in manufacturing, including quality assurance, 206 in sales and marketing and 110 in accounting, finance, administration and regulatory affairs. At June 30, 2006, 56 and 31 of such employees were employed by our European and Brazil subsidiaries, respectively. We are not a party to any collective bargaining agreements, and we believe our relationships with our employees are good.

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Principal Executive Offices

     We were incorporated as a Delaware corporation in 1987. Our principal executive offices are located at 1201 Clopper Road, Gaithersburg, Maryland 20878.

Available Information

     For more information about us, visit our web site at www.digene.com. Our electronic filings with the U.S. Securities and Exchange Commission (including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports) are available free of charge through our web site as soon as reasonably practicable after we electronically file with or furnish them to the U.S. Securities and Exchange Commission.

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ITEM 1A. RISK FACTORS

     Investing in our securities involves a material degree of risk. Before making an investment decision, you should carefully consider the risk factors set forth below.

We will not be able to achieve significant increases in our revenues if HPV screening is not increasingly accepted by physicians and laboratories.

     Our growth and success depend upon continued increasing acceptance by physicians and laboratories of HPV screening as a necessary part of the standard of care for cervical cancer screening and, more specifically, of our HPV test products as a primary cervical cancer screening method, in conjunction with Pap tests, independent of Pap tests, and in conjunction with the implementation of HPV vaccinations. Pap tests have been the principal means of cervical cancer screening since the 1940s. Technological advances designed to improve quality control over sample collection and preservation and to reduce the Pap test’s susceptibility to human error may increase physician reliance on the Pap test and solidify its market position as the most widely used screen for cervical cancer. Currently, approximately 60 million Pap tests are performed annually in the United States and we believe that 60 to 100 million are performed annually in the rest of the world. Women with normal Pap tests do not undergo follow-up treatment beyond routine Pap testing. Follow-up testing and treatment is based on the classification of the Pap test result. An equivocal, or ASC-US (Atypical Squamous Cells of Undetermined Significance), classification is given to Pap test results that cannot be definitively classified as either normal or abnormal; this classification occurs in approximately 5% to 7% of all cases.

     HPV testing applies a new gene-based technology and testing approach that is different from the cytology (reviewing cells under a microscope) approach of the Pap test. We have expended, and need to continue to spend, significant resources to educate physicians and laboratories about the patient benefits that can result from using our HPV test products in addition to the Pap test, and to assist laboratory customers in learning how to perform our HPV test products. Using our HPV test products along with the Pap test for primary screening in the United States may be seen by some of these customers as adding unnecessary expense to the generally accepted cervical cancer screening methodology and we frequently need to provide information to counteract this impression on a case-by-case basis. To date, we have been able to grow our U.S. revenues from sales of our HPV test products from approximately $24,354,000 in fiscal 2002 to approximately $111,746,000 in fiscal 2006. We believe that with these efforts we have captured approximately 18% of the HPV testing market. If we are not successful in executing our marketing strategies, we may not be able to significantly grow our market share for HPV testing, and we will not be able to continue to grow our revenues.

     During fiscal 2006 we expanded our direct-to-consumer awareness marketing programs because we believe a well educated female population will work with their health care providers to increase the use of The Digene HPV Test. The campaign to date involved national print advertisement and focused television advertising in ten locations, Atlanta, Baltimore, Philadelphia, Boston, Chicago, Houston, Dallas, New York City, San Francisco and Washington, D.C. We plan to continue our direct-to-consumer awareness campaign in fiscal 2007, and to move into other markets in fiscal 2007. If we are not successful in executing this marketing program, we may not be able to significantly increase the sales of our HPV tests to the extent we desire.

     In June 2006 Merck & Co., Inc. received FDA approval for a vaccine against HPV types 16 and 18, the high-risk HPV types associated with approximately 70% of cervical cancer cases. We anticipate that GlaxoSmithKline will receive FDA approval for an HPV vaccine product during our fiscal 2007. We are working with our physician and laboratory customers and with others to develop and establish the role HPV screening will play in the standard of care for HPV vaccination. If we are not successful in this endeavor, we may not be able to significantly grow the market for HPV screening or increase our HPV test revenues.

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     Our products for the diagnosis of the presence of chlamydia and gonorrhea compete with other FDA-cleared products that detect the presence of such infectious diseases. Our marketing activities focus on providing information regarding the accuracy and objective nature of these diagnostic tests, but such activities are time-consuming and expensive. We believe the best way to increase our revenues from these products is to educate laboratories and physicians about the ability to run such tests from the same patient sample collected for HPV testing. If we are not successful in executing our marketing strategy we do not expect to significantly grow our revenues from these products.

We have the only fully commercialized and FDA-approved test for the detection of HPV, which provides us with a competitive advantage that may be adversely impacted if other companies develop and commercialize alternative HPV tests.

     Although we have the only fully commercialized and FDA-approved test for the detection of HPV, a significant portion of our HPV-related intellectual property is in the public domain, subject to patents that will begin to expire in the next few years or not licensed to us on a sole and exclusive basis. As a result, we believe other companies are developing or will develop HPV detection tests in the next few years.

     For example, F. Hoffman-La Roche Ltd. (Roche) has publicly announced its ongoing development of a test for the detection of HPV and in April 2004 announced that it launched such test in Europe. In February 2005, Roche announced an agreement with Gen-Probe Incorporated to supply HPV DNA probes to Gen-Probe for its HPV test kits. In June 2002, Institut Pasteur announced that it had transferred its HPV intellectual property estate to Roche, which included an assignment of the cross license between Digene and Institut Pasteur. Based upon the HPV types to which Roche has announced that it acquired access as a result of the transfer by Institut Pasteur, the HPV types covered by Roche’s own patents and the HPV types that are publicly available, and despite our continuing exclusive right to certain high risk HPV types, we believe Roche may have the ability to develop a HPV test that would be competitive with our HPV test products in our principal markets. Roche has substantially greater resources than we do. We may not be able to compete successfully against Roche if it markets a HPV test competitive with our HPV test.

     Ventana Medical Systems, Inc. is selling an in situ diagnostic test for the detection of HPV. We believe Ventana’s activities infringe our intellectual property and we have initiated patent infringement litigation against Ventana. If we are not successful in such litigation, and if Ventana obtains FDA approval for a test competitive with our HPV test products, we may lose significant HPV testing revenue to Ventana.

     We are also aware that a significant number of laboratory organizations and other companies are developing and using internally developed, or “home-brew,” HPV tests. These tests, although not approved by the FDA or similar non-U.S. regulatory authorities, do offer an alternative to our HPV test products that could limit the laboratory customer base for our product. We are monitoring these activities.

We are dependent on a relatively small number of national laboratories for a significant portion of our sales to laboratory customers.

     We supply our HPV test products to national laboratories, such as Quest Diagnostics and LabCorp pursuant to standard, non-exclusive fixed term contracts. A significant customer could decide to

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terminate or not renew its existing contract with us. The loss of one or more significant customers could have a material adverse effect on our business.

Changes in our senior management team could impact our ability to successfully operate and grow our business.

     During fiscal 2007 both our current Chief Executive Officer, and our current President, Chief Operating Officer and Chief Financial Officer will leave Digene. The Nominating and Corporate Governance Committee of our Board of Directors is currently conducting a search for a new Chief Executive Officer. Such changes in our senior management team, and the activities associated with identifying and selecting a new Chief Executive Officer could divert management attention from our core business, and could have a negative impact on our ability to implement our strategic objectives and grow our business. We are highly dependent on the remaining principal members of our management staff. Loss of additional key personnel would likely impede achievement of our research and development, operational, or strategic objectives. To be successful, we must attract qualified replacements for our departing executives, retain key employees and attract additional qualified employees.

We may encounter difficulties expanding our manufacturing operations as demand for our products increases, which would negatively impact our revenues. We depend on a single facility for the manufacture of all of our diagnostic test kits and any temporary stoppage at that site would have a material adverse effect on our business.

     If product sales increase, we will have to scale-up our manufacturing processes and facilities. We may encounter difficulties in scaling-up manufacturing processes and may be unsuccessful in overcoming such difficulties. In such circumstances, our ability to meet product demand may be impaired or delayed.

     We have a single manufacturing facility located in Gaithersburg, Maryland. This facility is subject, on an ongoing basis, to a variety of quality systems regulations, international quality standards and other regulatory requirements, including current good manufacturing practices requirements of the FDA. We may encounter difficulties maintaining or expanding our manufacturing operations in accordance with these regulations and standards, which could result in a delay or termination of manufacturing or an inability to meet product demand.

     We face risks inherent in operating as a single facility for the manufacture of our products. We do not have alternative production plans in place or alternative facilities available if we experience prolonged facility failure at our Gaithersburg, Maryland manufacturing facility. These risks include unforeseen manufacturing delays or stoppage due to equipment, raw material supply disruption, regulatory, environmental or other factors, and the resulting inability to meet customer orders on a timely basis.

We may not be able to successfully integrate future acquisitions.

     We continually explore opportunities to acquire related businesses, some of which could be material to us. Our ability to continue to grow may depend upon identifying and successfully acquiring attractive companies, effectively integrating such companies, achieving cost efficiencies and managing these businesses as part of our company. We may not be able to effectively integrate acquired companies and successfully implement appropriate operational, financial and management systems and controls to achieve the benefits expected to result from these acquisitions. Our effort to integrate these businesses could be affected by a number of factors beyond our control, such as regulatory developments, general economic conditions, increased competition, the loss of customers resulting from the acquisitions and the assumption of unknown liabilities. In addition, the process of integrating these businesses could cause an

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interruption of, or loss of momentum in, the activities of our existing business and the loss of key personnel and customers. The diversion of management’s attention and any delays or difficulties encountered in connection with the integration of these businesses could negatively impact our business if any of the above adverse effects were to occur. Further, the benefits that we anticipate from any future acquisitions may not develop.

Future acquisitions may harm our operating results, dilute our stockholders’ equity and create other financial difficulties for us.

     We may in the future pursue acquisitions that we believe could provide us with new technologies, products or service offerings, or enable us to obtain other competitive advantages.

     Acquisitions by us may involve some or all of the following financial risks:

• use of significant amounts of cash;

• potential dilutive issuances of equity securities;

• incurrence of debt or amortization expenses related to certain intangible assets; and

• future impairment charges related to diminished fair value of businesses acquired as compared to the price we pay for them.

     We may not be successful in overcoming the risks described above or any other problems associated with future acquisitions. Any of these risks and problems could materially harm our business, prospects and financial condition. Additionally, we cannot guarantee that any companies we may acquire will achieve anticipated revenues or operating results.

If more third-party health insurance payors do not adequately reimburse for our HPV test products, the use of our HPV test products may not increase, thus negatively affecting our ability to grow our revenues.

     A significant portion of the sales of our products in the United States and other markets depend, in large part, on the availability of adequate reimbursement to users of our tests from government insurance plans, including Medicare and Medicaid in the United States, managed care organizations and private insurance plans. We believe we have nearly universal coverage from U.S. government payors, third-party payors and managed care entities for our hc₂ HPV Test as a follow-up test to categorize equivocal Pap test results. In addition, government payors, third—party payors and managed care entities that provide health insurance coverage to over 225 million people in the United States currently authorize reimbursement for the use of our Digene HPV Test to adjunctively screen women age 30 and older to assess the presence or absence of significant, cancer-causing HPV types. We also seek reimbursement coverage in other countries where we market our products, particularly in Europe, and receipt of the necessary approvals is time-consuming and expensive. Reimbursement coverage for the Pap test is universal in the United States and in other markets where we sell our HPV test products.

     We have encountered delays in receipt of some European reimbursement approvals and public health funding, which has impacted our ability to grow revenues in these markets.

     Despite our success to date, third-party payors are often reluctant to reimburse healthcare providers for the use of medical tests such as our HPV test products that involve new technology. In addition, third-party payors are increasingly limiting reimbursement coverage for medical diagnostic

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products and, in many instances, are exerting pressure on diagnostic product suppliers to reduce their prices. Thus, third-party reimbursement may not be consistently available or financially adequate to cover the cost of our products. This could limit our ability to sell our products, cause us to reduce the prices of our products or otherwise adversely affect our operating results.

     Because each third-party payor individually approves reimbursement, obtaining such approvals is a time-consuming and costly process that requires us to provide scientific and clinical support for the use of each of our products to each payor separately with no assurance that such approval will be obtained. This process can delay the broad market introduction of new products and could have a negative effect on our revenues and operating results.

We may need to initiate lawsuits to protect or enforce our patents, which would be expensive and, if we lose, may cause us to lose some, if not all, of our intellectual property rights, and thereby impair our ability to compete.

     We rely on patents to protect a large part of our intellectual property. To protect or enforce our patent rights, we may initiate patent litigation against third parties, such as infringement suits or interference proceedings. These lawsuits could be expensive, take significant time and divert management’s attention from other business concerns. They would also put our patents at risk of being invalidated or interpreted narrowly, and our patent applications at risk of not issuing. We may also provoke these third parties to assert claims against us. Patent law relating to the scope of claims in the technology fields in which we operate is still evolving and, consequently, patent positions in our industry are generally uncertain. We cannot provide assurance that we would prevail in any of these suits or that the damages or other remedies awarded, if any, would be commercially valuable. During the course of these potential suits, there may be public announcements of the results of hearings, motions and other interim proceedings or developments in the litigation. Any public announcements related to these suits could cause our stock price to decline.

We may inadvertently infringe upon the intellectual property rights of third parties, which could expose us to expensive intellectual property litigation, impose a significant strain on our resources and prevent us from developing or marketing our products.

     There have been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries because of the uncertainties and complex legal, scientific and factual questions related to the ownership and protection of intellectual property. We have received inquiries regarding possible patent infringements relating to, among other things, aspects of our Hybrid Capture technology. We believe that the patents of others to which these inquiries relate are either not infringed by our Hybrid Capture technology or are invalid. However, we may be subject to further claims that our technology, including our Hybrid Capture technology, or our products infringe the patents or proprietary rights of third parties. We may also be forced to initiate legal proceedings to protect our patent position or other proprietary rights. These proceedings are often expensive and time-consuming, even if we were to prevail.

Single suppliers or a limited number of suppliers provide key components of our products. If these suppliers fail to supply these components, we may be unable to manufacture sufficient product to satisfy demand which would negatively impact our revenues.

     Several key components of our products come from, or are manufactured for us by, a single supplier or limited number of suppliers. This applies in particular to the following components, chemiluminescent substrates (used to create a chemical reaction that causes light in connection with our Hybrid Capture signal amplified molecular technology), our Rapid Capture System that serves as the

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automation platform developed for large-scale diagnostic testing using the Hybrid Capture technology, the 96-well microplate used by laboratories to run our diagnostic test products, the Digene Microplate Luminometer that provides the results of all of our microplate-based diagnostic tests, and the collection tubes, plus the cervical sampler brushes we provide as part of cervical sampler kits that we sell with our HPV testing products. We have been able, to date, to enter into long-term contracts with these single source suppliers. In some cases, however, the supplier of a key component is not required to supply us with specified quantities over longer periods of time or set-aside part of its inventory for our forecasted requirements. We have not arranged for alternative supply sources for these components and it may be difficult to find alternative suppliers, if at all. If our products sales increase beyond the forecast levels, or if our suppliers are unable or unwilling to supply us components on a timely basis, we may be unable to satisfy product demand.

     In addition, if any of the components of our products are no longer available in the marketplace, we may be forced to further develop our products or technology to incorporate alternate components. The incorporation of new components into our products may require us to seek approvals from the FDA or foreign regulatory agencies prior to commercialization.

We are required to obtain and maintain royalty-bearing licenses to third party patents or patent applications, and loss of such licenses, or the need to obtain additional licenses, could materially adversely affect our ability to commercialize our products.

     We have in-licensed patents to a number of cancer-causing HPV types, which, together with the patents to cancer-causing HPV types that we own, provide us with a competitive advantage. We may lose this competitive advantage if these licenses terminate or if the patents licensed thereunder expire or are declared invalid.

     Our products and manufacturing processes require access to biological materials and other intellectual property that may be subject to patents and patent applications held by third parties. In addition, we have licenses to various patents covering intellectual property that we use in conjunction with applications of our Hybrid Capture technology. Third parties may have claims to these patents. An adverse outcome to such claims could subject us to significant liabilities to third parties or require us to obtain royalty-bearing licenses from third parties, cease sales of related products or revise the applications or products which employ the patented technology. Any licenses required for any such third party patents or proprietary rights may not be made available to us on commercially reasonable terms, if at all. Furthermore, we may be unable to make the necessary revisions to our applications or products.

     We may discover that we need to obtain rights to an additional patent in order to commercialize our products. We may be unable to obtain such rights on commercially reasonable terms or at all, which could adversely affect our ability to grow our business.

We have incurred cumulative net losses to date and need to continue to spend substantial funds. We may not remain profitable and may need to seek additional financing.

     We have had substantial operating losses since incorporation in 1987. We turned profitable during the fourth quarter of fiscal 2003, but prior to that we never earned a profit. At June 30, 2006, our accumulated deficit was approximately $53,874,000. Previous losses have resulted principally from:

• expenses associated with our research and development programs;

• our sales and marketing activities in the United States and internationally;

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• patent litigation costs and settlement and licensing expenses; and

• other expenses, including administrative and facilities costs.

Our net losses were approximately $4,324,000 in fiscal 2003. We had net income of approximately $21,542,000, which included a deferred tax benefit of approximately $14,900,000, in fiscal 2004. In fiscal 2005, we had a net loss of approximately $8,167,000, primarily due to payments made to settle ongoing litigation matters. In fiscal 2006, we had net income of approximately $8,439,000. We believe that our existing capital resources, together with the proceeds of our 2005 financing, will be sufficient to meet the anticipated cash needs of our current business for the foreseeable future. However, if we incur significant operating losses or if one or more of the events described in these Risk Factors actually occurs, we may have to obtain additional funds through equity or debt financing, strategic alliances with corporate partners and others, or through alternative sources. Any equity financing would dilute our then-current stockholders. We do not have any committed sources of additional financing. Additional funding, if necessary, may not be available on acceptable terms, if at all. If adequate funds are not available, we may have to delay, scale-back or eliminate aspects of our operations or attempt to obtain funds through arrangements with collaborative partners or others. This may result in the relinquishment of our rights to some of our technologies, product candidates, products or potential markets.

The growth of our European operations has been slower than expected, and we may not achieve the desired increase in our profitability from such market.

     In 2002 we made the decision to establish our own sales, marketing, distribution, warehousing and customer support infrastructure in Europe for the sale of our HPV test products and other products. Other companies selling medical diagnostic products in Europe are larger and significantly better capitalized than we are, and have had established European operations for a significantly longer period than we have. We had previously used third-party distributors to distribute and market our products in Europe, and our product inventory, distribution and customer support services are still in the development process. Approximately $11,992,000, or 19%, of our sales and marketing expenditures and approximately $5,779,000, or 22%, of our general and administrative expenditures for fiscal 2006 related to our activities in Europe. During the same period, approximately $16,394,000, or 12%, of our HPV testing revenues were from sales in Europe. We expect to continue to expend significant resources to grow and maintain our infrastructure as much as possible given the resources at our disposal, but such resources may not be sufficient to meaningfully increase our revenues in Europe. Our revenues and operating results could be hurt by our inability to successfully grow and maintain our distribution infrastructure or our inability to effectively market our products in Europe.

     The decision to establish our own infrastructure in Europe has required us to establish multiple subsidiary corporations in Europe. This subjects us to the laws of multiple jurisdictions, including tax and employment laws, and the laws governing the import, storage and distribution of our products. Any failure to comply with these laws could have a material adverse impact on our business and operations.

The time and expense needed to obtain regulatory approval and respond to changes in regulatory requirements could adversely affect our ability to commercially distribute our products and generate revenue therefrom.

     Each of our products and product candidates are medical devices subject to extensive regulation by the FDA under the Federal Food, Drug and Cosmetic Act. Governmental bodies in other countries also have medical device approval regulations which are becoming more extensive. Such regulations govern the majority of the commercial activities we perform, including the indications for which our products can be used, product development, product testing, product labeling, product storage, use of our

33

products with other products and the manufacturing, advertising and promotion of our products for the approved indications. Compliance with these regulations is expensive and time-consuming. With respect to our HPV test products, we were the first company to obtain approval of regulatory applications for HPV testing in the United States and in many countries in Europe (our principal markets), which adds to our expense and increases the degree of regulatory review and oversight. The expense of submitting regulatory approval applications in multiple countries as compared to our available resources impacts the decisions we make about entering new markets.

     Each medical device that we wish to distribute commercially in the United States will likely require either 510(k) clearance or pre-market approval from the FDA prior to marketing the device for in vitro-diagnostic use. Clinical trials related to our regulatory submissions take years to execute and are a significant expense for us. The 510(k) clearance pathway usually takes from three to twelve months, but can take longer. The pre-market approval pathway is much more costly, lengthy and uncertain. It generally takes from one to three years, but can also take longer. It took us more than four years to receive pre-market approval to offer our current generation HPV test product to test for the presence of the HPV in women with equivocal Pap test results and pre-market approval to use our Digene HPV Test as a primary adjunctive cervical cancer screening test to be performed in conjunction with the Pap test for women age 30 and older. With respect to our ongoing efforts, in April 2002, we submitted a PMA supplement with the FDA seeking approval of the use of our hc₂ HPV Test with TriPath Imaging, Inc.’s SurePath Test Pack sample collection system. In July 2002, we received notice from the FDA that the PMA supplement was not approvable as submitted. We worked with TriPath Imaging during fiscal 2004 to complete additional clinical studies and submitted the results of these studies to the FDA in August 2004 for pre-market approval. In February 2005, TriPath Imaging withdrew the PMA supplement after TriPath Imaging and the FDA agreed that additional clinical information and analysis would be required. In December 2005, TriPath Imaging resubmitted its PMAS supporting the use of SurePath specimens with the hc2 HR HPV Test. The FDA is currently reviewing such PMAS, and TriPath Imaging is responding to the FDA’s request for information. The regulatory time span increases our costs to develop new products and increases the risk that we will not succeed in introducing or selling new products in the United States.

     Our cleared or approved devices, including our diagnostic tests and related equipment, are subject to numerous post-market requirements. We are subject to inspection and marketing surveillance by the FDA to determine our compliance with regulatory requirements. If the FDA finds that we have failed to comply, it can institute a wide variety of enforcement actions, ranging from a public warning letter to more severe sanctions such as fines, injunctions and civil penalties, recall or seizure of our products, operating restrictions, partial suspension or total shutdown of production, denial of our requests for 510(k) clearance or pre-market approval of product candidates, withdrawal of 510(k) clearance or pre-market approval already granted; and criminal prosecution. Any enforcement action by the FDA may also affect our ability to commercially distribute our products in the United States.

We may be sued for product liability claims or face product recalls for which our insurance may be inadequate.

     We may be found liable if any of our products causes injury or fails to accurately diagnose disease, i.e., provides a “false negative” or “false positive” test result. We currently carry product liability insurance coverage with a combined single limit of $10,000,000. This coverage may not be adequate to protect us against future product liability claims. Product liability insurance may not be available to us in the future on commercially reasonable terms, if at all.

     Our products are a complex interaction of biochemical reagents, and it is not uncommon for us to face manufacturing, raw material or supply chain problems. We have initiated product recalls from time

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to time in the past and additional product recalls may be necessary from time to time in the future, either voluntarily on our part or at the direction of the FDA or other government agencies. Although none of our past product recalls have had a material adverse impact on our business, we believe future product recalls could have a material adverse affect on our business, financial condition or reputation.

Our international sales are subject to currency, market and regulatory risks that are beyond our control.

     For fiscal 2006, we derived approximately 19% of our consolidated revenues from the international sales of our products and services in foreign currencies and we expect that international sales will continue to account for a large portion of our sales. Changes in the rate of exchange of foreign currencies into United States dollars have and may hurt our revenues and results of operations.

     In particular, we sell products in, and derive revenues from, less economically developed countries. Many of these countries have suffered from economic and political crisis or instability, including countries in Latin America, Asia and Eastern Europe. During such times, the value of local currency in such countries has decreased, sometimes dramatically, negatively impacting our average unit prices. At the same time, unit sales of our products have also decreased in such countries. In the past, this has adversely affected our revenues and operating results. Future economic and political instability in foreign countries may affect demand for our products and the value of the local currency, and thus, negatively affect our revenues and results of operations.

     The extent and complexity of medical products regulation are increasing worldwide, particularly in Europe, with regulation in some countries nearly as extensive as in the United States. Further, we must comply with import and export regulations when distributing our products to foreign nations. Each foreign country’s regulatory requirements for product approval and distribution are unique and may require the expenditure of substantial time, money and effort. As a result, we may not be able to successfully commercialize our products in foreign markets at or beyond the level of commercialization we have already achieved.

Compliance with changing corporate governance and public disclosure regulations result in additional expenses.

     Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new U.S. Securities and Exchange Commission regulations and NASDAQ Stock Market rules, are creating uncertainty for companies such as ours. To maintain high standards of corporate governance and public disclosure, we intend to invest all reasonably necessary resources to comply with evolving standards. These investments have resulted in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities.

We have adopted anti-takeover provisions that may prevent or frustrate any attempt to replace or remove our current management by the stockholders or discourage bids for our common stock. These provisions may also affect the market price of our common stock.

     Our board of directors has the authority, without further action by the stockholders, to issue, from time to time, up to 1,000,000 shares of preferred stock in one or more classes or series and to fix the rights and preferences of such preferred stock. The board of directors could use this authority to issue preferred stock to discourage an unwanted bidder from making a proposal to acquire the company. Our certificate of incorporation also provides for staggered terms for members of the board of directors. This provision means it could take up to three years to replace our existing directors without the support of the board of

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directors. Additionally, our bylaws establish an advance notice procedure for stockholder proposals and for nominating candidates for election as directors. These provisions of our certificate of incorporation and bylaws may prevent or frustrate any attempt to replace or remove our current directors or management by stockholders, which may have the effect of delaying, deterring or preventing a change in control transaction.

     Further, we are subject to provisions of Delaware corporate law, which, subject to limited exceptions, will prohibit us from engaging in any “business combination” with a person who, together with affiliates and associates, owns 15% or more of our common stock, referred to as an interested stockholder, for a period of three years following the date that such person becomes an interested stockholder, unless the business combination is approved by our board of directors in a prescribed manner. Although we do not currently have a stockholder that meets the “interested stockholder” definition, these provisions of Delaware law may make business combinations more time consuming or expensive and have the impact of requiring our board of directors to agree with a proposal before it is accepted and presented to stockholders for consideration. These anti-takeover provisions might discourage bids for our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES

     We have one manufacturing facility in Gaithersburg, Maryland. Our executive offices and research and development activities are located at the same location. The facility has a total of approximately 111,000 square feet, of which approximately 45% is dedicated to our manufacturing, quality control and shipping activities. Digene and ARE-Metropolitan Grove I, LLC, as landlord (the “Landlord”), entered a Lease Agreement dated March 2, 1998, as amended (the “Lease”). On November 15, 2005, we executed the Fourth Amendment to Lease (the “Amendment”). The Amendment provides for us to expand the rented premises to 143,585 rentable square feet. The additional space will be used for manufacturing and research and development space. Under the Amendment, we and the Landlord are contributing financing to fund the expansion construction and outfitting, which is expected to be substantially complete by late September 2006. In addition, the initial term of the Lease has been extended until ten years after the earlier of substantial completion of the expansion work or September 20, 2006 and we have the ability to extend the lease for two additional five-year terms. We believe that we have sufficient manufacturing capacity to satisfy demand through the completion of this expansion and, post expansion, we expect to be able to expand our production capability to satisfy demand for the foreseeable future.

     We also lease office and sales operations space in the United Kingdom, Germany, Switzerland, France, Brazil and Italy, pursuant to leases which run in length from one year to ten years. We lease an office and sales operations facility in Spain, which runs month-to-month. We currently have 87 employees in all such locations and believe the current office and sales locations are adequate to meet our needs. We believe we would be able to procure additional space, as needed, on commercially reasonable terms in Europe to support our European operations. We also utilize a third-party warehouse facility in Germany, pursuant to a contract supplying us with dedicated space, to hold product and equipment inventory necessary to support our European operations. We believe this facility is adequate to satisfy demand for the foreseeable future.

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ITEM 3. LEGAL PROCEEDINGS

Pending Legal Proceedings:

Digene Corporation v. Ventana Medical Systems, Inc. and Beckman Coulter, Inc.

     On November 19, 2001, we filed an action for patent infringement against Ventana Medical Systems, Inc. The action was filed in the United States District Court for the District of Delaware. In the action, we allege that Ventana Medical Systems, Inc. has made, used, sold and/or offered for sale products embodying our patented inventions thereby infringing our United States Patent No. 4,849,331 entitled “Human Papilloma Virus 44 Nucleic Acid Hybridization Probes and methods for Employing the Same” and United States Patent No. 4,849,332 entitled “Human Papilloma Virus 35 Nucleic Acid Hybridization Probes and methods for Employing the Same.” We are seeking a permanent injunction and monetary damages for past infringement. On September 25, 2002, Ventana Medical Systems, Inc. publicly announced that it had acquired Beckman Coulter Inc.’s human papillomavirus business and corresponding assets, including the assignment of the human papillomavirus intellectual property portfolio acquired by Beckman Coulter, Inc. from Institut Pasteur through a 1991 sublicense agreement. On October 18, 2002, we filed a motion to amend our complaint to add Beckman Coulter, Inc. as a co-defendant, as well as additional claims against Ventana. On December 10, 2002, the Court granted our motion to amend. On January 28, 2003, we filed a motion to file a second amended complaint. On March 9, 2003 the Court granted our motion to amend.

     In the course of this litigation, Ventana and Beckman Coulter filed motions seeking to compel arbitration of our claims against them. After a bench trial, the Court issued an order that Beckman Coulter has a right to arbitrate our claims against it, but that Ventana does not. The Court, as a matter of judicial economy, has stayed the proceedings against Ventana pending the outcome of the arbitration between us and Beckman Coulter. On December 23, 2004, we submitted a demand for arbitration against Beckman with the American Arbitration Association (“AAA”). The arbitration hearing occurred on March 13-16, 2006.

     On July 27, 2006, the AAA arbitration panel ruled in our favor by concluding, among other things, that Beckman Coulter’s purported sale of its HPV intellectual property portfolio, acquired by Beckman Coulter from Institut Pasteur through a 1991 sublicense agreement, to Ventana violated the terms of the 1990 Cross-License Agreement between Institut Pasteur and our predecessor, Life Technologies, Inc. In addition, the panel found that the Cross-License Agreement prohibits Beckman Coulter from supplying cell paste within the scope of our patent rights covered by the Cross-License Agreement to third parties.

     On August 10, 2006, we filed a motion with the United States District Court for the District of Delaware to lift the stay of the proceedings against Ventana. By order dated August 15, 2006, the District Court granted our motion to lift the stay and re-open the case. During the week of August 28, 2006, the parties to the case made a number of filings with the Court including a motion for a preliminary injunction filed by Digene against Ventana, an answer to the amended complaint filed by Ventana and motions to dismiss some or all of the pending claims filed by Ventana and Beckman on procedural grounds.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF OUR STOCKHOLDERS

     Not applicable.

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EXECUTIVE OFFICERS OF DIGENE

Name	Age		Positions with the Company
Evan Jones(1)		49	Chief Executive Officer and Chairman of the Board
Charles M. Fleischman(2)		48	President, Chief Operating Officer and Chief Financial Officer
Robert McG. Lilley(3)		61	Senior Vice President, Global Sales and Marketing
Attila T. Lorincz, Ph.D.(4)		51	Senior Vice President and Chief Scientific Officer
Belinda O. Patrick(5)		50	Senior Vice President, Manufacturing Operations
Vincent J. Napoleon(6)		46	Senior Vice President, General Counsel and Secretary
Joseph P. Slattery(7)		41	Senior Vice President, Finance and Information Systems
Donna Marie Seyfried(8)		48	Vice President, Business Development
C. Douglas White(9)		44	Senior Vice President, Sales and Marketing — Americas and Asia

(1)	Mr. Jones joined Digene in July 1990 as Chief Executive Officer. He was elected to serve on the Board of Directors in July 1990 and became Chairman of the Board in September 1995. He served as our President from July 1990 to June 1999. From 1988 to September 1990, Mr. Jones was President of Neomorphics, Inc. Between 1987 and 1990, he was first an associate and then a partner with the CW Group, a health care venture capital firm. From 1983 to 1987, Mr. Jones was employed by The Perkin-Elmer Corporation. Mr. Jones is a member of the Board of Directors of the Children’s National Medical Center and Chairman of the Board of the Children’s Research Institute at the Children’s National Medical Center. In June 2004, Mr. Jones became Chairman of the Board of the Campaign for Public Health, an independent, not-for-profit organization dedicated to conducting direct lobbying of the executive and legislative branches of the U.S. government in support of the aggressive growth of the annual budget of the Center for Disease Control and Prevention. Mr. Jones received a B.A. in Biochemistry from the University of Colorado and an M.B.A. from The Wharton School at the University of Pennsylvania. Mr. Jones is a stepbrother of Mr. Whitehead, a member of Digene’s Board of Directors. Mr. Jones has announced his intention to retire from Digene during fiscal 2007.
(2)	Mr. Fleischman has served as our President since June 1999, as Chief Financial Officer since March 1996 and as Chief Operating Officer since September 1995. He also served as our Executive Vice President from August 1990 to June 1999. From 1987 to 1990, he was a Vice President and then Associate Director in the Investment Banking Group of Furman Selz (now ING Group), New York, New York. From 1986 to 1987, Mr. Fleischman was a founder and Managing Director of Intercapital Brokers, Ltd., London, England. Mr. Fleischman is a member of the Board of Directors of the Advanced Medical Technology Association (AdvaMed). Mr. Fleischman received an A.B. in History from Harvard University and an M.B.A. from The Wharton School at the University of Pennsylvania. Mr. Fleischman has resigned from his position as Chief Financial Officer, effective October 1, 2006, and from his positions as President and Chief Operating Officer effective October 31, 2006.
(3)	Mr. Lilley has served as our Senior Vice President, Global Sales and Marketing since June 1999, and before that as our Vice President, Sales and Marketing from July 1998 until June 1999, and as General Manager for Digene Europe from March 1997 until July 1998. From September 1994 to February 1997, Mr. Lilley was General Manager for Europe, Middle East & Africa for Alltel Healthcare Information Services.
(4)	Dr. Lorincz has served as our Senior Vice President and Chief Scientific Officer since January 2000. He previously served as our Vice President, Research and Development and Scientific Director from January 1991 to January 2000. His research career includes postdoctoral fellowships at the University of California. He also serves on a number of advisory committees.
(5)	Ms. Patrick has served as our Senior Vice President, Manufacturing Operations since May 2001. Prior to joining Digene, Ms. Patrick served as Vice President, Maryland Operations for Invitrogen Corporation from September 2000 to January 2001 and for Life Technologies, Inc. from February 1998 to September 2000. She previously served as Vice President, Regulatory Affairs and Quality Assurance for Life Technologies, Inc. from January 1995 to February 1998.
(6)	Mr. Napoleon has served as our Senior Vice President, General Counsel and Secretary since January 2005. Prior to joining Digene, Mr. Napoleon most recently served as Senior Vice President, Secretary and General Counsel of Synavant Inc. In addition, Mr. Napoleon previously served as Assistant General

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	Counsel/Managing Director of PricewaterhouseCoopers LLP, Chair of the Corporate Group of the City of Philadelphia Law Department, and General Counsel, Aerospace Group Business Units of Lockheed Martin Corporation. Mr. Napoleon received a B.S. from Georgetown University and a J.D. from the University of Pittsburgh School of Law. Mr. Napoleon is a Colonel in the United States Air Force Reserves.
(7)	Mr. Slattery has served as our Senior Vice President, Finance and Information Systems since September 2002. Previously, he served as our Vice President, Finance from July 1999 to September 2002 and as Controller from February 1996 to July 2000. On October 1, 2006, Mr. Slattery will become our Chief Financial Officer.
(8)	Ms. Seyfried has served as our Vice President, Business Development since October 1996. Ms. Seyfried served as Senior Director, Business Development of The Perkin-Elmer Corporation from March 1993 to September 1996.
(9)	Mr. White has served as Digene’s Senior Vice President, Sales and Marketing — Americas and Asia Pacific since June 2006. Prior thereto, he served as our Vice President, Sales and Marketing — Americas and Asia Pacific from February 2006 until June 2006, and our Vice President, North American Sales and Marketing from March 2003 until February 2006. Prior to joining Digene, Mr. White held positions in the diagnostic industry for 17 years, including Vice President Sales and Marketing at Bayer Diagnostics from September 2000 to February 2002, and Vice President, Marketing for Chiron Diagnostics from November 1998 to December 1999.

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PART II

ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Since our initial public offering of common stock on May 22, 1996, our common stock has been traded on the NASDAQ National Market under the symbol “DIGE.” The following table sets forth, for the fiscal quarters indicated, the high and low bid prices for our common stock, as reported by the NASDAQ National Market.

	High		Low
Fiscal 2006
Fourth quarter	$	43.60	$	34.22
Third quarter		44.40		28.76
Second quarter		31.44		26.00
First quarter		32.14		27.00

	High		Low
Fiscal 2005
Fourth quarter	$	29.66	$	16.94
Third quarter		26.82		20.46
Second quarter		27.45		18.50
First quarter		36.25		19.88

     On September 7, 2006, the closing sale price for our common stock, as reported by the NASDAQ National Market, was $40.81. As of September 7, 2006, our common stock was held by 113 holders of record.

     We have never paid dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The selected consolidated financial data set forth below with respect to Digene’s Consolidated Statements of Operations for the fiscal years ended June 30, 2004, 2005 and 2006 and with respect to Digene’s Consolidated Balance Sheets at June 30, 2005 and 2006 are derived from the audited Consolidated Financial Statements of Digene, which are included elsewhere in this Form 10-K. Consolidated Statements of Operations data for the fiscal years ended June 30, 2002 and 2003 and Consolidated Balance Sheets data at June 30, 2002, 2003 and 2004 are derived from Consolidated Financial Statements of Digene not included herein. The selected consolidated financial data set forth below is qualified in its entirety by, and should be read in conjunction with, the Consolidated Financial Statements, the related Notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K.

	Fiscal Year Ended June 30,
(in thousands, except per share data)	2002			2003			2004			2005			2006
Consolidated Statements of Operations Data: (1)
Revenues:
Product sales	$	45,750		$	62,440		$	88,815		$	113,219		$	150,828
Distribution contract		2,357			—			—			—			—
Other revenues		741			662			1,346			1,923			2,060
Total revenues		48,848			63,102			90,161			115,142			152,888
Costs and expenses:
Cost of product sales		12,938			13,383			16,717			20,128			21,888
Royalty and technology		2,093			2,814			1,705			5,394			7,572
Research and development		9,265			10,262			10,744			12,964			17,922
Selling and marketing		17,742			25,099			34,918			45,933			62,815
General and administrative		14,024			16,642			19,298			20,265			26,294
Abbott termination fee		2,500			—			—			—			—
Amortization of intangible assets		150			—			—			—			—
Patent litigation settlements		—			—			—			21,500			—
Total costs and expenses		58,712			68,200			83,382			126,184			136,491
Income (loss) from operations		(9,864	)		(5,098	)		6,779			(11,042	)		16,397
Interest income		729			593			459			808			3,808
Interest expense		(32	)		(273	)		(184	)		(37	)		(803	)
Other income (expense)		(20	)		678			163			(116	)		(48	)
Income (loss) from operations before minority interest and income taxes		(9,187	)		(4,100	)		7,217			(10,387	)		19,354
Minority interest		—			—			—			(353	)		(142	)
Income (loss) from operations before income taxes		(9,187	)		(4,100	)		7,217			(10,740	)		19,212
Provision for (benefit from) income taxes		210			224			(14,325	)(3)		(2,573	)		10,773
Net income (loss)	$	(9,397	)	$	(4,324	)	$	21,542		$	(8,167	)	$	8,439
Basic net income (loss) per share (2)	$	(0.54	)	$	(0.24	)	$	1.13		$	(0.41	)	$	0.39
Diluted net income (loss) per share (2)	$	(0.54	)	$	(0.24	)	$	1.04		$	(0.41	)	$	0.38
Basic weighted average shares outstanding (2)		17,361			18,136			19,144			19,965			21,769
Diluted weighted average shares outstanding (2)		17,361			18,136			20,806			19,965			22,215

	2002			2003			2004			2005			2006
Consolidated Balance Sheet Data:
Working capital	$	39,828		$	36,119		$	61,786		$	52,988		$	146,841
Total assets		67,241			63,375			103,270			106,845			231,886
Long-term debt and obligation, less current maturities		3,690			2,154			686			572			19,773
Accumulated deficit		(71,365	)		(75,688	)		(54,146	)		(62,313	)		(53,874	)
Total stockholders’ equity		39,639			43,006			86,063			79,402			177,046

(1)	Certain amounts have been reclassified to conform to current presentation.
(2)	Computed on the basis described in Note 2 of Notes to Consolidated Financial Statements.
(3)	Includes the partial reversal of the deferred tax valuation allowance approximating $14.9 million.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related Notes to such Consolidated Financial Statements also included in this Form 10-K. Some of the information that follows are not statements of historical fact but merely reflect our intent, belief or expectations regarding the anticipated effect of events, circumstances and trends. Such statements should be considered as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations. Factors that might cause or contribute to differences between our expectations and actual results include: uncertainty of market acceptance of our products by the worldwide medical community; our need to obtain third-party reimbursement approval from additional government entities, private insurance plans, and managed care organizations, particularly outside the United States; risk that other companies may develop and market human papillomavirus (HPV) tests competitive with our own; our ability to scale up our manufacturing to the extent demand for our products increases; uncertainty regarding patents and proprietary rights in connection with our products and products in development; uncertainty to the outcome of patent litigation which may arise in the future; the extent of future expenditures for sales and marketing programs; delay in or failure to obtain regulatory approvals and uncertainty of clinical trial results for our products in development; uncertainty of clinical trial results for our products in development; ability to develop new products; uncertainty of future profitability and cash generation from operations; ability to execute and integrate strategic transactions; risks inherent in international transactions, including those relating to our expansion in Europe and elsewhere; and other factors as set forth under Item 1A — “Risk Factors” beginning on page 27.

Overview

     Since our incorporation in 1987, we have devoted substantially all of our resources to developing, manufacturing and marketing our proprietary gene-based testing systems for the screening, monitoring and diagnosis of human diseases. Until the end of fiscal 2003, we incurred substantial operating losses, resulting principally from expenses associated with our research and development programs, including preclinical studies, clinical trials and regulatory submissions for our products, the expansion of our manufacturing facilities and our global sales and marketing activities.

     Our revenues, to a significant extent, have been derived from the sales of our diagnostic tests for the presence of HPV. HPV test revenues accounted for 88% of total revenues in fiscal 2006. We expect that the growing acceptance of HPV testing in cervical cancer screening programs, especially in the United States, will continue to drive the growth in revenues from our HPV test products.

     In fiscal 2006, our gross margin on product sales increased to 85% as compared to 82% in fiscal 2005. In fiscal 2007, we expect a gross margin of approximately 84%; however, there can be no assurance that we will meet this goal. We calculate gross margin as the difference between product sales and the cost of product sales, which excludes royalty and technology expense, as a percentage of product sales for the period.

     We have in-licensed patents to a number of cancer-causing human papillomavirus types, biological materials, and other intellectual property on which we pay royalties, patent maintenance and other technology access costs. In fiscal 2006, our total royalty and technology expense was 5% of product sales. In fiscal 2007, we expect total royalty and technology expense to be approximately 5% to 6% of product sales.

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     Our sales and marketing expenditures have been, and will continue to be, focused on accelerating the adoption of HPV testing worldwide and particularly in the United States. We have expanded our sales organization in the United States and increased our investment in physician education and direct-to-consumer awareness campaign activities. In fiscal 2006, we increased our sales and marketing expenditures to capitalize on the growing acceptance of our HPV test products by physicians, laboratories and health insurance providers, and we expect to continue to invest heavily in such sales and marketing programs over the next several quarters.

     We expect to increase the size of our investment in research and development activities during fiscal 2007 with particular investment in the development of our next generation platforms and other research and development programs primarily related to HPV testing.

     We expect our general and administrative expenses will increase to support the overall growth of our business.

     On October 13, 2004, we executed a Settlement and License Agreement to settle the then-pending patent litigation with Enzo Biochem, Inc. and its subsidiary Enzo Life Sciences, Inc. (formerly known as Enzo Diagnostics, Inc.) (collectively, Enzo). As a result, we recorded a pre-tax charge of $14 million in patent litigation settlement expense in the quarter ended September 30, 2004. Additionally, we will pay Enzo royalties on future net sales of products covered by the license grant. Please see “Liquidity and Capital Resources” below for a description of the Enzo settlement.

     On July 12, 2005, we entered into a Settlement and License Agreement with Georgetown University (Georgetown) to settle the then-pending litigation. As a result, we recorded a pre-tax charge of $7.5 million in the quarter ended June 30, 2005. We will also pay Georgetown royalties on future net sales of products covered by the license grant. Please see “Liquidity and Capital Resources” below for a description of the Georgetown settlement.

     Although we anticipate increasing our expenditures as described above, we anticipate that factors such as increased revenue will offset the impact such increased expenditures would have on our operating profits. We expect to generate operating profits in fiscal 2007; however, there can be no assurance that we will meet this goal.

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Results of Operations

	Fiscal 2006			% change			Fiscal 2005			% change			Fiscal 2004
							(in thousands)
Total revenue	$	152,888			33	%	$	115,142			28	%	$	90,161
Product sales		150,828			33	%		113,219			28	%		88,815
HPV test product revenue		134,361			38	%		97,437			31	%		74,581
Cost of product sales		21,888			9	%		20,128			20	%		16,717
Gross margin (1)		85	%		4	%		82	%		1	%		81	%
Royalty and technology expense	$	7,572			40	%	$	5,394			216	%	$	1,705

⁽¹⁾ We calculate gross margin as the difference between product sales and the cost of product sales, which exclude royalty and technology expense, as a percentage of product sales for the period.

Comparison of Fiscal Year Ended June 30, 2006 to Fiscal Year Ended June 30, 2005

     Product sales in fiscal 2006 increased 33% to approximately $152,888,000 as compared to approximately $115,142,000 in fiscal 2005. The increase was due primarily to a 38% growth in sales of our HPV test products to approximately $134,361,000. The majority of the growth in our HPV test product revenue was in the United States, which increased 45% to approximately $111,746,000, and in Europe, which increased 5%, to approximately $16,394,000. In the combined Latin America and Asia Pacific region, HPV test product revenue increased 38%, to approximately $6,220,000; the net impact of foreign exchange rate fluctuations on product sales was immaterial for the fiscal years ended June 30, 2006 and 2005. In the United States, growth in our HPV test product sales resulted from increased acceptance of our Digene HPV Test for adjunctive cervical cancer screening with a Pap test for women age 30 and older (also marketed as the DNAwithPapÔ Test). We believe the growth was due in part to our physician and patient education activities and our direct-to-consumer marketing campaign.

     Other revenues primarily include research and development contract revenues, equipment rental, extended warranty and training services revenues. Other revenues increased 7% in fiscal 2006 to approximately $2,060,000 from approximately $1,923,000 in fiscal 2005. The increase in other revenues in fiscal 2006 is largely due to an 84% increase in miscellaneous revenues to approximately $577,000, which consists primarily of extended warranty revenue.

     Cost of product sales in fiscal 2006 increased 9% to approximately $21,888,000 as compared to approximately $20,128,000 in fiscal 2005 primarily due to increased product sales volume. For fiscal 2006, cost of product sales included approximately $620,000 of stock compensation expense. Gross margin on product sales increased to 85% in fiscal 2006 from 82% in fiscal 2005. The increase in gross margin percentage in fiscal 2006 was the result of a shift in product mix from lower margin products to higher margin HPV test products, as well as decreased manufacturing overhead costs as a percentage of product sales and improved operational efficiencies.

     Royalty and technology expense increased 40% to approximately $7,572,000 in fiscal 2006 from approximately $5,394,000 in fiscal 2005. The increase in fiscal 2006 related primarily to increased

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product sales and to a lesser extent by increased royalties under new license agreements. This increase was partially offset by the expiration of an exclusively licensed patent.

     Research and development expenses increased 38% in fiscal 2006 to approximately $17,922,000 or 12% of total revenues from approximately $12,964,000 or 11% of total revenues in fiscal 2005. The increase in expenditures was due primarily to an increase in personnel costs of 19% to approximately $7,028,000; a 100% increase in professional services to approximately $5,366,000; payment relating to a marketing and distribution agreement for new products; and a license fee for intellectual property, of $500,000. The increase in personnel costs included approximately $435,000 of stock compensation expense. The increase in professional services was due largely to increased efforts in conjunction with our products under development including our specimen preparation system and our next generation automation technology.

     Our core research efforts for next-generation technologies include programs for improved molecular diagnostic assay systems for detection of HPV and other targets in the area of women’s cancers and infectious diseases and research on our next generation nucleic acid detection technology. In fiscal 2006, research and development activities were concentrated on platform technology, including adaptations of such technology, and improvements to our diagnostic test and equipment products. We focused on four areas: (1) core research efforts for next generation technologies; (2) new product development activities; (3) support and improvement of existing product lines and equipment offerings; and (4) support of regulatory submissions seeking approval to market our existing products with procedural improvements and/or for additional uses and indications in the U.S. and abroad. Because our research and development expenditures tend to benefit multiple product offerings, we do not track and maintain research and development expenses on a per-product or per-disease target basis.

     We continue to develop products that will enable HPV genotyping. We signed an agreement for preliminary development of a high risk HPV genotyping assay for the European market. In addition, our collaborative product development and commercialization agreement with PATH (Program for Appropriate Technology in Health) continues. Under that collaboration, we are preparing for clinical trials of a rapid batch HPV test for resource-constrained countries. We expect to have a prototype for initial clinical evaluation during calendar 2006.

     Product development activities are currently focused on simplifying and improving the efficiency of cervical specimen processing procedures, and thereby increasing test throughput. These development efforts include a new batch preparation method for processing liquid-based cytology specimens for HPV testing. In support of this new method, we collected data to support a pre-market approval supplement (PMAS) for hc₂ high-risk HPV testing of specimens collected with the ThinPrep^® test (in PreservCyt^® solution) (Cytyc Corporation) submitted to the FDA in June 2006. Work is also progressing on a specimen preparation system to automate processing of cervical specimens. This specimen preparation system is being developed to provide clinical laboratories with a streamlined means to prepare samples for transfer to our Rapid Capture^® System and is expected to be commercialized in calendar year 2007.

     We remain active in our efforts to expand HPV testing capabilities for additional liquid-based cytology media, including the SurePath^® test’s collection and preservative medium (TriPath Imaging). The FDA is currently reviewing TriPath’s PMAS supporting the use of SurePath specimens with the hc₂ High Risk HPV DNA Test^® that was submitted to the FDA in December 2005. Other activity relevant to this program remains ongoing as part of the continued collaboration between TriPath Imaging and us.

     In April 2006, we entered into an exclusive worldwide marketing and distribution agreement with Asuragen, Inc. for the marketing and distribution of Asuragen’s Signature^® cystic fibrosis screening products. The Asuragen products utilize the Luminex^® xMAP^® technology.

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     On June 30, 2006 we entered into a non-exclusive sublicense agreement with Abbott Laboratories pursuant to which we obtained sublicense rights under a U.S. patent and foreign counterparts that generally disclose and claim certain inventions characterized as “Multiplex Genomic DNA Amplification for Deletion Detection.” We anticipate this technology may be important in future multiplex applications.

     Selling and marketing expenses increased 37% in fiscal 2006 to approximately $62,815,000 or 41% of total revenues from approximately $45,933,000 or 40% of total revenues in fiscal 2005. For fiscal 2006, selling and marketing expenses included approximately $1,470,000 of stock compensation expense. The increase in fiscal 2006 was due primarily to personnel costs, which increased 40% to approximately $26,888,000; marketing program expenses, which increased 44% to approximately $16,548,000; and facility, overhead and travel expenses, which increased 51% to approximately $11,888,000. The increase in personnel costs and facility, overhead and travel expenses is due largely to increasing the size of our physician sales force, a program we began during fiscal 2005. The increase in marketing program expenses is the result of a direct-to-consumer awareness campaign implemented during fiscal 2005 and continued throughout fiscal 2006. Costs associated with the direct-to-consumer awareness campaign were approximately $7,000,000 for fiscal 2006 and approximately $4,000,000 for fiscal 2005.

     Virtually all of the increase in our selling and marketing expenses for fiscal 2006 was incurred in the United States, which increased 58% to approximately $48,641,000, over the corresponding period in fiscal 2005, as we expanded our direct sales and marketing activities, including our physician and patient education activities directed toward increasing sales of our HPV test products.

     General and administrative expenses increased 30% in fiscal 2006 to approximately $26,294,000 or 17% of total revenues from approximately $20,265,000 or 18% of total revenues in fiscal 2005. For fiscal 2006, general and administrative expenses included approximately $3,156,000 of stock compensation expense; an increase in personnel costs of 21% to approximately $10,281,000; and an increase in professional services of 7% to approximately $7,135,000. The increase in professional services is due to increased patent and other legal expenses incurred in fiscal 2006, partially offset by a decrease in litigation expenses associated with the Georgetown and Enzo patent litigation settlements in fiscal 2005 and early fiscal 2006.

     The majority of the increase in general and administrative expenses for fiscal 2006 was incurred in the United States, which increased 44%, to approximately $18,827,000.

     Patent litigation settlements relate to the settlement with Enzo, for which $14,000,000 was recorded in fiscal 2005, and with Georgetown, for which a charge of $7,500,000 was recorded in fiscal 2005, each based on a Settlement and License Agreement. Please see “Liquidity and Capital Resources” below for descriptions of the Enzo and Georgetown settlements.

     Interest income increased 372% to approximately $3,808,000 in fiscal 2006 from approximately $808,000 in fiscal 2005. The increase was due to higher cash, cash equivalents and short-term investment balances, primarily generated from our common stock offering in November 2005, as well as higher interest rates in fiscal 2006 compared to fiscal 2005.

     Interest expense increased to approximately $803,000 in fiscal 2006 compared to approximately $37,000 in fiscal 2005. The increase was due to the Gaithersburg facility lease obligation, which is more fully described below.

     Other income was approximately $48,000 in fiscal 2006 compared to approximately $116,000 in fiscal 2005. The balances in both periods are primarily based on foreign exchange rate fluctuations causing transaction gains and losses.

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     Minority interest decreased 60% to approximately $142,000 in fiscal 2006 compared to approximately $353,000 in fiscal 2005. Minority interest represents the Digene do Brasil LTDA minority partner’s share of the gains and losses of the subsidiary.

     We recognized an income tax provision of approximately $10,773,000 in fiscal 2006 and an income tax benefit of approximately $2,573,000 in fiscal 2005. In fiscal 2006 and 2005 we recognized approximately $6,074,000 and $4,283,000, respectively, of foreign operating losses before income tax from certain European operations that did not generate an income tax benefit due to a full valuation allowance recorded against foreign deferred tax assets, including additional deferred tax assets created by current year foreign tax losses. We had total U.S. net operating loss carryforwards of approximately $105,900,000 and $113,394,000, respectively, as of June 30, 2006 and June 30, 2005. We also had foreign net operating loss carryforwards of approximately $24,898,000 and $22,181,000 as of June 30, 2006 and June 30, 2005, respectively. Based upon both recent historical financial results and projected future operating performance, we believe that we will be able to utilize our U.S. net operating loss carryforwards arising from the exercise of stock options against future taxable income. As a result, for fiscal 2006, we released approximately $40,715,000 of our valuation allowance. Pursuant to recently adopted Financial Accounting Standards Board (FASB) Statement No. 123(R), “Share-Based Payment” (Statement 123(R)), the benefits were reflected as a direct increase to stockholders’ equity, but only to the extent that the deductions reduce taxes payable. The approximately $34,081,000 unrecognized balance as of June 30, 2006, is reflected as an offsetting reduction of both deferred tax assets and valuation allowance on the Consolidated Balance Sheets; this unrecognized balance is available for utilization in future years, subject to expiration. Further, we have retained a full valuation allowance related to foreign net operating losses and certain U.S. tax credits. Should realization of these benefits become more likely than not, a significant portion of the benefit will be reflected as an increase to Consolidated Statements of Operations.

     At June 30, 2006, we had two stock-based employee compensation plans, one stock-based non-employee compensation plan, and one stock-based director compensation plan, which are described more fully in Note 7 of the Notes to our Consolidated Financial Statements included in this Form 10-K Report. As of March 2006, we only have the ability to issue stock-based compensation to employees under one of the employee compensation plans, as the other expired on March 26, 2006. Prior to July 1, 2005, we accounted for those plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (Opinion 25), and related Interpretations, as permitted by FASB Statement No. 123, “Accounting for Stock-Based Compensation” (Statement 123). We account for equity instruments issued to non-employees in accordance with Emerging Issues Task Force (EITF) 96-18, “Accounting for Equity Instruments that are issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods, or Services.” Effective July 1, 2005, we adopted the fair value recognition provisions of Statement 123(R), using the modified-prospective-transition method.

     Under the modified-prospective-transition method, compensation cost recognized in fiscal 2006 includes: (a) compensation cost for all share-based payments granted prior to but not yet vested as of July 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of Statement 123, and (b) compensation cost for all share-based payments granted subsequent to July 1, 2005, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). Results for prior periods have not been restated. As a result of adopting Statement 123(R) on July 1, 2005, our income before income taxes and net income for fiscal 2006, are approximately $5,681,000 and $2,495,000 lower, respectively, than if we had continued to account for shares-based compensation under Opinion 25. Basic and diluted earnings per share for fiscal 2006 are each $0.11 lower, than if we had continued to account for share-based compensation under Opinion 25. Total compensation cost related to

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nonvested awards not yet recognized as of June 30, 2006 is approximately $7,042,000 and is expected to be recognized over a weighted-average life of approximately two years.

     On March 7, 2005, the Compensation Committee of our Board of Directors approved the acceleration of vesting of “underwater” unvested stock options held by certain current employees, including executive officers. Stock options held by non-employee directors were not included in such acceleration. A stock option was considered “underwater” if the option exercise price was greater than or equal to $32.35 per share. As such, we fully vested options to purchase 622,202 shares of our common stock. We took this action primarily to avoid recognizing compensation cost in future financial statements when Statement 123(R) became effective.

Comparison of Fiscal Year Ended June 30, 2005 to Fiscal Year Ended June 30, 2004

     Product sales in fiscal 2005 increased 28% as compared to fiscal 2004. The increase was due primarily to a 31% growth in sales of our HPV test products to approximately $97,437,000. An increase of 21% in equipment sales, to approximately $6,565,000, also contributed to the increase in product sales. The majority of the growth in our HPV test product revenue was in the United States, which increased 34% to approximately $77,301,000, and in Europe, which increased 21%, to approximately $15,613,000. In the United States, most of the growth in our HPV test product sales was from increased acceptance of our Digene HPV Test (also marketed as the DNAwithPap Test in the United States) for adjunctive cervical cancer screening with a Pap test for women age 30 and older, an indication approved by the U.S. Food and Drug Administration (FDA) in March 2003. We believe the continued growth was also due in part to our direct-to-consumer marketing campaign which began in fiscal 2005. The increase in revenues from equipment sales primarily related to sales of our Rapid Capture System following the May 2004 FDA approval of the use of such automated system to perform our diagnostic tests. The growth in product sales in Europe related to the success of our subsidiary operating companies and distributor operations benefiting from our coordinated sales and marketing programs, public awareness campaigns and government education efforts. The net impact of foreign exchange rate fluctuations on product sales was immaterial for the fiscal years ended June 30, 2005 and 2004, respectively.

     Other revenues primarily included research and development contract revenues, equipment rental revenues and licensing revenues. Other revenues increased 43% in fiscal 2005 to approximately $1,923,000 from approximately $1,346,000 in fiscal 2004. The increase in other revenues in fiscal 2005 was largely due to a 29% increase in research and development contract revenues to approximately $731,000, and a 149% increase in miscellaneous revenue to $313,000, which consists primarily of extended warranty revenue.

     Cost of product sales in fiscal 2005 increased 20% as compared to fiscal 2004 primarily due to increased product sales volume. Gross margins on product sales increased to 82% in fiscal 2005 from 81% in fiscal 2004. The increase in gross margin percentage in fiscal 2005 was the result of a shift in product mix from lower margin products to higher margin HPV test products. This increase in gross margin percentage due to product mix changes was partially offset by increased manufacturing overhead costs.

     Royalty and technology expense increased 216% to approximately $5,394,000 in fiscal 2005 from approximately $1,705,000 in fiscal 2004. The increase in fiscal 2005 was primarily due to increased royalty expenses, on net sales of our products based on a Settlement and License Agreement with Enzo effective October 1, 2004, under which we pay Enzo royalties on net sales of products covered by the license grant. The increase was also due to a charge of $750,000 accrued during the quarter ended September 30, 2004 relating to a non-exclusive license to Institut Pasteur’s intellectual property concerning the Hepatitis B virus genome and the reversal of approximately $535,000 of accrual during

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fiscal 2004 based on the expectation that a specific royalty accrual would not materialize. Please see “Liquidity and Capital Resources” below for a description of the Enzo settlement.

     Research and development expenses increased 21% in fiscal 2005 to approximately $12,964,000 or 11% of total revenues from approximately $10,744,000 or 12% of total revenues in fiscal 2004. The increase in expenditures was due primarily to a 17% increase in personnel costs to approximately $5,919,000, an increase in professional services of 36% to approximately $2,608,000, and an increase in license fees to $402,000. The increase in professional services was due largely to costs paid to a vendor for development of the sample preparation workstation, clinical evaluations for processing liquid-based cytology, and costs incurred for the preparation of compliance with the European Union In Vitro Diagnostic Directive regulations for our Rapid Capture System and related accessories, for which compliance was obtained in the last quarter of fiscal 2005. The majority of the license fees relate to a supply and license agreement we entered into in fiscal 2005 to develop certain next-generation products.

     Our research and development activities focused on our platform technology, including substantial modifications of the design or capabilities of our products and equipment offerings. Because our research and development expenditures tend to benefit multiple product offerings, we do not track and maintain research and development expenses on a per-product or per-disease target basis.

     In fiscal 2005 our research and development activities focused on our platform technology, including adaptations of such technology, and improvements to our diagnostic test and equipment products. We focused our research and development activities in four areas: (1) core research efforts for next-generation technologies; (2) new product development activities; (3) support and improvement of existing product lines and equipment offerings; and (4) support of regulatory submissions to seek approvals to market our existing products for additional uses and indications in the U.S. and abroad.

     Selling and marketing expenses increased 32% in fiscal 2005 to approximately $45,933,000 or 40% of total revenues from approximately $34,918,000 or 39% of total revenues in fiscal 2004. The increase in fiscal 2005 was due primarily to personnel costs, which increased 45% to approximately $14,775,000; marketing program expenses, which increased 63% to approximately $11,531,000; and facility and overhead costs, including travel, which increased 29% to approximately $9,875,000. The increase in personnel costs was due largely to increasing the size of our physician detailing sales force for which we began hiring extensively in the middle of fiscal 2005. The increase in marketing program expenses was the result of a direct-to-consumer awareness campaign implemented during the quarter ended March 31, 2005. These increases were partially offset by a 12% decrease in agency fees to approximately $4,800,000, for our physician detailing arrangement with PDI, Inc. From fiscal 2003 until fiscal 2005, PDI recruited and administered a Digene-specific physician education sales organization dedicated to educating physicians about the benefits of The Digene HPV Test in the United States.

     Geographically, the majority of the increase in our selling and marketing expenses for fiscal 2005 was incurred in the United States, which increased 40% to approximately $30,859,000 as compared to approximately $22,051,000 in fiscal 2004, as we expanded our direct sales and marketing activities, including our direct-to-consumer awareness campaign, in the United States to increase sales of our HPV test products.

     General and administrative expenses increased 5% in fiscal 2005 to approximately $20,265,000 or 18% of total revenues from approximately $19,298,000 or 20% of total revenues in fiscal 2004. The increase was due primarily to personnel costs, which increased 20% to approximately $8,795,000 and an 18% increase in facility and overhead costs to approximately $3,198,000. These increases were partially offset by a 13% decrease in professional services, to approximately $6,632,000. The decrease in professional services was due largely to a decrease in legal fees, which decreased 28% to approximately $4,380,000, partially offset by an increase in accounting fees, which increased 56% to approximately $1,399,000.

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     Geographically, the majority of the increase in general and administrative expenses for fiscal 2005 was incurred in the United States, which increased 6%, to approximately $13,109,000, over the corresponding period in fiscal 2004.

     Patent litigation settlements relate to the October 2004 settlement with Enzo, for which $14,000,000 was recorded in the first quarter of fiscal 2005, as well as a charge of $7,500,000 recorded in the last quarter of fiscal 2005 based on a Settlement and License Agreement entered into with Georgetown on July 12, 2005. Please see “Liquidity and Capital Resources” below for descriptions of the Enzo and Georgetown settlements.

     Interest income increased 76% to approximately $808,000 in fiscal 2005 from approximately $459,000 in fiscal 2004. The increase was due to higher interest rates in fiscal 2005 compared to the corresponding period in fiscal 2004, as well as higher average short-term investment balances in fiscal 2005 compared to fiscal 2004.

     Interest expense decreased to approximately $37,000 in fiscal 2005 compared to approximately $184,000 in fiscal 2004 primarily due to the reduction in our long-term debt due to Abbott Laboratories as quarterly principal payments were made on an outstanding promissory note. The promissory note was paid in full in September 2004.

     Other expense was approximately $116,000 in fiscal 2005 and other income was approximately $163,000 in fiscal 2004. The balances in both periods were primarily based on foreign exchange rate fluctuations causing transaction gains and losses.

     Minority interest was approximately $353,000 in fiscal 2005. Minority interest represents the Digene do Brasil LTDA minority partner’s share of the gains and losses of the subsidiary.

     The net income tax benefit of approximately $14,325,000 in fiscal 2004 was primarily related to the partial release of the valuation allowance previously established against our deferred tax assets. We released approximately $14,900,000 of valuation allowance in the fourth quarter of fiscal 2004 recorded against U.S deferred tax assets which was the estimated amount to be utilized in the foreseeable future. Based upon projected future operating performances, despite fiscal 2005 operating losses, we believed that we would be able to utilize a portion of our net operating loss carryforward against future taxable income. Accordingly, we recognized an income tax benefit of approximately $2,573,000 in fiscal 2005. However, we recognized approximately $4,283,000 of foreign operating losses before income tax from European operations during fiscal 2005 that did not generate an income tax benefit due to a full valuation allowance recorded against foreign deferred tax assets, including additional deferred tax assets created by current year foreign tax losses. As of June 30, 2005 and June 30, 2004, we had total U.S. net operating loss carryforwards of approximately $113,394,000 and $115,851,000, respectively. We also had foreign net operating loss carryforwards of approximately $22,181,000 and $18,543,000 as of June 30, 2005 and June 30, 2004, respectively. For fiscal 2005 and 2004, we maintained a valuation allowance against the potential tax benefits from the exercise of stock options as realization of these benefits were not more likely than not at such time and the amounts were expected to expire unused. Should realization of these benefits become more likely than not, the benefit will be reflected as a reclassification to stockholders’ equity. Further, we maintained a valuation allowance related to foreign net operating loss; should realization of these benefits become more likely than not, the benefit will be reflected as an increase to Consolidated Statement of Operations.

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Liquidity and Capital Resources

     Since inception, our expenses have significantly exceeded our revenues, resulting in an accumulated deficit of approximately $53,874,000 at June 30, 2006. We have funded our operations primarily through the sale of equity securities and revenues from product sales and research and development contracts. At June 30, 2006, we had cash, cash equivalents and short-term investments aggregating approximately $139,257,000. We had positive cash flows from operations of approximately $26,028,000 for the year ended June 30, 2006, compared to positive cash flows from operations of approximately $2,564,000 for the year ended June 30, 2005. The increase in positive cash flows from operations was largely driven by the improvement from a net loss of approximately $8,167,000 in fiscal 2005 to net income of approximately $8,439,000 in fiscal 2006. The cash flows from operations for fiscal 2006 also included $7,500,000 in payments to Georgetown, further described below.

     Net cash used in investing activities for fiscal 2006 of approximately $112,938,000 included $112,285,000 of revolving maturities of short-term investments. Approximately $9,075,000 of capital expenditures was largely used for the Gaithersburg facility. Through fiscal 2007, we expect to spend up to $2,000,000 of working capital as we further expand our Gaithersburg facility.

     On November 15, 2005, we and Armonk Partners, a significant stockholder, entered into an Underwriting Agreement with J.P. Morgan Securities Inc., as representative of the underwriters identified therein (the “Underwriting Agreement”) with respect to the sale of up to 2,000,000 shares of Common Stock by us and up to 1,000,000 shares of Common Stock by Armonk Partners. The Underwriting Agreement granted an option to the underwriters to purchase up to an additional 450,000 shares of Common Stock (300,000 shares by us and 150,000 shares by Armonk Partners) to cover over-allotments, if any. The public offering, pursuant to our effective shelf registration statement, closed on November 18, 2005 with the sale of all initially offered shares of Common Stock. On December 14, 2005, the sale of the shares subject to the over-allotment option was closed following the exercise in full by the underwriters of the over-allotment option. Our net proceeds from the public offering were approximately $60,079,000 after expenses of approximately $457,000 and underwriters’ commissions.

     On October 13, 2004 we entered into a Settlement and License Agreement to settle our patent litigation with Enzo. Under the Agreement with Enzo, we received an irrevocable, non-exclusive, royalty-bearing worldwide license under identified Enzo patents. We made an initial payment to Enzo of $16,000,000, of which $2,000,000 was used to offset future royalty payments under the terms of the Agreement, resulting in a one-time pre-tax charge of $14,000,000 in patent settlement expense. We also agreed to pay Enzo royalties on future net sales of products covered by the license grant, which royalties were guaranteed at a minimum of $2,500,000 for the first annual period (October 1, 2004 to September 30, 2005) and will be guaranteed at minimums of at least $3,500,000 for each of the next four annual periods. We are obligated to make such guaranteed minimum payments in such first five annual periods under the Enzo Agreement. Our obligation to make royalty payments will end on April 24, 2018, unless earlier terminated in accordance with the terms of the Enzo Agreement.

     On July 12, 2005 we entered into a Settlement and License Agreement with Georgetown. Under the Agreement with Georgetown, we were granted irrevocable, worldwide, exclusive, royalty-bearing licenses with the right to grant sublicenses under two Georgetown patents, as well as corresponding foreign patents and patent applications. Under the Georgetown Agreement, we made an initial payment of $3,750,000 in July 2005, and we made a second payment of $3,750,000 to Georgetown in October 2005. We recorded a pre-tax charge for this $7,500,000 in settlement expense in our fiscal 2005 fourth quarter results. Digene also pays Georgetown royalties on future net sales of products covered by the license grants. Our obligation to make royalty payments on one of the Georgetown patents will end on

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October 15, 2008 and for the other Georgetown patent on July 1, 2014, unless earlier terminated in accordance with the terms of the Georgetown Agreement.

     We lease a facility in Gaithersburg, Maryland, comprising a total of 111,000 square feet for our corporate headquarters and manufacturing operations pursuant to a Lease Agreement dated March 2, 1998 between Digene and ARE-Metropolitan Grove I, LLC, as landlord (the “Landlord”), as amended (the “Lease”). On November 15, 2005, we executed the Fourth Amendment to Lease (the “Amendment”). The Amendment provides for us to expand the rented premises to 143,585 rentable square feet. The additional space will be used for manufacturing and research and development space. Under the Amendment, the Landlord and we are contributing financing to fund the expansion construction and outfitting, for which construction is expected to be substantially completed by September 20, 2006. In addition, the initial term of the Lease has been extended until ten years after the earlier of substantial completion of the expansion work or September 20, 2006.

     Prior to the Amendment, we had historically accounted for the Lease as an operating lease. Under the Amendment we became responsible for a portion of the construction costs and were deemed to be the owner of the Gaithersburg facility for accounting purposes during the construction period under EITF 97-10, “The Effect of Lessee Involvement in Asset Construction.” During the quarter ended December 31, 2005, upon execution of the Amendment, we capitalized $21,400,000 to record the estimated fair value of the current building facility and recognized a related lease obligation of approximately $20,700,000. In accordance with accounting guidance, the portion of the Lease related to ground rent will continue to be treated as an operating lease. Amounts paid by us for the construction have been recorded as construction in progress. Upon completion of construction, the Lease will be accounted for as a financing in accordance with Statement of Financial Accounting Standards No. 98, “Accounting for Leases,” and we will, accordingly, continue to record the existing facility and expanded area as a capital asset. In addition, amounts paid for the expansion by the Landlord will increase the lease obligation as the project is funded. This change in accounting treatment has no impact on our cash flow or total expense over the Lease term; however, it results in the acceleration of expense from the later years of the Lease to the earlier years of the Lease. The impact of this acceleration on fiscal 2006 pre-tax earnings was approximately $700,000.

     We anticipate that working capital requirements will increase moderately for the foreseeable future due to the investment necessary to expand our Gaithersburg facility, as well as increasing accounts receivable as a result of expected revenue growth. We have expended, and expect to continue to expend in the future, substantial funds to complete our planned product development efforts, expand our sales and marketing activities and expand our manufacturing capabilities. We expect our existing capital resources will be adequate to fund our operations for the foreseeable future. Our future capital requirements and the adequacy of available funds may change, however, based on numerous factors, including our degree of success in commercializing our products; the effectiveness of our sales and marketing activities; our progress in product development efforts and the magnitude and scope of such efforts; our success in increasing and maintaining customer relationships; our ability to receive additional regulatory approvals for our product offerings; the cost and timing of expansion of our manufacturing capabilities; the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; competitive market developments; and execution and integration of strategic transactions. To the extent our existing capital resources and funds generated from operations are insufficient to meet current or planned operating requirements, we will be required to obtain additional funds through equity or debt financing, which could include public offerings of our securities using our effective shelf registration statement, strategic alliances with corporate partners and others, or through other sources. Other than an equipment leasing facility with ePlus Group, Inc., for which we have used approximately $673,000 of a $1,000,000 total commitment, and the Gaithersburg facility Lease Amendment, we do not have any committed sources of additional financing, and there can be no assurance that additional funding, if

52

necessary, will be available on acceptable terms, if at all. If adequate funds are not available, we may be required to delay, scale back or eliminate certain aspects of our operations or attempt to obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies, product candidates, products or potential markets. Under such conditions, our business, financial condition and results of operations would be materially adversely affected.

     We have summarized below our material contractual obligations as of June 30, 2006 (in thousands):

			Less than One
Contractual			Year		One to Three Years		Four to Five Years		After Five Years
Obligations	Total		(Fiscal 2007)		(Fiscal 2008-2010)		(Fiscal 2011-2012)		(After Fiscal 2013)
Long-term debt	$	567	$	117	$	450	$	—	$	—
Operating leases		3,533		1,005		1,733		629		166
Purchase obligations		3,975		2,725		1,250		—		—
Gaithersburg lease obligations		42,952		4,041		11,892		8,368		18,651
Minimum royalty payments		12,608		2,108		10,500		—		—
Total contractual cash obligations	$	63,635	$	9,996	$	25,825	$	8,997	$	18,817

CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES

     We prepare our financial statements in conformity with accounting principles generally accepted in the United States. Such accounting principles require that our management make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Our actual results could differ materially from those estimates. The items in our consolidated financial statements that have required us to make significant estimates and judgments are as follows:

• Inventory. Our inventories are stated at the lower of cost or market. Cost is determined using a weighted-average approach, which approximates actual cost. We also record provisions for inventories which may not be salable due to anticipated trends in sales volume and/or pricing, product expiration, and our estimates of net realizable value. These provisions are determined based on significant estimates.

• Revenue recognition. We recognize revenue from product sales when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed and determinable, and collectibility is reasonably assured. We establish allowances for estimated uncollectible amounts, product returns and discounts based on historical default rates and specifically identified problem accounts, as well as, we provide a reserve of approximately two percent of product sales for future warranty costs.

• Accounting for employee stock options. Prior to July 1, 2005, we accounted for stock-based compensation plans under the recognition and measurement provisions of Opinion 25, and related interpretations, as permitted by Statement 123. Effective July 1, 2005, we

53

adopted the fair value recognition provisions of Statement 123(R), using the modified-prospective-transition method. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing fair value model through June 30, 2004 and a trinomial lattice option-pricing fair value model thereafter (using the dividend yield, expected volatility, risk-free interest rate, expected life of the option term and forfeiture rate variables).

•

Income taxes. We provide for income taxes in accordance with the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Realization of total deferred tax assets is contingent upon the generation of future taxable income. For our fiscal year ended June 30, 2004, we recognized an income tax benefit of $14,325,000 primarily related to the reversal of a portion of the valuation allowance previously established for our U.S. deferred tax asset. Due to the uncertainty of realization of these tax benefits, in fiscal 2004 and 2005 we retained a valuation allowance against the U.S. net operating loss carryforwards related to the exercise of stock options as well as other U.S. net operating loss carryforwards and tax credits expected to expire unused. We also recorded a valuation allowance against foreign net operating loss carryforwards expected to expire unused. For our fiscal year ended June 30, 2006, we have released the valuation allowance related to U.S. net operating loss carryforwards related to the exercise of stock options as management deems these carryforwards more likely than not to be realized. Pursuant to Statement 123(R), the benefits were reflected as a direct increase to stockholders’ equity, but only to the extent that the deductions reduce taxes payable. We have adopted the tax law method for determining the recognized benefit as we believe that this is the best method for recording recognized benefits under this approach, the recognized benefit is determined based on U.S. income tax return ordering rules and concepts. The approximately $34,081,000 unrecognized balance is reflected as an offsetting reduction of both deferred tax assets and valuation allowance on the Consolidated Balance Sheet; this unrecognized balance as of June 30, 2006, is available for utilization in future years, subject to expiration. In fiscal 2006 we retained a valuation allowance against the U.S. research and other tax credits as well as foreign net operating loss carryforwards expected to expire unused due to the uncertainty of realization of these tax benefits. We review our deferred tax asset on a quarterly basis to determine if a valuation allowance is required, primarily based on recent historical financial trends and our estimates of future taxable income. Changes in our assessment of the need for a valuation allowance could give rise to a valuation allowance and an expense in the period of change. A significant portion of the remaining deferred tax asset valuation allowance, if released, will impact the Consolidated Statement of Operations.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are subject to market risk associated with changes in foreign currency exchange rates and interest rates. Our exchange rate risk comes from our operations in Europe and South America. The net impact of foreign exchange activities on earnings was immaterial for the years ended June 30, 2004, 2005 and 2006. Interest rate exposure is primarily limited to the $139,300,000 of cash, cash equivalents and short-term investments owned by us as of June 30, 2006. Such investments are money market debt securities that generate interest income for us on cash balances. We do not actively manage the risk of interest rate fluctuations; however, such risk is mitigated by the relatively short term nature of our investments. We do not consider the present rate of inflation to have a significant impact on our business.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

DIGENE CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	57
Management’s Report on Internal Control Over Financial Reporting	58
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting	59
Consolidated balance sheets at June 30, 2006 and 2005	61
Consolidated statements of operations for each of the three years in the period ended June 30, 2006	62
Consolidated statements of stockholders’ equity for each of the three years in the period ended June 30, 2006	63
Consolidated statements of cash flows for each of the three years in the period ended June 30, 2006	64
Notes to consolidated financial statements for each of the three years in the period ended June 30, 2006	65

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Digene Corporation

We have audited the accompanying consolidated balance sheets of Digene Corporation as of June 30, 2005 and 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2006. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Digene Corporation at June 30, 2005 and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2006, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the financial statements, in 2006 the Company changed its method of accounting for share-based compensation.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Digene Corporation’s internal control over financial reporting as of June 30, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 28, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

McLean, Virginia
August 28, 2006

57

Management’s Report on Internal Control Over Financial Reporting

     Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). There are inherent limitations in the effectiveness of any internal controls over financial reporting, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Our internal control system was designed 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. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of June 30, 2006 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. Our management’s assessment of the effectiveness of our internal control over financial reporting as of June 30, 2006 has been audited by Ernst & Young LLP, independent registered public accounting firm, as stated in their report which is included below.

58

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

The Board of Directors and Stockholders
Digene Corporation

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting that Digene Corporation maintained effective internal control over financial reporting as of June 30 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Digene Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Digene Corporation maintained effective internal control over financial reporting as of June 30, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Digene Corporation maintained, in all material respects, effective internal control over financial reporting as of June 30, 2006, based on the COSO criteria.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Digene Corporation as of June 30, 2005 and 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2006 of Digene Corporation and our report dated August 28, 2006 expressed an unqualified opinion thereon.

/s/Ernst & Young LLP

McLean, Virginia
August 28, 2006

60

DIGENE CORPORATION

CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

	June 30,
	2005			2006
ASSETS
Current assets:
Cash and cash equivalents	$	15,790		$	8,805
Short-term investments		30,292			130,452
Accounts receivable, less allowance of approximately $288 and $363 at June 30, 2005 and 2006, respectively		20,296			27,665
Inventories, net		7,197			6,307
Prepaid expenses and other current assets		3,130			3,718
Deferred tax asset, current		2,038			4,275
Total current assets		78,743			181,222
Property and equipment, net		10,104			33,935
Deposits and other assets		2,237			5,981
Deferred tax asset, less current portion		15,761			10,748
Total assets	$	106,845		$	231,886
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,807		$	10,716
Accrued expenses		11,996			11,030
Accrued payroll		5,836			11,190
Current portion of long-term debt and lease obligation		116			1,445
Total current liabilities		25,755			34,381
Deferred rent		763			246
Long-term debt, less current portion		572			450
Lease obligation, less current portion		—			19,323
Minority interest		353			440
Stockholders’ equity:
Preferred Stock, $0.10 par value, 1,000,000 shares authorized, no shares issued and outstanding		—			—
Common Stock, $0.01 par value, 50,000,000 shares authorized, 20,037,253 and 23,243,586 shares issued and outstanding at June 30, 2005 and 2006, respectively		200			232
Additional paid-in capital		140,914			229,996
Accumulated other comprehensive income		601			692
Accumulated deficit		(62,313	)		(53,874	)
Total stockholders’ equity		79,402			177,046
Total liabilities and stockholders’ equity	$	106,845		$	231,886

See accompanying notes.

61

DIGENE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)

	Year Ended June 30,
	2004			2005			2006
Revenues:
Product sales	$	88,815		$	113,219		$	150,828
Other		1,346			1,923			2,060
Total revenues		90,161			115,142			152,888
Costs and expenses:
Cost of product sales		16,717			20,128			21,888
Royalty and technology		1,705			5,394			7,572
Research and development		10,744			12,964			17,922
Selling and marketing		34,918			45,933			62,815
General and administrative		19,298			20,265			26,294
Patent litigation settlements		-			21,500			-
Total costs and expenses		83,382			126,184			136,491
Income (loss) from operations		6,779			(11,042	)		16,397
Other income (expense):
Interest income		459			808			3,808
Interest expense		(184	)		(37	)		(803	)
Other income (expense)		163			(116	)		(48	)
Total other income (expense)		438			655			2,957
Income (loss) from operations before minority interest and income taxes		7,217			(10,387	)		19,354
Minority Interest		-			(353	)		(142	)
Income (loss) from operations before income taxes		7,217			(10,740	)		19,212
Provision for (benefit from) income taxes		(14,325	)		(2,573	)		10,773
Net income (loss)	$	21,542		$	(8,167	)	$	8,439
Basic net income (loss) per share	$	1.13		$	(0.41	)	$	0.39
Diluted net income (loss) per share	$	1.04		$	(0.41	)	$	0.38
Weighted average shares outstanding
Basic		19,144			19,965			21,769
Diluted		20,806			19,965			22,215

See accompanying notes.

62

DIGENE CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)

											Accumulated
					Additional						Other						Total
	Common Stock				Paid-In			Deferred Stock			Comprehensive			Accumulated			Stockholders’
	Shares		Amount		Capital			Compensation			Income			Deficit			Equity
Balance at June 30, 2003		18,325	$	183	$	118,535		$	(380	)	$	356		$	(75,688	)	$	43,006
Comprehensive income:
Foreign currency translation, net of income tax expense of $174		–		–		–			–			261			–			261
Unrealized loss on available for-sale securities, net of income tax benefit of $53		–		–		–			–			(80	)		–			(80	)
Net income		–		–		–			–			-			21,542			21,542
Comprehensive income																		21,723
Exercise of Common Stock options		1,559		15		20,883			-			-			-			20,898
Compensatory stock options earned by non-employees		–		–		219			217			-			–			436
Balance at June 30, 2004		19,884	$	198	$	139,637		$	(163	)	$	537		$	(54,146	)	$	86,063
Comprehensive loss:
Foreign currency translation		–		–		–			–			37			–			37
Unrealized gain on available for-sale securities, net of income tax benefit of $33		–		–		–			–			27			–			27
Net loss		–		–		–			–			–			(8,167	)		(8,167	)
Comprehensive loss																		(8,103	)
Exercise of Common Stock options		153		2		1,530			-			-			-			1,532
Compensatory stock options earned by non-employees		–		–		(253	)		163			-			–			(90	)
Balance at June 30, 2005		20,037	$	200	$	140,914		$	–		$	601		$	(62,313	)	$	79,402
Comprehensive income:
Foreign currency translation		–		–		–			–			220			–			220
Unrealized loss on available for-sale securities, net of income tax benefit of $109		–		–		–			–			(129	)		–			(129	)
Net income		–		–		–			–			–			8,439			8,439
Comprehensive income																		8,530
Exercise of Common Stock options		907		9		16,711			-			-			-			16,720
Public offering of Common Stock		2,300		23		60,056			–			–			–			60,079
Tax benefit from stock-based compensation in excess of book deductions		–		–		6,634			–			–			–			6,634
Stock-based compensation expense		–		–		5,681			–			-			–			5,681
Balance at June 30, 2006		23,244	$	232	$	229,996		$	–		$	692		$	(53,874	)	$	177,046

See accompanying notes.

63

DIGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Year Ended June 30,
	2004			2005			2006
Operating activities
Net income (loss)	$	21,542		$	(8,167	)	$	8,439
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of property and equipment		3,914			4,490			4,767
Amortization of discount on note payable		36			-			-
Loss on disposal of fixed assets		178			260			209
Stock-based compensation expense		436			(89	)		5,681
Deferred tax benefit		(14,899	)		(2,867	)		5,752
Minority interest		-			353			87
Changes in operating assets and liabilities:
Accounts receivable		(7,201	)		(2,681	)		(5,689	)
Inventories		(1,036	)		1,009			937
Prepaid expenses and other current assets		(203	)		(781	)		(535	)
Deposits and other assets		(190	)		(89	)		(232	)
Accounts payable		(2,066	)		2,174			2,875
Accrued expenses		304			8,204			6,456
Accrued patent litigation settlement		-			-			(7,500	)
Accrued payroll		1,205			464			5,298
Deferred rent		44			284			(517	)
Net cash provided by operating activities		2,064			2,564			26,028
Investing activities
Purchases of short-term investments		(52,712	)		(23,900	)		(212,648	)
Sales and maturities of short-term investments		34,335			38,308			112,285
Capital expenditures		(6,139	)		(5,218	)		(9,075	)
Purchase of intangibles		-			-			(3,500	)
Net cash provided by (used in) investing activities		(24,516	)		9,190			(112,938	)
Financing activities
Net proceeds from issuance of Common Stock		-			-			60,079
Exercise of Common Stock options		20,898			1,532			16,720
Excess tax benefits from stock based compensation		-			-			3,733
Principal payments of long-term debt		(2,684	)		(1,459	)		(603	)
Net cash provided by financing activities		18,214			73			79,929
Effect of currency translations		435			(117	)		(4	)
Net increase (decrease) in cash and cash equivalents		(3,803	)		11,710			(6,985	)
Cash and cash equivalents at beginning of year		7,883			4,080			15,790
Cash and cash equivalents at end of year	$	4,080		$	15,790		$	8,805
Supplemental cash flow information
Interest paid	$	163		$	46		$	803
Income taxes paid	$	345		$	202		$	298

See accompanying notes.

64

Notes to Consolidated Financial Statements

1. Organization and Nature of Operations

Digene Corporation (the “Company” or “Digene”) was incorporated as a Delaware corporation in 1987. The Company develops, manufactures and markets its proprietary gene-based testing systems for the screening, monitoring and diagnosis of human diseases. The Company has applied its proprietary Hybrid Captureâ technology to develop a diagnostic test for human papillomavirus (“HPV”), which is the primary cause of cervical cancer and is found in greater than 99% of all cervical cancer cases. Digene’s product portfolio also includes gene-based tests for the detection of chlamydia, gonorrhea, hepatitis B virus (“HBV”), and cytomegalovirus (“CMV”).

In June 1996, the Company entered into a joint venture agreement with a Brazilian national to establish Digene do Brasil LTDA, a majority-owned subsidiary of the Company.

In April 2002, the Company established a wholly-owned subsidiary, Digene UK (Holdings) Limited, as a holding company for most of its European subsidiaries. Digene UK (Holdings) Limited owns all the outstanding shares of Digene (UK) Limited, Digene Deutschland GmbH, Digene (France) SAS and Digene Italia s.r.l., which were organized in April, May, August and October 2002, respectively, and of Digene Diagnostics S.L. (Spain), which was organized in June of 2003. In July 2002, the Company also organized Digene (Switzerland) Sarl, all of the outstanding shares of which are owned by Digene. Through these newly formed entities and the use of local distributors and agents, Digene markets and distributes the Company’s products throughout Europe.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Digene and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements. These estimates include assessing the collectibility of accounts receivable and valuation of inventories and long-lived assets and the provision for warranty obligations. Actual results could differ from those estimates.

Foreign Currencies

The local currency is the functional currency for all of the Company’s international subsidiaries and, as such, assets and liabilities are translated into U.S. dollars at year-end exchange rates. Income and expense items are translated at average exchange rates during the year. Translation adjustments resulting from this process are charged or credited to a component of other comprehensive income (loss). Certain transaction gains and losses on intercompany activity for which settlement is not planned in the foreseeable future are included as a separate component of stockholders’ equity in accumulated other comprehensive income (loss) in the accompanying balance sheets.

Cash and Cash Equivalents

Cash equivalents, which are stated at cost, consist of highly liquid investments with original maturities of three months or less. Substantially all cash equivalents are held in short-term money market accounts with large highly rated financial institutions.

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Short-Term Investments

Short-term investments consist of corporate and various government agency debt securities, which mature in one year or less. Management classifies the Company’s short-term investments as available-for-sale. Such securities are stated at market value, with any material unrealized holding gains or losses reported, net of any tax effects, as accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity. Realized gains and losses and declines in value judged to be other than temporary, if any, are included in results of operations. A decline in the market value of any available-for-sale security below cost that is deemed to be other than temporary results in a reduction in fair value, which is charged to earnings in that period, and a new cost basis for the security is established. Premiums and discounts are amortized or accreted over the life of the related available-for-sale security. Dividend and interest income are recognized as interest income when earned. The cost of securities sold is calculated using the specific identification method. The Company places all investments with highly rated financial institutions.

Trade Receivables

Trade receivables are reported in the Consolidated Balance Sheets at outstanding principal less any charge offs and the allowance for doubtful accounts. The Company charges off uncollectible receivables against the allowance for doubtful accounts when the likelihood of collection is remote. Generally, the Company considers receivables past due 30 days subsequent to the billing date. The Company performs ongoing credit evaluations of its customers and generally extends credit without requiring collateral. The Company maintains an allowance for doubtful accounts, which is determined based on historical experience, existing economic conditions and management’s expectations of losses. Losses have historically been minimal and within management’s expectations. As of June 30, 2005 and 2006, the Company had an allowance for doubtful accounts of approximately $288,000 and $363,000, respectively.

Segment Information

The Company operates one business segment that develops, manufactures and markets proprietary gene-based tests for the detection, screening and monitoring of human diseases. Revenue by geographic location is presented in Note 11.

Concentration of Credit Risk and Financial Instruments

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. The Company limits its exposure to credit loss by placing its cash and cash equivalents with high credit quality financial institutions and its short-term investments consist of U.S. government agency and high-grade corporate debt securities. Management believes that the financial risks associated with its cash and cash equivalents and short-term investments are minimal.

Fair Value of Financial Instruments

The fair value of the Company’s accounts receivable, other current assets, accounts payable and accrued liabilities approximate their carrying amount due to the relatively short maturity of these items. The fair value of debt approximates its carrying amount as of June 30, 2005 and 2006 based on rates currently available to the Company for debt with similar terms and maturities.

Significant Suppliers

Several key components of the Company’s products come from, or are manufactured for the Company by, a single supplier or a limited number of suppliers. This applies in particular to three components: chemiluminescent substrates (used to create a chemical reaction that generates light in connection with the Hybrid Capture signal amplified molecular technology), the Rapid Capture System that serves as the automation platform developed for large-scale diagnostic testing using the Hybrid Capture technology, and the 96-well microplate used by laboratories to run the Company’s diagnostic test products.

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Inventories

Inventories are stated at the lower of cost or market. Cost is determined using a weighted-average approach, which approximates actual cost. The estimated reserve is based on management’s review of inventories on hand compared to estimated future usage and sales, shelf-life and assumptions about the likelihood of obsolescence.

Property and Equipment

Property and equipment, including leasehold improvements, are stated at cost and depreciated or amortized using the straight-line method over the estimated useful lives of three to ten years. Leasehold improvements are amortized over the lesser of the related lease term, including any lease term extensions that the Company has the right and intention to execute, or the useful life. Construction in-process relates to the assets acquired to facilitate expansion of the Company’s Gaithersburg, Maryland facility. Repairs and maintenance expenditures are charged to operations as incurred.

Intangible Assets

Intangible assets, which are included in deposits and other assets in the Consolidated Balance Sheets, include assets that arose from the Company’s acquisition of Viropath B.V. in 1998. The excess of the purchase price over the identifiable tangible net assets acquired of approximately $1.5 million was amortized on a straight-line basis over ten years until June 2002. On July 1, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” which requires that goodwill and intangible assets deemed to have an indefinite useful life be reviewed for impairment upon the adoption of SFAS No. 142 and annually thereafter. Accumulated amortization expense approximated $600,000 as of June 30, 2005 and 2006.

In June 2006, the Company acquired a non-exclusive sublicense from Abbott Laboratories under a U.S. patent and foreign counterparts for a license fee of $3.5 million. The asset acquired will be amortized on a straight-line basis over 7 years.

Intangible assets deemed to have an indefinite useful life are reviewed for impairment in the fourth quarter of each fiscal year or when events or changes in circumstances indicate that the asset may be impaired. The Company reviewed the value of the intangible assets in the fourth quarter of fiscal year 2005 and 2006 and did not note any circumstances which would warrant an adjustment to the recorded value.

Impairment of Long-Lived Assets and Recoverability of Intangibles

The Company periodically evaluates the recoverability of the carrying value of its long-lived assets and identifiable intangibles whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Examples of events or changes in circumstances that indicate that the recoverability of the carrying value of the assets should be assessed include, but are not limited to, the following: a significant decrease in the market value of an asset, a significant change in the extent or manner in which an asset is used or a significant physical change in an asset, a significant adverse change in legal factors or in the business climate that could affect the value of an asset or an adverse action or assessment by a regulator, an accumulation of costs significantly in excess of the amount originally expected to acquire or construct an asset, and/or a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an asset used for the purpose of producing revenue. The Company considers historical performance and anticipated future results in its evaluation of potential impairment. Accordingly, when indicators of impairment are present, the Company would evaluate the carrying amount of these assets in relation to the operating performance of the business and estimated future undiscounted cash flows associated with the asset. If a write-down is required, the Company would prepare a discounted cash flow analysis to determine the amount of the write-down. No such impairment losses have been recognized to date.

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Minority Interest

Minority interest represents the Digene do Brasil LTDA minority partner’s share of the gains and losses of the subsidiary.

Revenue Recognition

The Company recognizes revenue in accordance with the provisions of Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements”, whereby revenue is not recognized until it is realized or realizable and earned. Revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed and determinable and collectibility is reasonably assured. Revenues from product sales are recognized upon delivery, which is usually upon shipment. Allowances are established for estimated uncollectible amounts, product returns and discounts. In addition, the Company provides a reserve of approximately two percent of product sales for future warranty costs and recognizes this reserve over one year, which is the standard warranty period for a majority of its system components. At June 30, 2005 and 2006, this warranty reserve was approximately $1,137,000 and $1,503,000, respectively, and, historically, the warranty costs have been within management estimates.

Product sales include the sales associated with the delivery of the Company’s proprietary instrument platforms for performing its diagnostic tests. In some cases, the Company has provided its instrumentation to customers without requiring them to purchase the equipment or enter into an equipment lease or rental contract. In these cases, the Company recovers the cost of providing the instrumentation in the amounts it charges for its diagnostic assays, generally under purchase and supply contracts with durations of three or more years.

Other revenue consists of research and development contracts, equipment rental and the licensing of various technologies. Research and development revenue is recorded as earned based on the performance requirements of the contract. Revenue associated with performance milestones is recognized based upon the achievement of the milestones, as defined in the respective agreements. Revenue under research and development cost reimbursement contracts is recognized as the related costs are incurred.

Advance payments received in excess of amounts earned are classified as deferred revenue until earned.

Cost of Product Sales

Cost of product sales reflects the costs applicable to products delivered for which product sales revenue is recognized in accordance with the Company’s revenue recognition policy. The Company follows SFAS No. 2, “Accounting for Research and Development Costs” in classifying costs between cost of product sales and research and development costs.

Shipping Costs

The Company’s shipping and handling costs, net of amounts billed to customers, are included in cost of product sales and totaled $1,574,000, $1,832,000 and $1,742,000 for the years ended June 30, 2004, 2005, and 2006, respectively.

Research and Development

The Company expenses its research and development costs as incurred. Research and development costs include salaries and related benefits, outside services, material and supplies and allocations of facility and support costs. The Company does not track separately the costs applicable to collaborative research revenue as there is not the distinction between the Company’s internal development activities and the development efforts made pursuant to agreements with third parties.

Selling and Marketing

In some cases, the Company has provided instrumentation to customers, to which the Company retains title without requiring customers to purchase the equipment or enter into an equipment lease or rental contract. The costs

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associated with these instruments are capitalized and charged to selling and marketing on a straight-line basis over the estimated useful life of the instrument, which ranges from three to five years. During the years ended June 30, 2004, 2005 and 2006, these costs were $2,616,000, $2,829,000 and $1,979,000 respectively. The costs to maintain these systems are charged to operations as incurred.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs amounted to approximately $871,000, $4,434,000 and $7,730,000 during the years ended June 30, 2004, 2005 and 2006, respectively.

Income Taxes

The Company provides for income taxes in accordance with the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recorded against the deferred tax asset when it is more likely than not that some or all of the deferred tax asset will not be realized.

Net Income (Loss) Per Share

The Company computes net income (loss) per share in accordance with SFAS No. 128, “Earnings Per Share”, and SEC Staff Accounting Bulletin No. 98 (“SAB No. 98”). SFAS No. 128 requires the Company to present basic and diluted income (loss) per share. The Company’s basic income (loss) per share is calculated by dividing the net income (loss) by the weighted average number of shares of Common Stock outstanding during all periods presented. The Company’s diluted income (loss) per share is calculated by dividing net income (loss) available to Common Stock holders by the weighted average number of common shares outstanding after giving effect to all potential common shares that were outstanding during the period. Potential common shares are not included in the computation of diluted earnings per share if they are antidilutive. The Company considers common shares equivalent from the exercise of stock options in the instance where the shares are dilutive to net income of the Company by application of the treasury stock method.

Under the provisions of SAB No. 98, common shares issued for nominal consideration, if any, would be included in the per share calculations as if they were outstanding for all periods presented. For the periods ended June 30, 2005 and 2006, there were no common shares issued for nominal consideration.

Comprehensive Income (Loss)

SFAS No. 130, “Reporting Comprehensive Income,” requires the presentation of comprehensive income or loss and its components as part of the consolidated financial statements. The Company’s comprehensive income (loss) includes net income (loss) as well as additional other comprehensive net income (loss). For the years ended June 30, 2004, 2005 and 2006 other comprehensive income (loss) included gains and losses on intercompany transactions with foreign subsidiaries considered long-term investments, translation gains and losses incurred when converting its subsidiaries’ financial statements from their functional currency to the U.S. dollar, and unrealized holding gains and losses on available-for-sale investments. The unrealized holding gains and losses on available-for-sale investments are reflected net of tax.

Stock-Based Compensation

Prior to July 1, 2005, the Company accounted for its stock-based compensation plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“Opinion 25”), and related Interpretations, as permitted by Financial Accounting Standards Board (“FASB”) Statement No. 123, “Accounting for Stock-Based Compensation” (“Statement 123”). Effective July 1, 2005, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), “Share-Based Payment” (“Statement 123(R)”), using the modified-prospective-transition method.

The Company accounts for equity instruments issued to non-employees in accordance with Emerging Issues Task Force (“EITF”) 96-18, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring,

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or in Conjunction with Selling, Goods, or Services”. Accordingly, the estimated fair value of the equity instrument is recorded on the earlier of the performance commitment date or the date the services required are completed.

The following table illustrates the effect on net income (loss) and net income (loss) per share if the Company had applied the fair value recognition provisions of Statement 123 to stock-based employee compensation. The reported and pro forma net income and net income per share for the year ended June 30, 2006 are the same because stock-based compensation expense is calculated under the provisions of Statement 123(R). The amounts for the year ended June 30, 2006 are included in the table below only to provide net loss and net loss per share for a comparative presentation to the previous fiscal years:

	Year Ended June 30,
(in thousands, except for per share data)	2004			2005			2006
Net income (loss), as reported	$	21,542		$	(8,167	)	$	8,439
Add: Stock-based non-employee compensation expense (income) included in reported net income (loss), net of taxes		436			(54	)		—
Deduct: Stock-based employee compensation expense as if Statement 123 had been applied to all grants		(6,898	)		(19,298	)		—
Pro forma net income (loss)	$	15,080		$	(27,519	)	$	8,439
Net income (loss) per share:
Basic – as reported	$	1.13		$	(0.41	)	$	0.39
Basic – pro forma	$	0.79		$	(1.38	)	$	0.39
Diluted – as reported	$	1.04		$	(0.41	)	$	0.38
Diluted– pro forma	$	0.73		$	(1.38	)	$	0.38

Pro forma information regarding net income (loss) and net income (loss) per share is required by Statement 123 and, in periods prior to July 1, 2005, had been determined as if the Company had accounted for its employee stock options under the fair value method. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing fair value model through June 30, 2004 and a trinomial lattice option-pricing fair value model thereafter. The following weighted-average assumptions were used and a discussion of our methodology for developing each of the assumptions used in the valuation model follows:

	Year Ended June 30,
	2004			2005			2006
Dividend yield		0.00	%		0.00	%		0.00	%
Expected volatility		78	%		76	%		74	%
Risk-free interest rate		3.7	%		4.0	%		4.2	%
Expected life of the option term (in years)		5.9			5.4			4.2
Forfeiture rate		8.0			5.4			5.7

Dividend Yield – The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

Expected Volatility – Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company uses the historical volatility since its initial public offering to estimate expected volatility because the current business strategy, which is not expected to change materially, is fundamentally consistent with past strategy. Excluding the first year, during which there is inadequate data to calculate annual volatility, the volatility has averaged 76%, with a high and low value of 81% and 69%, respectively.

Risk-Free Interest Rate – This is the U.S. Treasury rate for the week of each stock option grant during the quarter having a term that most closely resembles the expected life of the stock option.

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Expected Life of the Stock Option Term – This is the period of time that the stock options granted are expected to remain unexercised. Stock options granted during the fiscal year have a maximum term of seven years. The Company estimates the expected life of the stock option term using a lattice model with inputs regarding estimated exercise behavior that are consistent with actual past behavior for similar stock options.

Forfeiture Rate – This is the estimated percentage of stock options granted and expected to be forfeited or canceled on an annual basis before becoming fully vested. The Company estimates the forfeiture rate based on past turnover data ranging anywhere from one to three years with further consideration given to the class of employees to whom the options were granted.

On March 7, 2005, the Compensation Committee (the Committee) of the Company’s Board of Directors approved the acceleration of vesting of “underwater” unvested stock options held by certain current employees, including executive officers. Stock options held by non-employee directors were not included in such acceleration. A stock option was considered “underwater” if the option exercise price was greater than or equal to $32.35 per share. As such, the Company fully vested options to purchase 622,202 shares of the Company’s Common Stock. The Company took this action primarily to avoid recognizing compensation cost in future financial statements when Statement 123(R) became effective, in the first quarter of the Company’s 2006 fiscal year.

For pro forma disclosure requirements set forth above under Statement 123, during the period ended June 30, 2005, the Company recognized $8.5 million of additional stock-based compensation for all options for which vesting was accelerated.

The effect of applying Statement 123 on a pro forma net loss as stated above is not likely to be representative of the effect on reported net loss for future years due to, among other things, the vesting period of the stock options and the fair value of additional options to be granted in future years. In addition, option valuation models require the input of highly subjective assumptions, and changes in such subjective assumptions can materially affect the fair value estimate of employee stock options.

Recent Accounting Pronouncements

In December 2004 the FASB also issued SFAS No. 151, “Inventory Costs” (“Statement 151”). Statement 151 requires abnormal amounts of inventory costs related to idle facility, freight handling and wasted material expenses to be recognized as current period charges. Additionally, Statement 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The standard is effective for fiscal years beginning after June 15, 2005. The adoption of Statement 151 has not had a material impact on the Company’s consolidated financial statements.

In June 2006, the FASB also issued FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, Accounting for Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires that the Company recognize in the financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on the financial statements.

Reclassifications

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

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3. Other Balance Sheet Information

The following tables provide details of selected balance sheet items (in thousands):

Inventories

	June 30,
	2005			2006
Finished goods	$	4,642		$	4,204
Work in process		3,344			2,739
Raw materials		1,187			1,773
		9,173			8,716
Inventory reserve		(1,976	)		(2,409	)
	$	7,197		$	6,307

Property and Equipment

	June 30,
	2005			2006
Furniture, fixtures and office equipment	$	4,376		$	4,779
Machinery and equipment		4,986			5,700
Customer-use assets		9,665			11,707
Construction in-process		1,695			28,696
Leasehold improvements		2,799			158
		23,521			51,040
Accumulated depreciation and amortization		(13,417	)		(17,105	)
	$	10,104		$	33,935

Customer-use assets represent the Company’s proprietary instrument platforms placed at customer sites, to which title and risk of loss is retained by the Company, for the customers’ use in performing the diagnostic tests sold by the Company.

Short-term Investments

	June 30, 2006
	Amortized		Net Unrealized			Estimated
Available-for-Sale	Cost		Losses			Fair Value
U.S. Treasury and agencies	$	108,303	$	(248	)	$	108,055
Corporate debt securities		22,439		(42	)		22,397
Total Short-term investments	$	130,742	$	(290	)	$	130,452

	June 30, 2005
	Amortized		Net Unrealized			Estimated
Available-for-Sale	Cost		Losses			Fair Value
U.S. Treasury and agencies	$	22,191	$	(51	)	$	22,140
Corporate debt securities		8,187		(35	)		8,152
Total Short-term investments	$	30,378	$	(86	)	$	30,292

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SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” requires that available-for-sale securities be recorded at market value. The Company’s Short-term investments are recorded in the Consolidated Balance Sheets at fair value.

The following table summarizes the maturities of the Company’s Short-term investments at June 30, 2006:

	Amortized		Estimated
Maturity	Cost		Fair Value
Less than one year	$	130,742	$	130,452

The following table summarizes the maturities of the Company’s Short-term investments at June 30, 2005:

	Amortized		Estimated
Maturity	Cost		Fair Value
Less than one year	$	25,087	$	25,003
Due in one to two years		5,291		5,289
	$	30,378	$	30,292

The Company’s gross proceeds from the sale of Short-term investments and the resulting realized gains and realized losses that have been included in its Consolidated Statement of Operations are as follows:

	Year Ended June 30,
	2004		2005		2006
Gross proceeds	$	89,827	$	30,512	$	350
Realized gains		—		3		—

Accrued Expenses

	June 30,
	2005		2006
Trade payables	$	5,934	$	7,329
Other		1,873		3,387
	$	7,807	$	10,716

Accrued Expenses

	June 30,
	2005		2006
Accrued expenses	$	4,496	$	11,030
Georgetown settlement		7,500		—
	$	11,996	$	11,030

4. Long-term Debt

The Company has an equipment loan facility of $1,000,000 from the State of Maryland to finance a portion of the costs of equipment installed at the Company’s facility in Gaithersburg, Maryland. The repayment of this loan is secured by a lien on property and equipment purchased using the proceeds from the loan facility. The loan bears interest at 1% per annum and the Company began making quarterly principal and interest payments in October 2002, with all unpaid principal and interest due by December 31, 2009.

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In June 2002, in conjunction with the termination of Abbott Laboratories’ rights to distribute the Company’s HPV and chlamydia and gonorrhea products under a prior distribution agreement, the Company repurchased equipment it sold to Abbott Laboratories (“Abbott”). In order to satisfy this obligation, the Company issued a promissory note to Abbott for $4,033,904. The note bore interest at 7% per annum and the Company made quarterly installment payments of $336,159 which commenced on July 1, 2002. The Company paid off the note in its entirety on September 29, 2004.

In January 2003, as part of the repurchase of certain equipment from Roche Molecular Systems, Inc. (“Roche”) under the Roche Distribution Contract as discussed in Note 8, the Company issued a promissory note to Roche with a principal amount of $1,225,663 which was paid in its entirety on January 6, 2004. There was no stated interest rate for this note and, accordingly, the Company imputed interest at its current borrowing rate and recorded a discount on this note payable, which was amortized to interest expense over the term of the note.

At June 30, 2006, future minimum principal payments on all long-term debt obligations are as follows (in thousands):

Fiscal
2007	$	117
2008		117
2009		117
2010		216
Thereafter		—
	$	567

5. Income Taxes

Significant components of the provision for (benefit from) income taxes attributable to operations consist of the following (in thousands):

	Year Ended June 30,
	2004			2005			2006
Current:
Federal	$	—		$	—		$	164
State		398			—			17
Foreign		176			360			1,106
Total current		574			360			1,287
Deferred:
Federal		(12,833	)		(2,636	)		8,127
State		(2,066	)		(297	)		1,359
Foreign		—			—			—
Total deferred		(14,899	)		(2,933	)		9,486
Total provision for (benefit from) income taxes	$	(14,325	)	$	(2,573	)	$	10,773

The Company recognized income tax expense of approximately $10,773,000 for the year ended June 30, 2006 and an income tax benefit of approximately $2,573,000 for the year ended June 30, 2005. For the year ended June 30, 2006, the Company released its full valuation allowance for the net operating loss carryforwards that are related to the exercise of stock options. However, this release did not impact the Consolidated Statement of Operations, as discussed below.

Effective July 1, 2003, the Company entered into an agreement with the Swiss tax authorities whereby the Company’s Swiss corporate subsidiary was granted a reduced tax rate for pre-tax book income associated with qualifying export sales for the five year period ending on June 30, 2008. The Company intends to apply for a renewal of the agreement with the Swiss tax authorities and thereby extend the reduced tax rate arrangement by an additional five years. For the year ended June 30, 2005, the Swiss subsidiary’s net operating losses had a full valuation allowance and therefore there was no recorded tax savings. For the year ended June 30, 2006, the Swiss subsidiary fully utilized its net operating losses and as a result of the agreement, reduced its tax obligations by approximately $131,000.

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Income tax expense related to earnings of consolidated subsidiaries located outside of the United States is provided at tax rates of the respective country in which the subsidiaries are located. The Company has not recorded deferred income taxes on the undistributed earnings of its foreign subsidiaries because the Company intends to indefinitely reinvest such earnings.

The components of income (loss) from operations before income taxes are as follows (in thousands):

	Year Ended June 30,
	2004			2005			2006
United States	$	21,546		$	(7,415	)	$	21,624
Foreign		(14,329	)		(3,325	)		(2,412	)
	$	7,217		$	(10,740	)	$	19,212

Items which caused recorded income taxes attributable to continuing operations to differ from taxes computed using the statutory federal income tax rate are as follows (in thousands):

	Year Ended June 30,
	2004			2005			2006
Tax expense (benefit) at statutory rates	$	2,472		$	(3,759	)	$	6,724
Effect of:
State income tax, net		686			(194	)		584
Foreign tax rate differential		176			(279	)		(257	)
Tax rate adjustments		—			(1,831	)		775
Net operating losses and tax credits		—			792			(192	)
Tax reserve adjustment		—			—			751
Permanent differences		571			751			412
Change in valuation allowance		(18,230	)		1,947			1,976
Provision for (benefit from) income taxes	$	(14,325	)	$	(2,573	)	$	10,773

For the year ended June 30, 2006, and June 30, 2005, the Company recognized approximately $6,074,000 and $4,283,000 foreign pre-tax losses, respectively, from its European operations that did not generate an income tax benefit due to full valuation allowances recorded against foreign deferred tax assets. The fiscal 2006 tax rate adjustment reflects decreases, as compared to fiscal 2005, in U.S. state gross income tax rate from 6.75% to 3.75%. Fiscal 2006 net operating losses and tax credits reflect the impact of both expired and newly created U.S. research tax credits as well as other newly created U.S. income tax credits. Fiscal 2005 net operating losses and tax credits reflect the impact of expired U.S. net operating losses as well as both expired and newly created U.S. research tax credits.

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The Company’s net deferred tax assets are as follows (in thousands):

	June 30,
	2005			2006
Net operating loss carryforwards	$	51,941		$	13,910
Research and development credits		3,048			3,101
Fixed assets and intangibles		900			2,399
Reserves		1,360			2,261
Patent litigation settlement		2,954			—
Other tax credit		42			369
Deferred equity compensation		—			1,449
Other		2,422			1,879
Deferred tax assets		62,667			25,368
Valuation allowance		(44,868	)		(10,345	)
	$	17,799		$	15,023

At June 30, 2006, the Company had U.S. tax net operating loss carryforwards of approximately $105,900,000. At June 30, 2006 the Company had foreign tax net operating loss carryforwards of approximately $24,898,000. At June 30, 2006, the Company also had U.S. research tax credit carryforwards of approximately $3,101,000. The Company’s U.S. net operating loss carryforwards and research tax credits expire, if unused, in various years from fiscal 2007 through 2026. Depending on the applicable foreign tax jurisdiction, the Company’s foreign net operating loss carryforwards expire in certain jurisdictions, if unused, in various years starting in 2011; in several foreign tax jurisdictions some or all of the Company’s foreign net operating losses can be carried forward indefinitely under current local tax law.

For the year ended June 30, 2006, the Company released its full valuation allowance for the U.S. net operating loss carryforwards created by the exercise of stock options. Although these net operating loss carryforwards are reflected in total U.S. net operating tax loss carryforwards, pursuant to Statement 123(R), deferred tax assets associated with these deductions are only recognized to the extent that they reduce taxes payable. Further, these recognized deductions are treated as direct increases to stockholders’ equity and as a result do not impact the Consolidated Statement of Operations. To the extent stock-option related deductions are not recognized pursuant to Statement 123(R), the unrecognized benefit is not reflected on the Consolidated Balance Sheet. Accordingly, the Company has reduced deferred tax assets by $34,081,000, which represents the unrecognized benefit from stock-option related net operating loss carryforwards as of June 30, 2006, that is potentially available for utilization in future years.

Realization of total deferred tax assets is contingent upon the generation of future taxable income. For the year ended June 30, 2006, the Company released the remaining valuation allowance for the net operating loss carryforwards that are related to the exercise of stock options. However, as discussed above, this did not impact the Consolidated Statement of Operations. Due to the uncertainty of realization of certain tax benefits, the Company has retained a portion of the valuation allowance for U.S. research and foreign tax credits that are expected to expire unused. The Company has also recorded a full valuation allowance for its foreign net operating losses. A significant portion of the remaining valuation allowance, if released, will impact the Consolidated Statement of Operations.

The Company reviews its deferred tax assets on a quarterly basis to determine if a valuation allowance is required, primarily based on recent historical financial trends and estimates of future taxable income. Changes in the Company’s assessment of the need for a valuation allowance could give rise to adjustments to the valuation allowance and an expense in the period of change.

The timing and manner in which U.S. net operating loss and tax credit carryforwards may be utilized may be limited where a change in ownership as defined under Section 382 of the Internal Revenue Code has occurred. In 1991, the Company experienced a change in ownership as defined under Section 382 of the Internal Revenue Code, which caused the utilization of pre-change losses and credits to be limited. In fiscal 2005, all remaining 1991 pre-change losses and credits expired unused.

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6. Public Offering of Common Stock

On November 15, 2005, the Company and Armonk Partners (the “Selling Stockholder”) a significant stockholder, entered into an Underwriting Agreement with J.P. Morgan Securities Inc., as representative of the underwriters identified therein (the “Underwriting Agreement”) with respect to the sale of up to 2,000,000 shares of Common Stock by the Company and up to 1,000,000 shares of Common Stock by the Selling Stockholder. The Underwriting Agreement granted an option to the underwriters to purchase up to an additional 450,000 shares of Common Stock (300,000 shares by the Company and 150,000 shares by the Selling Stockholder) to cover over-allotments, if any. The public offering, pursuant to the Company’s effective shelf registration statement, closed on November 18, 2005 with the sale of all initially offered shares of Common Stock. On December 14, 2005, the sale of the shares subject to the over-allotment option was closed following the exercise in full by the underwriters of the over-allotment option. The Company’s net proceeds from the public offering were approximately $60,079,000 after expenses of approximately $457,000 and underwriters’ commissions.

7. Stockholders’ Equity

Common Stock

Under the Roche Distribution Contract as discussed in Note 8, Roche made a non-refundable payment of $5.0 million to the Company in fiscal 2001, which was recorded as a deferred liability on the Consolidated Balance Sheet as of June 30, 2002. On July 1, 2002, consistent with the provisions of the Roche Distribution Contract, this payment was converted into 142,857 shares of Digene Common Stock at a conversion price of $35 per share.

The following table presents the calculation of basic and diluted net income (loss) per share:

	Year Ended June 30,
(in thousands, except for per share data)	2004		2005			2006
Numerator:
Net income (loss)	$	21,542	$	(8,167	)	$	8,439
Denominator:
Weighted average shares outstanding — Basic		19,144		19,965			21,769
Dilutive securities — stock options		1,662		—			446
Weighted average shares outstanding - Diluted		20,806		19,965			22,215
Basic net income (loss) per share	$	1.13	$	(0.41	)	$	0.39
Diluted net income (loss) per share	$	1.04	$	(0.41	)	$	0.38

For the period ended June 30, 2004 and 2006, outstanding stock options to purchase approximately 129,000 and 519,000 shares, respectively, of Common Stock were not included in the computation of diluted net income per share because their effect would have been antidilutive since the exercise prices of such stock options were greater than the average share price of the Company’s stock for the applicable period. None of the stock options outstanding for the period ended June 30, 2005 were included in the computation of diluted net loss per share because the effect would have been antidilutive.

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Stock-Based Compensation

Under the modified-prospective-transition method, compensation cost recognized in the period ended June 30, 2006 includes: (a) compensation cost for all share-based payments granted prior to but not yet vested as of July 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of Statement 123, and (b) compensation cost for all share-based payments granted subsequent to July 1, 2005, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). Results for prior periods have not been restated. As a result of adopting Statement 123(R) on July 1, 2005, the Company’s income before income taxes and net income for fiscal 2006, is approximately $5,681,000 and $2,495,000 lower, respectively, than if it had continued to account for share-based compensation under Opinion 25. Basic and diluted earnings per share for June 30, 2006 are $0.11 and $0.11 lower, respectively, than if the Company had continued to account for share-based compensation under Opinion 25.

The total intrinsic value of the stock options exercised during the year ended June 30, 2004, 2005 and 2006 was approximately $39,672,000, $1,660,000 and $17,576,000, respectively. The total fair value of equity awards which vested during the year ended June 30, 2004, 2005 and 2006 was approximately $13,814,000, $28,371,000 and $6,557,000, respectively. The weighted-average fair values of the equity awards granted during the years ended June 30, 2004, 2005 and 2006 were $15.94, $17.81 and $21.13, respectively. There were 2,856,505 equity awards outstanding at June 30, 2006. These equity awards had a weighted-average exercise price of $26.01, an intrinsic value of approximately $32,791,000 and a weighted-average life of 6.5 years. There were 2,199,700 fully vested equity awards exercisable at June 30, 2006. These equity awards had a weighted-average exercise price of $28.01, an intrinsic value of approximately $20,547,000 and a weighted-average life of 6.1 years.

During the first quarter of fiscal 2006, the Company issued performance shares awards to certain employees which could result in the issuance of up to 56,467 shares of Common Stock if identified performance objectives are achieved at designated target levels. Under the terms of the grants, the actual number of shares of common stock that may be issued upon the vesting and earning of such performance shares awards may be reduced to zero or increased to as much as 200%, depending on achievement of established three-year revenue and earnings performance objectives. In addition, each recipient of these performance shares awards must continue to be employed or maintain the role as a director of the Company at the end of the three-year performance period following the date of grant.

During the second quarter of fiscal 2006, the Company issued 43,099 restricted stock units to certain employees and 8,808 restricted stock units to directors of the Company. In the fourth quarter of fiscal 2006, the Company issued 50,000 restricted stock units to certain employees.

Prior to the adoption of Statement 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. Statement 123(R) requires the cash flows resulting from the tax benefits generated from the tax deductions in excess of the compensation costs recognized for those options (excess tax benefits) to be classified as financing cash flows. The $3,733,000 excess tax benefit for the year ended June 30, 2006 would have been classified as an operating cash flow if the Company had not adopted Statement 123(R).

Stock Compensation Plans

In March 1996, the Company adopted the Digene Corporation Omnibus Plan (the “Omnibus Plan”). Pursuant to the Omnibus Plan, officers or other employees of the Company could receive options to purchase Common Stock and other awards as contemplated by the Omnibus Plan. The Omnibus Plan is administered by the Compensation Committee. A maximum of 2,000,000 shares have been authorized to cover grants and awards under the Omnibus Plan. The ability to make additional grants and awards under the Omnibus Plan expired with the termination of the term of the Omnibus Plan on March 26, 2006.

In October 1996, the Company adopted the Digene Corporation Directors’ Stock Option Plan (the “Directors’ Plan”). Pursuant to the Directors’ Plan, directors of the Company may receive options to purchase Common Stock. The Directors’ Plan is administered by the Board of Directors. In October 2005, the Directors’ Plan was amended and restated to change the name of the Directors’ Plan to the Directors’ Equity Compensation Plan, to add restricted

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stock units and restricted stock to the types of awards which can be made pursuant to the Directors’ Plan, to provide for the automatic grant, on an annual basis, of options to purchase 5,000 shares of our Common Stock and restricted stock units with a fair market value of $45,000 to each non-employee director continuing to serve as a director of the Company, and to extend the termination date of the Directors’ Plan to October 2015. A maximum of 500,000 shares have been authorized to cover grants and awards under the Directors’ Plan.

In September 1997, the Company adopted the Digene Corporation 1997 Stock Option Plan (the “1997 Stock Option Plan”). Pursuant to the 1997 Stock Option Plan, consultants and other non-employees of the Company may receive options to purchase Common Stock. The 1997 Stock Option Plan is administered by the Compensation Committee. A maximum of 500,000 shares have been authorized to cover grants and awards under the 1997 Stock Option Plan.

In October 1999, the Company adopted the Digene 1999 Incentive Plan (the “1999 Plan”). Pursuant to the 1999 Plan, employees of the Company may receive options to purchase Common Stock and other Common Stock awards. The 1999 Plan is administered by the Compensation Committee. In October 2005, the 1999 Plan was amended and restated to increase the number of shares of Common Stock available for grants and awards under the 1999 Incentive Plan by 200,000 shares, to provide that any grant of performance shares, restricted stock units or unrestricted stock awards under the 1999 Plan on or after October 26, 2005 will be counted against the 1999 Plan’s share reserve as two shares for every one share subject to such award and to extend, at the sole discretion of the Compensation Committee, the period during which vested non-qualified stock options may be exercised following an optionee’s termination of employment if the optionee is engaged as a consultant by the Company following his or her termination but not for more than twelve months following such termination or, if shorter, the period prescribed by Section 409A of the Internal Revenue Code. A maximum of 5,100,000 shares have been authorized to cover grants and awards under the 1999 Plan.

As of June 30, 2006, 1,220,510 shares were available for grants or awards under the Directors’ Plan, the 1997 Stock Option Plan and the 1999 Plan. Of these, 987,626 shares are available for grants or awards to officers and employees under the 1999 Plan.

After September 20, 2005, the terms of stock options granted under the Directors’ Plan and the 1999 Plan may not exceed seven years. Previously, the terms of all stock options granted were not to exceed ten years. The exercise price of stock options granted, as determined by the Compensation Committee, is the fair market value of Common Stock on the date of grant, calculated in accordance with the applicable plan definition.

Common Stock equity award activity is as follows:

	Year Ended June 30,
	2004					2005					2006
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
				Exercise					Exercise					Exercise
	Shares			Price		Shares			Price		Shares			Price
Outstanding at beginning of year		4,051,013		$	17.95		3,234,018		$	23.74		3,517,880		$	25.22
Granted (1)		888,200			31.91		662,750			29.95		376,124			16.48
Exercised		(1,558,710	)		13.41		(153,335	)		9.99		(906,333	)		18.45
Canceled or expired		(146,485	)		23.12		(225,553	)		28.44		(131,166	)		29.86
Outstanding at end of year		3,234,018			23.74		3,517,880			25.22		2,856,505			26.01
Exercisable at year-end		1,322,233			25.00		2,607,335			27.35		2,199,700			28.01

⁽¹⁾ For the year ended June 30, 2006, the number of shares granted includes performance shares awarded at the 100% performance level, or 56,467.

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The Company issued 25,000 stock options to a non-employee during the year ended June 30, 2003. These stock options had a vesting period of 30 months. The fair value of these stock options was recorded as deferred compensation and was amortized over the performance period. Under variable plan accounting, the value of the unvested stock options was re-measured and recognized in operations at each reporting date until fully vested.

8. Commitments and Contingencies

Lease Commitments

The Company leases a facility in Gaithersburg, Maryland, comprising a total of 111,000 square feet for its corporate headquarters and manufacturing operations pursuant to a Lease Agreement dated March 2, 1998 between Digene and ARE-Metropolitan Grove I, LLC, as landlord (the “Landlord”), as amended (the “Lease”). On November 15, 2005, the Company executed the Fourth Amendment to the Lease (the “Amendment”). The Amendment provides for the Company to expand the rented premises to 143,585 rentable square feet. The additional space will be used for manufacturing and research and development. Under the Amendment, both the Company and the Landlord are contributing financing to fund the expansion construction and outfitting. Construction is expected to be substantially complete by September 2006. In addition, the initial term of the Lease has been extended ten years beyond the earlier of substantial completion of the expansion work or September 20, 2006.

The Company has historically accounted for the Lease as an operating lease. Under the Amendment, the Company is responsible for a portion of the construction costs and is deemed to be the owner of the Gaithersburg facility for accounting purposes during the construction period under EITF 97-10, “The Effect of Lessee Involvement in Asset Construction.” During the quarter ended December 31, 2005, upon execution of the Amendment, the Company capitalized $21.4 million to record the estimated fair value of the current building facility on its books with a related lease obligation of approximately $20.7 million. In accordance with accounting guidance, the portion of the Lease related to ground rent will continue to be treated as an operating lease. Amounts paid by the Company for the construction have been recorded as construction in progress. Upon completion of construction, the Lease will not qualify for sale-leaseback treatment in accordance with SFAS No. 98, “Accounting for Leases.” Accordingly, the Company will continue to record the existing facility and expanded area as a capital asset. In addition, amounts paid for the expansion by the Landlord will increase the lease obligation as the project is funded. This change in accounting treatment has no impact on the Company’s cash flow or total expense over the Lease term; however, it results in the acceleration of expense from the later years of the Lease to the earlier years of the Lease. The impact of this acceleration on fiscal 2006 pre-tax earnings is approximately $700,000.

The Company also leases office and sales operations facilities in the United Kingdom, Germany, Switzerland, France, Brazil, and Italy, which leases run in length from one year to ten years. The Company leases an office and sales operations facility in Spain, which runs month-to-month. The Company also utilizes dedicated space in a third-party warehouse facility in Germany to support its European operations. Future minimum rental commitments under these and other operating lease agreements, including the agreements mentioned above, are as follows as of June 30, 2006 (in thousands):

2007	$	580
2008		555
2009		497
2010		434
2011		349
Thereafter		446
	$	2,861

Rent expense under these leases was $3,448,000, $4,040,000 and $1,998,000 for the years ended June 30, 2004, 2005 and 2006, respectively.

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Royalty and Technology Expenses

The Company’s access to various probes, diagnostic techniques and a key product component were acquired under agreements requiring the Company to pay future royalties on future net sales on certain products. For the years ended June 30, 2004, 2005 and 2006, total royalties amounted to $1,705,000, $5,394,000 and $7,572,000 respectively.

In March 2002, the Company filed an action for declaratory judgment against Enzo Biochem, Inc. after receiving notification that the Company had allegedly infringed one of Enzo’s patents. Enzo Diagnostics, Inc. subsequently filed a complaint for patent infringement against the Company. On October 13, 2004, the Company executed a Settlement and License Agreement with Enzo Biochem, Inc. and its subsidiary Enzo Life Sciences, Inc. (formerly known as Enzo Diagnostics, Inc.) (collectively, “Enzo”), to settle patent litigation claims then pending in the United States District Court for the District of Delaware.

Under the Settlement and License Agreement (the “Enzo Agreement”), Digene received an irrevocable, non-exclusive, royalty-bearing worldwide license under identified Enzo patents. In October 2004, Digene made an initial payment to Enzo of $16.0 million, of which $2.0 million was used to offset future royalty payments under the terms of the Enzo Agreement, resulting in $14.0 million in patent litigation settlement expense. Digene pays Enzo royalties on future net sales of products covered by the license grant, which royalties were at least $2.5 million for the first annual period, beginning October 1, 2004 and ending September 30, 2005, and will be at least $3.5 million for each of the next four annual periods under the Enzo Agreement. Digene is obligated to make such guaranteed minimum payments in the first five annual periods. Digene’s obligation to make royalty payments will end on April 24, 2018, unless earlier terminated in accordance with the terms of the Enzo Agreement.

In July 2001, Institut Pasteur notified the Company that Institut Pasteur was granted a new U.S. patent concerning the HBV genome and requested information from Digene regarding products that may use the technology described in such new patent. On January 4, 2005, the Company made a payment for additional royalty and technology expense of $750,000, which was accrued at September 30, 2004, relating to terms agreed to on October 14, 2004 with Institut Pasteur with respect to a non-exclusive license to Institut Pasteur’s intellectual property concerning the HBV genome.

Through a license with Georgetown University (“Georgetown”), the Company obtained exclusive, worldwide rights to a United States patent application (subsequently issued) and corresponding foreign patents and patent applications relating to HPV type 52 and to a United States patent and corresponding foreign patents relating to the use of the L1 gene sequence to detect specific human papillomavirus types (the “Georgetown patents”). On July 12, 2005, the Company executed a Settlement and License Agreement with Georgetown (the “Georgetown Agreement”) to settle litigation then pending in the United States District Court for the District of Columbia related to such license. Under the Georgetown Agreement, the Company received irrevocable, worldwide, exclusive, royalty-bearing licenses with the right to grant sublicenses under the Georgetown patents. Additionally, the Georgetown Agreement contained a mutual release for all past claims. As of June 30, 2005, the Company recorded its $7.5 million obligation to Georgetown under the Georgetown Agreement and made payments related to such obligation of $3.75 million in July 2005 and October 2005. The Company also pays Georgetown royalties on future net sales of products covered by the license grant. The Company is obligated to make royalty payments on one Georgetown patent through October 15, 2008 and the other Georgetown patent through July 1, 2014, unless earlier terminated in accordance with the terms of the Georgetown Agreement.

Repurchase of Equipment under prior Marketing and Distribution Agreements

On April 29, 2001, the Company entered into an agreement (the “Roche Distribution Contract”) with Roche. Under the Roche Distribution Contract, Roche acted as a co-exclusive distributor for the Company’s HPV products in Europe, Africa and the Middle East from May 1, 2001 through June 30, 2002 and the parties agreed to evaluate opportunities for a broader relationship.

On April 30, 2001, in accordance with the provisions of the Roche Distribution Contract, Roche made a non-refundable payment of $5.0 million to the Company, which was recorded as a deferred liability in the June 30, 2002 Consolidated Balance Sheet. The Company and Roche did not enter into the broader relationship referred to above

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and, therefore, in accordance with the provisions of the Roche Distribution Contract, on July 1, 2002, the $5.0 million payment was converted into 142,857 shares of Common Stock of the Company at $35 per share.

In June 2002, the Company adopted as its sole strategy for the distribution of its products in Europe, Africa and the Middle East, a combination of direct distribution through its European infrastructure and the use of local distributors and agents. On June 30, 2002, the term of the Roche Distribution Contract expired, subject to a non-exclusive wind-down period. Under the Roche Distribution Contract, the Company had the option, exercisable within 30 days after December 31, 2002, to buy back from Roche equipment purchased from the Company by Roche and in use for HPV testing in customer’s laboratories on June 30, 2002. In June 2002, as part of its strategic decision, the Company decided that it would exercise the option to repurchase the equipment.

On December 20, 2002, Roche and Digene amended the Roche Distribution Contract to terminate the wind-down period on December 31, 2002 and to establish the procedures for Digene’s repurchase from Roche of HPV-related testing equipment purchased from Digene by Roche under the Roche Distribution Contract.

In January 2003 Digene and its affiliates paid Roche an aggregate of approximately $2.6 million for the HPV equipment in inventory and in use at customers’ laboratories in Europe. A portion of the purchase price was paid by the issuance of a note payable due to Roche, which was paid in one installment in January 2004, and the remainder of the purchase price was paid in cash.

Contingencies

The Company is involved in various claims and legal proceedings of a nature considered normal to its business including protection of its owned and licensed intellectual property. The Company records accruals for such contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. The Company does not anticipate that any material financial liability will result from the defense of any litigation in which the Company is currently involved.

9. Warranties

The Company reserves approximately 2% of product sales for its standard warranty obligations. Changes in the Company’s standard warranty reserve are as follows (in thousands):

	For the Year Ended June 30,
	2005			2006
Balance, beginning of period	$	897		$	1,137
Warranties issued during the period		2,274			3,007
Changes in liability for pre-existing warranties during the period		(2,034	)		(2,641	)
Balance, end of period	$	1,137		$	1,503

The Company also offers its customers extended warranties on its equipment. The revenue from these extended warranties is deferred and is recognized evenly over the period of the extended warranty.

10. Retirement Plan

The Company sponsors a 401(k) Profit Sharing Plan (the “Plan”), which covers all employees. Employees may contribute to the Plan beginning the first of the month after hire. The Plan stipulates that employees may elect an amount up to 100% of their total compensation to contribute to the Plan. Employee contributions are subject to Internal Revenue Service limitations. It is recommended that elective deferral contributions not exceed between 80% and 90% of eligible pay to allow for withholding of Social Security, Federal and state taxes. This maximum deferral percentage will also allow for employer contributions, if any. All employees who have completed 1,000 hours of service during the plan year and are employed by the Company on the last day of the plan year are eligible

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to share in discretionary Company contributions. Employees vest in such discretionary employer contributions over five years. No contributions were made by the Company during the year ended June 30, 2004. In January 2005 and 2006, the Company contributed approximately $122,000 and $157,000, respectively, to the Plan relating to the calendar year 2004 and 2005 employee contributions. As of June 30, 2005 and 2006, the Company recorded an accrual of approximately $75,000 and $160,000, respectively, for contributions to be made in the next fiscal year.

11. Significant Customers and Geographic Information

For the year ended June 30, 2004, two customers generated 17% and 10% of total revenue, respectively. For the year ended June 30, 2005, two customers generated 20% and 12% of total revenue, respectively. For the year ended June 30, 2006, two customers generated 24% and 13% of total revenue, respectively. As of June 30, 2005 and 2006, the Company recorded receivable balances of approximately $5,399,000 and $9,335,000 respectively, from these customers.

The Company operates one business segment that develops, manufactures and markets proprietary gene-based tests for the detection, screening and monitoring of human diseases. Worldwide operations are summarized by geographic region in the following table (in thousands):

	2004				2005				2006
	Assets		Revenues		Assets		Revenues		Assets		Revenues
North America	$	92,527	$	67,170	$	92,683	$	88,577	$	217,137	$	123,116
Europe		9,789		15,841		12,690		18,222		13,348		19,383
Latin America		928		3,293		1,464		3,973		1,401		4,681
Pacific Rim		26		3,857		8		4,370		—		5,708
	$	103,270	$	90,161	$	106,845	$	115,142	$	231,886	$	152,888

12. Quarterly Results of Operations (Unaudited)

The following is a summary of quarterly results of operations for the fiscal quarters (in thousands, except per share amounts):

	First			Second		Third		Fourth
	Quarter			Quarter		Quarter		Quarter
2006
Revenues	$	33,352		$	37,093	$	39,130	$	43,311
Net income	$	1,318		$	3,006	$	1,105	$	3,010
Basic net income per share	$	0.07		$	0.14	$	0.05	$	0.13
Diluted net income per share	$	0.06		$	0.14	$	0.05	$	0.13
2005
Revenues	$	26,211		$	26,953	$	29,667	$	32,311
Net income (loss)	$	(6,273	)	$	304	$	1,565	$	(3,763	)
Basic net income (loss) per share	$	(0.32	)	$	0.02	$	0.08	$	(0.19	)
Diluted net income (loss) per share	$	(0.32	)	$	0.01	$	0.08	$	(0.19	)

The sum of basic and diluted net income (loss) per share for the four quarters in each of fiscal 2006 and 2005 may not equal basic and diluted net income (loss) per share for the year due to the changes in the number of weighted-average shares outstanding during the year.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     No change of accountants and/or disagreements on any matter of accounting principles or financial statement disclosures has occurred within the last two fiscal years.

ITEM 9A. CONTROLS AND PROCEDURES

     Our management, under the supervision and with the participation of the principal executive officer and principal financial officer, have evaluated the effectiveness of our controls and procedures related to our reporting and disclosure obligations as of June 30, 2006, which is the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective.

     Our management is responsible for establishing and maintaining adequate internal control over financial reporting and assessing the effectiveness of such controls. Management’s Report on Internal Control Over Financial Reporting on page 58 of this Annual Report on Form 10-K and the Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting on page 59 of this Annual Report on Form 10-K are incorporated herein by reference.

     There were no changes that occurred during the fiscal quarter ended June 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

     All information required to be disclosed in a Current Report on Form 8-K during the fourth quarter of our 2006 fiscal year has been reported.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors. The information with respect to directors required by this item is incorporated herein by reference to our definitive Proxy Statement for our Annual Meeting of Stockholders, scheduled to be held on October 25, 2006, which shall be filed with the Securities and Exchange Commission within 120 days after the end of Digene’s fiscal year (the “2006 Proxy Statement”).

Executive Officers. The information with respect to executive officers required by this item is set forth in Part I of this Form 10-K.

Code of Ethics. The information with respect to our Code of Ethics for CEO and Senior Financial Executives and our Code of Business Conduct for all employees required by this item is incorporated herein by reference to the 2006 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

     The information required under this item is incorporated herein by reference to the 2006 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

     The information required under this item is incorporated herein by reference to the 2006 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     No information is required under this item.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The information required by this item is incorporated herein by reference to the 2006 Proxy Statement.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

•	Consolidated Financial Statements of Digene Corporation:
	Report of Independent Registered Public Accounting Firm
	Consolidated Balance Sheets as of June 30, 2006 and 2005
	Consolidated Statements of Operations for the fiscal years ended June 30, 2004, 2005 and 2006
	Consolidated Statements of Stockholders’ Equity for the fiscal years ended June 30, 2004, 2005 and 2006
	Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2004, 2005 and 2006
	Notes to Consolidated Financial Statements
•	Financial Statement Schedules:
	Schedule II — Valuation and Qualifying Accounts and Reserves
	All other schedules for which provision is made in the applicable accounting regulation of the Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
•	Exhibits:

EXHIBIT INDEX

Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation of Digene (Incorporated by reference to Exhibit 3.1 to Digene’s Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).
3.2	Amended and Restated Bylaws of Digene (Incorporated by reference to Exhibit 3.2 to Digene’s Annual Report on Form 10-K for the fiscal year ended June 30, 1999).
4.1	Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Digene’s Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).
10.1	Cross-License Agreement, dated April 1, 1990, among Life Technologies, Inc. and Institut Pasteur (Incorporated by reference to Exhibit 10.15 to Digene’s Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).
10.2	License Agreement, dated December 19, 1990, between Digene and Life Technologies, Inc. (Incorporated by reference to Exhibit 10.18 to Digene’s Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).
10.3	License Agreement, dated September 1, 1995, between Digene and Institut Pasteur (Incorporated by reference to Exhibit 10.14 to Digene’s Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).

86

Exhibit No.		Description
10.4		License Agreement, dated September 27, 1995, between Digene and Kanebo, Ltd. (Incorporated by reference to Exhibit 10.28 to Digene’s Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).
10.5	+	License Agreement, dated April 5, 2000, between Digene and Institut Pasteur (Incorporated by reference to Exhibit 10.39 to Digene’s Annual Report on Form 10-K for the fiscal year ended June 30, 2000).
10.6		Amended and Restated Reseller Agreement, dated December 10, 2003, between Digene Corporation and Applera Corporation, acting through its Applied Biosystems Group (Incorporated by reference to Exhibit 10.1 to Digene’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2003).
10.7	++	Original Equipment Manufacturer Supply Agreement, dated January 23, 2001, between Digene and Qiagen Instruments AG (Incorporated by reference to Exhibit 10.43 to Digene’s Annual Report on Form 10-K for the fiscal year ended June 30, 2001).
10.8		Registration Rights Agreement, dated as of May 24, 1996, between Digene, Armonk Partners, Murex Diagnostics Corporation and Certain Other Stockholders (Incorporated by reference to Exhibit 10.26 to Digene’s Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).
10.9		Lease, dated as of March 2, 1998, by and between Digene and ARE-Metropolitan Grove I, LLC (Incorporated by reference to Exhibit 10.1 to Digene’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).
10.9(a)		Fourth Amendment to Lease, dated November 15, 2005, between ARE-Metropolitan Grove I, LLC and Digene Corporation (Incorporated by reference to Exhibit 10.1 to Digene’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2005).
10.10	! *	Amended and Restated 1996 Omnibus Plan.
10.11	*	Amended and Restated 1997 Stock Option Plan.
10.12	!	Amended and Restated Directors’ Equity Compensation Plan (Incorporated by reference to Exhibit 4.2 to Digene’s Registration Statement on Form S-8 (File No. 333-131592), filed on February 6, 2006).
10.13	! *	Amended and Restated 1999 Incentive Plan, as amended.
10.13(a)	! *	Amendment to the Amended and Restated 1999 Incentive Plan, Stock Option and Restricted Stock Unit Awards to Employees Working in France.
10.14	!	Employment Agreement, dated February 19, 2002, between Digene and Donna Marie Seyfried (Incorporated by reference to Exhibit 99(e)(10) to Digene’s Solicitation/Recommendation Statement on Schedule 14D-9, File No. 005-46641, dated March 1, 2002).
10.15	!	Noncompetition, Nondisclosure and Developments Agreement, dated February 19, 2002, between Digene and Donna Marie Seyfried (Incorporated by reference to Exhibit 99(e)(11) to Digene’s Solicitation/Recommendation Statement on Schedule 14D-9, File No. 005-46641, dated March 1, 2002).

87

Exhibit No.		Description
10.16	!	Form of Employment Agreement between Digene and each of Evan Jones and Charles M. Fleischman (Incorporated by reference to Exhibit 10.1 to Digene’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).
10.17	!	Form of Employment Agreement between each of Digene or a Digene subsidiary and each of the officers listed on Exhibit 10.17(a) (Incorporated by reference to Exhibit 10.2 to Digene’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).
10.17(a)	!	Schedule of officers of Digene entering into Employment Agreement (Incorporated by reference to Exhibit 10.2(a) to Digene’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).
10.18	!	Form of Change in Control Employment Agreement between Digene and each of Evan Jones and Charles M. Fleischman (Incorporated by reference to Exhibit 10.3 to Digene’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).
10.19	!	Form of Change in Control Employment Agreement between Digene and each of the officers listed on Exhibit 10.19(a) (Incorporated by reference to Exhibit 10.4 to Digene’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).
10.19(a)	!	Schedule of officers of Digene entering into Change in Control Employment Agreement (Incorporated by reference to Exhibit 10.4(a) to Digene’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).
10.20	!	Employment Separation and Release Agreement, dated August 15, 2006, between Digene Corporation and Charles M. Fleischman (Incorporated by reference to Exhibit 99.1 to Digene’s Current Report on Form 8-K filed August 24, 2006).
10.21	+++	Settlement and License Agreement, executed October 13, 2004, among Digene Corporation and Enzo Biochem, Inc. and Enzo Life Sciences, Inc. (Incorporated by reference to Exhibit 10.1 to Digene’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004).
10.22	++++	Settlement and License Agreement, effective as of July 1, 2005, between Digene Corporation and Georgetown University (Incorporated by reference to Exhibit 10.21 to Digene’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005).
10.23	+++++    *	Nonexclusive Sublicense Agreement under the Caskey Patents, dated June 30, 2006, between Digene Corporation and Abbott Laboratories.
10.24	! *	Non-Employee Director Compensation Policy.
10.25	!	Form of Stock Option Award Certificate (Incorporated by reference to Exhibit 10.1 to Digene’s Current Report on Form 8-K, filed August 3, 2005).
10.26	!	Form of Restricted Stock Unit Award Certificate (Incorporated by reference to Exhibit 10.3 to Digene’s Current Report on Form 8-K, filed June 9, 2006).
10.27	!	Form of Performance Shares Award Certificate (Incorporated by reference to Exhibit 99.1 to Digene’s Current Report on Form 8-K, filed July 31, 2006).
10.28	! *	Schedule of Fiscal 2007 Executive Salaries.

88

Exhibit No.		Description
21	*	Subsidiaries of the Registrant.
23.1	*	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
31.1	*	Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer.
31.2	*	Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer.
32	*	Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

*	Filed herewith.
+	Confidential treatment has been granted for certain portions thereof pursuant to a Commission Order issued December 13, 2000. Such provisions have been filed separately with the Commission.
++	Confidential treatment has been granted for certain provisions thereof pursuant to a Commission Order issued November 30, 2001. Such provisions have been filed separately with the Commission.
+++	Confidential treatment has been granted for certain provisions thereof pursuant to a Commission Order issued December 7, 2004. Such provisions have been filed separately with the Commission.
++++	Confidential treatment has been granted for certain portions of this agreement pursuant to a Commission Order issued May 19, 2006. Such provisions have been filed separately with the Commission.
+++++	Confidential treatment has been requested for certain portions of this agreement pursuant to an application for confidential treatment filed with the Securities and Exchange Commission on September 12, 2006. Such provisions have been filed separately with the Commission.
!	Constitutes a management contract or compensatory plan required to be filed as an exhibit to this Form 10-K.

89

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DIGENE CORPORATION
September 12, 2006	By:	/s/ Evan Jones
		Chairman and Chief Executive Officer

     We, the undersigned directors and officers of Digene Corporation, do hereby constitute and appoint each of Evan Jones and Charles M. Fleischman, each with full power of substitution, our true and lawful attorney-in-fact and agent to do any and all acts and things in our names and in our behalf in our capacities stated below, which acts and things either of them may deem necessary or advisable to enable Digene Corporation to comply with the Securities Exchange Act of 1934, as amended, any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically, but not limited to, power and authority to sign for any or all of us in our names, in the capacities stated below, any amendment to this Form 10-K; and we do hereby ratify and confirm all that they shall do or cause to be done by virtue hereof).

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

Signature	Title	Date
/s/ Evan Jones	Chairman and Chief Executive	September 12, 2006
Evan Jones	Officer (principal executive officer)
/s/ Charles M. Fleischman	President, Chief Operating Officer,	September 12, 2006
Charles M. Fleischman	Chief Financial Officer and
	Director (principal financial officer)
/s/ Joseph P. Slattery	Senior Vice President, Finance and	September 12, 2006
Joseph P. Slattery	Information Systems
	(principal accounting officer)
/s/ John H. Landon	Director	September 12, 2006
John H. Landon
/s/ Joseph M. Migliara	Director	September 12, 2006
Joseph M. Migliara
/s/ Frank J. Ryan	Director	September 12, 2006
Frank J. Ryan

90

Signature	Title	Date
/s/ Cynthia L. Sullivan	Director	September 12, 2006
Cynthia L. Sullivan
/s/ Kenneth Weisshaar	Director	September 12, 2006
Kenneth Weisshaar
/s/ John J. Whitehead	Director	September 12, 2006
John J. Whitehead

91

Schedule II – Valuation and Qualifying Accounts and Reserves
(in thousands)

	Balance at
	Beginning of							Balance at
Classification	Period		Additions		Deductions			End of Period
Allowance for doubtful accounts:
Year ended June 30, 2004		432		199		(31	)(1)		600
Year ended June 30, 2005		600		95		(407	)(2)		288
Year ended June 30, 2006		288		146		(71	)(1)		363
Reserve for inventory:
Year ended June 30, 2004		2,417		1,422		(1,556	)		2,283
Year ended June 30, 2005		2,283		1,463		(1,770	)		1,976
Year ended June 30, 2006		1,976		1,195		(762	)		2,409

(1)	“Deductions” represent accounts written off during the period less recoveries of accounts previously written off.
(2)	During the year ended June 30, 2005, the allowance for doubtful accounts included a reduction of approximately $334,000 based on changes in reserve assumptions.

EXHIBIT INDEX

Exhibit No.		Description
3.1		Amended and Restated Certificate of Incorporation of Digene (Incorporated by reference to Exhibit 3.1 to Digene’s Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).
3.2		Amended and Restated Bylaws of Digene (Incorporated by reference to Exhibit 3.2 to Digene’s Annual Report on Form 10-K for the fiscal year ended June 30, 1999).
4.1		Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Digene’s Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).
10.1		Cross-License Agreement, dated April 1, 1990, among Life Technologies, Inc. and Institut Pasteur (Incorporated by reference to Exhibit 10.15 to Digene’s Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).
10.2		License Agreement, dated December 19, 1990, between Digene and Life Technologies, Inc. (Incorporated by reference to Exhibit 10.18 to Digene’s Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).
10.3		License Agreement, dated September 1, 1995, between Digene and Institut Pasteur (Incorporated by reference to Exhibit 10.14 to Digene’s Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).
10.4		License Agreement, dated September 27, 1995, between Digene and Kanebo, Ltd. (Incorporated by reference to Exhibit 10.28 to Digene’s Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).
10.5	+	License Agreement, dated April 5, 2000, between Digene and Institut Pasteur (Incorporated by reference to Exhibit 10.39 to Digene’s Annual Report on Form 10-K for the fiscal year ended June 30, 2000).
10.6		Amended and Restated Reseller Agreement, dated December 10, 2003, between Digene Corporation and Applera Corporation, acting through its Applied Biosystems Group (Incorporated by reference to Exhibit 10.1 to Digene’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2003).
10.7	++	Original Equipment Manufacturer Supply Agreement, dated January 23, 2001, between Digene and Qiagen Instruments AG (Incorporated by reference to Exhibit 10.43 to Digene’s Annual Report on Form 10-K for the fiscal year ended June 30, 2001).
10.8		Registration Rights Agreement, dated as of May 24, 1996, between Digene, Armonk Partners, Murex Diagnostics Corporation and Certain Other Stockholders (Incorporated by reference to Exhibit 10.26 to Digene’s Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).
10.9		Lease, dated as of March 2, 1998, by and between Digene and ARE-Metropolitan Grove I, LLC (Incorporated by reference to Exhibit 10.1 to Digene’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).

Exhibit No.		Description
10.9(a)		Fourth Amendment to Lease, dated November 15, 2005, between ARE-Metropolitan Grove I, LLC and Digene Corporation (Incorporated by reference to Exhibit 10.1 to Digene’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2005).
10.10	! *	Amended and Restated 1996 Omnibus Plan.
10.11	*	Amended and Restated 1997 Stock Option Plan.
10.12	!	Amended and Restated Directors’ Equity Compensation Plan (Incorporated by reference to Exhibit 4.2 to Digene’s Registration Statement on Form S-8 (File No. 333-131592), filed on February 6, 2006).
10.13	! *	Amended and Restated 1999 Incentive Plan, as amended.
10.13(a)	! *	Amendment to the Amended and Restated 1999 Incentive Plan, Stock Option and Restricted Stock Unit Awards to Employees Working in France.
10.14	!	Employment Agreement, dated February 19, 2002, between Digene and Donna Marie Seyfried (Incorporated by reference to Exhibit 99(e)(10) to Digene’s Solicitation/Recommendation Statement on Schedule 14D-9, File No. 005-46641, dated March 1, 2002).
10.15	!	Noncompetition, Nondisclosure and Developments Agreement, dated February 19, 2002, between Digene and Donna Marie Seyfried (Incorporated by reference to Exhibit 99(e)(11) to Digene’s Solicitation/Recommendation Statement on Schedule 14D-9, File No. 005-46641, dated March 1, 2002).
10.16	!	Form of Employment Agreement between Digene and each of Evan Jones and Charles M. Fleischman (Incorporated by reference to Exhibit 10.1 to Digene’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).
10.17	!	Form of Employment Agreement between each of Digene or a Digene subsidiary and each of the officers listed on Exhibit 10.17(a) (Incorporated by reference to Exhibit 10.2 to Digene’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).
10.17(a)	!	Schedule of officers of Digene entering into Employment Agreement (Incorporated by reference to Exhibit 10.2(a) of Digene’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).
10.18	!	Form of Change in Control Employment Agreement between Digene and each of Evan Jones and Charles M. Fleischman (Incorporated by reference to Exhibit 10.3 to Digene’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).
10.19	!	Form of Change in Control Employment Agreement between Digene and each of the officers listed on Exhibit 10.19(a) (Incorporated by reference to Exhibit 10.4 to Digene’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).
10.19(a)	!	Schedule of officers of Digene entering into Change in Control Employment Agreement (Incorporated by reference to Exhibit 10.4(a) of Digene’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).

Exhibit No.		Description
10.20	!	Employment Separation and Release Agreement, dated August 15, 2006, between Digene Corporation and Charles M. Fleischman (Incorporated by reference to Exhibit 99.1 to Digene’s Current Report on Form 8-K filed August 24, 2006).
10.21	+++	Settlement and License Agreement, executed October 13, 2004, among Digene Corporation and Enzo Biochem, Inc. and Enzo Life Sciences, Inc. (Incorporated by reference to Exhibit 10.1 to Digene’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004).
10.22	++++	Settlement and License Agreement, effective as of July 1, 2005, between Digene Corporation and Georgetown University (Incorporated by reference to Exhibit 10.21 to Digene’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005).
10.23	+++++   *	Nonexclusive Sublicense Agreement under the Caskey Patents, dated June 30, 2006, between Digene Corporation and Abbott Laboratories.
10.24	! *	Non-Employee Director Compensation Policy.
10.25	!	Form of Stock Option Award Certificate (Incorporated by reference to Exhibit 10.1 to Digeme’s Current Report on Form 8-K, filed August 3, 2005).
10.26	!	Form of Restricted Stock Unit Award Certificate (Incorporated by reference to Exhibit 10.3 to Digene’s Current Report on Form 8-K, filed June 9, 2006).
10.27	!	Form of Performance Shares Award Certificate (Incorporated by reference to Exhibit 99.1 to Digene’s Current Report on Form 8-K, filed July 31, 2006).
10.28	! *	Schedule of Fiscal 2007 Executive Salaries.
21	*	Subsidiaries of the Registrant.
23.1	*	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
31.1	*	Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer.
31.2	*	Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer.
32	*	Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

*	Filed herewith.
+	Confidential treatment has been granted for certain portions thereof pursuant to a Commission Order issued December 13, 2000. Such provisions have been filed separately with the Commission.
++	Confidential treatment has been granted for certain provisions thereof pursuant to a Commission Order issued November 30, 2001. Such provisions have been filed separately with the Commission.
+++	Confidential treatment has been granted for certain provisions thereof pursuant to a Commission Order issued December 7, 2004. Such provisions have been filed separately with the Commission.
++++	Confidential treatment has been granted for certain portions of this agreement pursuant to a Commission Order issued May 19, 2006. Such provisions have been filed separately with the Commission.
+++++	Confidential treatment has been requested for certain portions of this agreement pursuant to an application for confidential treatment filed with the Securities and Exchange Commission on September 12, 2006. Such provisions have been filed separately with the Commission.
!	Constitutes a management contract or compensatory plan required to be filed as an exhibit to this Form 10-K.

EX-10.10

EXHIBIT 10.10

DIGENE CORPORATION
AMENDED AND RESTATED OMNIBUS PLAN

ARTICLE 1
PURPOSE; EFFECTIVE DATE; DEFINITIONS

     1.1 Purpose. This Digene Corporation Omnibus Plan (the “Plan”) is intended to secure for Digene Corporation (the “Company”) and its stockholders the benefits of the incentive inherent in common stock ownership by the employees of the Company and its subsidiaries and directors of the Company who are largely responsible for the Company’s future growth and continued financial success and to afford such persons the opportunity to obtain or increase their proprietary interest in the Company on a favorable basis and thereby have an opportunity to share in its success.

     1.2 Effective Date. Subject to the approval of the Board and to ratification by the Company’s stockholders as provided in Section 7.9, this Plan shall be effective on and after March 26, 1996.

     1.3 Definitions. Throughout this Plan, the following terms shall have the meanings indicated:

          (a) “Agreement” shall mean an Option Agreement, Restricted Stock Agreement, Unrestricted Stock Agreement or SAR Agreement.

          (b) “Benefits” shall mean any one or more of the following awards that may be granted under this Plan:

(i) Options (including ISOs and NQSOs);
(ii) Stock Appreciation Rights;
(iii) Restricted Stock; or
(iv) Unrestricted Stock.

          (c) “Board” shall mean the Board of Directors of the Company.

          (d) “Change of Control” shall mean (a) the reorganization, consolidation or merger of the Company or any of its subsidiaries holding or controlling a majority of the assets relating to the business of the Company, with or into any third party (other than a subsidiary); (b) the assignment, sale, transfer, lease or other disposition of all or substantially all of the assets of the Company and its subsidiaries taken as a whole; or (c) the acquisition by any third party or group of third parties acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended) of shares of voting stock of the Company, the result of which in the case of any transaction described in clauses (a), (b) and (c) above is that immediately after the

transaction the stockholders of the Company immediately before the transaction, other than the acquiror, own less than fifty percent (50%) of the combined voting power of the outstanding voting securities entitled to vote generally in the election of directors of the surviving or resulting corporation in a transaction specified in clause (a) above, the acquiror in a transaction specified in clause (b) above, or the Company or the acquiror in a transaction specified in clause (c) above.

          (e) “Code” shall mean the Internal Revenue Code of 1986, as amended, any successor revenue laws of the United States, and the rules and regulations promulgated thereunder.

          (f) “Committee” shall mean any committee of the Board designated by the Board to administer this Plan.

          (g) “Common Stock” shall mean the common stock, par value $.01 per share, of the Company.

          (h) “Company” shall mean Digene Corporation, a Delaware corporation.

          (i) “Employee” shall mean any person engaged or proposed to be engaged as an officer or employee of the Company or one of its subsidiaries.

          (j) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

          (k) “Fair Market Value” shall mean with respect to the Common Stock on any day, (i) the closing sales price on the immediately preceding business day of a share of Common Stock as reported on the principal securities exchange on which shares of Common Stock are then listed or admitted to trading, or (ii) if not so reported, the closing sales price on the immediately preceding business day of a share of Common Stock as published in the NASDAQ National Market Issues report in the Eastern Edition of The Wall Street Journal, or (iii) if not so reported, the average of the closing bid and asked prices on the immediately preceding business day as reported on the NASDAQ National Market System, or (iv) if not so reported, as furnished by any member of the National Association of Securities Dealers, Inc. selected by the Committee. In the event that the price of a share of Common Stock shall not be so reported or furnished, the Fair Market Value of a share of Common Stock shall be determined by the Committee in good faith. The market value of an Option granted under the Plan on any day shall be the market value of the underlying Stock, determined as aforesaid, less the exercise price of the Option. A “business day” is any day, other than Saturday or Sunday, on which the relevant market is open for trading.

          (l) “ISO” shall mean an Option that qualifies as an incentive stock option under Code Section 422. No Option that is intended to be an ISO shall be invalid under this Plan for failure to qualify as an ISO.

          (m) “NQSO” shall mean a nonqualified stock option which is an Option that does not qualify as an incentive stock option under Code Section 422.

2

          (n) “Non-Employee Director” shall mean a member of the Board who is not an Employee.

          (o) “Option” shall mean an option to purchase shares of Common Stock granted by the Committee. An Option may be either an ISO or a NQSO, but only an Employee who is actually employed by the Company may be granted an ISO.

          (p) “Option Agreement” shall mean the certificate evidencing an Option grant.

          (q) “Option Shares” shall mean the shares of Common Stock purchased upon exercise of an Option.

          (r) “Plan” shall mean this Digene Corporation Omnibus Plan, as the same may be amended from time to time.

          (s) “Restricted Stock” shall mean Common Stock granted under Article VI of this Plan, subject to such restrictions as the Committee may determine, as evidenced in a Restricted Stock Agreement. Shares of Common Stock shall cease to be Restricted Stock when, in accordance with the terms of the Restricted Stock Agreement, they become transferable and free of substantial risk of forfeiture.

          (t) “Restricted Stock Agreement” shall mean the certificate evidencing the grant of Restricted Stock to an Employee pursuant to this Plan.

          (u) “Restriction Period” shall mean the time period during which Restricted Stock is subject to the restrictions set forth in a Restricted Stock Agreement.

          (v) “SAR Agreement” shall mean the certificate evidencing the grant of a Stock Appreciation Right to an Employee pursuant to this Plan.

          (w) “Stock Appreciation Right” or “SAR” shall mean the right to receive cash or Common Stock, granted pursuant to Article V of this Plan and a SAR Agreement.

          (x) “10% Stockholder” shall mean an individual owning (directly or by attribution as provided in Code Section 424(d)) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company.

          (y) “Unrestricted Stock” shall mean Common Stock granted under Article VI of this Plan that is not Restricted Stock.

          (z) “Unrestricted Stock Agreement” shall mean the certificate evidencing the grant of Unrestricted Stock to an Employee pursuant to this Plan.

3

ARTICLE II
ADMINISTRATION

     2.1 Committee Administration. This Plan and the Benefits awarded hereunder shall be interpreted, construed and administered by the Committee in its sole discretion. An Employee or Non-Employee Director eligible for Benefits under the Plan may appeal to the Committee in writing any decision or action of the Committee with respect to the Plan that adversely affects the Employee or Non-Employee Director. Upon review of such appeal and in any other case where the Committee has acted with respect to the Plan, the interpretation and construction by the Committee of any provisions of this Plan or of any Benefit shall be conclusive and binding on all parties.

     2.2 Committee Composition. The Committee shall consist of not less than two persons who shall be members of the Board and shall be subject to such terms and conditions as the Board may prescribe. Each Committee member shall be a “disinterested person” within the meaning of Rule 16b-3 promulgated under the Exchange Act. Once designated, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused and remove all members of the Committee.

     A majority of the entire Committee shall constitute a quorum, and the action of a majority of the members present at any meeting at which a quorum is present shall be deemed the action of the Committee. In addition, any decision or determination reduced to writing and signed by all of the members of the Committee shall be fully as effective as if it had been made by a majority vote at a meeting duly called and held. Subject to the provisions of this Plan and the Company’s bylaws, and to any terms and conditions prescribed by the Board, the Committee may make such additional rules and regulations for the conduct of its business as it shall deem advisable. The Committee shall hold meetings at such times and places as it may determine.

     2.3 Committee Powers. The Committee shall have authority to award Restricted Stock and Unrestricted Stock and to grant Options and SARs pursuant to an Agreement providing for such terms (not inconsistent with the provisions of this Plan) as the Committee may consider appropriate. Such terms shall include, without limitation, as applicable, the number of shares, the Option price, the medium and time of payment, the term of each award and any vesting requirements and may include conditions (in addition to those contained in this Plan) on the exercisability of all or any part of an Option or SAR or on the transferability or forfeitability of Restricted Stock. Notwithstanding any such conditions, the Committee may, in its discretion, accelerate the time at which any Option or SAR may be exercised or the time at which Restricted Stock may become transferable or nonforfeitable. In addition, the Committee shall have complete discretionary authority to prescribe the form of Agreements; to adopt, amend and rescind rules and regulations pertaining to the administration of the Plan; and to make all other determinations necessary or advisable for the administration of this Plan. The express grant in the Plan of any specific power to the Committee shall not be construed as limiting any power or authority of the Committee. All expenses of administering this Plan shall be borne by the Company.

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     2.4 Limitation on Receipt of Benefits by Committee Members. No person while a member of the Committee shall be eligible to receive any Benefits under this Plan other than Options granted pursuant to Section 4.2, but a member of the Committee may exercise Options (but not Stock Appreciation Rights) granted prior to his or her becoming a member of the Committee.

     2.5 Good Faith Determinations. No member of the Committee or other member of the Board shall be liable for any action or determination made in good faith with respect to this Plan or any Benefit granted hereunder.

ARTICLE III
ELIGIBILITY; TYPES OF BENEFITS; SHARES SUBJECT TO PLAN

     3.1 Eligibility. The Committee shall from time to time determine and designate the Employees of the Company to receive Benefits under this Plan and the number of Options, Stock Appreciation Rights and shares of Restricted Stock and Unrestricted Stock to be awarded to each such Employee or the formula or other basis on which such Benefits shall be awarded to Employees. In making any such award, the Committee may take into account the nature of services rendered by an Employee, commissions or other compensation earned by the Employee, the capacity of the Employee to contribute to the success of the Company and other factors that the Committee may consider relevant.

     3.2 Types of Benefits. Benefits under this Plan may be granted in any one or any combination of (a) Options, (b) Stock Appreciation Rights, (c) Restricted Stock and (d) Unrestricted Stock, as described in this Plan. The Committee may (x) give Employees a choice between two or more Benefits or combinations of Benefits, (y) award Benefits in tandem so that acceptance of or exercise of one Benefit cancels the right of an Employee to another and (z) award Benefits in any combination or combinations and subject to any condition or conditions consistent with the terms of this Plan that the Committee in its sole discretion may consider appropriate.

     3.3 Shares Subject to this Plan. Subject to the provisions of Section 4.1(e) (relating to adjustment for changes in Common Stock), the maximum number of shares that may be issued under this Plan shall not exceed in the aggregate two million shares of Common Stock. Such shares may be authorized and unissued shares or authorized and issued shares that have been reacquired by the Company. If any Options granted under this Plan shall for any reason terminate or expire or be surrendered without having been exercised in full, then the shares not purchased under such Options shall be available again for grant hereunder. Anything in this Plan to the contrary notwithstanding, in no event shall any Employee receive in any calendar year Benefits under this Plan involving more than 500,000 shares of Common Stock (subject to adjustment as provided in Section 4.1(e)).

     3.4 $100,000 Limitation. Except as provided elsewhere in this Section, the Committee shall not grant an ISO to, or modify the exercise provisions of an outstanding ISO for, any person who, at the time of grant or modification, as applicable, would thereby hold ISOs issued by the Company if the aggregate Fair Market Value (determined as of the respective dates

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of grant and modification of each Option) of the Option Shares underlying such ISOs as are exercisable for the first time during any calendar year would exceed $100,000 (or such other limitation as may be prescribed by the Code from time to time). The foregoing restriction on modification of outstanding ISOs shall not preclude the Committee from modifying an outstanding ISO if, as a result of such modification and with the consent of the holder, such Option no longer constitutes an ISO. Furthermore, if the $100,000 limitation (or such other limitation prescribed by the Code) described in this Section is exceeded, then the ISO, the granting or modification of which resulted in exceeding such limitation, shall be treated as an ISO up to the limitation, and the excess shall be treated as a NQSO.

ARTICLE IV
STOCK OPTIONS

     4.1 Grant; Terms and Conditions. The Committee, in its discretion, may from time to time grant ISOs or NQSOs, or both, to any Employee eligible to receive Benefits under this Plan. Each Employee who is granted an Option shall receive an Option Agreement from the Company in a form specified by the Committee and containing such provisions, consistent with this Plan, as the Committee, in its sole discretion, shall determine at the time the Option is granted.

          (a) Number of Shares. Each Option Agreement shall state the number of shares of Common Stock to which it pertains.

          (b) Option Price. Each Option Agreement shall state the Option exercise price, which, in the case of an Option intended to be an ISO, shall not be less than 100% of the Fair Market Value per share of Common Stock on the date of grant of the Option. In the case of an ISO granted to a 10% Stockholder, the Option exercise price shall not be less than 110% of the Fair Market Value per share of Common Stock on the date of grant of the Option. The date of the grant of an Option shall be the date specified by the Committee in its grant of the Option. The price at which each share of Common Stock covered by an NQSO granted under the Plan may be purchased shall be the price determined by the Committee, in its absolute discretion, to be suitable to attain the purposes of this Plan.

          (c) Medium and Time of Payment. Upon the exercise of an Option, the Option exercise price shall be payable in United States dollars, in cash (including by check) or (unless the Committee otherwise prescribes) in shares of Common Stock owned by the optionee (but not with Restricted Stock prior to the expiration of the Restriction Period), in NQSOs granted to the optionee under the Plan which are then exercisable (provided that the purchase price of Common Stock under an ISO may not be paid in NQSOs), or in a combination of cash, Common Stock and NQSOs. If all or any portion of the Option exercise price is paid in Common Stock owned by the optionee, then that stock shall be valued at its Fair Market Value as of the date the Option is exercised. If all or any portion of the Option exercise price is paid in NQSOs granted to the optionee under the Plan, then such NQSOs shall be valued at their Fair Market Value as of the date the Option is exercised. For the purpose of assisting an optionee to exercise an Option, the Company may, in the discretion of the Board, make loans to the optionee

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or guarantee loans made by third parties to the optionee, in either case on such terms and conditions as the Board may authorize.

          (d) Term and Exercise of Options. The term of each Option shall be determined by the Committee at the time the Option is granted; provided that the term of an Option shall in no event be more than ten years from the date of grant or, in the case of an ISO granted to a 10% Stockholder, more than five years from the date of grant. Not less than one hundred shares may be purchased at any one time unless the number purchased is the total number at the time purchasable under the Option. During the lifetime of an optionee, the Option shall be exercisable only by him or her and shall not be assignable or transferable by him or her and no person shall acquire any rights therein. Following an optionee’s death, the Option may be exercised (to the extent permitted under the Plan) by the person designated by the optionee as a beneficiary in a written notification delivered to the Committee prior to the optionee’s death, or if there is no such written designation, by the executor or administrator of the optionee’s estate or by the person or persons to whom such rights pass by will or by the laws of descent and distribution.

          (e) Recapitalization; Reorganization. Subject to any required action by the stockholders of the Company, the maximum number of shares of Common Stock that may be issued under this Plan pursuant to Section 3.3 above, the number of shares of Common Stock with respect to which Options will be granted to Non-Employee Directors pursuant to Section 4.2, the number of shares of Common Stock covered by each outstanding Option, the number of shares of Common Stock to which each Stock Appreciation Right relates, the kind of shares subject to outstanding Options and the per share exercise price under each outstanding Option shall be adjusted, in each case, to the extent and in the manner the Committee deems appropriate for any increase or decrease in the number of issued shares of Common Stock resulting from a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, subdivision or consolidation of shares or the payment of a stock dividend (but only on the Common Stock) or any other change in the corporate structure or state of the Company.

          Subject to any action that may be required on the part of the stockholders of the Company, if the Company is the surviving corporation in any merger, consolidation, sale, transfer, acquisition, tender offer or exchange offer which does not result in a Change of Control, then each outstanding Option and Stock Appreciation Right shall pertain to and apply to the securities or other consideration that a holder of the number of shares of Common Stock subject to the Option or to which the Stock Appreciation Right relates would have been entitled to receive in such transaction.

          If the Company is the surviving corporation in any merger, consolidation, sale, transfer, acquisition, tender offer or exchange offer which results in a Change of Control, each optionee shall, in such event, have the right immediately prior to such transaction to exercise his or her Option or Stock Appreciation Right in whole or in part without regard to any installment provision contained in his or her Agreement, but if a Stock Appreciation Right has been granted in connection with an Option then neither the Option nor the Stock Appreciation Right shall be exercisable within six months after their grant except in the event of death or disability of the optionee; provided, however, that the exercisability of any Option or Stock Appreciation Right

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shall not be accelerated if, in the opinion of the Board, such acceleration would prevent pooling of interests accounting treatment for the Change of Control transaction and such accounting treatment is desired by the parties to such transaction. Any Option or Stock Appreciation Right not exercised immediately prior to such transaction shall pertain to and apply to the securities or other consideration that a holder of the number of shares of Common Stock subject to the Option or to which the Stock Appreciation Right relates would have been entitled to receive in the transaction. This paragraph shall apply to any outstanding Options which are ISOs to the extent permitted by Code Section 422(d), and such outstanding ISOs in excess thereof shall, immediately upon the occurrence of such a transaction, be treated for all purposes of the Plan as NQSOs and shall be immediately exercisable as such as provided in such paragraph.

          A merger, consolidation, sale, transfer, acquisition, tender offer or exchange offer in which the Company is not the surviving corporation, other than such a transaction effected for the purpose of changing the Company’s domicile, shall cause each holder of an outstanding Option and Stock Appreciation Right to have the right immediately prior to such transaction to exercise his or her Option or Stock Appreciation Right in whole or in part without regard to any installment provision contained in his or her Agreement, but if a Stock Appreciation Right has been granted in connection with an Option then neither the Option nor the Stock Appreciation Right shall be exercisable within six months after their grant except in the event of death or disability of the optionee. Any Option or Stock Appreciation Right not exercised immediately prior to such transaction shall pertain to and apply to the securities or other consideration that a holder of the number of shares of Common Stock subject to the Option or to which the Stock Appreciation Right relates would have been entitled to receive in the transaction. This paragraph shall apply to any outstanding Options which are ISOs to the extent permitted by Code Section 422(d), and such outstanding ISOs in excess thereof shall, immediately upon the occurrence of such a transaction, be treated for all purposes of the Plan as NQSOs and shall be immediately exercisable as such as provided in such paragraph.

          A dissolution or liquidation of the Company shall cause each outstanding Option and Stock Appreciation Right to terminate, provided that each holder shall, in such event, have the right immediately prior to such dissolution or liquidation to exercise his or her Option or Stock Appreciation Right in whole or in part without regard to any installment provision contained in his or her Agreement, but if a Stock Appreciation Right has been granted in connection with an Option then neither the Option nor the Stock Appreciation Right shall be exercisable within six months after their grant except in the event of death or disability of the optionee.

          Notwithstanding the foregoing, in no event shall any Option be exercisable after the date of termination of the exercise period of such Option.

          In the case of a merger, consolidation, sale, transfer, acquisition, tender offer or exchange offer effected for the purpose of changing the Company’s domicile, each outstanding Option and Stock Appreciation Right shall continue in effect in accordance with its terms and shall apply or relate to the same number of shares of common stock of such surviving corporation as the number of shares of Common Stock to which it applied or related immediately prior to such transaction, adjusted for any increase or decrease in the number of outstanding shares of common stock of the surviving corporation effected without receipt of consideration.

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          In the event of a change in the Common Stock as presently constituted, which change is limited to a change of all of the authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of this Plan.

          The foregoing adjustments shall be made by the Committee, whose determination shall be final, binding and conclusive.

          Except as expressly provided in this subsection, the holder of an Option or Stock Appreciation Right shall have no rights by reason of (i) any subdivision or consolidation of shares of any class, (ii) any stock dividend, (iii) any other increase or decrease in the number of shares of stock of any class, (iv) any dissolution, liquidation, merger or consolidation or spin-off, split-off or split-up of assets of the Company or stock of another corporation or (v) any issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class. Moreover, except as expressly provided in this subsection, the occurrence of one or more of such events shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to the Option or the number of shares that relate to a Stock Appreciation Right.

          The grant of an Option or Stock Appreciation Right pursuant to this Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate, sell or otherwise transfer all or any part of its business or assets.

          The provisions of this Section 4.1(e) shall be limited in respect of ISOs to the extent necessary to comply with the applicable provisions of Code Section 424(a).

          (f) Rights as a Stockholder. Subject to Section 7.10 of this Plan regarding uncertificated shares, an optionee or a transferee of an Option shall have no rights as a stockholder with respect to any shares covered by his or her Option until the date of the issuance of a stock certificate to him or her for those shares upon payment of the exercise price. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in subsection 4.1(e).

          (g) Modification, Extension and Renewal of Options. Subject to the terms and conditions and within the limitations of this Plan, the Committee may modify, extend or renew outstanding Options granted under this Plan or accept the surrender of outstanding Options (to the extent not theretofore exercised) and authorize the granting of new Options in substitution therefor (to the extent not theretofore exercised). No modification of an Option shall, without the consent of the optionee, alter or impair any rights or obligations under any Option theretofore granted under this Plan.

          (h) Exercisability and Term of Options. Unless earlier terminated, Options granted pursuant to this Plan shall be exercisable at any time on or after the dates of exercisability and before the expiration date set forth in the Option Agreement. Notwithstanding

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the foregoing, an Option shall terminate and may not be exercised if the Employee to whom it is granted ceases to be employed by the Company, except that: (1) unless the Committee shall determine that the Employee’s employment was terminated for conduct that in the judgment of the Committee involves dishonesty or action by the Employee that is detrimental to the best interest of the Company, the Employee may at any time within three months after termination of his or her employment exercise his or her Option but only to the extent the Option was exercisable by him or her on the date of termination of employment; (2) if such Employee’s employment terminates on account of total and permanent disability, then the Employee may at any time within one year after termination of his or her employment exercise his or her Option but only to the extent that the Option was exercisable on the date of termination of employment; and (3) if such Employee dies while in the employ of the Company, or within the three or twelve month period following termination of his or her employment as described in clause (1) or (2) above, then his or her Option may be exercised at any time within twelve months following his or her death by the person specified in Section 4.1(d), but only to the extent that such Option was exercisable by him or her on the date of termination of employment. The last sentence shall apply to any outstanding Options which are ISOs to the extent permitted by Code Section 422, and such outstanding ISOs in excess thereof shall, immediately upon the occurrence of the event described in such sentence, be treated for all purposes of the Plan as NQSOs and shall be immediately exercisable as such as provided in such sentence. The Committee may, in its discretion, provide in any Option Agreement or determine at any time after the date of grant that the exercisability of an Option will be accelerated, in whole or in part, in the event of an Employee’s retirement, death or disability. Any cessation of employment, for purposes of ISOs only, shall include any leave of absence in excess of 90 days unless the optionee’s reemployment rights are guaranteed by law or by contract. The Committee may, in its discretion, extend the post-termination exercise periods set forth in this subsection, but not beyond the expiration date of the Option. Notwithstanding anything to the contrary in this subsection, an Option may not be exercised by anyone after the expiration of its term. Notwithstanding anything to the contrary in this subsection, an Option shall not terminate if the Employee to whom it is granted ceases to be employed by the Company but continues to serve as a Director of the Company or its successor, in which event the Option shall terminate if the Employee ceases to be a Director of the Company or its successor and the Employee may at any time within three months after ceasing to be a Director exercise his or her Option, but only to the extent that the Option was exercisable by him or her on the date on which he or she ceased to be a Director.

     4.2 [Deleted by amendment.]

     4.3 Other Terms and Conditions. Through the Option Agreements authorized under this Plan, the Committee may impose such other terms and conditions, not inconsistent with the terms hereof, on the grant or exercise of Options, as it deems advisable.

ARTICLE V
STOCK APPRECIATION RIGHTS

     5.1 Grant of Stock Appreciation Rights. The Committee, in its discretion, may from time to time grant Stock Appreciation Rights to Employees under this Plan. Such Stock Appreciation Rights may, but need not, be granted in conjunction with an Option grant.

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     5.2 Exercise. Stock Appreciation Rights shall entitle the holder, upon exercise thereof in whole or in part, to receive payment in the amount and form determined pursuant to subsection 5.3(b). The exercise of Stock Appreciation Rights shall result in a termination of the Stock Appreciation Rights with respect to the number of shares covered by the exercise and, if granted in conjunction with an Option, shall also result in a termination of the related Option with respect to the number of shares covered by the exercise.

     5.3 Terms and Conditions. Stock Appreciation Rights granted under this Plan to Employees shall be evidenced by SAR Agreements, which shall be in such form and contain such provisions, consistent with this Plan, as the Committee, in its sole discretion, shall determine at the time the Stock Appreciation Right is granted.

          (a) Stock Appreciation Rights shall not be exercisable during the first six months after their date of grant. Such rights shall not be transferable other than by will or by the laws of descent and distribution and shall be exercisable during the holder’s lifetime only by the holder.

          (b) Upon exercise of Stock Appreciation Rights the holder shall be entitled to receive therefor payment, in the sole discretion of the Committee, in the form of shares of Common Stock (rounded down to the next whole number so that no fractional shares are issued), cash or any combination thereof. The amount of such payment shall be equal in value to the difference between the Stock Appreciation Right exercise price per share and the Fair Market Value per share of the Common Stock on the date the Stock Appreciation Right is exercised, multiplied by the number of shares with respect to which the Stock Appreciation Right shall have been exercised.

          (c) Stock Appreciation Rights shall terminate in accordance with the provisions of Section 4.1(h) if the holder’s employment with the Company terminates.

     5.4 Effect on Related Stock Option. The number of shares of Common Stock with respect to which Stock Appreciation Rights are exercised (rather than the number of shares issued by the Company upon such exercise) shall be deemed for the purpose of Section 3.3 to have been issued under an Option granted pursuant to this Plan and shall not thereafter be available for the granting of further Benefits under this Plan.

     5.5 No Rights as a Stockholder. Holders of Stock Appreciation Rights hereunder shall have no rights as stockholders in respect thereof. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in subsection 4.1(e).

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ARTICLE VI
RESTRICTED AND UNRESTRICTED STOCK

     6.1 Restricted Stock. The Committee, in its discretion, may from time to time award Restricted Stock to any Employee eligible to receive Benefits under this Plan. Each Employee who is awarded Restricted Stock shall receive a Restricted Stock Agreement from the Company in a form specified by the Committee and containing the terms and conditions, consistent with this Plan, as the Committee, in its sole discretion, shall determine at the time the award is made. Such conditions may include, but shall not be limited to, the deferral of a percentage of the Employee’s annual cash compensation, not including dividends paid on Restricted Stock, if any, to be applied toward the purchase of Restricted Stock upon such terms and conditions, including such discounts, as may be set forth in the Restricted Stock Agreement.

     Restricted Stock awarded to Employees may not be sold, transferred, pledged or otherwise encumbered during a Restriction Period commencing on the date of the award and ending at such later date or dates as the Committee may designate at the time of the award. The Employee shall have the entire beneficial ownership of the Restricted Stock awarded to him or her, including the right to receive dividends and the right to vote such Restricted Stock.

     If an Employee ceases to be employed by the Company prior to the expiration of the Restriction Period, then he or she shall forfeit all of his or her Restricted Stock with respect to which the Restriction Period has not yet expired; provided, however, that the Restricted Stock Agreements, in the discretion of the Committee and pursuant to such terms and conditions as it may impose, may provide: (1) that, if such Employee’s employment terminates for any reason other than conduct that in the judgment of the Committee involves dishonesty or action by the Employee that is detrimental to the best interests of the Company, then the Restricted Stock or any related compensation deferral or a portion thereof shall not be forfeited; (2) that, if such Employee’s employment terminates on account of total and permanent disability, then the Employee shall not forfeit his or her Restricted Stock or any related compensation deferral or a portion thereof; and (3) that, if such Employee dies while employed by the Company, then his or her Restricted Stock or any related compensation deferral or a portion thereof is not forfeited.

     Subject to Section 7.10, each Employee who is awarded Restricted Stock may, but need not, be issued a stock certificate in respect of such shares of Restricted Stock. Each certificate registered in the name of an Employee, if any, shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such award as specifically set forth in the Restricted Stock Agreement.

     The Committee shall require that any stock certificate issued in the name of an Employee representing shares of Restricted Stock be held in the custody of the Company until the expiration of the Restriction Period applicable to such Restricted Stock and that, as a condition of such issuance of a certificate for Restricted Stock, the Employee shall have delivered a stock power, endorsed in blank, relating to the shares covered by such certificate. In no event shall the Restriction Period end prior to the payment by the Employee to the Company of the amount of any federal, state or local income or employment tax withholding that may be required with respect to the Restricted Stock.

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     If any change is made in the Common Stock by reason of any merger, consolidation, reorganization, recapitalization, stock dividend, split up, combination of shares, exchange of shares, change in corporate structure, or otherwise, then any shares received by an Employee with respect to Restricted Stock shall be subject to the same restrictions applicable to such Restricted Stock and the certificates representing such shares shall be deposited with the Company.

     6.2 Unrestricted Stock. The Committee, in its discretion, may from time to time award Unrestricted Stock to any Employee eligible to receive Benefits under this Plan. Each Employee who is awarded Unrestricted Stock shall receive an Unrestricted Stock Agreement from the Company in a form specified by the Committee and containing the terms and conditions of the award and such other matters, consistent with this Plan, as the Committee, in its sole discretion, shall determine at the time the award is made. Such conditions may include, but shall not be limited to, the deferral of a percentage of the Employee’s annual cash compensation, not including dividends paid on the Unrestricted Stock, if any, to be applied toward the purchase of Unrestricted Stock upon such terms and conditions, including such discounts, as may be set forth in the Unrestricted Stock Agreement. Upon the issuance of Unrestricted Stock to an Employee hereunder, the Employee shall have the entire beneficial ownership and all the rights and privileges of a stockholder with respect to the Unrestricted Stock awarded to him or her, including the right to receive dividends and the right to vote such Unrestricted Stock. Subject to Section 7.10 of this Plan, each Employee who is awarded Unrestricted Stock may, but need not, be issued a stock certificate in respect of such shares of Unrestricted Stock.

ARTICLE VII
MISCELLANEOUS

     7.1 Withholding Taxes. An Employee granted Options, Restricted Stock, Unrestricted Stock or Stock Appreciation Rights under this Plan shall be conclusively deemed to have authorized the Company to withhold from the salary, commissions or other compensation of such Employee funds in amounts or property (including Common Stock) in value equal to any federal, state and local income, employment or other withholding taxes applicable to the income recognized by such Employee and attributable to the Options, Option Shares, Restricted Stock, Unrestricted Stock or Stock Appreciation Rights as, when and to the extent, if any, required by law; provided, however, that, in lieu of the withholding of federal, state and local taxes as herein provided, the Company may require that the Employee (or other person exercising such Option or Stock Appreciation Rights or holding such Restricted Stock or Unrestricted Stock) pay the Company an amount equal to the federal, state and local withholding taxes on such income at the time such withholding is required or such other time as shall be satisfactory to the Company.

     7.2 Amendment, Suspension, Discontinuance or Termination of Plan. The Committee may at any time amend, discontinue or terminate the Plan or any part thereof (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirement or any change in applicable law) or amend any Benefit previously granted, prospectively or retroactively (subject to Article III); provided, however, that, (i) unless otherwise required by law, the rights of an Employee with respect to Benefits granted prior to such amendment, discontinuance or termination may not be impaired without the consent of such

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Employee; (ii) except as otherwise provided in Section 4.1(c) hereof, the Committee shall not reduce the exercise price of Options previously awarded to any Employee, whether through amendment, cancellation and replacement grant, or any other means, without prior stockholder approval; and (iii) the Company will seek the approval of the Company’s stockholders for any amendment if such approval is necessary to comply with the Code, Federal or state securities laws or any other applicable laws or regulations, including the Marketplace Rules of the National Association of Securities Dealers, Inc. The ability to grant Benefits under this Plan terminated on March 26, 2006.

     7.3 Governing Law. This Plan shall be governed by, and construed in accordance with, the laws of the State of Maryland (without giving effect to principles of conflict of laws).

     7.4 Designation. This Plan may be referred to in other documents and instruments as the “Digene Corporation Omnibus Plan.”

     7.5 Indemnification of Committee. In addition to such other rights of indemnification as they may have as directors or as members of the Committee, the members of the Committee shall be indemnified by the Company against the reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any investigation, action, suit or proceeding, or in connection with any appeal therefrom, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with this Plan or any Benefit, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in or dismissal or other discontinuance of any such investigation, action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such investigation, action, suit or proceeding that such Committee member is liable for negligence or misconduct in the performance of his or her duties; provided that, within 60 days after institution of any such investigation, action, suit or proceeding, a Committee member shall in writing offer the Company the opportunity, at its own expense, to handle and defend the same.

     7.6 Reservation of Shares. The Company shall at all times during the term of this Plan, and so long as any Benefit shall be outstanding, reserve and keep available (and will seek or obtain from any regulatory body having jurisdiction any requisite authority in order to issue) such number of shares of its Common Stock as shall be sufficient to satisfy the requirements of this Plan. Inability of the Company to obtain from any regulatory body of appropriate jurisdiction authority considered by the Company to be necessary or desirable to the lawful issuance of any shares of its Common Stock hereunder shall relieve the Company of any liability in respect of the nonissuance or sale of such Common Stock as to which such requisite authority shall not have been obtained.

     7.7 Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to the exercise of Options will be used for general corporate purposes.

     7.8 No Obligation to Exercise. The granting of a Benefit shall impose no obligation upon the holder to exercise or otherwise realize the value of that Benefit.

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     7.9 Approval of Stockholders. No Benefit granted under this Plan shall be enforceable against the Company unless and until this Plan has been approved or ratified by the stockholders of the Company in the manner and to the extent required by the Exchange Act and the General Corporation Law of the State of Delaware.

     7.10 Uncertificated Shares. Each Employee who exercises an Option to acquire Common Stock or is awarded Restricted Stock or Unrestricted Stock may, but need not, be issued a stock certificate in respect of the Common Stock so acquired. A “book entry” (i.e., a computerized or manual entry) shall be made in the records of the Company to evidence the issuance of shares of Common Stock to an Employee where no certificate is issued in the name of the Employee. Such Company records, absent manifest error, shall be binding on Employees. In all instances where the date of issuance of shares may be deemed significant but no certificate is issued in accordance with this Section 7.10, the date of the book entry shall be the relevant date for such purposes.

     7.11 Forfeiture for Competition. If a participant in this Plan provides services to a competitor of the Company or any of its subsidiaries, whether as an employee, officer, director, independent contractor, consultant, agent or otherwise, such services being of a nature that can reasonably be expected to involve the skills and experience used or developed by the participant while an Employee, then that participant’s rights to any Benefits hereunder shall automatically be forfeited, subject to a determination to the contrary by the Committee.

     7.12 Successors. This Plan shall be binding upon any and all successors of the Company.

     7.13 Employment Rights. Nothing in this Plan or in any Agreement shall confer on any Employee any right to continue in the employ of the Company or any of its subsidiaries or shall interfere in any way with the right of the Company or any of its subsidiaries to terminate such person’s employment at any time. Nothing in this Plan or in any Agreement shall confer on any Non-Employee Director any right to continue to serve as a member of the Board, nor is there any implied agreement or understanding that such Non-Employee Director will be nominated for reelection to the Board.

     7.14 Other Actions. Nothing contained in the Plan shall be construed to limit the authority of the Company to exercise its corporate rights and powers, including, but not by way of limitation, the right of the Company to grant options for proper corporate purposes other than under the Plan with respect to any employee or other person, firm, corporation or association.

     7.15 Tax Treatment and Characterization. Neither the Company nor any other person represents or warrants to any Plan participant (i) that any Option granted hereunder shall be considered an ISO for applicable tax purposes or (ii) that favorable or desirable tax treatment or characterization will be applicable in respect of any Benefit.

     7.16 Legend. The Committee may require each person exercising an Option to represent to and agree with the Company in writing that he or she is acquiring the Option Shares without a view to distribution thereof. In addition to any legend required by this Plan, the stock

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certificates representing such Option Shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer.

          All certificates for Option Shares shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed, any applicable federal or state securities law, and any applicable corporate law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

As amended by the Board at its July 30, 1998 meeting — Sections 1.1 and 1.3(h) revised to include subsidiaries of the Company.

As amended by the Board at its September 10, 1998 meeting — Last sentence of Section 4.1(d) amended to include exercise by a designated beneficiary and subsection (3) of Section 4.1(h) revised.

As amended and restated by the Board by unanimous written consent dated September 21, 2000 and approved by the stockholders at the Annual Meeting held on October 26, 2000 — Adding “Change of Control” definition to Section 1.3(d) and amending and restating Section 4.1(e) with provisions regarding the treatment of Options in the event of a Change of Control transaction.

As amended by the Board at its October 26, 2000 meeting – “Change of Control” definition clarified; and Section 4.2 (automatic grant to non-employee directors) deleted and moved to the Directors’ Plan.

As amended by the Board at its February 19, 2002 meeting – Sentence added to the end of Section 4.1(h), “Exercisability and Term of Options”, regarding termination of stock options if optionee continues as a Director.

As revised by the Committee at its meeting held July 26, 2006 to require stockholder approval of any reduction of the exercise price of outstanding Options, and to verify the termination of the right to grant Benefits under the Plan as of March 26, 2006.

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EX-10.11

EXHIBIT 10.11

DIGENE CORPORATION
AMENDED AND RESTATED 1997 STOCK OPTION PLAN

ARTICLE I
PURPOSE; EFFECTIVE DATE; DEFINITIONS

     1.1 Purpose. This Digene Corporation 1997 Stock Option Plan (the “Plan”) is intended to secure for Digene Corporation (the “Company”) and its stockholders the benefits of the incentive inherent in common stock ownership by consultants providing services to the Company and to afford such persons the opportunity to obtain or increase their proprietary interest in the Company on a favorable basis and thereby have an opportunity to share in its success.

     1.2 Effective Date. This Plan shall be effective on and after September 9, 1997.

     1.3 Definitions. Throughout this Plan, the following terms shall have the meanings indicated:

          (a) “Board” shall mean the Board of Directors of the Company.

          (b) “Change of Control” shall mean (a) the reorganization, consolidation or merger of the Company or any of its subsidiaries holding or controlling a majority of the assets relating to the business of the Company, with or into any third party (other than a subsidiary); (b) the assignment, sale, transfer, lease or other disposition of all or substantially all of the assets of the Company and its subsidiaries taken as a whole; or (c) the acquisition by any third party or group of third parties acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended) of shares of voting stock of the Company, the result of which in the case of any transaction described in clauses (a), (b) and (c) above is that immediately after the transaction the stockholders of the Company immediately before the transaction, other than the acquiror, own less than fifty percent (50%) of the combined voting power of the outstanding voting securities entitled to vote generally in the election of directors of the surviving or resulting corporation in a transaction specified in clause (a) above, the acquiror in a transaction specified in clause (b) above, or the Company or the acquiror in a transaction specified in clause (c) above.

          (c) “Code” shall mean the Internal Revenue Code of 1986, as amended, any successor revenue laws of the United States, and the rules and regulations promulgated thereunder.

          (d) “Committee” shall mean any committee of the Board designated by the Board to administer this Plan.

          (e) “Common Stock” shall mean the common stock, par value $.01 per share, of the Company.

          (f) “Company” shall mean Digene Corporation, a Delaware corporation.

          (g) “Consultant” shall mean a person that has entered into an agreement or arrangement (written or otherwise) to provide, or is currently engaged in providing, bona fide services (other than services in connection with the offer or sale of securities in a capital-raising transaction) to or for the benefit of the Company and is not an employee, officer or director of the Company or any of its subsidiaries on the date of grant of the Option; provided, that the Committee shall have sole discretion in the determination of whether a person is a Consultant to the Company for the purposes of this Plan.

          (h) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

          (i) “Fair Market Value” shall mean with respect to the Common Stock on any day, (i) the closing sales price of a share of Common Stock as reported on the principal securities exchange on which shares of Common Stock are then listed or admitted to trading, or (ii) if not so reported, the closing sales price of a share of Common Stock as published in the NASDAQ National Market Issues report in the Eastern Edition of The Wall Street Journal, or (iii) if not so reported, the average of the closing bid and asked prices of a share of Common Stock as reported on the NASDAQ National Market System, or (iv) if not so reported, as furnished by any member of the National Association of Securities Dealers, Inc. selected by the Committee. In the event that the price of a share of Common Stock shall not be so reported or furnished, the Fair Market Value of a share of Common Stock shall be determined by the Committee in good faith. The market value of an Option granted under the Plan on any day shall be the market value of the underlying Common Stock, determined as aforesaid, less the exercise price of the Option. A “business day” is any day on which the relevant market is open for trading.

          (j) “Option” shall mean an option to purchase shares of Common Stock granted by the Committee under this Plan.

          (k) “Option Agreement” shall mean the certificate evidencing an Option grant.

          (l) “Option Shares” shall mean the shares of Common Stock issuable upon exercise of an Option.

          (m) “Plan” shall mean this Digene Corporation 1997 Stock Option Plan, as the same may be amended from time to time.

          (n) “Termination of Engagement” shall mean the termination of a Consultant’s consulting engagement with the Company such that from and after such date the Consultant is no longer expected, in the sole discretion of the Committee, to be engaged in providing bona fide services to or for the benefit of the Company; provided, however, that a Termination of Engagement shall not be deemed to have occurred if the Consultant has become

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an employee, officer or director of the Company in which event a Termination of Engagement shall occur only upon the termination (whether voluntary or involuntary) of all positions with the Company.

ARTICLE II
ADMINISTRATION

     2.1 Committee Administration. This Plan and the Options granted hereunder shall be interpreted, construed and administered by the Committee in its sole discretion. A person who has been granted Options under the Plan may appeal to the Committee in writing any decision or action of the Committee with respect to the Plan that adversely affects such person. Upon review of such appeal and in any other case where the Committee has acted with respect to the Plan, the interpretation and construction by the Committee of any provisions of this Plan or of any Option shall be conclusive and binding on all parties.

     2.2 Committee Composition. The Committee shall consist of not less than two persons who shall be members of the Board and shall be subject to such terms and conditions as the Board may prescribe. Each Committee member shall be a “Non-Employee Director” within the meaning of Rule 16b-3 promulgated under the Exchange Act. Once designated, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused and remove all members of the Committee.

     A majority of the entire Committee shall constitute a quorum, and the action of a majority of the members present at any meeting at which a quorum is present shall be deemed the action of the Committee. In addition, any decision or determination reduced to writing and signed by all of the members of the Committee shall be fully as effective as if it had been made by a majority vote at a meeting duly called and held. Subject to the provisions of this Plan and the Company’s bylaws, and to any terms and conditions prescribed by the Board, the Committee may make such additional rules and regulations for the conduct of its business as it shall deem advisable. The Committee shall hold meetings at such times and places as it may determine.

     2.3 Committee Powers. The Committee shall have authority to grant Options pursuant to an Option Agreement providing for such terms (not inconsistent with the provisions of this Plan) as the Committee may consider appropriate. Such terms shall include, without limitation, as applicable, the number of shares, the Option price, the medium and time of payment, the term of each grant and any vesting requirements and may include conditions (in addition to those contained in this Plan) on the exercisability of all or any part of an Option. Notwithstanding any such conditions, the Committee may, in its discretion, at any time on or after the date of grant, accelerate the time at which any Option may be exercised. In addition, the Committee shall have complete discretionary authority to prescribe the form of Option Agreements; to adopt, amend and rescind rules and regulations pertaining to the administration of the Plan; and to make all other determinations necessary or advisable for the administration of this Plan. The express grant in the Plan of any specific power to the Committee shall not be

3

construed as limiting any power or authority of the Committee. All expenses of administering this Plan shall be borne by the Company.

     2.4 Limitation on Receipt of Options by Committee Members. No person while a member of the Committee shall be eligible to be granted Options under this Plan, but a member of the Committee may be granted and may exercise options to purchase stock granted under other plans of the Company, and a member of the Committee may exercise Options granted under this Plan prior to his or her becoming a member of the Committee.

     2.5 Good Faith Determinations. No member of the Committee or other member of the Board shall be liable for any action or determination made in good faith with respect to this Plan or any Option granted hereunder.

ARTICLE III
ELIGIBILITY; SHARES SUBJECT TO PLAN

     3.1 Eligibility. The Committee shall from time to time determine and designate Consultants to receive Options under this Plan, the number of Options to be granted to each such Consultant, the formula or other basis on which such Options shall be granted to Consultants and any condition or conditions to the exercise of such Options consistent with the terms of this Plan. In making any such grant, the Committee may take into account the nature of services rendered by a Consultant, commissions, fees or other compensation paid by the Company to the Consultant, the capacity of the Consultant to contribute to the success of the Company and other factors that the Committee may consider relevant.

     3.2 Shares Subject to this Plan. Subject to the provisions of Section 4.1(e) (relating to adjustment for changes in Common Stock), the maximum number of shares that may be issued under this Plan shall not exceed in the aggregate 500,000 shares of Common Stock. Such shares may be authorized and unissued shares or authorized and issued shares that have been reacquired by the Company. If any Options granted under this Plan shall for any reason terminate or expire or be surrendered without having been exercised in full, then the shares not purchased under such Options shall be available again for grant hereunder.

ARTICLE IV
STOCK OPTIONS

     4.1 Grant; Terms and Conditions. The Committee, in its discretion, may from time to time grant Options to any Consultant eligible to receive Options under this Plan. Each Consultant who is granted an Option shall receive an Option Agreement from the Company in a form specified by the Committee and containing such provisions, consistent with this Plan, as the Committee, in its sole discretion, shall determine at the time the Option is granted.

          (a) Number of Shares. Each Option Agreement shall state the number of shares of Common Stock to which it pertains.

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          (b) Option Price. Each Option Agreement shall state the Option exercise price, which shall be the price determined by the Committee, in its absolute discretion, to be suitable to attain the purposes of this Plan; provided that the exercise price of an Option shall not be lower than the Fair Market Value of the Common Stock as of the date of the grant.

          (c) Medium and Time of Payment. Upon the exercise of an Option, the Option exercise price shall be payable in United States dollars, in cash (including by check) or (unless the Committee otherwise prescribes) in shares of Common Stock owned by the optionee, in Options granted to the optionee under the Plan which are then exercisable, or in a combination of cash, Common Stock and Options. If all or any portion of the Option exercise price is paid in Common Stock owned by the optionee, then that Common Stock shall be valued at its Fair Market Value as of the date the Option is exercised. If all or any portion of the Option exercise price is paid in Options granted to the optionee under the Plan, then such Options shall be valued at their Fair Market Value as of the date the Option is exercised. For the purpose of assisting an optionee to exercise an Option, the Company may, in the discretion of the Board, make loans to the optionee or guarantee loans made by third parties to the optionee, in either case on such terms and conditions as the Board may authorize.

          (d) Term and Exercise of Options. The term of each Option shall be determined by the Committee at the time the Option is granted; provided that the term of an Option shall in no event be more than ten years from the date of grant. Not less than one hundred shares may be purchased at any one time unless the number purchased is the total number at the time purchasable under the Option. During the lifetime of an optionee, the Option shall be exercisable only by him or her and shall not be assignable or transferable by him or her and no person shall acquire any rights therein. Following an optionee’s death, the Option may be exercised (to the extent permitted under the Plan) by the person designated by the optionee as a beneficiary in a written notification delivered to the Committee prior to the optionee’s death, or if there is no such written designation, by the executor or administrator of the optionee’s estate or by the person or persons to whom such rights pass by will or by the laws of descent or distribution.

          (e) Recapitalization; Reorganization. Subject to any required action by the stockholders of the Company, the maximum number of shares of Common Stock that may be issued under this Plan, the number of shares of Common Stock covered by each outstanding Option, the kind of shares subject to outstanding Options and the per share exercise price under each outstanding Option shall be adjusted, in each case, to the extent and in the manner the Committee deems appropriate for any increase or decrease in the number of issued shares of Common Stock resulting from a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, subdivision or consolidation of shares or the payment of a stock dividend (but only on the Common Stock) or any other change in the corporate structure or state of the Company.

          Subject to any action that may be required on the part of the stockholders of the Company, if the Company is the surviving corporation in any merger, consolidation, sale, transfer, acquisition, tender offer or exchange offer which does not result in a Change of Control,

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then each outstanding Option shall pertain to and apply to the securities or other consideration that a holder of the number of shares of Common Stock subject to the Option would have been entitled to receive in such transaction.

          If the Company is the surviving corporation in any merger, consolidation, sale transfer, acquisition, tender offer or exchange offer which results in a Change of Control, each optionee shall, in such event, have the right immediately prior to such transaction to exercise his or her Option in whole or in part without regard to any installment provision contained in his or her Agreement; provided, however, that the exercisability of any Option shall not be accelerated if, in the opinion of the Board, such acceleration would prevent pooling of interests accounting treatment for the Change of Control transaction and such accounting treatment is desired by the parties to such transaction. Any Option not exercised immediately prior to such transaction shall pertain to and apply to the securities or other consideration that a holder of the number of shares of Common Stock subject to the Option would have been entitled to receive in the transaction.

          A merger, consolidation, sale, transfer, acquisition, tender offer or exchange offer in which the Company is not the surviving corporation, other than such a transaction effected for the purpose of changing the Company’s domicile, shall cause each holder of an outstanding Option to have the right immediately prior to such transaction to exercise his or her Option in whole or in part without regard to any installment provision contained in his or her Agreement. Any Option not exercised immediately prior to such transaction shall pertain to and apply to the securities or other consideration that a holder of the number of shares of Common Stock subject to the Option would have been entitled to receive in the transaction.

          A dissolution or liquidation of the Company shall cause each outstanding Option to terminate, provided that each holder shall, in such event, have the right immediately prior to such dissolution or liquidation to exercise his or her Option in whole or in part without regard to any installment provision contained in his or her Agreement.

          Notwithstanding the foregoing, in no event shall any Option be exercisable after the date of termination of the exercise period of such Option.

          In the case of a merger, consolidation, sale, transfer, acquisition, tender offer or exchange offer effected for the purpose of changing the Company’s domicile, each outstanding Option shall continue in effect in accordance with its terms and shall apply or relate to the same number of shares of common stock of such surviving corporation as the number of shares of Common Stock to which it applied or related immediately prior to such transaction, adjusted for any increase or decrease in the number of outstanding shares of common stock of the surviving corporation effected without receipt of consideration.

          In the event of a change in the Common Stock as presently constituted, which change is limited to a change of all of the authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of this Plan.

          The foregoing adjustments shall be made by the Committee, whose determination shall be final, binding and conclusive.

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          Except as expressly provided in this subsection, the holder of an Option shall have no rights by reason of (i) any subdivision or consolidation of shares of any class, (ii) any stock dividend, (iii) any other increase or decrease in the number of shares of stock of any class, (iv) any dissolution, liquidation, merger or consolidation or spin-off, split-off or split-up of assets of the Company or stock of another corporation or (v) any issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class. Moreover, except as expressly provided in this subsection, the occurrence of one or more of such events shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to the Option.

          The grant of an Option pursuant to this Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate, sell or otherwise transfer all or any part of its business or assets.

          (f) Rights as a Stockholder. Subject to Section 5.9 of this Plan regarding uncertificated shares, an optionee or a transferee of an Option shall have no rights as a stockholder with respect to any shares covered by his or her Option until the date of the issuance of a stock certificate to him or her for those shares upon payment of the exercise price. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in subsection 4.1(e).

          (g) Modification, Extension and Renewal of Options. Subject to the terms and conditions and within the limitations of this Plan, the Committee may, on or after the date of grant, modify, extend or renew outstanding Options granted under this Plan or accept the surrender of outstanding Options (to the extent not theretofore exercised) and authorize the granting of new Options in substitution therefor (to the extent not theretofore exercised). No modification of an Option shall, without the consent of the holder thereof, alter or impair any rights or obligations under any Option theretofore granted under this Plan.

          (h) Exercisability and Term of Options. Unless earlier terminated, Options granted pursuant to this Plan shall be exercisable at any time on or after the dates of exercisability and before the expiration date set forth in the Option Agreement. Notwithstanding the foregoing, unless otherwise determined by the Committee on or after the date of grant, an Option shall terminate and may not be exercised after the date of a Termination of Engagement, except that: (1) unless the Committee shall determine that the Consultant’s engagement was terminated for conduct that in the judgment of the Committee involves dishonesty or action by the Consultant that is detrimental to the best interest of the Company, the Consultant may at any time within three months after Termination of Engagement exercise his or her Option but only to the extent the Option was exercisable on the date of Termination of Engagement; (2) if such Consultant’s engagement terminates on account of total and permanent disability, then the Consultant may at any time within one year after Termination of Engagement exercise the Option but only to the extent that the Option was exercisable on the date of Termination of Engagement; and (3) if such Consultant dies while engaged as a consultant to the Company, or

7

within the three or twelve month period following Termination of Engagement as described in clause (1) or (2) above, then his or her Option may be exercised at any time within twelve months following his or her death by the person specified in Section 4.1(d), but only to the extent that such Option was exercisable by him or her on the date of Termination of Engagement. The Committee may, in its discretion, provide in any Option Agreement or determine at any time after the date of grant that the exercisability of an Option will be accelerated, in whole or in part, in the event of a Consultant’s death or disability. The Committee may, in its discretion, extend the post-termination exercise periods set forth in this subsection, but not beyond the expiration date of the Option. Notwithstanding anything to the contrary in this subsection, an Option may not be exercised by anyone after the expiration of its term.

     4.2 Other Terms and Conditions. Through the Option Agreements authorized under this Plan, the Committee may impose such other terms and conditions, not inconsistent with the terms hereof, on the grant or exercise of Options, as it deems advisable.

     4.3 Inclusion of Prior Grants. From and after the Effective Date of this Plan, the grants of rights to purchase shares of Common Stock listed below shall, for the purposes of this Plan, be deemed to be Options granted under the terms of, and in accordance with, this Plan, such Options shall be governed by the terms of this Plan, and the terms of such Options shall include the terms and provisions of this Plan, the terms and conditions theretofore adopted by the Committee in connection with the grant of such Options and the terms and conditions set forth in the Option Agreements relating to such Options:

			Number of Shares
Name of Consultant	Date of Grant		Subject to Options
Robert McG. Lilley		4/18/97		125,000
Gerson Dores		7/18/97		25,000
Mark Van Asten		7/18/97		25,000
Greg Brown		7/18/97		25,000

ARTICLE V
MISCELLANEOUS

     5.1 Withholding Taxes. A Consultant granted Options under this Plan shall be conclusively deemed to have authorized the Company to withhold from the commissions, fees or other compensation of such Consultant funds in amounts or property (including Common Stock or Options) in value equal to any federal, state and local income, employment or other withholding taxes applicable to the income recognized by such Consultant and attributable to the Options or Option Shares as, when and to the extent, if any, required by law; provided, however, that, in lieu of the withholding of federal, state and local taxes as herein provided, the Company may require that the Consultant (or other person exercising such Option) pay the Company an

8

amount equal to the federal, state and local withholding taxes on such income at the time such withholding is required or such other time as shall be satisfactory to the Company.

     5.2 Amendment, Suspension, Discontinuance or Termination of Plan. The Board or Committee may at any time amend, discontinue or terminate the Plan or any part thereof (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirement or any change in applicable law) or for any other purpose permitted by law, or amend any Option previously granted, prospectively or retroactively (subject to Article III); provided, however, that, (i) unless otherwise required by law, the rights of a Consultant with respect to Options granted prior to such amendment, discontinuance or termination may not be impaired without the consent of such Consultant; (ii) except as otherwise provided in Section 4.1(d) hereof, the Committee or the Board shall not reduce the exercise price of Options previously awarded to any Consultant, whether through amendment, cancellation and replacement grant, or any other means, without prior stockholder approval; and (iii) the Company will seek the approval of the Company’s stockholders for any amendment if such approval is necessary to comply with the Code, Federal or state securities laws or any other applicable laws or regulations, including the Marketplace Rules of the National Association of Securities Dealers, Inc. Unless sooner terminated by the Committee, this Plan will terminate on September 9, 2007.

     5.3 Governing Law. This Plan shall be governed by, and construed in accordance with, the laws of the State of Maryland (without giving effect to principles of conflict of laws).

     5.4 Designation. This Plan may be referred to in other documents and instruments as the “Digene Corporation 1997 Stock Option Plan.”

     5.5 Indemnification of Committee. In addition to such other rights of indemnification as they may have as directors or as members of the Committee, the members of the Committee shall be indemnified by the Company against the reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any investigation, action, suit or proceeding, or in connection with any appeal therefrom, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with this Plan or any Option, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in or dismissal or other discontinuance of any such investigation, action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such investigation, action, suit or proceeding that such Committee member is liable for negligence or misconduct in the performance of his or her duties; provided that, within 60 days after institution of any such investigation, action, suit or proceeding, a Committee member shall in writing offer the Company the opportunity, at its own expense, to handle and defend the same.

     5.6 Reservation of Shares. The Company shall at all times during the term of this Plan, and so long as any Option shall be outstanding, reserve and keep available (and will seek or obtain from any regulatory body having jurisdiction any requisite authority in order to issue) such number of shares of its Common Stock as shall be sufficient to satisfy the requirements of

9

this Plan. Inability of the Company to obtain from any regulatory body of appropriate jurisdiction authority considered by the Company to be necessary or desirable to the lawful issuance of any shares of its Common Stock hereunder shall relieve the Company of any liability in respect of the nonissuance or sale of such Common Stock as to which such requisite authority shall not have been obtained.

     5.7 Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to the exercise of Options will be used for general corporate purposes.

     5.8 No Obligation to Exercise. The granting of an Option shall impose no obligation upon the holder to exercise or otherwise realize the value of that Option.

     5.9 Uncertificated Shares. A Consultant who exercises an Option to acquire Common Stock may, but need not, be issued a stock certificate in respect of the Common Stock so acquired. A “book entry” (i.e., a computerized or manual entry) shall be made in the records of the Company to evidence the issuance of shares of Common Stock to a Consultant where no certificate is issued in the name of the Consultant. Such Company records, absent manifest error, shall be binding on Consultants. In all instances where the date of issuance of shares may be deemed significant but no certificate is issued in accordance with this Section 5.9, the date of the book entry shall be the relevant date for such purposes.

     5.10 Forfeiture for Competition. If a participant in this Plan provides services to a competitor of the Company or any of its subsidiaries, whether as an employee, officer, director, independent contractor, consultant, agent or otherwise, such services being of a nature that can reasonably be expected to involve the skills and experience used or developed by the participant while a Consultant, then that participant’s rights to any Options hereunder shall automatically be forfeited, subject to a determination to the contrary by the Committee.

     5.11 Successors. This Plan shall be binding upon any and all successors of the Company.

     5.12 Engagement Rights. Nothing in this Plan or in any Option Agreement shall confer on any Consultant any right to continue as a Consultant of the Company or any of its subsidiaries or shall interfere in any way with the right of the Company or any of its subsidiaries to terminate such person’s engagement at any time.

     5.13 Other Actions. Nothing contained in the Plan shall be construed to limit the authority of the Company to exercise its corporate rights and powers, including, but not by way of limitation, the right of the Company to grant options for proper corporate purposes other than under the Plan with respect to any employee or other person, firm, corporation or association.

     5.14 Tax Treatment and Characterization. The Options granted hereunder shall not be considered incentive stock options that qualify under Code Section 422.

     5.15 Legend. The Committee may require each person exercising an Option to represent to and agree with the Company in writing that he or she is acquiring the Option Shares

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without a view to distribution thereof. In addition to any legend required by this Plan, the stock certificates representing such Option Shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer.

          All certificates for Option Shares shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed, any applicable federal or state securities law, and any applicable corporate law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

     5.16 Unfunded Status of Plan. The Plan is intended to constitute an “unfunded plan for incentive compensation. With respect to any payment not yet made to a participant in this Plan by the Company, nothing contained herein shall give any such participant any rights that are greater than those of a general creditor of the Company.

     5.17 Listing and Other Conditions.

          (a) If the Common Stock is listed on a national securities exchange, the issuance of any shares of Common Stock upon exercise of an Option shall be conditioned upon such shares being listed on such exchange. The Company shall have no obligation to issue such shares unless and until such shares are so listed, and the right to exercise any Option shall be suspended until such listing has been effected.

          (b) If at any time counsel to the Company shall be of the opinion that any sale or delivery of shares of Common Stock upon exercise of an Option is or may in the circumstances be unlawful or result in the imposition of excise taxes under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act of 1933, as amended, or otherwise with respect to shares of Common Stock, and the right to exercise any Option shall be suspended until, in the opinion of such counsel, such sale or delivery shall be lawful or shall not result in the imposition of excise taxes.

          (c) Upon termination of any period of suspension under this Section 5.17, any Option affected by such suspension which shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares which would otherwise have become available during the period of such suspension, but no such suspension shall extend the term of any Option.

     5.18 Construction. Wherever any words are used in the Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply.

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     5.19 Severability. If any part of the Plan shall be determined to be invalid or void in any respect, such determination shall not affect, impair, invalidate or nullify the remaining provisions of the Plan which shall continue in full force and effect.

     5.20 Headings. Article and section headings contained in the Plan are included for convenience only and are not to be used in construing or interpreting the Plan.

As revised by the Board at its meeting held September 10, 1998 — the last sentence of Section 4.1(d) amended regarding designation of a beneficiary and subsection (3) of the second sentence of Section 4.1(h) amended regarding exercise by designated beneficiary.

As amended and restated by the Board at its meeting held October 26, 2000 — adding and clarifying the definition “Change of Control” to Section 1.3(b) and replacing Section 4.1(e) to provide amended provisions regarding the treatment of Options in the event of a Change of Control transaction.

As revised by the Committee at its meeting held July 26, 2006 to require stockholder approval of any reduction of the exercise price of outstanding Options.

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EX-10.13

EXHIBIT 10.13

DIGENE CORPORATION

AMENDED AND RESTATED 1999 INCENTIVE PLAN

Article I
Purpose

     The purpose of the 1999 Incentive Plan (the “Plan”) is to enable Digene Corporation (the “Company”) to offer Employees of the Company and its Subsidiaries equity interests in the Company and options to acquire equity interests in the Company, thereby helping to attract, retain and reward such persons and strengthen the mutuality of interests between such persons and the Company’s stockholders.

Article II
Definitions

     For purposes of the Plan, the following terms shall have the following meanings:

     2.1 “Award” shall mean an award under the Plan of a Stock Option, Restricted Stock Unit, Unrestricted Stock or Performance Shares.

     2.2 “Board” shall mean the Board of Directors of the Company.

     2.3 “Change of Control” shall mean (a) the reorganization, consolidation or merger of the Company or any of its Subsidiaries holding or controlling a majority of the assets relating to the business of the Company, with or into any third party (other than a Subsidiary); (b) the assignment, sale, transfer, lease or other disposition of all or substantially all, but at least 40%, of the assets of the Company and its Subsidiaries taken as a whole (measured by gross fair market value without regard to liabilities); or (c) the acquisition by any third party or group of third parties acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended) of shares of voting stock of the Company, the result of which in the case of any transaction described in clauses (a), (b) and (c) above is that immediately after the transaction the stockholders of the Company immediately before the transaction, other than the acquiror, own less than fifty percent (50%) of the combined voting power of the outstanding voting securities entitled to vote generally in the election of directors of the surviving or resulting corporation in a transaction specified in clause (a) above, the acquiror in a transaction specified in clause (b) above, or the Company or the acquiror in a transaction specified in clause (c) above.

     2.4 “Code” shall mean the Internal Revenue Code of 1986, as amended.

     2.5 “Committee” shall mean the Compensation Committee of the Board, or any other committee of the Board designated by the Board to administer this Plan, with any such Committee consisting of two or more members of the Board; provided, that if the Compensation Committee or any other such committee does not meet the applicable independence requirements of Rule 16b-3(d) promulgated under the Securities Exchange Act of 1934, or NASDAQ, for Awards to Reporting Persons the term “Committee” shall mean the Board and for purposes of all

Awards granted to the Chief Executive Officer of the Company under this Plan the term “Committee” shall mean the independent members of the Board.

     2.6 “Common Stock” shall mean the Common Stock, par value $0.01 per share, of the Company.

     2.7 “Date of Grant” shall mean the date designated by the Committee as the date as of which the Committee grants an Award, which shall not be earlier than the date on which the Committee approves the granting of such Award.

     2.8 “Disability” shall mean a disability that results in a Participant’s Termination of Employment with the Company or a Subsidiary, as determined pursuant to standard Company procedures.

     2.9 “Effective Date” shall mean the date on which the Plan was originally adopted by the Board.

     2.10 “Employee” shall mean any person engaged or proposed to be engaged as an officer or employee of the Company or one of its Subsidiaries; provided, however, that in the case of an Incentive Stock Option, the term “Employee” shall mean any employee of the Company or of a “subsidiary corporation” (within the meaning of Section 424(f) of the Code) of the Company.

     2.11 “Fair Market Value” for purposes of the Plan, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, shall mean with respect to the Common Stock on any day, (i) the closing sales price (or other exchange-designated daily sales price) on the immediately preceding business day of a share of Common Stock as reported on the principal securities exchange on which shares of Common Stock are then listed or admitted to trading, or (ii) if not so reported, the closing sales price (or other Nasdaq-designated daily sales price) on the immediately preceding business day of a share of Common Stock as published in the Nasdaq National Market Issues report in the Eastern Edition of The Wall Street Journal, or (iii) if not so reported, the average of the closing (or other designated) bid and asked prices on the immediately preceding business day as reported on the Nasdaq National Market System, or (iv) if not so reported, as furnished by any member of the National Association of Securities Dealers, Inc. selected by the Committee. In the event that the price of a share of Common Stock shall not be so reported or furnished, the Fair Market Value of a share of Common Stock shall be determined by the Committee in good faith. A “business day” is any day, other than Saturday or Sunday, on which the relevant market is open for trading.

     2.12 “Incentive Stock Option” shall mean any Stock Option awarded under the Plan to an Employee that is intended to be and designated as an “Incentive Stock Option” within the meaning of Section 422 of the Code.

     2.13 “Non-Qualified Stock Option” shall mean any Stock Option granted under the Plan that is not an Incentive Stock Option.

     2.14 “Participant” shall mean an Employee to whom an Award has been granted.

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     2.15 “Performance Goal” shall mean objective financial or operating goals and measures established by the Committee in accordance with Section 162(m) of the Code. Such Performance Goals for any Performance Shares Award must be established in writing not later than ninety (90) days after the commencement of a Performance Period; provided that the outcome of each Performance Goal is substantially uncertain at the time the Performance Goal is established. Such Performance Goals may relate to identified business units, or the Company or any Subsidiary and be based upon such performance criteria or combination of factors as the Committee may deem appropriate, including, but not limited to, specified levels of earnings per share, return on investment, return on stockholders’ equity, sales, costs or other objective measures related to the Company’s performance.

     2.16 “Performance Period” shall mean the period of time selected by the Committee during which the achievement of Performance Goals is measured for purposes of determining the extent to which an applicable Performance Shares Award has been earned or will vest.

     2.17 “Performance Shares” shall mean an Award, granted pursuant to Article VII of this Plan, of the contingent right to receive a designated number of shares of Common Stock, payable in Common Stock, cash, or a combination of both (depending on the medium of payment selected by the Committee), at the end of a specified Performance Period if specified Performance Goals are achieved. Such rights are subject to forfeiture or reduction if the applicable Performance Goals are not met within the applicable Performance Period.

     2.18 “Performance Shares Award” shall mean an Award of Performance Shares.

     2.19 “Performance Shares Award Commitment” shall mean the written commitment delivered by the Company to the Participant evidencing a Performance Shares Award and setting forth such terms and conditions of the Award as may be deemed appropriate by the Committee. The Performance Shares Award Commitment shall be in a form approved by the Committee, and once executed, shall be deemed amended from time to time to include such additional terms and conditions as the Committee may specify after the execution in the exercise of its powers under the Plan.

     2.20 “Restricted Stock Unit” shall mean an Award granted pursuant to Section 8.1 hereof, subject to such restrictions as the Committee may determine, as evidenced in a Restricted Stock Unit Agreement. Shares of Common Stock issuable under a Restricted Stock Unit Award will be issued when, in accordance with the terms of the Restricted Stock Unit Agreement, they become transferable and free of risk of forfeiture.

     2.21 “Restricted Stock Unit Agreement” shall mean the agreement evidencing the grant of Restricted Stock Units to an Employee pursuant to this Plan.

     2.22 “Restriction Period” shall have the meaning set forth in Section 8.2(c).

     2.23 “Stock Option” or “Option” shall mean any option to purchase shares of Common Stock granted pursuant to Article VI hereof.

     2.24 “Subsidiary” shall mean any subsidiary of the Company, 50% or more of the voting stock of which is owned, directly or indirectly, by the Company, that is currently existing

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as of the Effective Date or formed or acquired by the Company while any Award is outstanding under the Plan.

     2.25 “Termination of Employment” shall mean a termination of employment with the Company and all of its Subsidiaries for reasons other than a military or personal leave of absence granted by the Company or any Subsidiary.

     2.26 “Unrestricted Stock” shall mean Common Stock granted under Section 8.3 hereof.

     2.27 “Unrestricted Stock Agreement” shall mean the agreement evidencing the grant of Unrestricted Stock to an Employee pursuant to this Plan.

Article III
Administration

     3.1 The Committee. The Plan shall be administered and interpreted by the Committee.

     3.2 Awards. The Committee shall have full authority to grant, pursuant to the terms of the Plan, Stock Options, Restricted Stock Units, Unrestricted Stock or Performance Shares to persons eligible under Article V. In particular, the Committee shall have the authority:

          (a) to select the persons to whom Stock Options, Restricted Stock Units, Unrestricted Stock or Performance Shares may from time to time be granted;

          (b) to determine whether and to what extent Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Units, Unrestricted Stock or Performance Shares, or any combination thereof, are to be granted to one or more persons eligible to receive Awards under Article V;

          (c) to determine the number of shares of Common Stock to be covered by each Award granted hereunder; and

          (d) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder (including, but not limited to, the option price, the option term, and provisions relating to any restriction or limitation, any vesting schedule or acceleration, any performance guidelines or criteria or any forfeiture restrictions or waiver provisions of the Award), and any conditions (in addition to those contained in this Plan) on the exercisability of all or any part of an Option or on the transferability or forfeitability of Restricted Stock Units. Notwithstanding any such conditions, the Committee may, in its discretion at any time, accelerate the time at which any Option may be exercised or the time at which the Common Stock underlying Restricted Stock Units may become transferable or nonforfeitable.

     3.3 Guidelines. Subject to Article IX hereof, the Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any Award granted under the Plan (and any agreements relating thereto); and to otherwise

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supervise the administration of the Plan. The express grant in the Plan of any specific power to the Committee shall not be construed as limiting any other power or authority of the Committee. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent it shall deem necessary or advisable to carry out the purposes of the Plan. Notwithstanding the foregoing, no action of the Committee under this Section 3.3 shall impair the rights of any Participant without the Participant’s consent, unless otherwise required by law.

     A majority of the entire Committee shall constitute a quorum, and the action of a majority of the members present at any meeting at which a quorum is present shall be deemed the action of the Committee. In addition, any decision or determination reduced to writing and signed by all of the members of the Committee shall be fully as effective as if it had been made by a majority vote at a meeting duly called and held. Subject to the provisions of this Plan and the Company’s Bylaws, and to any terms and conditions prescribed by the Board, the Committee may make such additional rules and regulations for the conduct of its business as it shall deem advisable. The Committee shall hold meetings at such times and places as it may determine.

     3.4 Decisions Final. Any decision, interpretation or other action made or taken in good faith by the Committee arising out of or in connection with the Plan shall be final, binding and conclusive on the Company, all Participants and their respective heirs, executors, administrators, successors and assigns.

Article IV
Share Limitation

     4.1 Shares. The maximum aggregate number of shares of Common Stock that may be issued under the Plan is 5,100,000 (subject to increase or decrease pursuant to Section 4.3), which may be either authorized and unissued shares of Common Stock or authorized and issued shares of Common Stock reacquired by the Company; provided that any grant of Performance Shares, Restricted Stock Units or Unrestricted Stock under the Plan on or after October 26, 2005 will be counted against the maximum aggregate number of shares issuable under the Plan as two shares of Common Stock for every one share of Common Stock subject thereto. If any Option granted under the Plan shall expire, terminate or be canceled for any reason without having been exercised in full, the number of shares of Common Stock not purchased under such Option shall again be available for the purposes of the Plan. Further, if any Performance Shares are unearned or forfeited, or Restricted Stock Units are forfeited, the shares subject to the portion of such Award unearned or forfeited, as the case may be, shall again be available under the Plan; provided that, to the extent that a share of Common Stock that was subject to an Award that counted as two shares against the maximum aggregate number of shares issuable under the Plan is recycled back into the Plan, the Plan will be credited with two shares. Notwithstanding anything to the contrary in this Section 4.1, (i) should the exercise price of a Stock Option be paid with shares of Common Stock or by reducing the number of shares of Common Stock issuable upon such exercise, or (ii) should shares of Common Stock otherwise issuable under the Plan be paid in cash or withheld by the Company in satisfaction of the withholding taxes incurred in connection with the exercise of a Stock Option or the vesting of an Award, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the Stock Option is exercised or which vest under the Award,

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and not by the net number of shares of Common Stock issued to the holder of such Stock Option or Award.

     4.2 Individual Limit. No Employee may be granted Awards covering more than 500,000 shares of Common Stock (subject to increase or decrease pursuant to Section 4.3) during any calendar year.

     4.3 Changes. In the event of any merger, reorganization, consolidation, recapitalization, dividend (other than a regular cash dividend), stock split, or other change in corporate structure affecting the Common Stock, such substitution or adjustment shall be made in the maximum aggregate number of shares which may be issued under the Plan, the maximum number of shares with respect to which Awards may be granted to any individual during any year, the number and option price of shares subject to outstanding Options, and the number of shares subject to other outstanding Awards, as may be determined to be appropriate by the Committee, in its sole discretion, provided that the number of shares subject to any Award shall always be a whole number.

Article V
Eligibility

     5.1 Awards to Employees. All officers and other Employees of the Company and its Subsidiaries are eligible to be granted Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Units, Unrestricted Stock or Performance Shares under the Plan. A Director who is an Employee of the Company or a Subsidiary shall be eligible to receive Awards pursuant to this Article V.

Article VI
Stock Options

     6.1 Options. Each Stock Option granted under the Plan shall be either an Incentive Stock Option or a Non-Qualified Stock Option.

     6.2 Grants. The Committee shall have the authority to grant to any person eligible under Section 5.1 one or more Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock Options. To the extent that any Stock Option does not qualify as an Incentive Stock Option (whether because of its provisions or the time or manner of its exercise or otherwise), such Stock Option or the portion thereof which does not qualify as an Incentive Stock Option shall constitute a separate Non-Qualified Stock Option.

     6.3 Incentive Stock Options. Anything in the Plan to the contrary notwithstanding, no term of the Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify the Plan under Section 422 of the Code, or, without the consent of the Participants affected, to disqualify any Incentive Stock Option under such Section 422 of the Code.

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     6.4 Terms of Options. Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable:

          (a) Stock Option Certificate. Each Stock Option shall be evidenced by, and subject to the terms of, a Stock Option Certificate evidencing the Stock Option grant. The Stock Option Certificate shall specify whether the Option is an Incentive Stock Option or a Non-Qualified Stock Option, the number of shares of Common Stock subject to the Stock Option, the option price, the option term, and the other terms and conditions applicable to the Stock Option.

          (b) Option Price. Subject to subsection (m) below, the option price per share of Common Stock purchasable upon exercise of a Stock Option shall be determined by the Committee at the time of grant, but shall be not less than 100% of the Fair Market Value of the Common Stock on the Date of Grant.

          (c) Option Term. Subject to subsection (m) below, the term of each Stock Option shall be fixed by the Committee at the time of grant, but no Stock Option granted prior to September 20, 2005 shall be exercisable more than ten years after the date it is granted and no Stock Option granted on or after September 20, 2005 shall be exercisable more than seven years after the date it is granted.

          (d) Exercisability. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at the time of grant; provided, however, that the Committee may waive any installment exercise or waiting period provisions, in whole or in part, at any time after the Date of Grant, based on such factors as the Committee shall deem appropriate in its sole discretion.

          (e) Method of Exercise. Subject to such installment exercise and waiting period provisions as may be imposed by the Committee, Stock Options may be exercised in whole or in part at any time during the option term by delivering to the Company written notice of exercise specifying the number of shares of Common Stock to be purchased and the option price therefor. The notice of exercise shall be accompanied by payment in full of the option price and, if requested, by the representation described in Section 11.2. Payment of the option price may be made (i) in cash or by check payable to the Company, (ii) unless otherwise determined by the Committee on or after the Date of Grant, in shares of Common Stock duly owned by the Participant (and for which the Participant has good title free and clear of any liens and encumbrances) or (iii) in the case of an Option that is not an Incentive Stock Option, unless otherwise determined by the Committee on or after the Date of Grant, by reduction in the number of shares of Common Stock issuable upon such exercise, based, in each case, on the Fair Market Value of the Common Stock on the date of exercise. Upon satisfaction of the conditions provided herein, a stock certificate representing the number of shares of Common Stock to which the Participant is entitled shall be issued and delivered to the Participant, subject to Section 11.3. For the purpose of assisting a Participant to exercise an Option, the Company may, in the discretion of the Board, make loans to the Participant or guarantee loans made by third parties to the Participant, in either case on such terms and conditions as the Board may authorize. Nothing contained in this Plan shall prevent or prohibit a Participant from exercising his or her Options under a broker-facilitated cashless exercise transaction.

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          (f) Death. Unless otherwise determined by the Committee on or after the Date of Grant, in the event of a Participant’s Termination of Employment by reason of death, any Stock Option held by such Participant which was exercisable on the date of death may thereafter be exercised by the legal representative of the Participant’s estate until the earlier of one year after the date of death or the expiration of the stated term of such Stock Option, and any Stock Option not exercisable on the date of death shall be forfeited.

          (g) Disability. Unless otherwise determined by the Committee on or after the Date of Grant, in the event of a Participant’s Termination of Employment by reason of Disability, any Stock Option held by such Participant which was exercisable on the date of such Termination of Employment may thereafter be exercised by the Participant until the earlier of one year after such date or the expiration of the stated term of such Stock Option, and any Stock Option not exercisable on the date of such Termination of Employment shall be forfeited. If the Participant dies during such one-year period, any unexercised Stock Options held by the Participant at the time of death may thereafter be exercised by the legal representative of the Participant’s estate until the earlier of one year after the date of the Participant’s death or the expiration of the stated term of such Stock Option. If an Incentive Stock Option is exercised after the expiration of the exercise period that applies for purposes of Section 422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock Option.

          (h) Termination of Employment. Subject to Section 11.4, in the event of a Participant’s Termination of Employment by reason of retirement or for any reason other than death or Disability, all Stock Options held by such Participant that were exercisable on the date of such Termination of Employment may be exercised by the Participant at any time during the longer of: (i) the three (3) month period after his or her Termination of Employment; or (ii) in the case of an Option that is not an Incentive Stock Option and in the sole discretion of the Committee and as long as such change does not have an adverse affect under Section 409A of the Code, if, at the time of the Participant’s Termination of Employment, the Participant is engaged as a consultant by the Company, the period during which the Participant is engaged as a consultant by the Company but not to exceed twelve (12) months after the Participant’s Termination of Employment; provided, however, that if the Committee shall determine that the Employee’s employment was terminated for conduct that in the judgment of the Committee involves dishonesty or action by the Employee that is detrimental to the best interest of the Company, all Stock Options held by the Employee on the date of such Termination of Employment shall be forfeited. Notwithstanding anything to the contrary in this Subsection, but subject to the last sentence of this Subsection, a Stock Option shall not terminate upon a Participant’s Termination of Employment if at the time thereof the Participant serves as a Director of the Company or its successor. In such event, once the Participant ceases to be a Director of the Company or its successor, all Stock Options held by such Participant that were exercisable on the date the Participant ceased to be a Director may be exercised by the Participant at any time during the three month period after the Participant ceases to be a Director. Notwithstanding anything to the contrary in this Subsection, no Stock Option may be exercised after the expiration of the stated term of such Stock Option.

          (i) Change of Control. Notwithstanding the provisions of Section 4.3, in the event of a Change of Control, all outstanding Stock Options shall immediately become fully exercisable, and upon payment by the Participant of the option price (and, if requested, delivery of the representation described in Section 11.2), a stock certificate representing the Common

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Stock covered thereby shall be issued and delivered to the Participant. This Section 6.4(i) shall apply to any outstanding Stock Options which are Incentive Stock Options to the extent permitted by Code Section 422(d), and any outstanding Incentive Stock Options in excess thereof shall, immediately upon the occurrence of such a Change of Control be treated for all purposes of the Plan as Non-Qualified Stock Options and shall be immediately exercisable as set forth in this Section 6.4(i).

          (j) Merger and Other Fundamental Transactions. In the event the Company is succeeded by another company in a reorganization, merger, consolidation, acquisition of property or stock, separation or liquidation, the successor company shall assume all of the outstanding Options granted under this Plan or shall substitute new options for them, which shall provide that each Participant, at the same cost, shall be entitled upon the exercise of each such option to receive such securities as the Board of Directors (or equivalent governing body) of the succeeding, resulting or other company shall determine to be equivalent, as nearly as practicable, to the nearest whole number and class of shares of stock or other securities to which the Participant would have been entitled under the terms of the agreement governing the reorganization, merger, consolidation, acquisition of property or stock, separation or liquidation as if, immediately prior to such event, the Participant had been the holder of record of the number of shares of Common Stock which were then subject to the outstanding Option granted under this Plan.

          (k) Non-Transferability of Options. No Stock Option shall be transferable by the Participant otherwise than by will or by the laws of descent and distribution, to the extent consistent with the terms of the Plan and the Option, and all Stock Options shall be exercisable, during the Participant’s lifetime, only by the Participant.

          (l) Incentive Stock Option Limitations. To the extent that the aggregate Fair Market Value (determined as of the Date of Grant) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year under the Plan and/or any other stock option plan of the Company or any subsidiary or parent corporation (each within the meaning of Section 424 of the Code) exceeds $100,000, such Options shall be treated as Options which are not Incentive Stock Options.

          (m) Ten-Percent Stockholder Rule. Notwithstanding any other provision of the Plan to the contrary, no Incentive Stock Option shall be granted to any person who, immediately prior to the grant, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any subsidiary or parent corporation (each within the meaning of Section 424 of the Code), unless the option price is at least 110% of the Fair Market Value of the Common Stock on the Date of Grant and the Option, by its terms, expires no later than five years after the Date of Grant.

     Should the foregoing provisions not be necessary in order for the Stock Options to qualify as Incentive Stock Options, or should any additional provisions be required, the Committee may amend the Plan accordingly, without the necessity of obtaining the approval of the stockholders of the Company.

     6.5 Rights as Stockholder. A Participant shall not be deemed to be the holder of Common Stock, or to have any of the rights of a holder of Common Stock, with respect to shares

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subject to the Option, unless and until the Option is exercised and a stock certificate representing such shares of Common Stock is issued to the Participant.

Article VII
Performance Shares

     7.1 Award of Performance Shares. The Committee shall have the authority to award Performance Shares to any person eligible under Section 5.1. The Committee shall determine the eligible Employees to whom, and the time or times at which, Performance Shares shall be awarded, the number of Performance Shares to be awarded to any Employee, the duration of the Performance Period with respect to each Performance Shares Award, the medium of payment upon vesting and the other terms and conditions of the Performance Shares Award, including those set forth in Section 7.2.

     7.2 Terms and Conditions. Performance Shares awarded pursuant to this Article VII shall be subject to the following terms and conditions and such other terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem desirable:

          (a) Performance Period. At the time of a Performance Shares Award, the Committee, in its sole discretion, shall establish a Performance Period of not less than (1) year nor more than five (5) years, commencing on the Date of Grant of the Performance Shares Award.

          (b) Performance Goals. A Performance Shares Award will vest and be earned based on the attainment of one or more identified Performance Goals determined by the Committee. The Performance Goals (although their measurement, including adjustments, if any, as permitted under Subsection 7.2(c), will not occur until after the expiration of the applicable Performance Period) must be met during the continuance of the Participant’s employment with the Company or any Subsidiary, prior to the expiration of the applicable Performance Period. Performance Goals may vary among Participants and among Performance Shares Awards to a Participant.

          (c) Revisions for Significant Events. When circumstances occur (including, but not limited to, unusual or nonrecurring events, changes in tax laws or accounting principles or practices) that cause any Performance Goal to be inappropriate in the judgment of the Committee, the Committee may make such changes as it deems equitable in recognition of any unforeseen events or changes in circumstances or changed business or economic conditions, as long as any such changes are consistent with Section 162(m) of the Code.

          (d) Performance Shares Award Commitment. Each Performance Shares Award shall be evidenced by, and subject to the terms of, a Performance Shares Award Commitment. The Performance Shares Award Commitment shall specify the number of shares of Common Stock subject to the Performance Shares Award, the medium of payment, the applicable Performance Period and the other terms and conditions applicable to such Performance Shares Award.

          (e) Changes. If any change is made in the Common Stock by reason of any merger, consolidation, reorganization, recapitalization, stock dividend, split up, combination of

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shares, exchange of shares, change in corporate structure, or otherwise, the Committee shall be entitled to determine the impact of such event on outstanding Performance Shares Awards, and to make adjustments to each Performance Shares Award to the extent necessary to provide that the Participant receive, to the extent possible, equivalent rights under such Performance Shares Award after consummation of such event.

          (f) Achievement of Performance Goals. Within a period of time determined by the Committee, but not to exceed 90 days after the end of a Performance Period, the Committee will determine if the applicable Performance Goals were met with respect to applicable Performance Shares Awards. If the Committee certifies in writing, after the expiration of the Performance Period, that the Performance Goals specified in a Performance Shares Award Commitment and all other material terms of the Award have been satisfied, the Performance Shares Award shall be vested and earned in accordance with such Committee certification.

          (g) Payment of Performance Shares Awards. Payment of a vested, earned Performance Shares Award shall be made either in shares of Common Stock, or in cash, or in some combination thereof, as determined by the Committee. The medium of payment shall be set forth in the Committee’s resolution granting the Performance Shares Award and in the Performance Shares Award Commitment with the Participant. For an earned Performance Shares Award, or portion thereof, to be settled through the issuance of shares of Common Stock, the number of shares delivered shall be equal to the number of applicable Performance Shares earned. The holder may elect to reduce this amount by the number of shares of Common Stock which have, on the date the Performance Shares Award is settled, a Fair Market Value equal to the applicable federal, state and local withholding tax due on the receipt of the Common Stock, in lieu of making a cash payment equal to the amount of such withholding tax due. For an earned Performance Shares Award, or portion thereof, to be settled in cash, the amount of cash paid shall be equal to the number of applicable Performance Shares earned multiplied by the Fair Market Value of a share of Common Stock on such date following the lapse of the Performance Period and the satisfaction of any other applicable conditions established by the Committee at the time of grant, that the Participant first becomes entitled to receive such payment. Such amount will be reduced by applicable federal, state and local withholding tax due. For any earned Performance Shares Award paid in cash, the shares of Common Stock designated in the Performance Shares Award shall be deemed to have been issued for purposes of Section 4.1 hereof.

          (h) Non-Transferability of Performance Shares Awards. No Performance Shares Awards shall be transferable by the Participant prior to the determination that such Performance Shares Award is vested and earned, otherwise than by will or by the laws of descent and distribution, to the extent consistent with the terms of the Plan.

     7.3 Death or Disability. Subject to the provisions of this Plan and the Performance Shares Award Commitment, in the event of the death or Disability of a Participant, the Participant or the Participant’s estate, as the case may be, shall be entitled to receive, at the expiration of the Performance Period, a percentage of Performance Shares that is equal to the percentage of the Performance Period that had elapsed as of the date of death or date on which such Disability commenced (as determined by the Committee in its sole discretion); provided that the Committee, in its sole discretion, determines that the conditions specified in the

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Performance Shares Awards Commitment have been satisfied. Payment of such portion of the Performance Shares Award shall be made to the Participant or the Participant’s estate, as the case may be, in accordance with this Article VII.

     7.4 Change of Control. At the time a Performance Shares Award is made by the Committee, the Committee shall be entitled, notwithstanding the provisions of Section 4.3, to provide for different terms and provisions in the event of a Change in Control, including, but not limited to, the authority to provide for the settlement of a Performance Shares Award, regardless of whether the applicable Performance Period has expired or whether the applicable Performance Goals have been met.

     7.5 Termination of Employment. Subject to Sections 7.4 and 11.4, in the event of a Participant’s Termination of Employment by reason of retirement or for any reason other than death or Disability, all Performance Shares Awards held by such Participant that were earned on the date of such Termination of Employment will be paid to the Participant; provided, however, that if the Committee shall determine that the Employee’s employment was terminated for conduct that in the judgment of the Committee involves dishonesty or action by the Employee that is detrimental to the best interest of the Company, all earned but unpaid Performance Shares held by the Employee on the date of such Termination of Employment shall be forfeited. Notwithstanding anything to the contrary in this Subsection, a Performance Shares Award shall not terminate upon a Participant’s Termination of Employment if at the time thereof the Participant serves as a Director of the Company or its successor, in which event the Performance Shares Awards shall terminate if the Participant ceases to be a Director of the Company or its successor, and any earned Performance Shares Award will be then paid in accordance with this Subsection.

Article VIII
Restricted Stock Units and Unrestricted Stock

     8.1 Awards of Restricted Stock Units. The Committee shall have the authority to grant to any person eligible under Section 5.1 one or more Restricted Stock Unit Awards. The Committee shall determine the eligible Employees to whom, and the time or times at which, grants of Restricted Stock Units will be made, the number of shares to be awarded, the time or times within which such Awards may be subject to forfeiture, the vesting schedule and rights to acceleration thereof, and the other terms and conditions of the Awards in addition to those set forth in Section 8.2.

     8.2 Terms and Conditions. Restricted Stock Units shall be subject to the following terms and conditions and such other terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable:

          (a) Restricted Stock Unit Agreement. Each Restricted Stock Unit Award shall be evidenced by, and subject to the terms of, a Restricted Stock Unit Agreement executed by the Company and the Participant. The Restricted Stock Unit Agreement shall specify the number of shares of Common Stock subject to the Award, the time or times within which such Award is subject to forfeiture and the other terms, conditions and restrictions applicable to such Award.

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          (b) Stock Certificate. Subject to Section 11.3, when the restrictions applicable to a Restricted Stock Unit Award, or any portion thereof, lapse, a stock certificate representing the number of shares of Common Stock covered by such Restricted Stock Unit Award, or portion thereof, shall be issued and delivered to the Participant. A Participant shall not be deemed to be the holder of Common Stock, or to have any of the rights of a holder of Common Stock, with respect to shares underlying any Restricted Stock Unit Award, unless and until the forfeiture restrictions lapse and a stock certificate representing such shares of Common Stock is issued to the Participant.

          (c) Restriction Period. Subject to the provisions of the Plan and the Restricted Stock Unit Agreement, Restricted Stock Units will be forfeited to the Company in the event of a Participant’s Termination of Employment during a period (not to exceed five years) set by the Committee commencing with the date of such Award (the “Restriction Period”). Subject to the provisions of the Plan, the Committee, in its sole discretion, may provide for the lapse of such restrictions in installments and may waive such restrictions, in whole or in part, at any time, based on such factors as the Committee shall deem appropriate in its sole discretion.

          (d) Termination of Employment. Subject to Section 11.4, in the event of a Participant’s Termination of Employment prior to the expiration of the Restriction Period, then he or she shall forfeit all of his or her Restricted Stock Units with respect to which the Restriction Period has not yet expired; provided, however, that the terms of the Restricted Stock Unit Agreement, in the discretion of the Committee and pursuant to such terms and conditions as it may impose, may provide: (i) that, if such Employee’s employment is terminated for any reason other than conduct that in the judgment of the Committee involves dishonesty or action by the Employee that is detrimental to the best interests of the Company, then the Restricted Stock Units or any related compensation deferral or a portion thereof shall not be forfeited; (ii) that, if such Employee’s employment is terminated on account of Disability, then the Employee shall not forfeit his or her Restricted Stock Units or any related compensation deferral or a portion thereof; and (iii) that, if such Employee dies while employed by the Company or any of its Subsidiaries, then his or her Restricted Stock Units or any related compensation deferral or a portion thereof is not forfeited.

          (e) Changes. If any change is made in the Common Stock by reason of any merger, consolidation, reorganization, recapitalization, stock dividend, split up, combination of shares, exchange of shares, change in corporate structure, or otherwise, then any shares or other securities of the Company or succeeding, resulting or other company to be received by the Employee under the Restricted Stock Unit Agreement shall be subject to the same restrictions applicable to the Restricted Stock Units.

          (f) Non-Transferability of Restricted Stock Unit Awards. No Restricted Stock Units shall be transferable by the Participant prior to vesting and/or lapse of the applicable forfeiture restrictions otherwise than by will or by the laws of descent and distribution, to the extent consistent with the terms of the Plan.

     8.3 Unrestricted Stock. The Committee shall have the authority to grant to any person eligible under Section 5.1 one or more Unrestricted Stock Awards. Each Employee who is awarded Unrestricted Stock shall receive an Unrestricted Stock Agreement from the Company in a form specified by the Committee and containing the terms and conditions of the award and

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such other matters, consistent with this Plan, as the Committee, in its sole discretion, shall determine at the time the Award is made. Such conditions may include, but shall not be limited to, the deferral of a percentage of the Employee’s annual cash compensation, not including dividends paid on the Unrestricted Stock, if any, to be applied toward the purchase of Unrestricted Stock upon such terms and conditions, including such discounts, as may be set forth in the Unrestricted Stock Agreement. Upon the issuance of Unrestricted Stock to an Employee hereunder, the Employee shall have the entire beneficial ownership and all the rights and privileges of a stockholder with respect to the Unrestricted Stock awarded to him or her, including the right to receive dividends and the right to vote such Unrestricted Stock. Subject to Section 11.3, each Employee who is awarded Unrestricted Stock may, but need not, be issued a stock certificate in respect of such shares of Unrestricted Stock.

Article IX
Termination or Amendment

     9.1 Termination or Amendment of Plan. The Committee may at any time amend, discontinue or terminate the Plan or any part thereof (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirement referred to in Article XI) or amend any Award previously granted, prospectively or retroactively (subject to Article IV); provided, however, that, (i) unless otherwise required by law, the rights of a Participant with respect to Awards granted prior to such amendment, discontinuance or termination may not be impaired without the consent of such Participant; (ii) except as otherwise provided in Section 4.3 hereof, the Committee shall not reduce the exercise price of Stock Options previously awarded to any Participant, whether through amendment, cancellation and replacement grant, or any other means, without prior stockholder approval; and (iii) the Company will seek the approval of the Company’s stockholders for any amendment if such approval is necessary to comply with the Code, Federal or state securities laws or any other applicable laws or regulations, including the Marketplace Rules of the National Association of Securities Dealers, Inc.

Article X
Unfunded Plan

     10.1 Unfunded Plan. The Plan is intended to constitute an “unfunded” plan for incentive compensation. With respect to any payment not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company.

Article XI
General Provisions

     11.1 Nonassignment. Except as otherwise provided in the Plan, any Award granted hereunder and the rights and privileges conferred thereby shall not be sold, transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of an Award, right or privilege contrary to the provisions

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hereof, or upon the levy of any attachment or similar process thereon, such Award and the rights and privileges conferred hereby shall immediately terminate and the Award shall immediately be forfeited to the Company.

     11.2 Legend. The Committee may require each person acquiring shares pursuant to an Award to represent to the Company in writing that the Participant is acquiring the shares without a view to distribution thereof. The stock certificates representing such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer.

     All certificates representing shares of Common Stock delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange or stock market upon which the Common Stock is then listed or traded, any applicable Federal or state securities law, and any applicable corporate law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

     11.3 Uncertificated Shares. Each Employee who exercises an Option to acquire Common Stock, is issued Common Stock upon the vesting of a Performance Shares Award or lapse of forfeiture restrictions under a Restricted Stock Unit Award or is issued Unrestricted Stock may, but need not, be issued a stock certificate in respect of the Common Stock so acquired. A “book entry” (i.e., a computerized or manual entry) shall be made in the records of the Company to evidence the issuance of shares of Common Stock to an Employee where no certificate is issued in the name of the Employee. Such Company records, absent manifest error, shall be binding on Employees. In all instances where the date of issuance of shares may be deemed significant but no certificate is issued in accordance with this Section 11.3, the date of the book entry shall be the relevant date for such purposes.

     11.4 Forfeiture for Competition. If a Participant in this Plan provides services to a competitor of the Company or any of its subsidiaries, whether as an employee, officer, director, independent contractor, consultant, agent or otherwise, such services being of a nature that can reasonably be expected to involve the skills and experience used or developed by the Participant while an Employee, and the Committee determines, in its sole discretion, that the provision of such services constitutes a breach of the Participant’s non-compete agreement with the Company, then that Participant’s rights to any Awards hereunder shall automatically be forfeited.

     11.5 Other Plans. Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.

     11.6 No Right to Employment. Neither the Plan nor the grant of any Award hereunder shall give any Participant or other Employee any right with respect to continuance of employment by the Company or any Subsidiary, nor shall the Plan impose any limitation on the right of the Company or any Subsidiary by which a Participant is employed to terminate such Participant’s employment at any time.

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     11.7 Withholding of Taxes. The Company shall have the right to reduce the number of shares of Common Stock otherwise deliverable pursuant to an Award under this Plan by an amount that would have a fair market value equal to the minimum amount of all Federal, state and local taxes required to be withheld, or to deduct the amount of such taxes from any cash payment otherwise to be made to the Participant. In connection with such withholding, the Committee may make such arrangements as are consistent with the Plan as it may deem appropriate.

     11.8 Listing and Other Conditions.

          (a) If the Common Stock is listed on a national securities exchange or The Nasdaq Stock Market, the issuance of any shares of Common Stock pursuant to an Award shall be conditioned upon such shares being listed on such exchange or The Nasdaq Stock Market. The Company shall have no obligation to issue any shares of Common Stock unless and until such shares are so listed, and the right to exercise any Option or vest in any Restricted Stock Unit shall be suspended until such listing has been effected.

          (b) If at any time counsel to the Company shall be of the opinion that any sale or delivery of shares of Common Stock pursuant to an Award is or may in the circumstances be unlawful or result in the imposition of excise taxes under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act of 1933, as amended, or otherwise with respect to shares of Common Stock or Awards, and the right to exercise any Option or vest in any Restricted Stock Unit shall be suspended until, in the opinion of such counsel, such sale or delivery shall be lawful or shall not result in the imposition of excise taxes.

          (c) Upon termination of any period of suspension under this Section 11.8, any Award affected by such suspension which shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares which would otherwise have become available during the period of such suspension, but no such suspension shall extend the term of any Option.

     11.9 Governing Law. The Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws principles thereof.

     11.10 Construction. Wherever any words are used in the Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply.

     11.11 Liability of the Board and the Committee. No member of the Board or the Committee nor any Employee of the Company or any of its subsidiaries shall be liable for any act or action hereunder, whether of omission or commission, by any other member or Employee or by any agent to whom duties in connection with the administration of the Plan have been

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delegated or, except in circumstances involving bad faith, gross negligence or fraud, for anything done or omitted to be done by himself.

     11.12 Other Benefits. No payment pursuant to an Award shall be deemed compensation for purposes of computing benefits under any retirement plan of the Company or any Subsidiary nor affect any benefits under any other benefit plan now or hereafter in effect under which the availability or amount of benefits is related to the level of compensation.

     11.13 Costs. The Company shall bear all expenses incurred in administering the Plan, including expenses related to the issuance of Common Stock pursuant to Awards.

     11.14 Severability. If any part of the Plan shall be determined to be invalid or void in any respect, such determination shall not affect, impair, invalidate or nullify the remaining provisions of the Plan which shall continue in full force and effect.

     11.15 Successors. The Plan shall be binding upon and inure to the benefit of any successor or successors of the Company.

     11.16 Headings. Article and section headings contained in the Plan are included for convenience only and are not to be used in construing or interpreting the Plan.

Article XII
Term of Plan

     12.1 Effective Date. The Plan shall be effective as of the Effective Date, but the grant of any Award hereunder is subject to the express condition that the Plan be approved by the stockholders of the Company within 12 months after the Effective Date.

     12.2 Termination Date. Unless sooner terminated, the Plan shall terminate ten years after the Effective Date and no Awards may be granted thereafter. Termination of the Plan shall not affect Awards granted before such date.

As originally adopted by the Board by unanimous written consent dated September 14, 1999 and approved by the stockholders at the Annual Meeting held on October 28, 1999.

As revised by the Board by unanimous written consent dated September 21, 2000 and approved by the stockholders at the Annual Meeting held on October 26, 2000 — the first sentence of Section 4.1 was amended to increase the maximum aggregate number of shares of Common Stock that may be issued under the Plan from 1,000,000 to 2,000,000.

As revised by the Board at its October 26, 2000 meeting to clarify the “Change of Control” definition.

As revised by the Board by unanimous written consent dated September 5, 2001 and approved by the stockholders at the Annual Meeting held on October 25, 2001 — the first sentence of Section 4.1 was amended to increase the maximum aggregate number of shares of Common Stock that may be issued under the Plan from 2,000,000 to 3,000,000.

As revised by the Board at its meeting held February 19, 2002 – sentence was added to the end of Section 6.4(h), “Termination of Employment”, regarding termination of options if optionee continues as a Director.

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As revised by the Board at its meeting held September 12, 2002 and approved by the stockholders at the Annual Meeting held on October 24, 2002 — the first sentence of Section 4.1 was amended to increase the maximum aggregate number of shares of Common Stock that may be issued under the Plan from 3,000,000 to 4,000,000.

As revised by the Board at its meeting held September 5, 2003 and approved by the stockholders at the Annual Meeting held on October 30, 2003 – the first sentence of Section 4.1 was amended to increase the maximum aggregate number of shares of Common Stock that may be issued under the Plan from 4,000,000 to 4,900,000.

As revised by the Board at its meeting held October 30, 2003 to remove the provisions vesting sole authority in the Board to grant Awards to Reporting Persons and to amend the definition of Committee.

As revised by the Board at its meeting held September 9, 2004 and approved by the stockholders at the Annual Meeting held on October 27, 2004 to include provisions providing for the grant of Performance Shares under the Plan.

As revised by the Compensation Committee by unanimous written consent, dated March 2, 2005, to add Exhibit A to provide for additional restrictions and requirements related to the issuance of stock option awards to eligible French Employees.

As revised by the Board by unanimous written consent dated September 20, 2005 to require stockholder approval of any reduction of the exercise price of outstanding Stock Options, to limit the term of Stock Options granted on or after September 20, 2005 to a maximum of seven years, to require that the exercise price of any Stock Options granted under the Plan be no less than 100% of the Fair Market Value of the Common Stock on the date of grant, to clarify that the number of shares of common stock available for issuance under the Plan will be reduced by the gross, not net, number of shares of common stock subject to Awards, and to make certain technical amendments to the Plan to comply with Section 409A of the Code.

As revised by the Board by unanimous written consent dated September 20, 2005 and approved by the stockholders at the Annual Meeting held on October 26, 2005 to amend Section 4.1 to increase the maximum aggregate number of shares of Common Stock that may be issued under the Plan from 4,900,000 to 5,100,000 and to provide that any grant of Performance Shares, Restricted Stock Units or Unrestricted Stock under the Plan on or after October 26, 2005 will be counted against the Plan’s share reserve as two shares for every one share subject to such Award and to amend Section 6.4(h) to extend the period during which vested Stock Options may be exercised following an optionee’s termination of employment if the optionee is engaged as a consultant by the Company following his or her termination.

As revised by the Compensation Committee at its meeting on January 25, 2006 to include provisions regarding the restriction on transferability of Performance Shares Awards and Restricted Stock Unit Awards, and to modify all references in the Plan to Restricted Stock Awards to be and refer to Restricted Stock Unit Awards, to more properly reflect the actual nature of the Awards.

As revised by the Compensation Committee at its meeting on July 26, 2006, to amend and restate Exhibit A — Equity Incentive Awards to Employees Working in France to add restricted stock units to the types of awards that can be granted to eligible French Employees.

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EX-10.13.(A)

EXHIBIT 10.13(a)
EXHIBIT A

DIGENE CORPORATION
AMENDMENT TO THE AMENDED AND RESTATED 1999 INCENTIVE PLAN

Equity Incentive Awards to Employees Working in France

1. Purpose of this Amendment.

     The purpose of this Amendment (the “French Sub-Plan”) to the Amended and Restated 1999 Incentive Plan, as amended (the “Plan”) of Digene Corporation (the “Company”), is to enable the Company to grant to Employees, working in France, either temporarily or permanently and employed by either the Company or any Subsidiary, or working for the Company or any Subsidiary and residing in France (the “French Employees”), Stock Options and Restricted Stock Unit Awards under the Plan in a manner consistent with applicable law. Without limiting the foregoing, as of and after the date this French Sub-Plan, as amended, is adopted and approved by the Committee, the Stock Options and Restricted Stock Unit awards granted to French Employees under this French Sub-Plan are intended to qualify under Sections L. 225-177 to L. 225-186 of the French commercial code to benefit from both preferential tax treatment and an exemption from social charges.

     Unless otherwise defined herein, the capitalized terms used in this French Sub-Plan shall have the meanings set forth in the Plan.

     In the event of a conflict between the provisions of the Plan and this French Sub-Plan with respect to Awards granted to any French Employee, the provisions of this French Sub-Plan shall control. Except as amended by this French Sub-Plan, the Plan shall continue in full force and effect.

2. Provisions Specific to Awards to French Employees.

(a) Eligible Participants.

     (i) The Participants eligible to receive Stock Option Awards and Restricted Stock Unit Awards under this French Sub-Plan include the French Employees, including any director or manager having a management function in France for the Company or any Subsidiary organized under French law; provided, however, that if any such Participant is subject to U.S. federal tax laws at the time of the proposed Award, such Participant shall not be eligible for Awards under this French Sub-Plan at such time. No other Participants under the Plan or independent contractors or consultants to the Company or any of its Subsidiaries are eligible to receive Stock Option Awards or Restricted Stock Unit Awards under this French Sub-Plan.

     (ii) Neither Stock Options nor Restricted Stock Unit Awards shall be granted under this French Sub-Plan to any French Employee who holds shares representing 10% or more of the Company’s outstanding common stock at the time of the Award.

     (b) Eligible Subsidiary. In the event of any future change to the definition of Subsidiary under the Plan, French Employees who receive Stock Options issued by the Company or Restricted Stock Units awarded by the Company must be employed by a company with sufficiently close capital links to the Company, therefore, at least 10% of the French Employee’s

employer company’s capital must be held, directly or indirectly, by the Company (or the employer company must directly or indirectly hold at least 10% of the Company’s capital) or at least 50% of the employer’s company capital must be held, directly or indirectly, by a company which holds, directly or indirectly, at least 50% of the Company’s capital.

     (c) Exercise Price of Stock Options.

     (i) The exercise price at the time of the grant of any Stock Option granted to a French Employee under this French Sub-Plan shall be the Fair Market Value on the Date of Grant. If such exercise price is no less than 80% of the average Fair Market Value of the Common Stock during the 20 trading days preceding the Award, or 80% of the average repurchase price of the shares of Common Stock held by the Company (if the Company elects to grant Stock Options based on authorized and issued shares reacquired by the Company and allocated to cover the Stock Option Award to a French Employee), then such Award will be “qualified” for French law purposes under this French Sub-Plan.

     (ii) Notwithstanding any other provision of the Plan, including, without limitation, Section 4.3 (Changes) and Section 6.4(j) (Merger and Other Fundamental Transactions), the exercise price of any Stock Option granted to a French Employee under this French Sub-Plan is fixed as of the date of grant and shall be adjusted only upon the occurrence of an event specified under the French commercial code (Section L. 225-181).

     (d) Restrictions on Granting of Awards. Notwithstanding any other provision of the Plan or applicable law, no Stock Option Awards or Restricted Stock Unit Awards shall be made to any French Employee under this French Sub-Plan:

     (i) within twenty (20) trading days following a distribution of dividends or a capital increase of the Company (with trading days meaning trading on the principal stock exchange on which the Company’s Common Stock is then listed);

     (ii) during the ten (10) trading days preceding and following the filing, with the U.S. Securities and Exchange Commission, of the Company’s Annual Report on Form 10-K or any Quarterly Report on Form 10-Q (or any successor form to either the Form 10-K or Form 10-Q); or

     (iii) during a period starting on the date that the Company becomes aware of information which could have a significant impact on the Company’s Common Stock price and ending ten (10) trading days after this information has been made public in compliance with applicable law. The Committee shall have the authority to make the determination called for by this Section 2(d)(iii) at the time of any applicable Award.

     (e) Holding Period. Each Stock Option Award to a French Employee under this French Sub-Plan shall provide that either: (i) the Stock Options shall not begin to vest until the date four (4) years after the Date of Grant; or (ii) the Optionee shall be entitled to exercise all or a portion of the Stock Option Award in accordance with the vesting schedule, but shall not be entitled to sell the underlying Common Stock until at least four (4) years after the Date of Grant. Each Restricted Stock Unit Award to a French Employee under this French Sub-Plan shall provide:

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(1) a minimum vesting schedule of two (2) years after the Date of Grant; and (2) a mandatory two (2) year holding period on the Shares received on the vesting date.

     (f) Death or Disability of French Employee. In the event of the death of a French Employee with outstanding Stock Options at the time of his or her death, the Stock Options may be exercised at any time during a maximum six (6) month period following the date of the French Employee’s death by the French Employee’s estate or by a person who acquired the right to exercise the Stock Option by request or inheritance, but only to the extent that the French Employee was entitled to exercise the Stock Options at the date of death or would have been entitled to exercise the Stock Options during the said maximum six (6) month period. If the successors do not exercise the Stock Options granted to such French Employee during such six-month period, the successors’ rights in respect of such Stock Options shall lapse in total without any formality and the shares of Common Stock underlying such Stock Options shall revert to the Plan. This provision specifically alters the provisions of Section 6.4(f) (Death) of the Plan as related to Stock Option Awards to French Employees under this French Sub-Plan.

          In the event of the Disability of a French Employee prior to the vesting of any Restricted Stock Unit Award, the forfeiture restrictions shall lapse as set forth in Section 8.2(d) of the Plan; provided, that the Company shall retain the certificate representing the then-vested Shares for the benefit of the French Employee until at least two full years have elapsed since the Date of Grant; and the French Employee must thereafter comply with the additional two-year holding period described in Paragraph 2(e) of this French Sub-Plan, after delivery of the certificate from the Company, with respect to any such Restricted Stock Unit Awards. This provision specifically alters the provision of Section 8.2(d) (Termination of Employment) of the Plan as related to Restricted Stock Unit Awards to French Employees under this French Sub-Plan.

     (g) Size of Award. No more than one-third of the Company’s outstanding Common Stock may be subject to Stock Options Awards and Restricted Stock Unit Awards under this French Sub-Plan at any time during the term of the Plan.

     (h) Restrictions on Requirement to Hold Common Stock after Exercise. The Committee shall not grant a Stock Option, or amend an existing Stock Option Award, to any French Employee under this French Sub-Plan that requires the French Employee to hold the shares of Common Stock for more than three (3) years after exercise of the Stock Option Award.

3. Approval of this French Sub-Plan.

     This French Sub-Plan, as amended, was approved and adopted by the Committee on July 26, 2006 in accordance with the provisions of Sections 3.2 (Awards) and 9.1 (Termination or Amendment of the Plan) of the Plan.

As revised by the Compensation Committee by unanimous written consent, dated March 2, 2005, to add Exhibit A to provide for additional restrictions and requirements related to the issuance of stock option awards to eligible French Employees.

As revised by the Compensation Committee at its meeting on July 26, 2006, to amend and restate this Exhibit A — Equity Incentive Awards to Employees Working in France to add restricted stock units to the types of awards that can be granted to eligible French Employees.

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EX-10.23

EXHIBIT 10.23

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “*” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

NONEXCLUSIVE SUBLICENSE
AGREEMENT UNDER THE CASKEY PATENTS

THIS NONEXCLUSIVE SUBLICENSE AGREEMENT (the “Agreement”) is made and is effective the thirtieth (30th) day of June 2006 (the “Effective Date”) by and between Digene Corporation (“DIGENE”), a Delaware corporation with its principal place of business at 1201 Clopper Road, Gaithersburg, MD 20878, and Abbott Laboratories (“ABBOTT”), an Illinois corporation having its principal place of business at 100 Abbott Park Road, Abbott Park, IL, 60064 USA

WITNESSETH:

RECITALS

WHEREAS, United States patent No. 5,582,989 and foreign counterparts thereto (the “Caskey Patents) generally disclose and claim certain inventions generally characterized as Multiple Genomic DNA Amplification for Deletion Detection;

WHEREAS, ABBOTT holds an exclusive license with the right to grant sublicenses under the Caskey Patents from the Baylor College of Medicine (“BAYLOR”);

WHEREAS, DIGENE is in the business of developing, manufacturing and selling diagnostic products; and

WHEREAS, ABBOTT and DIGENE have agreed to enter into a sublicense agreement with respect to the Caskey Patents, on the terms and conditions set forth herein,

DIGENE and ABBOTT agree hereto as follows:

1. DEFINITIONS

     1.1 “Affiliate” of a party shall mean any other person or entity that at the relevant time directly or indirectly controls, is controlled by, or is under common control with such party through the ownership or control, directly or indirectly, of more than 50% of all the voting power of the shares or other interests entitled to vote for the election of directors or other governing authority or otherwise having the power to govern the financial and operating policies or to appoint the management of an organization.

     1.2 “Caskey Patents” shall mean United States Patent No. 5,582,989 by Caskey, et al., as described above, and foreign counterparts thereto, continuations, continuations in part that Abbott has the right and power to grant a sublicense to such continuation in part, divisionals, reissues, and reexaminations thereof and patents and patent applications claiming priority therefrom, including, without limitation, the patents listed in Exhibit 1 and incorporated herein by reference.

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “*” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

     1.3 “Field” shall mean human in vitro diagnostics.

     1.4 “First Commercial Sale” shall mean the first time DIGENE transfers Licensed Product to an independent third party or performs a Licensed Process for monetary consideration.

     1.5 “Indemnitee” shall mean:

(a)	ABBOTT, its directors, officers, employees and agents; and
(b)	BAYLOR, the Howard Hughes Medical Institute, their officers, employees and agents, and the inventors of the Caskey patents.

     1.6 “Licensed Process” shall mean any process that would constitute, but for the sublicense granted herein, an infringement of any Valid Claim within the Caskey Patents.

     1.7 “Licensed Product” shall mean any product which, the making, using, selling, offering for sale or importing of which, would constitute, but for the sublicense granted herein, an infringement of any Valid Claim within the Caskey Patents.

     1.8 “Valid Claim” shall mean an issued claim of the Caskey Patents which has not been ruled invalid by a court or an administrative agency of competent jurisdiction from which all appeals have been exhausted.

2. GRANT

     2.1 Subject to the terms and conditions of this Agreement, ABBOTT hereby grants to DIGENE a fully paid-up worldwide, nonexclusive, irrevocable, nontransferable sublicense without the right to sublicense, to make, have made, use, offer for sale, sell, have sold, and import Licensed Products and Licensed Processes for use in the Field. The sublicense and right granted to DIGENE shall extend to any and all DIGENE Affiliates.

     2.2 The right to sell Licensed Product granted herein shall extend to DIGENE Distributors relative to the distribution of Licensed Products from their respective DIGENE supplier. The right to use Licensed Products shall extend to DIGENE’s end-user customers.

3. FEES

     3.1 In consideration for the sublicenses, releases and rights granted herein, DIGENE agrees to pay to ABBOTT or its designee the non-refundable sum of Three Million Five Hundred Thousand U.S. Dollars ($3,500,000) payable as follows:

(a) One Million U.S. Dollars ($1,000,000) within thirty (30) days of the Effective Date of this Agreement;

-2-

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “*” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

(b)	One Million Two Hundred Fifty Thousand U.S. Dollars ($1,250,000) on or before December 31, 2006; and
(c)	One Million Two Hundred Fifty Thousand U.S. Dollars ($1,250,000) on or before July 1, 2007.

     3.2 DIGENE agrees that the fee specified in paragraph 3.1 herein, is a single fee for the paid up sublicense granted in paragraph 2.1, and that the fee is due and owing in the manner specified as of the Effective Date, and any subsequent decision by DIGENE to exercise its rights under the sublicense or not exercise its rights as the case may be, or any change in the status of the Caskey Patents shall have no effect on DIGENE’s continuing obligation to pay the fee and make the payments specified in paragraph 3.1.

     3.3 DIGENE agrees to pay to ABBOTT or its designee the non-refundable sum of [***********] U.S. Dollars ($[*******]) within sixty (60) days of the First Commercial Sale of a Licensed Product or a Licensed Process directed to the detection of any human papilloma virus (HPV). DIGENE shall notify ABBOTT promptly following its First Commercial Sale of a Licensed Product or a Licensed Process directed to the detection of any HPV.

     3.4 All payments due ABBOTT shall be made in U.S. Dollars by wire transfer to:

Bank Name: [*****]
SWIFT Code: [****]
ABA#: [*****]
Beneficiary Name: [*****]
Beneficiary Acct ID: [****]
Ref: Digene/Abbott Molecular Sublicense to Caskey Patents

or as ABBOTT may designate in a notice to DIGENE.

4. TERM AND TERMINATION

     4.1 Unless otherwise terminated by operation of law or by acts of the parties in accordance with the terms of this Agreement, this Agreement shall be in force from the Effective Date and shall remain in effect for the life of the Caskey Patents (i.e., until all of the Caskey Patents have expired). ABBOTT shall provide prompt written notice to DIGENE upon any earlier expiration or termination of any of the Caskey Patents than indicated in Exhibit 1.

     4.2 Any termination of this Agreement shall not affect

(a)	A party’s obligations which have accrued prior to termination;
(b)	DIGENE’s continuing obligation to indemnify the Indemnitees in accordance with Article 7; and

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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “*” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

(c) The parties’ continuing obligation to maintain the confidentiality of the terms of this Agreement.

     4.3 Should either party violate or fail to perform any material term or covenant of this Agreement, the non-defaulting party may give written notice of such default to the defaulting party. The parties shall then resolve the dispute and alleged default in accordance with Section 12.6 herein.

     4.4 ABBOTT shall have the right to terminate this Agreement and the sublicense and rights and covenants granted herein in the event that DIGENE initiates any suit, reexamination, nullity action, opposition to grant or other legal action seeking to invalidate any claims of a Caskey Patent or supports any of the foregoing actions.

5. LIMITED WARRANTY

     5.1 ABBOTT represents and warrants that it is the exclusive licensee of the Caskey Patents and has all lawful rights and powers necessary to enter into this Agreement and to grant the sublicenses and rights granted hereunder. ABBOTT further represents and warrants that this Agreement will be assigned to BAYLOR and BAYLOR will respect its terms in the event ABBOTT loses its exclusive license and the right to grant the sublicenses and rights granted hereunder.

     5.2 The sublicenses and rights granted herein are provided WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. EXCEPT AS TO THE CASKEY PATENTS SUBLICENSED HEREUNDER, ABBOTT MAKES NO REPRESENTATION OR WARRANTY THAT THE LICENSED PRODUCTS OR LICENSED PROCESSES WILL NOT INFRINGE ANY PATENT, OTHER THAN THE CASKEY PATENTS, OR OTHER PROPRIETARY RIGHT.

     5.3 IN NO EVENT WILL ABBOTT BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM DIGENE’S EXERCISE OF THIS SUBL1CENSE OR USE OF LICENSED PRODUCTS.

6. PATENT MARKING

     6.1 DIGENE agrees to mark all Licensed Products made, used or sold under the terms of this Agreement, or their containers, with the applicable patent numbers listed in Exhibit 1.

     6.2 DIGENE agrees to cause its Affiliates to mark all Licensed Products made, used or sold under the terms of this Agreement, or their containers as feasible with the applicable patent number of any applicable Caskey Patents practiced thereby.

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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “*” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

7. INDEMNIFICATION

     7.1 DIGENE will indemnify, hold harmless and defend Indemnitees against any and all claims, causes of action, suits, proceedings, losses, damages, demands, fees, expenses, fines, penalties and costs (including reasonable attorney’s fees) (“Claims”) arising out of, relating to or in connection with any third party action which result from or arise out of DIGENE’s exercise of the sublicense and rights granted herein including any sale, manufacture or use of a Licensed Product or Licensed Process. This indemnification will include, but not be limited to, any product liability.

     7.2 ABBOTT shall promptly notify DIGENE in writing of any Claim which ABBOTT believes it may have a right of indemnification under this Agreement. ABBOTT will provide reasonable cooperation to DIGENE for any Claim for which DIGENE is indemnifying and holding ABBOTT harmless.

     7.3 Abbott shall indemnify, defend and hold DIGENE and its Affiliates and their officers, directors, employees, and representatives harmless from and against any and all Claims arising out of, relating to or in connection with any third party action against DIGENE for infringement of the Caskey Patents,

     7.4 DIGENE shall promptly notify ABBOTT in writing of any Claim which DIGENE believes it may have a right of indemnification under this Agreement. DIGENE will provide reasonable cooperation to ABBOTT for any Claim for which ABBOTT is indemnifying and holding DIGENE harmless.

8. NOTICES

     8.1 Any notice or payment required to be given to either party shall be deemed to have been properly given and to be effective (a) on the date of delivery if delivered in person or by facsimile or (b) five (5) days after mailing by first-class certified mail, postage paid, to the respective addresses identified below; or to such other address as the applicable party shall designate by written notice to the other party.

If to Abbott:	Abbott Molecular Inc.
	1300 East Touhy Avenue
	Des Plaines, IL 60018
	Attention: Director of Licensing and Business Development
	Facsimile Number: 224.361.7054

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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “*” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

With a copy to:	Abbott Laboratories
	Dept. 322, Bldg. AP6A/2
	100 Abbott Park Road
	Abbott Park, IL 0064-6049
	Attention: Divisional Vice President,
	Medical Products Group Legal Operations
	Facsimile Number: 847.938.1206
If to DIGENE:	Digene Corporation
	Chief Executive Officer
	1201 Clopper Road
	Gaithersburg, Maryland 20878
	Facsimile Number: 301.944.7017
With a copy to:	Digene Corporation
	Senior Vice President, General Counsel and Secretary
	1201 Clopper Road
	Gaithersburg, MD 20878
	Facsimile Number: 240.632.7406

9. ASSIGNMENT

     9.1 This Agreement is binding upon and shall inure to the benefit of ABBOTT, its successors and assigns, but shall be personal to DIGENE. The sublicenses and rights granted herein to DIGENE are not assignable by them except in whole to:

(a)	A bona fide purchaser of DIGENE as a result of a merger or acquisition or asset purchase or of any of its Affiliates to which the sublicense and rights pertain, provided that such bona fide purchaser agrees to the terms and conditions of this Agreement; and
(b)	A wholly owned Affiliate of DIGENE.

10. GOVERNING LAW

     10.1 The Agreement and its construction are subject to the laws of the State of Illinois with the exception of any choice of law provisions.

11. CONFIDENTIALITY

     11.1 Except as required by law, the terms of this Agreement and all information disclosed to one party by another party and designated as confidential information by the producing party shall be considered as confidential information of the producing party and the

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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “*” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

party receiving such information shall use the same care to protect such information as it uses to protect its own information of like kind. Neither party will use or disclose the terms and conditions of this Agreement to any third party in any form whatsoever, without the express prior written consent of the other party, except that ABBOTT will be permitted to disclose the Agreement and its terms to BAYLOR. In disclosing the Agreement and its terms to BAYLOR, however, ABBOTT shall impose the same requirements of confidentiality on BAYLOR as set forth in this paragraph.

12. MISCELLANEOUS

     12.1 Entire Agreement. This Agreement contains the entire understanding of the parties with regard to the matters set forth in this Agreement and shall supercede all previous communications, representations or understandings either oral or written, between the parties relating to the subject matter hereof.

     12.2 Amendment or Modification. No Party shall claim any amendment, modification or release from any provision hereof by mutual agreement, unless in writing signed by an authorized representative of each Party and under no circumstances shall a Party claim any amendment, modification or release from any provision of this Agreement by virtue of a Party signing or complying with the terms of the other Party’s purchase order or order acknowledgment forms or failing to object to any term or condition that is contained in any such forms.

     12.3 Survivability. In case any of the provisions contained in this Agreement shall be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof and this Agreement shall be construed as if such invalid or illegal or unenforceable provisions had never been contained herein.

     12.4 Counterparts. This Agreement may be executed in duplicate originals at the convenience of the parties.

     12.5 Public Announcements. No Party shall make any public announcement or other disclosure concerning the transactions contemplated herein, or make any public statement which includes the name of the other Party or any of its Affiliates, or otherwise use the name of another Party or any of its Affiliates in any public statement or document, except as may be required by regulatory authority, law or judicial order (and then only following consultation with the other Party), without the prior written consent of the other Party.

     12.6 Dispute Resolution. DIGENE and ABBOTT shall first employ reasonable efforts to resolve controversies or disputes between them arising out of or relating to this Agreement before resorting to alternative dispute resolution process. Any remaining controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be resolved through the process and rules for alternative dispute resolution described in the attached Exhibit 2, which is incorporated herein by reference. The venue for any such arbitration proceeding shall be New York, New York.

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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “*” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

IN WITNESS WHEREOF ABBOTT and DIGENE have executed this Agreement by their respective officers hereunto duly authorized on the day and year written below.

ABBOTT LABORATORIES		DIGENE CORPORATION
By:	/s/ Edward L. Michael	By:	/s/ Evan Jones
	Edward L. Michael		Evan Jones
	President, Abbott Molecular		Chief Executive Officer and
			Chairman
Date: 6/28/06		Date: 6/29/06

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EX-10.24

EXHIBIT 10.24

Digene Corporation Non-Employee Director Compensation Policy

     Under the current Non-Employee Director Compensation Policy of Digene Corporation (“Digene”), each non-employee director is entitled to receive:

• an annual retainer fee of $25,000 and an additional annual retainer of $10,000 for the Audit Committee Chair, $5,000 for the other Audit Committee members and $5,000 for the Compensation Committee Chair;

• a fee of $1,500 for each Board meeting attended in person, and $750 for each in-person Board meeting attended by conference telephone;

• a fee of $750 for each telephonic Board meeting lasting longer than thirty minutes;

• a fee of $1,000 for each Audit or Compensation Committee meeting attended in person other than committee meetings held on the same day as in-person Board meetings;

• a fee of $500 for each telephonic Audit or Compensation Committee meeting lasting longer than thirty minutes;

• a fee of $500 for each Nominating and Corporate Governance or Compliance Committee meeting attended in person other than committee meetings held on the same day as in-person Board meetings;

• a fee of $250 for each telephonic Nominating and Corporate Governance or Compliance Committee meeting lasting longer than thirty minutes;

• upon first joining the Board, a grant of stock options to purchase 10,000 shares of our common stock, which will become exercisable as to 33%, 33% and 34% of the underlying shares on the first, second and third anniversaries of the date of grant and have a term of seven years;

• upon first joining the Board, an award of restricted stock units with a fair market value of $90,000 on the date of such award, which will vest as to 33%, 33% and 34% on each of the first, second and third anniversaries of the date of grant;

• an annual grant, to each non-employee director who will continue to serve as a director after the annual meeting of our stockholders, of immediately exercisable stock options to purchase 5,000 shares of our common stock;

• an annual award, to each non-employee director who will continue to serve as a director after the annual meeting of our stockholders, of restricted stock units with a fair market value of $45,000 on the date of such award, which will vest on the earlier of the date of the next annual meeting of our stockholders or the first anniversary of the award date; and

• reimbursement for all reasonable travel expenses incurred in connection with Board of Directors’ meetings and meetings of committees of the Board of Directors.

EX-10.28

EXHIBIT 10.28

Fiscal 2007 Salaries of Digene Corporation Executive Officers

Set forth below are the fiscal 2007 salaries of the executive officers of Digene Corporation:

	Salary for
Name and Title	Fiscal 2007
Evan Jones Chief Executive Officer and Chairman of the Board	$	484,300
Charles M. Fleischman President, Chief Operating Officer and Chief Financial Officer	$	418,500
Robert McG. Lilley Senior Vice President, Global Sales and Marketing	$	389,555
Attila T. Lorincz, Ph.D. Senior Vice President and Chief Scientific Officer	$	326,800
Vincent J. Napoleon Senior Vice President, General Counsel and Secretary	$	270,400
Belinda O. Patrick Senior Vice President, Manufacturing Operations	$	257,000
Joseph P. Slattery Senior Vice President, Finance and Information Systems	$	251,300
C. Douglas White Senior Vice President Sales and Marketing — Americas and Asia Pacific	$	265,900
Donna Marie Seyfried Vice President, Business Development	$	261,500

EX-21

Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

Subsidiary	State or Country of Incorporation/Formation
Digene do Brasil LTDA	Brazil
Digene Europe, Inc.	Delaware
Digene (Switzerland) Sarl	Switzerland
Digene UK (Holdings) Limited	United Kingdom
Digene Diagnostics S.L.*	Spain
Digene Deutschland GmbH*	Germany
Digene (France) S.A.S.*	France
Digene (Italia) s.r.l.*	Italy
Digene (UK) Limited*	United Kingdom

* Wholly owned subsidiary of Digene UK (Holdings) Limited

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-14933, Form S-8 No. 333-40899, Form S-8 No. 333-47782, Form S-8 No. 333-70196, Form S-8 No. 333-74852, Form S-8 No. 333-101509, Form S-8 No. 333-120299 and Form S-8 No. 333-131592) pertaining to the Digene Corporation Omnibus Plan, the Digene Corporation Directors’ Equity Compensation Plan, the Digene Corporation 1997 Stock Option Plan, and the Digene Corporation Amended and Restated 1999 Incentive Plan and in the Registration Statements (Form S-3 No. 333-83540, Form S-3 No. 333-100555, and Form S-3 No. 333-112901) of our reports dated August 28, 2006, with respect to the consolidated financial statements and schedule of Digene Corporation, Digene Corporation management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Digene Corporation, included in the Annual Report (Form 10-K) for the year ended June 30, 2006.

/s/ Ernst & Young LLP  

McLean, Virginia
September 8, 2006

EX-31.1

Exhibit 31.1

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

I, Evan Jones, certify that:

     1. I have reviewed this annual report on Form 10-K of Digene Corporation;

     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 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 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 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: September 12, 2006

/s/ Evan Jones
Name:	Evan Jones
Title:	Chief Executive Officer

EX-31.2

Exhibit 31.2

Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer

     I, Charles M. Fleischman, certify that:

     1. I have reviewed this annual report on Form 10-K of Digene Corporation;

     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 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 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 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: September 12, 2006

/s/ Charles M. Fleischman
Name:	Charles M. Fleischman
Title:	Chief Financial Officer

EX-32

Exhibit 32

Certification pursuant to
Section 1350 of Chapter 63 of Title 18 of the United States Code

     In connection with the annual report of Digene Corporation (the “Company”) on Form 10-K for the fiscal year ended June 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, the undersigned Evan Jones and Charles M. Fleischman, being respectively the Chief Executive Officer, and the Chief Financial Officer, of the Company, do each hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 that, to my knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: September 12, 2006

/s/ Evan Jones  

Evan Jones 

Chief Executive Officer 

/s/ Charles M. Fleischman  

Charles M. Fleischman 

Chief Financial Officer 

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350; it is not being filed for purposes of Section 18 of the Securities Exchange Act, 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.