<SUBMISSION>
<ACCESSION-NUMBER>0000718937-05-000050
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>4
<PERIOD>20050930
<FILING-DATE>20051109
<DATE-OF-FILING-DATE-CHANGE>20051109
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>STAAR SURGICAL CO
<CIK>0000718937
<ASSIGNED-SIC>3851
<IRS-NUMBER>953797439
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>0101
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-11634
<FILM-NUMBER>051190138
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>1911 WALKER AVE
<CITY>MONROVIA
<STATE>CA
<ZIP>91016
<PHONE>6263037902
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>1911 WALKER AVE
<CITY>MONROVIA
<STATE>CA
<ZIP>91016
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>STAAR SURGICAL COMPANY
<DATE-CHANGED>19920703
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>f10q2005_03.htm
<DESCRIPTION>STAAR 10Q Q3 2005
<TEXT>
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<BODY><H1 align=center><FONT face="Times New Roman, Times, Serif" size=3>UNITED STATES<BR>SECURITIES AND EXCHANGE COMMISSION <BR>WASHINGTON, D.C. 20549 </FONT></H1>

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<P align=center>_________________ </P>

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<H1 align=center><FONT face="Times New Roman, Times, Serif" size=4>FORM 10-Q </FONT></H1>

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<H1 align=center><FONT face="Times New Roman, Times, Serif" size=2>[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES <BR>EXCHANGE ACT OF 1934 </FONT></H1>

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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>For the quarterly period ended:&nbsp; September&nbsp;30,&nbsp;2005 </FONT></P>

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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>OR </FONT></P>

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<H1 align=center><FONT face="Times New Roman, Times, Serif" size=2>[&nbsp;&nbsp;&nbsp;] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES <BR>EXCHANGE ACT OF 1934 </FONT></H1>

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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>For the transition period from __________ to __________ </FONT></P>

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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>Commission File Number: 0-11634 </FONT></P>

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<P align=center><FONT size=5><B>STAAR SURGICAL COMPANY</B><BR></FONT><FONT size=2>(Exact name of registrant as specified in its charter) </FONT></P>

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<TD align=center width="33%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Delaware</FONT></TD>
<TD align=center width="33%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=center width="34%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;95-3797439</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=center><FONT face="Times New Roman, Times, Serif" size=1>&nbsp;&nbsp;(State or other jurisdiction</FONT></TD>
<TD align=center><FONT face="Times New Roman, Times, Serif" size=1></FONT></TD>
<TD align=center><FONT face="Times New Roman, Times, Serif" size=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(I.R.S. Employer Identification No.)</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=center><FONT face="Times New Roman, Times, Serif" size=1>of incorporation or organization)</FONT></TD>
<TD align=center><FONT face="Times New Roman, Times, Serif" size=1></FONT></TD></TR>
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<BR>
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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>1911 Walker Avenue&nbsp;<BR>Monrovia,&nbsp;California&nbsp;&nbsp;&nbsp;<BR>91016</FONT><BR><FONT face="Times New Roman, Times, Serif" size=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Address of principal executive offices)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>(Zip Code) </FONT><BR>
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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>(626) 303-7902 </FONT><BR><FONT face="Times New Roman, Times, Serif" size=1>(Registrant&#146;s telephone number, including area code) </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_] </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [X] NO [&nbsp;&nbsp; ]</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES&nbsp;[&nbsp;&nbsp; ] NO [X]</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>The registrant has&nbsp;24,797,654 shares of common stock, par value $0.01 per share, issued and outstanding as of November 7, 2005.</FONT></P>

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<P align=center><FONT size=2>STAAR SURGICAL COMPANY </FONT></P>

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<P align=center><FONT size=2>INDEX </FONT></P>

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<P><FONT size=1>PAGE NUMBER </FONT></P>
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<TD noWrap align=left width="75%" colSpan=2><FONT size=2></FONT></TD>
<TD width="65%"><FONT size=2></FONT></TD>
<TD width="35%"><FONT size=2></FONT></TD></TR>
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<TD noWrap align=left colSpan=2>

<P><FONT size=2>PART I.&nbsp; FINANCIAL INFORMATION<BR></FONT></P>
</TD>
<TD><FONT size=2></FONT></TD>
<TD><FONT size=2></FONT></TD></TR>
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<TD noWrap align=left colSpan=2><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;Item 1.&nbsp;&nbsp;&nbsp;&nbsp;Financial Statements (Unaudited).</FONT></TD>
<TD><FONT size=2></FONT></TD>
<TD>
<P align=center><FONT size=2></FONT></P>
</TD></TR>
<TR vAlign=middle>
<TD noWrap align=left colSpan=2><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Condensed Consolidated Balance Sheets -&nbsp;September 30, 2005&nbsp;and <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; December 31, 2004.<BR></FONT></TD>
<TD><FONT size=2></FONT></TD>
<TD>
<P align=center><FONT size=2>1</FONT></P>
</TD></TR>
<TR vAlign=middle>
<TD noWrap align=left colSpan=2><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Condensed Consolidated Statements of Operations &#150; Three and&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;Nine Months Ended September 30, 2005 and October 1, 2004.<BR></FONT></TD>
<TD><FONT size=2><BR></FONT></TD>
<TD>
<P align=center><FONT size=2>2</FONT></P>
</TD></TR>
<TR vAlign=middle>
<TD noWrap align=left colSpan=2><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Condensed Consolidated Statements of Cash Flows &#150;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Nine Months Ended September 30, 2005 and October 1, 2004.<BR></FONT></TD>
<TD><FONT size=2><BR></FONT></TD>
<TD>
<P align=center><FONT size=2>3</FONT></P>
</TD></TR>
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<TD noWrap align=left colSpan=2><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notes to the Condensed Consolidated Financial Statements.<BR></FONT></TD>
<TD><FONT size=2></FONT></TD>
<TD>
<P align=center><FONT size=2>4</FONT></P>
</TD></TR>
<TR vAlign=middle>
<TD noWrap align=left colSpan=2><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Item 2.&nbsp; Management's Discussion and Analysis of Financial Condition<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; and Results of Operations.<BR></FONT></TD>
<TD><FONT size=2></FONT></TD>
<TD>
<P align=center><FONT size=2>10</FONT></P>
</TD></TR>
<TR vAlign=top>
<TD noWrap align=left colSpan=2><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Item 3.&nbsp; Quantitative and Qualitative Disclosures About Market Risk.<BR></FONT></TD>
<TD><FONT size=2></FONT></TD>
<TD>
<P align=center><FONT size=2>26</FONT></P>
</TD></TR>
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<TD noWrap align=left colSpan=2><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Item 4.&nbsp; Controls and Procedures.<BR></FONT></TD>
<TD><FONT size=2></FONT></TD>
<TD>
<P align=center><FONT size=2>26</FONT></P>
</TD></TR>
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<TD noWrap align=left colSpan=2><FONT size=2>PART II.&nbsp; OTHER INFORMATION<BR></FONT></TD>
<TD><FONT size=2></FONT></TD>
<TD><FONT size=2></FONT></TD></TR>
<TR vAlign=top>
<TD noWrap align=left colSpan=2><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Item 1.&nbsp; Legal Proceedings.<BR></FONT></TD>
<TD><FONT size=2></FONT></TD>
<TD>
<P align=center><FONT size=2>28</FONT></P>
</TD></TR>
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<TD noWrap align=left colSpan=2><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Item 2.&nbsp; Unregistered Sales of Equity Securities and Use of Proceeds.<BR></FONT></TD>
<TD><FONT size=2></FONT></TD>
<TD>
<P align=center><FONT size=2>28</FONT></P>
</TD></TR>
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<TD noWrap align=left colSpan=2><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Item 3.&nbsp; Defaults Upon Senior Securities.<BR></FONT></TD>
<TD><FONT size=2></FONT></TD>
<TD>
<P align=center><FONT size=2>28</FONT></P>
</TD></TR>
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<TD noWrap align=left colSpan=2><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Item 4.&nbsp; Submission of Matters to a Vote of Security Holders.<BR></FONT></TD>
<TD><FONT size=2></FONT></TD>
<TD>
<P align=center><FONT size=2>28</FONT></P>
</TD></TR>
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<TD noWrap align=left colSpan=2><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Item 5.&nbsp; Other Information.<BR></FONT></TD>
<TD><FONT size=2></FONT></TD>
<TD>
<P align=center><FONT size=2>28</FONT></P>
</TD></TR>
<TR vAlign=top>
<TD noWrap align=left colSpan=2><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Item 6.&nbsp; Exhibits.<BR></FONT></TD>
<TD><FONT size=2></FONT></TD>
<TD>
<P align=center><FONT size=2>28</FONT></P>
</TD></TR>
<TR vAlign=top>
<TD noWrap align=left width="75%" colSpan=2><FONT size=2>Signatures</FONT></TD>
<TD width="65%"><FONT size=2></FONT></TD>
<TD width="35%">
<P align=center><FONT size=2>29</FONT></P>
</TD></TR>
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<P>&nbsp;</P>


<P>
<HR color=gray noShade SIZE=5>


<P></P>


<P><FONT size=2><B>PART I.&nbsp;&nbsp;&nbsp;&nbsp; FINANCIAL INFORMATION </B></FONT></P>


<P><FONT size=2><B>ITEM 1.&nbsp;&nbsp;&nbsp;&nbsp; FINANCIAL STATEMENTS</B></FONT> </P>

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<P></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>STAAR SURGICAL COMPANY AND SUBSIDIARIES <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>CONDENSED CONSOLIDATED BALANCE SHEETS <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>(In thousands, except par value) </FONT></P>

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<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>September 30, 2005</FONT>
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<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>December 31, 2004</FONT>
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</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH></TR>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>(Unaudited)</FONT></TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=3></TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left width="68%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ASSETS</FONT></TD>
<TD align=left width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="10%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="4%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="10%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Current assets:</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>15,054</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>4,187</FONT></TD>
<TD align=left>

<P><FONT face="Times New Roman, Times, Serif" size=2></FONT>&nbsp;</P>
</TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Short-term investments</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>5,125</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable, net</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>5,631</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>6,217</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>14,279</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>15,084</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaids, deposits and other current assets</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1,789</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1,969</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>36,753</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>32,582</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Investment in joint venture</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>283</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>125</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Property, plant and equipment, net</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>5,509</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>6,163</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Patents and licenses, net</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>5,040</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>5,400</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Goodwill</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>7,534</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>7,534</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Other assets</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>131</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>169</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>55,250</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>51,973</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LIABILITIES AND STOCKHOLDERS' EQUITY</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Current liabilities:</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notes payable</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1,702</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>3,004</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>3,781</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>5,313</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other current liabilities</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>5,261</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>5,162</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>10,744</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>13,479</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Other long-term liabilities</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>705</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>632</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>11,449</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>14,111</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Minority interest</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>22</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Commitments and contingencies</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Stockholders' equity:</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Preferred stock, $.01 par value; 10,000 shares</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;authorized; none issued or outstanding</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common stock, $.01 par value; 30,000 shares</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;authorized; issued and outstanding 24,798 at </FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;September 30, 2005 and 20,664 at December 31, 2004</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>248</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>207</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional paid-in capital</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>112,277</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>98,691</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated other comprehensive income</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>338</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1,024</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated deficit</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(68,228</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(60,478</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>44,635</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>39,444</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notes receivable from officers and directors, net</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(834</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(1,604</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders' equity</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>43,801</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>37,840</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities and stockholders' equity</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>55,250</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>51,973</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD></TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P align=center><FONT face="Times New Roman, Times, Serif" size=2>See accompanying notes to the condensed consolidated financial statements. </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>1 </FONT></P>

<HR color=gray noShade SIZE=5>

<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P align=center><FONT face="Times New Roman, Times, Serif" size=2>STAAR SURGICAL COMPANY AND SUBSIDIARIES <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>(In thousands, except per share amounts) <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>(Unaudited) </FONT></P>

<TABLE cellSpacing=0 cellPadding=0 width=760 border=0>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=6><FONT face="Times New Roman, Times, Serif" size=1>Three Months Ended</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH colSpan=6><FONT face="Times New Roman, Times, Serif" size=1>Nine Months Ended</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH></TR>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>September 30,<BR>2005</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>October 1,<BR>2004</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>September 30,<BR>2005</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>October 1,<BR>2004</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left width="49%"><FONT face="Times New Roman, Times, Serif" size=2>Sales</FONT></TD>
<TD align=left width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right width="9%"><FONT face="Times New Roman, Times, Serif" size=2>11,647</FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right width="9%"><FONT face="Times New Roman, Times, Serif" size=2>12,140</FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right width="9%"><FONT face="Times New Roman, Times, Serif" size=2>39,236</FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right width="9%"><FONT face="Times New Roman, Times, Serif" size=2>37,733</FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Cost of sales</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>6,450</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>6,043</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>20,978</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>18,169</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross profit</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>5,197</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>6,097</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>18,258</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>19,564</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;General and administrative</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>2,321</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>2,143</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>6,898</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>6,406</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Marketing and selling</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>4,290</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>4,511</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>13,884</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>14,615</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Research and development</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1,274</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1,533</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>4,023</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>4,882</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Other charges</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>640</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>746</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating loss</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(3,328</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(2,090</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(7,293</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(6,339</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Other income (expense):</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Equity in operations of joint venture</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>122</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(170</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>158</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(189</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Interest income</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>135</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>58</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>323</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>151</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Interest expense</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(35</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(70</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(136</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(159</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Other income</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>9</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>207</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>328</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>435</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total other income, net</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>231</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>25</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>673</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>238</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Loss before income taxes and minority interest</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(3,097</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(2,065</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(6,620</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(6,101</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Provision for income taxes</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>210</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>203</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1,152</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>818</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Minority interest</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(5</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(22</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>29</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Net loss</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(3,302</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(2,268</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(7,750</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(6,948</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Loss per share - basic and diluted</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(.13</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(.11</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(.33</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(.36</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Weighted average shares outstanding -</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;basic and diluted</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>24,797</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>20,550</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>23,343</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>19,281</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD colSpan=3></TD>
<TD colSpan=3></TD>
<TD colSpan=3></TD>
<TD colSpan=3></TD></TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P align=center><FONT face="Times New Roman, Times, Serif" size=2>See accompanying notes to the condensed consolidated financial statements. </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>2 </FONT></P>

<HR color=gray noShade SIZE=5>

<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P align=center><FONT face="Times New Roman, Times, Serif" size=2>STAAR SURGICAL COMPANY AND SUBSIDIARIES <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>(In thousands) <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>(Unaudited) </FONT></P>

<TABLE cellSpacing=0 cellPadding=0 width=600 border=0>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=6><FONT face="Times New Roman, Times, Serif" size=1>Nine Months Ended</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH></TR>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>September 30,<BR>2005</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>October 1,<BR>2004</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH></TR>
<TR vAlign=bottom>
<TD align=left width="67%"><FONT face="Times New Roman, Times, Serif" size=2>Cash flows from operating activities:</FONT></TD>
<TD align=left width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="11%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="4%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="11%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Net loss</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(7,750</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(6,948</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Adjustments to reconcile net loss to net cash used in operating</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;activities:</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation of property and equipment</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1,507</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1,477</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of intangibles</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>360</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>567</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss on disposal of fixed assets</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>23</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>84</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equity in operations of joint venture</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(158</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>189</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based consultant expense</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>117</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>173</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common stock issued for services</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>78</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notes receivable reserve</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>746</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(66</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(19</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Minority interest</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(22</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>21</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Changes in working capital:</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>586</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>189</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>674</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(1,172</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaids, deposits and other current assets</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>180</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(783</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(1,532</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(887</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other current liabilities</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>99</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1,371</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in operating activities</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(5,158</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(5,738</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Cash flows from investing activities:</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Acquisition of property and equipment</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(745</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(1,169</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Increase in patents and licenses</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(16</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Purchase of short-term investments</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(15,300</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Sale of short-term investments</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>20,425</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Purchase of minority interest in subsidiary</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(768</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Decrease (increase) in other assets</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>38</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(91</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Dividend received from joint venture</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>81</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Proceeds from notes receivable and other</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>90</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>310</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by (used in) investing activities</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>4,508</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(1,653</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Cash flows from financing activities:</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Payments under notes payable and long-term liabilities</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(1,229</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(188</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Net proceeds from private placement</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>13,374</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>11,648</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Proceeds from exercise of stock options</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>58</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>614</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by financing activities</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>12,203</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>12,074</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Effect of exchange rate changes on cash and cash equivalents</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(686</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(127</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Increase in cash and cash equivalents</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>10,867</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>4,556</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Cash and cash equivalents, at the beginning of the period</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>4,187</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>7,286</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Cash and cash equivalents, at the end of the period</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>15,054</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>11,842</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD></TR>
</TABLE>


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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>See accompanying notes to the condensed consolidated financial statements. </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>3 </FONT></P>

<HR color=gray noShade SIZE=5>

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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>STAAR SURGICAL COMPANY AND SUBSIDIARIES <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>(Unaudited)</FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>Note 1 &#151; Significant Accounting Policies </B></FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>Organization and Description of Business </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;STAAR Surgical Company (the "Company&#148;), a Delaware corporation, was incorporated in 1982 for the purpose of developing, producing, and marketing intraocular lenses (&#147;IOLs&#148;) and other products for minimally invasive ophthalmic surgery. The Company has evolved to become a developer, manufacturer and global distributor of products used by ophthalmologists and other eye care professionals to improve or correct vision in patients with cataracts, refractive conditions and glaucoma. Products sold by the Company for use in restoring vision impaired by cataracts include the following:&nbsp; its line of silicone and Collamer IOLs; the Preloaded Injector, which is a three-piece silicone IOL preloaded into a single-use disposable injector; the SonicWAVE&#153; Phacoemulsification System; STAARVISC&#153; II, a viscoelastic material; and Cruise Control, a disposable filter which allows for a
significantly faster, cleaner phacoemulsification procedure and is compatible with all phacoemulsification equipment utilizing Venturi and peristaltic pump technologies. Products sold by the Company for use in correcting refractive conditions such as myopia (near-sightedness), hyperopia (far-sightedness) and astigmatism include the VISIAN&#153; ICL&#174; (&#147;ICL&#148;) and the VISIAN&#153; TICL&#174; (&#147;TICL&#148;). The Company&#146;s AquaFlow&#153; Collagen Glaucoma Drainage Device is surgically implanted in the outer tissues of the eye to create a space that allows increased drainage of intraocular fluid, thereby reducing the intraocular pressure that otherwise may lead to deterioration of vision in patients with glaucoma. The Company also sells other instruments, devices and equipment manufactured both by the Company and suppliers in the ophthalmic products industry. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s only significant subsidiary is STAAR Surgical AG, a wholly owned subsidiary, formed in Switzerland, to develop, manufacture and distribute certain of the Company&#146;s products worldwide, including the ICL, TICL and the AquaFlow device. STAAR Surgical AG is the parent of a major European sales subsidiary that distributes both the Company&#146;s products and products from various other manufacturers. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>Canon Staar Joint Venture</B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1988, the Company entered into a joint venture with Canon Inc. and Canon Sales Co., Inc. for the principal purpose of designing, manufacturing, and selling in Japan intraocular lenses and other ophthalmic products. The joint venture markets its products worldwide through Canon, Canon Sales or STAAR or such other distributors as the Board of Directors of the joint venture may approve. The terms of any distribution arrangements require the unanimous approval of the Board of Directors of the joint venture. Of the five members of the Board of Directors of the joint venture, STAAR and Canon Sales are each entitled to appoint two directors and Canon may appoint one. The president of the joint venture is to be appointed by STAAR. Certain matters require the unanimous approval of the directors. Upon the occurrence of certain events, including the merger, sale of substantially all of the assets or change in
the management of one of the parties, any of the other parties may have the right to acquire the first party's interest in the joint venture at book-value. The Company also granted to the joint venture a perpetual exclusive license to use STAAR technology to make and sell products in Japan, and a perpetual non-exclusive license to use STAAR technology to sell products in the rest of the world, subject to the requirements of the joint venture agreement that all sales take place through a distribution agreement unanimously approved by the directors of the joint venture.</FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001, the parties entered into a settlement agreement whereby (i)&nbsp;they reconfirmed the joint venture agreement and the license agreement, (ii)&nbsp;they agreed that the Company would promptly commence the transfer of STAAR's technology to the joint venture, (iii)&nbsp;the Company granted the joint venture an exclusive license to make any products in China and sell such products in Japan and China (subject to STAAR's existing licenses and the existing rights of third parties), (iv)&nbsp;the Company agreed to provide the joint venture with raw materials under a supply agreement to be entered into with the joint venture, (v)&nbsp;Canon Sales Co., Inc. is to enter into a distribution agreement with the joint venture providing a minimum 50-70% share of sales revenue to the joint venture and having such other terms as unanimously approved by the directors of the joint venture, and (iv)&nbsp;the
parties settled certain patent disputes. </FONT></P>

<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>Basis of Presentation</B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Assets and liabilities of foreign subsidiaries are translated at rates of exchange in effect at the close of the period. Sales and expenses are translated at the weighted average of exchange rates in effect during the period. The resulting translation gains and losses are deferred and are shown as a separate component of stockholders&#146; equity as accumulated other comprehensive income. During the nine months ended September 30, 2005 and October 1, 2004, the net foreign currency translation&nbsp;loss was $686,000 and $127,000, respectively. </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>4 </FONT></P>

<HR color=gray noShade SIZE=5>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->

<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;Net foreign currency transaction gain for the three and nine months ended September 30, 2005 was $4,000 and $266,000, respectively, and for the three and nine months ended October 1, 2004 was $26,000 and $170,000, respectively.</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Investment in the Company's joint venture with Canon Staar Co., Inc., is accounted for using the equity method of accounting.</FONT></P>


<P><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <FONT face="Times New Roman, Times, Serif">&nbsp;The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The financial statements for the three and&nbsp;nine months ended September 30, 2005 and October 1, 2004, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial condition and results of operations. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the
Company&#146;s Annual Report on Form 10-K/A for the year ended December 31, 2004. </FONT></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The results of operations for the three months and nine months ended September 30, 2005 and October 1, 2004 are not necessarily indicative of the results to be expected for any other interim period or the entire year. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of the Company&#146;s reporting periods ends on the Friday nearest to the quarter ending date and generally consists of 13 weeks. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>New Accounting Pronouncements</B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In June 2005, the FASB issued a FASB&nbsp;Staff Position&nbsp;(FSP) interpreting FASB Statement No. 143, <I>Accounting for Asset Retirement Obligations.&nbsp; </I>Specifically, the FASB issued FSP FAS 143-1, "Accounting for Electronic Equipment Waste Obligations."&nbsp; This standard addresses the accounting&nbsp; for obligations associated with the Directive 2002/96/EC , Waste Electrical and Electronic Equipment (the Directive), which was adopted by the European Union (EU).&nbsp;&nbsp;The FSP provides guidance on how to account for the effects of the Directive but only with respect to historical waste (i.e., waste associated with products placed&nbsp;on the market on or before August 13, 2005).&nbsp; The guidance in the FSP is required to be applied to the later of&nbsp; (1) the first reporting period ending after June 8, 2005, or&nbsp;(2) the date that the EU-member country adopts the law.&nbsp;&nbsp;The
adoption of this pronouncement is not expected to have a material&nbsp;effect on the Company's financial statements.</FONT></P>


<P><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; On August 31, 2005, the FASB Staff issued FSP&nbsp;FAS 123(R)-1, <I>Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R).</I>&nbsp; This FSP defers the requirement that a freestanding financial instrument originally subject to SFAS No 123(R) becomes subject to the recognition and measurement requirements of other applicable generally accepted accounting principles (GAAP) when the rights conveyed by the instrument to the holder are no longer dependent on the holder being an employee of the entity.&nbsp; Such instruments shall continue to be accounted for under the provisions of SFAS No. 123(R) unless its terms are modified when the holder is no longer an employee.&nbsp; The Company will consider the provisions of this FSP and its impact on modified awards upon adoption of SFAS No. 123(R) on January 1, 2006.</FONT></P>


<P><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In September 2005, the FASB issued Proposed FDP FAS 123(R)-c which provides a simplified, more practical transition election relating to the calculation of the "APIC pool."&nbsp; The APIC pool is defined as the pool of excess tax benefits available to absorb tax deficiencies occurring after the adoption of&nbsp;SFAS No.&nbsp;123(R).&nbsp; Under the Proposed FSP, companies can elect to perform simpler computations to derive the beginning balance of the APIC pool as well as&nbsp; the impact on the APIC pool of fully vested and outstanding awards as of the SFAS No.&nbsp;123(R) adoption date.&nbsp; The beginning balance can be computed by taking the sum of all tax benefits incurred prior to the adoption of SFAS&nbsp; No. 123(R) from stock-based compensation plans less the tax effected (using a blended statutory rate) pro forma stock-based compensation cost.&nbsp; In addition, increases to the APIC pool for fully vested awards can be calculated by
multiplying the tax rate times the tax benefit of the deduction.&nbsp; The calculation of any awards that are partially vested or granted after the SFAS 123(R) adoption date will not be affected by this Proposed FSP and will be calculated in accordance with SFAS No. 123(R) which entails that only the excess tax benefit or deficiency of the tax deduction over the compensation cost recognized should be considered for the APIC pool.&nbsp; Also under the Proposed FSP, all tax benefits recognized on fully vested awards and the excess tax benefits for partially vested and new awards will be reported on the Statement of Cash Flows as a component of financing activities.&nbsp; Companies will have up to one year after adopting SFAS No. 123(R) to decide to elect and disclose whether they plan to use the alternative method or the original method prescribed in SFAS No. 123(R).&nbsp; If finalized, the Company will adopt this Proposed Staff Position in conjunction with the adoption of&nbsp; SFAS No.
123(R).</FONT></P>


<P><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; On October 18, 2005, the FASB Staff issued FSP FAS 123(R)-2, <I>Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123(R</I>).&nbsp; This FSP permits the presumption that an understanding of the key terms and conditions of an individual employee's award are known at the date the Board, or other corporate governing body, approves the award, as long as the award is a unilateral grant and the key terms and conditions are expected to be communicated to the recipient within a relatively short period of time.&nbsp; The Company will consider the provisions of this FSP and its impact on awards granted upon adoption of SFAS No. 123(R) on January 1, 2006.</FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>5 </FONT></P>

<HR color=gray noShade SIZE=5>

<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>Stock-based Compensation</B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has adopted the disclosure-only provisions of SFAS No. 123 and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." Under these provisions, the Company continues to measure the cost of stock-based compensation issued to employees using the intrinsic value method provided by APB Opinion No. 25, while disclosing the effect the fair-value method would have on net income (loss) on a pro forma basis. Under the intrinsic value method, the Company has recognized no cost for options granted under its stock option plans because all options had an exercise price equal to the market value of the underlying common stock on the date of grant.</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;Had the Company accounted for stock options issued to employees and others in accordance with the fair value method of SFAS No. 123, pro forma net loss and loss per share for the three and nine months ended September 30, 2005 and October 1, 2004 would be as follows (in thousands, except per share data): </FONT></P>

<TABLE cellSpacing=0 cellPadding=0 width=650 border=0>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=6><FONT face="Times New Roman, Times, Serif" size=1>Three Months Ended</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH colSpan=6><FONT face="Times New Roman, Times, Serif" size=1>Nine Months Ended</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH></TR>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>September 30,<BR>2005</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>October 1,<BR>2004</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>September 30,<BR>2005</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>October 1,<BR>2004</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left width="48%"><FONT face="Times New Roman, Times, Serif" size=2>Net loss&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; As reported</FONT></TD>
<TD align=left width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right width="9%"><FONT face="Times New Roman, Times, Serif" size=2>(3, 302</FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right width="9%"><FONT face="Times New Roman, Times, Serif" size=2>(2,268</FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right width="10%"><FONT face="Times New Roman, Times, Serif" size=2>(7,750</FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right width="9%"><FONT face="Times New Roman, Times, Serif" size=2>(6,948</FONT></TD>
<TD align=left width="2%">

<P><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></P>
</TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Deduct:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total stock-based employee </FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;compensation expense</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;determined under fair value</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; based methods for all awards</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(138</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(165</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(798</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(687</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD colSpan=3></TD>
<TD colSpan=3></TD>
<TD colSpan=3></TD>
<TD colSpan=3></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Net loss&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Pro forma</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(3,440</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(2,433</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(8,548</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(7,635</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Loss per share:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Basic and diluted</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp; As reported</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(0.13</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(0.11</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(0.33</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(0.36</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp; Pro forma</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(0.14</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(0.12</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(0.37</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(0.40</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD></TR>
</TABLE>


<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>Note 2 &#151; Geographic and Product Data </B></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->

<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company markets and sells its products in over 45 countries and has manufacturing sites in the United States and Switzerland. Other than the United States, Germany and Australia, no country where the Company conducts business accounted for more than 5% of the Company's consolidated sales. Sales are attributed to countries based on location of customers. The portion of the Company&#146;s total sales to unaffiliated customers taking place in the United States, Germany, Australia and other locations for the&nbsp;periods&nbsp;indicated, is set forth below (in thousands). </FONT></P>

<TABLE cellSpacing=0 cellPadding=0 width=650 border=0>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=6><FONT face="Times New Roman, Times, Serif" size=1>Three Months Ended</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH colSpan=6><FONT face="Times New Roman, Times, Serif" size=1>Nine Months Ended</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH></TR>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>September 30,<BR>2005</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>October 1,<BR>2004</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>September 30,<BR>2005</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>October 1,<BR>2004</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH></TR>
<TR vAlign=bottom>
<TD align=left width="38%"><FONT face="Times New Roman, Times, Serif" size=2>Sales to unaffiliated customers</FONT></TD>
<TD align=left width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="10%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="4%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="10%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="4%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="10%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="4%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="10%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>United States</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>4,393</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>5,414</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>14,460</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>16,224</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Germany</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>5,072</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>5,001</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>17,071</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>15,858</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Australia</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>751</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>471</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>2,116</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1,299</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Other</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1,431</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1,254</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>5,589</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>4,352</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Total</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>11,647</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>12,140</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>39,236</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>37,733</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD></TR>
</TABLE>


<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company develops, manufactures and distributes medical devices used in minimally invasive ophthalmic surgery. The Company distributes its medical devices in the cataract, refractive and glaucoma segments within ophthalmology. While the Company has expanded its marketing focus beyond the cataract market to include the refractive and glaucoma markets, the cataract market remains the Company&#146;s primary source of sales and, therefore, the Company operates as one business segment for financial reporting purposes. </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>6 </FONT></P>

<HR color=gray noShade SIZE=5>

<TABLE cellSpacing=0 cellPadding=0 width=650 border=0>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=6><FONT face="Times New Roman, Times, Serif" size=1>Three Months Ended</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH colSpan=6><FONT face="Times New Roman, Times, Serif" size=1>Nine Months Ended</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH></TR>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>September 30,<BR>2005</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>October 1,<BR>2004</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>September 30,<BR>2005</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>October 1,<BR>2004</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH></TR>
<TR vAlign=bottom>
<TD align=left width="38%"><FONT face="Times New Roman, Times, Serif" size=2>Sales by product line</FONT></TD>
<TD align=left width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="10%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="4%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="10%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="4%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="10%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="4%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="10%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Cataract</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>10,534</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>11,084</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>34,731</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>34,171</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Refractive</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>997</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>876</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>4,020</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>2,915</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Glaucoma</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>116</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>180</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>485</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>647</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Total</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>11,647</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>12,140</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>39,236</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>37,733</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD></TR>
</TABLE>



<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company sells its products internationally, which subjects the Company to several potential risks, including fluctuating exchange rates (to the extent the Company&#146;s transactions are not in U.S. dollars), regulation of fund transfers by foreign governments, United States and foreign export and import duties and tariffs, and political instability. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>Note&nbsp;3&nbsp;&#151; Inventories </B></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->

<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are stated at the lower of cost, determined on a first-in, first-out basis or market and consisted of the following at September 30, 2005 and December 31, 2004 (in thousands): </FONT></P>

<TABLE cellSpacing=0 cellPadding=0 width=600 border=0>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>September 30,<BR>2005</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH>
<TH><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=2><FONT face="Times New Roman, Times, Serif" size=1>December 31,<BR>2004</FONT>
<HR width="95%" color=black noShade SIZE=1>
</TH></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left width="70%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Raw materials and purchased parts</FONT></TD>
<TD align=left width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right width="10%"><FONT face="Times New Roman, Times, Serif" size=2>978</FONT></TD>
<TD align=left width="4%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right width="10%"><FONT face="Times New Roman, Times, Serif" size=2>985</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Work-in-process</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>2,208</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>2,253</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Finished goods</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>11,093</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>11,846</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>14,279</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>15,084</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=2>
</TD>
<TD></TD></TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>Note&nbsp;4&nbsp;&#151; Goodwill and Other Intangible Assets</B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for as purchases. The Company adopted SFAS No. 141, &#147;Business Combinations,&#148; and No. 142, &#147;Goodwill and Other Intangible Assets,&#148; on December 29, 2001. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->

<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill, which has an indefinite life and was previously amortized on a straight-line basis over the periods benefited, is no longer amortized to earnings but instead is subject to periodic testing for impairment. Intangible assets determined to have definite lives are amortized over their remaining useful lives. Goodwill of a reporting unit is tested for impairment on an annual basis or between annual tests if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying amount. As provided under SFAS No. 142, an annual assessment of goodwill for possible impairment was completed during the fourth quarter of fiscal year 2004 and no impairment was identified. As of September 30, 2005, the carrying value of goodwill was $7.5 million. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->

<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has intangible assets consisting of patents and licenses, with a gross book value of $11.5 million and accumulated amortization of $6.5 million as of September 30, 2005. Amortization is computed on the straight-line basis over the estimated useful lives, and range from 10 to 20 years. Aggregate amortization expense for patents and licenses for the three and nine months ended September 30, 2005 was approximately $120,000 and $360,000, respectively,&nbsp;and for the three and nine months ended October 1, 2004 was approximately $160,000 and $567,000, respectively. </FONT></P>


<P><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The following table shows the estimated amortization expense for these assets for each of the five succeeding years (in thousands): </FONT></P>


<P>
<TABLE cellSpacing=0 cellPadding=0 width=500 border=0>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=2></FONT></TH>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=2></FONT></TH>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=2></FONT></TH></TR>
<TR vAlign=bottom>
<TD align=left width="20%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="10%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="20%"><FONT face="Times New Roman, Times, Serif" size=2><U>Fiscal Year</U></FONT></TD>
<TD align=left width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left width="4%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="7%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>2005&nbsp;&nbsp;(three months)</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>120</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>2006</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>479</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>2007</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>479</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>2008</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>479</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>2009</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>479</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=5></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;Total</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>2,036</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=5></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=3>
</TD>
<TD></TD></TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->
<P align=center><FONT face="Times New Roman, Times, Serif" size=2>7 </FONT></P>

<HR color=gray noShade SIZE=5>


<P><FONT face="Times New Roman, Times, Serif" size=2><B>Note&nbsp;5&nbsp;&#151; Loss Per Share </B></FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company presents loss per share data in accordance with the provisions of SFAS No. 128, &#147;Earnings per Share,&#148; which provides for the calculation of basic and diluted earnings per share. Loss per share of common stock is computed by using the weighted average number of common shares outstanding during the period. Common stock equivalents are not included in the determination of the weighted average number of shares outstanding, as they would be antidilutive. Accordingly, the Company excluded from the computation options to purchase the following numbers of shares of&nbsp;its Common Stock:&nbsp; &nbsp;3,369,248 and 3,334,222 for the three and nine months ended September 30, 2005, and 2,786,093 and 2,541,533 for the three and nine months ended October 1, 2004. </FONT></P>

<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>Note&nbsp;6&nbsp;&#151; Supply Agreement</B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->

<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2000, the Company entered into a minimum purchase agreement with a manufacturer for the purchase of viscoelastic solution. In addition to&nbsp;a minimum purchase requirement, the Company is also obligated to pay an annual regulatory maintenance fee. The agreement contains provisions to increase the minimum annual purchases in the event that the seller gains regulatory approval of the product in other markets, as requested by the Company. The agreement expires in April 2006 and requires that any shortfalls in annual purchase commitments must be honored before the expiration date.&nbsp; Purchases under the agreement during the three and nine months ended September 30, 2005 were approximately $223,000 and $567,000, and during the three and nine months ended October 1, 2004 were approximately $154,000 and $500,000.&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>As of
September 30, 2005, estimated annual purchase commitments are as follows (in thousands): </FONT></P>

<TABLE cellSpacing=0 cellPadding=0 width=500 border=0>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH></TR>
<TR vAlign=bottom>
<TD align=left width="20%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="10%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="20%"><FONT face="Times New Roman, Times, Serif" size=2><U>Fiscal Year</U></FONT></TD>
<TD align=left width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left width="4%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="7%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>2005 (three months)</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>34</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>2006</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>621</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=5></TD>
<TD align=right colSpan=2>
<HR color=#000000 noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;Total</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>$</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>655</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD></TR>
<TR>
<TD colSpan=5>

<P>&nbsp;</P>
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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>Note&nbsp;7&nbsp;&#151; Commitments and </B></FONT><FONT face="Times New Roman, Times, Serif" size=2><B>Contingencies</B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <I>Litigation and&nbsp;Claims</I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>In re STAAR Surgical Co. Securities Litigation, No. CV 04-8007. </I>The Company and its Chief Executive Officer are defendants in a class action lawsuit pending in the Central District of California. A consolidated amended complaint filed by the plaintiffs on April 29, 2005 generally alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, by issuing false and misleading statements regarding the prospects for FDA approval of STAAR&#146;s VISIAN ICL, thereby artificially inflating the price of the Company&#146;s Common Stock. The plaintiffs generally seek to recover compensatory damages, including interest. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company filed a motion to dismiss, which the court denied in an order filed September 19, 2005 (the &#147;Order&#148;). While permitting the case to proceed, the Order effectively narrowed the proposed class to purchasers of the Company&#146;s securities between October 6, 2003 and January 6, 2004 by limiting the statements of the Company that the plaintiffs may challenge. The Company has filed a motion requesting certification of the Order for interlocutory appeal, and intends to vigorously defend against the claims asserted in the consolidated amended complaint. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time the Company is subject to various claims and legal proceedings arising out of the normal course of our business. These claims and legal proceedings relate to contractual rights and obligations, employment matters, and claims of product liability&nbsp;&nbsp; While the Company does not believe that any of the claims known is likely to have a material adverse effect on its financial condition or results of operations, new claims or unexpected results of existing claims could lead to significant financial harm. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;FDA Warning Letters and Form 483 Observations</I> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Office of Compliance of the FDA&#146;s Center for Devices and Radiological Health regularly inspects the Company&#146;s facilities to determine whether we are in compliance with the FDA's Quality System Regulations relating to such things as manufacturing practices, validation, testing, quality control, product labeling and complaint handling, and in compliance with FDA Medical Device Reporting regulations. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Failure to demonstrate strict compliance with these regulations and can result in enforcement actions that terminate, suspend or severely restrict the ability to continue manufacturing and selling medical devices. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Between December&nbsp;29, 2003 and July&nbsp;5, 2005 the Company received Warning Letters, Form 483 Inspectional Observations and other correspondence from the FDA indicating deficiencies in the Company&#146;s compliance with its Quality System Regulations and Medical Device Reporting regulations and warning of possible enforcement action. In response,&nbsp;the Company&nbsp;implemented numerous</FONT> </P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>8 </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;improvements to its quality system. Among other things,&nbsp;the Company&nbsp;developed a Global Quality Systems Action Plan, which was completed in April 2004 and submitted to the FDA on May 14, 2004. This Plan has been continuously updated since its adoption. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The FDA Office of Compliance conducted its most recent inspection of the Company&#146;s Monrovia, California facility between August 29, 2005 and September 14, 2005. At the conclusion of the inspection the inspectors issued three Inspectional Observations on FDA Form 483. One of the observations was annotated as &#147;corrected and verified,&#148; and the Company promised to correct the remaining two. The Company provided details of its corrective actions on the remaining two observations to the FDA by letter on October 11, 2005. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on the Company&#146;s corrections to the quality system issues identified by the FDA in previous inspections and the findings of the FDA in this inspection, the Company does not believe that enforcement action by the FDA is likely at this time. Nevertheless, the Warning Letters, the Form 483 Observations and the letter received on July 5, 2005 have adversely affected&nbsp;the Company's &nbsp;reputation in the ophthalmic industry and&nbsp;its product sales. The final FDA approval of the VISIAN ICL remains subject to a review of the results of the recent inspection by the FDA&#146;s Center for Devices and Radiological Health. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For a more complete discussion of these matters please see <I>&#147;Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations &#150; Overview &#150; Significant Factors Affecting our Business &#150; FDA Compliance Issues.</I>&#148; </FONT></P>

<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>Note&nbsp;8&nbsp;&#151; Receivables from Officers and Directors</B></FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;During the third quarter of fiscal 2005, the Company recorded an additional reserve of $640,000 against promissory notes of Dr. Peter Utrata, a former director of the Company.&nbsp; Aggregate principal and accrued interest owed to the Company under the notes was $1.9 million as of September 30, 2005, against which the Company has reserved a total of $1.3 million.&nbsp; Dr. Utrata is in default under the notes and a related Forbearance Agreement with the Company, and he has recently disputed whether he is obligated to pay the full principal and interest under the notes.&nbsp; On these events, the Company re-evaluated&nbsp;its likelihood of collecting on the notes and re-examined the collateral for the notes, which consists of a pledge of 120,000 shares of the Company's Common Stock (the "Pledged Shares") and a second mortgage on a home in
Florida.&nbsp; During the third quarter of 2005,&nbsp;the Company&nbsp;was advised that its collateral may be compromised with respect to the second mortgage.&nbsp; Accordingly, the Company increased its reserve on the notes to reflect the status of the collateral.&nbsp; The reserve is currently calculated as the difference, as of September 30, 2005, between the aggregate principal and accrued interest on the notes and the value of the Pledged Shares.</FONT></P>


<P><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notwithstanding the additional reserve amount, the Company believes that Dr. Utrata is obligated to repay&nbsp;the full amount of principal and interest on the notes, and continues to pursue full repayment of the notes.</FONT></P>

<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>Note&nbsp;9&nbsp;&#151; Reclassifications</B></FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A reclassification of $106,000, representing a reserve against promissory notes of a former director of the Company recorded during the first&nbsp; quarter of 2005, was made from General and Administrative Expenses to Other Charges in the Consolidated&nbsp;Statement of Operations for the nine-month period ended September 30, 2005 to conform to the presentation of a similar change recorded during the third quarter of 2005. </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2><I>9&nbsp;</I></FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;</I>&nbsp;&nbsp;&nbsp;</FONT><FONT size=2><B><I>ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</I></B></FONT>
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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The matters addressed in this Item 2 that are not historical information constitute &#147;forward-looking statements&#148; within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risks and the Company can give no assurance that its expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond the control of the Company. These factors include, without limitation, those described below under the heading &#147;Risk Factors.&#148; The Company undertakes no obligation to update these forward-looking statements after the date of this report to reflect future events or
circumstances or to reflect actual outcomes. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion should be read in conjunction with the Company&#146;s financial statements and the related notes provided under &#147;Item 1&#151; Financial Statements&#148; above. </FONT></P>

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<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>Overview </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;STAAR Surgical Company develops, manufactures and distributes worldwide visual implants and other innovative ophthalmic products to improve or correct the vision of patients with cataracts, refractive conditions, and glaucoma. Originally incorporated in California in 1982, STAAR Surgical Company reincorporated in Delaware in 1986. Unless the context indicates otherwise &#147;we,&#148; &#147;us,&#148; the &#147;Company,&#148; and &#147;STAAR&#148; refer to STAAR Surgical Company and its consolidated subsidiaries. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Product History</I> </B></FONT></P>

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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>STAAR developed, patented, and licensed the first foldable intraocular lens, or IOL, for cataract surgery. Made of pliable material, the foldable IOL permitted surgeons for the first time to replace a cataract patient&#146;s natural lens with minimally invasive surgery. The foldable IOL quickly became the standard of care for cataract surgery throughout the world. STAAR introduced its first versions of the lens, made of silicone, in 1991. </FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>In 1996, STAAR commenced commercial sales of its VISIAN ICL (&#147;ICL&#148;) in certain foreign countries, and in 1997, the ICL received CE Marking which allowed STAAR to market the product in the European Union. Using the unique biocompatible properties of our proprietary Collamer&#174; lens material, the ICL is implanted behind the iris and in front of the patient&#146;s natural lens to treat refractive errors, such as myopia (near-sightedness) and hyperopia (far-sightedness). Collamer mimics the clarity and refractive qualities of the natural human lens better than acrylic lens materials, and is better tolerated by the eye than either silicone or acrylic. In 2003, the ICL became the first phakic IOL to receive an &#147;approvable&#148; recommendation from the FDA&#146;s Ophthalmic Devices Panel. Currently, the ICL is approved for sale in approximately 41 countries and has been implanted in more than 40,000 eyes worldwide.
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<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>In July 2005, the Company received a letter from the FDA Office of Device Evaluation stating that the FDA has reviewed the Company&#146;s pre-market approval application (&#147;PMA&#148;) for the ICL and has determined that the PMA is approvable subject to an FDA inspection that finds the Company&#146;s manufacturing facilities, methods and controls in compliance with the applicable requirements of the FDA&#146;s Quality System Regulation. </FONT></TD></TR>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>In 1998, STAAR introduced the Toric IOL, the&nbsp;first implantable lens approved for the treatment of astigmatism. The Toric IOL was STAAR&#146;s first venture into the refractive market in the United States. </FONT></TD></TR>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>In 2000, STAAR introduced an IOL made of the Collamer material, making its clarity, refractive qualities, and biocompatibility available to cataract patients and their surgeons. </FONT></TD></TR>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>In 2001, STAAR commenced commercial sales of its VISIAN Toric ICL (&#147;TICL&#148;) on a limited basis in certain foreign countries, and in 2002, the TICL received CE Marking, which allowed STAAR to market the product in the European Union. </FONT></TD></TR>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>In 2004, STAAR, through its joint venture company, Canon Staar, introduced the first preloaded lens injector system in international markets. The Preloaded Injector offers surgeons improved convenience and reliability. The Preloaded Injector is not yet available in the U.S. </FONT></TD></TR>
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<P><FONT size=2><B><I>Principal Products</I></B> </FONT></P>

<P align=left><I>&nbsp;&nbsp;&nbsp; <FONT size=2>Cataract Surgery.</FONT></I><FONT size=2> The production and sale of IOLs for use in cataract surgery remains&nbsp;STAAR's core business. The Company's products for cataract surgery include the following:</FONT></P>
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<P align=center><FONT face="Times New Roman, Times, Serif" size=2><I><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></I></FONT><FONT face="Times New Roman, Times, Serif" size=2>10&nbsp;</FONT></P>

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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>Silicone IOLs, in both three-piece and one-piece design; <BR></FONT></TD></TR>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>Silicone Toric IOLs, used in cataract surgery to treat astigmatism<BR></FONT></TD></TR>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>Collamer&#174; IOLs, in both three-piece and one-piece design;<BR></FONT></TD></TR>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>The Preloaded Injector, a three-piece silicone IOL preloaded into a single-use disposable injector;<BR></FONT></TD></TR>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>STAARVISC&#153; II ("STAARVISC"), a viscoelastic material, which is used as a tissue protective lubricant and to maintain&nbsp;the shape&nbsp;of the eye during surgery;<BR></FONT></TD></TR>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>SonicWAVE&#153; Phacoemulsification System, which is used to remove a cataract patient&#146;s cloudy lens and has low energy and high vacuum characteristics;<BR></FONT></TD></TR>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>Cruise Control, a disposable filter used to increase safety and control during phacoemulsification, which is usable with all common phacoemulsification systems; and <BR></FONT></TD></TR>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>Other auxiliary products for cataract surgery, including those manufactured by others, which strengthen our ability to offer an expanded range of procedural products.</FONT></TD></TR>
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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of cataract surgery products accounted for approximately 90% of total sales for the&nbsp;three&nbsp;months&nbsp;ended September 30, 2005 and 89% of total sales for the nine months ended September 30, 2005. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Refractive Surgery.</I> We have used our unique biocompatible Collamer material to develop and manufacture lenses to treat refractive disorders such as myopia (near-sightedness), hyperopia (far-sightedness) and astigmatism. These include the VISIAN ICL, or ICL, and the Toric VISIAN TICL, or TICL. Lenses of this type are generically called &#147;phakic IOLs&#148; or &#147;phakic implants&#148; because they work along with the patient&#146;s natural lens, or<I> phakos</I>, rather than replacing it. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The ICL and TICL have not yet been approved for use in the United States. The ICL and TICL are currently approved for use in the European Union and in Korea, Singapore, and Canada.&nbsp; On July 28, 2005, the FDA notified the Company that its application to market the ICL in the U.S. was &#147;approvable&#148; subject to an FDA inspection that finds the Company&#146;s manufacturing facilities, methods and controls in compliance with the FDA Quality System Regulation. The&nbsp;Company completed enrollment in TICL clinical trials in the United States in early 2005. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Glaucoma Surgery.</I> STAAR developed the AquaFlow&#153; Collagen Glaucoma Drainage Device, also referred to as the AquaFlow Device, as an alternative to current methods of treating open angle glaucoma. The AquaFlow Device is implanted in the sclera (the white of the eye), using a minimally invasive procedure, for the purpose of reducing intraocular pressure. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;<B>&nbsp;&nbsp;Significant Factors Affecting Our Business</B></I></FONT></P>

<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;STAAR&#146;s current strategy focuses on the following four principal goals: </FONT></P>

<P align=left><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &#149;&nbsp;&nbsp;&nbsp;&nbsp; resolving FDA compliance issues; </FONT></P>

<P align=left><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &#149;&nbsp;&nbsp;&nbsp;&nbsp; improving cash flow; </FONT></P>

<P align=left><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &#149;&nbsp;&nbsp;&nbsp;&nbsp; increasing the international market for ICLs and TICLs, securing approval to commercialize the ICL and TICL in the U.S. and launching these products; and </FONT></P>

<P align=left><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &#149;&nbsp;&nbsp;&nbsp;&nbsp; reversing the decline in U.S. market share for or our core cataract product lines by introducing new technology and refining our mature technology. </FONT></P>

<P align=left><FONT face="Times New Roman, Times, Serif" size=2>These four goals are interrelated: FDA compliance issues must be resolved before STAAR can introduce the ICL in the U.S., and to secure the reputation of our established cataract products. While STAAR works with the FDA to resolve these compliance issues, the Company must implement cost cutting initiatives to improve on-going cash flows in the U.S.&nbsp; &nbsp;STAAR&#146;s international business remains profitable, and STAAR has been successful in introducing new products like the ICL, TICL and the Preloaded Injector outside the U.S. Despite the importance of STAAR&#146;s international business, STAAR is unlikely to achieve profitability on a consolidated basis without improved U.S. performance in the form of increased sales or a dramatically reduced cost base. In addition, STAAR management believes that the growth of the ICL and TICL in international markets will accelerate if these products are introduced and gain acceptance in the U.S.
</FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>11 </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>FDA Compliance Issues</I>. As a manufacturer of medical devices, STAAR Surgical Company&#146;s manufacturing processes and facilities are subject to regulation by the U.S. Food and Drug Administration (the &#147;FDA&#148;). The Office of Compliance of the FDA&#146;s Center for Devices and Radiological Health regularly inspects STAAR&#146;s facilities to determine whether we are in compliance with the FDA Quality System Regulations relating to such things as manufacturing practices, validation, testing, quality control, product labeling and complaint handling, and in compliance with FDA Medical Device Reporting regulations. Failure to demonstrate strict compliance with these regulations can result in enforcement actions that terminate, suspend or severely restrict the ability to continue manufacturing and selling medical devices. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December 29, 2003 STAAR received a Warning Letter from the Office of Compliance, which outlined deficiencies related to the manufacturing and quality assurance systems of its Monrovia, California facility. In response to the Warning Letter, STAAR implemented numerous improvements to its quality system. STAAR also engaged Quintiles Consulting and other consultants to audit its procedures, recommend improvements and assist in implementing them. With Quintiles&#146; help, STAAR developed a Global Quality Systems Action Plan, which was completed in April 2004 and submitted to the FDA on May 14, 2004. This Plan has been continuously updated since its adoption. </FONT>
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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;23, 2004, the FDA completed a re-inspection of our Monrovia, California manufacturing facility. At the conclusion of the inspection, the FDA issued a form &#147;FDA 483 Inspectional Observations&#148; described more fully in our Current Report on Form&nbsp;8-K filed with the Securities and Exchange Commission on September&nbsp;29, 2004. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July 5, 2005, the Company received a letter from the FDA Office of Compliance stating, among other things, that the Company&#146;s earlier responses revealed that it has &#147;failed to adequately correct numerous violations&#148; noted on the Form 483. The FDA&#146;s letter stated further that the &#147;FDA is gravely concerned about Staar&#146;s serious, continuing violations and is prepared to seek the appropriate remedies under the Act.&#148; The Company responded to this letter on July 15, 2005. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Between August 29, 2005 and September 14, 2005, the FDA conducted a re-inspection of STAAR&#146;s Monrovia, California facility, which included both a pre-approval inspection in connection with the Company&#146;s premarket approval application for the VISIAN ICL and an audit of the Company&#146;s compliance with the FDA&#146;s Quality System Regulation and Medical Device Reporting regulations. At the conclusion of the inspection the inspectors issued three Inspectional Observations on FDA Form 483. One of the observations was annotated as &#147;corrected and verified,&#148; and the Company promised to correct the remaining two. The Company provided details of its corrective actions on the remaining two observations to the FDA by letter on October 11, 2005. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on the Company&#146;s corrections to the quality system issues identified by the FDA in previous inspections and the findings of the FDA in this most recent inspection, the Company does not believe that enforcement action by the FDA is likely at this time. The Company believes the outcome of the inspection reflects the Company&#146;s efforts to enhance its compliance systems during the preceding 20 months and the FDA&#146;s evaluation of that work. Nevertheless, the Warning Letters, the Form 483 Observations and the letter received on July 5, 2005 have adversely affected our reputation in the ophthalmic industry and our product sales. The final FDA approval of the VISIAN ICL remains subject to a review of the results of the recent inspection by the FDA&#146;s Center for Devices and Radiological Health. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Improving Cash Flows in the U.S. </I>As the Company continues working constructively with the FDA to resolve compliance issues and gain U.S. approval for the ICL and TICL, we must manage our existing resources efficiently to continue investing in critical product development activities and ensure the successful marketing launch of the ICL. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company implemented several cost-cutting measures during the fourth quarter of 2004 and the first quarter of 2005 both in the U.S. and Swiss operations to generate cash flow savings. In the U.S., we have reduced our reliance on outside consultants and reduced our direct sales force. We have reduced our manufacturing workforce in our Swiss facility. We expect that the full effects of these measures will be realized in the next several quarters. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Increasing the International Market for ICLs and TICLs. </I>The Company has successfully increased its market share in countries where the ICL is currently approved by emphasizing the superior outcomes in patients falling outside the &#147;limits of Lasik.&#148; STAAR believes the superior outcomes are motivating surgeons to offer the ICL to patients with lower levels of required correction compared with a year ago, significantly expanding market potential. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the introduction of the TICL in these markets has strengthened our refractive offering and contributed to accelerated sales growth for both the ICL and TICL. Our improved delivery promise on the made to order TICL has allowed us to take market share from other phakic implants. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is working to obtain new approvals for the ICL and TICL in other countries. During the&nbsp;second quarter of &nbsp;2005, STAAR received market approvals for the TICL in Canada and Korea and for both the ICL and TICL in Singapore. The Company believes it could obtain approval for the ICL and TICL in China as early as the fourth quarter of 2005. </FONT></P>

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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>12 </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>FDA Approval of the ICL and TICL. </I>On July 28, 2005, the FDA Office of Device Evaluation informed STAAR by letter (the &#147;Approvable Letter&#148;) that the FDA had reviewed the Company&#146;s pre-market approval application for the STAAR Myopic VISIAN ICL and determined that the application is approvable subject to an FDA inspection that finds STAAR&#146;s manufacturing facilities, methods and controls in compliance with the applicable requirements of the FDA&#146;s Quality System Regulation. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Approvable Letter covers the ICL for use in the correction of myopia ranging from -3.0 to -15.0 diopters and the reduction of myopia in adults with myopia ranging from greater than -15.0 to -20.0 diopters, in patients aged 21-45 having astigmatism less than or equal to 2.5 diopters at the spectacle plane, with an anterior chamber depth of 3.00 mm or greater, and a stable refractive history within 0.5 diopters for one year prior to implantation. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Efforts to Reverse Decline in U.S. Cataract Business; Shifting R&amp;D Focus. </I>Because of its significant investment in ICL technology, STAAR had limited resources for further developing its mature and well- accepted IOL products for cataract treatment. Nevertheless, in the fourth quarter of 2003, the Company introduced the first preloaded injector system which was developed by its joint venture company in Japan, Canon Staar. Management believes, however, that during the long process of developing and seeking approval for the ICL, STAAR overall failed to match some of its competitors&#146; improvements to IOL technology and standard lens delivery systems, resulting in a loss of U.S. market share. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since receiving the FDA Warning Letter in December 2003, STAAR&#146;s focus on FDA compliance issues has limited the resources available for other research and development. Nevertheless, STAAR has continued its initiative to continuously improve its IOLs and cartridge injector components for all lenses. These efforts resulted in the release of a redesigned three-piece Collamer lens and injector system in July, 2005. The effort to improve cartridges resulted in intermittent supply problems, particularly during 2004. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Other Recent Highlights</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Decline in U.S.&nbsp;Sales of IOLs.</I> A combination of several factors led to the decline of 18.8% in U.S. sales for the quarter ended September 30, 2005 as compared to the quarter ended October 1, 2004: </FONT></P>

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<LI>
<DIV align=left><FONT face="Times New Roman, Times, Serif" size=2>In their original report on the Company&#146;s audited financial statements for fiscal year 2004, the Company&#146;s independent registered public accounting firm included a qualifying paragraph expressing substantial doubt about the Company&#146;s ability to continue as a going concern. While this qualification was withdrawn following the Company&#146;s receipt of the proceeds of a private placement of common stock on April&nbsp;4, 2005, doubt about the Company&#146;s ability to continue to support its products caused some customers to curtail purchases of our products. </FONT></DIV></LI></UL>
<UL>
<LI><FONT face="Times New Roman, Times, Serif" size=2>The FDA&#146;s Form 483 Observations regarding STAAR&#146;s regulatory compliance, and in particular a letter received from the FDA on July&nbsp;5, 2005 indicating that STAAR&#146;s responses to the observations remained inadequate, harmed STAAR&#146;s quality reputation with customers and led to further doubts about STAAR&#146;s ability to continue its domestic business. <BR></FONT>
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<LI><FONT face="Times New Roman, Times, Serif" size=2>In particular, the FDA&#146;s observations raised questions &#150; which STAAR believes it has fully resolved &#150; concerning the Collamer&#174; material used in certain of STAAR&#146;s IOLs. </FONT></LI></UL>
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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Because of the uncertainty created by the above factors, some existing customers discontinued using our product and it became very difficult to persuade potential new customers to evaluate our products. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, during the third quarter of 2005 STAAR&#146;s supplier of its STAARVISC viscoelastic material recalled its products, which temporarily impacted IOL sales since STAARVISC is oftentimes bundled with IOLs. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Third quarter sales were also affected by a ruling of the Centers for Medicare and Medicaid Services (&#147;CMS&#148;). The ruling permits Medicare-covered cataract patients to receive higher-cost multifocal IOLs by paying only the additional cost of the lens and surgical procedure while still receiving reimbursement for the basic cost of cataract surgery and a monofocal IOL. Surgeons who wished to offer this alternative to patients, including most of STAAR&#146;s customers, by use of Alcon&#146;s ReSTOR&#174; lens, were required to receive training in implanting the ReSTOR lens during the last two quarters. This resulted in reduced sales in the U.S. of STAAR IOLs during the quarter ended September 30, 2005 compared to the quarter ended October 1, 2004, in particular silicone IOLs decreased 22% and Collamer IOLs decreased 20%. While STAAR expects some rebound in sales now that the ReSTOR training
process is largely complete, the CMS ruling and the ability of surgeons to offer multifocal lenses with partial Medicare reimbursement is expected to continue to affect sales of STAAR&#146;s IOLs in future periods. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;STAAR introduced a redesigned three-piece Collamer IOL, along with a newly designed injector, to the U.S. market in the second quarter of 2005. It is too early to gauge market acceptance of the redesigned lens and delivery system. If successful, the three-piece Collamer IOL is not expected to significantly affect overall performance of the U.S. cataract business until the fourth quarter of 2005. </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>13</FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Growth in International Sales of VISIAN ICLs and Preloaded Silicone IOLs.</I> The decline in the U.S.&nbsp;cataract business during the third quarter of 2005 was offset in part by a 14% increase in international sales of the VISIAN ICL and TICL. In addition, our preloaded silicone lens injector system, newly launched in international markets, experienced strong sales. This growth in the business contributed to an increase in international sales of 8% for the quarter ended September 30, 2005 compared to the quarter ended October 1, 2004. </FONT></P>


<P><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Seasonality.</I> We generally experience lower sales during the third quarter due to the effect of summer vacations on elective procedures.&nbsp; In particular, because sales activity in Europe drops dramatically in the summer months, and European sales have recently accounted for a greater proportion of our total sales, this seasonal variation in our results has become even more pronounced.</FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Foreign Currency Fluctuations.</I> Our products are sold in more than 45 countries. For the quarter ended September 30, 2005, sales from international operations were 62% of total sales. The results of operations and the financial position of certain of our offshore operations are reported in the relevant local currencies and then translated into U.S.&nbsp;dollars at the applicable exchange rates for inclusion in our consolidated financial statements, exposing us to currency translation risk. For the three months ended September 30, 2005, changes in currency exchange rates did not have a material impact on product sales and marketing and selling expenses.</FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Product Recalls.</I> During the first nine months of 2005, we recalled one lot of phaco tubing manufactured by a third party, due to incorrect labeling, and one lot of STAARVISC, manufactured by a third party, due to a potential sterility breach in the packaging of the cannula that is packaged with the STAARVISC. While the majority of the direct costs associated with the recalls have not been material and we have not borne the cost of recalling third-party products, any recalls of STAAR products can harm our reputation and adversely affect our product sales, although the impact cannot be quantified. </FONT></P>


<P><FONT size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gross Profit.</I> Our gross profit margin decreased to 44.6% for the quarter ended September 30, 2005 from 50.2% in the quarter ended October 1, 2004. Among the factors contributing to the decline in our gross profit margin were higher unit costs due to the allocation of fixed overhead across fewer units produced, lower overall average selling prices of IOLs, and a continued shift in geographical and product mix.&nbsp; Until &nbsp;such time as IOL sales increase and/or the ICL is approved in the United States, the Company does not expect to realize significant improvements, if any, in gross profit margin.</FONT>
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<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2><I>Research and Development.</I> We spent approximately 10.9% of our sales on research and development (which includes regulatory and quality assurance expenses) during the quarter ended September 30, 2005, and we expect to spend approximately 10% of our sales on an annual basis in the future. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Private Placements.</I> Due to the delay in the FDA approval of the ICL, we sought additional cash to invest in research and development, regulatory and compliance, and manufacturing engineering and to support other operating activities. This was accomplished through the private placement of 4,100,000&nbsp;shares of our Common Stock on April&nbsp;4, 2005, which generated net proceeds of $13.4&nbsp;million and 2,000,000&nbsp;shares of our Common Stock on June&nbsp;10, 2004, which generated net proceeds of $11.6&nbsp;million. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cash Flow.</I> During the nine months ended September 30, 2005, we used $5.2&nbsp;million in cash for operating activities, $745,000 in the purchase of property and equipment and $1.2 million in payment of our notes payable, ending the&nbsp;third quarter of fiscal 2005 with $15.1&nbsp;million in cash and cash equivalents and short-term investments compared to $9.3&nbsp;million in cash and cash equivalents and short-term investments at the end of fiscal 2004. During the fourth quarter of 2004, we took steps to reduce operating expenses by reducing our reliance on outside consultants. This reduction in spending is expected to result in savings of approximately $1.0&nbsp;million annually. In early February 2005, we implemented additional cost reduction strategies, including the reduction in size of our direct sales force, which are expected to result in another $1.0&nbsp;million in annualized cost
savings. We will continue to pursue other cost savings opportunities, wherever possible, to conserve cash. We have realized benefits from the cost reductions in the third quarter of 2005, but the continued decline in U.S.&nbsp;sales has offset some of the savings for future periods. The Company expects operating losses and negative cash flows to continue until such time as the issues raised by the FDA Office of Compliance are resolved and the ICL is approved for sale in the United States and begins to achieve significant sales.</FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Retention of Morgan Stanley.</I> Beginning in December 2004, we have engaged Morgan Stanley to assist our Board of Directors in a review of the strategic and financial options available to us. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <I>Litigation.</I> The Company and its Chief Executive Officer are defendants in a class action lawsuit pending in the Central District of California on behalf of all persons who purchased the Company's securities during various periods of 2003 and 2004.&nbsp; See &#147;Part II &#151; Item&nbsp;1. Legal Proceedings.&#148; </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>14 </FONT></P>

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<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>Results of Operations </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the percentage of total sales represented by certain items reflected in the Company&#146;s statements of operations for the periods indicated and the percentage increase or decrease in such items over the prior period. </FONT></P>

<TABLE cellSpacing=0 cellPadding=0 width=760 border=0>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=6><FONT face="Times New Roman, Times, Serif" size=1>Percentage of Total</FONT> </TH>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1>Percentage Change</FONT></TH>
<TH colSpan=6><FONT face="Times New Roman, Times, Serif" size=1>Percentage of Total</FONT> </TH>
<TH colSpan=3><FONT size=1><FONT face="Times New Roman, Times, Serif">Percentage Change</FONT> </FONT></TH></TR>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=6><FONT face="Times New Roman, Times, Serif"></FONT><FONT size=1>Sales for</FONT> </TH>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif"></FONT><FONT size=1>for</FONT> </TH>
<TH colSpan=6><FONT face="Times New Roman, Times, Serif"></FONT><FONT size=1>Sales for</FONT></TH>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif"></FONT><FONT size=1>for</FONT></TH></TR>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=6><FONT face="Times New Roman, Times, Serif"></FONT><FONT size=1><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; Three Months&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp; </U>&nbsp;</FONT></TH>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif"></FONT><FONT size=1><U>Three Months</U> </FONT></TH>
<TH colSpan=6><FONT face="Times New Roman, Times, Serif"></FONT><FONT size=1><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Nine Months&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp; </U>&nbsp;</FONT></TH>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif"></FONT><FONT size=1><U>Nine Months</U> </FONT></TH></TR>
<TR vAlign=bottom>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif" size=1></FONT></TH>
<TH colSpan=3><FONT size=1>September 30,<BR>2005</FONT>
<HR width="80%" color=black noShade SIZE=1>
</TH>
<TH colSpan=3><FONT size=1>October 1, <BR>2004</FONT>
<HR width="80%" color=black noShade SIZE=1>
</TH>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif"></FONT><FONT size=1>2005<BR>vs. <BR>2004</FONT>
<HR width="80%" color=black noShade SIZE=1>
</TH>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif"></FONT><FONT size=1>September 30, <BR>2005</FONT>
<HR width="80%" color=black noShade SIZE=1>
</TH>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif"></FONT><FONT size=1>October 1, <BR>2004</FONT>
<HR width="80%" color=black noShade SIZE=1>
</TH>
<TH colSpan=3><FONT face="Times New Roman, Times, Serif"></FONT><FONT size=1>2005<BR>vs.<BR>2004</FONT>
<HR width="80%" color=black noShade SIZE=1>
</TH></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left width="40%"><FONT face="Times New Roman, Times, Serif" size=2>Sales</FONT></TD>
<TD align=left width="1%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left width="2%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>100.0</FONT></TD>
<TD align=left width="4%"><FONT face="Times New Roman, Times, Serif" size=2>%</FONT></TD>
<TD align=right width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>100.0</FONT></TD>
<TD align=left width="4%"><FONT face="Times New Roman, Times, Serif" size=2>%</FONT></TD>
<TD align=right width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>(4.1</FONT></TD>
<TD align=left width="4%"><FONT face="Times New Roman, Times, Serif" size=2>)%</FONT></TD>
<TD align=right width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>100.0</FONT></TD>
<TD align=left width="4%"><FONT face="Times New Roman, Times, Serif" size=2>%</FONT></TD>
<TD align=right width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>100.0</FONT></TD>
<TD align=left width="4%"><FONT face="Times New Roman, Times, Serif" size=2>%</FONT></TD>
<TD align=right width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right width="1%"><FONT face="Times New Roman, Times, Serif" size=2>4.0</FONT></TD>
<TD align=left width="1%"><FONT face="Times New Roman, Times, Serif" size=2>%</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Cost of sales</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>55.4</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>49.8</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>6.7</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>53.5</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>48.2</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>15.5</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=white noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=white noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Gross profit</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>44.6</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>50.2</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(14.8</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>46.5</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>51.8</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(6.7</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=white noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=white noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;General and administrative</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>19.9</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>17.7</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>8.3</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>17.6</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>17.0</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>7.7</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Marketing and selling</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>36.8</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>37.1</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(4.9</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>35.4</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>38.7</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(5.0</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Research and development</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>10.9</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>12.6</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(16.9</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>10.3</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>12.9</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(17.6</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Other charges</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>5.5</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1.9</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=white noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=white noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Operating loss</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(28.5</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(17.2</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>59.2</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(18.7</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(16.8</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>15.0</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Total other income, net</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>2.0</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>0.2</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>824.0</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1.7</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>0.6</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>182.8</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=white noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=white noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Loss before income taxes and minority interest</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(26.5</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(17.0</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>50.0</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(17.0</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(16.2</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>8.5</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Provision for income taxes</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1.8</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>1.7</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>3.4</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>2.9</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>2.1</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>40.8</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD></TR>
<TR vAlign=bottom>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Minority interest</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(0.1</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>0.1</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>--</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=white noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=1>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=white noShade SIZE=1>
</TD>
<TD></TD></TR>
<TR vAlign=bottom bgColor=#cceeff>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>Net loss</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(28.3</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)%</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(18.7</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)%</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>45.6</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>%</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(19.8</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)%</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>(18.4</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>)%</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;</FONT></TD>
<TD align=right><FONT face="Times New Roman, Times, Serif" size=2>11.5</FONT></TD>
<TD align=left><FONT face="Times New Roman, Times, Serif" size=2>%</FONT></TD></TR>
<TR>
<TD colSpan=3></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=3>
</TD>
<TD></TD>
<TD align=right colSpan=2>
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</TD>
<TD></TD>
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<HR color=white noShade SIZE=3>
</TD>
<TD></TD>
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<HR color=black noShade SIZE=3>
</TD>
<TD></TD>
<TD align=right colSpan=2>
<HR color=black noShade SIZE=3>
</TD>
<TD></TD>
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</TD>
<TD></TD></TR>
</TABLE>


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<DIV id=Edgar-Page style="PAGE-BREAK-BEFORE: always"><FONT face="Times New Roman, Times, Serif" size=2><B><I>Sales </I></B></FONT></DIV>
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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net sales for the three months ended September 30, 2005 decreased to $11.6 million compared to the three months ended October 1, 2004 when they were $12.1 million. Changes in currency did not have a material impact on the third quarter 2005 net sales.&nbsp; The decrease in net sales was due to a $1.0 million or 19% decrease in U.S. sales, principally IOLs, primarily due to concerns over the receipt of a letter from the FDA on July 5, 2005 that stated that STAAR was still not in compliance with Quality System Regulations.&nbsp; This decrease in U.S. sales was partially offset by a $527,000 or 8% increase in international sales.&nbsp; During the third quarter, international VISIAN ICL sales increased 14% compared with the third quarter of 2004 and represented 9% of total sales for the quarter.&nbsp; In addition, international sales of the Company's preloaded silicone IOL increased 66% and represented 11%
of total IOL sales compared with 6% in the third quarter of 2004.</FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net sales for the nine months ended September 30, 2005 increased to $39.2 million, compared to the&nbsp;nine months ended October 1, 2004 when they were $37.7 million. Changes in currency exchange rates had a favorable impact on net sales of approximately $615,000, for the nine months ended September 30, 2005. The primary reason for the increase in&nbsp;net sales was an increase in international sales of 15% compared to the year-to-date period ended October 1, 2004, driven by a 38% increase in VISIAN ICL and TICL sales and a 110% increase in preloaded silicone IOL sales. The increase in international sales was partially offset by an 11% decrease in U.S. sales, driven by lower silicone and collamer IOL sales. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B><I>Gross Profit Margin </I></B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross profit margin was 44.6% and 46.5% for the three months and&nbsp;nine months ended September 30, 2005, compared to 50.2% and 51.8% for the three months and&nbsp;nine months ended October 1, 2004. The primary reasons for the decrease in gross profit margin </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>15 </FONT></P>

<HR color=gray noShade SIZE=5>

<P align=left><FONT face="Times New Roman, Times, Serif" size=2>were higher unit costs due to the allocation of fixed overhead across fewer units produced, lower overall average selling prices of IOLs, and a continued shift in geographical and product mix. Until such time as IOL sales increase&nbsp;and/or the ICL is approved in the United&nbsp;States, the Company does not expect to realize significant&nbsp;improvements, if any, in gross profit margin.&nbsp;</FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B><I>General and Administrative</I></B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expense for the three months ended September 30, 2005 increased $178,000 or 8.3% over the three months ended October 1, 2004, and increased $492,000 or 7.7% over the same year-to-date period. The increase in both periods is due to increased legal fees and insurance costs. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B><I>Marketing and Selling</I></B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marketing and selling expense for the three months ended September 30, 2005 decreased $221,000 or 4.9% over the three months ended&nbsp;October 1, &nbsp;2004, and decreased $731,000, or 5.0% over the same year-to-date period. The decrease in both periods was due principally to cost savings measures that the Company took to improve cash flows. Decreased costs in the U.S. were partially offset by increased international marketing expenses to support increased sales.&nbsp; Changes in exchange rates in international markets had a small favorable impact of $7,000 for the three months ended September&nbsp;30,&nbsp;2005 and an unfavorable impact for the nine months ended September 30, 2005 of $172,000.&nbsp;</FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B><I>Research and Development</I></B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development expense, which includes regulatory and quality assurance expense, for the three and&nbsp;nine months ended September 30, 2005 decreased over the three and nine months ended&nbsp;October 1, 2004 by $259,000, or 16.9%, and $859,000, or 17.6%, respectively.&nbsp; Expense decreased as anticipated since significant costs were incurred in the previous year periods in preparation for FDA audits in the Company's Nidau, Switzerland and Monrovia, California facilities.&nbsp; Toric ICL development costs have also decreased with the launch of the product in international markets.</FONT></P>

<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B><I>Other Charges</I></B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the third quarter of fiscal 2005, the Company recorded an additional reserve of $640,000 against promissory notes of Dr. Peter Utrata, a former director of the Company.&nbsp; Aggregate principal and accrued interest owed to the Company under the notes was $1.9 million as of September 30, 2005, against which the Company has reserved a total of $1.2 million.&nbsp; Dr. Utrata is in default under the notes and a related Forbearance Agreement with the Company, and he has recently disputed whether he is obligated to pay the full principal and interest under the notes.&nbsp; </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; On these events, the Company re-evaluated&nbsp;its likelihood of collecting on the notes and re-examined the collateral for the notes, which consists of a pledge of 120,000 shares of the Company's Common Stock (the "Pledged Shares") and a second mortgage on a home in Florida.&nbsp; During the third quarter of 2005,&nbsp;the Company&nbsp;was advised that its collateral may be compromised with respect to the second mortgage.&nbsp; Accordingly, the Company increased its reserve on the notes to reflect the status of the collateral.&nbsp; The reserve is currently calculated as the difference, as of September 30, 2005, between the aggregate principal and accrued interest on the notes and the value of the Pledged Shares.</FONT></P>


<P><FONT size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;Notwithstanding the additional reserve amount, the Company believes that Dr. Utrata is obligated to repay&nbsp;the full amount of principal and interest on the notes, and continues to pursue full repayment of the notes.</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2><I><B>Liquidity and Capital Resources</B></I> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents and short-term investments at September 30, 2005 increased by approximately $5.7 million relative to December 31, 2004. The net increase in cash was due to the net proceeds of $13.4 million received during the second&nbsp;quarter from a private placement of 4,100,000 shares of the Company&#146;s common stock, $90,000 received in payment on a note of a former director, and $58,000 received in proceeds from the exercise of stock options. The increases were offset by the net loss of $7.8 million adjusted for depreciation, amortization and other non-cash items totaling $2.6 million, payment of $1.2 million on the Company&#146;s Swiss credit facility, and by purchases of property and equipment of $745,000.</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Inventories at September 30, 2005 decreased $805,000 relative to December 31, 2004 due to changes in currency exchange rages, in particular the Euro. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsidiaries of the Company have foreign credit facilities with different banks to support operations in Switzerland and Germany. </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>16</FONT></P>

<HR color=gray noShade SIZE=5>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Swiss credit agreement, as amended on August 2, 2004, provides for borrowings of up to 3.25 million Swiss Francs &#147;CHF&#148; (approximately $2.5 million based on the rate of exchange on&nbsp; September 30, 2005), and permits either fixed-term or current advances. The interest rate on current advances is 6.0% per annum at both September 30, 2005 and December 31, 2004, plus a commission rate of 0.25% payable quarterly. There were no current advances outstanding at September 30, 2005. The base interest rate for fixed-term advances follows Euromarket conditions for loans of a corresponding term and currency plus an individual margin (4.9% at September 30, 2005 and 4.5% at December 31, 2004, respectively). Borrowings outstanding under the note at September 30, 2005 and December 31, 2004, respectively, were CHF 2.2 million (approximately $1.7 million based on the rate of exchange at September 30,
2005) and CHF&nbsp;3.4 million (approximately $3.0 million based on the rate of exchange on December 31, 2004). The credit facility is secured by a general assignment of claims and includes positive and negative covenants which, among other things, require the maintenance of a minimum level of equity of at least $12.0 million and prevents the Swiss subsidiary from entering into other secured obligations or guaranteeing the obligations of others. The agreement also prohibits the sale or transfer of patents or licenses without the prior consent of the lender and the terms of inter-company receivables may not exceed 90 days. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Swiss credit facility is divided into two parts: Part A provides for borrowings of up to CHF 3.0 million ($2.3 million based on the exchange rate on September 30, 2005) and does not have a termination date; Part B presently provides for borrowings of up to CHF 250,000 ($193,000 based on the exchange rate on September 30, 2005). The loan amount under Part B of the agreement reduces by CHF 250,000 ($193,000 based on the exchange rate on September 30, 2005) semi-annually.&nbsp; As of September 30, 2005, approximately 1.2 million CHF (approximately $800,000 based on the exchange rate on September 30, 2005) of the credit facility was available for borrowing.</FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The German subsidiary entered into a new credit agreement on August 30, 2005.&nbsp; The renewed credit agreement&nbsp;provides for borrowings of up to 100,000 EUR ($120,000 at the rate of exchange on September 30, 2005), at a rate of 7.0% per annum and does not have&nbsp;a termination date. The credit&nbsp;facility&nbsp;is not secured.&nbsp; There were no borrowings outstanding as of September 30, 2005 and December 31, 2004. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company was in compliance with the covenants of these credit facilities as of September 30, 2005. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of&nbsp; September 30, 2005, the Company had a current ratio of 3.4:1, net working capital of $26.0 million and net equity of $43.8 million compared to December 31, 2004 when the Company&#146;s current ratio was 2.4:1, its net working capital was $19.1 million, and its net equity was $37.8 million. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>Due to a continued decline in U.S. sales and lower gross profit, the Company sustained significant losses and negative cash flows from operations for the nine months ended September 30, 2005. In order to fund its current operations including its research and development and regulatory and compliance efforts, the Company has relied on cash provided by private placements of its Common Stock, which generated net proceeds of $13.4 million on April 4, 2005 and $11.6 million on June 10, 2004. The Company believes that as a result of these financings, it currently has sufficient cash to meet its funding requirements over the next year. However, the Company expects operating losses and negative cash flows to continue until such time as the ICL is approved for sale in the U.S. and begins to achieve significant sales.&nbsp;&nbsp;</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s need for liquidity arises from the funding of its working capital needs, primarily inventory, work-in-process and accounts receivable. The Company&#146;s primary sources for working capital and capital expenditures are cash flow from operations, proceeds from the private placement of Common Stock, proceeds from option exercises, debt repayments by former officers, and borrowings under the Company&#146;s foreign bank credit facilities. The Company&#146;s liquidity is dependent, in part, on customers paying within credit terms, and any extended delays in payments or changes in credit terms given to major customers may have an impact on the Company&#146;s cash flow. In addition, any abnormal product returns or pricing adjustments may also affect the Company&#146;s short-term funding.</FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>17</FONT></P>

<HR color=gray noShade SIZE=5>

<A name=A026></A>
<H1 align=left><FONT face="Times New Roman, Times, Serif" size=3><FONT size=2>Critical Accounting Policies</FONT> </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, inventory reserves and income taxes, among others. Our estimates are based on historical experiences, market trends and financial forecasts and projections, and on various other assumptions that management believes are reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these if actual conditions
differ from our assumptions. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company believes the following represent its critical accounting policies. </FONT></P>

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<TR vAlign=top>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2><I>Revenue Recognition and Accounts Receivable.</I> The Company recognizes sales when realized or realizable and earned, which is when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the sale price is fixed and determinable; and collectibility is reasonably assured. We record revenue from product sales when title and risk of ownership has been transferred to the customer, which is typically upon delivery to the customer. The exception to this recognition policy is sales from IOLs distributed on a consignment basis, which&nbsp;are recognized when we are notified that the lens has been implanted in a patient. </FONT></TD></TR>
</TABLE>

<BR>
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<TABLE cellSpacing=0 cellPadding=0 width="100%">
<TR vAlign=top>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>The Company may bundle the sale of phacoemulsification equipment to customers with multi-year agreements to purchase minimum quantities of foldable IOLs. The Company recognizes the sales from the equipment based on monthly purchases of minimum quantities of IOLs over the life of the agreement. </FONT></TD></TR>
</TABLE>

<BR>
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<TABLE cellSpacing=0 cellPadding=0 width="100%">
<TR vAlign=top>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>Revenue from license and technology agreements is recorded as income, when earned, according to the terms of the respective agreements. </FONT></TD></TR>
</TABLE>

<BR>
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<TABLE cellSpacing=0 cellPadding=0 width="100%">
<TR vAlign=top>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>The Company generally permits returns of product if the product is returned within the time allowed by the Company, and in good condition. The Company provides allowances for returns based on an analysis of our historical patterns of returns matched against the sales from which they originated. To date, historical product returns have been within the Company&#146;s estimates. </FONT></TD></TR>
</TABLE>

<BR>
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<TABLE cellSpacing=0 cellPadding=0 width="100%">
<TR vAlign=top>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>The Company maintains provisions for uncollectible accounts based on estimated losses resulting from the inability of its customers to remit payments. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon its historical experience and any specific customer collection issues that have been identified. </FONT></TD></TR>
</TABLE>

<BR>
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<TABLE cellSpacing=0 cellPadding=0 width="100%">
<TR vAlign=top>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2><I>Stock-Based Compensation.</I> We measure stock-based compensation for option grants to employees and members of the Board of Directors using the intrinsic value method. We also disclose on a proforma basis the effect on our earnings if we used the fair-value method. The fair value of each option grant for determining the pro forma impact of stock-based compensation expense is estimated on the date of grant using the Black-Scholes option-pricing model with weighted average assumptions. These assumptions consist of expected dividend yield, expected volatility, expected life, and risk-free interest rate. If the assumptions used to calculate the value of each option grant do not properly reflect future activity, the weighted average fair value of our grants could be impacted. </FONT></TD></TR>
</TABLE>

<BR>
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<TABLE cellSpacing=0 cellPadding=0 width="100%">
<TR vAlign=top>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2><I>Income Taxes.</I> We account for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We evaluate the need to establish a valuation allowance for deferred tax assets based on the amount of existing temporary differences, the period in which they are expected to be recovered and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established when
it is &#147;more likely than not&#148; that some or all of the deferred tax assets will not be realized. As of September 30, 2005, the valuation allowance fully offsets the value of deferred tax assets on the Company&#146;s balance sheet. <BR></FONT></TD></TR>
</TABLE>


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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2></FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>We expect to continue to maintain a full valuation allowance on future tax benefits until an appropriate level of profitability is sustained, or we are able to develop tax strategies that would enable us to conclude that it is more likely than not that a portion of our deferred tax assets would be realizable. </FONT></TD></TR>
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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>18</FONT></P>

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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>STAAR SURGICAL COMPANY AND SUBSIDIARIES </FONT></P>

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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2><I>Inventories.</I> Inventories are valued at the lower of first-in, first-out cost or market. On a regular basis, we evaluate inventory balances for excess quantities and obsolescence by analyzing estimated demand, inventory on hand, sales levels and other information. Based on these evaluations, inventory balances are reduced, if necessary. </FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2><I>Impairment of Long-Lived Assets.</I> Intangible and other long lived-assets are reviewed for impairment whenever events such as product discontinuance, plant closures, product dispositions or other changes in circumstances indicate that the carrying amount may not be recoverable. In reviewing for impairment, the Company compares the carrying value of such assets to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. When the estimated undiscounted future cash flows are less than their carrying amount, an impairment loss is recognized equal to the difference between the assets&#146; fair value and their carrying value. </FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2><I>Goodwill.</I> Goodwill, which has an indefinite life and was previously amortized on a straight-line basis over the periods benefited, is no longer amortized to earnings, but instead is subject to periodic testing for impairment. Intangible assets determined to have definite lives are amortized over their remaining useful lives. Goodwill of a reporting unit is tested for impairment on an annual basis or between annual tests if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying amount. As provided under SFAS No. 142, an annual assessment was completed during the fourth quarter of &nbsp;2004, and no impairment was identified. As of September 30, 2005, the carrying value of goodwill was $7.5 million. </FONT></TD></TR>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2><I>Patents and Licenses.</I> The Company also has other intangible assets consisting of patents and licenses, with a gross book value of $11.5 million and accumulated amortization of $6.5 million as of September 30, 2005. Amortization is computed on the straight-line basis over the estimated useful lives, which are based on legal and contractual provisions, and range from 10 to 20 years. </FONT></TD></TR>
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<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>Risk Factors </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our short and long-term success is subject to many factors that are beyond our control. Stockholders and prospective stockholders in the Company should consider carefully the following risk factors, in addition to other information contained in this report. This Quarterly Report on Form l0-Q contains forward-looking statements, which are subject to a variety of risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below. </FONT></P>

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<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>Risks Related to Our Business </FONT></H1>

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<P align=left><FONT face="Times New Roman, Times, Serif"><FONT size=2><I>&nbsp;&nbsp;&nbsp;<B>&nbsp;&nbsp;&nbsp;We have a history of losses and anticipate future losses.</B></I><B> </B></FONT></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have reported losses in each of the last three fiscal years and have an accumulated deficit of $68.2&nbsp;million as of September 30, 2005. There can be no assurance that we will report net income in any future period. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif"><FONT size=2><I><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have only limited working capital.</B></I> </FONT></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our current sources of working capital are sufficient to satisfy our anticipated working capital requirements for fiscal 2005. However, the&nbsp;declining sales of our cataract products and the delay in U.S. approval for the ICL&nbsp;raise uncertainties about the sufficiency of our working capital for future years and we may have to consider alternative sources of funding. There can be no assurance as to the availability of such funding or the terms upon which it might be available. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif"><FONT size=2><I><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have limited access to credit and could default of the terms of our loan agreements.</B></I> </FONT></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September 30, 2005, we have outstanding balances on the credit facility of a European subsidiary of approximately $1.7 million, based on exchange rates on that date. If our losses continue, we risk defaulting on the terms of our credit facility, particularly as it relates to the maintenance of minimum levels of equity and the payment of intercompany receivables. </FONT></P>

<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have only limited access to financing</B>.</I> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because of our history of losses, there is substantial doubt about our ability to obtain adequate financing on satisfactory terms or at all. Any such financing may involve substantial dilution to existing shareholders.&nbsp;&nbsp; In addition, we have only 1,357,232 authorized shares of common stock that are unissued and that have not been reserved for issuance on the exercise of outstanding stock options.&nbsp; This relatively small number of available shares limits our ability to raise equity capital by selling common stock or securities </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>19&nbsp;</FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>convertible into common stock unless our stockholders approve an amendment to our Certificate of Incorporation to increase the number of authorized shares of common stock.&nbsp; Even if additional authorized share become available, equity financing at recently prevailing rates could result in substantial dilution to existing stockholders.</FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>FDA compliance issues could continue to delay approval of the ICL and could limit our existing business in the United States.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Office of Compliance of the FDA&#146;s Center for Devices and Radiological Health regularly inspects STAAR&#146;s facilities to determine whether we are in compliance with the FDA Quality System Regulations relating to such things as manufacturing practices, validation, testing, quality control, product labeling and complaint handling, and in compliance with FDA Medical Device Reporting regulations. Failure to demonstrate strict compliance with these regulations and can result in enforcement actions that terminate, suspend or severely restrict the ability to continue manufacturing and selling medical devices. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Between December&nbsp;29, 2003 and July&nbsp;5, 2005 the Company received Warning Letters, Form 483 Inspectional Observations and other correspondence from the FDA indicating deficiencies in the Company&#146;s compliance with the FDA Quality System Regulations and Medical Device Reporting regulations and warning of possible enforcement action. In response, STAAR implemented numerous improvements to its quality system. Among other things, STAAR developed a Global Quality Systems Action Plan, which was completed in April 2004 and submitted to the FDA on May 14, 2004. This Plan has been continuously updated since its adoption. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The FDA Office of Compliance conducted its most recent inspection of STAAR&#146;s Monrovia, California facility between August 29, 2005 and September 14, 2005. At the conclusion of the inspection the inspectors issued three Inspectional Observations on FDA Form 483. One of the observations was annotated as &#147;corrected and verified,&#148; and the Company promised to correct the remaining two. The Company provided details of its corrective actions on the remaining two observations to the FDA by letter on October 11, 2005. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on the Company&#146;s corrections to the quality system issues identified by the FDA in previous inspections and the findings of the FDA in this inspection, the Company does not believe that enforcement action by the FDA is likely at this time. Nevertheless, the Warning Letters, the Form 483 Observations and the letter received on July 5, 2005 have adversely affected our reputation in the ophthalmic industry and our product sales. The final FDA approval of the VISIAN ICL remains subject to a review of the results of the recent inspection by the FDA&#146;s Center for Devices and Radiological Health. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;STAAR&#146;s ability to continue its U.S. business depends on the continuous improvement of its quality systems and its ability to demonstrate strict compliance with FDA regulations. Any material failure by the Company to do so in the future could result in additional Warning Letters that damage our reputation or enforcement action by the FDA, which would materially harm our business. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our success depends on the ICL, which has not been approved for use in the United States</I>.</B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have devoted significant resources and management attention to the development and introduction of our ICL and TICL. Our management believes that the future success of STAAR depends on the approval of the ICL for sale in the United States by the FDA. The ICL and TICL are already approved for use in the European Union and Canada and in parts of Asia. On July 28, 2005, the FDA Office of Device Evaluation notified STAAR that the FDA had reviewed the Company&#146;s pre-market approval application for the STAAR Myopic VISIAN ICL and determined that the application is approvable, subject to an FDA inspection that finds STAAR&#146;s manufacturing facilities, methods and controls in compliance with the applicable requirements of the FDA&#146;s Quality System Regulations. The FDA completed an inspection of the Company&#146;s Monrovia, California facility on September 14, 2005. The issuance of the final
approval to market the VISIAN ICL in the U.S. remains subject to a review of the results of that inspection. If the FDA does not grant approval of the ICL, or significantly delays its approval, whether because of the issues contained in the Warning Letter, the 483 Observations or otherwise, our prospects for success will be severely diminished. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;<B>&nbsp;&nbsp;Our future success depends on the successful marketing of the ICL in the United States market</B>.</I> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Even if it is approved by the FDA for sale in the United States, the ICL will not reach its full sales potential unless we successfully plan and execute its launch and marketing in the United States. This will present new challenges to our sales and </FONT><FONT face="Times New Roman, Times, Serif" size=2>marketing staff and to our independent manufacturers&#146; representatives. In countries where the ICL has been approved to date, our sales have grown steadily, but slowly. In the United States in particular, patients who might benefit from the ICL have already been exposed to a great deal of advertising and publicity about laser refractive surgery, but have little if any awareness of the ICL. As a result, we expect to make extensive use of advertising and promotion targeted to potential patients through providers, and to carefully manage the introduction of the ICL. Final training of surgeons in the U.S.
will be conducted by a finite number of proctors on our staff. Our resources are limited and we cannot predict whether the particular marketing, advertising and promotion strategies we pursue will be as successful as we intend. If we do not successfully market the ICL in the United States, we will not achieve our planned profitability and growth. </FONT></P>

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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>20 </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;<B>&nbsp;&nbsp;&nbsp; Our core domestic business has suffered declining sales, which sales of new products have only partially offset.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;STAAR pioneered the foldable IOL for use in cataract surgery, and the foldable silicone IOL remains our largest source of sales. Since we introduced the product, however, competitors have introduced IOLs employing a variety of designs and materials. Over the years these products have gradually taken a larger share of the IOL market, while the market share for STAAR IOLs has decreased. In particular, many surgeons now choose lenses made of acrylic material rather than silicone for their typical patients. In an effort to maintain our competitive position we have introduced IOLs made of a biocompatible lens material, Collamer, and more recently a three-piece silicone IOL preloaded into a single-use disposable injector which is sold internationally. Despite the introduction of these products, the overall cataract business has continued to decline in recent periods. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Our sales are subject to significant seasonal variation.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We generally experience lower sales during the third quarter due to the effect of summer vacations on elective procedures. In particular, because sales activity in Europe drops dramatically in July and August, and European sales have recently accounted for a greater proportion of our total sales, this seasonal variation in our results has become even more pronounced. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;<B>&nbsp;&nbsp;We depend on independent manufacturers&#146; representatives.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In an effort to manage costs and bring our products to a wider market, we have entered into long-term agreements with certain independent regional manufacturers&#146; representatives, who introduce our products to eye surgeons and provide the training needed to begin using some of our products. Under our agreements with these representatives, each receives a commission on all of our sales within a specified region, including sales on products we sell into their territories without their assistance. Because they are independent contractors, we have a limited ability to manage these representatives or their employees. In addition, a representative may represent manufacturers other than STAAR, although not in competing products. We have been relying on the independent representatives to introduce our new products like Collamer IOLs, Toric IOLs and the AquaFlow Device, and we will rely on them, in part, to
help introduce the ICL if it is approved. If our independent manufacturers&#146; representatives do not devote sufficient resources to marketing our products, or if they lack the skills or resources to market our new products, our new products will fail to reach their full sales potential and sales of our established products could decline. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Product recalls have been costly and may be so in the future.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Medical devices must be manufactured to the highest standards and tolerances, and often incorporate newly developed technology. Despite all efforts to achieve the highest level of quality control and advance testing, from time to time defects or technical flaws in our products may not come to light until after the products are sold or consigned. In those circumstances, we have previously made voluntary recalls of our products. In 2005, we recalled one lot of Phaco tubing, manufactured by a third party, due to incorrect labeling and in July 2005, we recalled one lot of STAARVISC, manufactured by a third party, due to a potential sterility breach of the packaging of the cannula that is packaged with the STAARVISC. During 2004, we initiated several voluntary recalls of STAAR manufactured product including 33 lots of IOL cartridges, three lots of injectors, and 529 lenses, and in February 2004, in an
action considered a recall but with no requirement for product to be returned to us, we issued a letter to healthcare professionals advising them of the potential for a change in manifest refraction over time in rare cases involving the single-piece Collamer IOL. While the majority of the direct costs associated with the recalls have not been material, we believe recalls have harmed our reputation and adversely affected our product sales, although the impact cannot be quantified. Similar recalls could take place again. Courts or regulators can also impose mandatory recalls on us, even if we believe our products are safe and effective. Recalls can result in lost sales of the recalled products themselves, and can result in further lost sales while replacement products are manufactured, especially if the replacements must be redesigned. If recalled products have already been implanted, we may bear some or all of the cost of corrective surgery. Recalls may also damage our professional reputation and the
reputation of our products. The inconvenience caused by recalls and related interruptions in supply, and the damage to our reputation, could cause some professionals to discontinue using our products. </FONT></P>

<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>We could experience losses due to product liability claims.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have been subject to product liability claims in the past and continue to be so. As part of our risk management policy, we have obtained third-party product liability insurance coverage. In recent periods this insurance has become more expensive and difficult to procure. Product liability claims against us may exceed the coverage limits of our insurance policies or cause us to record a self-insured loss. A product liability claim in excess of applicable insurance could have a material adverse effect on our business, financial condition and results of operations. Even if any product liability loss is covered by an insurance policy, these policies have retentions or deductibles that provide that we will not receive insurance proceeds until the losses incurred exceed the amount of those retentions or deductibles. To the extent that any losses are below these retentions or deductibles, we will be
responsible for paying these losses. The payment of retentions or deductibles for a significant amount of claims could have a material adverse effect on our business, financial condition, and results of operations. </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>21 </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Any product liability claim would divert managerial and financial resources and could harm our reputation with customers. We cannot assure you that we will not have product liability claims in the future or that such claims would not have a material adverse effect on our business. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>We compete with much larger companies.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our competitors, including Alcon, Advanced Medical Optics, and Bausch &amp; Lomb have much greater financial resources than we do and some of them have large international markets for a full suite of ophthalmic products. Their greater resources for research, development and marketing, and their greater capacity to offer comprehensive products and equipment to providers, make it difficult for us to compete. We have lost significant market share to some of our competitors. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>&nbsp;Most of our products have single-site manufacturing approvals, exposing us to risks of business interruption.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We manufacture all of our products either at our facilities in California or at our facility in Switzerland. Most of our products are approved for manufacturing only at one of these sites. Before we can use a second manufacturing site for an implantable device we must obtain the approval of regulatory authorities. Because this process is expensive we have generally not sought approvals needed to manufacture at an additional site. If a natural disaster, fire, or other serious business interruption struck one of our manufacturing facilities, it could take a significant amount of time to validate a second site and replace lost product. We could lose customers to competitors, thereby reducing sales, profitability and market share. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>The global nature of our business may result in fluctuations and declines in our sales and profits.</B></I> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our products are sold in more than 45 countries. Sales from international operations make up a significant portion of our total sales. For the quarter ended September 30, 2005 sales from international operations were 62% of total sales. The results of operations and the financial position of certain of our offshore operations are reported in the relevant local currencies and then translated into United States dollars at the applicable exchange rates for inclusion in our consolidated financial statements, exposing us to translation risk. In addition, we are exposed to transaction risk because some of our expenses are incurred in a different currency from the currency in which our sales are received. Our most significant currency exposures are to the Euro, the Swiss Franc, and the Australian dollar. The exchange rates between these and other local currencies and the United States dollar may fluctuate
substantially. We have not attempted to offset our exposure to these risks by investing in derivatives or engaging in other hedging transactions. Fluctuations in the value of the United States dollar against other currencies have not had a material adverse effect on our operating margins and profitability in the past. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Economic, social and political conditions, laws, practices and local customs vary widely among the countries in which we sell our products. Our operations outside of the United States are subject to a number of risks and potential costs, including lower profit margins, less stringent protection of intellectual property and economic, political and social uncertainty in some countries, especially in emerging markets. Our continued success as a global company depends, in part, on our ability to develop and implement policies and strategies that are effective in anticipating and managing these and other risks in the countries where we do business. These and other risks may have a material adverse effect on our operations in any particular country and on our business as a whole. We price some of our products in U.S. dollars, and as a result changes in exchange rates can make our products more expensive in
some offshore markets and reduce our sales. Inflation in emerging markets also makes our products more expensive there and increases the credit risks to which we are exposed. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We obtain some of the components of our products from a single source, and an interruption in the supply of those components&nbsp;could <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; reduce our sales.</I> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We obtain some of the components for our products from a single source. For example, only one supplier produces our viscoelastic product. Although we believe we could find alternate supplies for any of these components, the loss or interruption of any of these suppliers could increase costs, reducing our sale and profitability, or harm our customer relations by delaying product deliveries. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>&nbsp;Our activities involve hazardous materials and emissions and may subject us to environmental liability.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our manufacturing, research and development practices involve the controlled use of hazardous materials. We are subject to federal, state and local laws and regulations in the various jurisdictions in which we have operations governing the use, manufacturing, storage, handling and disposal of these materials and certain waste products. Although we believe that our safety and environmental procedures for handling and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of accidental contamination or injury from these materials. Remedial environmental actions could require us to incur substantial unexpected costs, which would materially and adversely affect our results of operations. If we were involved in a major </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>22</FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>environmental accident or found to be in substantial non-compliance with applicable environmental laws, we could be held liable for damages or penalized with fines. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;<B>&nbsp;&nbsp;We risk losses through litigation.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and its Chief Executive Officer are defendants in a class action lawsuit pending in the Central District of California.&nbsp; A consolidated amended complaint filed by the plaintiffs on April 29, 2005 generally alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, by issuing false and misleading statements regarding the prospects for FDA approval of STAAR's VISIAN ICL, thereby artificially inflating the price of the Company's Common Stock.&nbsp; The plaintiffs generally seek to recover compensatory damages, including interest.&nbsp; The Company filed a motion to dismiss, which the court denied in an order filed September 19, 2005 (the "Order").&nbsp; While permitting the case to proceed, the Order effectively narrowed the proposed class to purchasers of the Company's securities between October
6, 2003 and January 6, 2004 by limiting the statements of the&nbsp;Company that the plaintiffs may challenge.&nbsp; The&nbsp;Company has filed a motion requesting certification of the Order for interlocutory appeal,&nbsp;and intends to vigorously defend against the claims asserted in the consolidated amended complaint.</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time we are&nbsp;party to various claims and legal proceedings arising out of the normal course of our business. These claims and legal proceedings relate to contractual rights and obligations, employment matters, and claims of product liability. While we do not believe that any of the claims known to us is likely to have a material adverse effect on our financial condition or results of operations, new claims or unexpected results of existing claims could lead to significant financial harm. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>We depend on key employees.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We depend on the continued service of our senior management and other key employees. The loss of a key employee could hurt our business. We could be particularly hurt if any key employee or employees went to work for competitors. Our future success depends on our ability to identify, attract, train and motivate other highly skilled personnel. Failure to do so may adversely affect future results. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>&nbsp;We have licensed our technology to our joint venture company and have granted certain rights to the partners that could be exercised <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; in the event of a change in control of the Company</B>.</I> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have granted to the Canon Staar joint venture, an irrevocable exclusive license to make and sell products using our technology in Japan, and to make products using our technology in China and to sell such products in Japan and China. In addition, we have granted Canon Staar an irrevocable non-exclusive license to sell products using our technology in the rest of the world. Subject to the unanimous approval of the Board of Directors of the joint venture, such licenses may allow the Canon Staar joint venture to sell products in the rest of the world or grant others the right to do so. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the occurrence of certain events, including the merger, sale of substantially all of the assets or change in the management of any party to the Canon Staar joint venture, any joint venture partner may have the right to acquire that party&#146;s interest in the joint venture at book value. </FONT></P>

<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>Risks Related to the Ophthalmic Products Industry </B></FONT></P>

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<TD width="95%"><FONT face="Times New Roman, Times, Serif"><FONT size=2><B><I>If we fail to keep pace with advances in our industry or fail to persuade physicians to adopt the new products we introduce, </I></B><I></I><B><I>customers may not buy our products and our sales may decline.</I></B> </FONT></FONT></TD></TR>
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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Constant development of new technologies and techniques, frequent new product introductions and strong price competition characterize the ophthalmic industry. The first company to introduce a new product or technique to market usually gains a significant competitive advantage. Our future growth depends, in part, on our ability to develop products to treat diseases and disorders of the eye that are more effective, safer, or incorporate emerging technologies better than our competitors&#146; products. Sales of our existing products may decline rapidly if one of our competitors introduces a substantially superior product, or if we announce a new product of our own. Similarly, if we fail to make sufficient investments in research and development or if we focus on technologies that do not lead to better products, our current and planned products could be surpassed by more effective or advanced products.
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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In addition, we must manufacture these products economically and market them successfully by persuading a sufficient number of eye care professionals to use them. For example, glaucoma requires ongoing treatment over a long period of time; thus, many doctors are reluctant to switch a patient to a new treatment if the patient&#146;s current treatment for glaucoma remains effective. This has been a challenge in selling our AquaFlow Device. </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>23</FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif"><FONT size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Resources devoted to research and development may not yield new products that achieve commercial success</B>.</I> </FONT></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We spent 10.9% of our sales on research and development during the quarter ended September 30, 2005, and we expect to spend approximately 10% in&nbsp; future periods. Development of new implantable technology, from discovery through testing and registration to initial product launch, is expensive and typically takes from three to seven years. Because of the complexities and uncertainties of ophthalmic research and development, products we are currently developing may not complete the development process or obtain the regulatory approvals required for us to market the products successfully. It is possible that few or none of the products currently under development will become commercially successful. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif"><FONT size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Failure of users of our products to obtain adequate reimbursement from third-party payors could limit market acceptance of our products, <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; which could affect our sales and profits.</B></I> </FONT></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many of our products, in particular IOLs and products related to the treatment of glaucoma, are used in procedures that are typically covered by health insurance, HMO plans, Medicare, Medicaid, or other governmental sponsored programs. These third-party payors have recently been trying to contain costs by restricting the types of procedures they reimburse to those viewed as most cost-effective and capping or reducing reimbursement rates. These polices could adversely affect sales and prices of our products. Physicians, hospitals and other health care providers may be reluctant to purchase our products if third-party payors do not adequately reimburse them for the cost of our products and the use of our surgical equipment. For example: </FONT></P>

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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>Major third-party payors for hospital services, including government insurance plans, Medicare, Medicaid and private health care insurers, have substantially revised their payment methodologies during the last few years, resulting in stricter standards for reimbursement of hospital and outpatient charges for some medical procedures, including cataract procedures and IOLs; </FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>Numerous legislative proposals have been considered that, if enacted, would result in major reforms in the United States&#146; health care system, which could have an adverse effect on our business; </FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>Our competitors may reduce the prices of their products, which could result in third-party payors favoring our competitors; <BR></FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>There are proposed and existing laws and regulations governing maximum product prices and the profitability of companies in the health care industry; and </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD></TR>
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<TD width="3%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&#149;&nbsp; </FONT></TD>
<TD><FONT face="Times New Roman, Times, Serif" size=2>&nbsp; </FONT></TD>
<TD width="89%"><FONT face="Times New Roman, Times, Serif" size=2>There have been recent initiatives by third-party payors to challenge the prices charged for medical products. Reductions in the prices for our products in response to these trends could reduce our sales. Moreover, our products may not be covered in the future by third-party payors, which would also reduce our sales. </FONT></TD>
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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We are subject to extensive government regulation, which increases our costs and could prevent us from selling our products.</I></B> </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Government regulations and agency oversight apply to every aspect of our business, including testing, manufacturing, safety and environmental controls, efficacy, labeling, advertising, promotion, record keeping, the sale and distribution of products and samples. We are also subject to government regulation over the prices we charge and the rebates we offer to customers. Complying with government regulation substantially increases the cost of developing, manufacturing and selling our products. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the United States, we must obtain approval from the FDA for each product that we market. Competing in the ophthalmic products industry requires us to continuously introduce new or improved products and processes, and to submit these to the FDA for approval. Obtaining FDA approval is a long and expensive process, and approval is never certain. In addition, our operations in the United States are subject to periodic inspection by the FDA. Such inspection may result in the FDA ordering changes in our business practices, which changes could be costly and have a material adverse effect on our business and results of operations. In particular, we received Warning Letters from the FDA on December&nbsp;29, 2003 and April&nbsp;26, 2004, FDA Form 483 Inspectional Observations on September&nbsp;23, 2004, and a further letter on July 5, 2005 requiring us to take corrective action as discussed elsewhere in this
report. The FDA Office of Compliance conducted its most recent inspection of&nbsp;STAAR's Monrovia, California facility bweeen August 29, 2005 and September 14, 2005.&nbsp; At the conclusion of the inspection the inspectors issued three Inspectional Observations on FDA Form 483.</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;Products distributed outside of the United States are also subject to government regulation, which may be equally or more demanding. Our new products could take a significantly longer time than we expect to gain regulatory approval and may never gain approval. If a regulatory authority delays approval of a potentially significant product, the potential sales of the product and its value to us can be substantially reduced. Even if the FDA or another regulatory agency approves a product, the approval may limit the indicated uses of the product, or may otherwise limit our ability to promote, sell and distribute the product, or may require post-</FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>24 </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>marketing studies. If we cannot obtain regulatory approval of our new products, or if the approval is too narrow, we will not be able to market these products, which would eliminate or reduce our potential sales and earnings. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>We depend on proprietary technologies, but may not be able to protect our intellectual property rights adequately.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have numerous patents and pending patent applications. We rely on a combination of contractual provisions, confidentiality procedures and patent, trademark, copyright and trade secrecy laws to protect the proprietary aspects of our technology. These legal measures afford limited protection and may not prevent our competitors from gaining access to our intellectual property and proprietary information. Any of our patents may be challenged, invalidated, circumvented or rendered unenforceable. Furthermore, we cannot be certain that any pending patent application held by us will result in an issued patent or that if patents are issued to us, the patents will provide meaningful protection against competitors or competitive technologies. Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of our proprietary rights.
Any litigation could result in substantial expense, may reduce our profits and may not adequately protect our intellectual property rights. In addition, we may be exposed to future litigation by third parties based on claims that our products infringe their intellectual property rights. This risk is exacerbated by the fact that the validity and breadth of claims covered by patents in our industry may involve complex legal issues that are not fully resolved. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any litigation or claims against us, whether or not successful, could result in substantial costs and harm our reputation. In addition, intellectual property litigation or claims could force us to do one or more of the following: to cease selling or using any of our products that incorporate the challenged intellectual property, which would adversely affect our sales; to negotiate a license from the holder of the intellectual property right alleged to have been infringed, which license may not be available on reasonable terms, if at all; or to redesign our products to avoid infringing the intellectual property rights of a third party, which may be costly and time-consuming or impossible to accomplish. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>We may not successfully develop and launch replacements for our products that lose patent protection.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Most of our products are covered by patents that give us a degree of market exclusivity during the term of the patent. We have also earned revenue in the past by licensing some of our patented technology to other ophthalmic companies. The legal life of a patent is 20&nbsp;years from application. Patents covering our products will expire from this year through the next 20&nbsp;years. Upon patent expiration, our competitors may introduce products using the same technology. As a result of this possible increase in competition, we may need to charge a lower price in order to maintain sales of our products, which could make these products less profitable. If we fail to develop and successfully launch new products prior to the expiration of patents for our existing products, our sales and profits with respect to those products could decline significantly. We may not be able to develop and successfully launch
more advanced replacement products before these and other patents expire. </FONT></P>

<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>Risks Related to Ownership of Our Common Stock </FONT></H1>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Our Certificate of Incorporation could delay or prevent an acquisition or sale of our company.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Certificate of Incorporation empowers the Board of Directors to establish and issue a class of preferred stock, and to determine the rights, preferences and privileges of the preferred stock. We also have a Stockholders&#146; Rights Plan, which could discourage a third party from making an offer to acquire us. These provisions give the Board of Directors the ability to deter, discourage or make more difficult a change in control of our company, even if such a change in control would be in the interest of a significant number of our stockholders or if such a change in control would provide our stockholders with a substantial premium for their shares over the then-prevailing market price for the common stock. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Our bylaws contain other provisions that could have an anti-takeover effect, including the following:</B></I><B> </B></FONT></P>

<UL>
<LI><FONT size=2>only one of the three classes of directors is elected each year; </FONT>
<LI><FONT size=2>stockholders have limited ability to remove directors; </FONT>
<LI><FONT size=2>stockholders cannot act by written consent; </FONT>
<LI><FONT size=2>stockholders cannot call a special meeting of stockholders; and </FONT>
<LI><FONT size=2>stockholders must give advance notice to nominate directors.</FONT> </LI></UL>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2>25 </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Anti-takeover provisions of Delaware law could delay or prevent an acquisition of our company.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging others from making tender offers for our common stock or preventing changes in our management. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Future sales of our common stock could reduce our stock price.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Board of Directors could issue additional shares of common or preferred stock to raise additional capital or for other corporate purposes without stockholder approval. In addition, the Board of Directors could designate and sell a class of preferred stock with preferential rights over the common stock with respect to dividends or other distributions. Sales of common or preferred stock could dilute the interest of existing stockholders and reduce the market price of our common stock. Even in the absence of such sales, the perception among investors that additional sales of equity securities may take place could reduce the market price of our common stock. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>The market price of our common stock is likely to be volatile.</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our stock price has fluctuated widely, ranging from $3.15 to $5.85 during the quarter ended&nbsp;September 30,&nbsp;2005. Our stock price could continue to experience significant fluctuations in response to factors such as quarterly variations in operating results, operating results that vary from the expectations of securities analysts and investors, changes in financial estimates, changes in market valuations of competitors, announcements by us or our competitors of a material nature, additions or departures of key personnel, future sales of Common Stock and stock volume fluctuations. Also, general political and economic conditions such as recession or interest rate fluctuations may adversely affect the market price of our stock. </FONT></P>

<P align=left><B><FONT face="Times New Roman, Times, Serif" size=2>ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</FONT> </B></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the normal course of business, our operations are exposed to risks associated with fluctuations in interest rates and foreign currency exchange rates. The Company manages its risks based on management&#146;s judgment of the appropriate trade-off between risk, opportunity and costs. Management does not believe that these market risks are material to the results of operations or cash flows of the Company, and, accordingly, does not generally enter into interest rate or foreign exchange rate hedge instruments. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interest rate risk</I>.&nbsp;&nbsp;&nbsp;&nbsp;Our $1.7 million of debt is based on the borrowings of our international subsidiaries. The majority of our international borrowings bear an interest rate that is linked to Euro market conditions and, thus, our interest rate expense will fluctuate with changes in those conditions. If interest rates were to increase or decrease by 1% for the year, our annual interest rate expense would increase or decrease by approximately $17,000. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Foreign currency risk</I>.&nbsp;&nbsp;&nbsp;&nbsp;Our international subsidiaries operate in and are net recipients of currencies other than the U.S. dollar and, as such, we benefit from a weaker dollar and are adversely affected by a stronger dollar relative to major currencies worldwide (primarily, the Euro, Swiss Franc, and Australian dollar). Accordingly, changes in exchange rates, and particularly the strengthening of the US dollar, may negatively affect our consolidated sales and gross profit as expressed in U.S. dollars. Additionally, as of September 30, 2005, all of our debt is denominated in Swiss Francs and as such, we are subject to fluctuations of the Swiss Franc as compared to the U.S. dollar in converting the value of the debt in U.S. dollars. The U.S. dollar value of the debt is increased by a weaker dollar and decreased by a stronger dollar relative to the Swiss Franc. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the normal course of business, we also face risks that are either non-financial or non-quantifiable. Such risks include those set forth in &#147;Item 2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations&#150;Risks Factors.&#148; </FONT></P>

<H1></H1>

<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>ITEM 4. CONTROLS AND PROCEDURES </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Attached as exhibits to this Quarterly Report on Form 10-Q are certifications of STAAR&#146;s Chief Executive Officer (&#147;CEO&#148;) and Chief Financial Officer (&#147;CFO&#148;), which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the &#147;Exchange Act&#148;). This &#147;Controls and Procedures&#148; section includes information concerning the controls and controls evaluation referred to in the certifications. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Evaluation of Disclosure Controls and Procedures</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s management, with the participation of the CEO and CFO, conducted an evaluation of the effectiveness of the Company&#146;s disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this Form 10-Q. </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>26 </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>Based on that evaluation, the CEO and the CFO concluded that, as of the end of the period covered by this Form 10-Q, the Company&#146;s disclosure controls and procedures are effective in accumulating and communicating to them in a timely manner material information related to the Company (including its consolidated subsidiaries) required to be included in it periodic reports filed with the Securities and Exchange Commission. </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Changes in Internal Control Over Financial Reporting</B></I><B> </B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There was no change in internal control over financial reporting during the fiscal quarter ended September 30, 2005 that has materially affected, or is reasonably likely to materially affect, the Company&#146;s internal control over financial reporting. </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>27&nbsp;</FONT></P>

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<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>PART II.&nbsp;&nbsp; OTHER INFORMATION </FONT></H1>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B><I>ITEM 1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; LEGAL PROCEEDINGS </I></B></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time the Company is subject to various claims and legal proceedings arising out of the normal course of our business. These claims and legal proceedings relate to contractual rights and obligations, employment matters, and claims of product liability. We do not believe that any of the claims known to us is likely to have a material adverse effect on our financial condition or results of operations. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>In re STAAR Surgical Co. Securities Litigation, No. CV 04-8007.&nbsp; </I>The Company and its Chief Executive Officer are defendants in a class action lawsuit pending in the Central District of California.&nbsp; A consolidated amended complaint filed by the plaintiffs on April 29, 2005 generally alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, by issuing false and misleading statements regarding the prospects for FDA approval of STAAR's VISIAN ICL, thereby artificially inflating the price of the Company's Common Stock.&nbsp; The plaintiffs generally seek to recover compensatory damages, including interest.&nbsp; </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2><I>&nbsp;&nbsp;&nbsp;&nbsp; </I>The Company filed a motion to dismiss, which the court denied in an order filed September 19, 2005 (the "Order").&nbsp; While permitting the case to proceed, the Order effectively narrowed the proposed class to purchasers of the Company's securities between October 6, 2003 and January 6, 2004 by limiting the statements of the Company that the plaintiffs may challenge.&nbsp; The Company has filed a motion requesting certification of the Order for interlocutory appeal, and&nbsp;intends to vigorously defend against the claims asserted in the consolidated amended complaint<I>.</I></FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2><B><I>ITEM 2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS </I></B></FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2>Not applicable </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B><I>ITEM 3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; DEFAULTS UPON SENIOR SECURITIES </I></B></FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2>Not applicable </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>ITEM 4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS </B></FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2>Not applicable </FONT></P>

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<P dir=ltr style="MARGIN-RIGHT: 0px" align=left><FONT face="Times New Roman, Times, Serif" size=2><B><I>ITEM 5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; OTHER INFORMATION</I></B> </FONT></P>

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<P dir=ltr style="MARGIN-RIGHT: 0px" align=left><FONT face="Times New Roman, Times, Serif" size=2><B><I>ITEM 6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; EXHIBITS</I></B> </FONT></P>

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<P dir=ltr style="MARGIN-RIGHT: 0px" align=left><FONT face="Times New Roman, Times, Serif" size=2><B><I>Exhibits<U> </U></I></B></FONT></P>

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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>3.1 </FONT></TD>
<TD width="95%"><FONT face="Times New Roman, Times, Serif" size=2>Certificate of Incorporation, as amended. (1) </FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>3.2 </FONT></TD>
<TD width="95%"><FONT face="Times New Roman, Times, Serif" size=2>By-laws, as amended. (2) </FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>4.5 </FONT></TD>
<TD width="95%"><FONT face="Times New Roman, Times, Serif" size=2>Stockholders' Rights Plan, dated effective April 20, 1995. (2) </FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>4.9 </FONT></TD>
<TD width="95%"><FONT face="Times New Roman, Times, Serif" size=2>Amendment No. 1 to Stockholders' Rights Plan, dated April 21, 2003. (3)</FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>10.58 </FONT></TD>
<TD width="95%"><FONT face="Times New Roman, Times, Serif" size=2>
<A href="fx10_1q305.htm">Loan Agreement between Deutche&nbsp;Postbank AG and Domilens dated August 30, 2005.</A> (4)</FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>10.59 </FONT></TD>
<TD width="95%"><FONT face="Times New Roman, Times, Serif" size=2>
<A href="fx10_2q305.htm">Standard Industrial/Commercial Multi-Tenant Lease - Gross dated October 6, 2005, entered into between the Company and Z &amp; M LLC.</A> (4)</FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>31.1 </FONT></TD>
<TD width="95%"><FONT face="Times New Roman, Times, Serif" size=2>Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley&nbsp;Act&nbsp;of&nbsp;2002. (4)</FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>31.2 </FONT></TD>
<TD width="95%"><FONT face="Times New Roman, Times, Serif" size=2>Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (4) </FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>32.1 </FONT></TD>
<TD width="95%"><FONT face="Times New Roman, Times, Serif" size=2>Certification Pursuant to 18 U.S.C. Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (4) </FONT></TD></TR>
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<P dir=ltr style="MARGIN-RIGHT: 0px"><FONT size=2>_________________ </FONT></P>

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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>(1) </FONT></TD>
<TD width="90%"><FONT face="Times New Roman, Times, Serif" size=2>Incorporated by reference from the Company&#146;s Annual Report on Form 10-K for the year ended December 31, 1999, as filed on March 30, 2000. </FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>(2) </FONT></TD>
<TD width="90%"><FONT face="Times New Roman, Times, Serif" size=2>Incorporated by reference from the Company&#146;s Annual Report on Form 10-K for the year ended December 29, 2000, as filed on March 29, 2001. </FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>(3) </FONT></TD>
<TD width="90%"><FONT face="Times New Roman, Times, Serif" size=2>Incorporated by reference to the Company&#146;s Quarterly Report on Form 10-Q for the quarter ended April 4, 2003, as filed on May 19, 2003. </FONT></TD></TR>
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<TD width="5%"><FONT face="Times New Roman, Times, Serif" size=2>(4) </FONT></TD>
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<P><FONT face="Times New Roman, Times, Serif" size=2>Filed herewith. </FONT></P>
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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>28</FONT></P>

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<P dir=ltr style="MARGIN-RIGHT: 0px" align=center><FONT face="Times New Roman, Times, Serif" size=2>SIGNATURES </FONT></P>

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<P dir=ltr style="MARGIN-RIGHT: 0px"><FONT face="Times New Roman, Times, Serif" size=2>Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. </FONT></P>

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<TD width="10%"><FONT face="Times New Roman, Times, Serif" size=2>Date:</FONT></TD>
<TD width="40%"><FONT face="Times New Roman, Times, Serif" size=2>November 9, 2005 </FONT></TD>
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<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>STAAR SURGICAL COMPANY </B><BR><BR><BR>By: /s/ DEBORAH ANDREWS<BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR><B>Deborah Andrews</B>&nbsp;&nbsp;<BR><BR><B>Vice President and<BR>Chief Financial Officer<BR>(on behalf of the Registrant and<BR></B></FONT><FONT face="Times New Roman, Times, Serif" size=2><B>as principal accounting officer)</B></FONT></P>
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<P dir=ltr style="MARGIN-RIGHT: 0px" align=center><FONT face="Times New Roman, Times, Serif" size=2>29</FONT></P>

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<P dir=ltr style="MARGIN-RIGHT: 0px" align=right><FONT face="Times New Roman, Times, Serif" size=2>Exhibit 31.1 </FONT></P>

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<H1 dir=ltr style="MARGIN-RIGHT: 0px" align=center><FONT face="Times New Roman, Times, Serif" size=3>Certifications </FONT></H1>

<P dir=ltr style="MARGIN-RIGHT: 0px"><FONT size=2>I, David Bailey, certify that:</FONT>
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<P dir=ltr style="MARGIN-RIGHT: 0px"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; I have reviewed this quarterly report on Form 10-Q of STAAR Surgical Company; </FONT></P>

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<P dir=ltr style="MARGIN-RIGHT: 0px"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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; </FONT></P>

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<P dir=ltr style="MARGIN-RIGHT: 0px"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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; </FONT></P>

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<P dir=ltr style="MARGIN-RIGHT: 0px"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The registrant&#146;s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: </FONT></P>

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<TD align=left width="85%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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; </FONT></TD></TR>
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<TD align=right width="15%"><FONT face="Times New Roman, Times, Serif" size=2>b) </FONT></TD>
<TD align=left width="85%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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; </FONT></TD></TR>
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<TD align=right width="15%"><FONT face="Times New Roman, Times, Serif" size=2>c) </FONT></TD>
<TD align=left width="85%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Evaluated the effectiveness of the registrant&#146;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 </FONT></TD></TR>
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<TD align=right width="15%"><FONT face="Times New Roman, Times, Serif" size=2>d) </FONT></TD>
<TD align=left width="85%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Disclosed in this report any change in the registrant&#146;s internal control over financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant&#146;s internal control over financial reporting; and </FONT></TD></TR>
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<P dir=ltr style="MARGIN-RIGHT: 0px"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The registrant&#146;s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the audit committee of registrant&#146;s board of directors (or persons performing the equivalent functions): </FONT></P>

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<TD align=right width="15%"><FONT face="Times New Roman, Times, Serif" size=2>a) </FONT></TD>
<TD align=left width="85%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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&#146;s ability to record, process, summarize and report financial information; and </FONT></TD></TR>
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<TD align=right width="15%"><FONT face="Times New Roman, Times, Serif" size=2>b) </FONT></TD>
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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant&#146;s internal control over financial reporting. </FONT></P>


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<TD width="10%"><FONT face="Times New Roman, Times, Serif" size=2>Date:</FONT></TD>
<TD width="40%"><FONT face="Times New Roman, Times, Serif" size=2>November 9, 2005 </FONT></TD>
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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>By: /s/ DAVID BAILEY<BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR><B>David Bailey<BR><BR>President, Chief Executive Officer, and<BR>Director (principal executive officer</B>)</FONT></P>
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<P dir=ltr style="MARGIN-RIGHT: 0px" align=right><FONT face="Times New Roman, Times, Serif" size=2>Exhibit 31.2 </FONT></P>

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<A name=A089></A>
<H1 dir=ltr style="MARGIN-RIGHT: 0px" align=center><FONT face="Times New Roman, Times, Serif" size=3>Certifications </FONT></H1>

<P dir=ltr style="MARGIN-RIGHT: 0px"><FONT size=2>I, Deborah Andrews, certify that:
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<P dir=ltr style="MARGIN-RIGHT: 0px"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; I have reviewed this quarterly report on Form 10-Q of STAAR Surgical Company; </FONT></P>

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<P dir=ltr style="MARGIN-RIGHT: 0px"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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; </FONT></P>

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<P dir=ltr style="MARGIN-RIGHT: 0px"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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; </FONT></P>

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<P dir=ltr style="MARGIN-RIGHT: 0px"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The registrant&#146;s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: </FONT></P>

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<TD align=left width="85%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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; </FONT></TD></TR>
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<TD align=left width="85%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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; </FONT></TD></TR>
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<TD align=left width="85%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Evaluated the effectiveness of the registrant&#146;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 </FONT></TD></TR>
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<TD align=left width="85%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Disclosed in this report any change in the registrant&#146;s internal control over financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant&#146;s internal control over financial reporting; and </FONT></TD></TR>
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<P dir=ltr style="MARGIN-RIGHT: 0px"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The registrant&#146;s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the audit committee of registrant&#146;s board of directors (or persons performing the equivalent functions): </FONT></P>

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<TD align=left width="85%"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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&#146;s ability to record, process, summarize and report financial information; and </FONT></TD></TR>
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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant&#146;s internal control over financial reporting. </FONT></P>


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<TD width="40%"><FONT face="Times New Roman, Times, Serif" size=2>November 9, 2005 </FONT></TD>
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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>By: /s/ DEBORAH ANDREWS<BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR><B>Deborah Andrews<BR>&nbsp;&nbsp;<BR>Vice President and<BR>Chief Financial Officer<BR>(principal accounting officer)</B></FONT></P>
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<P dir=ltr style="MARGIN-RIGHT: 0px" align=right><FONT face="Times New Roman, Times, Serif" size=2>Exhibit 32.1 </FONT></P>

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<H1 dir=ltr style="MARGIN-RIGHT: 0px" align=center><FONT face="Times New Roman, Times, Serif" size=3>Certification pursuant to 18 U.S.C. Section 1350, </FONT></H1>

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<H1 dir=ltr style="MARGIN-RIGHT: 0px" align=center><FONT face="Times New Roman, Times, Serif" size=2>As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 </FONT></H1>

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<P dir=ltr style="MARGIN-RIGHT: 0px"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the filing of the Quarterly Report on Form 10-Q for the period ended September 30, 2005 (the &#147;Report&#148;) by STAAR Surgical Company (&#147;Registrant&#148;), each of the undersigned hereby certifies that: </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and <BR></FONT></P>
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<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant as of and for the periods presented in the Report. </FONT></P>

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<TD width="10%"><FONT face="Times New Roman, Times, Serif" size=2>Date:</FONT></TD>
<TD width="40%"><FONT face="Times New Roman, Times, Serif" size=2>November 9, 2005 </FONT></TD>
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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>By: /s/ DAVID BAILEY<BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR><B>David Bailey<BR><BR>President, Chief Executive Officer, </B></FONT><B><FONT size=2>and</FONT></B><BR><FONT face="Times New Roman, Times, Serif" size=2><B>Director (principal executive officer)</B></FONT></P>


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<TD width="10%"><FONT face="Times New Roman, Times, Serif" size=2>Date:</FONT></TD>
<TD width="40%"><FONT face="Times New Roman, Times, Serif" size=2>November 9, 2005 </FONT></TD>
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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>By: /s/ DEBORAH ANDREWS<BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR><B>Deborah Andrews<BR>&nbsp;&nbsp;<BR>Vice President and<BR>Chief Financial Officer<BR>(principal accounting officer)</B></FONT></P>
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<P dir=ltr style="MARGIN-RIGHT: 0px"><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;A signed original of this written statement required by 18 U.S.C. Section 1350 has been provided to STAAR Surgical Company and will be furnished to the Securities and Exchange Commission or its staff upon request. </FONT></P>

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<H1 align=right><FONT face="Times New Roman, Times, Serif" size=2>EXHIBIT 10.59 </FONT></H1>
<H1 align=center><FONT face="Times New Roman, Times, Serif" size=2>STANDARD INDUSTRIAL/COMMERCIAL <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>MULTI-TENANT LEASE &#150; GROSS <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION </FONT></H1>

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<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>1.&nbsp;&nbsp;&nbsp;&nbsp; Basic Provisions (&#147;Basic Provisions&#148;). </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.1&nbsp;&nbsp;&nbsp;&nbsp; <B>Parties:</B> This Lease (&#147;<B>Lease</B>&#148;), dated for reference purposes only October 6, 2005, is made by and between Z &amp; M LLC, a California Limited Liability Company, (&#147;<B>Lessor</B>&#148;) and STAAR Surgical Company (&#147;<B>Lessee</B>&#148;), (collectively the &#147;Parties&#148;, or individually a &#147;<B>Party</B>&#148;). </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.2(a) <B>Premises</B>: That certain portion of the Project (as defined below), including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known by the street address of 1811-1813 Myrtle Avenue, located in the City of Monrovia, County of Los Angeles, State of California, with zip code 91016, as outlined on Exhibit __ hereto (&#147;Premises&#148;) and generally described as (describe briefly the nature of the Premises): 2,887 square feet of warehouse space. In addition to Lessee&#146;s rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any rights to the roof, exterior walls or utility raceways of the building containing the Premises (&#147;<B>Building</B>&#148;) or to any other buildings in the Project. The
Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the &#147;<B>Project</B>.&#148; (See also Paragraph 2.) </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;1.2(b)&nbsp; <B>Parking</B>: N/A unreserved vehicle parking spaces (&#147;<B>Unreserved Parking Spaces</B>&#148;); and N/A reserved vehicle parking spaces (&#147;<B>Reserved Parking Spaces</B>&#148;). (See also Paragraph 2.6) </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.3&nbsp;&nbsp;&nbsp;&nbsp; <B>Term</B>: Three (3) years and -0- months (&#147;<B>Original Term</B>&#148;) commencing November 1, 2005 (&#147;<B>Commencement Date</B>&#148;) and ending October 31. 2008 (&#147;<B>Expiration Date</B>&#148;). (See also Paragraph 3.) </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.4&nbsp;&nbsp;&nbsp;&nbsp; <B>Early Possession</B>: N/A (&#147;<B>Early Possession Date</B>&#148;). (See also Paragraphs 3.2 and 3.3.) </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.5&nbsp;&nbsp;&nbsp;&nbsp; <B>Base Rent</B>: $ 2.598.30 per month (&#147;<B>Base Rent</B>&#148;), payable on the 1st day of each month commencing November 1, 2005. (See also Paragraph 4.)&nbsp;<BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;[&nbsp;&nbsp;&nbsp;&nbsp; ] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. 1.6<B>Lessee&#146;s Share of Common Area Operating Expenses</B>: 22.17 percent ( 22.17%) (&#147;<B>Lessee&#146;s Share</B>&#148;). 1.7<B>Base Rent and Other Monies Paid Upon Execution</B>: </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;(a)<B>&nbsp;&nbsp;&nbsp;&nbsp; Base Rent</B>: $ 2,598.30 for the period __________. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp; <B>Common Area Operating Expenses</B>: $_____ for the period_________. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Security Deposit</B>: $2,810.00 (&#147;<B>Security Deposit</B>&#148;). (See also Paragraph 5.) <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp; <B>Other</B>: $ ______________ for _______________________________. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp; <B>Total
Due Upon Execution of this Lease</B>: $ 5 408.30. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.8&nbsp;&nbsp;&nbsp;&nbsp; <B>Agreed Use</B>: Office and medical equipment storage. . (See also Paragraph 6.) </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.9&nbsp;&nbsp;&nbsp;&nbsp; <B>lnsuring Party</B>. Lessor is the &#147;<B>Insuring Party</B>&#148;. (See also Paragraph 8.)</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;1.10&nbsp;&nbsp; <B>Real Estate Brokers</B>: (See also Paragraph 15.)&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp; (a)<B>&nbsp;&nbsp; Representation</B>: The following real estate brokers (the &#147;<B>Brokers</B>&#148;) and brokerage relationships exist in this transaction (check applicable boxes): [XX] ALDEN MANAGEMENT GROUP represents Lessor exclusively <B>(&#147;Lessor&#146;s Broker</B>&#148;); [&nbsp;&nbsp; ] represents Lessee exclusively (&#147;Lessee&#146;s Broker&#148;); or [&nbsp;&nbsp; ]represents both Lessor and Lessee (&#147;Dual Agency&#148;).&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp; <B>Payment to Brokers</B>: Upon execution and
delivery of this Lease by both Parties, Lessor shall pay to the Brokers the brokerage fee agreed to in a separate written agreement (or if there is no such agreement, the sum of _________ or ______% of the total Base Rent for the brokerage services rendered by the Brokers). </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1 .11&nbsp;&nbsp; <B>Guarantor</B>. The obligations of the Lessee under this Lease are to be guaranteed by ______________________ (&#147;Guarantor&#148;). (See also Paragraph 37.)&nbsp;</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1 .12&nbsp;&nbsp; <B>Addenda and Exhibits</B>. Attached hereto is an Addendum or Addenda consisting of Paragraphs 49 through 57 and Exhibits ____ through ____, all of which constitute a part of this Lease. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Premises</B>.</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;2.1&nbsp;&nbsp; <B>Letting</B>. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.2&nbsp;&nbsp; <B>Condition</B>. Lessor shall deliver that portion of the Premises contained within the Building (&#147;<B>Unit</B>&#148;) to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs <B>(&#147;Start Date</B>&#148;), and, so long as the required service contracts described in Paragraph 7.1 (b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems (&#147;<B>HVAC</B>&#148;), loading doors, if any, and all other such elements in the Unit, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of the Unit shall be free of material defects. If a non-compliance with such
warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor&#146;s sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor&#146;s expense. The warranty periods shall be as follows: (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Unit. If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee&#146;s sole cost and expense (except for the repairs to the fire sprinkler systems, roof, foundations, and/or bearing walls &#151; see Paragraph 7). </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.3&nbsp;&nbsp; <B>Compliance</B>. Lessor warrants that the improvements on the Premises and the Common Areas comply with the building codes that were in effect at the time that each such improvement, or portion thereof, was constructed, and also with all applicable laws, covenants or restrictions of record, regulations, and ordinances in effect on the Start Date (&#147;<B>Applicable Requirements</B>&#148;). Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph &nbsp;7.3(a).) made or to be made by Lessee. <B>NOTE: Lessee is responsible for determining whether or not the zoning is appropriate</B></FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>&nbsp;</B><U>_/s/
M<B></B></U><B>_&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ______<BR></B><U>_/s/
AZ<B></B></U><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><U>_/s/ DA
<BR></U>Initials&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initials </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>PAGE 1 <BR>&#169;1998-American Industrial Real Estate Association FORM MTG-2-11/98 </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2><B>for Lessee&#146;s intended use, and acknowledges that past uses of the Premises may no longer be allowed.</B> If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor&#146;s expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee&#146;s sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Unit, Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building (&#147;<B>Capital
Expenditure</B>&#148;), Lessor and Lessee shall allocate the cost of such work as follows:&nbsp;<BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp; Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months&#146; Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee&#146;s termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to 6 months&#146; Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of
the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)&nbsp;&nbsp; If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for the portion of such costs reasonably attributable to the Premises pursuant to the formula set out in Paragraph 7.l(d); provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its
share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor&#146;s termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with interest, from Rent until Lessor&#146;s share of such costs have been fully paid. If Lessee is unable to finance Lessor&#146;s share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp; Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to
nonvoluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall be fully responsible for the cost thereof, and Lessee shall not have any right to terminate this Lease. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.4&nbsp;&nbsp; <B>Acknowledgements</B>.&nbsp;&nbsp;&nbsp;&nbsp; Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee&#146;s intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes ail responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor&#146;s agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or
warranties concerning Lessee&#146;s ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor&#146;s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.5&nbsp;&nbsp;&nbsp; <B>Lessee as Prior Owner10ccupant</B>. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.6&nbsp;&nbsp;&nbsp;&nbsp;<B>Vehicle Parking</B>. Lessee shall be entitled to use the number of Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks, herein called <B>&#147;Permitted Size Vehicles</B>.&#148; Lessor may regulate the loading and unloading of vehicles by adopting Rules and Regulations as provided in Paragraph 2.9. No vehicles other than Permitted Size Vehicles may be parked in the Common Area without the prior written permission of Lessor. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif"
size=2>(a)&nbsp;&nbsp;&nbsp;&nbsp; Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee&#146;s employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)&nbsp;&nbsp;&nbsp;&nbsp; Lessee shall not service or store any vehicles in the Common Areas. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)&nbsp;&nbsp;&nbsp;&nbsp; If Lessee permits or allows any of the prohibited activities described in this Paragraph 2.6, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the
cost to Lessee, which cost shall be immediately payable upon demand by Lessor. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.7&nbsp;&nbsp;&nbsp;&nbsp; <B>Common Areas &#151; Definition</B>. The term &#147;Common Areas&#148; is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project and interior utility raceways and installations within the Unit that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and other tenants of the Project and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, walkways, driveways and landscaped areas. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.8&nbsp;&nbsp;&nbsp; <B>Common Areas &#151; Lessee&#146;s Rights</B>. Lessor grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Project. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor&#146;s designated agent, which consent may be revoked at any time. In the event that any unauthorized
storage shall occur, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.9&nbsp;&nbsp;&nbsp; <B>Common Areas &#151; Rules and Regulations</B>. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations <B>(&#147;Rules and Regulations</B>&#148;) for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Project and their invitees. Lessee agrees to abide by and conform to all such Rules and Regulations, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said Rules and Regulations by other tenants of the Project.
</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.10&nbsp;&nbsp;&nbsp; <B>Common Areas &#151; Changes</B>. Lessor shall have the right, in Lessor&#146;s sole discretion, from time to time:<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;(a)&nbsp;&nbsp;&nbsp; To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways; <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp; To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available;
<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp; To designate other land outside the boundaries of the Project to be a part of the Common Areas; <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp; To add additional buildings and improvements to the Common Areas;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;(e)&nbsp;&nbsp;&nbsp; To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project, or any portion thereof; and</FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>&nbsp;</B><U>_/s/
M<B></B></U><B>_&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ______<BR></B><U>_/s/
AZ<B></B></U><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><U>_/s/ DA
<BR></U>Initials&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initials </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>PAGE&nbsp;2 <BR>&#169;1998-American Industrial Real Estate Association FORM MTG-2-11/98 </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp; To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Project as Lessor may, in the exercise of sound business judgment, deem to be appropriate. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>3. <B>Term.</B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1&nbsp;&nbsp;&nbsp;<B>Term.</B>&nbsp;&nbsp;&nbsp;&nbsp; The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3.2&nbsp;&nbsp; <B>Early Possession</B>. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Lessee&#146;s Share of Common Area Operating Expenses, Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3.3&nbsp;&nbsp;&nbsp; <B>Delay In Possession</B>. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until it receives possession of the Premises. If possession is not delivered within 60 days after the Commencement Date, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said 10 day period, Lessee&#146;s right to cancel shall terminate. Except as
otherwise provided, if possession is not tendered to Lessee by the Start Date and Lessee does not terminate this Lease, as aforesaid, any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession of the Premises is not delivered within 4 months after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3.4&nbsp;&nbsp; <B>Lessee Compliance</B>. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform ail of Its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor&#146;s election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied. </FONT></P>

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<A name=A005></A>
<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rent. </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4.1&nbsp;&nbsp; <B>Rent Defined</B>. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent (&#147;<B>Rent</B>&#148;). </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4.2&nbsp;&nbsp;&nbsp;<B>Common Area Operating Expenses</B>. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee&#146;s Share (as specified in Paragraph 1.6.) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions: <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)<B> &#147;Common Area Operating Expenses</B>&#148; are defined, for purposes of this Lease, as all costs incurred by Lessor relating to the ownership and operation of the Project, including, but not limited to, the following: <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp; The operation, repair and maintenance, in neat, clean, good order and
condition, but not the replacement (see subparagraph (e)), of the following: <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(aa)&nbsp;&nbsp;&nbsp;&nbsp;The Common Areas and Common Area improvements, including parking areas, loading and unloading areas, trash areas, roadways, parkways, walkways, driveways, landscaped areas, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators, roofs, and roof drainage systems<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (bb)&nbsp;&nbsp; &nbsp;Exterior signs and any tenant
directories.&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(cc)&nbsp;&nbsp;&nbsp;&nbsp; Any fire sprinkler systems. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(ii)&nbsp;&nbsp;&nbsp;&nbsp; The cost of water, gas, electricity and telephone to service the Common Areas and any utilities not separately metered.<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;(iii)&nbsp;&nbsp;&nbsp; Trash disposal, pest control services, property management, security services, and the costs of any environmental inspections.
<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(iv)&nbsp;&nbsp;&nbsp; Reserves set aside for maintenance and repair of Common Areas. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (v)&nbsp;&nbsp;&nbsp;&nbsp; Any increase above the Base Real Property Taxes (as defined in Paragraph 10). <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (vi)&nbsp;&nbsp;&nbsp; Any &#147;Insurance Cost Increase&#148; (as defined in Paragraph 8). <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (vii)&nbsp;&nbsp; Any deductible portion of an insured loss concerning the Building or the Common
Areas. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(viii)&nbsp; The cost of any Capital Expenditure to the Building or the Project not covered under the provisions of Paragraph 2.3 provided; however, that Lessor shall allocate the cost of any such Capital Expenditure over a 12 year period and Lessee shall not be required to pay more than Lessee&#146;s Share of 1/144th of the cost of such Capital Expenditure in any given month. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(ix)&nbsp;&nbsp;&nbsp;&nbsp; Any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense.
<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp; Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Unit, the Building or to any other building in the Project or to the operation, repair and maintenance thereof, shall be allocated entirely to such Unit, Building, or other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Project. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)&nbsp;&nbsp;&nbsp;&nbsp; The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to
either have said improvements or facilities or to provide those services unless the Project already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(d)&nbsp;&nbsp;&nbsp;&nbsp; Lessee&#146;s Share of Common Area Operating Expenses shall be payable by Lessee within 10 days after a reasonably detailed statement of actual expenses is presented to Lessee. At Lessor&#146;s option, however, an amount may be estimated by Lessor from time to time of Lessee&#146;s Share of annual Common Area Operating Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each 12 month period of the Lease term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to Lessee within 60 days after the expiration of each calendar year a
reasonably detailed statement showing Lessee&#146;s Share of the actual Common Area Operating Expenses incurred during the preceding year. If Lessee&#146;s payments under this Paragraph 4.2(d) during the preceding year exceed Lessee&#146;s Share as indicated on such statement, Lessor shall credit the amount of such over-payment against Lessee&#146;s Share of Common Area Operating Expenses next becoming due. If Lessee&#146;s payments under this Paragraph 4.2(d) during the preceding year were less than Lessee&#146;s Share as indicated on such statement, Lessee shall pay to Lessor the amount of the deficiency within 10 days after delivery by Lessor to Lessee of the statement. <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp; When a capital component such as the roof, foundations, exterior walls or a Common Area capital improvement, such as the parking lot paving, elevators, fences, etc.
requires replacement, rather than repair or maintenance, Lessor shall, at Lessor&#146;s expense, be responsible for such replacement. Such expenses and/or costs are not Common Area Operating Expenses. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4.3&nbsp;&nbsp; <B>Payment</B>.&nbsp;&nbsp;&nbsp;&nbsp; Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor&#146;s rights to the balance of such Rent, regardless of Lessor&#146;s endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any
reason, Lessee agrees to pay to Lessor the sum of $25. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>5.&nbsp;&nbsp;&nbsp;&nbsp; <B>Security Deposit</B>. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee&#146;s faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>&nbsp;</B><U>_/s/
M<B></B></U><B>_&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ______<BR></B><U>_/s/
AZ<B></B></U><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><U>_/s/ DA
<BR></U>Initials&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initials </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>PAGE 3<BR>&#169;1998-American Industrial Real Estate Association FORM MTG-2-11/98 </FONT></P>


<P>
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<P><FONT face="Times New Roman, Times, Serif" size=2>said Security Deposit lo the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor&#146;s reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor&#146;s reasonable judgment, significantly reduced, Lessee shall deposit such additional
monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease. </FONT></P>

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<A name=A006></A>
<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>6.&nbsp;&nbsp;&nbsp;&nbsp; Use. </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6.1&nbsp;&nbsp; <B>Use.</B>&nbsp;&nbsp;&nbsp;&nbsp; Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor&#146;s
objections to the change in the Agreed Use. </FONT></P>

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<A name=A007></A>
<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6.2&nbsp;&nbsp; Hazardous Substances. </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)<B>&nbsp;&nbsp;&nbsp; Reportable Uses Require Consent</B>. The term <B>&#147;Hazardous Substance</B>&#148; as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the
Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee&#146;s expense) with all Applicable Requirements. &#147;<B>Reportable Use</B>&#148; shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that. requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, so long as such use is in compliance with all Applicable
Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor, in addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp; <B>Duty to Inform Lessor</B>. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp; <B>Lessee Remediation</B>. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee&#146;s expense, take all Investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d<B>)&nbsp;&nbsp;&nbsp;&nbsp; Lessee Indemnification</B>. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground Lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys&#146; and consultants&#146; fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from areas outside of the Project). Lessee&#146;s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e<B>)&nbsp;&nbsp;&nbsp;&nbsp; Lessor Indemnification</B>. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which existed as a result of Hazardous Substances on the Premises prior to the Start Date or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor&#146;s obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp; <B>Investigations and Remediations</B>. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Start Date, unless such remediation measure is required as a result of Lessee&#146;s use (Including &#147;Alterations&#148;, as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor&#146;s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor&#146;s investigative and remedial responsibilities. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (g)&nbsp;&nbsp;&nbsp;&nbsp; <B>Lessor Termination Option</B>. If a Hazardous Substance Condition (see Paragraph 9.1 (e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor&#146;s rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor&#146;s option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor&#146;s expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days
after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor&#146;s desire to terminate this Lease as of the date 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee&#146;s commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available.&nbsp;If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date
specified in Lessor&#146;s notice of termination. <U></U></FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>&nbsp;</B><U>_/s/
M<B></B></U><B>_&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ______<BR></B><U>_/s/
AZ<B></B></U><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><U>_/s/ DA
<BR></U>Initials&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initials </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>PAGE 4<BR>&#169;1998-American Industrial Real Estate Association FORM MTG-2-11/98 </FONT></P>

<P align=center><FONT size=2></FONT></P>

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<P>
<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" --><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6.3&nbsp;&nbsp;&nbsp; <B>Lessee&#146;s Compliance with Applicable Requirements</B>. Except as otherwise provided in this Lease, Lessee shall, at Lessee&#146;s sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor&#146;s engineers and/or consultants which relate in any manner to the Premises, without regard to whether said requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessor&#146;s written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee&#146;s compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6.4&nbsp;&nbsp;&nbsp; <B>Inspection; Compliance.</B> Lessor and Lessor&#146;s &#147;<B>Lender</B>&#148; (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a contamination is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, SO long as such inspection is reasonably related to the violation or contamination. </FONT></P>

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<A name=A008></A>
<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>7.&nbsp;&nbsp; Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.</FONT></H1>

<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7.1&nbsp;&nbsp;&nbsp; Lessee&#146;s Obligations. </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; <B>In General</B>. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee&#146;s Compliance with Applicable Requirements), 7.2 (Lessor&#146;s Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee&#146;s sole expense, keep the Premises, Utility lnstallations (intended for Lessee&#146;s exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee&#146;s use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment,
electrical, lighting facilities, boilers, pressure vessels, fixtures, interior wails, interior surfaces of exterior wails, ceilings, floors, windows, doors, plate glass, and skylights but excluding any items which are the responsibility of Lessor pursuant to Paragraph&nbsp;7.2. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1 (b) below. Lessee&#146;s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair.&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp; <B>Service Contracts</B>. Lessee shall, at Lessee&#146;s sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance
for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler and pressure vessels, (iii) clarifiers, and (iv) any other equipment, if reasonably required by Lessor. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp; <B>Failure to Perform</B>.&nbsp;&nbsp; &nbsp;If Lessee fails to perform Lessee&#146;s obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days&#146; prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee&#146;s behalf, and put the Premises in good order,
condition and repair, and Lessee shall promptly reimburse Lessor for the cost thereof. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp; <B>Replacement</B>. Subject to Lessee&#146;s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee&#146;s failure to exercise and perform good maintenance practices, if an item described in Paragraph&nbsp;7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (i.e. 1/144th of
the cost per month). Lessee shall pay interest on the unamortized balance at a rate that is commercially reasonable in the judgment of Lessor&#146;s accountants. Lessee may, however, prepay its obligation at any time. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7.2&nbsp;&nbsp;&nbsp; <B>Lessor&#146;s Obligations</B>. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee&#146;s Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler system, Common Area fire alarm and/or smoke detection systems, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall
Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly waives the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7.3&nbsp;&nbsp; <B>Utility Installations; Trade Fixtures; Alterations</B>. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; <B>Definitions. </B>The term &#147;<B>Utility Installations</B>&#148; refers to all floor and window coverings, air lines, power panels, electrical distribution, security and fire protection systems, communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term &#147;<B>Trade Fixtures</B>&#148; shall mean Lessee&#146;s machinery and equipment that can be removed without doing material damage to the Premises. The term &#147;<B>Alterations&#148; </B>shall mean any modification of the improvements, other than Utility lnstallations or Trade Fixtures, whether by addition or deletion. &#147;<B>Lessee Owned Alterations and/or Utility lnstallations</B>&#148; are defined as Alterations and/or Utility lnstallations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).
<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp; <B>Consent.</B> Lessee shall not make any Alterations or Utility lnstallations to the Premises without Lessor&#146;s prior written consent. Lessee may, however, make non-structural Utility installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month&#146;s Base Rent in the aggregate or a sum equal to one month&#146;s Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor
chosen and/or approved by Lessor. Any Alterations or Utility lnstallations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon .Lessee&#146;s: (I) acquiring ail applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility lnstallations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of one month&#146;s Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or
Utility installation and/or upon Lessee&#146;s posting an additional Security Deposit with Lessor. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp; <B>Indemnification.</B> Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic&#146;s or materialmen&#146;s lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If
Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor&#146;s attorneys&#146; fees and costs. <U></U></FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>&nbsp;</B><U>_/s/
M<B></B></U><B>_&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ______<BR></B><U>_/s/
AZ<B></B></U><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><U>_/s/ DA
<BR></U>Initials&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initials </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>PAGE&nbsp;5 <BR>&#169;1998-American Industrial Real Estate Association FORM MTG-2-11/98 </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7.4&nbsp;&nbsp;&nbsp;&nbsp;<B>Ownership; Removal; Surrender; and Restoration</B>. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; <B>Ownership</B>. Subject to Lessor&#146;s right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)&nbsp;&nbsp;&nbsp;&nbsp;
<B>Removal</B>. By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or ail Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)&nbsp;&nbsp;&nbsp;&nbsp; <B>Surrender; Restoration.</B> Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. &#147;Ordinary wear and tear&#148; shall not include any damage or
deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall also completely remove from the Premises any and ail Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. The failure
by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>8.&nbsp;&nbsp;&nbsp;&nbsp; <B>Insurance; Indemnity. </B></FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </B>8.1&nbsp;&nbsp; <B>Payment of Premium Increases.</B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; As used herein, the term &#147;lnsurance Cost Increase&#148; is defined as any increase in the actual cost of the insurance applicable to the Building and/or the Project and required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a) and 8.3(b), (&#147;Required Insurance&#148;), over and above the Base Premium,, as hereinafter defined, calculated on an annual basis. lnsurance Cost lncrease shall include, but not be limited to, requirements of the holder of a mortgage or deed of trust covering the Premises, Building and/or Project, increased valuation of the Premises, Building and/or Project, and/or a general premium rate increase. The term insurance Cost increase shall not, however, include any premium increases resulting from the nature of the occupancy of any other tenant of the Building. If the parties insert a
dollar amount in Paragraph 1.9, such amount shall be considered the &#147;Base Premium.&#148; The Base Premium shall be the annual premium applicable to the 12 month period immediately preceding the Start Date. If, however, the Project was not insured for the entirety of such 12 month period, then the Base Premium shall be the lowest annual premium reasonably obtainable for the Required lnsurance as of the Start Date, assuming the most nominal use possible of the Building. In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability insurance coverage in excess of $2,000,000 procured under Paragraph 8.2(b). <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)&nbsp;&nbsp;&nbsp;&nbsp; Lessee shall pay any lnsurance Cost Increase to Lessor pursuant to Paragraph 4,2. Premiums for policy periods commencing prior to, or extending beyond, the term of this
Lease shall be prorated to coincide with the corresponding Start Date or Expiration Date. </FONT></P>

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<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2&nbsp;&nbsp;&nbsp; Liability Insurance. </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; <B>Carried by Lessee</B>. Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000, an &#147;Additional Insured-Managers or Lessors of Premises Endorsement&#148; and contain the &#147;Amendment of the Pollution Exclusion Endorsement&#148; for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between
insured persons or organizations, but shall include coverage for liability assumed under this Lease as an &#147;insured contract&#148; for the performance of Lessee&#146;s indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b<B>)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Carried by Lessor</B>. Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not In lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. </FONT></P>

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<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8.3&nbsp;&nbsp;&nbsp; Property lnsurance &#151; Building, Improvements and Rental Value. </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; <B>Building and Improvements</B>. Lessor shall obtain and keep in force a policy or policies of insurance in the name of Lessor, with loss payable to Lessor, any ground-Lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equa1.to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee&#146;s personal property shall be insured by Lessee under Paragraph 8.4. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for Ail Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)<B>&nbsp;&nbsp;&nbsp;&nbsp; Rental Value.</B> Lessor shall also obtain and keep in
force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days (&#147;Rental Value insurance&#148;). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)<B>&nbsp;&nbsp;&nbsp;&nbsp; Adjacent Premises</B>. Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Project if said increase is caused by Lessee&#146;s acts, omissions, use or occupancy of the Premises.
<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(d)&nbsp;&nbsp;&nbsp;&nbsp; <B>Lessee&#146;s Improvements</B>. Since Lessor is the Insuring Party, Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. </FONT></P>

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<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8.4&nbsp;&nbsp;&nbsp; Lessee&#146;s Property; Business Interruption Insurance. </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; <B>Property Damage</B>. Lessee shall obtain and maintain insurance coverage on all of Lessee&#146;s personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp; <B>Business Interruption</B>. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or
indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)&nbsp;&nbsp;&nbsp;&nbsp; <B>No Representation of Adequate Coverage</B>. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee&#146;s property, business operations or obligations under this Lease. </FONT></P>

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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;<U>_/s/
M<B></B></U><B>_&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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AZ<B></B></U><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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<BR></U>Initials&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initials </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>PAGE&nbsp;6 <BR>&#169;1998-American Industrial Real Estate Association FORM MTG-2-11/98 </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.5&nbsp;&nbsp;&nbsp; <B>Insurance Policies</B>. lnsurance required herein shall be by companies duly incensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a &#147;General Policyholders Rating&#148; of at least B+, V, as set forth in the most current issue of &#147;Best&#146;s lnsurance Guide&#148;, or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. Lessee shall, at least 30 days prior to the expiration of such policies, furnish Lessor
with evidence of renewals or &#147;insurance binders&#148; evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8.6&nbsp;&nbsp;&nbsp; <B>Waiver of Subrogation</B>. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8.7&nbsp;&nbsp; <B>Indemnity.</B>&nbsp;&nbsp;&nbsp;&nbsp; Except for Lessor&#146;s gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor&#146;s master or ground Lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys&#146; and consultants&#146; fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee&#146;s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8.8&nbsp;&nbsp; <B>Exemption of Lessor from Liability.</B> Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee&#146;s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor nor from the failure of Lessor to enforce the provisions of any other lease in the Project.
Notwithstanding Lessor&#146;s negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee&#146;s business or for any loss of income or profit therefrom.</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;9. <B>Damage or Destruction.</B> </FONT></P>

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<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9.1&nbsp;&nbsp;&nbsp; Definitions. </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; <B>&#147;Premises Partial Damage&#148;</B> shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 3 months or less from the date of the damage or destruction, and the cost thereof does not exceed a sum equal to 6 month&#146;s Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)&nbsp;&nbsp;&nbsp;&nbsp; <B>&#147;Premises Total Destruction&#148; </B>shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and
Utility lnstallations and Trade Fixtures, which cannot reasonably be repaired in 3 months or less from the date of the damage or destruction and/or the cost thereof exceeds a sum equal to 6 month&#146;s Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)&nbsp;&nbsp;&nbsp;&nbsp; <B>&#147;lnsured Loss&#148;</B> shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d) <B>&#147;Replacement
Cost&#148;</B> shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e) <B>&#147;Hazardous Substance Condition&#148;</B> shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;9.2&nbsp;&nbsp;&nbsp; <B>Partial Damage &#151; lnsured Loss</B>. If a Premises Partial Damage that is an lnsured Loss occurs, then Lessor shall, at Lessor&#146;s expense, repair such damage (but not Lessee&#146;s Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor&#146;s election, make the repair of any damage or destruction the total cost to repair of which is $5,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds as and when required to complete said
repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which
case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9.3&nbsp;&nbsp;&nbsp; <B>Partial Damage &#151; Uninsured Loss</B>. If a Premises Partial Damage that is not an lnsured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee&#146;s expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor&#146;s expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee&#146;s commitment to pay for the repair of such damage without reimbursement from
Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9.4&nbsp;&nbsp;&nbsp; <B>Total Destruction</B>. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor&#146;s damages from Lessee, except as provided in Paragraph 8.6. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9.5&nbsp;&nbsp;&nbsp; <B>Damage Near End of Term</B>. If at any time during the last 6 months of this Lease there Is damage for which the cost to repair exceeds one month&#146;s Base Rent, whether or not an lnsured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee&#146;s receipt of Lessor&#146;s written notice purporting to terminate this Lease, or (ii) the day
prior to the date upon which such option </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2><U>_/s/
M<B></B></U><B>_&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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AZ<B></B></U><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><U>_/s/ DA
<BR></U>Initials&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initials </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>PAGE&nbsp;7 <BR>&#169;1998-American Industrial Real Estate Association FORM MTG-2-11/98 </FONT></P>

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<P align=center></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>expires.&nbsp;&nbsp;&nbsp;&nbsp; If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor&#146;s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect.&nbsp;If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee&#146;s option shall be extinguished. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9.6&nbsp;&nbsp;&nbsp; <B>Abatement of Rent; Lessee&#146;s Remedies.</B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; <B>Abatement.</B> In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee&#146;s use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp; <B>Remedies.</B> If Lessor shall be obligated to repair or
restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee&#146;s election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect. &#147;Commence&#148; shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9.7&nbsp;&nbsp;&nbsp; <B>Termination; Advance Payments.</B> Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee&#146;s Security Deposit as has not been, or is not then required to be, used by Lessor. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9.8<B>&nbsp;&nbsp;&nbsp; Waive Statutes</B>. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>10.&nbsp;&nbsp;&nbsp;&nbsp; <B>Real Property Taxes.&nbsp;</B></FONT></P>


<P><FONT size=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </B><FONT face="Times New Roman, Times, Serif">10.1&nbsp;&nbsp; &nbsp;<B>Definitions.</B> </FONT></FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; <B>&#147;Real Property Taxes</B>:&#146; As used herein, the term &#147;Real Property Taxes&#148; shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Project, Lessor&#146;s right to other income therefrom, and/or Lessor&#146;s business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Project address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Project is located. The term &#147;Real Property Taxes&#148; shall also include
any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Project or any portion thereof or a change in the improvements thereon. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)&nbsp;&nbsp;&nbsp;&nbsp; &#147;<B>Base Real Property Taxes:</B>&#146; As used herein, the term &#147;Base Real Property Taxes&#148; shall be the amount of Real Property Taxes, which are assessed against the Premises, Building, Project or Common Areas in the calendar year during which the Lease is executed. In calculating Real Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common.
</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.2&nbsp;&nbsp;&nbsp; <B>Payment of Taxes.</B> Lessor shall pay the Real Property Taxes applicable to the Project, and except as otherwise provided in Paragraph 10.3, any increases in such amounts over the Base Real Property Taxes shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 10.3&nbsp;&nbsp;&nbsp; <B>Additional Improvements</B>. Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessor&#146;s records and work sheets as being caused by additional improvements placed upon the Project by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Lessee or at Lessee&#146;s request. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 10.4<B>&nbsp;&nbsp;&nbsp; Joint Assessment.</B> If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor&#146;s work sheets or such other information as may be reasonably available. Lessor&#146;s reasonable determination thereof, in good faith, shall be conclusive. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 10.5&nbsp;&nbsp;&nbsp; <B>Personal Property Taxes</B>. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and ail personal property of Lessee contained in the Premises. When possible, Lessee shall cause its Lessee Owned Alterations and Utility installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee&#146;s said property shall be assessed with Lessor&#146;s real property, Lessee shall pay Lessor the taxes attributable to Lessee&#146;s property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee&#146;s property. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>11. <B>Utilities.</B> Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. Notwithstanding the provisions of Paragraph 4.2, if at any time in Lessor&#146;s sole judgment, Lessor determines that Lessee is using a disproportionate amount of water, electricity or other commonly metered utilities, or that Lessee is generating such a large volume of trash as to require an increase in the size of the dumpster and/or an increase in the number of times per month that the dumpster is emptied, then Lessor may increase Lesee&#146;s Base Rent by an amount equal to such increased costs. </FONT></P>

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<A name=A024></A>
<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>12.&nbsp;&nbsp; Assignment and Subletting.</FONT></H1>

<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 12.1&nbsp;&nbsp;&nbsp; Lessor&#146;s Consent Required. </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively <B>&#147;assign or assignment</B>&#148; or sublet any part of Lessee&#146;s interest in the Lease or in the Premises without Lessor&#146;s prior written consent, <B>which shall not unreasonably be withheld</B>. /s/ DA /s/ AZ /s/ M <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp; [Section deleted] <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)&nbsp;&nbsp;&nbsp; The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not
a formal assignment or hypothecation of this Lease or Lessee&#146;s assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. &#147;<B>Net Worth of Lessee</B>&#148; shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(d)&nbsp;&nbsp;&nbsp;&nbsp; An assignment or subletting without consent shall, at Lessor&#146;s option, be a Default curable after
notice per Paragraph&nbsp;13.l(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(e)&nbsp;&nbsp;&nbsp;&nbsp; Lessee&#146;s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to
compensatory damages and/or injunctive relief. </FONT></P>

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<A name=A025></A>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><U>_/s/
M<B></B></U><B>_&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ______<BR></B><U>_/s/
AZ<B></B></U><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><U>_/s/ DA
<BR></U>Initials&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initials </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>PAGE&nbsp;8 <BR>&#169;1998-American Industrial Real Estate Association FORM MTG-2-11/98 </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 12.2&nbsp;&nbsp;&nbsp; <B>Terms and Conditions Applicable to Assignment and Subletting</B>. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; Regardless of Lessor&#146;s consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)&nbsp;&nbsp;&nbsp;&nbsp; Lessor may accept Rent or performance of Lessee&#146;s obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or
performance shall constitute a waiver or estoppel of Lessor&#146;s right to exercise its remedies for Lessee&#146;s Default or Breach. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)&nbsp;&nbsp;&nbsp;&nbsp; Lessor&#146;s consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp; In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee&#146;s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor&#146;s remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor.
<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(e)&nbsp;&nbsp;&nbsp;&nbsp; Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor&#146;s determination as to the financial and operational responsibility and appropriateness of the proposed including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $350 . /s/ DA /s/ AZ /s/ M or 10% of the current monthly Base Rent applicable to the portion of the Premises which is the subject of the proposed assignment or sublease, whichever is greater, as consideration for Lessor&#146;s considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested.
<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp; Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;12.3&nbsp;&nbsp;&nbsp; <B>Additional Terms and Conditions Applicable to Subletting.</B> The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in ail subleases under this Lease whether or not expressly incorporated therein: <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(a)&nbsp;&nbsp;&nbsp;&nbsp; Lessee hereby assigns and transfers to Lessor ail of Lessee&#146;s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee&#146;s obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee&#146;s obligations, Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor
by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee&#146;s obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee&#146;s obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay ail Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;(b)&nbsp;&nbsp;&nbsp; In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the
exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)&nbsp;&nbsp;&nbsp;&nbsp; Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp; &nbsp;No sublessee shall further assign or sublet all or any part of the Premises without Lessor&#146;s prior written consent. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(e)&nbsp;&nbsp;&nbsp;&nbsp; Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>13.&nbsp;&nbsp;&nbsp;&nbsp; <B>Default; Breach; Remedies.</B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.1&nbsp;&nbsp; <B>Default; Breach.</B> A <B>&#147;Default&#148;</B> is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A &#147;<B>Breach&#148;</B> is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period: <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(a)&nbsp;&nbsp;&nbsp;&nbsp; The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.
<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp; The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee.<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;(c)&nbsp;&nbsp;&nbsp; The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under
Paragraph 41 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(d)&nbsp;&nbsp;&nbsp;&nbsp; A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 2.9 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee&#146;s Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.
<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(e)&nbsp;&nbsp;&nbsp;&nbsp; The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a &#147;<B>debtor&#148;</B> as defined in 11 U.S.C. 5 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee&#146;s assets located at the Premises or of Lessee&#146;s interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee&#146;s assets located at the Premises or of Lessee&#146;s interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that
any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(f)&nbsp;&nbsp;&nbsp; The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(g)&nbsp;&nbsp;&nbsp;&nbsp; If the performance of Lessee&#146;s obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor&#146;s liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor&#146;s becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor&#146;s refusal to honor
the guaranty, or (v) a Guarantor&#146;s breach of its guaranty obligation on an anticipatory basis, and Lessee&#146;s failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.2&nbsp;&nbsp;&nbsp; <B>Remedies.</B> If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee&#146;s behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee upon receipt of invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made by Lessee to be by cashier&#146;s check. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such Breach: </FONT></P>

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<A name=A030></A>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><U>_/s/
M<B></B></U><B>_&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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AZ<B></B></U><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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<BR></U>Initials&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initials </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>PAGE&nbsp;9 <BR>&#169;1998-American Industrial Real Estate Association FORM MTG-2-11/98 </FONT></P>

<HR color=gray noShade SIZE=5>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; Terminate Lessee&#146;s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all
the detriment proximately caused by the Lessee&#146;s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys&#146; fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee&#146;s Breach of this Lease shall not waive Lessor&#146;s right to recover damages under Paragraph 12. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;
Continue the Lease and Lessee&#146;s right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor&#146;s interests, shall not constitute a termination of the Lessee&#146;s right to possession. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp; Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee&#146;s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee&#146;s occupancy of the Premises. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.3&nbsp;&nbsp;&nbsp; <B>lnducement Recapture</B>. Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee&#146;s entering into this Lease, all of which concessions are hereinafter referred to as &#147;lnducement Provisions&#148;, shall be deemed conditioned upon Lessee&#146;s full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such lnducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an lnducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The
acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 13.4&nbsp;&nbsp;&nbsp; <B>Late Charges</B>. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee&#146;s Default or
Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. in the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor&#146;s option, become due and payable quarterly in advance. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 13.5&nbsp;&nbsp;&nbsp; <B>Interest.</B> Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments. The interest (&#147;lnterest&#148;) charged shall be equal to the prime rate reported in the Wall Street Journal as published closest prior to the date when due plus 4%, but shall not exceed the maximum rate allowed by law. lnterest is payable in addition to the potential late charge provided for in Paragraph 13.4. </FONT></P>

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<A name=A035></A>
<H1 align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 13.6&nbsp;&nbsp; &nbsp;Breach by Lessor. </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; <B>Notice of Breach</B>. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor&#146;s obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.
<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp; <B>Performance by Lessee on Behalf of Lessor.</B> In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee&#146;s expense and offset from Rent an amount equal to the greater of one month&#146;s Base Rent or the Security Deposit, and to pay an excess of such expense under protest, reserving Lessee&#146;s right to reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>14.&nbsp;&nbsp;&nbsp;&nbsp; <B>Condemnation</B>. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively &#147;<B>Condemnation</B>&#148;), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the floor area of the Unit, or more than 25% of Lessee&#146;s Reserved Parking Spaces, is taken by Condemnation, Lessee may, at Lessee&#146;s option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and
effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee&#146;s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the
Premises caused by such Condemnation. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>15.&nbsp;&nbsp;&nbsp;&nbsp; <B>Brokerage Fees.</B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 15.1&nbsp;&nbsp;&nbsp; <B>Additional Commission</B>. In addition to the payments owed pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee acquires from Lessor any rights to the Premises or other premises owned by Lessor and located within the Project, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease. </FONT></P>

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<A name=A036></A>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><U>_/s/
M<B></B></U><B>_&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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AZ<B></B></U><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><U>_/s/ DA
<BR></U>Initials&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initials </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>PAGE&nbsp;10 <BR>&#169;1998-American Industrial Real Estate Association FORM MTG-2-11/98 </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 15.2<B>&nbsp;&nbsp;&nbsp; Assumption of Obligations</B>. Any buyer or transferee of Lessor&#146;s interest in this Lease shall be deemed to have assumed Lessor&#146;s obligation hereunder. Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue interest.&nbsp;In addition, if Lessor fails to pay any amounts to Lessee&#146;s Broker when due, Lessee&#146;s Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee&#146;s Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and
Lessor&#146;s Broker for the limited purpose of collecting any brokerage fee owed. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 15.3&nbsp;&nbsp; <B>&nbsp;Representations and Indemnities of Broker Relationships</B>. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder&#146;s fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys&#146; fees reasonably incurred with respect thereto. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>16. <B>Estoppel Certificates</B>. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; Each Party (as &#147;Responding Party&#148;) shall within 10 days after written notice from the other Party (the &#147;Requesting Party&#148;) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current &#147;Estoppel Certificate&#148; form published by the American industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)&nbsp;&nbsp;&nbsp;&nbsp; if the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by
the Requesting Party, (ii) there are no uncured defaults in the Requesting Party&#146;s performance, and (iii) if Lessor is the Requesting Party, not more than one month&#146;s rent has been paid in advance, Prospective purchasers and encumbrancers may rely upon the Requesting Party&#146;s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)&nbsp;&nbsp;&nbsp;&nbsp; If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver ,to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee&#146;s financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and
shall be used only for the purposes herein set forth. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>17.&nbsp;&nbsp;&nbsp;&nbsp; <B>Definition of Lessor.</B> The term &#147;<B>Lessor</B>&#148; as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee&#146;s interest in the prior lease. In the event of a transfer of Lessor&#146;s title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. Notwithstanding the above, and
subject to the provisions of Paragraph 20 below, the original Lessor under this Lease, and all subsequent holders of the Lessor&#146;s interest in this Lease shall remain liable and responsible with regard to the potential duties and liabilities of Lessor pertaining to Hazardous Substances as outlined in Paragraph 6.2 above. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>18.&nbsp;&nbsp;&nbsp;&nbsp;<B>Severability.</B> The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>19.&nbsp;&nbsp;&nbsp; <B>Days.</B> Unless otherwise specifically indicated to the contrary, the word &#147;days&#148; as used in this Lease shall mean and refer to calendar days. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>20.<B>&nbsp;&nbsp;&nbsp;&nbsp;Limitation on Liability</B>. Subject to the provisions of Paragraph 17 above, the obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, the individual partners of Lessor or its or their individual partners, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against the individual partners of Lessor, or its or their individual partners, directors, officers or shareholders, or any of their personal assets for such satisfaction. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>21.&nbsp;&nbsp;&nbsp;&nbsp;<B>Time of Essence</B>. Time is of the essence with respect to the performance of ail obligations to be performed or observed by the Parties under this Lease. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>22.&nbsp;&nbsp;&nbsp;&nbsp; <B>No Prior or Other Agreements; Broker Disclaimer</B>. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys&#146; fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by
such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker&#146;s liability shall not be applicable to any gross negligence or willful misconduct of such Broker. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>23. <B>Notices.</B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 23.1&nbsp;&nbsp; <B>&nbsp;Notice Requirements.</B> All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or US. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party&#146;s signature on this Lease shall be that Party&#146;s address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee&#146;s taking possession of the Premises, the Premises shall constitute Lessee&#146;s address for notice. A copy of ail notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from
time to time hereafter designate in writing. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 23.2<B>&nbsp;&nbsp;&nbsp; Date of Notice</B>. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 48 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on
the next business day. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>24.&nbsp;&nbsp;&nbsp;&nbsp; <B>Waivers.</B> No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor&#146;s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor&#146;s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of monies or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions
shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>25.&nbsp;&nbsp;&nbsp;&nbsp; <B>Disclosures Regarding The Nature of a Real Estate Agency Relationship</B>. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows: </FONT></P>

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<A name=A041></A>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><U>_/s/
M<B></B></U><B>_&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ______<BR></B><U>_/s/
AZ<B></B></U><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><U>_/s/ DA
<BR></U>Initials&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initials </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>PAGE 11 <BR>&#169;1998-American Industrial Real Estate Association FORM MTG-2-11/98 </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp; <U>Lessor&#146;s Agent</U>. A Lessor&#146;s agent under a listing agreement with the Lessor acts as the agent for the Lessor only. A Lessor&#146;s agent or subagent has the following affirmative obligations: To the Lessor: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To the Lessee and the Lessor: a. Diligent exercise of reasonable skills and care in performance of the agent&#146;s duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the
affirmative duties set forth above. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(ii)&nbsp;&nbsp;&nbsp;&nbsp; <U>Lessee&#146;s Agent</U>. An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the Lessor&#146;s agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations. To the Lessee: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee. To the Lessee and the Lessor: a. Diligent exercise of reasonable skills and care in performance of the agent&#146;s duties, b. A duty of honest and fair dealing and good faith, c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent
attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii) <U>Agent Representing Both Lessor and Lessee</U>. A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: a. A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee. b. Other duties to the Lessor and the Lessee as stated above in subparagraphs (I) or (ii). In representing both Lessor and Lessee, the agent may not without the express
permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully read ail agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)&nbsp;&nbsp;&nbsp;&nbsp; Brokers have no responsibility with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys&#146; fees), of any Broker with respect to any breach of duty, error or omission relating to this
Lease shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker&#146;s liability shall not be applicable to any gross negligence or willful misconduct of such Broker. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)&nbsp;&nbsp;&nbsp;&nbsp; Buyer and Seiler agree to identify to Brokers as &#147;Confidential&#148; any communication or information given Brokers that is considered by such Party to be confidential any communication or information given Brokers that is considered by such Party to be confidential. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>26.&nbsp;&nbsp;&nbsp;&nbsp; Section Deleted. /s/ DA /s/ AZ /s/ M </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>27.&nbsp;&nbsp;&nbsp;&nbsp; <B>Cumulative Remedies</B>. No remedy of election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>28.&nbsp;&nbsp;&nbsp; <B>Covenants and Conditions; Construction of Agreement.</B> All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, ail headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>29.&nbsp;&nbsp;&nbsp;&nbsp; <B>Binding Effect; Choice of Law.</B> This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>30.&nbsp;&nbsp;&nbsp;&nbsp; <B>Subordination; Attornment; Non-Disturbance.</B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 30.1&nbsp;&nbsp;&nbsp; <B>Subordination. </B>This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, &#147;Security Device&#148;), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to ail renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as &#147;Lender&#148;) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 30.2&nbsp;&nbsp;&nbsp; <B>Attornment. </B>Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (a) be liable for any act or omission of any prior Lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior Lessor, (c) be bound by prepayment of more than one month&#146;s rent, or (d) be liable for the return of any security deposit paid to any prior Lessor. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 30.3&nbsp;&nbsp;&nbsp; <B>Non-Disturbance</B>. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee&#146;s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a &#147;Non-Disturbance Agreement&#148;) from the Lender which Non-Disturbance Agreement provides that Lessee&#146;s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60 days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days,
then Lessee may, at Lessee&#146;s option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 30.4&nbsp;&nbsp;&nbsp; <B>Self-Executing.</B> The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>31.&nbsp;&nbsp;&nbsp;&nbsp; <B>Attorneys&#146; Fees.</B> If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys&#146; fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, &#147;Prevailing Party&#148; shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys&#146; fees award shall not be computed In accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys&#146; fees
reasonably incurred. In addition, Lessor shall be entitled to attorneys&#146; fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation). </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>32.&nbsp;&nbsp;&nbsp;&nbsp; <B>Lessor&#146;s Access; Showing Premises; Repairs.</B> Lessor&#146;s agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times and with reasonable prior notice /s/ DA /s/ AZ /s/ M For the purpose of showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary. All such activities shall be without abatement of rent or liability to Lessee. Lessor may at any time place on the Premises any ordinary &#147;<B>For Sale</B>&#148; signs and Lessor may during the last 6 months of the term hereof place on the Premises any ordinary <B>&#147;For Lease</B>&#148; signs. Lessee may at any time place on the Premises any ordinary &#147;<B>For Sublease</B>&#148; sign. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>33.&nbsp;&nbsp;&nbsp;&nbsp;<B>Auctions.</B> Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor&#146;s prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction. Initials &amp; </FONT></P>

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<A name=A046></A>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><U>_/s/
M<B></B></U><B>_&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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AZ<B></B></U><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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<BR></U>Initials&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initials </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>PAGE&nbsp;12 <BR>&#169;1998-American Industrial Real Estate Association FORM MTG-2-11/98 </FONT></P>

<HR color=gray noShade SIZE=5>

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<P><FONT face="Times New Roman, Times, Serif" size=2>34.&nbsp;&nbsp;&nbsp;&nbsp; <B>Signs.</B> Except for ordinary &#147;For Sublease&#148; signs which may be placed only on the Premises, Lessee shall not place any sign upon the Project without Lessor&#146;s prior written consent. Ail signs must comply with all Applicable Requirements. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>35.&nbsp;&nbsp;&nbsp;&nbsp; <B>Termination; Merger</B>. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate In the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor&#146;s failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor&#146;s election to have such event constitute the termination of such interest. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>36.&nbsp;&nbsp;&nbsp;&nbsp; <B>Consents.</B> Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor&#146;s actual reasonable costs and expenses (including but not limited to architects&#146;, attorneys&#146;, engineers&#146; and other consultants&#146; fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor&#146;s consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor&#146;s consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;37. <B>Guarantor.</B> </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 37.1&nbsp;&nbsp;&nbsp; <B>Execution. </B>The Guarantors, if any, shall each execute a guaranty in the form most recently published by the American industrial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 37.2&nbsp;&nbsp;&nbsp; <B>Default. </B>It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor&#146;s behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect. 38. <B>Quiet Possession</B>. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee&#146;s part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>39.&nbsp;&nbsp;&nbsp;&nbsp; <B>Options</B>. If Lessee is granted an option, as defined below, then the following provisions shall apply. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 39.1&nbsp;&nbsp;&nbsp; <B>Definition.</B> &#147;Option&#148; shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any ease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 39.2&nbsp;&nbsp;&nbsp; <B>Options Personal To Original Lessee.</B> Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 39.3&nbsp;&nbsp;&nbsp; <B>Multiple Options.</B> In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 39.4&nbsp;&nbsp;&nbsp;&nbsp; <B>Effect of Default on Options</B>. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp; Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option. <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee&#146;s inability to exercise an Option because of the provisions of Paragraph 39.4(a).
<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee&#146;s due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee 3 or more notices of separate Default during any 12 month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>4</FONT><FONT face="Times New Roman, Times, Serif" size=2>0.&nbsp;&nbsp;&nbsp;&nbsp; <B>Security Measures</B>. Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes ail responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>41.&nbsp;&nbsp;&nbsp;&nbsp; <B>Reservations.</B> Lessor reserves the right: (i) to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, (ii) to cause the recordation of parcel maps and restrictions, and (iii) to create and/or install new utility raceways, so long as such easements, rights, dedications, maps, restrictions, and utility raceways do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate such rights.</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;42.&nbsp;&nbsp;&nbsp;&nbsp; <B>Performance Under Protest</B>. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment &#147;under protest&#148; and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>43.&nbsp;&nbsp;&nbsp;&nbsp; <B>Authority</B>. If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each party shall, within 30 days after request, deliver to the other party satisfactory evidence of such authority. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>44.&nbsp;&nbsp;&nbsp;&nbsp; <B>Conflict</B>. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.</FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;45.&nbsp;&nbsp;&nbsp; &nbsp;<B>Offer. </B>Preparation of this Lease by either party or their agent and submission of same to the other Party shall not be deemed an offer to ease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>46.&nbsp;&nbsp;&nbsp;&nbsp; <B>Amendments.</B> This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee&#146;s obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>47.&nbsp;&nbsp;&nbsp;&nbsp; <B>Multiple Parties.</B> If more than one person or entity is named herein as either Lessor or Lessee, such multiple Parties shall have joint and several responsibility to comply with the terms of this Lease. 48. <B>Waiver of Jury Trial</B>. The Parties hereby waive their respective rights to trial by jury in any action or proceeding involving the Property or arising out of this Agreement. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>49.&nbsp;&nbsp;&nbsp;&nbsp; <B>Mediation and Arbitration of Disputes</B>. An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease [ ] is [ ] is not attached to this Lease. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. </FONT></P>

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<A name=A051></A>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>_/s/
M<B>_&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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AZ<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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<BR>Initials&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initials </FONT></P>

<P align=center><FONT face="Times New Roman, Times, Serif" size=2>PAGE&nbsp;13<BR>&#169;1998-American Industrial Real Estate Association FORM MTG-2-11/98 </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO: </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>1.&nbsp;&nbsp;&nbsp;&nbsp; SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>2.&nbsp;&nbsp;&nbsp;&nbsp; RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED T0:&nbsp; THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE&#146;S INTENDED USE. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WlTH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED. The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures. </FONT></P>

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<A name=A056></A>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>Executed at:&nbsp;&nbsp;&nbsp; Costa Mesa, California&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Executed at:&nbsp;&nbsp; &nbsp;Monrovia, California<BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>on:&nbsp;&nbsp;&nbsp;
10-30-05&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;on: October 27, 2005<BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>By
LESSOR:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By LESSEE: <BR></FONT><FONT size=2>Z &amp; M LLC. a California
Limited&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;STAAR SURGICAL COMPANY <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>Liability Company&nbsp; <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>By: /s/ Frank
Marshall&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; By:&nbsp;&nbsp;&nbsp;&nbsp;/s/ Deborah Andrews<BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>Name Printed: Frank
Marshall&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Name Printed: Deborah Andrews <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>Title:
President&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Title: CFO </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif" size=2>By: /s/ Andrew R. Zimbaldi<BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>Name Printed: Andrew R. Zimbaldi<BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>Title: Secretary </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>Address: 150 Paularino Ave., #194&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Address: 1811 &#150; 1813 Myrtle Avenue <BR>Costa Mesa, CA
92626&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Monrovia, CA 91016 <BR>Telephone: (714)
751.7858&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Telephone: (626) 303. 7902 <BR>Facsimile: (714)
751.7857&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Facsimile: (626) 358.0416 <BR>Federal ID
No.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Federal ID No. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2><B>These forms are often modified to meet changing requirements of law and needs of the Industry. Always write or call to make sure you are utilizing the most current form: American lndustrial Real Estate Association, 700 South Flower Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777. </B></FONT></P>

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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>@Copyright 1998-By American Industrial Real Estate Association. <BR>All rights reserved. <BR></FONT><FONT face="Times New Roman, Times, Serif" size=2>No part of these works may be reproduced in any form without permission in writing. </FONT></P>

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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>PAGE 14 </FONT></P>

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<P align=center><FONT face="Times New Roman, Times, Serif" size=2>&#169;1998-American Industrial Real Estate Association FORM MTG-2-11/98 </FONT></P>

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<H1 align=center><FONT face="Times New Roman, Times, Serif" size=2>ADDENDUM </FONT></H1>

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<P><FONT face="Times New Roman, Times, Serif" size=2><B>Addendum to Lease dated 10/06/2005, by and between Z &amp; M LLC, A California Limited Liability Company, as Lessor, and Staar Surgical Company, as LESSEE, for the premises located at 19811-1813 South Myrtle, Monrovia, California</B>. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>49.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><U>Building Occupancy</U></B><U></U>:&nbsp;&nbsp; Lessee shall be entitled to keys and occupancy to the premises on 11/1/05 upon Lessor&#146;s receipt of the following:<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certificate of Liability Insurance, referenced in paragraph 8.2(a), naming Lessor and Alden Management Group as additional insured.&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A fully executed original lease document. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>50<B>.</B>&nbsp;&nbsp;&nbsp;&nbsp; <B><U>Condition of the Premises</U></B><U></U>: </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><U>Outside Storage</U></B><U></U>: No storage will be allowed outside the building nor on any of the common areas as it pertains to landscaping, driveways, parking lots, fences, and all sidewalks and parkways adjacent to the premises. This includes, but is not limited to, supplies, materials, goods, pallets, vehicles and equipment. No vehicles, including boats and trailers, may be parked or stored outside the building overnight. Any such vehicle shall be removed by Lessor without notice at Lessee&#146;s expense. Lessee&#146;s authority to Lessor to have said vehicle towed or otherwise removed, is given with Lessee&#146;s signature to this lease. Violation of this paragraph shall constitute a material breach of this lease. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.&nbsp;&nbsp;&nbsp;&nbsp; <B><U>Forklifts</U></B><U></U>: Forklifts shall not be allowed on driveways or parking lots of the park without written agreement by Lessee to pay for installation of a concrete apron over areas of damage. </FONT></P>


<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; c.&nbsp;&nbsp;&nbsp;&nbsp; <B><U>Outside Work:</U></B><U></U> No Lessee shall conduct any work activity, or place or store any item, outside the building. Any item outside the building will be automatically removed at Lessee&#146;s expense without notice, regardless if Lessee claims ownership or not. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; d.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><U>Trash</U></B><U></U>: No Lessee shall permit any chemicals, trash or other foreign materials to be deposited or disposed of in the landscaped areas or on the asphalt or concrete surfaced areas, but will dispose of same in refuse cans or other appropriate containers or means. Lessee shall cooperate with Lessor and all other tenants of the development so that the common areas may be kept in a clean and orderly condition and free of obstructions. It is Lessee&#146;s responsibility that all trash must be placed in trash receptacles. Violations will be remedied at Lessee&#146;s expense. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif"
size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Landlord&#146;s /s/ AZ /s/ M Initials: </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif"
size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Tenant&#146;s Initials: /s/ DA </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>51.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><U>Holdover Tenancy</U></B><U></U>: In the event that Lessee shall not immediately surrender the demised premises on the date of expiration of the term here of, Lessee shall, by virtue of the provisions hereof, become a Lessee by the month at a monthly rental equal to the monthly rental in effect during the last month of the term of this Lease, which said monthly tenancy shall commence with the first day next after the expiration of the term of this Lease. The Lessee shall, as a monthly tenant, be subject to all of the conditions and covenants of this Lease as though the same had originally been a monthly tenancy. Tenant shall give to Landlord at least thirty (30) days written notice to quit the demised premises, except in the event of nonpayment of rent in advance of the breach of any other covenant by the Tenant in which event Tenant shall not be entitled to any notice to
quite, the usual thirty (30) days notice to quit being hereby expressly waived. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>52.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><U>City of Monrovia Compliance</U></B><U></U>: Lessee shall have the sole responsibility to secure any and all governmental approvals relating to Lessee&#146;s use of Premises, including, but not limited to, an Occupancy Permit issued by the City of Monrovia or any requirements of the American&#146;s with Disabilities Act (the ADA). Lessee shall secure such approvals promptly and hold Lessor harmless from any costs and fees incurred in the process, and from any fines or penalties arising from Lessee&#146;s non-conformance with applicable laws and regulations. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>53.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><U>Signage:</U></B><U></U> Lessor shall approve all copy and/or logo design, color, size, etc. prior to the installation of any signage. Lessee to obtain the applicable city permit, etc., and submit same to Lessor prior to fabrication or installation of signage. Lessee shall be responsible for the fulfillment for all requirements of this permit. No electric or audible signs shall be allowed. A tenant identification sign shall by provided by Lessor on the monument at the project entrance and on the window of the Premises. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>54.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><U>Animals:</U></B><U></U> If Lessee chooses to have any pet or animal on the premises or within his/her suite, Lessee shall be solely responsible to insure that the Lessee&#146;s pet or animal is appropriately leashed or restrained from wandering throughout the project unsupervised. Lessee shall also have the responsibility to clean up any mess created as a result of the animals presence on the property. Violations will be remedied at Lessee&#146;s expense. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>55.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><U>Payment of Rent</U></B><U></U>: The payment of rent by Lessee to Lessor for the use of said suite shall be due on the first day of each month commencing with the Lease Commencement Date (Section 1.3). If Lessee fails to make payment of rent by the tenth (10th) day of any month there after, Lessee shall be responsible to pay a 10% late fee in addition to said base rent. Lessee shall also be responsible to pay a $50.00 charge on any returned check. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>56.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><U>Annual Base Rent Adjustments</U></B><U></U>: The Base Rent shall be adjusted annually. The Base Rent shall have an upward adjustment of 4% on the lease anniversary date. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif"
size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; Landlord&#146;s /s/ AZ /s/ M Initials: </FONT></P>

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<P align=left><FONT face="Times New Roman, Times, Serif"
size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Tenant&#146;s Initials: /s/ DA </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>57.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><U>Option to Renew</U></B><U></U>: Lessee shall have the option to renew said Lease for an additional three (3) year term upon Lessor&#146;s receipt of a written notice to renew ninety (90) days prior to the lease termination date as defined in section 1.3. Base Rent during the first year of the option shall be the Base Rent in year three of the Lease adjusted upwardly by 4%. Each year thereafter, there shall be an upward adjustment of 4% in the Base Rent on the Lease anniversary date (November 1). </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>58.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <U><B>ALTERATIONS</B></U>: Pursuant to Paragraph 7.3(b) or this Lease, Lessor specifically consents to the Lessee&#146;s making any alterations to the Premises necessary for the Agreed Use, except for structural changs to the building such as exterior walls, internal load-bearing walls, and structural elements of roofs and floors. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif" size=2>Unless otherwise agreed in writing by the Lessor, Lessee shall be responsible for removing all alterations when leaving the premises. </FONT></P>

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<P><FONT face="Times New Roman, Times, Serif"
size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;Landlord&#146;s /s/ AZ /s/ M Initials:</FONT></P>


<P><FONT face="Times New Roman, Times, Serif"
size=2><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>Tenant&#146;s Initials: /s/ DA </FONT></P>

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<TYPE>EX-10
<SEQUENCE>3
<FILENAME>fx10_1q305.htm
<DESCRIPTION>LOAN AGMT DEUTCHE POSTBANK 08/30/2005
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<P align=RIGHT><FONT size=2><B> EXHIBIT 10.58 </B></FONT></P>


<P align=right><FONT face="Arial, Helvetica, Sans-Serif" size=2><B><IMG hspace=0 src="postbank.jpg" align=baseline border=0></B></FONT></P>


<P><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>Deutsche Postbank AG&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Corporate Customers</B> </FONT></P>

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<FONT face="Arial, Helvetica, Sans-Serif"><FONT size=2><B>Loan Agreement - Open Credit Line</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Account Nr. : 0174 022 202
<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; City, Date&nbsp;&nbsp;&nbsp; :&nbsp; Hamburg, 08.30.2005</FONT> </FONT><BR>
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<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2>DOMILENS Vertrieb f&#252;r medizinische Produkte GmbHHolsteiner <BR>Chaussee 303 a <BR>22457 Hamburg </FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>-&nbsp;hereinafter &#147;the Borrower&#148; &#150; hereby enters into the following Loan Agreement with Deutsche Postbank AG &#150; hereinafter &#147;the Lender&#148;, whereby the Lender shall provide a line of credit on open account </FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>with a limit of EUR 100,000.00<SUP>1 </SUP>to the Borrower. </B></FONT></P>
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<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>1&nbsp; Granting of Credit </B></FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>A line of credit up to the aforementioned limit shall be made available under checking account nr. 0174 022 202. </FONT></P>
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<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>2&nbsp; Loan Fees</B> </FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>For the amount of credit used at any given time, interest and fees at the rate established by Postbank for credits of this kind shall be due and payable. The Borrower shall be notified of any changes in those rates. </FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>The current annual interest rate is 7.00 percent. </FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>To the extent that the available credit is not used, the Lender shall charge an annual fee of&nbsp;__ percent in exchange for providing access to the entire credit amount up to the stated limit.<SUP>2&nbsp;&nbsp; </SUP></FONT></P>


<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>In addition, the following charge(s) shall apply:<SUP>2&nbsp;</SUP> </FONT></P>


<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>For providing the credit line, we shall charge a fee in the amount of .125% of the approved credit amount per calendar year. This fee shall be debited to the aforementioned checking account. </FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>The loan fees accrued to date shall be posted on each account statement. Should the approved credit limit be exceeded as a result, Postbank shall bill a finance charge for the overdraft &#150; as it does for any overdrawn credit &#150; </FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>[X]&nbsp;&nbsp;&nbsp;&nbsp; at the annual rate established for an overdraft, which is currently 15.00 percent. </FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>[ &nbsp;]&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;aside from the aforementioned loan fees, the overdraft charge set by Postbank, which currently is percent per year.</FONT><FONT face="Arial, Helvetica, Sans-Serif" size=2>The Borrower&nbsp;agrees to pay any overdraft charges promptly. </FONT></P>
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<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>3 &nbsp;Credit Period, Withdrawal </B></FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>The credit is granted for an unlimited period, unless a time limit is specifically agreed upon hereinafter. </FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif"><FONT size=2>[&nbsp; ] The credit shall be granted until _________ .</FONT>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>For withdrawal of credit, Postbank&#146;s General Terms and Conditions sections 18, 19 shall apply. </FONT></P>
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<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>4&nbsp; Special Provisions </B></FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>This Loan Agreement shall replace any previous loan agreements involving the aforementioned checking account. </FONT></P>
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<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>5&nbsp; Security </B></FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>Use of the credit line cannot commence until all requirements have been met, i.e. the agreed upon collateral has been made available to Postbank and, if applicable, until Postbank has received a certificate to that effect. Irrespective of any liability for any already existing or future collateral for security purposes, the Borrower shall furnish the following collateral: </FONT></P>
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<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2>none </FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>to Postbank under separate agreements. </FONT></P>

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<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>6&nbsp; Several Borrowers </B></FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>If there are several borrowers, they shall be jointly liable for repaying the debt as joint debtors under this Agreement. </FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>If the loan is paid off to Postbank by one borrower, Postbank shall not ascertain whether the borrower is entitled to collateral that is no longer needed. On principle, Postbank shall return such collateral to the guarantor, unless the borrower paying off the loan furnishes proof that the guarantor agrees to the surrender of the collateral to the Borrower. </FONT></P>
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<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>7&nbsp; Disclosure Requirements </B></FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>During the entire credit period, the Borrower shall be required to grant Postbank or any agency authorized by Postbank access to data necessary for assessing the Borrower&#146;s current financial status by furnishing any pertinent documents (such as financial statements/annual reports, income tax assessments and returns, balance sheets, etc.) at any time, at least once annually, providing any and all required information and permitting an on-site visit and inspection of its offices. Postbank is also required by law (KWG<SUP>3 </SUP>&#167; 18) to require the disclosure of information regarding the financial status of the Borrower. Postbank shall have the right to request the necessary documents directly from the Borrower&#146;s accounting and tax advisors after prior notification of the Borrower. </FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>If the aforementioned data is stored electronically, the Borrower shall be required to provide access to the data in a timely fashion. </FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>Should the Borrower fail to fulfill these obligations, Postbank shall have the right to withdraw the credit and demand immediate payback of the loan. </FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>Postbank shall be entitled to inspect the public records as well as the real estate register and title deeds and to request simple or notarized copies or extracts thereof at Borrower&#146;s expense, as well as gather information that it considers necessary for establishing the Borrower&#146;s credit worthiness from insurance carriers, governmental and other agencies, in particular from credit institutions. </FONT></P>
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<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>8&nbsp; Costs Arising from the Agreement </B></FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>All costs arising from negotiating and executing this Agreement, including the furnishing of collateral, shall be paid by the Borrower. </FONT></P>
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<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>9&nbsp; Jurisdiction</B> </FONT></P>
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>If the place of general jurisdiction for Postbank isn&#146;t already evident from &#167; 29 of the ZPO<SUP>4</SUP>, Postbank shall be able to pursue its claims through litigation through its general legal venue, if the borrower against whom the suit is filed is a merchant or legal entity under section 6 of the AGB<SUP>5 </SUP>or has no general legal venue within this country at the time of entry into this Agreement or if he changes his permanent or usual residency to a place outside the Federal Republic of Germany or if the place of his permanent or usual residency is unknown at the time when the suit is filed. </FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">
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<A name=A013></A></FONT>
<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>10&nbsp; General Terms and Conditions of Business </B></FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>In addition, the general terms and conditions of business of Deutsche Postbank AG shall apply. The wording of the AGB is available for review at the branches of Deutsche Postbank AG. Clients may also request that a copy of the AGB through the mail. </FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>This Agreement and the copy thereof must be signed by all borrowers mentioned on page 1 of this Agreement! </B></FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>City, Date</B> (if different from page 1) </FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">
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<A name=A014></A></FONT>
<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2>Hamburg, 09.06.2005 </FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">
<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Default" -->
<A name=A015></A></FONT>
<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>Certification </B></FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">[ &nbsp;]<FONT size=2>&nbsp; <B>1.</B> Person is known and identified on account ______ </FONT></FONT>

<FONT face="Arial, Helvetica, Sans-Serif">Identity verified by means of     [ ] personal ID   [ ] passport nr.______ issued by  _________________ </FONT>




<FONT face="Arial, Helvetica, Sans-Serif" size=2>[&nbsp; ]&nbsp; <B>2.</B> Person is known and identified on account ______ </FONT>

<FONT face="Arial, Helvetica, Sans-Serif"><FONT size=2>Identity verified by means of     [</FONT> ] personal ID    [ ] passport nr.______ issued by  _________________ </FONT>






<FONT face="Arial, Helvetica, Sans-Serif">
<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" --></FONT>

<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>Identity verified and certified as to its correctness </FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">
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<A name=A016></A></FONT>
<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2>Signature of clerk _____________________________________________ </FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">
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<P><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>The Borrower(s) are/is acting on his/their own account: </B></FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">
<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Project" -->
<A name=A017></A></FONT>
<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2>[&nbsp; ] Yes </FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">
<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Project" -->
<A name=A018></A></FONT>
<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2>[&nbsp; ] No </FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">
<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" --></FONT>

<P><FONT face="Arial, Helvetica, Sans-Serif" size=2><B>Seal and signature(s) of the Borrower(s)</B> </FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">
<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" --></FONT>

<P><FONT face="Arial, Helvetica, Sans-Serif" size=2>DOMILENS GmbH Hochsteiner Chaussee 303a 22457 Hamburg Telephone: 040 / 55 98 80-0 Fax: 040 / 55 98 80-80 </FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">
<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Project" -->
<A name=A019></A></FONT>
<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2>/s/ Guenther Roepstorff</FONT></P>

<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2>/s/ Signature</FONT></P>

<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2>Deutsche Postbank AG </FONT></P>

<P align=left>
<HR>


<P></P>
<FONT face="Arial, Helvetica, Sans-Serif">
<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" --></FONT>

<P><FONT face="Arial, Helvetica, Sans-Serif" size=2><SUP>1 </SUP>Amount </FONT></P>


<P><FONT face="Arial, Helvetica, Sans-Serif" size=2><SUP>2 </SUP>Delete if not applicable. </FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">
<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Project" -->
<A name=A021></A></FONT>
<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2><SUP>3 </SUP>KWG: Kreditwesengesetz &#151; German credit law </FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">
<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" --></FONT>

<P><FONT face="Arial, Helvetica, Sans-Serif" size=2><SUP>4 </SUP>ZPO: Zivilprozessordnung &#150; German code of civil procedures </FONT></P>
<FONT face="Arial, Helvetica, Sans-Serif">
<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Default" -->
<A name=A022></A></FONT>
<P align=left><FONT face="Arial, Helvetica, Sans-Serif" size=2><SUP>5 </SUP>AGB: Allgemeine Gesch&#228;ftsbedingungen &#150; General Terms and Conditions </FONT></P>

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