10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2009

or

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                     to                     .

Commission File No. 1-11181

IRIS INTERNATIONAL, INC.

(Exact name of Registrant as Specified In Its Charter)

Delaware	94-2579751
(State or other jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

9172 Eton Avenue, Chatsworth, California 91311

(Address of principal executive offices) (Zip Code)

(818) 709-1244

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $0.01 per share	NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act:

None

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

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

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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer a non-accelerated filer or a smaller reporting company. See definitions of “larger accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  x    Non accelerated filer  ¨    Smaller reporting company  ¨

(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.    Yes  ¨    No  x

The aggregate market value of the shares of common stock held by non-affiliates of the Registrant on June 30, 2009 was approximately $212 million based upon the closing price of $11.80 per share of its common stock as reported on the NASDAQ Global Market on such date.

The registrant had 18,184,985 shares of common stock outstanding on March 5, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2010 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission, or SEC, pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered on this Form 10-K are incorporated by reference into Part III, Items 10-14 of this Form 10-K.

IRIS INTERNATIONAL, INC.

ANNUAL REPORT ON FORM 10-K

Fiscal Year Ended December 31, 2009

PART I
Item 1.	Business	1
Item 1A.	Risk Factors	17
Item 1B.	Unresolved Staff Comments	26
Item 2.	Properties	26
Item 3.	Legal Proceedings	26
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27
Item 6.	Selected Financial Data	29
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	41
Item 8.	Financial Statements and Supplementary Data	42
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	75
Item 9A.	Controls and Procedures	75
Item 9B.	Other Information	76
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	77
Item 11.	Executive Compensation	77
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	77
Item 13.	Certain Relationships and Related Transactions, and Director Independence	77
Item 14.	Principal Accounting Fees and Services	78
PART IV
Item 15.	Exhibits, Financial Statement Schedules	79
Signatures		82

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PART I

Forward-Looking Statements

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statement of the plans and objectives of management for future operations, any statements concerning proposed new products or strategic arrangements, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” “intends”, or “continue” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including but not limited to the Risk Factors set forth under Item 1A, and for the reasons described elsewhere in this report. All forward-looking statements and reasons why results may differ included in this report are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.

Item 1. Business

Company Overview

We are a leading global in vitro diagnostics company focused on products that analyze particles and living cell forms and structures, or morphology of a variety of body fluids. Our products leverage our strengths in flow imaging technology, particle recognition and automation to bring efficiency to the hospital and commercial laboratories, where a shortage of qualified laboratory technicians and labor-intensive processes result in significant cost and workflow challenges for our customers. The initial applications for our technology have been in the urinalysis market and we are the leading worldwide provider of automated urine microscopy systems, with approximately 2,600 systems sold in over 50 countries. In this market, we also provide integrated solutions comprising urine microscopy and urine chemistry products as well as consumable supplies, system support services and sample preparation products. We intend to expand into related market segments that can clearly benefit from automated morphology solutions, including developing the analysis of other body fluids such as blood (hematology applications). In addition, we have an active research and development platform in molecular diagnostics based on our Nucleic Acid Detection Immunoassay, or NADiA^®, platform, which we are developing for various applications in personalized diagnostics for oncology and infectious disease.

Historically, we have predominantly focused on developing, manufacturing and commercializing in vitro diagnostics, or IVD, instruments and consumables for urinalysis, including our flagship iQ^® analyzers, a family of fully-automated, image-based bench-top analyzers for urine microscopy. Urine microscopy is the visualization and identification of cells and other sediments in urine. The iQ analyzer uses proprietary flow microscope and image-analysis software that captures the morphology of cells and sediments in urine and serous fluids, and assists in their identification and classification. Our systems are designed to provide users with faster, more complete and more consistent results, while substantially reducing hands-on time spent by laboratory technicians and turnaround time, as compared to traditional manual methods.

The iQ analyzer can be seamlessly integrated with an automated urine chemistry analyzer to simultaneously perform urine microscopy and chemistry testing in a fully automated manner. In the United States, we have sold our family of iQ analyzers integrated with an automated chemistry analyzer, the AUTION MAX AX-4280, which we have sourced from a Japanese manufacturer since August 2003. In September 2008, we released our

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proprietary iChem^®VELOCITY™ automated urine chemistry analyzer and a fully integrated urine microscopy and urine chemistry work-cell, called the iRICELL in some international markets. Product registrations for iChem^®VELOCITY™ and iRICELL are pending in some international countries including China, Japan and Mexico. In the United States, we expect to file a pre-market notification under Section 510(k) of the Food, Drug, and Cosmetics Act for the iChem VELOCITY in the second quarter of 2010. We have the ability integrate our iQ analyzer with the AUTION MAX AX-4280 through December 31, 2010. However, upon FDA clearance of our iChem VELOCITY, we plan to launch the iRICELL in the United States and to expand its distribution to other international markets requiring FDA 510(k) clearance in the second half of 2010.

We intend to solidify our leadership position in the urinalysis market, as well as enter into several adjacent markets with our product pipeline under development. To maintain our market position in urinalysis, we continue to implement improvements to our existing product lines, including enhancing our data analysis and productivity tools. In addition, we are developing an automated system to screen urine for urinary tract infection, or UTI. We believe this automated system will significantly reduce the number of urine cultures currently performed and will allow for faster results with less labor, potentially allowing physicians to reduce the frequency with which they preventively prescribe antibiotics for suspected urinary tract infections. We are also developing our 3GEMS (Third Generation Morphology) platform, which will serve as our next generation urinalysis platform and as the platform for our pipeline of hematology products. These 3GEMS hematology products, currently in feasibility testing, use image-based technology to automate the identification and characterization of blood cells, in particular, abnormal white blood cells. We believe an automated hematology analyzer using our proprietary imaging technology and software recognition capabilities will provide improvements in the identification of abnormal blood cells, including an automated, image-based nine-part white blood cell differential analysis. Like our urine microscopy products, these new hematology products by virtue of IRIS’ inherent capabilities to capture and analyze images are expected to significantly reduce the need for manual slide preparation and reviews, increasing the efficiency of what is currently a highly labor-intensive process.

The addition of molecular diagnostic products to our commercial IVD portfolio will be a key component of our future growth. In 2006, after the acquisition of Leucadia Technologies, Inc., a molecular diagnostics company, we organized a subsidiary known as Iris Molecular Diagnostics, to develop and commercialize our NADiA platform. NADiA has the ability to measure proteins below the detection thresholds of current immunoassay and molecular diagnostic methods. We believe our diagnostic products will address the need for increased sensitivity in the monitoring of disease enabling personalized treatment of cancer and infectious disease. Our first product under development, NADiA^® ProsVue™, is an ultra-sensitive, blood-based test for the monitoring of residual amounts of prostate specific antigen, or PSA, in prostate cancer patients following radical prostatectomy. Upon completion of the clinical studies for NADiA^® ProsVue™, we will file a 510(k) submission with the FDA expected in first half of 2010. In addition, we are designing an ultra-sensitive blood test for HIV viral load measurement and a blood-based test for identification of Her-2/neu, an important biological marker in determining the aggressiveness of breast cancer tumors.

We are exploring a number of strategies to rapidly commercialize our NADiA assays, including partnerships with clinical reference labs or other IVD companies, a direct sales outlet, or a combination of these alternatives. Our commercialization strategy must achieve the desired balance between the rate of test adoption, the demonstration of clinical value, and the attainment of high value reimbursement.

Market Overview and Opportunity

The global market for IVD in 2007 is estimated at approximately $38 billion and is expected to grow 7% annually. IVD manufacturers provide products and services to the clinical laboratory industry, which is confronted with significant challenges in the current market. Healthcare providers are demanding improved turnaround time for laboratories diagnostic tests, greater sensitivity and lower costs. To improve accuracy, productivity and efficiency, many laboratories are turning to automated methods to perform these tests. Moreover, automated testing better positions laboratories to cope with the declining number of certified medical technicians available to perform tests.

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Currently, we participate primarily in what Boston Biomedical Consultants, Inc., or BBC, estimates as of 2007 to be the $569 million urinalysis segment of the IVD market.

Personalized medicine is expected to be one of the fastest growing markets over the next decade. The US News and World Report (July 6, 2009) estimates the market for personal health and wellness to grow to $452 billion by 2015 with most of this growth coming from advances in personalized cancer diagnostics. We believe the development of monitoring assays based on our NADiA platform should contribute to advancing personalized diagnostics for treatments of several types of cancers including prostate, breast, colon and lung.

Through the development and commercialization of new products, we expect to enter the urine culture, hematology and molecular diagnostics markets which, we believe, will expand our total addressable market to over $4 billion.

Urinalysis

Urinalysis is performed as part of most routine medical examinations and is necessary for the diagnosis and monitoring of conditions such as urinary tract infection, and kidney and bladder disease. Traditionally, urinalysis comprises urine chemistry and urine microscopy tests, while urine cultures are considered part of microbiology. We believe that the advancement of automated technologies will blur this distinction, with urine cultures being performed increasingly in the same laboratories as urine chemistry and urine microscopy tests and eventually becoming part of the urinalysis market.

Urine Chemistry and Microscopy Market Overview

Urine chemistry consists of a panel of tests that identifies various chemical analytes in urine, while urine microscopy analyzes the microscopic solid particles and cells suspended in urine. Urine chemistry comprises the majority of the urinalysis market and is broadly used with limited differentiation between products. Traditional urine microscopy is used less routinely because as a manual process it is time consuming and requires a trained medical technician to characterize particles and cells based on their morphology. In order to reduce costs, many laboratories perform manual urine microscopy only in response to results from an initial urine chemistry test despite evidence that urine microscopy can provide a more reliable clinical diagnosis. The commercial success of our iQ analyzer is attributable to its capability to image and automatically identify particles and cells suspended in urine in a time-efficient manner eliminating manual microscopic examination.

BBC estimates the urinalysis segment of the IVD market at $569 million in 2007. Urine chemistry representing approximately $449 million and automated urine microscopy representing approximately $120 million, but growing at a much faster rate than the other urinalysis sub-segments. We estimate that there is a global opportunity for 10,500 urine microscopy analyzers, with 6,600 at sites performing greater than 40 tests per day and 3,900 at sites performing less than 40 tests per day. These 6,600 sites represent a significant opportunity for us, because they will benefit from the automation and consolidation of their urine chemistry and microscopy processes. We believe the full automation and integration of results brought by the iQ product platform has accelerated the adoption of automated urine microscopy as a routine test. Of the 6,600 sites, we believe approximately half of the domestic sites continue to perform manual microscopy procedures. The penetration of automated urine microscopy analyzers varies significantly from country to country.

Limitations in Urine Chemistry and Microscopy

Current manual testing of urine and body fluids requires the clinical laboratory to split samples, perform automated and manual procedures and consolidate the separate results into one report. Moreover, the manual procedure for microscopy requires a qualified medical technician to accurately categorize particles and cells observed under the microscope. Therefore, these tests represent both time and cost intensive procedures for the clinical laboratory. Further, the inherent variability in sample preparation limits the quantitative and qualitative

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accuracy of the diagnostic result. The manual nature of performing urine microscopy and the lack of qualified personnel represents a significant opportunity. However, the challenge remains to compete for capital for urinalysis automation versus other disciplines of the laboratory.

Laboratories typically perform microscopy and chemistry tests separately and generally perform microscopy only in the case of an abnormal chemistry result because urine microscopy is a very tedious process. If both tests are performed, the separate results must then be manually consolidated into one report or file. Without the automatic integration of both the microscopy and chemistry results, valuable clinical information may be overlooked. By reducing the amount of manual labor spent conducting these tests and by automatically integrating the chemistry and microscopy results, we believe we can improve the consistency, reliability and value of the combined results and improve specimen turnaround time.

Urine Culture Market Overview

Urinary tract infection, or UTI, is a common infection that usually occurs when bacteria enters the opening of the urethra and multiplies in the urinary tract. Urine culture tests monitor the propagation of microorganisms such as bacteria and yeast, by spreading a small sample of urine on a growth medium, such as agar, and observing microorganism growth usually over a 16 to 72-hour period. We believe the current urine culture screening market represents an opportunity of approximately $300 million for a reliable automated “negative predictor” system that tests to confirm in minutes that levels of bacteria are below accepted clinical cutoffs.

Limitations in Urine Cultures

A urine culture is primarily ordered when symptoms indicate the possibility of UTI. The completion of a urine culture is both time and labor intensive, with results taking up to 72 hours to receive. Because of this delay, physicians often prescribe antibiotics before receiving the urine culture results. However, we believe that approximately 70% of urine cultures are bacteria negative, resulting in over-prescription of antibiotics and increasing the potential for creating resistant strains of bacteria. In addition, without timely results from a urine culture, patients may experience complications, prolonged infections, increased hospitalization and, potentially, death.

In October 2008, the Centers for Medicare & Medicaid Services, or CMS, announced that it will no longer reimburse hospitals for costs related to patients that suffer from a number of identified and preventable adverse events acquired during a hospital stay, one of which was urinary tract infections. This change from CMS is likely to cause hospitals to begin performing screening tests prior to patient admissions, as the turnaround time for urine cultures results are too lengthy.

We believe that there is a significant need for an automated system that will provide results in a timely manner, improve patient care and reduce the amount of manual labor needed to perform such tests.

Hematology

Hematology Market Overview

The enumeration of the various cellular components of blood is an essential part of routine medical examinations. A complete blood count, or CBC, is the most common type of blood test performed and measures the number of specific types of blood cells, including red blood cells (RBC), white blood cells (WBC), platelets, and other blood components, such as hemoglobin. In most instances, a white cell differential count, which measures the percentage of five types of white blood cells, is added to the CBC test. Variations from concentration, size, or maturity of the blood cells can be used to indicate an infection or illness. CBC tests and differential WBC counts are performed primarily in hospitals and clinical reference laboratories.

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According to BBC, the hematology market in 2005 was approximately $1.8 billion and grew approximately 4% from the prior year driven primarily by system replacement sales and a small increase in test volume. Over the past 15 years, innovation within this market has been limited to automation of slide making and staining and algorithmic improvements to aid in the interpretation of results.

Limitations in Hematology

Traditional CBC test instruments use indirect means to measure the type and number of blood cells rather than direct observation of the blood cells. Despite the high number of these automated CBC analyzers in use, a significant percentage of the samples require a manual cell differential count of the blood specimen under a microscope. Frequently, a manual count is required due to the inability of automated CBC and differential analyzers to discriminate the complex morphology, especially the shape of abnormal cells, such as immature white blood cells or the presence of diseased cells, as in the case of sickle-cell anemia. The presence of immature white blood cells is often associated with conditions such as leukemia, infection, inflammation or tissue injury. However, a manual differential count of a blood specimen must be performed by a medical technologist trained in cytology or a pathologist under a microscope – a time consuming and subjective process, resulting in longer specimen turnaround times and higher cost.

According to a 2006 study conducted by the College of American Pathologists, of the 263 laboratories surveyed, an average of 29% of automated CBCs required a manual review, scan or differential and this percentage dramatically increased depending on the pathology of the patient population. Since the hematology market is dominated by a few large companies that typically compete on their ability to marginally reduce manual review rates, we believe there is significant opportunity to offer an automated image-based instrument that has the ability to identify immature white blood cells and other anomalies in a systematic fashion and to reduce significantly the number of manual reviews performed.

Molecular Diagnostics

Molecular Diagnostics Market Overview

Molecular diagnostic tests examine nucleic acids, including DNA and RNA, and protein biomarkers, to identify a disease, monitor its progression and response to treatment, or predict individual predisposition to a disease. These biomarkers can also provide information in drug discovery, preclinical drug development and patient monitoring during clinical trials. Currently, the clinical market for molecular diagnostics is primarily nucleic acid testing performed on polymer chain reaction, or PCR, instruments for amplification and detection of target diseases or infections. These tests are performed in commercial reference laboratories and large academic and research hospital laboratories due to the high complexity and cost of the tests. It is expected that as automated solutions become available, these tests may migrate to smaller laboratories and potentially even to point-of-care sites.

The analysis of DNA expression, or the production of specific proteins in cells, provides the ability to characterize diseases, such as cancer and infectious diseases. As a result, the detection and identification of proteins can provide a means to monitor disease progression and detect relapse. We believe that the ultra-sensitive detection of proteins would provide the capability to measure concentrations hundreds of times below the limits of detection of currently available immunoassays, precisely and reliably and at an earlier stage of disease, all of which may result in improved patient care.

We estimate the worldwide molecular diagnostics market in 2007 was approximately $3.7 billion and is expected to increase at a rate of 11% annually. We believe growth in the market is being driven primarily by an increase in the number of personalized diagnostics tests available to treat cancers and infectious diseases.

Limitations with Current Methods

Proteins are critical to understanding several diseases and current testing methods lack the degree of sensitivity necessary to detect minute amounts of protein and the precision to monitor disease progression.

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Traditional methods to detect proteins, including enzyme-linked immunosorbent assay, or ELISA, chemiluminescence and fluorescence excitation, are unable to detect protein biomarkers in extremely low concentrations. These methods become effective only after a disease has progressed to a more advanced stage and the concentration of the protein biomarker has increased to reach the lower limit of detection of those conventional methods. We believe there is a significant market opportunity for an ultra-sensitive detection technology that measures concentration as low as one femtogram per milliliter (10^-15 gram/milliliter) compared to today’s technologies that are limited to measuring concentrations of greater than 50,000 femtograms per milliliter.

Sample Processing

Sample Processing Market Overview

Nearly every sample presented to a clinical laboratory for testing requires some sort of sample processing before analysis. These samples include blood, urine and other body fluids, tissue, stool and other materials which may need to be separated into its different constituents. In the United States, there are over 180,000 testing sites where sample processing occurs, including hospital laboratories, independent laboratories, doctor’s offices, health maintenance organizations and community clinics.

Although testing is performed on many different types of samples, most tests are performed on blood specimens that require separation in a centrifuge. The centrifuge market comprises five segments including non-refrigerated bench-top, refrigerated bench-top, floor, high-speed and ultra-centrifuges. According to Strategic Directions International, the worldwide market for sample processing centrifuges in 2010 is estimated at $660 million, of which the market for non-refrigerated bench-top centrifuges, the market segment we serve, is estimated at approximately $100 million. To improve laboratory productivity and sample turnaround time, the current trend is toward smaller and faster bench-top models and away from large capacity floor models which have longer processing time per batch. This represents a significant opportunity for our Express line of bench-top centrifuges.

Limitations with Current Sample Processing Methods

The time it takes to process a sample is critical for clinical laboratories as the volume of samples to be tested increases. Each day, laboratory technicians are expected to handle thousands of samples with minimal error in a defined amount of time with limited laboratory space. In most laboratories, sample processing occurs in a central location where blood specimens are sorted and centrifuged in batches. The entire process can take up to an hour and requires dedicated resources to manage the sample flow. Once processed, the samples are often split and then sent to the various stations within the laboratory for analysis. The centralized processing of samples is thus quite inefficient as samples wait to enter the floor model centrifuge in large batches followed by long centrifugation times. In fact, many sample processing procedures create significant delays in specimen turnaround time.

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Our Products

Our commercialized products and product pipeline comprise three main categories: morphology, molecular diagnostics and sample processing. Our morphology category includes all urinalysis and hematology products consisting of our commercialized urine chemistry and microscopy products, as well as our development-stage products such as our 3GEMS urinalysis and hematology analyzers. Our molecular diagnostics category consists of our development-stage products that utilize our NADiA technology for ultra-sensitive detection of proteins for monitoring cancer and infectious disease applications. Our sample processing category develops and markets small centrifuges and other processing equipment and accessories for rapid specimen processing. The table below is a summary of our major commercialized and in-development products:

Major Products	Status	Description
Morphology and Related Products
iQ analyzer	Marketed	Fully-automated urine microscopy and body fluids analyzer
iChem VELOCITY and iRICELL	Launched internationally: 3Q2008 U.S: Pending 510(k) re-submission	Fully-automated urine chemistry analyzer
3GEMS Urinalysis & Body Fluids	In feasibility	Next generation urine microscopy and body fluids analyzer
3GEMS Hematology	In feasibility	Complete blood count, white blood cell count with nine-part differentials and red blood cell and platelet morphology
Molecular Diagnostics
NADiA ProsVue	510(k) submission 1H2010	Prognosticate stable patients after radical retro-pubic prostatectomy
NADiA HIV	In development	Monitoring HIV viral load during anti-retroviral therapy
NADiA Her-2/neu	In feasibility	Monitoring of Her-2/neu levels after breast mastectomy/lumpectomy
Sample Processing
Express centrifuge line	Marketed	Centrifuges for clinical diagnostic market
ThermoBrite	Marketed	DNA workstation for FISH procedures
Cytofuge 2	Marketed	Centrifuge used for thin layer cell preparation
Cytofuge 12	Expected launch 1H2010	12 placement centrifuge used for thin layer cell preparation
IDEXX Drive	Marketed	For internal use in IDEXX chemistry analyzers
IDEXX whole blood separator	Manufacturing rights licensed to IDEXX	Consumable used in IDEXX chemistry analyzers
OvaTube	Launched 4Q2009	Ova and parasite testing for veterinarian market

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Morphology and Related Products

Cell morphology is the science of cell form and structure. Our morphology segment utilizes our proprietary imaging technology to identify cells and particles in a fully automated manner. In the urinalysis market, we offer urine microscopy analyzers and related urine chemistry instruments. We are also developing an improved automated bacteria screening solution for our iQ analyzer to enhance our urinalysis offerings. As part of our 3GEMS Third Generation Morphology program, we are developing a next-generation urine microscopy analyzer and an image-based hematology analyzer.

Automated Urine Microscopy Analyzers

Our flagship product is the family of iQ urine microscopy analyzers, which was first launched in 2003. As of December 31, 2009, we have sold approximately 2,600 iQ analyzers. Our iQ technology platform utilizes proprietary image flow cytometry and software to achieve significant reductions in cost and processing time as compared to manual urine microscopy. Our technology enables high speed digital processing to classify and display images of microscopic particles in an easy-to-view graphical user interface. We believe our iQ product line has numerous benefits over competing products, including increased accuracy, digital imaging of particles and fully automated analysis of urine and body fluids and lower manual review rates of abnormal samples.

The iQ microscopy product line comprises the iQ SELECT, a fully-automated instrument capable of analyzing 40 samples an hour and enabling partial automation at laboratory sites with lower test volumes; the iQ ELITE, a fully-automated instrument capable of analyzing 70 samples an hour that is appropriate for mid-sized hospital laboratories; and the iQ SPRINT, a fully-automated instrument capable of analyzing 101 samples an hour that is appropriate for large volume hospital and commercial laboratories. By utilizing our urinalysis system, we believe the average laboratory, which we define as those laboratories that typically perform 60 microscopy tests per day, can re-assign one medical technician currently performing these tests to another function, with a payback period of approximately two years. We also offer the iQ Body Fluids Module as an addition to the iQ test menu, which enables the rapid diagnosis for the presence of nucleated cells, red blood cells, bacteria and crystals in body fluid samples.

Urine Chemistry Analyzers

We market our proprietary fully-automated urine chemistry analyzers, the iChem VELOCITY, in the international market and distribute fully-automated urine chemistry analyzers manufactured by ARKRAY, a Japanese IVD company, domestically. Both of these automated urine chemistry analyzers can seamlessly connect to our iQ ELITE and iQ SPRINT automated urine microscopy analyzers and provide laboratories with walk-away solutions for chemistry and microscopy urinalysis with results combined and displayed in a single report. An iQ analyzer, combined with our iChem VELOCITY chemistry analyzer, forms the new iRICELL urinalysis workstation.

Internationally, we began selling the iChem VELOCITY in September 2008 following CE Mark certification. Prior to the development and international launch of our iChem VELOCITY, we were not selling automated chemistry systems outside the United States as our agreement with ARKRAY for its automated chemistry products was only for the U.S. market. The iChem VELOCITY is designed for medium to high volume laboratories that typically process more than 100 urine chemistry samples per day. We offer the iChem VELOCITY as a stand-alone analyzer or as part of our integrated urinalysis workcell solution, the iRICELL.

In the United States, sales of our iChem VELOCITY chemistry analyzer and iRICELL workstations will be initiated upon clearance of our 510(k) application with the FDA, which we expect to submit in the second quarter 2010. We have amended our distribution agreement with ARKRAY beyond 2008 to have the ability to continue to distribute the AUTION MAX AX-4280 automated urine chemistry analyzer domestically until the end of 2010. Our agreement with ARKRAY also allows us to sell consumable strips for our existing installed base of AX-4280 analyzers through 2013, which we plan to continue to support and service through the life of the contract.

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Consumables and Service

We generate significant revenue from the sale of consumables and service contracts for our urine microscopy and urine chemistry analyzers. For the year ended December 31, 2009, revenue derived from consumables and service contracts accounted for 56% of our total consolidated revenues and 67% of our diagnostics business unit’s revenue. Consumables include urine and body fluids reagents, calibrators and controls for our microscopy systems and test strips, calibrators, controls, and other solutions for the urine chemistry analyzers we manufacture and distribute. We offer annual service contracts for our domestic customers after the initial year of sale, which is covered by product warranty. On an international basis, we offer spare parts to our distributors who in turn service the end-use customer.

In January 2010, MD Buyline, a leading independent healthcare research and market intelligence organization, placed IRIS Diagnostics as number one in vendor satisfaction ratings among industry competitors for automated urinalysis systems in all six categories, including System Performance, System Reliability, Installation/Implementation, Applications Training, Service Response Time and Service Repair Quality.

Urine Bacteria Screening

In October 2008, the Centers for Medicare & Medicaid Services, or CMS, announced that it will no longer reimburse hospitals for costs related to patients that suffer from a number of identified and preventable adverse events acquired during a hospital stay, one of which was urinary tract infections. This change from CMS is likely to cause hospitals to begin performing screening tests prior to patient admissions and we believe could represent a significant opportunity to increase the frequency of urinalysis.

We are in the process of improving the iQ platform’s ability to detect the presence of bacteria. This would allow for a fully-automated solution for hospital laboratories to experience improved workflow management through increased sample throughput and reduced labor demand for complete urinalysis utilizing our system.

Our proprietary isolation separation technology has the ability to bind antibody-coated albumin micro-bubbles to target cells, isolating any bacteria present in the urine and concentrating the particles for identification and quantification. We believe our technology has the ability to provide a faster and more cost-effective alternative to traditional urine cultures and will allow clinicians to make more informed treatment decisions. Our development efforts to date have created a standardized method that allows identification of both Gram-positive and Gram-negative bacteria. This automated bacteria screening technology will be performed on a new instrument in the concept stage of development.

3GEMS Platform

Our 3GEMS platform combines our core imaging technology with improved software and sample processing to enhance the identification of various cell types and particles found in urine, blood and other body fluids. We believe the increased sensitivity and specificity, reliability, ease of use and improved imaging of our 3GEMS platform will increase the clinical utility of our diagnostic tests and allow physicians and other caregivers to make more informed treatment decisions. The 3GEMS Platform will be the basis for our next generation urine microscopy analyzer and improved body fluids module and a new hematology analyzer product line. The following describes our 3GEMS products under development:

• Next Generation Urine Microscopy Analyzers. Our next generation urine microscopy analyzer will include advances in electronics and optics, including very high speed color cameras with higher resolution. We anticipate these advances will improve the clinical utility of the instrument as a greater number of cell types will be able to be identified with greater precision.

• Next Generation Body Fluids Module. We currently offer products that utilize our proprietary technology for morphology analysis of other body fluids, including cerebrospinal and serous fluids. We are developing a next generation body fluids module that we believe will possess improved diagnostic capabilities relative to our current product offering.

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• Hematology Analyzers. We are developing a portfolio of hematology analyzers to automate the identification and characterization of cells in blood. Our initial hematology analyzer will conduct a complete blood count, or CBC, the most common type of blood test, as well as automatically complete a nine-part white cell differential analysis. This differential analysis will identify the presence and quantity of immature white blood cells, whose presence is often associated with conditions such as leukemia, infection, inflammation or tissue injury. Importantly, the automation of the white cell differential will eliminate the need for a medical technologist trained in cytology or pathologist to manually identify and count cells under a microscope – a time consuming and subjective process. Finally, since our analyzer captures digital images of individual cells, the creation of slides to enable the review of a blood smear under a microscope and to retain physical evidence of a particular sample is unnecessary. Our virtual slides will be stored digitally and transmitted electronically between laboratories or healthcare providers.

Molecular Diagnostics

Our molecular diagnostic category is leveraging our proprietary NADiA technology platform to develop ultra-sensitive diagnostic tests. NADiA technology has the ability to measure proteins in extremely low concentrations below the detection thresholds of current immunoassay and molecular diagnostic methods. NADiA combines immunoassay and PCR methodologies, or Immuno-PCR, with the potential to detect proteins with femtogram/milliliter sensitivity (10^-15 gram/milliliter). The Immuno-PCR approach is similar to that of an enzyme immunoassay, which makes use of antibody binding reactions and washing steps. In the NADiA method, the enzyme label is replaced with a strand of DNA and is detected by PCR amplification. We believe diagnostic tests that utilize our NADiA technology will aid in the early detection of disease relapse and potentially provide better therapeutic outcomes for patients. Our molecular diagnostics pipeline includes the following products under development:

• Prostate Cancer: NADiA ProsVue. PSA, or prostate-specific antigen, is the most widely used cancer marker for the diagnosis and clinical management of prostate cancer in men. We are developing an ultra-sensitive blood-based diagnostic test, called NADiA ProsVue, to monitor levels of PSA that currently are undetectable with current testing methods, in men with prostate cancer who have undergone radical prostatectomy, or removal of the prostate gland. We met with the FDA on several occasions to review our NADiA ProsVue Pre-Investigational Device Exemption (Pre-IDE) submission and reached an agreement in principle on the product claim and clinical end points to be used in a large clinical study. In the first quarter of 2010, we commenced a multi-center retrospective clinical study consisting of approximately 300 patients with serially collected blood samples, retained over an eight year period. The results from the study are expected to validate the claim that NADiA ProsVue can be used to prognosticate post-radical prostatectomy patients with low risk of prostate cancer recurrence. As of March 1, 2010, over 200 patients’ samples have been tested and analyzed with encouraging results. Upon completion of the study, we will submit a 510(k) application expected in the first half of 2010.

• HIV: Viral Load Test. Current HIV viral load tests measure the quantity of HIV RNA in the blood of an individual infected with HIV. The presence of RNA indicates that the virus is actively replicating and increasing levels of RNA can indicate more serious or advanced disease. Viral load testing is one of the most valuable measures for predicting HIV disease progression and gauging how well anti-retroviral treatment is working. Effective anti-retroviral treatment can often reduce RNA viral load to levels that are undetectable by current diagnostic tests, with the most sensitive test having a threshold of 40 copies of RNA virus per milliliter of blood. Unlike current tests measuring HIV RNA, our NADiA technology measures a specific HIV viral protein, p24, which is present in greater numbers relative to HIV RNA. Specifically, per unit of sample, there are 3,000 p24 molecules while only two copies of HIV RNA. We are developing a blood-based HIV viral load test utilizing NADiA technology that we believe is 20 times more sensitive than current diagnostic tests by detecting down to the equivalent of two copies of HIV RNA

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• Breast Cancer: Her-2/neu Test. Her-2/neu is a validated cancer marker used as a prognostic indicator of the aggressiveness of a breast cancer tumor and a guide for appropriate treatment. We are developing a blood-based diagnostic test utilizing NADiA technology to identify and quantify the levels of Her-2/neu in women with breast cancer. We believe our technology will be able to isolate and characterize circulating breast cancer cells and to determine the Her-2/neu concentration per cell with a higher sensitivity than traditional detection methods that use tissue from a tumor biopsy.

Sample Processing

Our sample processing group markets and develops centrifuges, semi-automated DNA processing workstations and sample processing consumables. Our StatSpin brand bench-top centrifuges are used for specimen preparation in coagulation, cytology, chemistry and urinalysis. Our worldwide markets include medical institutions, commercial laboratories, clinics, doctors’ offices, veterinary laboratories and research facilities.

With our sample processing products, we believe we offer laboratories the ability to increase their efficiency by processing samples as they arrive rather than in a batch mode. Our bench-top centrifuges offer a significant advantage with two to three minute cycles compared to conventional centrifuges taking up to 15-30 minutes cycle, depending on batch size. Further, our bench-top models are small enough to sit along side an analyzer eliminating the need for a separate central sample processing area.

We launched the Express 4 centrifuge in 2007, an instrument that employs a unique high speed horizontal rotor for separating samples and replaces larger and slower batch centrifuges by reducing sample preparation time and streamlining laboratory workflow. This new product platform enabled us to enter into the high volume chemistry market. In December 2009, we voluntarily recalled approximately 1,565 Express 4 centrifuges requiring a product retrofit in an estimated amount of $250,000.

In November of 2009, we initiated shipments of our new StatSpin Ovatube System for use in veterinary hospitals, clinics and reference laboratories to process fecal samples for the detection of ova and parasites. Based on our research, there are some 20 million ova parasite tests performed on animals each year in the U.S. alone, with some 15 million of these tests being performed in 25,000 veterinary clinics.

We have been collaborating with Becton Dickinson, or BD, in their Lean-Six Sigma initiatives with our Express 3 centrifuge utilizing BD’s blood collection tubes. Our collaboration study showed numerous benefits from utilizing our combined products in the laboratory including decreased turn-around time, increased productivity and decreased costs. As a result in 2008, our sample processing group and BD entered into a three-year distribution agreement. The agreement provides for BD distributing Express 3 centrifuges on a co-branded basis for use with its tubes in certain international markets.

We are focusing our research and development efforts in expanding our current centrifuge product lines, in addition to entering new applications. In addition, our strategy is to expand our focus on high value applications such as molecular sample preparation. We believe there is significant demand for automated solutions that increase efficiencies in this area.

Our Strategy

Our goal is to maintain our leadership position in automated in vitro diagnostics for urinalysis and sample processing while becoming a global leader in hematology and molecular diagnostics by offering products and solutions that increase laboratory productivity and efficiency and diagnostic tests that improve patient care. To achieve this goal, we intend to:

Increase the market adoption of the automated urinalysis platform in the in vitro diagnostics market. We strive to develop automated diagnostic instrumentation and solutions that enable increased laboratory productivity and efficiency. With the expansion of the iQ urine microscopy product line and the release of our current and future urine chemistry products, we believe we will be able to address the needs of a much broader

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market. As we continue to market the clinical value of urinalysis, specifically in microscopy, we expect to increase market awareness and demand for our automated urinalysis products. In addition, we continue to pursue large multi-unit, multi-site contracts with large volume laboratories and to invest in emerging markets to increase our installed base of instruments.

Broaden our product offerings in the urinalysis IVD market. We intend to broaden our offerings in the urinalysis IVD market by developing and commercializing new products and solutions that improve laboratory efficiency and provide healthcare providers with more timely and more valuable information. The iChem VELOCITY, an automated urine chemistry analyzer, represents a key new product offering that we launched in the international market and expect to launch domestically in 2010. The iChem VELOCITY, when linked with our iQ microscopy analyzer, allows us to offer an integrated system, called the iRICELL. In addition, we are leveraging our 3GEMS imaging technology to develop next-generation urinalysis instruments to provide our customers with innovative products. Another key new product feature under development is our improved urine bacteria screening for the iQ. This would allow for a fully-automated solution for hospital laboratories to experience improved workflow management through increased sample throughput and reduced labor demand.

Use our imaging technology expertise to enter the automated hematology in vitro diagnostics market. We intend to leverage our imaging technology, which forms the basis of our market-leading urinalysis products, into other IVD markets where customers will value automation and increased efficiency. We are developing a hematology product portfolio that utilizes our next-generation 3GEMS imaging technology to reduce the need to prepare manual slides and perform subjective assessments of those slides under a microscope. We believe our product, by using a digitally-imaged virtual slide, will significantly decrease labor spent in laboratories by reducing the manual examination of abnormal blood samples while improving standardization.

Expand our addressable markets by developing molecular diagnostic tests. We believe that application of NADiA, our proprietary molecular diagnostic technology, has the potential to improve patient care management by allowing for earlier detection of disease relapse and to improve patient outcomes due to its ultra-sensitive detection of proteins. Our portfolio of emerging molecular diagnostic tests for cancer and infectious disease is designed to provide physicians and patients with more valuable information that may impact the treatment decision in managing the course of disease. As a result, we believe our NADiA platform is well-positioned for growth with the advent of personalized medicine utilizing genomic and molecular data to better determine targeted therapies for patients. We continue to evaluate commercialization strategies for our NADiA applications to maximize our penetration in the marketplace including partnerships with clinical reference labs or other IVD companies, a direct sales channel, or a combination of these alternatives.

Pursue selective acquisitions and technology in-licensing. We will continue to pursue selective acquisitions to augment our organic growth. Our acquisition strategy is to target companies and product lines that complement our business and provide additional infrastructure necessary for the commercialization of our pipeline. In January 2010, we acquired from our European distributor assets relating to its distribution of IRIS products in Germany and the UK to provide for an expanded international direct sales channel for current and future products.

Competition

Competition in the IVD industry is intense. Many of our competitors are substantially larger than we are and have greater financial, research, manufacturing, marketing, sales and other resources than we do. As a result, our competitors may develop technologies or products that could render our products or products under development obsolete or noncompetitive.

Urinalysis

The principal competitive factors in the urinalysis market are cost-per-test, ease of use and quality of results. In the automated urine microscopy segment, Sysmex Corporation markets its automated non-imaging urine

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sediment analyzers globally and remains our principal competitor in the urine microscopy segment. Elektronika 77, a Hungarian company, offers a slide-based automated microscopy analyzer that can be run as stand-alone or in combination with a urine chemistry system. In the urine chemistry segment, Siemens Healthcare Diagnostics, ARKRAY and Roche Diagnostics are our principal competitors selling urine analyzers and test strips used in determining the concentration of various chemical substances found in urine. We believe our systems provide the highest level of integration of urine chemistry and microscopy and the broadest menu available to provide digital images of urine and other body fluids particles, which provides significant competitive advantages.

We are experiencing increased domestic and international pricing pressures in the urinalysis market due to the ongoing consolidation of both hospitals and medical device suppliers. Competitors are attempting to offer one-stop shopping for a variety of laboratory instruments, supplies and service with annual rebates based on the hospital’s total volume of business. We have been successful in preventing this type of “product bundling” by negotiating contracts with group purchasing organizations, or GPOs, in the United States allowing GPO members to purchase our products at competitive pricing.

Hematology

Hematology is a mature segment of the in vitro market in which there are a number of large competitors who already have an established market presence and significantly greater resources than we have. The major competitors in the hematology market include Abbott Laboratories, Beckman Coulter, Inc., Siemens Healthcare Diagnostics, Sysmex Corporation and Horiba ABX. Our hematology analyzer currently under development represents a significant advancement in this market by combining an automated instrument with image-based nine part white cell differential with complete blood counts. We believe this differentiates us from currently existing products, and will allow us to make a strong entry into the hematology testing market.

Molecular Diagnostics

In the ultra-sensitive protein detection market, we may experience competition from companies that utilize enzyme-linked immunosorbent assay, or ELISA, chemiluminescence and fluorescence technologies, including Abbott Diagnostics, Beckman Coulter, Inc., Ortho-Clinical Diagnostics, Inc., Roche Diagnostics and Siemens Healthcare Diagnostics. Our technology detects proteins at lower concentrations, which we believe will enable earlier detection of relapse of disease. Many of these companies market instruments and reagents for measuring serum markers in concentrations greater than 50,000 femtograms per milliliter, while we believe our technology will eventually detect concentrations as low as one femtogram per milliliter.

We plan to develop products to better manage infectious diseases based on ultra-sensitive protein detection associated with the infectious organisms. These products will compete with products that detect nucleic acids of the infectious organisms. We will compete with companies such as Abbott Diagnostics, Roche Diagnostics, Gen-Probe, BD Bioscience and bioMerieux that market products utilizing amplification techniques for analyzing molecular nucleic acid sequences in the infectious disease market.

Sample Processing

The primary competitive factors in the centrifuge market include speed, ease of use, size and cost. The major competitors in the bench-top centrifuge market include the Drucker Company, LW Scientific and Hettich. With the industry trend moving away from bulky floor models to smaller, faster, more efficient bench-top models, we are facing competition from companies such as Beckman Coulter and ThermoFisher. We believe our products are differentiated due to innovative design, single push button operation, small footprint, quiet cycle and rapid separation time.

Intellectual Property

We have a long history of innovation. Our diversified core technology spans through a number of scientific endeavors, which include IVD, immuno-assay, rare cell separation technology, specimen processing and handling, pattern recognition and image analysis. Our commercial success depends on our ability to protect and

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maintain our proprietary rights. We protect our proprietary technology by filing various patent applications domestically and in many foreign countries. We own various active patents and have pending patent applications for our technologies domestically and internationally.

These patents cover developments in imaging analysis and processing software, blood processing, digital refractometers, fluidics, centrifuges, immuno-PCR processes, rare cell separation, automated slide handling and disposable urinalysis products sold by us. In addition, we have various patents related to products of our sample processing business segment. These patents have various useful lives ranging from five to 15 years with expirations ranging from one to 15 years. Our core IVD patents in the United States will start to expire in 2017.

For our molecular platform technologies, we have a license for three patents from the University of California that cover the use of nucleic acid labeled antibodies in immunoassays. In addition, we filed a patent on the improved use of DNA labeled antibodies and obtained patents covering NADiA and our bubble isolation technology methods.

We have trade secrets, unpatented technology and proprietary knowledge about the sale, promotion, operation, development and manufacturing of our products. We have confidentiality agreements with our employees and consultants to protect these rights.

We claim copyright in our source code and have a patent in the ways in which our software displays images, and have filed copyright registrations with the United States Copyright Office. We also own various federally registered trademarks, including “IRIS”, “iChem”, “VELOCITY”, “iQ”, “ThermoBrite”, and “StatSpin.” We own other registered and unregistered trademarks, and have certain trademark rights in foreign jurisdictions. We intend to aggressively protect our patents, copyrights and trademarks.

Third-Party Payor Reimbursements

Successful sales of our products in the United States and other countries will depend on the availability of reimbursement from third-party payors such as private insurance plans, managed care organizations, and Medicare and Medicaid. In the United States, the American Medical Association assigns specific Current Procedural Terminology, or CPT, codes, which are necessary for reimbursement of diagnostic tests. Once the CPT code is established, the CMS establish reimbursement payment levels and coverage rules under Medicaid and Medicare, and private payors establish rates and coverage rules independently. Our urinalysis tests are covered by established CPT codes and are therefore approved for reimbursement by Medicare and Medicaid as well as most third-party payors. However, we may develop tests in the future that do not relate to previously established CPT codes and we may need to obtain new CPT codes in order to obtain reimbursement. Reimbursement by a third-party payor depends on a number of factors, including the level of demand by health care providers and the payor’s determination that the use of the product represents a clinical advance or a reduction in the overall cost of treatment. In addition, in the United States, third-party payors and state governments routinely review reimbursement coverage for diagnostic tests considering budgetary constrains vis-à-vis demonstrated clinical efficacy. Also, outside of the United States, health care reimbursement systems vary from country to country, and to the extent we sell our products outside the United States, we may not be able to obtain adequate reimbursement coverage, if any, for our products.

Government Regulations

Our products are subject to stringent government regulation in the United States and other countries. These laws and regulations govern product testing, manufacture, labeling, storage, record keeping, distribution, sale, marketing, advertising and promotion. The regulatory process can be lengthy, expensive and uncertain, and securing clearances or approvals often requires the submission of extensive testing and other supporting information. If we do not comply with regulatory requirements, we may be subject to fines, recall or seizure of products, total or partial suspension of production, withdrawal of existing product approvals or clearances,

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refusal to approve or clear new applications or notices and criminal prosecution. Further, any change in existing federal, state or foreign laws or regulations, or in their interpretation or enforcement, or the enactment of any additional laws or regulations, could affect us both materially and adversely.

In the United States, the FDA regulates medical devices under the Food, Drug, and Cosmetics Act. Before a new medical device can be commercially introduced in the United States, the manufacturer usually must obtain FDA clearance by filing a pre-market notification under Section 510(k) of the Food, Drug, and Cosmetics Act, or obtain FDA approval by filing a PMA application. The PMA application process is significantly more complex, expensive, time-consuming and uncertain than the 510(k) notification process. To date, we have cleared all of our regulated products with the FDA through the 510(k) notification process. We cannot guarantee that we will be able to use the 510(k) notification process for future products. Furthermore, FDA clearance of a 510(k) notification or approval of a PMA application is subject to continual review, and the subsequent discovery of previously unknown facts may result in restrictions on a product’s marketing or withdrawal of the product from the market.

We are also required to register as a medical device manufacturer with the FDA and comply with FDA regulations concerning good manufacturing practices for medical devices, or GMP Standards. In 1997, the FDA expanded the scope of the GMP Standards with new regulations requiring medical device manufacturers to maintain control procedures for the design process, component purchases and instrument servicing (Quality System Regulation or QSR). The FDA biannually inspects our manufacturing facilities for compliance with GMP Standards. We believe that we are in substantial compliance with the QSR.

Labeling, advertising and promotional activities for medical devices are subject to scrutiny by the FDA and, in certain instances, by the U.S. Federal Trade Commission. The FDA also enforces statutory and policy prohibitions against promoting or marketing medical devices for unapproved uses.

Many states have also enacted statutory provisions regulating medical devices. The State of California’s requirements in this area, in particular, are extensive, and require registration with the state and compliance with regulations identical to the GMP Standards established by the FDA. While the impact of such laws and regulations has not been significant to date, it is possible that future developments in this area could affect us both materially and adversely.

In addition to domestic regulation of medical devices, many of our products are subject to regulations in foreign jurisdictions. The requirements for the sale of medical devices in foreign markets vary widely from country to country, ranging from simple product registrations to detailed submissions similar to those required by the FDA. Our business strategy includes expanding the geographic distribution of these and other products, and we cannot guarantee that we will be able to secure the necessary clearances and approvals in the relevant foreign jurisdictions. Furthermore, the regulations in certain foreign jurisdictions continue to develop and we cannot be sure that new laws or regulations will not have a material adverse effect on our existing business or future plans. Among other things, CE Mark certifications are required for the sale of many products in certain international markets such as the European Community. We have secured CE Mark certification for our existing product lines.

We have obtained European Norm ISO 13485:2003 certification for our manufacturing facilities and are subject to surveillance by European notified bodies. In addition, our Chatsworth manufacturing facility is certified to ISO 13485:2003 with the Canadian Medical Devices Conformity Assessment System, or CMDCAS, which is the regulatory protocol used by Health Canada to certify manufacturers.

Our products are also subject to regulation by the U.S. Department of Commerce export controls, primarily as they relate to the associated computers and peripherals. We have not experienced any material difficulties in obtaining necessary export licenses to date.

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Summary of Revenues by Product Line

	Year ended December 31,
	2009				2008				2007
	($ in thousands)
Revenues
IVD instruments	$	26,018	28	%	$	35,128	37	%	$	33,492	40	%
IVD consumables and service		52,213	56	%		46,643	49	%		38,533	45	%
Sample Processing instruments and supplies		14,335	16	%		13,731	14	%		12,281	15	%
Total revenues	$	92,566	100	%	$	95,502	100	%	$	84,306	100	%

See Note 18 to the Consolidated Financial Statements, “Segment and Geographic Information,” for financial information regarding our operating segments and geographic areas.

Backlog

We did not have a material amount of backlog as of December 31, 2009. Our products usually ship within 30 to 60 days of receipt of sales orders. We do not believe that backlog is necessarily indicative of sales for any succeeding period.

Employees

At March 1, 2010, we had 326 full-time employees, including 290 in the United States and 36 internationally. We also use outside consultants and part-time and temporary employees in production, administration, marketing, research and development and engineering. None of our employees are covered by collective bargaining agreements. We consider our relations with our employees to be satisfactory.

Corporate Information

We incorporated in California in 1979 and reincorporated in Delaware in 1987. We currently have nine facilities, two in California, one in Massachusetts, and one in Marburg, Germany, and sales offices in France, Germany, the United Kingdom, Japan and Hong Kong.

Available Information

We make available our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, along with any related amendments and supplements on our website as soon as reasonably practicable after we electronically file or furnish such materials with or to the Securities and Exchange Commission, or the SEC. These reports are available, free of charge, at www.proiris.com. Our website and the information contained in it and connected to it do not constitute part of this annual report or any other report we file with, or furnish, to the SEC.

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Item 1A. Risk Factors

We have identified the following additional risks and uncertainties that may have a material adverse effect on our business, financial condition or results of operations. Investors should carefully consider the risks described below before making an investment decision. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and investors may lose all or part of their investment.

Risks Related to Our Business

Adverse conditions in the global economy and disruption of financial markets could negatively impact our customers and therefore our results of operations.

An economic downturn in the businesses or geographic areas in which we sell our products could reduce demand for these products and result in a decrease in sales volume that could have a negative impact on our results of operations. Volatility and disruption of financial markets could limit our customers’ ability to obtain adequate financing or credit to purchase and pay for our products in a timely manner, or to maintain operations, and result in a decrease in sales volume that could have a negative impact on our results of operations.

Adverse macro economic forces have been impacting our selling markets and the credit markets of our customers. Although the impact thus far has been relatively mild, we continue to face the following challenges: deferrals of purchases due to decreases in capital budgets of our customers, delays in the purchasing cycle due to greater scrutiny of deals and increased internal competition for limited capital dollars, and a significant increase in requests for quotes for operating leases. The aforementioned factors may lead to a decrease in revenue, an increase of deferred revenue, or could lead to installment cash collection.

Our success depends largely on the continued acceptance of our iQ and iChem product lines.

Our current strategy assumes that our instrument platforms will be adopted by a large number of end-users. We have invested and continue to invest a substantial amount of our resources in promotion and marketing of the iQ and iChem product lines in order to increase their market penetration, expand sales into new geographic areas and enhance and expand the system features. Failure of our instrument operating platforms to achieve and maintain a significant market presence, or the failure to successfully implement our promotion and marketing strategy, will have a material adverse effect on our financial condition and results of operations.

If we fail to obtain, or experience significant delays in obtaining, regulatory clearances or approvals for our products or product enhancements, our ability to commercially distribute and market our products could suffer.

Our products are subject to rigorous regulation by the U.S. Food and Drug Administration, or FDA, and numerous other Federal, state and foreign governmental authorities. Our failure to comply with such regulations could lead to the imposition of injunctions, suspensions or loss of regulatory clearances or approvals, product recalls, termination of distribution, product seizures or civil penalties. In the most egregious cases, criminal sanctions or closure of our manufacturing facilities are possible. The process of obtaining regulatory authorizations to market a medical device, particularly from the FDA, can be costly and time consuming, and there can be no assurance that such authorizations will be granted on a timely basis, if at all. In particular, the FDA permits commercial distribution of a new class II or III medical device only after the device has received 510(k) clearance or is the subject of an approved pre-market approval, or PMA, application. The FDA will clear marketing of a medical device through the 510(k) process if it is demonstrated that the new product is substantially equivalent to other 510(k)-cleared products. The PMA approval process is more costly, lengthy and uncertain than the 510(k) clearance process. Introduction to the market of products we develop that require regulatory clearance or approval may be delayed. In addition, because we cannot assure you that any new

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products or any product enhancements we develop will be subject to the shorter 510(k) clearance process, the regulatory approval process for our products or product enhancements may take significantly longer than anticipated. There is no assurance that the FDA will not require that a new product or product enhancement go through the lengthy and expensive PMA approval process. To date, all of our class II or III products have been cleared through the 510(k) process. We anticipate several of our molecular diagnostics products under development will be reviewed by the FDA under a PMA filing.

Foreign governmental authorities that regulate the manufacture and sale of medical devices have become increasingly stringent, and to the extent we continue to market and sell our products in foreign countries, we will be subject to rigorous regulation in the future. In such circumstances, we would rely significantly on our distributors to comply with the varying regulations, and any failures on their part could result in restrictions on the sale of our products in foreign countries.

There is no assurance that U.S. or foreign regulatory bodies will ultimately allow market clearance or approval for these products. Regulatory delays or failures to obtain clearances and approvals could disrupt our business, harm our reputation and adversely affect our sales.

Modifications to our products may require new regulatory clearances or approvals or may require us to recall or cease marketing our products until clearances are obtained.

Modifications to our products may require new 510(k) clearances or PMA approvals or require us to recall or cease marketing the modified devices until these clearances or approvals are obtained. The FDA requires device manufacturers to initially make and document a determination of whether or not a modification requires a new approval, supplement or clearance. A manufacturer may determine that a modification could not significantly affect safety or efficacy and does not represent a major change in its intended use, so that no new 510(k) is necessary. However, the FDA can review a manufacturer’s decision and may disagree. The FDA may also on its own initiative determine that a new clearance or approval is required. We have made modifications to our products in the past and may make additional modifications in the future that we believe do not or will not require additional clearances or approvals. If the FDA disagrees and requires new clearances or approvals for the modifications, we may be required to recall and to stop marketing our products as modified, which could require us to redesign our products and harm our operating results. In these circumstances, we may be subject to significant enforcement actions.

If a manufacturer determines that a modification to an FDA-cleared device could significantly affect its safety or efficacy, or would constitute a major change in its intended use, then the manufacturer must file for a new 510(k) clearance or possibly a PMA approval. Where we determine that modifications to our products require a new 510(k) clearance or PMA approval, we may not be able to obtain those additional clearances or approvals for the modifications or additional indications in a timely manner, or at all. For those products sold in the European Union, we must notify our E.U. competent authority by means of revision of our technical file, if significant changes are made to the products or if there are substantial changes to our quality assurance systems affecting those products. Delays in obtaining required future clearances or approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future growth.

Any failure to introduce our future products and systems successfully into the market could adversely affect our business.

Our commercial success depends on the timely development of new products that are needed for future growth. These new products depend on our success in demonstrating technical feasibility and achieving cost targets and functionality demanded by the market. Even if our product development efforts are successful and even if the requisite regulatory approvals are obtained, our products may not gain market acceptance among physicians, healthcare payers and the medical community. A number of additional factors may limit the market acceptance of products including the following:

• rate of adoption by healthcare providers;

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• rate of our products’ acceptance by the target market;

• timing of market entry relative to competitive products;

• availability of alternative products;

• price of our product relative to alternative products;

• availability of third-party reimbursement; and

• extent of marketing efforts by us and third-party distributors or agents retained by us.

Failure to achieve clinical acceptance will adversely impact our financial condition and results of operations.

If we choose to acquire new businesses, products or technologies, we may experience difficulty in the identification or integration of any such acquisition, and our business may suffer.

Our commercial success depends on our ability to continually enhance and broaden our product offerings in response to changing customer demands, competitive pressures and technologies. Accordingly, we may in the future pursue the acquisition of complementary businesses, products or technologies instead of developing them ourselves. We do not know if we will be able to identify or complete any acquisitions, or whether we will be able to successfully integrate any acquired business, product or technology or retain key employees. Integrating any business, product or technology we acquire could be expensive and time consuming, disrupt our ongoing business and distract our management. Moreover, we may fail to realize the anticipated benefits of any acquisition. If we are unable to integrate any acquired businesses, products or technologies effectively, our business will suffer. In addition, any amortization or charges resulting from acquisitions could adversely affect our operating results.

If we do not establish strategic partnerships to commercialize our products under development, we will have to undertake commercialization efforts on our own, which could be costly and may ultimately be unsuccessful.

We may selectively partner with other companies to obtain assistance for the commercialization of certain of our products. We may enter into strategic partnerships with third parties to develop and commercialize some of our products that are intended for larger markets or that otherwise require a large, specialized sales and marketing organization, and we may enter into strategic partnerships for products that are targeted beyond our selected target markets. We face competition in seeking appropriate strategic partners, and these strategic partnerships can be intricate and time consuming to negotiate and document. We may not be able to negotiate strategic partnerships on acceptable terms, or at all. We are unable to predict when, if ever, we will enter into any strategic partnerships because of the numerous risks and uncertainties associated with establishing strategic partnerships. If we are unable to negotiate strategic partnerships for our products under development, we may be forced to reduce the scope of our sales or marketing activities or undertake commercialization activities at our own expense. In addition, we will bear the entire risk related to the commercialization of these products. If we elect to increase our expenditures to fund commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms, or at all.

Changes in reimbursement fees or lower than anticipated reimbursement for diagnostics tests could reduce demand and the price at which we can sell our products.

Successful sales of our products will depend on the availability of adequate coverage and reimbursement from third-party payors both domestically and internationally. Healthcare providers that purchase medical devices generally rely on third-party payors to reimburse all or part of the costs and fees associated with the procedures performed with these devices. Both public and private insurance coverage and reimbursement plans are central to new product acceptance. Customers are unlikely to use our products if they do not receive reimbursement adequate to cover the cost of our products.

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To date, reimbursement has generally been available for the diagnostic tests that our products perform. However, all third-party coverage and reimbursement programs, whether government funded or insured commercially, whether inside the United States or outside, are developing increasingly sophisticated methods of controlling healthcare costs through limitations on covered items and services, prospective reimbursement and capitation programs, group purchasing, redesign of benefits, second opinions required prior to major surgery, careful review of bills, encouragement of healthier lifestyles and exploration of more cost-effective methods of delivering healthcare. These types of programs and legislative changes to coverage and reimbursement policies could potentially limit the amount which healthcare providers may be willing to pay for medical devices.

We believe that future coverage and reimbursement may be subject to increased restrictions both in the United States and in international markets. Third-party reimbursement and coverage for our products may not be available or adequate in either the United States or international markets. Future legislation, regulation, coverage or reimbursement policies of third-party payors may adversely affect the demand for our existing products or our products currently under development, and limit our ability to sell our products on a profitable basis.

If we fail to meet changing demands of technology, we may not continue to be able to compete successfully with our competitors.

The market for our products and systems is characterized by rapid technological advances, changes in customer requirements, and frequent new product introductions and enhancements. Our future success depends upon our ability to introduce new products that keep pace with technological developments, enhance current product lines and respond to evolving customer requirements. Our failure to meet these demands could result in a loss of our market share and competitiveness and could harm our revenues and results of operations.

Our ability to protect our intellectual property and proprietary technology through patents and other means is uncertain.

Our success depends significantly on our ability to protect our intellectual property and proprietary technologies. We rely on patent protection, as well as a combination of copyright, trade secret and trademark laws, and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage.

Our pending U.S. and foreign patent applications may not issue as patents or may not issue in a form that will be advantageous to us. Any patents we have obtained or do obtain may be challenged by re-examination, opposition or other administrative proceeding, or may be challenged in litigation, and such challenges could result in a determination that the patent is invalid. In addition, competitors may be able to design alternative methods or devices that avoid infringement of our patents. To the extent our intellectual property protection offers inadequate protection, or is found to be invalid, we are exposed to a greater risk of direct competition. If our intellectual property does not provide adequate protection against our competitors’ products, our competitive position could be adversely affected, as could our business. Both the patent application process and the process of managing patent disputes can be time consuming and expensive. Furthermore, the laws of some foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States.

In addition to pursuing patents on our technology, we have taken steps to protect our intellectual property and proprietary technology by entering into confidentiality agreements and intellectual property assignment agreements with our employees, consultants, corporate partners and, when needed, our advisors. Such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure. Monitoring unauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate.

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In the event a competitor infringes upon our patents or other intellectual property rights, litigation to enforce our intellectual property rights or to defend our patents against challenge, even if successful, could be expensive and time consuming and could require significant time and attention from our management. We may not have sufficient resources to enforce our intellectual property rights or to defend our patents against challenges from others. Additionally, our earliest patents begin to expire in 2010, which may allow our competitors, many of which may have substantial resources and have made substantial investments in competing technologies, to develop technologies previously protected by these expiring patents.

The medical device industry is characterized by patent litigation, and we could become subject to litigation that could be costly, result in the diversion of our management’s time and efforts, require us to pay damages or prevent us from selling our products.

The medical device industry is characterized by extensive litigation and administrative proceedings over patent and other intellectual property rights. Whether or not a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. Our competitors may assert that they own U.S. or foreign patents containing claims that cover our products, their components or the methods we employ in the manufacture or use of our products. In addition, we may become a party to an interference proceeding declared by the U.S. Patent and Trademark Office to determine the priority of invention. Because patent applications can take many years to issue and in many instances at least 18 months to publish, there may be applications now pending of which we are unaware, which may later result in issued patents that contain claims that cover our products. There could also be existing patents, of which we are unaware, that contain claims that cover one or more components of our products. As the number of participants in our industry increases, the possibility of patent infringement claims against us also increases.

Any interference proceeding, litigation or other assertion of claims against us may cause us to incur substantial costs, could place a significant strain on our financial resources, divert the attention of our management from our core business and harm our reputation. If the relevant patents were upheld as valid and enforceable and we were found to be infringing, we could be required to pay substantial damages and/or royalties and could be prevented from selling our products unless we could obtain a license or were able to redesign our products to avoid infringement. Any such license may not be available on reasonable terms, if at all. If we fail to obtain any required licenses or make any necessary changes to our products or technologies, we may be unable to make, use, sell or otherwise commercialize one or more of our products. In addition, if we are found to willfully infringe, we could be required to pay treble damages, among other penalties.

We operate in a consolidating industry that creates barriers to our market penetration.

The healthcare industry in recent years has been characterized by consolidation. Large hospital chains and groups of affiliated hospitals prefer to negotiate comprehensive supply contracts for all of their supply needs at once. Large suppliers can often equip an entire laboratory and offer hospital chains and groups one-stop shopping for laboratory instruments, supplies and service. Larger suppliers also typically offer annual rebates to their customers based on the customer’s total volume of business with the supplier. The convenience and rebates offered by these large suppliers are administrative and financial incentives that we do not offer our customers. Our plans for further market penetration in the urinalysis market and penetration into the hematology and molecular diagnostics markets will depend in part on our ability to overcome these and any new barriers resulting from continued consolidation in the healthcare industry. The failure to overcome such barriers could have a material adverse effect on our financial condition or results of operation.

Changes in government regulation of the healthcare industry could adversely affect our business.

Federal and state legislative proposals are periodically introduced or proposed that would affect major changes in the healthcare system, nationally, at the state level or both. Future legislation, regulation or payment policies of Medicare, Medicaid, private health insurance plans, health maintenance organizations and other third-

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party payors could adversely affect the demand for our current or future products and our ability to sell our products on a profitable basis. Moreover, healthcare legislation is an area of extensive and dynamic change, and we cannot predict future legislative changes in the healthcare field or their impact on our industry or our business. Any impairment in our ability to market our products could have a material adverse effect on our financial condition and results of operation.

We may not be able to realize the deferred tax asset relating to our tax net operating loss carry forward.

As of December 31, 2009, we have deferred tax assets of approximately $6.1 million resulting from the differences between the financial statement and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Management believes it is more likely than not that the deferred tax assets will be realized through future taxable income or alternative tax strategies. However, the net deferred tax assets could be reduced in the near term if management’s estimates of taxable income during the carryforward period are not realized or are significantly reduced or alternative tax strategies are not available. Although we believe that the deferred tax asset is recoverable, there is no assurance that we will be able to generate taxable income in the years that the differences reverse.

We rely on independent and some single-source suppliers for key components of our instruments. Any delay or disruption in the supply of components may prevent us from selling our products and negatively impact our operations.

Certain of our components are obtained from outside vendors, and the loss or breakdown of our relationships with these outside vendors could subject us to substantial delays in the delivery of our products to our customers. Furthermore, certain key components of our instruments and consumables are manufactured by only one supplier. Because this supplier is the only vendor with which we have a relationship for a particular component, we may be unable to sell products this supplier becomes unwilling or unable to deliver components meeting our specifications. Our inability to sell products to meet delivery schedules could have a material adverse effect on our reputation in the industry, as well as our financial condition and results of operation.

We face intense competition and our failure to compete effectively, particularly against larger, more established companies will cause our business to suffer.

The healthcare industry is highly competitive. We compete in this industry based primarily on product performance, service and price. Many of our competitors have substantially greater financial, technical and human resources than we do, and may also have substantially greater experience in developing products, obtaining regulatory approvals and manufacturing and marketing and distribution. As a result, they may be better able to compete for market share, even in areas in which our products may be superior. Further, our competitive position could be harmed by the establishment of patent protection by our competitors or other companies. The existing competitors or other companies may succeed in developing technologies and products that are more effective or affordable than those being developed by us or that would render our technology and products less competitive or obsolete. If we are unable to effectively compete in our market, our financial condition and results of operation will materially suffer.

We may not be able to maintain contracts with Group Purchasing Organizations, or GPOs.

A significant portion of our domestic sales are affected through agreements with participant members of GPOs. A failure to renew one or more GPO contracts may have a material effect on our domestic sales.

Our success depends on our ability to attract, retain and motivate management and other skilled employees.

Our success depends in significant part upon the continued services of key management and skilled personnel. Competition for qualified personnel is intense and there are a limited number of people with

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knowledge of, and experience in, our industry. We do not have employment agreements with most of our key employees nor maintain life insurance policies on them. The loss of key personnel, especially without advance notice, or our inability to hire or retain qualified personnel, could have a material adverse effect on our ability to maintain our technological edge and ultimately our financial condition and results of operations. We cannot guarantee that we will continue to retain our key management and skilled personnel, or that we will be able to attract, assimilate and retain other highly qualified personnel in the future.

The expense and potential unavailability of insurance coverage for us, our customers or our products may have an adverse effect on our financial position and results of operations.

Our products are used to gather information for medical decisions and diagnosis. Accordingly, a defect in the design or manufacture of our products, or a failure of our products to perform for the use that we specify, could have a material adverse effect on our reputation in the industry and subject us to claims of liability arising from inaccurate or allegedly inaccurate test results. Misuse of our products by a technician that results in inaccurate or allegedly inaccurate test results could similarly subject us to claims of liability. While we currently have insurance for our business, property, directors and officers, and products, insurance is increasingly costly and the scope of coverage is more narrow, and we may be required to assume more risk in the future. If we are subject to claims or suffer a loss or damage in excess of our insurance coverage, we will be required to cover the amounts in excess of our insurance limits. If we are subject to claims or suffer a loss or damage that is outside of our insurance coverage, we may incur significant costs associated with loss or damage that would have a material adverse effect on our financial position and results of operations. Furthermore, any claims made on our insurance policies may impact our ability to obtain or maintain insurance coverage at reasonable costs, or at all. We do not have the financial resources to self-insure, and it is unlikely that we will have these financial resources in the foreseeable future.

We have product liability insurance that covers our products and business operation, but we may need to increase and expand this coverage commensurate with our expanding business.

Any product liability claims brought against us, with or without merit, could result in:

• substantial costs of related litigation or regulatory action;

• substantial monetary penalties or awards;

• decreased demand for our products;

• reduced revenue or market penetration;

• injury to our reputation;

• an inability to establish new strategic relationships;

• increased product liability insurance rates; and

• an inability to secure continuing coverage.

Furthermore, any impairment of our reputation could have a material adverse effect on our sales and prospects for future business. We have not received any indication that our insurance carrier will not renew our product liability insurance at or near current premiums; however, we cannot guarantee that this will continue to be the case. In addition, any failure to comply with FDA regulations governing manufacturing practices could hamper our ability to defend against product liability lawsuits.

Our facilities are located near known earthquake fault zones, and the occurrence of an earthquake or other catastrophic disaster could damage our facilities and equipment, which could cause us to curtail or cease operations.

Instruments for our diagnostics division are manufactured in a single facility in the San Fernando Valley and Iris Molecular Diagnostics is located in Carlsbad, California, both of which is near known earthquake fault zones

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and, therefore, is vulnerable to damage from earthquakes. We are also vulnerable to damage from other types of disasters, such as power loss, fire, and similar events. If any disaster were to occur, our ability to operate our business could be seriously impaired. We currently may not have adequate insurance to cover our losses resulting from disasters or other similar significant business interruptions, and we do not plan to purchase additional insurance to cover such losses due to the cost of obtaining such coverage. Any significant losses that are not recoverable under our insurance policies could seriously impair our business, financial condition and prospects.

If we are unable to manage our growth, our results could suffer.

We have been experiencing significant growth in the scope of our operations. This growth has placed significant demands on our management, as well as operational resources. In order to achieve our business objectives, we anticipate that we will need to continue to grow. If this growth occurs, it will continue to place additional significant demands on our management and our operational resources, and will require that we continue to develop and improve our operational, financial and other internal controls both in the United States and internationally. In particular, if our growth continues, it will increase the challenges in implementing appropriate control systems, expanding our sales and marketing infrastructure capabilities, providing adequate training and supervision to maintain high quality standards, and preserving our cultural values. The main challenge associated with our growth has been the management of our expenses. Our inability to scale our business appropriately or otherwise adapt to growth, could cause our business, financial condition and results of operations to suffer.

To market and sell our products, we depend on third-party distributors, and they may not be successful.

We currently depend on third-party distributors to sell our IVD products in most markets outside of the United States as well as all Iris Sample Processing products. The quarterly and yearly demand from distributors depends on factors such as buying patterns, cash availability, currency exchange rates, etc. If these distributors are not successful in selling our products, we may be unable to increase or maintain our level of revenue. Our distributors may not commit the necessary resources to market and sell our products. If current or future distributors do not perform adequately or if we are unable to locate distributors in particular geographic areas, we may not realize revenue growth internationally. Over the long term, we intend to grow our business internationally, and to do so we will need to attract additional distributors to expand into new territories or to sell new products

Our sales in international markets are subject to a variety of laws and political and economic risks that may adversely impact our sales and results of operations in certain regions.

Our ability to capitalize on growth in international markets is subject to risks including:

• changes in currency exchange rates that impact the price to international consumers;

• the burdens of complying with a variety of foreign laws and regulations;

• unexpected changes in local regulatory requirements; and

• the difficulties associated with promoting products in unfamiliar cultures;

• subject to general, political and economic risks in connection with our international sales operations, including:

• political instability;

• changes in diplomatic and trade relationships; and

• general economic fluctuations in specific countries or markets.

Any of the above mentioned factors could adversely affect our sales and results of operations in international markets.

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We are subject to currency fluctuations.

We are exposed to certain foreign currency risks in international markets where we source, produce, market or sell product. The line of automated urine chemistry analyzers that we currently sell in the United States, some assemblies for our iQ platform and related consumables strips and spare parts are sourced from ARKRAY, a supplier located in Kyoto, Japan. These components currently represent a significant portion of our material costs. Our purchases from this supplier are denominated in Japanese Yen and any fluctuations in the U.S. Dollar/Japanese Yen exchange rate could result in increased costs for these key components. Any increases over current levels would reduce our gross margins and would be likely to result in a material adverse effect on our profitability. We anticipate the exposure to the Japanese Yen to gradually decrease once we receive FDA clearance in the United States for our chemistry analyzer, the iChem VELOCITY.

We are also exposed to currency fluctuations with respect to the exportation of our products. With the exception of France where our operations are denominated in Euros, most of our sales are denominated in U.S. Dollars. Accordingly, any fluctuation in the exchange rate between the U.S. Dollar and the currency of the country with which we are exporting products could also affect our ability to sell internationally. To the extent we conduct operations abroad in non-local currency, fluctuations in the exchange rate between functional currency of those operations and the local currency may lead to significant increased costs and could negatively impact our profitability. Our chemistry strip manufacturing facility in Germany has the Euro as its functional currency.

Risks Related to Ownership of Our Common Stock

We have adopted a number of anti-takeover measures that may depress the price of our common stock.

Our stockholders rights plan, our ability to issue additional shares of preferred stock and some provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to make an unsolicited takeover attempt of us. Additionally, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions. These anti-takeover measures may depress the price of our common stock by making it more difficult for third parties to acquire us by offering to purchase shares of our stock at a premium to its market price without approval of our board of directors. They could also have the effect of preventing changes in our management.

Our quarterly sales and operating results may fluctuate in future periods, and if we fail to meet expectations the price of our common stock may decline.

Our quarterly sales and operating results have fluctuated significantly in the past and are likely to do so in the future due to a number of factors, many of which are not within our control. If our quarterly sales or operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Factors that might cause quarterly fluctuations in our sales and operating results include the following:

• variation in demand for our products, including seasonality;

• our ability to develop, introduce, market and gain market acceptance of new products and product enhancements in a timely manner;

• our ability to manage inventories, accounts receivable and cash flows;

• our ability to control costs;

• the size, timing, rescheduling or cancellation of orders from consumers and distributors; and

• our ability to forecast future sales and operating results and subsequently attain them.

The amount of expenses we incur depends, in part, on our expectations regarding future sales. In particular, we expect to continue incurring substantial expenses relating to the marketing and promotion of our products.

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Since many of our costs are fixed in the short term, if we have a shortfall in sales, we may be unable to reduce expenses quickly enough to avoid losses. If this occurs, we will not be profitable. Accordingly, you should not rely on quarter-to-quarter comparisons of our operating results as an indication of our future performance.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

We lease all of our facilities. Our headquarters are located at 9172 Eton Avenue, Chatsworth, California 91311. The table below sets forth certain information regarding our leased properties as of March 1, 2010.

Location	Approximate Floor Space (Sq. Ft.)	Monthly Rent		Use
Chatsworth, CA	98,446	$	70,162	Corporate headquarters and manufacturing
Westwood, MA	29,220	$	34,967	Sample Processing division
Carlsbad, CA	14,941	$	17,182	Molecular Diagnostic research division
Marburg, Germany	8,539	$	18,066	Urine chemistry strip manufacturing facility
Marburg, Germany	4,844	$	2,278	Urine chemistry strip manufacturing warehouse
Paris, France	2,684	$	3,017	Sales office
Causeway Bay, HK	120	$	1,744	Sales office
Cologne, Germany	130	$	2,520	Sales office
Cambridge, UK	323	$	1,452	Sales office

We believe our facilities are adequate to meet our current and near-term needs.

Item 3. Legal Proceedings.

From time to time, we are party to certain litigation arising in the normal course of business. Management believes that the resolution of such matters will not have a material adverse effect on our financial position, results of operations or cash flows. We are not currently involved in any litigation that requires disclosure in this report.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is listed on the NASDAQ Global Market under the symbol “IRIS.” The closing price of our common stock on March 5, 2010 was $10.73 per share. The table below sets forth the high and low closing prices of our common stock on the NASDAQ Global Market for the periods ended:

	Price per share
	Low		High
Fiscal 2009:
First Fiscal Quarter	$	8.60	13.33
Second Fiscal Quarter		10.03	12.94
Third Fiscal Quarter		9.50	11.81
Fourth Fiscal Quarter		9.99	12.62
Fiscal 2008:
First Fiscal Quarter	$	10.36	22.13
Second Fiscal Quarter		12.85	16.89
Third Fiscal Quarter		15.00	19.08
Fourth Fiscal Quarter		8.89	17.25

As of March 5, 2010 we had approximately 2,119 holders of record of our common stock.

Dividend Policy

We have never paid any cash dividends on our common stock. We currently expect to retain any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Furthermore, we may not pay any cash dividends on the common stock without the written consent of our lender.

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FIVE-YEAR STOCK PRICE PERFORMANCE COMPARISON ⁽¹⁾

The following graph and table compare the cumulative total return on our common stock with the cumulative total return (including reinvested dividends) of the Standard & Poor’s 500 Index (S&P 500), the NASDAQ Medical Devices, Instruments and Supplies, Manufacturers and Distributors Stocks Index and the Standard & Poor’s HealthCare Equipment Index for the five years ending December 31, 2009, assuming that the relative value of the common stock and each index was $100 on December 31, 2004. Amounts below have been rounded to the nearest dollar. The stock price performance on the following graph is not necessarily indicative of future stock price performance.

(1) This section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of IRIS International, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

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Item 6. Selected Financial Data.

The following selected financial data should be read in conjunction with our consolidated financial statements. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included in Item 8, “Financial Statements and Supplementary Data” of this Form 10-K in order to understand fully factors that may affect the comparability of the financial data presented below.

	Year Ended December 31,
	2009		2008		2007		2006			2005
	(in thousands, except per share data)
Statement of Operations Data:
Revenues	$	92,566	$	95,502	$	84,306	$	72,067		$	64,585
Operating income		7,811		10,967		8,953		1,049			8,941
Other income (expense)		894		2,409		1,440		1,089			605
Net income (loss)		6,251		9,013		7,549		(175	)		6,131
Basic net income (loss) per share		0.35		0.49		0.42		(0.01	)		0.37
Diluted net income (loss) per share		0.35		0.48		0.40		(0.01	)		0.35
Balance Sheet Data:
Working capital		58,988		51,553		49,685		37,283			33,879
Total assets		97,790		90,638		86,390		74,317			63,929
Total debt		—		—		—		—			—
Total liabilities		12,568		14,728		11,456		11,751			10,160
Stockholders’ equity		85,222		75,910		74,934		62,566			53,769

Our financial results for certain of the years set forth above were impacted by the following events:

1. 2009 results include the following expenses totaling $1.1 million; an accrual of $475,000 for payroll taxes attributable to the exercise of stock options, $350,000 in start-up expenses for the initiation of direct sales operations in the UK and Germany and $250,000 for product retrofit costs related to the voluntary recall of approximately 1,565 StatSpin Express 4 Centrifuges.

2. 2008 results include the non recurring other income related to the $1.2 million net payment to us as part of the manufacturing transition rights agreement signed with IDEXX Laboratories in December 2008.

3. 2007 results include the effects of closing our Advanced Digital Imaging Research subsidiary’s operations which resulted in a $163,000 write-off.

4. 2006 results include the effect of the acquisition in April 2006 of Leucadia Technologies, Inc. We recorded a $5.2 million charge for purchased in-process research and development. In addition we incurred additional research and development expenses of $1.8 million as a result of the acquisition.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

IRIS International, Inc. consists of three operating units in two business segments as determined in accordance with FASB ASC Topic 280 “Segment Reporting”. Our in-vitro diagnostics, or IVD, segment also called Iris Diagnostics Division, designs, manufactures and markets IVD systems, consumables and supplies for urinalysis and body fluids. With the acquisition of Leucadia Technologies, Inc., or Leucadia, in 2006 we created our Iris Molecular Diagnostics, or IMD, subsidiary whose operations are included as part of the Iris Diagnostics Division. Our Sample Processing segment markets small centrifuges and other processing equipment and accessories for rapid specimen processing.

The initial applications for our technology have been in the urinalysis market and we are the leading worldwide provider of automated urine microscopy systems, with more than 2,600 iQ microscopy analyzers in over 50 countries. We generate revenues primarily from sales of IVD instruments, IVD consumables and service and sample processing instruments and supplies. Revenues from IVD instruments include sales of urine microscopy and chemistry analyzers manufactured by us and a urine chemistry analyzer, the AUTION MAX AX-4280, sourced from a Japanese manufacturer. We sell our urine microscopy analyzers worldwide. We initiated sales of the iChem VELOCITY, our fully-automated chemistry analyzer internationally in September 2008. Sales of this instrument in the United States will be initiated upon us obtaining FDA clearance. We currently distribute the AUTION MAX AX-4280 in the United States, and have secured sufficient inventory of this product to cover all domestic sales of fully automated chemistry analyzers through the second half of 2010. Consumables include products such as chemical reagents and urine test strips. Service revenues are derived primarily from annual service contracts purchased by our domestic customers after the initial year of sale, which is covered by product warranty and spare parts purchased by international customers. Once the analyzers are installed, we generate recurring revenue from sales of consumables. Consumable and service revenue are expected to continue to expand as the installed base of related instruments increases. Revenue is also generated from sales of sample processing instruments and related supplies, which primarily consists of centrifuge systems, DNA processing workstations and blood analysis products.

Domestic sales of our urinalysis systems are direct to the customer through our sales force. International sales, with the exception of France and Puerto Rico where sales are direct to end use customers, are through independent distributors. Effective January 2010, we completed the purchase of certain European distributor assets relating to the distribution of IRIS products in the United Kingdom, Ireland and Germany. We purchased the assets, which consist primarily of installed IRIS instruments leased to customers, the related lease agreements, and service contracts, for $841,000. This purchase will increase our direct sales presence within our international sales channels, and will serve as a template for further potential transactions in territories that represent new business opportunities for us. We estimate that in 2010, we will incur additional expense of approximately $2.5 million to fund our new direct sales initiatives in the United Kingdom, Ireland and Germany. International sales represented 33% of consolidated revenues for the years ended December 31, 2009 and 2008. Since the substantial majority of international sales are made through independent distributors, gross profit margin is lower than for domestic sales of the same products, but we incur minimal sales and marketing costs for such sales. Our Sample Processing products are sold worldwide primarily through distributors.

As our Company did not meet its revenue and earnings thresholds for the year ended December 31, 2009, the employee bonus expenses were significantly reduced by $1.4 million as compared to the prior year. The consolidated employee bonus expense for the years ended December 31, 2009 and 2008 amounted to $362,000 and $1.7 million, respectively.

In February 2010, after receiving reports of two incidents of uncontained rotor ruptures, we initiated a voluntary recall of 1,565 Express 4 Centrifuge with a safety defect that could expose the user to personal injury or the biological sample being processed. A retrofit program has been initiated to upgrade all units shipped since November 2007 at an estimated cost of $250,000. The installed base of approximately 60,000 centrifuges of all

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other models is not affected and we expect all units upgraded within the second quarter of 2010. We do not expect a material revenue impact from this incident.

In June 2009, we initiated a reduction in force of 19 full time equivalent personnel which resulted in a charge of $325,000 during the second quarter of 2009. The reduction in force generated approximately $1.4 million in annualized savings.

In 2008, we entered into a manufacturing and supply agreement with IDEXX Laboratories, Inc., or IDEXX, for internal centrifugal drive systems and related whole blood separators developed by us for use in the new IDEXX Catalyst Dx™ Chemistry Analyzer for the veterinary market launched globally by IDEXX in 2008. Under the terms of the agreement, in exchange for a $1.5 million cash payment and future royalties starting in 2014, we granted IDEXX exclusive rights to manufacture the whole blood separator technology. In addition, we will exclusively manufacture and sell to IDEXX the internal centrifugal drive system we developed. Shipments of this drive system commenced in 2008.

We have invested significant capital to acquire technologies and to increase our investment in research and development both to sustain our technological leadership in our existing core product lines in urinalysis and sample processing and as part of our growth strategy to broaden our product pipeline into new high value platforms in hematology and molecular diagnostics. The decision to diversify into IVD market segments in which we do not presently participate has adversely affected our earnings growth over the last four years, as we have invested significantly in research and development without any corresponding revenues from new products still in development. Our investment in new product platforms, however, is of strategic importance and is necessary to position the company for significant revenue and earnings acceleration in future years. Research and development expense increased to $11.4 million, or 12% of revenue, in 2009 compared to $10.4 million, or 11% of revenue, in 2008. Of these expenditures, approximately $6.0 million and $5.0 million was invested in 2009 and 2008, respectively, in our NADiA and hematology platforms. The expected release of our NADiA ProsVue in 2010 represents the first product offering resulting from our product line expansion initiative, and we are expecting significant revenue realization from this product starting in 2011. For 2010, we anticipate that research and development expense will increase to approximately 13% of revenue.

The following table summarizes product technology expenditures for the periods indicated:

	2009			2008			2007
	(in thousands)
Total product technology expenditures during year	$	12,331		$	11,699		$	11,331
Less: amounts capitalized during year to software development costs as reported in the consolidated statements of cash flow		(835	)		(1,178	)		(970	)
Less: amounts reimbursed through grants for government sponsored research and development		(85	)		(164	)		(135	)
Research and development expense as reported in the consolidated statements of income	$	11,411		$	10,357		$	10,226

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and our discussion and analysis of our financial condition and results of operations require us to make judgments, assumptions, and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. We regularly discuss with our audit committee the basis of our estimates. Actual results may differ from these estimates and such differences may be material.

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We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue recognition – Revenues are primarily derived from the sale of IVD instruments, sales of consumable supplies and services for IVD systems as well as sales of sample processing instruments and related supplies. Revenue is recognized once all of the following conditions have been met: (i) an authorized purchase order has been received in writing with a fixed and determinable sales price; (ii) customer credit worthiness has been established; and (iii) delivery of the product based on shipping terms.

Revenue is recorded in accordance with the provisions of FASB ASC Topic 605 “Revenue Recognition”, which generally require revenue earned on product sales involving multiple-elements to be allocated to each element based on the relative fair values of those elements if sold separately. Multiple elements of certain domestic product sales include IVD instruments, training, consumables and service.

Accordingly, we allocate revenue to each element in a multiple element arrangement based on the element’s respective fair value, with the fair value determined by the price charged when that element is sold separately and specifically defined in a quotation or contract.

A portion of our revenues are derived from sales-type leases as we provide lease financing to certain customers that purchase our diagnostic instruments. Leases under these arrangements are classified as investment in sales-type leases. These leases typically have terms of five years. Revenue from sales-type leases is recognized when collectibility of the minimum lease payments is reasonably predictable and no important uncertainties surround the amount of unreimbursable costs yet to be incurred by us as lessor under the lease. The minimum lease payments that accrue to our benefit as lessor are recorded as the gross investment in the lease. The difference between the gross investment in the lease and the sum of the present value of the minimum lease payments and unguaranteed residual value, accruing to our benefit as lessor, are recorded as unearned income.

We have certain government contracts with cancellation clauses or renewal provisions that are generally required by law, such as (i) those dependant on fiscal funding outside of a governmental unit’s control; (ii) those that can be cancelled if deemed in the tax payers’ best interest; and (iii) those that must be renewed each fiscal year, given limitations that may exist on multi-year contracts that are imposed by statute. Under these circumstances and in accordance with the relevant accounting literature, as well as considering our historical experience, a thorough evaluation of these contracts is performed to assess whether cancellation is remote or whether exercise of the renewal option is reasonably assured.

We recognize revenues from service contracts ratably over the term of the service period, which typically ranges from twelve to sixty months. Payments for service contracts are generally received in advance. Deferred revenue represents the revenues to be recognized over the remaining term of the service contracts.

Inventory valuation – We value inventories at the lower of cost or market value on a first-in, first-out basis. Provision for potentially obsolete or slow-moving inventory is made based on management’s analysis of inventory levels and future sales forecasts.

Since the introduction of our iQ product line, the installed base of our legacy analyzers have been steadily declining and less than 20 units internationally and 6 units domestically remain in the field as of December 31, 2009. We maintain a base supply of service parts for these products. Management will periodically review the carrying value of such parts to ensure that they continue to exceed net realizable value.

Goodwill and Core Technology – Our intangible assets consist of goodwill, which is not being amortized and core technology, which is being amortized over its useful life of 20 years. All intangible assets are subject to impairment tests on an annual or periodic basis. Goodwill is evaluated in accordance with FASB ASC Topic 350, “The Intangibles- Goodwill and Other”, based on various analyses, including a comparison of the carrying value

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of the reporting unit to its estimated fair value and discounted cash flow. The analysis necessarily involves significant management judgment to evaluate the capacity of an acquired business to perform within projections. Core technology is evaluated for impairment using the methodology set forth in FASB ASC Topic 360, “Property, Plant and Equipment.” Recoverability of these assets is assessed only when events have occurred that may give rise to a potential impairment. When a potential impairment has been identified, forecasted undiscounted net cash flows of the operations to which the asset relates are compared to the current carrying value of the long-lived assets present in that operation. If such cash flows are less than such carrying amounts, long-lived assets, including such intangibles, are written down to their respective fair values.

At December 31, 2009, we evaluated goodwill and determined that fair value had not decreased below carrying value and no adjustment to impair goodwill was necessary in accordance with ASC Topic 350. Substantially all of the goodwill resides in the IVD reporting unit.

Capitalized software – We capitalize certain software development costs in connection with our development of our urine analyzers in accordance with FASB ASC Topic 985, “Software.” We capitalize software development costs once technological feasibility is established and such costs are determined to be recoverable against future revenues.

Capitalized software development costs are expensed to cost of sales over periods up to five years. When, in management’s estimate, future revenues will not be sufficient to recover previously capitalized software development costs, we will expense such items as additional software development amortization in the period the impairment is identified. Such adjustments are normally attributable to changes in market conditions or product quality considerations.

Income taxes – We account for income taxes in accordance with FASB ASC Topic 740, “Income Taxes,” which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

We account for uncertain tax positions in accordance with FASB ASC Topic 740-10 which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest, penalties and disclosures required. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Stock based compensation – The Company accounts for stock based compensation under FASB ASC Topic 718, Compensation- Stock Compensation (“ASC 718”) which requires compensation costs related to share-based transactions, including employee stock options, to be recognized in the financial statements based on fair value.

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Results of Operations

The following table summarizes results of operations data for the periods indicated. The percentages in the table are based on total revenues with the exception of percentages for gross profit margins which are computed on related revenue.

	Years ended December 31,
	2009				2008				2007
	(in thousands)
Revenues
IVD instruments	$	26,018	28	%	$	35,128	37	%	$	33,492	40	%
IVD consumables and service		52,213	56	%		46,643	49	%		38,533	45	%
Sample Processing instruments and supplies		14,335	16	%		13,731	14	%		12,281	15	%
Total revenues		92,566	100	%		95,502	100	%		84,306	100	%
Gross Profit(1)
IVD instruments		9,240	36	%		15,523	44	%		15,543	46	%
IVD consumable and service		32,055	61	%		26,648	57	%		20,673	54	%
Sample Processing instruments and supplies		7,370	51	%		6,868	50	%		6,138	50	%
Gross profit		48,665	53	%		49,039	51	%		42,354	50	%
Operating expenses
Marketing and selling		16,122	17	%		15,706	16	%		13,041	16	%
General and administrative		13,321	14	%		12,009	13	%		10,134	12	%
Research and development, net		11,411	12	%		10,357	11	%		10,226	12	%
Total operating expenses		40,854	44	%		38,072	40	%		33,401	40	%
Operating income		7,811	9	%		10,967	11	%		8,953	11	%
Other income		894				2,409				1,440
Income before provision for income taxes		8,705	9	%		13,376	14	%		10,393	12	%
Provision for income taxes(2)		2,454	28	%		4,363	33	%		2,844	27	%
Net income	$	6,251	7	%	$	9,013	9	%	$	7,549	9	%

(1) Gross profit margin percentages are based on the related sales of each category.

(2) Income tax percentage is computed based on the relationship of income taxes to pre-tax income.

Comparison of Year Ended December 31, 2009 to 2008

Revenues for the year ended December 31, 2009 decreased by 3% over the prior year to $92.6 million from $95.5 million in 2008. Revenues in the IVD urinalysis segment decreased 4% to $78.2 million in 2009, from $81.8 million in the prior year. Sales of IVD instruments decreased 26% to $26.0 million from $35.1 million in the prior year as a result of a significant shortage of capital in the global markets. Our unit volume of iQ analyzers sold during 2009 decreased approximately 21% compared to 2008, with domestic units decreasing 25% and internationally units decreasing 19%. International revenues accounted for approximately 33% of consolidated revenue for both 2009 and 2008. Sales of IVD consumables and service increased during the year to $52.2 million from $46.6 million, an increase of 12% over 2008, primarily due to the larger installed base of instruments and the success of converting expiring warranty agreements to service agreements. Revenues derived from Sample Processing instruments and supplies increased to $14.3 million, a 4% increase over 2008 revenues of $13.7 million. This growth was driven by continued strong sales of our new Express 4 centrifuge along with an increase in orders from our international distributors, most notably our distributor in the United Kingdom.

Overall gross profit margins increased to 53% in 2009 compared to 51% in 2008. The gross profit margin of our IVD instruments was 36% in 2009 versus 44% in 2008. As compared to the prior year period, IVD

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instrument gross margin in 2009 was impacted by $368,000 in sales promotions, $1,193,000 in costs related to the iChem VELOCITY, which included Velocity retrofit costs of $373,000, volume and other costs of $320,000, severance costs of approximately $40,000 with an offset of a reduction in employee bonuses of $76,000. In addition, our gross margins on IVD instruments were negatively impacted by foreign currency fluctuations on our purchases of AUTION MAX AX-4280 chemistry analyzers which are denominated in Japanese Yen. The gross margin of our IVD consumables and service increased to 61% during 2009 compared to 57% in 2008, respectively, and included $501,000 in international sales discounts. The consumable gross margin improvement primarily resulted from economies of scale generated by our increasing volume of urine microscopy consumables and spare parts, improved efficiencies in our domestic service business, a reduction in unfavorable foreign currency fluctuations on purchases of dry chemistry strips denominated in Japanese Yen and a reduction of employee bonuses of $160,000. Our chemistry strip manufacturing operation in Germany continues to operate below capacity, but we expect to improve its utilization with increased demand for our proprietary urine chemistry test strips as a result of an increasing installed base our new iChem VELOCITY automated urine chemistry analyzers in the mid to high volume segment of the urinalysis market. Gross profit margin for our Sample Processing instruments and supplies segment increased to 51% in 2009 from 50% in 2008 as a result of product mix, price increases and reduced headcount related to the reduction in force in the second quarter of 2009. In addition, the gross margin was affected by our Sample Processing division’s voluntarily recall of approximately 1,565 centrifuges, requiring a $250,000 accrual to cover the product retrofit costs during the fourth quarter of 2009.

Marketing and selling expenses totaled $16.1 million, or 17% of revenues, in 2009 as compared to $15.7 million, or 16% of revenues in 2008. The increase includes personnel and related costs of $967,000, partially offset by lower commission and GPO fees of $319,000, travel and entertainment of $198,000, a reduction of employee bonuses of $134,000 and professional fees of $151,000. Our $967,000 increase in personnel and related costs includes $350,000 in start-up expenses relating to the initiation of direct sales in the United Kingdom, Ireland and Germany.

General and administrative expenses increased to $13.3 million, or 14% of revenues, in 2009, from $12.0 million or 13% of revenues in 2008. This increase includes additional personnel and related costs of $619,000, stock-based compensation expense of $804,000, professional fees of $108,000, board compensation expense of $64,000, an accrual of $475,000 for payroll taxes attributable to the exercise of stock options, other corporate related expenses of approximately $300,000 and an offset of $541,000 for a reduction in employee bonuses.

Research and development expense increased to $11.4 million, or 12% of revenues, in 2009 from $10.4 million, or 11% of revenues in 2008. The increase includes research materials, consulting, clinical development expenses and software capitalization of $1.1 million as we continue to invest heavily in research and development for the continued development of our diagnostics product pipeline, including our NADiA platform and 3GEMS urinalysis and hematology programs. These costs were partially offset by a reduction in employee bonuses of $431,000.

Interest income during 2009 amounted to $857,000, a $323,000 decrease over 2008 mainly due to a lower interest rate environment on our cash balances, and in spite of a higher cash balance.

Income tax expense during the year amounted to 28% of pre-tax income as compared to 33% during the prior year. The decrease in the income tax provision resulted from an increase in research and development tax credits. We have federal and state research and development and other tax credit carryovers totaling $5.3 million.

Comparison of Year Ended December 31, 2008 to 2007

Revenues for the year ended December 31, 2008 increased by 13% over the prior year to $95.5 million from $84.3 million in 2007. Revenues in the IVD urinalysis segment increased 14% to $81.8 million in 2008, from

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$72.0 million in the prior year. Sales of IVD instruments increased 5% to $35.1 million in 2008 from $33.5 million in the prior year. Our unit volume of iQ analyzers sold during 2008 increased approximately 2% with the number of units sold domestically remaining constant whereas the number of units sold internationally increased 3%. Total international revenues accounted for approximately 33% of consolidated revenue during 2008 compared to 30% during 2007. Sales of IVD consumables and service increased during 2008 to $46.6 million from $38.5 million, an increase of 21% over 2007, primarily due to the larger installed base of instruments and the success of converting expiring warranty agreements to service agreements. Revenues from the Sample Processing instruments and supplies increased during 2008 to $13.7 million up from $12.3 million, a 12% increase over 2007. This growth was primarily driven by the new Express 4 centrifuge partially offset by declining sales of more mature products, such as the Express 2 centrifuge.

Overall gross profit margins increased from 50% in 2007 to 51% in 2008. The gross profit margin of our IVD instruments was 44% in 2008 versus 46% in 2007, as the launch in 2008 of the iChem VELOCITY carried higher start-up manufacturing costs such as manufacturing learning curve, training and higher material costs due to small lot procurement in the initial stages. In addition, our gross margins on IVD instruments were negatively impacted by foreign currency fluctuations on purchases of AUTION MAX AX-4280 chemistry analyzers which are denominated in Japanese Yen. The gross margin of our IVD consumables and service increased to 57% during 2008 compared to 54% in 2007. The consumable gross margin improvement primarily resulted from economies of scale generated by our increasing volume of urine microscopy consumables partially offset by unfavorable foreign currency fluctuations on purchases of dry chemistry strips denominated in Japanese Yen. Our chemistry strip manufacturing operation continued to operate at below capacity during 2008, which adversely affected margins. In addition, during 2008 we experienced gross profit margin improvement in our domestic instrument service as a result of economies of scale and cost containments even with an increasing domestic installed base. Gross profit margin for our Sample Processing laboratory instruments and supplies segment remained constant at 50% in 2007 and 2008.

Marketing and selling expenses totaled $15.7 million, or 16% of revenues, in 2008 as compared to $13.0 million, or 16% of revenues in 2007. The increase includes additional personnel and related costs of $2.3 million, primarily relating to new product introductions, and professional and GPO fees of $354,000 and other expenses of $194,000.

General and administrative expenses amounted to $12.0 million, or 13% of revenues, in 2008, as compared to $10.1 million or 12% of revenues in 2007. This increase includes additional personnel and related costs of $1.43 million most of which is attributed to a significant investment in information technology staff needed to improve our business systems. In addition, our board compensation expense and corporate insurance increased in 2008 by $97,000 and other corporate expenses increased by $215,000 partially offset by a reduction in professional fees for audit and SOX 404 services of $100,000.

Research and development expense for the year ended 2008 amounted to $10.4 million and the year ended 2007 amounted to $10.2 million. The increase includes $1.3 million in personnel and related expenses, and an increase in clinical development related expenses of $290,000. These costs were partially offset by a reduction in iChem VELOCITY prototype and research materials totaling $503,000, a decrease in consultants, patent prosecution and other miscellaneous expenses, primarily related to the iChem VELOCITY development of $441,000 and cost reductions as a result of the shutdown of our Advanced Digital Imaging Research subsidiary of $380,000.

Interest income during 2008 amounted to $1.2 million, a $300,000 decrease over 2007 mainly due to a lower interest rate environment on our cash balances, and lower cash balances due to the use of cash to repurchase of our common stock during 2008.

Income tax expense during 2008 amounted to 33% of pre-tax income as compared to 27% during the prior year. The increase in the income tax provision resulted from a reduction in research and development tax credits.

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Other income from non recurring manufacturing transition rights of $1.2 million during 2008 related to an agreement entered with IDEXX Operations, Inc. (IDEXX), in December 2008. This manufacturing, supply and transition agreement allows IDEXX to manufacture and distribute rotors compatible with the drives of IDEXX machines, and in exchange for the manufacturing transition rights, we received $1.5 million with an offset of $268,000 related to research and development cost associated with the manufacturing transition rights.

Contractual Obligations and Commercial Commitments

The following table aggregates our expected minimum contractual obligations and commitments subsequent to December 31, 2009:

Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in thousands)*
Operating lease commitments	$	6,312	$	2,013	$	2,149	$	1,544	$	606

* Not included in the table above are normal recurring accounts payable or accrued expenses which are presented on the accompanying consolidated financial statements.

Off-Balance Sheet Arrangements

At December 31, 2009 and 2008, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Liquidity and Capital Resources

Our primary source of liquidity is cash from operations, which depends heavily on sales of our IVD instruments, consumables and service, as well as sales of sample processing instruments and supplies. At December 31, 2009, our cash and cash equivalents amounted to $34.3 million compared to $24.4 million at December 31, 2008.

Adverse macro economic forces have been impacting our selling markets and the credit markets of our customers. Although the impact thus far has been relatively mild, we continue to face the following challenges: deferrals of purchases due to decreases in capital budgets of our customers, delays in the purchasing cycle due to greater scrutiny of deals and increased internal competition for limited capital dollars, and a significant increase in requests for quotes for operating leases. The aforementioned factors may lead to a decrease in revenue, an increase of deferred revenue, or could lead to installment cash collections that will affect our liquidity and capital resources.

Operating Cash Flows. Cash provided by operations for the year ended December 31, 2009 decreased to $12.1 million compared to cash provided by operations of $13.4 million during the prior year. In addition to the decrease in net income of $2.8 million, we experienced a $5.3 million decrease in accounts payable and accrued expenses, a $1.8 million increase in investment in sales-type leases and a $838,000 increase in inventories, which contributed to the reduced cash flow when compared to the prior year. Offsetting these reductions in cash flow were non-cash items consisting of higher depreciation and amortization of $398,000, stock-based compensation expense of $1.3 million, and tax benefits from stock options exercises of $344,000. In addition, we experienced a $6.7 million reduction in accounts receivable and a $3.2 million reduction in prepaid expenses and other current assets primarily due to a nonrecurring $1.5 million payment from IDEXX Labs, Inc. under the December 31, 2008 manufacturing, supply and transition agreement as compared to the prior year period.

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The number of days sales in accounts receivable decreased to 70 days at the end of 2009 compared to 77 days for the prior year end. The number of days sales in accounts receivable varies and extends due to extended payment terms for our international customers and the granting of an increased volume of extended payment terms for certain customers of our instrument sales and instrument, consumables and service mix.

Our cash flow has been favorably affected by tax credit carryforwards. As of December 31, 2009, we had federal and state tax credit carryforwards of approximately $2.2 million and $3.1 million, respectively. We continue to realize tax deductions from the exercise of certain stock options. During the year ended December 31, 2009, we realized tax deductions of approximately $707,000 relating to this item. During the year ended December 31, 2009, we paid federal and state taxes of $1.9 million and $869,000, respectively.

Investing Activities. Cash used in investing activities totaled $1.6 million in 2009, a $5.0 million decrease from the prior year period primarily as a result of the sale of short-term marketable securities of $2.2 million, offset by a $1.9 million reduction in purchases of short-term marketable securities, a decrease in the purchase of property and equipment of $683,000, and a reduction in the capitalization of software development costs of $341,000 as compared to the prior year period.

Financing Activities. Cash used in financing activities totaled $813,000 during the year ended December 31, 2009, an $9.8 million decrease from the prior year period primarily as a result of the reduction in the repurchase of common stock for retirement amounting to $10.5 million, partially offset by a reduction in tax deduction benefits from the exercise of stock option of $344,000 and a $362,000 reduction in the issuance of common stock over the prior year.

We currently have a credit facility with a commercial bank consisting of a $6.5 million revolving line of credit for working capital and a $10.0 million line of credit for acquisitions and product opportunities. The credit facility has variable interest rates, which will change from time to time based on changes to either the LIBOR rate or the lender’s prime rate. As of December 31, 2009, there were no borrowings under the new credit facility. We are subject to certain financial and non-financial covenants under the credit facility with the bank and as of December 31, 2009, we were in compliance with these covenants.

In 2008, our board of directors authorized two stock repurchase plans, which resulted in our purchase of an aggregate of 983,579 shares of our common stock for approximately $11.9 million during 2008, and an additional 250,800 shares of our common stock for approximately $2.5 million during 2009.

On September 11, 2008, our Chief Executive Officer exercised a stock option to purchase an aggregate of 130,000 shares of common with an exercise price of $4.34 per share, on a net issue basis, in a transaction approved by the compensation committee of our board of directors. We issued 62,081 shares of common stock to our Chief Executive Officer, and retained 67,919 shares of common stock with an aggregate market value of $1,219,000 based on the last closing price of our common stock immediately prior to exercise of $17.95 per share. Of this amount, $564,000 was applied in payment of the aggregate exercise price of the stock options and $655,000 was applied in payment of payroll taxes arising from the option exercise. These options had a term expiring on November 18, 2008.

We believe that our current cash on hand, together with cash generated from operations and cash available under the credit facility with the bank will be sufficient to fund normal operations for the foreseeable future. However, additional funding may be required to fund expansion of our business. There is no assurance that such funding will be available on terms acceptable to us.

Recent Accounting Pronouncements

In October 2009, the FASB issued Accounting Standards Update (“ASU”) ASU 2009-14, Certain Revenue Arrangements That Include Software Elements, now codified under FASB ASC Topic 985, Software.

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ASU 2009-14, removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. ASU 2009-14 is to be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. We are currently evaluating both the timing and the impact of the adoption of the ASU on our consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, Multiple-Deliverable Revenue Arrangements, which amends ASC Topic 605, Revenue Recognition, to require companies to allocate revenue in multiple-element arrangements based on an element’s estimated selling price if vendor-specific or other third-party evidence of value is not available. ASU 2009-13 is effective beginning June 15, 2010. Earlier application is permitted. We are currently evaluating both the timing and the impact of the adoption of the ASU on our consolidated financial statements.

In June 2009, the FASB issued Accounting Standards Codification (“ASC”) Topic 105, The FASB Accounting Standard Codification and the Hierarchy of Generally Accepted Accounting Principle, establishes the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with GAAP. All existing accounting standard documents are superseded by the Codification and any accounting literature not included in the Codification will not be authoritative. However, rules and interpretive releases of the Securities and Exchange Commission (“SEC”) issued under the authority of federal securities laws will continue to be sources of authoritative GAAP for SEC registrants. ASC Topic 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Therefore, beginning with our quarter ended September 30, 2009, all references made by it to GAAP in its consolidated financial statements now use the new Codification numbering system. The Codification does not change or alter existing GAAP and, therefore, did not have any impact on our consolidated financial statements.

In June 2009, the FASB issued ASC Topic 810, Consolidation, which establishes how a company determines when an entity that is insufficiently capitalized or not controlled through voting should be consolidated. This statement improves financial reporting by enterprises involved with variable interest entities as a result of the elimination of the qualifying special-purpose entity concept in ASC Topic 860, Transfers and Servicing,. ASC Topic 810 is effective after November 15, 2009. The adoption of ASC Topic 810 did not have a material impact on our consolidated financial statements.

In June 2009, the FASB issued ASC Topic 860, Transfers and Servicing, which requires entities to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains some risk to the assets. This statement will improve the relevance, representation faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets. It will also take into account the effects of a transfer on its financial position, financial performance, and cash flows, and a transferor’s continuing involvement. ASC Topic 860 is effective after November 15, 2009. The adoption of ASC Topic 860 did not have a material impact on our consolidated financial statements.

In May 2009, the FASB issued ASC Topic 855, Subsequent Events, which sets forth the period after the balance sheet date during which management of an SEC filer should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and disclosures that an entity should make about events or transactions that occurred after the balance sheet date. In February 2010, the FASB issued ASU 2010-09, Subsequent Events, which amends ASC Topic 855 so that an SEC filer entity is required to evaluate subsequent events through the date that the financial statements are issued. ASU 2010-09 also states that the SEC filer entity is not required to disclose the date through which subsequent events have been evaluated. ASC Topic 855 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The adoption of ASC Topic 855 did not have any impact on our consolidated financial statements.

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In September 2006, the FASB issued ASC Topic 820, Fair Value Measurements and Disclosures, which establishes a framework for measuring fair value in accordance with generally accepted accounting principles, clarifies the definition of fair value within that framework and expands disclosures about fair value measurements. ASC Topic 820 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, except for the measurement of share-based payments. ASC Topic 820 was effective for the Company on January 1, 2008. In October 2008, the FASB issued FASB Staff Position (FSP) SFAS No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, which clarifies the application of SFAS No. 157 in a market that is not active and provides guidance in key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FASB FSPs apply to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with FASB No. 157. In April 2009, the FASB issued FASB Staff Position (FSP) SFAS No. 157-4, Determining the Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which provides additional guidance for estimating fair value in accordance with SFAS No. 157, when the volume and level of activity for the asset or liability have significantly decreased. FSP No. 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. FSP SFAS No. 157-4 is effective for interim and periods ending after June 15, 2009, and shall be applied prospectively. The adoption of ASC Topic 820 for financial assets and liabilities did not have a material impact on our consolidated financial statements, other than presentation of the disclosures required by ASC Topic 825-10-50, Financial Instruments Disclosure. The adoption of ASC Topic 820 for nonfinancial assets and nonfinancial liabilities effective January 1, 2009 did not have a material impact on our consolidated financial statements.

In April 2009, the FASB issued ASC Topic 825-10-50, Financial Instruments Disclosure, which requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies, as well as in annual financial statements. ASC Topic 825-10-50 also requires those disclosures in summarized financial information at interim reporting. ASC Topic 825-10-50 is effective for interim reporting periods ending after June 15, 2009. The adoption of ASC Topic 825-10-50 did not have a material impact on our consolidated financial statements.

In December 2007, the FASB issued ASC Topic 805, Business Combinations. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. ASC Topic 805 is effective for us beginning January 1, 2009, and will apply prospectively to business combinations completed on or after that date. ASC Topic 805 addresses issues raised by preparers, auditors and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. ASC Topic 805 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first reporting period beginning on or after December 15, 2008. The adoption of ASC Topic 805 did not have a material impact on our consolidated financial statements.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

Our business is exposed to various market risks, including changes in interest rates and foreign currency exchange rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates. We do not invest in derivatives, foreign currency forward contracts or other financial instruments for trading or speculative purposes. We had no debt at December 31, 2009, thus were not subject to market risk for changes in interest rates on debt obligations. We are subject to market risk for changes in interest rates on our short-term investment portfolio. We invest our excess cash in certificates of deposit and the market value of these investments fluctuate based on changes in interest rates.

Foreign Currencies

We conduct business in certain foreign markets, primarily in the European Union and Asia. Our primary exposure to foreign currency risk relates to investments in foreign subsidiaries that transact business in a functional currency other than the U.S. Dollar, primarily the Euro. We are subject to certain foreign currency risks in the importation of goods from Japan and as a result of commercial operations in Europe and Asia. Our purchases from a major Japanese IVD supplier are denominated in Japanese Yen. These components represent a significant portion of our material costs. All of our sales are denominated in U.S. Dollars with the exception of France, where sales are denominated in Euros. Fluctuations in the U.S. Dollar exchange rate for Japanese Yen and Euros could result in increased costs for our key components and increased costs for commercial operations in Europe.

To mitigate the potential impact of adverse fluctuations in the U.S. Dollar exchange rate for these currencies, we periodically purchase foreign currency forward contracts. During the year ended December 31, 2008, we entered into such contracts for Euros and Japanese Yen totaling $404,000 and $7.6 million, respectively. As of December 31, 2009, we do not have any remaining foreign currency forward contracts in Japanese Yen or Euros.

41

Item 8. Financial Statements and Supplementary Data.

Index to Financial Statements

Reports of Independent Registered Public Accounting Firm	43
Consolidated Balance Sheets at December 31, 2009 and 2008	45
Consolidated Statements of Income for the three years ended December 31, 2009	46
Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 2009	47
Consolidated Statements of Cash Flow for the three years ended December 31, 2009	49
Consolidated Statements of Comprehensive Income for the three years ended December 31, 2009	50
Notes to Consolidated Financial Statements	51

42

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

of IRIS International, Inc.

Chatsworth, California

We have audited the accompanying consolidated balance sheets of IRIS International, Inc.’s (the “Company”) as of December 31, 2009 and 2008 and the related consolidated statements of income, stockholders’ equity, cash flows and other comprehensive income for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IRIS International, Inc. at December 31, 2009 and 2008, and the results of its operations and cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), IRIS International Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 15, 2010, expressed an unqualified opinion thereon.

/s/    BDO Seidman LLP

Los Angeles, California

March 15, 2010

43

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

of IRIS International, Inc.

Chatsworth, California

We have audited IRIS International, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). IRIS International, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of IRIS International Inc. as of December 31, 2009 and 2008, and the related consolidated statements of income, stockholders’ equity, cash flows and other comprehensive income for each of the three years in the period ended December 31, 2009 and our report dated March 15, 2010 expressed an unqualified opinion thereon.

/s/    BDO Seidman LLP

Los Angeles, California

March 15, 2010

44

IRIS INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

	At December 31,
	2009			2008
Assets
Current assets:
Cash and cash equivalents	$	34,253		$	24,445
Short-term investments in marketable securities		—			2,157
Accounts receivable, net of allowance for doubtful accounts and sales returns of $391 and $445 at December 31, 2009 and 2008, respectively		17,715			20,261
Inventories		10,866			9,957
Prepaid expenses and other current assets		1,045			2,512
Investment in sales-type leases, current portion		3,397			3,204
Deferred tax asset		4,238			3,727
Total current assets		71,514			66,263
Property and equipment, net of accumulated depreciation of $11,713 and $8,923 at December 31, 2009 and 2008, respectively		9,667			9,678
Goodwill		2,450			2,450
Core technology, net of accumulated amortization of $336 and $254 at December 31, 2009 and 2008, respectively		1,454			1,544
Software development costs, net of accumulated amortization of $3,365 and $2,773 at December 31, 2009 and 2008, respectively		2,534			2,291
Deferred tax asset		1,898			1,811
Investment in sales-type leases, non-current portion		7,441			5,957
Other assets		832			644
Total assets	$	97,790		$	90,638
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	4,479		$	6,299
Accrued expenses		5,761			6,475
Deferred service contract revenue, current portion		2,286			1,936
Total current liabilities		12,526			14,710
Deferred service contract revenue, non-current portion		42			18
Total liabilities		12,568			14,728
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value
Authorized: 50 million shares; Issued and outstanding: 18,147 shares and 18,036 shares at December 31, 2009 and 2008, respectively		181			180
Preferred Stock, $0.01 par value; Authorized 1.0 million shares:
Callable Series C shares issued and outstanding: none		—			—
Additional paid-in capital		87,692			83,646
Other comprehensive income		560			415
Accumulated deficit		(3,211	)		(8,331	)
Total stockholders’ equity		85,222			75,910
Total liabilities and stockholders’ equity	$	97,790		$	90,638

The accompanying notes are an integral part of these consolidated financial statements.

45

IRIS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

	For the Years ended December 31,
	2009			2008			2007
Sales of IVD instruments	$	26,018		$	35,128		$	33,492
Sales of IVD consumables and service		52,213			46,643			38,533
Sales of sample processing instruments and supplies		14,335			13,731			12,281
Total revenues		92,566			95,502			84,306
Cost of goods – IVD instruments		16,778			19,605			17,949
Cost of goods – IVD consumables and service		20,158			19,995			17,860
Cost of goods – sample processing instruments and supplies		6,965			6,863			6,143
Total cost of goods sold		43,901			46,463			41,952
Gross profit		48,665			49,039			42,354
Marketing and selling		16,122			15,706			13,041
General and administrative		13,321			12,009			10,134
Research and development, net		11,411			10,357			10,226
Total operating expenses		40,854			38,072			33,401
Operating income		7,811			10,967			8,953
Other income (expense):
Interest income		857			1,180			1,498
Interest expense		(21	)		(11	)		(10	)
Manufacturing transition rights		—			1,232			—
Other income (expense)		58			8			(48	)
Income before provision for income taxes		8,705			13,376			10,393
Provision for income taxes		2,454			4,363			2,844
Net income	$	6,251		$	9,013		$	7,549
Net income per share – basic	$	0.35		$	0.49		$	0.42
Net income per share – diluted	$	0.35		$	0.48		$	0.40
Weighted average common shares outstanding – basic		17,727			18,246			18,187
Weighted average common shares outstanding – diluted		17,874			18,728			18,749

The accompanying notes are an integral part of these consolidated financial statements.

46

IRIS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

	Common Stock					Additional Paid-In Capital			Accumulated Other Comprehensive Income		Accumulated Deficit			Total
	Shares		Amount
Balance, January 1, 2007	18,046		$	180		$	79,226		$	48	$	(16,888	)	$	62,566
Cumulative effect of accounting change – adjustment to retained earnings upon adoption of ASC 740-10	—			—			—			—		(547	)		(547	)
Common stock issued on exercise of options	437			4			2,068			—		—			2,072
Tax benefit from stock option exercises	—			—			1,496			—		—			1,496
Restricted stock grants to employees	64			1			(1	)		—		—			—
Common stock issued under employee stock purchase plan for cash	2			—			26			—		—			26
Stock issued in acquisition of business	52			1			—			—		—			1
Translation adjustment, net of tax	—			—			—			297		—			297
Stock based compensation expense	—			—			1,474			—		—			1,474
Net income for year	—			—			—			—		7,549			7,549
Balance, December 31, 2007	18,601			186			84,289			345		(9,886	)		74,934
Common stock issued on exercise of options	369			4			1,808			—		—			1,812
Restricted stock grants to employees	119			1			(1	)		—		—			—
Tax benefit from stock option exercises	—			—			760			—		—			760
Translation adjustment, net of tax	—			—			—			70					70
Stock based compensation expense	—			—			2,467			—					2,467
Purchase of common stock for retirement	(1,053	)		(11	)		(5,677	)				(7,458	)		(13,146	)
Net income for year	—			—			—			—		9,013			9,013
Balance, December 31, 2008	18,036		$	180		$	83,646		$	415	$	(8,331	)	$	75,910

47

IRIS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(In thousands)

	Common Stock						Additional Paid-In Capital			Accumulated Other Comprehensive Income		Accumulated Deficit			Total
	Shares			Amount
Balance, December 31, 2008		18,036		$	180		$	83,646		$	415	$	(8,331	)	$	75,910
Common stock issued on exercise of options		221			2			1,448			—		—			1,450
Restricted stock grants to employees		167			2			(2	)		—		—			—
Tax benefit from stock option exercises		—			—			416			—		—			416
Translation adjustment, net of tax		—			—			—			145		—			145
Stock based compensation expense		—			—			3,729			—		—			3,729
Purchase of common stock for retirement		(277	)		(3	)		(1,545	)		—		(1,131	)		(2,679	)
Net income for year		—			—			—			—		6,251			6,251
Balance, December 31, 2009	$	18,147		$	181		$	87,692		$	560	$	(3,211	)	$	85,222

The accompanying notes are an integral part of these consolidated financial statements

48

IRIS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	For the Year ended December 31,
	2009			2008			2007
Cash flows from operating activities:
Net income	$	6,251		$	9,013		$	7,549
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on disposal of fixed assets		74			185			—
Deferred taxes		(182	)		2,158			2,394
Tax benefit from stock option exercises		(416	)		(760	)		(1,496	)
Depreciation and amortization		3,523			3,127			2,621
Common stock and stock based compensation		3,729			2,467			2,440
Changes in operating assets and liabilities:
Accounts receivable		2,546			(4,186	)		(2,909	)
Inventories		(909	)		(71	)		(2,528	)
Prepaid expenses and other assets		1,280			(1,890	)		(241	)
Investment in sales-type leases		(1,677	)		112			(400	)
Accounts payable		(1,820	)		2,010			493
Accrued expenses		(713	)		762			(701	)
Deferred service contract revenue		373			500			(86	)
Net cash provided by operating activities		12,059			13,427			7,136
Cash flows from investing activities:
Acquisition of property and equipment		(2,905	)		(3,588	)		(3,938	)
Software development costs capitalized		(835	)		(1,178	)		(970	)
Purchase of short-term investments in marketable securities		—			(1,857	)		(300	)
Sale of short-term investments in marketable securities		2,157			—			132
Net cash used in investing activities		(1,583	)		(6,623	)		(5,076	)
Cash flows from financing activities:
Issuance of common stock and warrants for cash		1,450			1,812			1,133
Repurchase of common stock		(2,679	)		(13,146	)		—
Tax benefit from stock option exercises		416			760			1,496
Net cash (used in) provided by financing activities		(813	)		(10,574	)		2,629
Effect of exchange rate changes on cash and cash equivalents		145			70			297
Net increase (decrease) in cash and cash equivalents		9,808			(3,700	)		4,986
Cash and cash equivalents at beginning of year		24,445			28,145			23,159
Cash and cash equivalents at end of year	$	34,253		$	24,445		$	28,145
Supplemental schedule of non-cash investing and financing activities:
During the year ended December 31, 2009, the Company disposed of property and equipment with a cost and accumulated depreciation of $122,000 and $48,000, respectively.
During the year ended December 31, 2008, the Company disposed of property and equipment with a cost and accumulated depreciation of $957,000 and $773,000, respectively.
In September 2008, stock options for 130,000 shares of common stock were exercised pursuant to a net cashless exercise and therefore no cash was received, resulting in the issuance of 62,081 shares of common stock.
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	2,729		$	2,200		$	948
Cash paid for interest	$	21		$	11		$	10

The accompanying notes are an integral part of these consolidated financial statements.

49

IRIS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	For the Year ended December 31,
	2009		2008		2007
Net income	$	6,251	$	9,013	$	7,549
Foreign currency translation, net of tax		145		70		297
Comprehensive income	$	6,396	$	9,083	$	7,846

The accompanying notes are an integral part of these consolidated financial statements.

50

IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Company History

IRIS International, Inc. was incorporated in California in 1979 and reincorporated during 1987 in Delaware. The Company designs, develops, manufactures and markets in vitro diagnostic (“IVD”) products, including IVD imaging systems based on patented and proprietary neural network-based Automated Particle Recognition (APR™) software to enable high-speed digital processing to classify and display images and describe the morphology of microscopic particles, urine chemistry analyzer and related chemistry test strips and accessories, molecular diagnostics assays based on our Nucleic Acid Detection Immuno-Assay (NADiA) technology, as well as special purpose centrifuges and other small instruments for automating microscopic procedures and DNA processing performed in clinical laboratories.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity 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 revenues and expenses during the reporting periods. The significant estimates in the preparation of the consolidated financial statements relate to the assessment of the carrying allowance for doubtful accounts, inventory reserves, the useful lives, fair value and recoverability of carrying value of long-lived and intangible assets, including goodwill, unearned income on sales-type-leases, estimated provisions for warranty costs, laboratory information system implementations, currency hedges for foreign purchases and deferred tax assets. Actual results and outcomes may differ from management’s estimates and assumptions.

Principles of Consolidation

The Company’s consolidated financial statements include the accounts of IRIS International, Inc. and its wholly-owned subsidiaries. Inter-company accounts and transactions have been eliminated in the consolidated financial statements.

Cash Equivalents

The Company considers highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value.

Investments in Marketable Securities

In 2008, the Company adopted FASB ASC Topic 820, “Fair Value Measurement and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 defines fair values as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

• Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

• Level 3 inputs are unobservable inputs for the asset or liability

51

IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Accounts Receivable

The Company sells predominantly to entities in the health care industry. The Company grants uncollateralized credit to customers, primarily hospitals, clinical and research laboratories, and distributors. The Company performs ongoing credit evaluations of customers’ financial conditions before granting uncollateralized credit. Although the Company generally does not require collateral, letters of credit may be required from its customers in certain circumstances. No single customer accounts for 10% or more of the Company’s consolidated revenues or 10% or more of the Company’s accounts receivable at the balance sheet date.

Accounts receivable are carried at original invoice amount less allowances made for sales markdowns, returns and doubtful accounts. Accounts receivables are customer obligations due under normal trade terms. Despite the Company’s stated trade terms, several customers are subject to reimbursement delays attributed to government and third party payer compliance and regulation issues. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Receivables are written off when deemed uncollectible.

Inventories

Inventories are carried at the lower of cost or market on a first in, first out basis. Provision for potentially obsolete or slow-moving inventory is made based on management’s analysis of inventory levels and future sales forecasts. Other inventory that is considered excess inventory is fully reserved.

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation is generally computed using the straight-line method over three to seven years, the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of their useful life or the remaining term of the lease.

Goodwill and Core Technology

The Company’s intangible assets consist of goodwill, which is not being amortized, and core technology, which is being amortized over its useful life of 20 years. All intangible assets are subject to impairment tests on an annual or periodic basis. Goodwill is evaluated in accordance with FASB ASC Topic 350, Intangibles – Goodwill and Other (“ASC 350”), based on various analyses, including a comparison of the carrying value of the reporting unit to its estimated fair value and discounted cash flows. The analysis necessarily involves significant management judgment to evaluate the capacity of an acquired business to perform within projections. Core technology is evaluated for impairment using the methodology set forth in FASB ASC Topic 360, Property, Plant and Equipment. Recoverability of these assets is assessed only when events have occurred that may give rise to a potential impairment. When a potential impairment has been identified, forecasted undiscounted net cash flows of the operations to which the asset relates are compared to the current carrying value of the long-lived assets present in that operation. If such cash flows are less than such carrying amounts, long-lived assets, including such intangibles, are written down to their respective fair values.

At December 31, 2009 and 2008, the Company had goodwill of approximately $2.5 million and core technology intangible assets of $1.5 million. During the years ended December 31, 2009 and 2008, no goodwill or other intangible asset impairment was recorded.

52

IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Amortization expense of the core technology intangible asset totaled $89,000, $90,000 and $89,000 for the years ended December 31, 2009, 2008 and 2007, respectively.

Software Development Costs

The Company capitalizes certain software development costs for new products and product enhancements once all planning, designing, coding and testing activities necessary to establish that the product can be produced to meet our design specifications are completed, and concludes capitalization when the product is ready for general release. Research and development costs relating to software development are expensed as incurred. Amortization of capitalized software development costs is provided on a product-by-product basis at the greater of the amount computed using (i) the ratio of current revenues for a product to the total of current and anticipated future revenues or (ii) the straight-line method over the remaining estimated economic life of the product up to five years.

Total software development costs capitalized totaled $835,000, $1,178,000 and $970,000 for the years ended December 31, 2009, 2008 and 2007, respectively. Amortization expense of software development costs totaled $592,000, $651,000 and $593,000 for the years ended December 31, 2009, 2008 and 2007, respectively.

Impairment of Long-Lived Assets

The Company will identify and record impairment losses for long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. There were no impairments of long-lived assets at December 31, 2009, 2008 and 2007.

Revenue recognition

For products, revenue is recognized when risk of loss transfers, when persuasive evidence of an arrangement exists, the price to the buyer is fixed and determinable and collectability is reasonably assured. When a customer enters into an operating-type lease agreement, hardware revenue is recognized on a straight-line basis over the life of the lease, while the cost of the leased equipment is carried in customer leased equipment within property, plant and equipment and amortized over its estimated useful life. Under a sales-type lease agreement, hardware revenue is generally recognized at the time of shipment based on the present value of the minimum lease payments with interest income recognized over the life of the lease using the interest method. Instrument costs under a sales-type lease agreement are recognized at the time of shipment. Service revenues on maintenance contracts are recognized ratably over the life of the service agreement or as service is performed, if not under a contract. For those instrument sales that include multiple deliverables, such as instruments, training, consumables and service, the Company allocated revenue based on the relative fair values of the individual component sold separately, as determined in accordance with FASB ASC Topic 605, Revenue Recognition.

The Company’s accounting for leases involves specific determinations under FASB ASC Topic 840 Leases (“ASC 840”), which often involve complex provisions and significant judgments. The four criteria of ASC 840 that the Company uses in the determination of a sales-type lease or operating-type lease are: (i) a review of the lease term to determine if it is equal to or greater than 75 percent of the economic life of the equipment; (ii) a review of the minimum lease payments to determine if they are equal to or greater than 90 percent of the fair

53

IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

market value of the equipment; (iii) a determination of whether or not the lease transfers ownership to the lessee at the end of the lease term; and (iv) determination of whether or not the lease contains a bargain purchase option.

Additionally, before classifying a lease as a sales-type lease, the Company assesses whether collectability of the lease payments is reasonably assured and whether there are any significant uncertainties related to costs that the Company has yet to incur with respect to the lease. Generally, the Company’s leases that qualify as sales-type lease are non-cancelable leases with a term of 75 percent or more of the economic life of the equipment. Certain of the Company’s lease contracts are customized for larger customers and often result in complex terms and conditions that typically require judgment in applying the lease accounting criteria.

The economic life of the Company’s leased instrument and its fair value require significant accounting estimates and judgment. These estimates are based on the Company’s historical experience. The most objective measure of the economic life of the Company’s leased instrument is the original term of a lease, which is typically five years, since a majority of the instruments are returned by the lessee at or near the end of the lease term and there is not a significant after-market for our used instruments without substantial remanufacturing. The Company believes that this is representative of the period during which the instrument is expected to be economically usable, with normal service, for the purpose for which it is intended. The Company regularly evaluates the economic life of existing and new products for purposes of this determination.

The fair value of the Company’s leased instruments is determined by a range of cash selling prices which the Company deemed to be verifiable objective evidence. The Company regularly evaluates available objective evidence of instrument fair values using historical data.

The Company has certain government contracts with cancellation clauses or renewal provisions that are generally required by law, such as: (i) those dependant on fiscal funding outside of a governmental unit’s control; (ii) those that can be cancelled if deemed in the tax payers’ best interest; or (iii) those that must be renewed each fiscal year, given limitations that may exist on multi-year contracts that are imposed by statute. Under these circumstances and in accordance with the relevant accounting literature, as well as considering the Company’s historical experience, a thorough evaluation of these contracts is performed to assess whether cancellation is remote or whether exercise of the renewal option is reasonably assured.

The Company recognizes revenues from service contracts ratably over the term of the service period, which typically ranges from twelve to sixty months. Payments for service contracts are generally received in advance. Deferred revenue represents the revenues to be recognized over the remaining term of the service contracts.

Shipping and Handling Costs

The Company records shipping and handling costs billed to customers as a component of revenue. Costs to distribute products to customers, including inbound and outbound freight, and other shipping and handling activities are included in cost of goods sold in accordance with FASB ASC Topic 605-45-45-20, Revenue Recognition – Shipping and Handling Fees and Costs.

Total shipping and handling costs included as a component of revenue for the years ended December 31, 2009, 2008 and 2007 amounted to approximately $707,000, $964,000 and $1,453,000, respectively. Total shipping and handling costs included as a component of cost of sales amounted to $1,871,000, $2,343,000 and $2,310,000 for years ended December 31, 2009, 2008 and 2007, respectively.

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Warranties

The Company recognizes warranty expense, based on management’s estimate of expected cost, as an accrued liability at the time of sale. The Company regularly reevaluates its estimates to assess the adequacy of the recorded warranty liabilities and adjust the amounts as necessary. Warranty expense was approximately $1,137,000, $921,000 and $1,262,000 during the years ended December 31, 2009, 2008 and 2007, respectively.

Advertising Expenditures

Advertising costs are charged to expense as incurred. Advertising expense for the years ended December 31, 2009, 2008 and 2007 amounted to $244,000, $234,000 and $264,000, respectively.

Research and Development Expenditures

Except for certain software development costs capitalized as described above, research and development expenditures are charged to operations as incurred. Net research and development expense includes total research and development costs incurred, including costs incurred under research and development grants and contracts, less costs reimbursed under research and development contracts.

From time to time the Company receives grants from agencies of the U.S. Government. The Company does not recognize any revenue from such grants since they are cost reimbursement grants whereby the Company submits requests for reimbursement for certain costs incurred. There are no ongoing obligations or requirements with respect to the grants received, the Company retains ownership of any intellectual property that results from the research and development, and the U.S. Government agency receives a right to use the results of the research for government projects. The Company received cost reimbursements of $85,000, $164,000 and $135,000 during the years ended December 31, 2009, 2008 and 2007, respectively.

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC Topic 740-10, Income Taxes, (“ASC 740”) which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

The Company accounts for uncertain tax positions in accordance with ASC 740, which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest, penalties and disclosures required. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Foreign Currency Translation

The statements of operations of foreign operations are translated into U.S. dollars at rates of exchange in effect each month. The balance sheets of these operations are translated at period-end exchange rates, and the differences from historical exchange rates are reflected in stockholders’ equity as other comprehensive income (loss).

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Fair Value of Financial Instruments

The carrying amounts of financial instruments including cash and cash equivalents, short term investments in marketable securities, accounts receivable, investment in sales-type leases, accounts payable, accrued expenses and deferred service contract revenues approximate fair value due to their short maturity. The carrying amount of our long-term liabilities also approximates fair value based on interest rates currently available to us for debt of similar terms and remaining maturities.

Earnings Per Share

The Company computes and presents earnings per share in accordance with FASB ASC Topic 260, Earnings Per Share. Basic earnings per share are computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares and common stock equivalents outstanding, calculated on the treasury stock method for options and warrants using the average market prices during the period. The weighted average number of outstanding antidilutive common stock options and warrants excluded from the computation of diluted net income per common share for the years ended December 31, 2009, 2008 and 2007 were 1,479,000, 715,000 and 419,000, respectively. A reconciliation of the shares used in the calculation of basic and diluted earnings per common share is as follows:

	For the Years Ended December 31,
	2009	2008	2007
	(In thousands)
Weighted average common shares outstanding – basic	17,727	18,246	18,187
Effect of dilutive securities
Stock options	111	366	494
Restricted common shares	36	80	31
Warrants	—	36	37
Weighted average common shares outstanding – diluted	17,874	18,728	18,749

Stock Based Compensation

The Company accounts for stock based compensation under FASB ASC Topic 718, Compensation – Stock Compensation (“ASC 718”) which requires compensation costs related to share-based transactions, including employee stock options, to be recognized in the financial statements based on fair value.

Due to the adoption of ASC 718, the Company’s results for the years ended December 31, 2009, 2008 and 2007 include share-based compensation expense totaling $3,729,000, $2,464,000 and $1,457,000, respectively. In addition the Company’s results include stock based compensation expense of $0, $3,000 and $17,000 relating to stock issuances under our Employee Stock Purchase Plan for the years ended December 31, 2009, 2008 and 2007, respectively. Accordingly, the Company’s stock based compensation expense totaled $3,729,000, $2,467,000 and $1,474,000 for the years ended December 31, 2009, 2008 and 2007, respectively. The total income tax benefit recognized in the income statement for stock based compensation arrangements amounted to $1,489,000, $987,000 and $590,000 for the years ended December 31, 2009, 2008, and 2007, respectively.

Foreign Currency Hedge

The Company conducts business in certain foreign markets, primarily in the European Union and Asia. To mitigate the potential impact of adverse fluctuations in the U.S. Dollar exchange rate for these currencies, the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Company periodically purchases foreign currency forward contracts. The Company does not speculate in these hedging instruments in order to profit from foreign currency exchanges; nor does it enter into trades for which there are no underlying exposures.

Under FASB ASC Topic 815, Accounting for Derivatives Instruments and Hedging Activities, the Company documents all relationships between hedging instruments and hedged items, as well as its risk management objective for undertaking these hedging transactions. This process includes relating the forward contracts that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged of the hedged items.

At December 31, 2009, the Company did not have any foreign currency forward contracts outstanding in Japanese Yen or Euros. During the year ended December 31, 2008, the Company entered into such contracts for Euros and Japanese Yen totaling $404,000 and $7.6 million, respectively. At December 31, 2008, the Company did not have any remaining foreign currency forward contracts in Japanese Yen or Euros. The contracts were to hedge purchases of product in those countries and the results of these forwards are included in cost of sales.

Segment Reporting

The Company determines and discloses industry segments in accordance with FASB ASC Topic 280: Segment Reporting (“ASC 280”) which uses a “management” approach for determining business segments. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company’s reportable segments. ASC 280 also requires disclosures about products and services, geographic areas, and major customers. See Note 18 – “Segment and Geographic Information”.

Reclassifications

The Company reclassified employee bonus expenses between cost of goods and operating expense categories in the consolidated statement of income to conform to the presentation used in the current year. The accompanying 2008 and 2007 consolidated statements of income contain these reclassification adjustments.

These reclassifications had no impact on the Company’s previously reported consolidated operating income, net income or basic or diluted earnings per share.

Certain Risks and Uncertainties

Financial instruments, which potentially expose the Company to concentration of credit risk, consist primarily of cash and cash equivalents, accounts receivable and investment in sales-type leases. Concentration of credit risk with respect to accounts receivable and investment in sales-type leases is mitigated by the Company’s performance of on-going credit evaluations of its customers and the Company maintains an allowance for doubtful accounts. Investments in sales-type leases are secured by the underlying instruments.

Approximately 1/3 of the Company’s cash is deposited in DDA accounts which are fully guaranteed by the Federal Deposit Insurance Corporation. This amount was $8.8M at December 31, 2009. The rest of the cash balances on deposit with banks are guaranteed by the Federal Deposit Insurance Corporation up to $250,000. The Company may be exposed to risk for the amount of funds held in one bank in excess of the insurance limit. In assessing the risk, the Company’s policy is to maintain cash balances with high quality financial institutions.

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The Company derives most of its revenues from the sale of the urinalysis analyzers, and related supplies and services. Relatively modest declines in unit sales or gross margins could have a material adverse effect on the Company’s revenues and profits, respectively.

Certain of the Company’s components are obtained from outside vendors, and the loss or breakdown of the Company’s relationships with these outside vendors could subject us to substantial delays in the delivery of its products to its customers. Furthermore, certain key components of the Company’s instruments and certain consumables are manufactured by only one supplier. The Company’s inability to sell products to meet delivery schedules could have a material adverse effect on its reputation in the industry, as well as its financial condition and results of operation.

Recent Accounting Pronouncements

In October 2009, the FASB issued Accounting Standards Update (“ASU”) ASU 2009-14, Certain Revenue Arrangements That Include Software Elements, now codified under FASB ASC Topic 985, Software. ASU 2009-14, removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. ASU 2009-14 is to be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. We are currently evaluating both the timing and the impact of the adoption of the ASU on our consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, Multiple-Deliverable Revenue Arrangements, which amends ASC Topic 605, Revenue Recognition, to require companies to allocate revenue in multiple-element arrangements based on an element’s estimated selling price if vendor-specific or other third-party evidence of value is not available. ASU 2009-13 is effective beginning June 15, 2010. Earlier application is permitted. We are currently evaluating both the timing and the impact of the adoption of the ASU on our consolidated financial statements.

In June 2009, the FASB issued Accounting Standards Codification (“ASC”) Topic 105, The FASB Accounting Standard Codification and the Hierarchy of Generally Accepted Accounting Principle, establishes the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with GAAP. All existing accounting standard documents are superseded by the Codification and any accounting literature not included in the Codification will not be authoritative. However, rules and interpretive releases of the Securities and Exchange Commission (“SEC”) issued under the authority of federal securities laws will continue to be sources of authoritative GAAP for SEC registrants. ASC Topic 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Therefore, beginning with our quarter ended September 30, 2009, all references made by it to GAAP in its consolidated financial statements now use the new Codification numbering system. The Codification does not change or alter existing GAAP and, therefore, did not have any impact on our consolidated financial statements.

In June 2009, the FASB issued ASC Topic 810, Consolidation, which establishes how a company determines when an entity that is insufficiently capitalized or not controlled through voting should be consolidated. This statement improves financial reporting by enterprises involved with variable interest entities as a result of the elimination of the qualifying special-purpose entity concept in ASC Topic 860, Transfers and Servicing,. ASC Topic 810 is effective after November 15, 2009. The adoption of ASC Topic 810 did not have a material impact on our consolidated financial statements.

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In June 2009, the FASB issued ASC Topic 860, Transfers and Servicing, which requires entities to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains some risk to the assets. This statement will improve the relevance, representation faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets. It will also take into account the effects of a transfer on its financial position, financial performance, and cash flows, and a transferor’s continuing involvement. ASC Topic 860 is effective after November 15, 2009. The adoption of ASC Topic 860 did not have a material impact on our consolidated financial statements.

In May 2009, the FASB issued ASC Topic 855, Subsequent Events, which sets forth the period after the balance sheet date during which management of an SEC filer should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and disclosures that an entity should make about events or transactions that occurred after the balance sheet date. In February 2010, the FASB issued ASU 2010-09, Subsequent Events, which amends ASC Topic 855 so that an SEC filer entity is required to evaluate subsequent events through the date that the financial statements are issued. ASU 2010-09 also states that the SEC filer entity is not required to disclose the date through which subsequent events have been evaluated. ASC Topic 855 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The adoption of ASC Topic 855 did not have any impact on our consolidated financial statements.

In September 2006, the FASB issued ASC Topic 820, Fair Value Measurements and Disclosures, which establishes a framework for measuring fair value in accordance with generally accepted accounting principles, clarifies the definition of fair value within that framework and expands disclosures about fair value measurements. ASC Topic 820 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, except for the measurement of share-based payments. ASC Topic 820 was effective for the Company on January 1, 2008. In October 2008, the FASB issued FASB Staff Position (FSP) SFAS No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, which clarifies the application of SFAS No. 157 in a market that is not active and provides guidance in key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FASB FSPs apply to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with FASB No. 157. In April 2009, the FASB issued FASB Staff Position (FSP) SFAS No. 157-4, Determining the Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which provides additional guidance for estimating fair value in accordance with SFAS No. 157, when the volume and level of activity for the asset or liability have significantly decreased. FSP No. 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. FSP SFAS No. 157-4 is effective for interim and periods ending after June 15, 2009, and shall be applied prospectively. The adoption of ASC Topic 820 for financial assets and liabilities did not have a material impact on our consolidated financial statements, other than presentation of the disclosures required by ASC Topic 825-10-50, Financial Instruments Disclosure. The adoption of ASC Topic 820 for nonfinancial assets and nonfinancial liabilities effective January 1, 2009 did not have a material impact on our consolidated financial statements.

In April 2009, the FASB issued ASC Topic 825-10-50, Financial Instruments Disclosure, which requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies, as well as in annual financial statements. ASC Topic 825-10-50 also requires those disclosures in summarized financial information at interim reporting. ASC Topic 825-10-50 is effective for interim reporting periods ending after June 15, 2009. The adoption of ASC Topic 825-10-50 did not have a material impact on our consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In December 2007, the FASB issued ASC Topic 805, Business Combinations. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. ASC Topic 805 is effective for us beginning July 1, 2009, and will apply prospectively to business combinations completed on or after that date. ASC Topic 805 addresses issues raised by preparers, auditors and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. ASC Topic 805 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first reporting period beginning on or after December 15, 2008. The adoption of ASC Topic 805 did not have a material impact on our consolidated financial statements.

3. Investments in Marketable Securities

In 2008, the Company adopted FASB ASC Topic 820, Fair Value Measurement (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820, defines fair values as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

• Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

• Level 3 inputs are unobservable inputs for the asset or liability

At December 31, 2009, the Company did not hold any investments in marketable securities.

At December 31, 2008, the Company’s investments in marketable securities primarily included highly liquid government securities and an auction rate security. These securities were carried at cost which approximated fair value due to their highly liquid nature. Of the $2,157,000 carrying value of investments at December 31, 2008, and in accordance with the fair value hierarchy contained in ASC 820, $1,857,000 were valued using quoted prices in active markets for identical assets or liabilities (Level 1) and approximately $300,000 were valued using significant unobservable inputs (Level 3) such as current results, trends and future prospects, capital market conditions, and other economic factors.

The Company sold the investments in market securities during first quarter of 2009, and did not recognize a gain or loss in the transaction.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents the estimated fair value of the Company’s investment in marketable securities at December 31, 2008.

	Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
Auction rate security	$	300	$	—	$	—	$	300
Government securities		1,857		—		—		1,857
	$	2,157	$	—	$	—	$	2,157

For the years end December 31, 2009 and 2008, there were no impairment losses on the Company’s available for sale marketable securities. Based on the Company’s assessment of the credit quality of the underlying collateral and credit support available to each of the securities in which it invested, the Company believes that nothing other than temporary impairment had occurred, as the Company has the ability to hold these investments long enough to avoid realizing any significant loss.

4. Inventories

Inventories consist of the following:

	At December 31,
	2009		2008
	(In thousands)
Finished goods	$	2,595	$	2,234
Work-in-process		214		270
Raw materials, parts and sub-assemblies		8,057		7,453
Inventories	$	10,866	$	9,957

5. Properties and Equipment

Property and equipment consist of the following:

	At December 31,
	2009			2008
	(In thousands)
Machinery and equipment	$	11,145		$	9,002
Leasehold improvements		6,385			6,003
Tooling, dies and molds		2,158			1,985
Furniture and fixtures		1,152			1,147
Rental units		540			459
		21,380			18,597
Less: accumulated depreciation and amortization		(11,713	)		(8,918	)
	$	9,667		$	9,678

Depreciation and amortization expense for the years ended December 31, 2009, 2008 and 2007 was $2.8 million, $2.4 million, and $1.9 million, respectively.

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IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. Sales-type Leases

The components of net investment in sales-type leases consist of the following:

	At December 31,
	2009			2008
	(In thousands)
Total minimum lease payments	$	12,735		$	10,380
Less: unearned income		(1,897	)		(1,219	)
Net investment in sales-type leases		10,838			9,161
Less: current portion		(3,397	)		(3,204	)
Net investment in sales-type leases, non-current portion	$	7,441		$	5,957

Future minimum lease payments due from customers under sales-type leases for each of the five succeeding years:

	(In thousands)
Year Ending December 31,
2010	$	3,397
2011		2,573
2012		2,089
2013		1,566
2014		1,046
Thereafter		167
	$	10,838

7. Bank Credit Facility

The Company has a credit facility with a commercial bank. The credit facility consists of a $6.5 million revolving line of credit for working capital and a $10.0 million line of credit for acquisitions and product opportunities. The credit facility has variable interest rates, which will change from time to time based on changes to either the LIBOR rate or the lender’s prime rate. Borrowings under the credit facility are secured by all of the Company’s assets and mature in June 2010 and June 2015, respectively.

As of December 31, 2009 and 2008, there were no borrowings under the credit facility. However, the Company is subject to certain financial and non financial covenants under the credit facility with the bank and as of December 31, 2009, the Company was in compliance with these covenants.

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IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

8. Accrued Expenses

Accrued expenses consist of the following:

	At December 31,
	2009		2008
	(In thousands)
Accrued bonuses	$	197	$	1,460
Accrued commissions		607		490
Accrued payroll		1,334		1,034
Accrued vacation		1,234		1,080
Accrued professional fees		416		502
Accrued warranty		946		808
Accrued laboratory information system implementations		335		614
Accrued – other		692		487
	$	5,761	$	6,475

Changes in accrued warranty were as follows:

	At December 31,
	2009			2008
	(In thousands)
Balance – beginning of year	$	808		$	800
Additions for provisions during year		1,137			921
Reductions during year		(999	)		(913	)
Balance – end of year	$	946		$	808

9. Income Taxes

The provision for income taxes from operations consists of the following:

	For the Years Ended December 31,
	2009			2008			2007
	(In thousands)
Current:
Federal	$	1,879		$	2,323		$	1,399
State		757			644			488
		2,636			2,967			1,887
Deferred:
Federal		364			1,182			1,514
Foreign		(32	)		(55	)		(11	)
State		(514	)		269			(546	)
		(182	)		1,396			957
	$	2,454		$	4,363		$	2,844

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IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Income taxes have been based on the following components of pre-tax income (loss):

	For the Years Ended December 31,
	2009			2008			2007
	(In thousands)
Domestic	$	8,821		$	13,557		$	10,428
Foreign		(116	)		(181	)		(35	)
	$	8,705		$	13,376		$	10,393

The provision for income taxes differs from the amount obtained by applying the federal statutory income tax rate to income before provision for income taxes as follows:

	For the Years Ended December 31,
	2009			2008			2007
	(In thousands)
Tax provision computed at Federal statutory rate	$	2,960		$	4,549		$	3,533
State taxes, net of federal benefit		544			499			402
R&D tax credits		(258	)		(507	)		(677	)
Nondeductible expenses		220			(130	)		151
Change in valuation allowance		(269	)		(260	)		(654	)
Foreign branch losses		(32	)		(55	)		(11	)
Prior year return to provision adjustment		(772	)		—			—
Other		61			267			100
	$	2,454		$	4,363		$	2,844

At December 31, 2009, the Company has tax effected foreign net operating loss carryforwards of approximately $849,000. The Company also has tax credit carryforwards of $2.2 million for federal and $3.0 million for state purposes, net of valuation allowances.

The primary components of temporary differences, which give rise to the Company’s net deferred tax asset at December 31, 2009 and 2008, are as follows:

	At December 31,
	2009			2008
	(In thousands)
Depreciation and amortization	$	(998	)	$	(818	)
Allowance for doubtful accounts		166			176
Accrued liabilities		1,569			1,726
Stock compensation		1,449			474
Deferred revenue-service contracts		189			14
Net operating loss carryforward		1,264			1,232
Tax credits		3,585			3,931
Valuation allowance		(335	)		(596	)
State deferred taxes		(753	)		(601	)
	$	6,136		$	5,538

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IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Realization of deferred tax assets associated with foreign net operating losses (“NOL”) and tax credit carryforwards is dependent upon the Company’s ability to generate sufficient taxable income prior to their expiration. Management believes it is more likely than not that the deferred tax assets will be realized through future taxable income or alternative tax strategies. However, the net deferred tax assets could be reduced in the near term if management’s estimates of taxable income during the carryforward period are not realized or are significantly reduced or alternative tax strategies are not available. However, the Company has established a valuation allowance for foreign losses based on its estimate of future utilization. The Company will continue to review estimates of taxable income and will adjust the valuation allowance, when necessary.

The Company adopted the provisions of FASB ASC Topic 740-10, Income Taxes, which requires that the Company recognize the impact of a tax position in its financial statements if that position is more likely than not of being sustained upon audit, based on the technical merits of the position. The Company’s consolidated financial statements for 2007 reflect the impact of ASC 740-10, but the consolidated financial statements for 2006 have not been restated to reflect, and do not include, the impact of ASC 740-10.

As a result of the initial adoption of ASC 740-10, the Company recognized a $547,000 reduction in its deferred tax benefit relating to federal and California tax credits for which the Company could not conclude that it is more likely than not that such tax credits will be sustainable on audit by the respective taxing authorities. As a result, the Company reduced the deferred tax asset by $547,000 and recorded a charge to retained earnings as of January 1, 2007, by a like amount.

As of December 31, 2009, the total amount of unrecognized tax benefits, including related interest and penalties, was $1,282,000. The unrecognized tax benefits primarily related to uncertainties from the deductibility of certain operating expenses in various jurisdictions and the expiration of the statute of limitations in several jurisdictions.

The following changes occurred in the amount of unrecognized tax benefits (including related interest and penalties) during the years ended December 31, 2009, 2008 and 2007 as follows:

	For the Years Ended December 31,
	2009		2008		2007
	(In thousands)
Balance at January 31	$	998	$	616	$	547
Additions for current year tax positions		284		382		69
Balance at December 31	$	1,282	$	998	$	616

The Company will recognize potential interest and penalties related to income tax positions as a component of the provision for income taxes on the consolidated statements of income in any future periods in which the Company must record a liability.

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10. Stock-Based Compensation

The Company accounts for stock-based compensation pursuant to FASB ASC Topic 505, Share-Based Payment, which requires compensation costs related to share-based transactions, including employee stock options, to be recognized in the financial statements based on fair value. Share-based compensation expense for the years ended December 31, 2009, 2008 and 2007 is as follows:

	For the Years Ended December 31,
	2009		2008		2007
	(In thousands)
Cost of sales	$	417	$	341	$	273
Marketing and selling		631		398		162
General and administrative		2,026		1,210		628
Research and development		655		518		411
Stock-based compensation		3,729		2,467		1,474

Stock Options

As of December 31, 2009, the Company had stock option plans under which the Company may grant future non-qualified stock options, incentive stock options and stock appreciation rights. No stock appreciation rights have been granted under the stock option plans. On July 13, 2007, the Company’s stockholders approved the adoption of the IRIS International, Inc. 2007 Stock Incentive Plan, which authorizes the issuance of up to 1,750,000 shares of common stock pursuant to equity awards granted under the plan. On May 22, 2009, the Company’s stockholders approved an increase of 1,550,000 shares to the 2007 Stock Incentive Plan for a total of 3,300,000 authorized shares.

The following schedule sets forth options authorized, exercised, outstanding and available for grant under the Company’s existing stock option plans as of December 31, 2009:

	Number of Option Shares
Plan	Authorized	Exercised	Outstanding	Available for Grant
	(In thousands)
1994 Plan	700	680	20	—
1998 Plan	4,100	2,695	980	—
2007 Plan	3,300	—	1,204	1,681
	8,100	3,375	2,204	1,681

66

IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table sets forth certain information relative to stock options during the three years ended December 31, 2009.

	Shares		Weighted Average Exercise Price		Average Intrinsic Value
	(In thousands, except for per share)
Outstanding at January 1, 2007	1,973		$	9.98
Granted	558		$	13.19
Exercised	(437	)	$	4.74
Canceled or expired	(233	)	$	14.12
Outstanding at December 31, 2007	1,861		$	11.62
Granted	502		$	13.03
Exercised	(369	)	$	4.90
Canceled or expired	(20	)	$	11.47
Outstanding at December 31, 2008	1,974		$	13.24
Granted	571		$	9.02
Exercised	(197	)	$	7.34
Canceled or expired	(143	)	$	13.10
Outstanding at December 31, 2009 average remaining life – 3.7 years	2,205		$	12.97	$	3,445
Exercisable at December 31, 2009, average remaining life – 2.7 years	1,271		$	14.22	$	2,044

The weighted average grant-date fair value of options granted during the years ended December 31, 2009, 2008 and 2007 was $4.91, $4.48, and $4.29, respectively. The intrinsic value of options exercised during the years ended December 31, 2009, 2008 and 2007 was $729,000, $4,073,000 and $4,994,000, respectively.

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on December 31, 2009 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders, had all option holders exercised their options on December 31, 2009. Total intrinsic value of options exercised for the year ended December 31, 2009 amounted to $729,000. As of December 31, 2009, total unrecognized stock-based compensation expense related to nonvested stock options was $2,807,000, which is expected to be recognized over the remaining weighted average period of approximately 2.4 years.

The Compensation Committee of the board of directors determines the total value of the stock based compensation grants. The exercise price of options is the closing price on the date the options are granted. Payment of the exercise price may be made either in cash or with shares of common stock that have been held at least six months. The options generally vest over four years and expire between five or ten years from the date of grant. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	For the Years Ended December 31,
	2009		2008		2007
	(In thousands)
Risk free interest rate	2.0	%	2.4	%	4.4	%
Expected lives (years)	4.0		3.0		3.0
Expected volatility	60.5	%	48	%	46	%
Expected dividend yield	—		—		—

67

IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The expected volatilities are based on the historical volatility of the Company’s stock. The observation is made on a weekly basis. The expected terms of the stock options are based on the average vesting period on a basis consistent with the historical experience for similar option grants. The risk-free interest rate is consistent with the expected terms of the stock options and based on the U.S. Treasury yield curve in effect at the time of grant. The Company estimates forfeiture rates based on historical data.

A summary of the Company’s non-vested stock options during the year ended December 31, 2009 is presented below:

	Shares		Weighted Average Grant Date Fair Value
	(In thousands)
Non-vested options at January 1, 2009	856		$	13.48
Granted	571		$	10.11
Vested	(432	)	$	13.91
Forfeited or expired	(62	)	$	12.59
Non-vested options at December 31, 2009	933		$	11.26

As of December 31, 2009, there was approximately $2,807,000 of accumulated unrecognized stock compensation based on fair value on the grant date related to non-vested options granted under the stock option plans. That cost is expected to be recognized during the weighted average service period of 2.7 years. The share-based compensation will be amortized based on the straight line method over the vesting period and the expense includes an estimate of the awards that will be forfeited. The total fair value of shares vested during the year ended December 31, 2009 was $432,000.

Restricted Shares

The Company began awarding restricted shares of its common stock in 2006. In March 2009, the Company began to grant restricted stock units to its non-employee directors and to certain employees. Such awards generally require that certain performance conditions and service conditions be met before the awards vest. Restricted shares currently vest 25% after one year and 6 ¹/4% quarterly thereafter. However, non employee directors vest 90 days after grant date. Unvested restricted shares are forfeited if the recipient’s employment terminates for any reason other than death, disability, or special circumstances as determined by the Compensation Committee of the Company’s board of directors. Restricted share activity during the year ended December 31, 2009 is as follows:

	Shares		Weighted Average Grant Date Fair Value Per Share
	(In thousands, except for per share)
Unvested at January 1, 2009	202		$	13.81
Granted	171		$	10.20
Vested during period	(112	)	$	13.58
Cancelled during period	(13	)	$	13.54
Unvested at December 31, 2009	248		$	11.44

68

IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair value of the Company’s restricted shares is based on the Company’s closing stock price on the date of grant. As of December 31, 2009, total unrecognized stock-based compensation expense related to nonvested restricted share grants was $2,233,000 which is expected to be recognized over the remaining weighted average period of approximately 2.65 years.

11. Capital Stock

At December 31, 2009, there were no warrants outstanding. During the year ended December 31, 2009, 24,016 warrants were exercised prior to their expiration. At December 31, 2008, there were warrants outstanding to purchase 74,300 shares of common stock at $7.80 per share, which expired on April 23, 2009. During the years ended December 31, 2008 and 2007, no warrants were issued, exercised, cancelled or expired.

The Company has 1,000,000 shares of Callable Series C preferred stock authorized, none of which has been issued.

12. Common Stock Repurchase Plan

In 2008, the Company’s board of directors authorized two stock repurchase plans. On March 3, 2008, the Company’s board of directors authorized the first share repurchase and retirement plan of up to $15 million of the Company’s common stock over a 12-month period. Under this first plan the Company repurchased 492,068 shares of common stock for approximately $5.7 million. On July 25, 2008, the Company’s board of directors terminated the first share repurchase and retirement plan.

On November 21, 2008, the Company’s board of directors authorized a second share repurchase and retirement plan of up to $10 million of the Company’s common stock over a 12-month period. During the year ended December 31, 2008, the Company repurchased 491,511 shares of common stock for approximately $6.2 million against this second authorization. During the year ended December 31, 2009, the Company repurchased an additional 250,800 shares of common stock for approximately $2.5 million. As of December 31, 2009, under this second repurchase plan, the Company had repurchased a cumulative total of 742,311 shares of common stock for approximately $8.7 million.

Cumulatively between both plans mentioned above, the Company purchased a total of 1,234,379 shares of common stock for approximately $14.4 million in 2008 and 2009.

13. Employee Benefits

All employees are also eligible to participate in a 401(k) Plan at the beginning of the first quarter following their employment start date. The Company’s contributions are discretionary. Effective January 1, 2006 the Company commenced matching $0.50 per $1.00 contributed by the employees up to 4% of the employee’s annual salary; prior to 2006, the Company’s practice was to match $0.25 per $1.00 contributed by the employees up to 4% of the employee’s annual salary. Employees vest in amounts contributed by the Company immediately. The Company contributed $362,000, $312,000 and $256,000 to the 401(k) Plan for the years ended December 31, 2009, 2008, and 2007, respectively.

14. Manufacturing Transition Rights

On December 30, 2008, the Company entered into a manufacturing, supply and transition agreement (“manufacturing transition rights”) with IDEXX Operations, Inc. Under this agreement, the Company sold its exclusive rights to manufacture and distribute rotors compatible with the drives of IDEXX machines to IDEXX. The Company received a nonrecurring $1.5 million payment, which was offset by $268,000 related to costs

69

IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

associated with the manufacturing transition rights. The $1.5 million payment was classified as other income and did not impact revenue from operations, as this payment was not contingent upon any significant action by the Company.

During the transition period, the Company will provide IDEXX with its know-how related to the manufacturing of the rotors and will manufacture any rotors needed by IDEXX. Prices for these transition services and rotors are exclusive of the aforementioned nonrecurring payment. As of December 31, 2009, the Company has continued to manufacture and sell the rotors to IDEXX at a set price.

In addition, IDEXX owns the rights to manufacture the rotors without any further involvement or commitment from the Company. Commencing January 2014 and continuing through December 2020, if IDEXX uses this manufacturing technology, a royalty fee for each rotor unit sold will be assessed and paid to the Company.

15. Shelf Registration

In November 2007, the Company filed a Form S-3 shelf registration statement (“$125 million shelf”) to provide for financial flexibility. The $125 million shelf allows the Company to issue common stock, preferred stock and debt securities of the Company. Under the $125 million shelf, all of the securities available for issuance may be offered from time to time with terms to be determined at the time of issuance. In December 2007, the Form S-3 registration statement was declared effective. As of December 31, 2009, no securities had been issued under the $125 million shelf which will expire in November 2010.

16. Commitments and Contingencies

Leases

The Company leases real property, automobiles and equipment under operating lease agreements, which expire at various times through 2018. Certain leases contain renewal options and generally require us to pay utilities, insurance, taxes and other operating expenses.

Future minimum rental payments required under operating lease agreements that have an initial term in excess of one year as of December 31, 2009, are as follows:

	Operating Leases
	(In thousands)
Year Ended December 31,
2010	$	2,013
2011		1,228
2012		921
2013		886
2014		658
Thereafter		606
	$	6,312

Consolidated rental expense under all operating leases during the years ended December 31, 2009, 2008 and 2007 was $1,997,000, $1,787,000 and $1,553,000, respectively.

70

IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Litigation

From time to time, the Company is party to certain litigation arising in the normal course of business. Management believes that the resolution of such matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Guarantees

The Company enters into indemnification provisions under (i) agreements with other companies in its ordinary course of business, typically with business partners, contractors, and customers, landlords and (ii) agreements with investors. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of its activities or, in some cases, as a result of the indemnified party’s activities under the agreement. These indemnification provisions often include indemnifications relating to representations made by the Company with regard to intellectual property rights. These indemnification provisions generally survive termination of the underlying agreement. In addition, in some cases, the Company has agreed to reimburse employees for certain expenses and to provide salary continuation during short-term disability. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. The Company reviews its exposure under these agreements no less than annually, or more frequently when events indicate. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of its obligations under these agreements is minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of December 31, 2009 and 2008.

17. Supplier Concentration

One supplier comprised greater that 10% of the Company’s consolidated purchases. Consolidated purchases from this supplier amounted to 12%, 15% and 16% for the years end December 31, 2009, 2008, and 2007, respectively.

18. Segments and Geographic Information

The Company’s operations are organized on the basis of products and related services, and under FASB ASC Topic 280, Segment Reporting, the Company operates in two segments: (i) IVD and (ii) sample processing.

The IVD segment designs, develops, manufactures, markets and distributes in-vitro diagnostic systems based on patented and proprietary technology for automating microscopic and clinical chemistry procedures for urinalysis. The segment also provides ongoing sales of consumables and service necessary for the operation of installed urinalysis workstations. In the United States, these products are mostly sold through a direct sales and service force. Internationally, these products are sold and serviced through distributors, with the exception of France and Puerto Rico. The segment also includes the operations of the Iris Molecular Diagnostics, or IMD, subsidiary.

The sample processing segment designs, develops, manufactures and markets a variety of benchtop centrifuges, small instruments and supplies. These products are used primarily for manual specimen preparation and dedicated applications in coagulation, cytology, hematology urinalysis and DNA processing. These products are sold worldwide through distributors.

The accounting policies of the segments are the same as those described in the “Summary of Significant Accounting Policies”. The Company evaluates the performance of its segments and allocates resources to them based on earnings before income taxes, excluding corporate charges.

71

IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The tables below present information about reported segments for the three years ended December 31, 2009:

	IVD		Sample Processing		Unallocated Corporate Expenses			Total
	(In thousands)
For the Year Ended December 31, 2009
Revenues	$	78,231	$	14,335	$	—		$	92,566
Interest income		857		—		—			857
Interest expense		21		—		—			21
Depreciation and amortization		3,277		230		16			3,523
Other non-cash items		—		—		—			—
Segment pre-tax profit		10,653		4,014		(5,962	)		8,705
Segment assets		64,046		27,608		6,136			97,790
Investment in long-lived assets		23,979		399		—			24,378
For the Year Ended December 31, 2008
Revenues	$	81,771	$	13,731	$	—		$	95,502
Interest income		1,180		—		—			1,180
Interest expense		11		—		—			11
Depreciation and amortization		2,893		218		16			3,127
Other non-cash items		—		—		—			—
Segment pre-tax profit		12,223		5,113		(3,960	)		13,376
Segment assets		61,092		24,008		5,538			90,638
Investment in long-lived assets		25,349		419		—			25,768
For the Year Ended December 31, 2007
Revenues		72,025	$	12,281	$	—		$	84,306
Interest income		1,498		—		—			1,498
Interest expense		10		—		—			10
Depreciation and amortization		2,394		212		15			2, 621
Other non-cash items		—		—		—			—
Segment pre-tax profit		12,114		3,027		(4,748	)		10,393
Segment assets		60,446		19,008		6,936			86,390
Investment in long-lived assets		21,188		493		—			21,681

The Company ships products from two locations in the United States and one location in Germany. Substantially all long-lived assets are located in the United States. Sales to international customers amounted to approximately $30.2 million in 2009, $31.6 million in 2008 and $25.4 million in 2007. For the year ended December 31, 2009, three customers represented 19%, 12% and 12% of international sales, respectively. For the year ended December 31, 2008, two customers represented 21% and 10% of international sales, respectively. For the year ended December 31, 2007, two customers represented 22% and 11% of international sales, respectively.

Segment assets attributed to corporate unallocated expenses are deferred taxes. Long-lived assets include property and equipment, intangible assets, long-term portion of inventory and other long-term assets. Deferred income taxes are excluded from long-lived assets.

72

IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

19. Valuation and Qualifying Accounts

	Beginning Balance		Charged to Costs and Expenses		Additions Charged to Other Accounts			Deductions			Ending Balance
	(In thousands)
Year Ended December 31, 2009
Allowance for doubtful accounts	$	410	$	—	$	(20	)	$	(21	)(1)	$	369
Allowance for sales returns		35		—		—			(13	)(1)		22
Reserve for inventory obsolescence		846		140		—			(118	)(1)		868
Valuation of deferred tax assets		596		—		—			(269	)(2)		327
Year Ended December 31, 2008
Allowance for doubtful accounts	$	401	$	26		—		$	(17	)(1)	$	410
Allowance for sales returns		35		—		—			—	(1)		35
Reserve for inventory obsolescence		623		462		—			(239	)(1)		846
Valuation of deferred tax assets		856		—		—			(260	)(2)		596
Year Ended December 31, 2007
Allowance for doubtful accounts	$	483	$	14		—		$	(96	)(1)	$	401
Allowance for sales returns		205		6		—			(176	)(1)		35
Reserve for inventory obsolescence		881		250		—			(508	)(1)		623
Valuation of deferred tax assets		1,510		—		—			(654	)(2)		856

(1) Relates to the write-off of accounts receivable, return of merchandise, disposal of obsolete inventory or specific portion of the accounts receivable reserve or reserve for sales returns no longer needed.

(2) Valuation adjustment relating to realization of deferred tax assets.

20. Selected Quarterly Data (Unaudited)

The following table summarizes certain financial information by quarter:

	2009 Quarter Ended
	March 31		June 30		September 30		December 31
	(In thousands, except per share)
Net revenues	$	21,575	$	22,342	$	22,186	$	26,463
Gross profit		11,695		11,332		12,182		13,456
Net income		1,392		1,012		1,916		1,931
Net income per share – basic		0.08		0.06		0.11		0.11
Net income per share – diluted		0.08		0.06		0.11		0.11
	2008 Quarter Ended
	March 31		June 30		September 30		December 31
	(In thousands, except per share)
Net revenues	$	21,607	$	23,783	$	23,424	$	26,688
Gross profit(2)		11,663		12,384		11,889		13,103
Net income(1)		1,821		2,205		1,618		3,369
Net income per share – basic		0.10		0.12		0.09		0.19
Net income per share – diluted		0.10		0.12		0.09		0.18

(1) 2008 results include the one-time gain related to the $1.2 million net payment to IRIS as part of the manufacturing transition rights agreement signed with IDEXX Laboratories in December 2008.

(2) 2008 results include reclassified employee bonus expenses between cost of goods and operating expense categories in the consolidated statement of income to conform to the presentation used in the current year.

73

IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

21. Subsequent Events

Effective January 1, 2010, the Company purchased certain assets relating to its current distribution of IRIS products in the United Kingdom, Ireland and Germany from one of the Company’s European distributors for a cash payment of $841,000. The assets purchased consist primarily of customer leases for installed IRIS instruments and service contracts valued at inventory book value. This purchase will increase the Company’s direct sales presence within its international sales channels, and will serve as a template for further potential transactions in territories that represent new business opportunities for the Company.

74

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures.

Based on their evaluation as of December 31, 2009, our Chief Executive Officer and Chief Financial Officer, with the participation of management, have concluded that our disclosure controls and procedures (as defined in Rules 13a–15(e) and 15d–15(e) of the Securities Exchange Act of 1934) were effective.

Management’s Annual Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2009 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on this evaluation, our management concluded that as of December 31, 2009, our internal control over financial reporting was effective.

Attestation Report of the Registered Public Accounting Firm.

BDO Seidman LLP, our independent registered public accounting firm that has audited our financial statements included herein, has issued an attestation report on our internal control over financial reporting, which report is included under Item 8 of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting.

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls.

Our disclosure controls and procedures provide our Chief Executive Officer and Chief Financial Officer reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, company management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within our company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and

75

that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.

Item 9B. Other Information.

None.

76

PART III

Certain information required by Part III is omitted from this Annual Report on Form 10-K because the registrant will file with the U.S. Securities and Exchange Commission a definitive proxy statement pursuant to Regulation 14A in connection with the solicitation of proxies for our Annual Meeting of Stockholders expected to be held in May 2010 (the “Proxy Statement”) not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and certain information included therein is incorporated herein by reference.

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this item with respect to directors and executive officers may be found in the section “Election of Directors” appearing in the Proxy Statement. Such information is incorporated herein by reference.

The information required by this Item with respect to our audit committee and audit committee financial expert may be found in the section entitled “Election of Directors – Audit Committee” appearing in the Proxy Statement. Such information is incorporated herein by reference.

The information required by this Item with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 and our code of ethics may be found in the sections entitled “Section 16(a) Beneficial Ownership Reporting Compliance” and “Election of Directors – Code of Business Conduct and Ethics,” respectively, appearing in the Proxy Statement. Such information is incorporated herein by reference.

Item 11. Executive Compensation.

The information required by this Item with respect to director and executive officer compensation is incorporated herein by reference to the information from the Proxy Statement under the section entitled “Executive Compensation.”

The information required by this Item with respect to Compensation Committee interlocks and insider participation is incorporated herein by reference to the information from the Proxy Statement under the section entitled “Election of Directors – Compensation Committee Interlocks and Insider Participation.”

The information required by this Item with respect to our Compensation Committee’s review and discussion of the Compensation Discussion and Analysis included in the Proxy Statement is incorporate herein by reference to the information from the Proxy Statement under the section entitled “Election of Directors – Compensation Committee Report.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item with respect to security ownership of certain beneficial owners and management is incorporated herein by reference to the information from the Proxy Statement under the section entitled “Security Ownership of Certain Beneficial Owners and Management.”

The information required by this Item with respect to securities authorized for issuance under our equity compensation plans is incorporated herein by reference to the information from the Proxy Statement under the section entitled “Equity Compensation Plan Information.”

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item with respect to related party transactions is incorporated herein by reference to the information from the Proxy Statement under the section entitled “Certain Relationships and Related Transactions.”

77

The information required by this Item with respect to director independence is incorporated herein by reference to the information from the Proxy Statement under the section entitled “Election of Directors – Independence of the Board of Directors.”

Item 14. Principal Accounting Fees and Services.

The information required by this Item is incorporated herein by reference to the information from the Proxy Statement under the section entitled “Ratification of Selection of Independent Registered Public Accounting Firm.”

78

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) Documents filed as part of this report

1. Financial Statements

See Index to Financial Statements in Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.

2. Financial Statement Schedules

All financial statement schedules are omitted because the information is inapplicable or presented in the Notes to Financial Statements.

3. The following exhibits are included herein or incorporated herein by reference:

Exhibit Number	Description	Incorporated by Reference				Filed Herewith
		Form	File Number	Exhibit	Filing Date
3.1(a)	Certificate of Incorporation, as amended.	8-K	001-11181	n/a	August 13, 1987	—
3.1(b)	Certificate of Designations, Preferences and Rights of Series C Preferred.	8-K	001-11181	99.2	January 26, 2000	—
3.1(c)	Certificate of Ownership and Merger.	10-K	001-11181	3.1(d)	March 26, 2004	—
3.2(a)	Amended and Restated Bylaws.	8-K	001-11181	3.2	July 18, 2007	—
3.2(b)	Amendment to Amended and Restated Bylaws.	8-K	001-11181	3.3	January 20, 2010
4.1(a)	Rights Agreement, dated as of January 21, 2000, between the Registrant and Continental Stock Transfer & Trust Company, as Rights Agent, with related exhibits.	8-K	001-11181	99.1	January 26, 2000	—
4.1(b)	Rights Agreement Amendment, dated as of September 20, 2006, between the Registrant and Continental Stock Transfer & Trust Company, as Rights Agent, including an amended Rights Certificate.	8-K	001-11181	4.1	September 22, 2006	—
10.1(a)	Lease for Property Located at 9172 Eton Avenue, Chatsworth, California (Headquarters), dated November 29, 2001.	10-K	001-11181	10.1(a)	April 1, 2002	—
10.1(b)	Amendment No. 1, dated October 17, 2005, to the Lease for Property Located at 9172 Eton Avenue, Chatsworth, California (Headquarters), dated November 28, 2001.	8-K	001-11181	10.2	November 18, 2005	—
10.2	Lease for Property Located at 9158-9162 Eton Avenue, Chatsworth, California, dated October 17, 2005.	8-K	001-11181	10.1	November 18, 2005	—
10.3(a)†	1994 Stock Option Plan and forms of Stock Option Agreements.	S-8	33-82560	n/a		—
10.4†	1997 Stock Option Plan and form of Stock Option Agreement.	S-8	333-31393	4.2(a),4.2(b)	July 16, 1997	—

79

Exhibit Number	Description	Incorporated by Reference				Filed Herewith
		Form	File Number	Exhibit	Filing Date
10.5†	Amended and Restated 1998 Stock Option Plan.	10-K	001-11181	10.6	March 23, 2007	—
10.6(a)	Business Loan Agreement dated May 25, 2004 by and between the Registrant and California Bank & Trust.	10-K	001-11181	10.3(b)	March 16, 2005	—
10.6(b)	Change in Terms Agreement dated March 24, 2006 by and between the Registrant and California Bank & Trust.					*
10.6(c)	Change in Terms Agreement dated May 1, 2008 by and between the Registrant and California Bank & Trust.	8-K/A	001-11181	10.2	July 14, 2008	—
10.6(d)	Commercial Security Agreements dated May 25, 2004 by and between the Registrant and California Bank & Trust.	10-K	001-11181	10.3(d)	March 16, 2005	—
10.7	Landlord’s Consent dated February 7, 2002 by and between the Registrant, the Registrant’s Landlord and California Bank & Trust.	10-K	001-11181	11.1(d)	April 1, 2002	—
10.8(a)	Commercial Guaranty Agreement dated May 25, 2004 by and between the Registrant, StatSpin, Inc (the Registrant’s affiliate) and California Bank & Trust.	10-K	001-11181	10.3(f)	March 16, 2005	—
10.8(b)	Business Loan Agreement dated March 24, 2006 by and between the Registrant and California Bank & Trust.					*
10.8(c)	Change in Terms Agreement dated March 24, 2006 by and between the Registrant and California Bank & Trust.					*
10.8(d)	Change in Terms Agreement dated May 1, 2008 by and between the Registrant and California Bank & Trust.	8-K/A	001-11181	10.1	July 14, 2008	—
10.9(a)†	Key Employee Agreement, dated February 13, 2004, between the Registrant and Cesar M Garcia.	10-K	001-11181	10.8(i)	March 26, 2004	—
10.9(b)†	First Amendment to Key Employee Agreement, dated December 21, 2006, between the Registrant and Cesar M Garcia.	10-K	001-11181	10.9(b)	March 23, 2007	—
10.10†	Key Employee Agreement, dated April 3, 2006, between the Registrant and Dr. Thomas H. Adams.	8-K	001-11181	10.1	April 7, 2006	—
10.11†	Key Employee Agreement, dated March 1, 2007, between the Registrant and Thomas E. Warekois.	10-K	001-11181	10.12	March 14, 2008	—
10.12†	Key Employee Agreement, dated August 6, 2007, between the Registrant and Peter L. Donato.	8-K	001-11181	10.1	August 8, 2007	—
10.13(a)†	2007 Stock Incentive Plan.	S-8	333-145635	4.3	August 22, 2007	—
10.13(b)†	Amendment No. 1 to 2007 Stock Incentive Plan	8-K	001-11181	10.1	May 29, 2009	—

80

Exhibit Number	Description	Incorporated by Reference				Filed Herewith
		Form	File Number	Exhibit	Filing Date
10.14†	Second Amendment to Key Employee Agreement, dated November 14, 2007, between the Registrant and Cesar M. Garcia.	8-K	001-11181	10.1	November 14, 2007
10.15†	Key Employee Agreement, dated November 7, 2007, between the Registrant and Robert Mello.	8-K	001-11181	10.2	November 14, 2007
10.16†	Key Employee Agreement, dated November 7, 2007, between the Registrant and John Yi.	8-K	001-11181	10.3	November 14, 2007
10.17	Lease for Property Located at 9232 Eton Avenue, Chatsworth, California, dated February 8, 2010.					*
10.18†	Form of Restricted Stock Unit Agreement.					*
10.19†	Form of Non-Qualified Stock Option Agreement.					*
10.20†	Form of Incentive Stock Option Agreement.					*
10.21†	Form of Restricted Stock Unit Deferral Election.					*
21	List of Subsidiaries.					*
23.1	Consent of BDO Seidman, LLP.					*
24.1	Power of Attorney (included on signature page)					*
31.1	Certification of Principal Executive officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					*
31.2	Certification of Principal Financial officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					*
32.1	Certification of Principal Executive officer pursuant to Securities Exchange Act Rules 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					*
32.2	Certification of Principal Financial officer pursuant to Securities Exchange Act Rules 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					*

† Each a management contract or compensatory plan or arrangement required to be filed as an exhibit to this annual report on Form 10-K.

n/a means not available.

81

SIGNATURES

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in Chatsworth, California, on March 15, 2010.

IRIS INTERNATIONAL, INC.
By:	/s/ CESAR M. GARCÍA
	Cesar M. García,
	President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Cesar M. Garcia and Peter L. Donato, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution for him, and in his name in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

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

Signature	Title	Date
/s/ CESAR M. GARCIA Cesar M. Garcia	President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)	March 15, 2010
/s/ PETER L. DONATO Peter L. Donato	Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)	March 15, 2010
/s/ THOMAS H. ADAMS Thomas H. Adams	Director	March 15, 2010
/s/ STEVEN M. BESBECK Steven M. Besbeck	Director	March 15, 2010
/s/ BETH Y. KARLAN Beth Y. Karlan	Director	March 15, 2010
/s/ MICHAEL D. MATTE Michael D. Matte	Director	March 15, 2010
/s/ RICHARD G. NADEAU Richard G. Nadeau	Director	March 15, 2010
/s/ RICK TIMMINS Rick Timmins	Director	March 15, 2010
/s/ EDWARD F. VOBORIL Edward F. Voboril	Director	March 15, 2010
/s/ STEPHEN E. WASSERMAN Stephen E. Wasserman	Director	March 15, 2010

82

EX-10.6(B)

EXHIBIT 10.6(b)

CHANGE IN TERMS AGREEMENT

Principal		Loan Date	Maturity	Loan No	Call / Coll	Account	Officer	Initials
	$    10,000,000.00	03-24-2006	06-30-2008	932900001-5		932900001-5	22163

References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item.

Any item above containing “***” has been omitted due to text length limitations.

Borrower: IRIS International, Inc. 9172 Eton Avenue Chatsworth, CA 91311-5805 Lender: California Bank & Trust Los Angeles Commercial Banking 550 South Hope Street, Suite 300 Los Angeles, CA 90071

Principal Amount:    $10,000,000.00 Date of Agreement:    March 24, 2006

DESCRIPTION OF EXISTING INDEBTEDNESS.

The Business Loan Agreement and the Promissory Note each dated May 25, 2004, in the original amount of $10,000,000.00, as amended by that certain Change In Terms Agreement dated May 9, 2005, from IRIS International, Inc. to Lender.

DESCRIPTION OF COLLATERAL.

1) All inventory, equipment, accounts (including but not limited to all health-care-insurance receivables), chattel paper, instruments (including but not limited to all promissory notes), letter-of-credit rights, letters of credit, documents, deposit accounts, investment property, money, other rights to payment and performance, and general intangibles (including but not limited to all software and all payment intangibles); all fixtures; all attachments, accessions, accessories, fittings, increases, tools, parts, repairs, supplies, and commingled goods relating to the foregoing property, and all additions, replacements of and substitutions for all or any part of the foregoing property; all insurance refunds relating to the foregoing property; all good will relating to the foregoing property; all records and data and embedded software relating to the foregoing property, and all equipment, inventory and software to utilize, create, maintain and process any such records and data on electronic media; and all supporting obligations relating to the foregoing property; all whether now existing or hereafter arising, whether now owned or hereafter acquired or whether now or hereafter subject to any rights in the foregoing property; and all products and proceeds (including but not limited to all insurance payments) of or relating to the foregoing property.

DESCRIPTION OF CHANGE IN TERMS.

1) The Maturity date is hereby amended from June 30, 2006 to June 30, 2008

2) The Note is subject to the terms and conditions of that Business Loan Agreement executed by Borrower in favor of Lender, as amended and restated on march 24, 2006

3) The Tangibable Net Worth covenant is hereby deleted in its entirety

All other terms conditions remain the same.

CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of the original obligation or obligations, including all agreements evidenced or securing the obligation(s), remain unchanged and in full force and effect. Consent by Lender to this Agreement does not waive Lender’s right to strict performance of the obligation(s) as changed, nor obligate Lender to make any future change in terms. Nothing in this Agreement will constitute a satisfaction of the obligation(s). It is the intention of Lender to retain as liable parties all makers and endorsers of the original obligation(s), including accommodation parties, unless a party is expressly released by Lender in writing. Any maker or endorser, including accommodation makers, will not be released by virtue of this Agreement. If any person who signed the original obligation does not sign this Agreement below, then all persons signing below acknowledge that this Agreement is given conditionally, based on the representation to Lender that the non-signing party consents to the changes and provisions of this Agreement or otherwise will not be released by it. This waiver applies not only to any initial extension, modification or release, but also to all such subsequent actions.

FINANCIAL STATEMENT CERTIFICATIONS. The undersigned hereby certifies to California Bank & Trust (“Bank”) that all financial information (“Information”) submitted to Bank now and at all times during the terms of this loan does, and will, fairly and accurately represent the financial condition of the undersigned, all Borrowers and Guarantors. Financial Information includes, but is not limited to all Business Financial Statements (including Interim and Year-End financial statements that are company prepared and/or CPA-prepared), Business Income Tax Returns, Borrowing Base Certificates, Accounts Receivable and Accounts Payable Agings, Personal Financial Statements and Personal Income Tax Returns. The undersigned understands that the Bank will rely on all financial information, whenever provided, and that such information is a material inducement to Bank to make, to continue to make, or otherwise extend credit accommodations to the undersigned. The undersigned covenants and agrees to notify Bank of any adverse material changes in her/his/its financial condition in the future. The undersigned further understands and acknowledges that there are criminal penalties for giving false financial information to federally insured financial institutions.

DEPOSIT AGREEMENT SECURITY. Borrower hereby grants a security interest to Lender in any and all deposit accounts (checking, savings, money market or time) of Borrower at Lender, now existing or hereinafter opened, to secure its Indebtedness hereunder. This includes all deposit accounts Borrower holds jointly with someone else.

PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS AGREEMENT. BORROWER AGREES TO THE TERMS OF THE AGREEMENT.

BORROWER:

IRIS INTERNATIONAL, INC.
By:	/s/ Cesar Garcia	By:	/s/ Martin Parravato
Cesar Garcia, President/CEO of IRIS International, Inc.		Martin Parravato, CFO/Secretary of IRIS International, Inc.

LASER PRO Lending, Ver. 5.48.00.004 Copr. Harland Financial Solutions, Inc. 1997, 2010. All Rights Reserved. - CA L:\CFI\LPL\D20C.FC TR-18168 PR-1 (M)

EX-10.8(B)

EXHIBIT 10.8(b)

BUSINESS LOAN AGREEMENT

Principal	Loan Date	Maturity	Loan No	Call / Coll	Account	Officer	Initials
$    6,500,000.00	03-24-2006	06-30-2008	932900001-1		932900001-1	22163

References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item.

Any item above containing “***” has been omitted due to text length limitations.

Borrower: IRIS International, Inc. 9172 Eton Avenue Chatsworth, CA 91311-5805 Lender: California Bank & Trust Los Angeles Commercial Banking 550 South Hope Street, Suite 300 Los Angeles, CA 90071

THIS BUSINESS LOAN AGREEMENT dated March 24, 2006, is made and executed between IRIS International, Inc. (“Borrower”) and California Bank & Trust (“Lender”) on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower’s representations, warranties, and agreements as set forth in this Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender’s sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this Agreement.

TERM. This Agreement shall be effective as of March 24, 2006, and shall continue in full force and effect until such time as all of Borrower’s Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys’ fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement.

CONDITIONS PRECEDENT TO EACH ADVANCE. Lender’s obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender’s satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.

Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) Security Agreements granting to Lender security interests in the Collateral; (3) financing statements and all other documents perfecting Lender’s Security Interests; (4) evidence of insurance as required below; (5) guaranties; (6) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender’s counsel.

Borrower’s Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require.

Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document.

Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct.

No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists:

Organization. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Delaware. Borrower is duly authorized to transact business in all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains an office at 9172 Eton Avenue, Chatsworth, CA 91311-5805. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrower’s state of organization or any change in Borrower’s name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower’s business activities.

Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: None.

Authorization. Borrower’s execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower’s articles of incorporation or organization, or bylaws, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower’s properties.

Financial Information. Each of Borrower’s financial statements supplied to Lender truly and completely disclosed Borrower’s financial condition as of the date of the statement, and there has been no material adverse change in Borrower’s financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.

Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.

Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower’s financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower’s properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower’s properties are titled in Borrower’s legal name, and Borrower has not used or filed a financing statement under any other name for at least the last five (5) years.

Hazardous Substances. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower’s ownership of the Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower’s expense and for Lender’s purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower’s due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify and defend, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender’s acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise.

Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower’s financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing.

Taxes. To the best of Borrower’s knowledge, all of Borrower’s tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided.

Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower’s Loan and Note, that would be prior or that may in any way be superior to Lender’s Security Interests and rights in and to such Collateral.

Binding Effect. This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will:

Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all material adverse changes in Borrower’s financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor.

Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower’s books and records at all reasonable times.

Financial Statements. Furnish Lender with the following:

Annual Statements. As soon as available, but in no event later than one-hundred-twenty (120) days after the end of each fiscal year, Borrower’s balance sheet and income statement for the year ended, audited by a certified public accountant satisfactory to Lender.

Interim Statements. As soon as available, but in no event later than sixty (60) days after the end of each fiscal quarter, Borrower’s balance sheet and profit and loss statement for the period ended, prepared by Borrower in form satisfactory to Lender.

Tax Returns. As soon as available, but in no event later than thirty (30) days after the applicable filing date for the tax reporting period ended, Federal and other governmental tax returns, prepared by a tax professional satisfactory to Lender.

All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.

Additional Information. Furnish such additional information and statements, as Lender may request from time to time.

Financial Covenants and Ratios. Comply with the following covenants and ratios:

Working Capital Requirements. Borrower shall comply with the following working capital ratio requirements:

Current Ratio. Maintain a Current Ratio in excess of 1.500 to 1.000. The term “Current Ratio” means Borrower’s total Current Assets divided by Borrower’s total Current Liabilities. This liquidity ratio will be evaluated as of quarter-end.

Minimum Income and Cash flow Requirements. Borrower shall comply with the following cash flow ratio requirements:

Debt Service Coverage Ratio. Maintain a ratio of Debt Service Coverage in excess of 1.500 to 1.000. This coverage ratio will be evaluated as of Quarter-end.Debt Service Coverage Ratio shall be defined as Earnings before Interest, Taxes Depreciation and Amortization divided by Current Portion of Long Term Debt plus Interest Expense based upon a cumulative rolling 12-month basis.

Tangible Net Worth Requirements. Borrower shall comply with the following net worth ratio requirements:

Debt / Worth Ratio. Maintain a ratio of Debt / Worth not in excess of 1.250 to 1.000. The ratio “Debt / Worth” means Borrower’s Total Liabilities divided by Borrower’s Tangible Net Worth. This leverage ratio will be evaluated as of quarter-end.

Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct.

Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower’s properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender’s loss payable or other endorsements as Lender may require.

Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.

Guaranties. Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, executed by the guarantors named below, on Lender’s forms, and in the amounts and under the conditions set forth in those guaranties.

Names of Guarantors	Amounts
Statspin, Inc.	$	16,500,000.00
Advanced Digital Imaging Research, LLC	$	16,500,000.00

Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements.

Loan Proceeds. Use all Loan proceeds solely for Borrower’s business operations, unless specifically consented to the contrary by Lender in writing.

Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower’s properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (1) the legality of the same shall be contested in good faith by appropriate proceedings, and (2) Borrower shall have established on Borrower’s books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP.

Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any agreement.

Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner.

Environmental Studies. Promptly conduct and complete, at Borrower’s expense, all such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower.

Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower’s properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender’s sole opinion, Lender’s interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender’s interest.

Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower’s other properties and to examine or audit Borrower’s books, accounts, and records and to make copies and memoranda of Borrower’s books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower’s expense.

Compliance Certificates. Unless waived in writing by Lender, provide Lender at least annually, with a certificate executed by Borrower’s chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement.

Environmental Compliance and Reports. Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower’s part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower’s part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.

Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests.

LENDER’S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender’s interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower’s failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower’s behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the Indebtedness and, at Lender’s option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note’s maturity.

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender:

Indebtedness and Liens. (1) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower’s assets (except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower’s accounts, except to Lender.

Continuity of Operations. (1) Engage in any business activities substantially different than those in which Borrower is presently engaged, (2) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, or (3) pay any dividends on Borrower’s stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a “Subchapter S Corporation” (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of Borrower’s stock, or purchase or retire any of Borrower’s outstanding shares or alter or amend Borrower’s capital structure.

Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or assets to any other person, enterprise or entity, (2) purchase, create or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or guarantor other than in the ordinary course of business.

Agreements. Enter into any agreement containing any provisions which would be violated or breached by the performance of Borrower’s obligations under this Agreement or in connection herewith.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower’s financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor’s guaranty of the Loan or any other loan with Lender; or (E) Lender in good faith deems itself insecure, even though no Event of Default shall have occurred.

DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:

Payment Default. Borrower fails to make any payment when due under the Loan.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s or any Grantor’s property or Borrower’s or any Grantor’s ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Insolvency. The dissolution or termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.

Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired.

Insecurity. Lender in good faith believes itself insecure.

Right to Cure. If any default, other than a default on Indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured if Borrower or Grantor, as the case may be, after Lender sends written notice to Borrower or Grantor, as the case may be, demanding cure of such default: (1) cure the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiate steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender’s option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the “Insolvency” subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender’s rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender’s right to declare a default and to exercise its rights and remedies.

DEPOSIT AGREEMENT SECURITY. Borrower hereby grants a security interest to Lender in any and all deposit accounts (checking, savings, money market or time) of Borrower at Lender, now existing or hereinafter opened, to secure the Indebtedness. This includes all deposit accounts Borrower holds jointly with someone else.

ADDITIONAL INFORMATION. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will furnish such additional information and statements, list of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower’s financial condition and business operations as Lender may reasonably request from time to time, including without limitation: (a) detailed Accounts Receivable and Payable agings, as soon as available, but in no event later than twenty (20) days after month-end; (b) detailed Inventory Report, as soon as available, but in no event later than twenty (20) days after month-end.

ANNUAL INSPECTIONS AND COLLATERAL AUDITS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will permit employees or agents of Lender at any reasonable time, but at least annually, to inspect any and all Collateral for the Loan or Loans, as well as Borrower’s other properties and to examine or audit Borrower’s books, accounts, and records and to make copies and memoranda of Borrower’s books, accounts, and records as may be deemed necessary. Any such inspection or examination shall be at Borrower’s expense.

USAGE FEE. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower shall be assessed quarterly, a .18% fee on the undisbursed balance. Such fee shall be waived if the combined quarterly average usage exceeds 60% of the respective commitment amounts.

PRE-TAX PROFITABILITY. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower shall maintain a minimum pre-tax profitability of $1,500,000.00 for December 31, 2006 and December 31, 2007.

LOSSES. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower shall not incur losses for two consecutive quarters.

ACQUISITIONS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower must obtain prior written approval from Lender for all acquisitions over $1,000,000.00 (transaction amount and not amount of advance). Such approval request to be reviewed and given by Commercial Credit Administartion.

TERM OUT OF EACH ADVANCE UNDER THE NON-REVOLVING LINE OF CREDIT. Borrower covenants and agrees with Lender, that for each advance upon the end of the three (3) month interest only payment period, the non-revolving feature of this loan will be discontinued and the loan balance will be converted to a fully amortized, sixty (60) month installment loan, with payments of Principal including Interest at an interest rate based on the Pricing Matrix Addendum.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Attorneys’ Fees; Expenses. Borrower agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s attorneys’ fees and legal expenses whether or not there is a lawsuit, including attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court.

Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

Consent to Loan Participation. Borrower agrees and consents to Lender’s sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower’s obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.

Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of California without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of California.

Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender’s request to submit to the jurisdiction of the courts of Los Angeles County, State of California.

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender’s rights or of any of Borrower’s or any Grantor’s obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower’s current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.

Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.

Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word “Borrower” as used in this Agreement shall include all of Borrower’s subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower’s subsidiaries or affiliates.

Successors and Assigns. All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower’s successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower’s rights under this Agreement or any interest therein, without the prior written consent of Lender.

Survival of Representations and Warranties. Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full force and effect until such time as Borrower’s Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur.

Time is of the Essence. Time is of the essence in the performance of this Agreement.

Waive Jury. To the extent permitted by applicable law, all parties to this Agreement hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by any party against any other party.

DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this

Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement:

Advance. The word “Advance” means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower’s behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement.

Agreement. The word “Agreement” means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time.

Borrower. The word “Borrower” means IRIS International, Inc. and includes all co-signers and co-makers signing the Note and all their successors and assigns.

Collateral. The word “Collateral” means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.

Environmental Laws. The words “Environmental Laws” mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 (“SARA”), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.

Event of Default. The words “Event of Default” mean any of the events of default set forth in this Agreement in the default section of this Agreement.

GAAP. The word “GAAP” means generally accepted accounting principles.

Grantor. The word “Grantor” means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security Interest.

Guarantor. The word “Guarantor” means any guarantor, surety, or accommodation party of any or all of the Loan.

Guaranty. The word “Guaranty” means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.

Hazardous Substances. The words “Hazardous Substances” mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words “Hazardous Substances” are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term “Hazardous Substances” also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.

Indebtedness. The word “Indebtedness” means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents.

Lender. The word “Lender” means California Bank & Trust, its successors and assigns.

Loan. The word “Loan” means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time.

Note. The word “Note” means The Note executed by International Remote Imaging Systems, Inc. in the original principal amount of $6,500,000.00 dated February 7, 2002, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the Note or Credit Agreement or any other subsequent Notes evidencing further Indebtedness.

Permitted Liens. The words “Permitted Liens” mean (1) liens and security interests securing Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (4) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled “Indebtedness and Liens”; (5) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (6) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower’s assets.

Related Documents. The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan.

Security Agreement. The words “Security Agreement” mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest.

Security Interest. The words “Security Interest” mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise.

Tangible Net Worth. The words “Tangible Net Worth” mean Borrower’s total assets excluding all intangible assets (i.e., goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements) less total debt.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED MARCH 24, 2006.

BORROWER:

IRIS INTERNATIONAL, INC.
By:	/s/ Cesar Garcia	By:	/s/ Martin Parravato
Cesar Garcia, President/CEO of IRIS International, Inc.		Martin Parravato, CFO/Secretary of IRIS International, Inc.

LENDER:

CALIFORNIA BANK & TRUST
By:	/s/ Joe Lim
Authorized Signer

LASER PRO Lending, Ver. 5.48.00.004 Copr. Harland Financial Solutions, Inc. 1997, 2010. All Rights Reserved. - CA L:\CFI\LPL\C40.FC TR-13807 PR-1 (M)

EX-10.8(C)

EXHIBIT 10.8(c)

CHANGE IN TERMS AGREEMENT

Principal	Loan Date	Maturity	Loan No	Call / Coll	Account	Officer	Initials
$    6,500,000.00	03-24-2006	06-30-2008	932900001-1		932900001-1	22163

References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item.

Any item above containing “***” has been omitted due to text length limitations.

Borrower: IRIS International, Inc. 9172 Eton Avenue Chatsworth, CA 91311-5805 Lender: California Bank & Trust Los Angeles Commercial Banking 550 South Hope Street, Suite 300 Los Angeles, CA 90071

Principal Amount:    $6,500,000.00 Date of Agreement:    March 24, 2006

DESCRIPTION OF EXISTING INDEBTEDNESS.

The Business Loan Agreement dated May 25, 2004 and the Promissory Note dated February 7, 2002, in the original amount of $6,500,000.00, as amended by those certain Change In Terms Agreements dated March 11, 2002, April 24, 2003, October 8, 2003, May 25, 2004 and July 29, 2005, from IRIS International, Inc. to Lender.

DESCRIPTION OF COLLATERAL.

1) All inventory, equipment, accounts (including but not limited to all health-care-insurance receivables), chattel paper, instruments (including but not limited to all promissory notes), letter-of-credit rights, letters of credit, documents, deposit accounts, investment property, money, other rights to payment and performance, and general intangibles (including but not limited to all software and all payment intangibles); all fixtures; all attachments, accessions, accessories, fittings, increases, tools, parts, repairs, supplies, and commingled goods relating to the foregoing property, and all additions, replacements of and substitutions for all or any part of the foregoing property; all insurance refunds relating to the foregoing property; all good will relating to the foregoing property; all records and data and embedded software relating to the foregoing property, and all equipment, inventory and software to utilize, create, maintain and process any such records and data on electronic media; and all supporting obligations relating to the foregoing property; all whether now existing or hereafter arising, whether now owned or hereafter acquired or whether now or hereafter subject to any rights in the foregoing property; and all products and proceeds (including but not limited to all insurance payments) of or relating to the foregoing property.

DESCRIPTION OF CHANGE IN TERMS.

1) The Maturity date is hereby amended from June 30, 2006 to June 30, 2008

2) The Note is subject to the terms and conditions of that Business Loan Agreement executed by Borrower in favor of Lender, as amended and restated on March 24, 2006

3) The Tangible Net worth covenant is hereby deleted in its entirety

4) The Letter of Credit Subline is hereby amended. See attached Letter of Credit Subline Exhibit

5) The Foreign Exchange Subline is hereby amended. See attached Foreign Exchange Subline Exhibit

All other terms and conditions shall remain the same.

CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of the original obligation or obligations, including all agreements evidenced or securing the obligation(s), remain unchanged and in full force and effect. Consent by Lender to this Agreement does not waive Lender’s right to strict performance of the obligation(s) as changed, nor obligate Lender to make any future change in terms. Nothing in this Agreement will constitute a satisfaction of the obligation(s). It is the intention of Lender to retain as liable parties all makers and endorsers of the original obligation(s), including accommodation parties, unless a party is expressly released by Lender in writing. Any maker or endorser, including accommodation makers, will not be released by virtue of this Agreement. If any person who signed the original obligation does not sign this Agreement below, then all persons signing below acknowledge that this Agreement is given conditionally, based on the representation to Lender that the non-signing party consents to the changes and provisions of this Agreement or otherwise will not be released by it. This waiver applies not only to any initial extension, modification or release, but also to all such subsequent actions.

FINANCIAL STATEMENT CERTIFICATIONS. The undersigned hereby certifies to California Bank & Trust (“Bank”) that all financial information (“Information”) submitted to Bank now and at all times during the terms of this loan does, and will, fairly and accurately represent the financial condition of the undersigned, all Borrowers and Guarantors. Financial Information includes, but is not limited to all Business Financial Statements (including Interim and Year-End financial statements that are company prepared and/or CPA-prepared), Business Income Tax Returns, Borrowing Base Certificates, Accounts Receivable and Accounts Payable Agings, Personal Financial Statements and Personal Income Tax Returns. The undersigned understands that the Bank will rely on all financial information, whenever provided, and that such information is a material inducement to Bank to make, to continue to make, or otherwise extend credit accommodations to the undersigned. The undersigned covenants and agrees to notify Bank of any adverse material changes in her/his/its financial condition in the future. The undersigned further understands and acknowledges that there are criminal penalties for giving false financial information to federally insured financial institutions.

DEPOSIT AGREEMENT SECURITY. Borrower hereby grants a security interest to Lender in any and all deposit accounts (checking, savings, money market or time) of Borrower at Lender, now existing or hereinafter opened, to secure its Indebtedness hereunder. This includes all deposit accounts Borrower holds jointly with someone else.

FOREIGN EXCHANGE SUBLINE EXHIBIT. An exhibit, titled “Foreign Exchange Subline Exhibit,” is attached to this Agreement and by this reference is made a part of this Agreement just as if all the provisions, terms and conditions of the Exhibit had been fully set forth in this Agreement.

PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS AGREEMENT. BORROWER AGREES TO THE TERMS OF THE AGREEMENT.

BORROWER:

IRIS INTERNATIONAL, INC.
By:	/s/ Cesar Garcia	By:	/s/ Martin Parravato
Cesar Garcia, President/CEO of IRIS International, Inc.		Martin Parravato, CFO/Secretary of IRIS International, Inc.

LASER PRO Lending, Ver. 5.48.00.004 Copr. Harland Financial Solutions, Inc. 1997, 2010. All Rights Reserved. - CA L:\CFI\LPL\D20C.FC TR-13807 PR-1 (M)

EX-10.17

EXHIBIT 10.17

AIR COMMERCIAL REAL ESTATE ASSOCITION

STANDARD INDUSTRIAL /COMMERCIAL SINGLE-TENANT LEASE—NET

(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)

1. BASIC PROVISIONS (“BASIC PRIVISIONS”).

1.1 PARTIES: This Lease (“Lease”), dated for reference purposes only February 8, 2010, is made by and between NORTHPARK INDUSTRIAL, a California general partnership of NorthwestIndustrial Center LLC, A California limited liability company, and Northpark Industrial-Leahy Division LLC, A California limited liability company(“Lessor”) and Iris International, Inc., a Delaware Corporation(“Lessee”). (Collectively the “Parties, ”or individually a “Party”).

1.2 Premises: that certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as 9232 Eton Avenue Located in the County of Los Angeles , State of California and generally described as (describe briefly the nature of the property and , if applicable, the “Project”, if the property is located within a Project) a concrete tilit-up industrial building consisting of approximately 21, 984 square feet of area, aka Lot #10, Tract # 33398, City of Los Angeles, in an MR-2 zone.(“Premises”). (See also paragraph 2)

1.3 Term: Five (5) years and 0 months (“Original Term”) Commencing March 1, 2010 “Commencement date” and ending February 28, 2015(“Expiration Date”). (See also paragraph 3)

1.4 Early possession: If the Premises are available Lessee may have non-exclusive passion of the Premises commencing                      (“Early Possession Date”). (See also paragraph 3.2 and 3.3)

1.5 Base Rent: $13,190.00 per month (“Base Rent”), payable on the First (1^st) day of each month commencing January 1, 2011.. (See also paragraph 4)

x If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. See Paragraph 50

1.6 Base Rent and other monies paid upon execution:

(a) Base Rent: $0.00 for the period March 1, 2010 through December 31, 2010

(b) Security Deposit: $13,190.00(“Security Deposit”). (See also Paragraph 5)

(c) Association Fees: $             for the period                     

(d) Other: $17,710.00 for NNN Charges (3-1-10 through 12-31-10)

(e) Total Due Upon Execution of this Lease: $30,900.00.

1.7 Agreed Use: research, development and manufacturing of medical and electronic equipment and related activity.. (See also paragraph 6)

1.8 Insuring Party: Lessor is the “Insuring Party” unless other wise stated herein. (See also Paragraph 8)

1.9 REMOVED

1.10 Guarantor. The obligations of the Lessee under this Lease are to be guaranteed by (“Guarantor”). (See also paragraph 37)

1.11 Attachments. Attached hereto are the following, all of which constitute a part of this lease:

x An Addendum consisting of Paragraphs 50 through 66;

¨ a plot plan depicting the Premises:

¨ a current set of the Rules and Regulations;

¨ a Work Letter;

¨ other (specify): _______________________________________________________________________________

____________________________________________________________________________________________

___________________________________________________________________________________________

________________________

2. Premises.

2.1 Letting. 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. While the approximate square footage of the Premises may have been used in the marketing of the Premises for purposes of comparison, the Base rent stared herein is NOT tied to square footage and is not subject to adjustment should the actual size be determined to be different. Note: Lessee is advised to verify the actual size prior to executing this Lease.

2.2 Condition. Lessor shall deliver the premises to lessee broom clean and free of debris on the Commencement Date or Early Possession Date, whichever fist occurs (“Start date”), 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 structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the “Building”) shall be free of material defects.

2.3 Compliance. Lessor warrants that to the best of its knowledge the improvements on the Premises comply with the building codes, applicable laws, covenants or restrictions of record, regulations, and ordinances (“Applicable Requirements”) that were in effect at the time that each improvement, or portion thereof, was constructed. Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph 50), or to any Alterations or Utility Installations (as defined in paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the applicable Requirements, and especially the zoning, are appropriate for Lessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lesser shall, except as otherwise provided, promptly after receipt of written notice from Lessee

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setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor’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 require during the term of this Lease the construction of an addition to or an alternation of the Premises and/or Building (“Capital Expenditure”), Lessor and Lessee shall allocate the cost of such work as follows:

(a) 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’ base rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee’s termination notice that Lessor has elected to pay the difference between the actual cost thereof and an amount equal to 6 months’ 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.

(b) 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), Lessor shall pay for such Capital Expenditure and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease or any extension thereof, on the date that on which the Base Rent is due, an amount equal to 144^th of the portion of such costs reasonably attributable to the Premises. Lessee shall pay interest on the balance but may prepay its obligation at the time. If, however, 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’s termination notice that Lessee will pay of 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’s share of such costs have been fully paid. If Lessee is unable to finance Lessor’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.

(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change I use, change in intensity of use, or modification to the Premises than, and in that event, Lessee shall either. (i) Immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee shall not, however, have any right to terminate this Lease.

2.4 Acknowledgements: Lessee acknowledges that: (a) it has been given an opportunity to inspect and measure the Premises, (b) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the size and 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’s intended use, (c) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefore as the same relate to its occupancy of the Premises, (d) it is not relying on any respresentationas to the size of the Premises made by Brokers or Lessor, (e) the square footage of the Premises was not material to Lessee’s decision to lease the Premises and pay the Rent stated herein , and (f) neither Lessor, lessor’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’s ability to hone the Lease or suitability to occupy the Premises, and (ii) it is Lessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor 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 for5 any necessary corrective work.

3. Term.

3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3

3.2 Early Possession. Any provision herein granting Lessee Early Possession of the Premises is subject to and conditioned upon the Premises being available for such possession prior to the Commencement Date. Any grant of Early Possession only conveys a non-exclusive right to occupy the Premises. 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 obligation s to pay Real Property Taxes and insurance premiums and to maintain the premises) shall be in effect during such period. Any such Early Possession shall not affect the Expiration Date.

3.3 Delay in Possession. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite efforts, Lessor is unable to deliver possession by such date, Lessor shall not be subject to any liability therefore, not shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the Premises and any period of rent abatement that 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 is not delivered within 6o days after the Commencement Date, Lessee may, at its option, by notice I writing within 10 days after the e d 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’s right cancel shall terminate. If possession of the Premises is not delivered within 120 days after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, I writing.

3.4 Lessee Compliance. Lessor shall not be required to deliver possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Pargraph8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor’s election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other condition s 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.

4. Rent.

4.1 Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent (“Rent”).

4.2 Payment. 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 I this Lease), on or before the day on which it is due. All monetary amounts shall be rounded to the nearest whole dollar. In the event that any invoice prepared by Lessor is inaccurate such inaccuracy shall not constitute a waiver and Lessee shall be obligated to pay the amount set forth in this Lease. 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’s rights to the balance of such Rent, regardless of Lessor’s endorsement of nay 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 in addition to any Late Charge and Lessor, at its option, may require all future Rent be paid by cashier’s check. Payments will be applied first to accrued late charges and attorney’s fees, second to accrued interest, then to Base Rent, Insurance and Real Property Taxes, and any remaining amount to any other outstanding charges or costs.

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4.3 REMOVED

5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee’s faithful performance of its obligation s under this Lease. If Lessee fials 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 already due Lessor, for Rents which will be due in the future, and/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 therefore deposit monies with Lessor sufficient to restore said Security Deposit to 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 sub lessee or assignee, Lessor shall lave the right to increase the Security Deposit to the extent necessary, in Lessor’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’s reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with lessor as shall be sufficient to cause the Security Deposit separate from its general accounts. Within 90 days after the expiration or termination of this Lease, Lessor shall return that portion of the Security Deposit not sued for 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. (see Paragraph 53 of Addendum)

6. Use.

6.1 Use. 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 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. Other than guide, signal and Seeing Eye dogs, Lessee shall not keep or allow in the Premises any pets, animals, birds, fish, or reptiles. 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’s objections to the change in the Agreed Use. (See Paragraph 54 of Addendum)

6.2 Hazardous Substances.

(a) Reportable Uses Require Consent. The term “Hazardous Substance” as used I this Lease shall mean any product, substance, or waste shoes 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 bases 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 Requirements. “Reportable Use” 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 Hazardous Substances that requires a permit from, or with respect to which a report, notice, registration or 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 reasonable required to be used I the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) an common household cleaning materials, so long as such use is 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, 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. (See Paragraph 62 of Addendum)

(b) Duty to Inform Lessor. 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.

(c) Lessee Remediation. Lessee shall not cause 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’s expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommend, 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 ror 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.

(d) Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from ad against any and all loss of rents and /or damages, liabilities, judgments, claims, expenses, penalties, and attorneys’ and consultants’ 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 adjacent properties not caused or contributed to by Lessee). Lessee’s obligations shall include, but not be limed 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.

(e) Lessor Indemnification. Lessor and its successors and assigns shall indemnify, defend, reimburse an hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which result from Hazardous Substances which existed on the Premises prior to Lessees’ occupancy or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor’s obligations, as and when required by the Applicable Requirements, shall include by not be limited to, the cost of investigation, removal, remediation, restoration and /or abatement, and shall survive the expiration or termination of this Lease.

(f) Investigations and Remediation’s. 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 Lessee’s occupancy, unless such remediation measure is required as a result of Lessee’s use (including “Alterations”, 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’s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities

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(g) Lessor Termination Option. If a Hazardous Substance Condition (see paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefore (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 the lessor’s rights under paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor’s option ,either (i_ investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor’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 $1,000,000 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’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’s commitment to pay the amount by which the cost of the remediation of such hazardous condition exceeds an amount equal to 12 times the then monthly Base rent or $1,000,000 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. 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’s notice of termination.

6.3 Lessee’s Compliance with Applicable Requirements. Except as otherwise provided in this Lease, Lessee shall, at Lessee’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’s engineers and /or consultants which relate in any manner to the such Requirements, without regards to whether such Requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessor’s written request, provide Lessor with copies of all permits and other documents, and other information evidencing lessee’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. Likewise, Lessee shall immediately give written notice to Lessor of; (i) any water damage to the Premises and any suspected seepage, polling, dampness or other condition conducive to the production of mold; or (ii) any mustiness or other odors that might indicate the presence of mold in the Premises.

6.4 Inspection; Compliance. Lessor and Lessor’s “Lender” (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 after reasonable notice, 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 Hazardous Substance Condition (see paragraph 9.1) is found to exist or be imminent, or the inspection is requested or ordered by a government authority. In such case, lessee shall upon request reimburse Lessor for the cost of such inspection, so long a such inspection is reasonably related to the violation or contamination. In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of a written request therefore.

7. Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations.

7.1 Lessee’s Obligations.

(a) In General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee’s Compliance with Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee’s sole expense, keep the Premises, Utility Installations (intended for Lessee’s exclusive use, no matter where located), and Alternations 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’s 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, fire protection system, fixtures, walls (interior and exterior), foundations, ceilings, roofs, roof drainage systems, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises. Leesee, in keeping the Premises I 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’s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in food order, condition and state of repair. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition (including, e.g. graffiti removal) consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the Building. (See paragraph 55 of Addendum)

(b) Service contracts: Lessee shall, at Lessee’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) fire extinguishing systems, including fire alarm and /or smoke detection , (iv) landscaping and irrigation systems, (v) roof covering and drains, and (vi) clarifiers. However, lessor reserves the right, upon notice to Lessee, to procure ad maintain any or all of such service contracts, and Lessee shall reimburse Lessor, upon demand, for the cost thereof.

(c) Failure to Perform. If Lessee fails to perform Lessee’s obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days’ 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’s behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly pay to Lessor a sum equal to 115% of the cost thereof.

(d) Replacement. Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 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 fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144^th of the cost per month). Lessee shall pay interest on the unamoratized balance but may prepay its obligation at any time.

7.2 Lessor’s Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation ), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this lease.

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7.3 Utility Installations; Trade Fixtures; Alterations.

(a)Definitions. The term “Utility Installations” refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term “Trade Fixtures” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises. The term “Alterations” shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. “Lessee Owned Alterations and/or Utility Installations” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant by Lessor pursuant to Paragraph7.4(a).

(b) Consent. Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor;’s prior written consent. Lessee may, however, make nonstructural Alterations or 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/wails, will not affect the electrical, plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as does not exceed $50.000. Lessee shall also have the right to make cosmetic Alterations such as carpet, Interior paint, wall covering without the consent of, but upon notice to Lessor, so long as cosmetic Alterations are not visible from the outside and do not involve puncturing walls •• 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 Installations 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’s: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (Hi) compliance with all conditions of said permits and other Applicable Requirements In a prompt and expeditious manner. Any Alterations or Utility Installations 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’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’s posting an additional Security Deposit with Lessor.

(c) Liens; Bonds. 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’s or materialmen’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 it self, 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’s Attorney’s fees and costs.

7.4 Ownership; Removal; Surrender; and Restoration.

(a) Ownership. Subject to Lessor’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, concurrently with Lessors approval of any Alteration or utility Installations elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and utility Installations to the extent they cannot be removal without materially damaging the premises. Unless otherwise instructed per paragraph 7.4(b) hereof, or unless they can be remove without materially damaging the Premises. 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.

(b) Removal. 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 all Lessee Owned alterations or Utility Installations be removed by the expiration or termination of this Lease. However Lessee may require Lessor to give Lessor written notice whether Lessee Owned Alterations or utility Installations must be removed by the expiration or termination of the Lease concurrently with Lessor’s approval of same. Lessor may require the removal at any time of all or any part of any Leasee Owned Alterations or Utility Installations made without the required consent.

(c) Surrender; Restoration. 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. Ordinary wear and tear” shall not include any damage or deterioration that would have been prevented by good maintenance practice. 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 and the removal, replacement or remediation of any soil, material or groundwater contaminated by Lessee. Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire. 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.

8. Insurance; Indemnity,

8.1 Payment for Insurance. Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability Insurance carried by Lessor under Paragraph 8.2(b) In excess of $2,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within 10 days following receipt of an invoice.

8.2 Liability Insurance.

(a) Carried by Lessee. 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 properly 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 $2.000.000. Lessee shall add Lessor as an additional insured by means of an endorsement at least as broad as the Insurance Service Organization’s ·Additional Insured-Managers or Lessor’s of Premises· Endorsement. 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 “Insured contract” for the performance of Lessee’s Indemnity obligations under this Lease. The limits of said insurance shall not, however, 111011 the liability of Lessee nor relieve Lessee of any obligation hereunder. Lessee shall provide an endorsement on as liability policy(ies) which provides that its insurance shall be primary to and not contributory with any similar Insurance carried by Lessor, who’s insurance shall b. considered excess Insurance only.

(b) Carried by Lessor. Lessor shall maintain liability Insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required 10 be maintained by Lessee. Lessee shall not be named as an additional Insured therein.

8.3 Property Insurance - Building, improvements and Rental Value.

(a) Building and Improvements. The insuring Party shall obtain and keep in force a policy or policies 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 equal to

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the full Insurable 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’s personal property shall be insured by Lessee not by Lessor. 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 All 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, and Lessee shall be liable for such deductible amount in the event of an Insured Loss.

(b) Rental Value. The Insuring Party shall obtain and keep In force a policy or policies in the name of Lessor with loss payable 10 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 (“Rental Value Insurance”). 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. Lessee shall be liable for any deductible amount In the event of an insured loss.

(c) Adjacent Premises, If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any Increase In the premiums for the property insurance of such building or buildings if said increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises.

8.4 Lessee’s Property; Business Interruption Insurance.

(a) Property Damage. Lessee shall obtain and maintain Insurance coverage on all of Lessee’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.

(b) Business Interruption. 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.

(c) No Representation of Adequate Coverage. Lessor makes no representation that the limits or forms of coverage of Insurance specified herein are adequate to cover Lessee’s property, business operations or obligations under this Lease.

8.5 Insurance Policies. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a “General Policyholders Rating” of at least A-, VI, as set forth in the most current Issue of “Best’s Insurance Guide”, 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 10 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or “Insurance binders” 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 the other 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.

8.6 Waiver of Subrogation. 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 ns 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.

8.7 Indemnity. Except for Lessor’s gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and ns agents, Lessor’s master or ground Lessor, partners and Lenders, from and against any and all claims, loss of rents andlor damages, liens, judgments, penalties, attorneys’ and consultants’ 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’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.

8.8 Exemption of Lessor and Its Agents from Liability. Except to the extent resulting from Lessor’s gross negligence or willful misconduct, neither Lessor nor its agents shall be liable under any circumstances for. (i) injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee’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, indoor air quality, the presence of mold 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 of which the Premises are a part, or from other sources or places, (ii) any damages arising from any act or neglect of any other tenant of Lessor or from the failure of Lessor or its agents to enforce the provisions of any other lease in the Project, or (iii) injury to Lessee’s business or for any loss of income or profit therefrom. Instead, it is intended that Lessee’s sole recourse In the event of such damages or Injury be to file a claim on the Insurance policy(ies) that Lessee is required to maintain pursuant to the provisions of paragraph 8.

8.9 Failure to Provide Insurance. Lessee acknowledges that any failure on its part to obtain or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor to Incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain. Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater. The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/costs that Lessor will incur by reason of Lessee’s failure to maintain the required insurance. Such increase in Base Rent shall in no event constitute a waiver of Lessee’s Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.

9. Damage or Destruction.

9.1 Definitions.

(a) “Premises Partial Damage” 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 6 months or less from the date of the damage or destruction. 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. Notwithstanding the foregoing, Premises Partial Damage shall not include damage to windows, doors, and/or other similar items which Lessee has the responsibility to repair or replace pursuant to the provisions of Paragraph 7.1.

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(b) “Premises Total Destruction” shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 6 months or less from the date of the damage or destruction. 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.

(c) “Insured Loss” 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.

(d) “Replacement Cost” 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.

(e) “Hazardous Substance Condition” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance, in, on, or under the Premises which requires remediation.

9.2 Partial Damage – Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor’s expense, repair such damage (but no Lessee’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. 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 (except as to the deductible which Is Lessee’s responsibility) 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 If the shortage of Insurance proceeds exceeds $500.000 unless Lessee provides Lessor with the funds to cover the excess over $500.000, 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.

9.3 Partial Damage – Uninsured loss. If a Premises Partial Damage that Is not an Insured Loss occurs, unless caused by a negligent or willful act of lessee (In which event Lessee shall make the repairs at Lessee’s expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor’s expense, in which event this lease shall continue In full force end effect, or (ii) if the cost of repairs exceeds $500.000, 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’s commitment to pay for the repair of such damage In excess of $500.000 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,

9.4 Total Destruction, 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’s damages from Lessee, except as provided in Paragraph 8.6.

9.5 Damage Near End of Term. If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss, Lessor or Lessee may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to the other party 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’s receipt of Lessor’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. 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’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue In full force and effect. If Lessee falls 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’s option shall be extinguished.

9.6 Abatement of Rent; Lessee’s Remedies.

(a) Abatement. 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’s use of the Premises is impaired. 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.

(b) Remedies. If Lessor is 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’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. “Commence” 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. Lessee shall also have the right to terminate this Lease if the damage is not substantially repaired within one hundred eighty (180) days with respect to a casualty limited to the Premises (e.g. a fire limited to the Premises) or within three hundred sixty (360) days with respect to a casualty affecting the area in which the Premises are located (e.g. an earthquake); and, in order to exercise such termination rights, Lessee must give written notice of termination to Lessor and any Lender of Lessor of which Lessee has actual notice, prior to substantial completion of such repairs.

9.7 Termination; Advance Payments. 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’s Security Deposit as has not been, or is not then required to be, used by Lessor.

10. Real Property Taxes.

10.1 Definition. As used herein, the term “Real Property Taxes” 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 Premises or the Project, Lessor’s right to other income therefrom, and/or Lessor’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 Building address and where the

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proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. Real Property Taxes shall also include any tax, fee, levy, assessment or charge, or any increase therein: (i) imposed by reason of events occurring during the term of this Lease, including but no limited to, a change in the ownership of the Premises, and (ii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.

10.2 Payment of Taxes. In addition to Base Rent, Lessee shall pay to Lessor an amount equal to the Real Property Tax installment due at least 20 days prior to the applicable delinquency date. If any such installment shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee’s share of such installment shall be prorated. In the event Lessee incurs a late charge on any Rent payment, Lessor may estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee monthly in advance with the payment of the Base Rent. Such monthly payments shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes. If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such additional sum as is necessary. Advance payments may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any such advance payments may be treated by Lessor as an additional Security Deposit. Notwithstanding the definition of Real Property Taxes set forth in Paragraph 10.1, during the five (5) year Original Term only, the term Real Property Taxes shall not include (and accordingly Lessor shall be solely responsible for) fifty percent (50%) of any increase in Real Property Taxes resulting from a reassessment of the Premises arising out of a change in ownership of all or any portion of the Premises occurring during the Original Term. The limitations set forth in the foregoing sentence shall not apply to Real Property Taxes payable for the term of any option regardless of when any such change in ownership occurred.

10.3 Joint Assessment. If the Premises are not separately assessed, Lessee’s liability 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 conclusively determined by Lessor from the respective valuations assigned in the assessor’s work sheets or such other information as may be reasonably available.

10.4 Personal Property Taxes. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. 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’s said property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee’s property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee’s property.

11. Utilities and Services. 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. If any such services are not separately metered or billed to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered or billed. There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor’s reasonable control or in cooperation with governmental request or directions.

12. Assignment and Subletting.

12.1 Lessor’s Consent Required.

(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “assign or assignment”) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written consent.

(b) Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of more than forth-nine percent (49%) or more of the voting control of Lessee shall constitute a change in control for this purpose.

(c) 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’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 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. “Net Worth of Lessee” shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

(d) an assignment or subletting without consent shall, at Lessor’s option, be a Default curable after notice per Paragraph 13.1 (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.

(e) Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief,

(f) Lessor may reasonably withhold consent to a proposed assignment or subletting if Lessee is in Default at the time consent is requested.

(g) Notwithstanding the foregoing, allowing a de minimis portion of the Premises, i.e. 20 square feet or less, to be used by a third party vendor in connection with the installation of a vending machine or payphone shall not constitute a subletting

12.2 Terms and Conditions Applicable to Assignment and Subletting.

(a) Regardless of Lessor’s consent, no assignment or subletting shall: 9i) 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.

(b) Lessor may accept Rent or performance of Lessee’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’s right to exercise its remedies for Lessee’s Default or Breach.

(c) Lessor’s consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

(d) 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’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor.

(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any. Lessee agrees to provide Lessor with such other additional information and/or documentation as may be reasonably requested. Lessee shall reimburse Lessor for any actual costs affiliated with the request for consent, including but not limited to legal fees incurred by lessor.

(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment, entering into such sublease, or entering into possession of the Premises or any portion thereof, 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.

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(g) Lessor’s consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2)

(h) notwithstanding anything to the contrary set forth herein, as assignment of the Lease or subletting of all or a portion of the Premise to an “affiliate” of Lessee shall not require Lessor’s consent under this Paragraph 12, provided that (i) Lessee shall supply Lessor with a fully executed copy of the document evidencing the assignment or sublease at least ten (10) days prior to the transfer in question, (ii) such assignment or sublease is not a subterfuge by Lessee to avoid its obligation under this Lease, (iii) if the transfer is an assignment, the assignee assumes, in full, the obligations of Lessee under this Lease, and if the transfer is a sublease, the transferee executes such documentation reasonably required by Lessor in connection with the subordination of such sublease to this Lease, and (iv) Lessee remains fully liable under this Lease. The term “Affiliate” of Lessee shall mean an entity which is (1) controlled by, controls, or is under common control with Lessee; (2) subject to Paragraph 1.2^©, any entity with which Lessee has merged or consolidated, or (3) subject to Paragraph 12.(c), any entity which acquires all or substantially all of the assets and/or shares of stock or assets of Lessee. The term “control” or “controlled” as used in this paragraph shall mean the ownership, directly or indirectly, or at least fifty percent (50%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of at least fifty percent (50) of the voting interest in, an entity.

(i) Lessor and Lessee shall share equally in any “Profits” from an assignment or sublease. The term “Profits” shall mean all consideration, regardless of form, which Lessee receives or is entitled to receive, from an assignee or sublessee, directly or indirectly, attributable to the Premises before, during or after the term of such sublease or in connection with any such assignment, less an amount equal to the Rent (prorated to space subleased) which Lessee must pay to Lessor during the period of the sublease or assignment and less reasonable amounts paid by Lessee for brokerage commissions, advertising costs, legal fees, tenant improvement allowances and other customary tenant inducements given in connection with such assignment or sublease. Any sublease rental Profits shall be payable to Lessor in installments coinciding with and on or before the due dates of the rental payments due under the sublease.

12.3 Additional Terms and conditions Applicable to Subletting. 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 all subleases under this Lease whether or not expressly incorporated therein;

(a) Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent. In the event that the amount collected by Lessor exceeds Lessee’s then outstanding obligations any such excess shall be refunded to Lessee. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the 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’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 all Rents to lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

(b) 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,

(c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor’s prior written consent.

(e) 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.

13. Default; Breach: Remedies.

13.1 Default; Breach. A “Default” 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 “Breach” 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:

(a) 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.

(a) 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. THE ACCEPTANCE BY LESSOR OF A PARTIAL PAYMENT OF RENT OR SECURITY DEPOSIT SHALL NOT CONSISTUTE A WAIVER OF ANY OF LESSOR’S RIGHTS, INCLUDING LESSOR’S RIGHT TO RECOVER POSSESSION OF THE PREMISES.

(b) The failure of Lessee to allow Lessor and/or its agents access to the Premises or the commission of waste, act or acts constituting public or private nuisance, and/or an illegal activity on the Premises by Lessee, where such actions continue for a period of 3 business days following written notice to Lessee.

(c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements if in Lessor’s reasonable belief there exists evidence of Lessee’s non-compliance, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate or a Tenancy Statement (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42, (viii) material safety data sheets (MSDS), or (ix) 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.

(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a),(b),(c) or (d), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee’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.

(e) 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 “debtor” as defined in 11 U.S.C. §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’s assets located at the Premises or of Lessee’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’s assets located at the Premises or of Lessee’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 is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

(f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false,

(g) If the performance of Lessee’s obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor’s liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor’s becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an

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anticipatory basis, and Lessee’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.

13.2 Remedies. 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’s behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefore. 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;

(a) Terminate Lessee’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 provides could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee’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 or reletting, including necessary renovation and alteration of the Premises, unreasonable attorney’s 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’s Breach of this Lease shall not waive Lessor’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,

(b) Continue the Lease and Lessee’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 relief, and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessor’s right to possession,

(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state where in the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee’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’s occupancy of the Premises.

13.3 Removed

13.4 Late Charges. 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 written notice that such amount is due, then, without any requirement for additional notice to Lessee. Lessee shall immediately pay to Lessor a one-time late charge equal to five percent (5%) of each such overdue amount. 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’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’s option, become due and payable quarterly in advance.

13.5 Interest. 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 (“Interest”) charged shall be equal to the prime rate reported by the Wall Street Journal as published closest prior to the date when due plus four percent (4%) but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charged provided for in Paragraph 13.4.

13.6 Breach by Lessor.

(a) Notice of Breach. 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, except in the case of an emergency when a reasonable time may be less than thirty (30) days; provided, however, that if the nature of Lessor’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 pursed to completion.

(b) Performance by Lessee on Behalf of Lessor. 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’s expense and offset from Rent the actual and reasonable cost to perform such cure, provided, however, that such offset shall not exceed an amount equal to the greater of one month’s Base Rent or the Security Deposit, reserving Lessee’s right to seek reimbursement from Lessor for any such expense in excess of such offset. Lessee shall document the cost of said cure and supply said documentation to Lessor.

14. Condemnation. 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 “Condemnation”), 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 building, or more than 25% of that portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee’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 paid by the condemnor for Lessee’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 therefore. 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.

15.1 Removed

15.2 Removed

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15.3 Representations and indemnities of Broker Relationships. 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’s fee in connection herewith. Lessee and Lessor do each hereby agree to indemnity, 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, attorney’s fees reasonably incurred with respect thereto.

16. Estoppel Certificates.

(a) Each Party (as “Responding Party”) shall within 10 days after written notice from the other Party (the “Requesting Party”) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current “Estoppel Certificate” form published by the AIR commercial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party,

(b) 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’s performance, and (iii) if Lessor is the Requesting Party, not more than one month’s rent has been paid in advance. Prospective purchasers and encumbrances may rely upon the Requesting Party’s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall within 10 days after written notice from Lessor 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’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.

17. Definition of Lessor. The term “Lessor” 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’s interest in the prior lease. In the event of a transfer of lessor’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. 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.

18. Severability. 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.

19. Days. Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mean and refer to calendar days.

20. Limitation on Liability. The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor or its partners, members, 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 Lessor’s partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.

21. Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

22. No Prior or Other Agreements; Broker disclaimer. 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.

23. Notices.

23.1 Notice Requirements. 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 U.S. 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’s signature on this Lease shall be that Party’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’s taking possession of the Premises, the Premises shall constitute Lessee’s address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party of parties at such addresses as Lessor may from time to time hereafter designate in writing.

23.2 Date of Notice. 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 72 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 guarantees 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 made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as “Lender”) 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.

30.2 Attornment. In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of the new owner, this Lease will automatically become a new lease between Lessee and such new owner, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor’s obligations, except that 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’s rent, or (d) be liable for the return of any security deposit paid to any prior Lessor which was not paid or credited to such new owner.

30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “Non-Disturbance Agreement”) from the Lender which Non-Disturbance Agreement provides that Lessee’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, if requested by Lessee, 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’s option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement. Lessor represents and warrants to Lessee that there is no Security Device encumbering the Premises as of the date of this Lease.

30.4 Self-Executing. 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.

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31. Attorney’s Fees. If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to be declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorney’s 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, “Prevailing Party” 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 of Broker of its claim or defense. The attorney’s fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorney’s fees reasonably incurred. In addition, Lessor shall be entitled to attorney’s 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).

32. Lessor’s Access; Showing Premises; Repairs. Lessor and Lessor’s agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise reasonable times after reasonable prior notice 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 or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect to Lessee’s use of the Premises. All such activities shall be without abatement of rent or liability to Lessee.

33. Auctions. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor’s prior written consent, which consent shall not be unreasonably withheld or delayed. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an action.

34. Signs. Lessor may place on the Premises ordinary “For Sale” signs at any time and ordinary “For Lease” signs during the last 6 months of the term hereof. Except for ordinary “for sublease” signs, Lessee shall not place any sign upon the Premises without Lessor’s prior written consent. All signs must comply with all Applicable Requirements.

35. Termination; Merger. 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’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’s election to have such event constitute the termination of such interest.

36. Consents. 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’s actual reasonable costs and expenses (including but no limited to architects’, attorneys’, engineers’ and other consultants’ 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 therefore. Lessor’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’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.

37. Guarantor.

37.1 Execution. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the AIR Commercial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.

37.2 Default. 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’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. Quiet Possession. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee’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.

39. Options. If Lessee is granted en Option, as defined below, then the following provisions shall apply;

39.1 Definition. “Option” shall mean: (a) the right to extend or reduce the term of or renew this Lease or to extend or reduce the term of or renew any lease 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, the right of first offer to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

39.2 Options Personal To Original Lessee. 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. For purposes of this paragraph 39, original Lessee shall be deemed to include an Affiliate of Lessee to whom an assignment of this Lease or sublease of the Premises was made pursuant to Paragraph 12.2(g)

39.3 Multiple Options. 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.

39.4 Effect of Default on Options.

(a) 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), (111) 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.

(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).

(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s due and timely exercise of the Option, II, after such exercise and prior to the commencement of the extended term or completion of the purchase, (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).

40. Multiple Buildings. If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that It will abide by and conform to all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessee also agrees to pay its fair share of common expenses incurred in connection with such rules and regulations.

41. Security Measures. 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 all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

Page 12 of 18

42. Reservations. Lessor reserves to itself the right, from time to time, to grant, without the consent or Joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.

43. Performance Under Protest. 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 ·under protest” 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 R 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. A Party who does not initiate suit for the recovery of sums paid “under protest” with 6 months shall be deemed to have waived its right to protest such payment.

44. Authority; Multiple Parties; Execution.

(a) If either Party hereto is a corporation, trust, Iimited 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.

(b) If this Lease is executed by more than one person or entity as “Lessee’, each such person or entity shall be jointly and severally liable hereunder. It is agreed that anyone of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on .the same as if all of the named Lessees had executed such document.

(c) This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

45. Conflict. Any conflict between the printed provisions of this Lease and typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

46. Offer. 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 lease to the other Party. This Lease Is not intended to be binding until executed and delivered by all Parties hereto.

47. Amendments. 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’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.

48. Waiver of Jury Trial. 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.

49. Arbitration of Disputes. An Addendum requiring the Arbitration of all disputes between the Parties and/or Brokers arising out of this lease is is not attached to this Lease.

50. Americans with Disabilities Act. Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee’s specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation. In the event that Lessee’s use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee’s expense.

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.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL 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:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE.

WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED.

The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

Executed at:	SANTA MONICA, CALIFORNIA	Executed at:	CHATSWORTH, CALIFORNIA
On:	2/16/10	On:	2/18/10
By LESSOR:	NORTH PARK INDUSTRIAL	By LESSEE:	IRIS INTERNATIONAL, INC.
NORTHWEST INDUSTRIAL, LLC
By:	/s/ Gary Siegel	By:	/s/ Cesar Garcia
NamePrinted:	Gary Siegel	Name Printed:	Cesar Garcia
Title:	Manager	Title:	Chairman, President & CEO
NORTHPARK INDUSTRIAL-LEAHY DIVISION, LLC WEST AMERICAN CONSTRUCTION CORP.
BY:	/s/ Nicholas M. Brown	By:	/s/ John Yi
Name Printed:	Nicholas M. Brown	Name Printed:	John Yi
Trtle:	President	Title:	Corporate Vice President Operations
Address:	3340 Ocean Park Blvd., #1040	Address	: 9162 Eton Avenue
	Santa Monica, CA 90405		Chatsworth, CA 91311
Telephone:	(310) 652-8288	Telephone:	(818) 709-1244
Facsimlle:	(310) 652-4972	Facsimile:	(818) 700-9661
Federal ID No.	95-3146812	Federal ID No.

Page 13 of 18

BROKER:	BROKER:
Attn:	Attn:
Title:	Title:
Address:	Address:
Telephone:(    )	Telephone:(    )
Facsimile:(    )	Facsimile:(    )
Federal lD No.	Federal lD No.

NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AIR Commercial Real Estate Association, 800 W 6th Street, Suite 800, Los Angeles, CA 90017. Telephone No. (213) 687·8777, Fax No.: (213) 681-8616.

Page 14 of 18

STANDARD ADDENDUM TO LEASE - NET

Lease dated:	February 8, 2010
Lessor:	NORTHPARK INDUSTRIAL.
Lessee:	IRIS INTERNATIONAL, INC.

IN THE EVENT OF ANY CONFLICT BETWEEN THE PRINTED PROVISIONS OF THE LEASE AND THIS ADDENDUM, THE PROVISIONS OF THIS ADDENDUM SHALL CONTROL

51) Base Rent (paragraph 1.5, continued): In addition to the base rent that Lessee is obligated to pay under Paragraphs 1.5 and 4, Lessee will also be obligated to pay Lessor the sum of $1,771.00 per month as Lessor’s monthly estimate for Lessee’s share of Real Property Taxes, insurance, landscaping and irrigation system maintenance. The current average monthly costs for Real Property Taxes, insurance, landscaping and irrigation and fire sprinklers for the subject Premises are $1,191.00, $175.00, $375.00 and $30.00, respectively. Every year of this Lease, during the month of July, and during the month immediately following the termination of this Lease, Lessor will prepare an accounting of all actual Real Property Taxes, insurance, landscaping and irrigation system maintenance for the just concluded twelve-month period. Any differences between the actual expenses and Lessor’s estimates shall be either immediately refunded to Lessee or immediately due by the Lessee, whichever the case may be.

Lessee or its authorized agent shall have the right, upon five (5) days prior written notice to Lessor, to inspect, at Lessor’s main accounting offices, Lessor’s unaudited books and records regarding these expenses.

The monthly Base Rent shall be increased annually and paid in accordance with the following rent schedule (which does not include the additional monies due for taxes, inslll’3l1ce and landscape and irrigation maintenance as deemed above):

(a) On March 1, 2011, March 1, 2012, March 1, 2013 and again on March 1. 2014, the monthly rent payable under Paragraph 4 of the attached Lease shall be adjusted by the increase, if any, from the date this Lease commenced, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for All Urban Consumers, Los Angeles-Anaheim-Riverside, California (l982/84=100), “All Items”, herein referred to as “C.P.I.”

(b) The monthly rent payable in accordance with Paragraph (a) of this Addendum shall be calculated as follows: the rent payable for the first month of this Lease, as set forth in Paragraph 4 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the C.P.I. of the month immediately preceding the effective date of the subject rent escalation, and the denominator of which shall be the C.P.I. for the first month of the Lease term. The sum so calculated shall constitute the new monthly rent hereunder, but, in no event, shall such new monthly rent be less than the rent payable for the month immediately preceding the date for rent adjustment.

(c) In the event the compilation and/or publication of the C.P.I. shall be discontinued, then the index most nearly the same as the C.P.I. shall be used to make such ca1culation. In the event that Lessor and Lessee cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the rules of said association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitrators shall be paid equally be Lessor and Lessee.

(d) Lessor shall notify Lessee of any rental increases pursuant to this Paragraph as soon as practicable after the relevant C.P.I. figures have been released. Until such notification, Lessee shall continue to pay the rent in effect during the prior rental period. After notification of a rental increase, Lessee shall commence making rental payments in the increased amount and shall, within ten (l0) days after such notification, pay to Lessor the amount of any rental increases due for previous months.

52) Vehicle Parking. Lessee shall be entitled to those parking spaces located on those portions of the parking lot and/or in the parking structure directly across the street from the Premises which have been designated by Lessor for parking.

Lessee or Lessee’s employees, visitors, customers, or guests shall not park in driveways, alleyways, easement ways or other areas not specifically marked as parking spaces.

No automotive repair, car washing, waxing and detailing, or covered parking is permitted at any time.

Prohibited vehicles are not permitted; examples of prohibited vehicles shall include, but shall not be limited to, trailers, campers, recreational vehicles, boats, “dead automobiles” or automobiles parked longer than 48 hours.

Page 15 of 18

STANDARD ADDENDUM TO LEASE - NET

Page 3

Security. Security bars or other security measures installed by Lessee require prior written consent of Lessor. Such installations, except for electronic security systems, shall remain as part of the Premises upon termination of the Lease unless Lessor requests removal of such installations and restoration of the Premises in accordance with Paragraph 7.4.

56) Ownership; Removal; Surrender; and Restoration (paragraph 7.4, continued) Lessor’s right under Paragraph 7.4(b) to require that any or all Lessee Owned Alterations or Utility Installations be removed by Lessee by the expiration or earlier termination of this Lease applies to all tenant improvements, including but not limited to improvements which were made to the Premises by Lessor at the request of Lessee and improvements the cost of which was amortized over the Lease term or a portion thereof in the form of additional rent. If Lessee desires to install wallpaper in the Premises, Lessor may require the removal and restoration of the walls upon Lessee’s vacancy of the Premises, which shall be done at Lessee’s sole cost and expense.

57) Replacement Cost (paragraph 8.3(a), continued) With reference to the property insurance required by Paragraph 8.3(a), Lessor and Lessee agree that the full replacement cost of the Premises will be not less than $2.198.400 as of the Commencement Date of the term of this Lease.

58) Holdover (paragraph 26, continued) If Lessee remains in possession of the Premises after the expiration of the Lease term, without Lessor’s written consent, then Lessee’s occupancy of the Premises shall be deemed to be a holdover tenancy upon all of the provisions of this Lease pertaining to obligations of Lessee, but not including any options or rights of first refusal, if any, granted to Lessee under this Lease. If Lessee’s hold-over tenancy exceeds ten (10) days, Lessee may terminate the tenancy only by giving sixty (60) days written notice of termination to Lessor, whereas Lessor may terminate the tenancy or change the terms of the Lease upon giving to Lessee sixty (60) days written notice thereof. The termination date shall be the last day of the month in which the notice requirement has been met.

Notwithstanding anything to the contrary contained in Paragraphs \.3, 1.5, 3.1, 4 or elsewhere in this Lease, Lessee’s obligation to pay rent shall continue until (i) Lessee has removed all of its property from the Premises, (ii) Lessee has made any repairs required under Paragraph 7.4(c), (Hi) Lessee has removed all Alterations, improvements, additions and Utility Installations which Lessor requires Lessee to remove pursuant to Paragraph 7.4(b), and (iv) Lessee has notified Lessor in writing that all of the items (i) through (Hi) of this paragraph, to the extent applicable, have been accomplished.

59) Declaration of Covenants, Conditions and Restrictions for Northpark Industrial Center. Lessee acknowledges receipt of a copy of the Declaration of Covenants, Conditions and Restrictions for Northpark Industrial Center recorded with the County of Los Angeles as document numbers 79-760182 and 85-1324915. Lessee has reviewed and approved said documents and agrees to be bound by all the terms and conditions therein. Lessee further agrees that said Covenants, Conditions and Restrictions shall be binding upon Lessee and any sublessee, successor and assigns which they may have.

60) DELETED

61) Paragraphs 2.2 and 2.3 Condition and Compliance (continued): Lessee accepts the premises in its current “AS-IS” condition and waives all rights to warranties as provided for elsewhere in this Lease.

62) Hazardous Substances (paragraph 6.2, continued):

As a condition to Lessor’s execution of this Lease, and as a material inducement to cause Lessor to enter into this Lease and accept the Lessee as a tenant of the Lessor’s Premises, Lessee has delivered to Lessor an Environmental Compliance and Information Checklist, which has been completed, dated and signed by Lessee (the “Environmental Checklist”). Lessee represents, warrants and agrees as follows: (i) as of the date of the Environmental Checklist and as of the Commencement Date, the Environmental Checklist is and will be complete and accurate in all material respects, (H) Lessee shall promptly notify Lessor of any circumstances causing any change in, or addition to, the information or answers set forth therein, arising during the term of this Lease or any extension thereof, and (Hi) no information or disclosure has been omitted from the Environmental Checklist which is necessary to be included therein in order for the Environmental Checklist, or any part thereof, to be not misleading in any material respect.

63) DELETED

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STANDARD ADDENDUM TO LEASE – NET

Page 4

64) Option to Extend

A. Lessor hereby grants to Lessee the option to extend the term of this Lease for a five (5) year period commencing when the prior term expires upon each and all of the following terms and conditions:

(i) Lessee gives to Lessor and Lessor receives written notice of the exercise of the option to extend this Lease for said additional term no earlier than nine months and no later than six months prior to the time that the option period would commence if the option were exercised, time being of the essence. If said notification of the exercise of said option is not so given and received, this option shall automatically expire;

(ii) The provisions of paragraph 39, including the provision relating to default of Lessee set forth in paragraph 39.4 of this Lease are conditions of this Option;

(iii) All of the terms and conditions of this Lease except where specifically modified by this option shall apply;

(iv) On March 1. 2015. March 1. 2016. March 1. 2017. March 1. 2018 and again on March I 2019 . the monthly Base Rent payable under paragraph 1.5 and 4 of the attached Lease shall be adjusted by the increase, if any, from the date this Lease commenced in the C.P.I. As used herein, the term “C.P.I. shall mean the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for All Urban Consumers, Los Angeles-Anaheim-Riverside, California (l982/84=100), “All Items”, herein referred to as “C.P.1.”

a. The monthly Base Rent payable in accordance with paragraph A(iv) of this Addendum shall be calculated as follows: the monthly Base Rent payable for the first month of the term of this Lease, as set forth in paragraph 4 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the C.P.I. of the calendar month immediately preceding the effective date of the subject rent escalation, and the denominator of which shall be the C.P.I. for the calendar month in which the original Lease term commenced. The sum so calculated shall constitute the new monthly Base Rent hereunder, but, in no event, shall such new monthly Base Rent be less than 103% of the rent payable for the month immediately preceding the date for rent adjustment.

b. In the event the compilation and/or publication of the C.P.I. shall be discontinued, then the index most nearly the same as the C.P.I. shall be used to make such calculation. In the event that Lessor and Lessee cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the rules of said association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitrators shall be paid equally be Lessor and Lessee.

c. Lessor shall notify Lessee of any rental increases pursuant to this paragraph as soon as practicable after the relevant C.P.I. figures have been released. Until such notification, Lessee shall continue to pay the monthly Base Rent in effect during the prior rental period. After notification of a rental increase, Lessee shall commence making rental payments in the increased amount and shall, within ten (l0) days after such notification, pay to Lessor the amount of any rental increases due for previous months.

(v) On November 1, 2011, November 1, 2012, November 1, 2013 and again on November 1, 2014, the monthly Base Rent payable shall be adjusted upward to 103% of the monthly Base Rent payable for the month immediately preceding each rent adjustment.

B. If this option to extend is exercised, the option term shall commence on March I, 2015 and shall end on February 28, 2020.

65) HVAC Units. Lessee accepts the HV AC equipment in its current “AS-IS” condition and waives any provisions in this lease regarding warranties on same.

66) Letter of Credit. Provided that Lessee is not then in Breach of this Lease and further provided that no event has occurred that with the passage of time or the giving of notice, or both, would constitute a Breach, Lessee may at any time during the term of this Lease provide to Lessor in sul’stit’.1tion for the Security Deposit an irrevocable unconditional stand-by letter of credit (the “Letter of Credit”) in form and substance approved by Lessor in its sole discretion issued solely to Lessor (or, at Lessor’s option, jointly to Lessor and Lessor’s Lender, if any) by a bank or savings association reasonably approved by Lessor having offices in Los Angeles County, California and having assets of not less than $1 Billion. The amount of the Letter of Credit shall be the required amount of the Security Deposit; and, upon the receipt by Lessor of the Letter of Credit complying with the provisions of this Paragraph, Lessor shall refund the Security Deposit to Lessee. If the Letter of Credit expires prior to the date which is thirty (30) days after the expiration date of the Lease (including exercised option Term), it shall be replaced not less than thirty (30) days prior to such expiration. Any lapse in effectiveness of the Letter of Credit from any cause whatsoever shall be deemed a material Breach of this Lease. The Letter of Credit shall be maintained throughout the Term including option Term and shall remain in force for at least thirty (30) days after expiration or other termination of this Lease and the vacating of the Premises by Lessee. If at any time during the Lease Term after expiration of any applicable notice and cure period, any Rent or any other obligation of Lessee shall be overdue, Lessor shall have the right to draw down and apply any amount of the Letter of Credit to the payment of any such overdue Rent or other sum. In the event of the failure of Lessee to perform any of the other

Page 17 of 18

STANDARD ADDENDUM TO LEASE – NET

Page 5

required terms, covenants or conditions of this Lease after expiration of any applicable notice and cure period, Lessor shall have the right to draw down and apply the entire amount of the Letter of Credit or so much thereof as may be necessary to compensate Lessor for all loss, damage and expenses, including attorneys’ fees and costs, sustained or suffered by Lessor due to such failure to perform on the part of Lessee. Notwithstanding the provisions of the foregoing two sentences, if any amount payable by Lessee under this Lease shall be overdue or if Lessee fails to perform any of the other required terms, covenants or conditions of this Lease, and at such time Lessor shall be prohibited by any law or court order or prohibited by any law or court order without the consent of court from giving to Lessee a notice of such Default, no such notice or opportunity to cure shall be required prior to Lessor drawing down and applying the amount of the Letter of Credit required to address such Default of Lessee. If Lessee fails to replace the Letter of Credit not less than thirty (30) days prior to its expiration, Lessor may draw down the entire amount of the Letter of Credit Should the entire Letter of Credit or any portion thereof be drawn down and applied by Lessor hereunder, Lessee shall, upon written demand, cause the issuer of the Letter of Credit to restore the Letter of Credit to the required amount. Lessor may assign the Letter of Credit to any person or entity acquiring or succeeding to Lessor’s interest in the Premises and thereupon Lessor shall be discharged from any further obligation with respect to the Letter of Credit. The rights and remedies granted to Lessor pursuant to this Paragraph are in addition to Lessor’s other remedies as provided in this Lease or at law. If otherwise applicable to the Letter of Credit, Lessee hereby waives the provisions of Section 1950.7 of the California Civil Code.

LESSOR:		LESSEE:
NORTHPARK INDUSTRIAL		IRIS INTERNATIONAL, INC.
By:	/s/ Gary Siegel	By:	Cesar Garcia                    2/12/10
			Chairman, President & CEO
By:	/s/ Nicholas M. Brown	By:	/s/ John Yi
			Corporate Vice President, Operations

Page 18 of 18

EX-10.18

EXHIBIT 10.18

IRIS INTERNATIONAL, INC.

RESTRICTED STOCK UNIT AGREEMENT

IRIS INTERNATIONAL, INC. 2007 STOCK INCENTIVE PLAN

NOTICE OF RESTRICTED STOCK UNIT GRANT

You have been granted the following Restricted Stock Units (“RSUs”) of IRIS International, Inc. (“IRIS” or the “Company”):

Name of Recipient:
Total Number of RSUs:
Value of Stock on Grant Date:	$
Grant Date:
Vesting Commencement Date:
Vesting Schedule:

By your signature and the signature of the Company’s representative below, you and the Company agree that the RSUs are granted under and governed by the terms and conditions of the IRIS International, Inc. 2007 Stock Incentive Plan (a copy of which has been provided to you) and the Restricted Stock Unit Agreement, which is attached hereto, both of which are made a part of this document.

Recipient:	IRIS International, Inc.
By:	By:
Name:	Its:

IRIS INTERNATIONAL, INC.

2007 STOCK INCENTIVE PLAN

Restricted Stock Unit Agreement

1. Terms. Unless provided otherwise in the Notice of Restricted Stock Unit Grant (“Notice of Grant”), the following standard terms and conditions (“Standard Terms”) apply to Restricted Stock Units (“RSUs”) granted to you under the IRIS International, Inc. 2007 Stock Incentive Plan (the “2007 Plan”). Your Notice of Grant, these Standard Terms and the 2007 Plan constitute the entire understanding between you and IRIS. Capitalized and other terms used herein without definition shall have the meanings ascribed thereto in the 2007 Plan.

2. Vesting of RSUs.

(a) Provided that you continuously remain an eligible Participant from the Grant Date specified in the Notice of Grant through each vesting date specified in the Notice of Grant, the RSUs shall vest and be converted into the right to receive the number of shares of Common Stock specified on the Notice of Grant with respect to such vesting date, except as otherwise provided in these Standard Terms. If a vesting date falls on a weekend or any other day on which the Nasdaq Global Market (“NASDAQ”) is not open, affected RSUs shall vest on the next following NASDAQ business day.

(b) RSUs will vest to the extent provided in and in accordance with the terms of the Notice of Grant and these Standard Terms. If your status as an eligible Participant terminates for any reason except death, Disablement (defined below) or Retirement (defined below), prior to the vesting dates set forth in your Notice of Grant, your unvested RSUs will be cancelled.

3. Conversion into Common Stock.

(a) Shares of Common Stock will be issued or become free of restrictions as soon as practicable following vesting of the RSUs, provided that you have satisfied your tax withholding obligations as specified under Section 11 of these Standard Terms and you have completed, signed and returned any documents and taken any additional action that the Administrator deems appropriate to enable it to accomplish the delivery of the shares of Common Stock. The shares of Common Stock will be issued in your name (or may be issued to your executor or personal representative, in the event of your death or Disablement), and may be effected by recording shares on the stock records of the Company or by crediting shares in an account established on your behalf with a brokerage firm or other custodian, in each case as determined by the Administrator. In no event will the Company be obligated to issue a fractional share.

(b) Notwithstanding the foregoing, (i) the Company shall not be obligated to deliver any shares of Common Stock during any period when the Administrator determines that the conversion of an RSU or the delivery of shares hereunder would violate any federal, state or other applicable laws and/or may issue shares subject to any restrictive legends that, as determined by the Company’s counsel, is necessary to comply with securities or other regulatory requirements, and (ii) the date on which shares are issued may include a delay in order to provide the Company such time as it determines appropriate to address tax withholding and other administrative matters.

(c) Notwithstanding anything to the contrary in these Standard Terms or the applicable Notice of Grant, the Administrator may reduce your unvested RSUs if you change your employment classification from a full-time employee to a part-time employee.

(d) The number of shares of Common Stock into which RSUs convert as specified in the Notice of Grant shall be adjusted for stock splits and similar matters as specified in and pursuant to the 2007 Plan.

4. Change in Control. In the event that your Service (as defined below) is terminated for Good Reason (as defined below) or for reasons other than an act of misconduct (as described in Section 8(c) of the 2007 Plan) upon the occurrence of a Change in Control (as defined below) or within three (3) months prior thereto or eighteen (18) months thereafter (a “Termination Event”), all unvested RSUs will vest immediately prior to the effective date of such Termination Event.

(a) “Change in Control” shall mean (i) the dissolution or liquidation of the Company, (ii) approval by the stockholders of the Company of any sale, lease, exchange or other transfer (in one or a series of transactions) of all or substantially all of the assets of the Company, (iii) approval by the stockholders of the Company of any merger or consolidation of the Company in which the holders of voting stock of the Company immediately before the merger or consolidation will not own thirty five percent (35%) or more of the voting stock of the continuing or surviving corporation immediately after such merger or consolidation; or (iv) a change of fifty percent (50%) (rounded to the next whole person) in the membership of the Board within a twelve (12)-month period, unless the election or nomination for election by stockholders of each new director within such period was approved by the vote of a majority of the directors then still in office who were in office at the beginning of the twelve (12)-month period. A Change in Control must also constitute a change in the ownership or effective control of the Company or the ownership of a substantial portion of the Company’s assets within the meaning of Code Section 409A.

(b) “Good Reason” shall mean any of the following (without your express written consent and provided you provide written notice stating in reasonable detail the basis for termination and a thirty (30)-day opportunity to cure to the Company): (i) a material reduction in your responsibilities or duties as such responsibilities or duties exist on the date hereof, except in the event of a termination for an act of misconduct (as described in Section 8(c) of the 2007 Plan), death or disability or your resignation other than for Good Reason; (ii) a reduction of your base salary as it exists on the date hereof unless such reduction (x) is in connection with concurrent and proportional reductions in the salaries of other members of management of the Company, which reductions have been approved by the Board, and (y) reduce your base salary to no less than 80% of your base salary immediately before such reduction; or (iii) any relocation by the Company of your place of employment that would increase your one-way commute to the place of employment by more than fifty (50) miles when compared to your commute immediately prior to the relocation.

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5. Leaves of Absence. For any purpose under these Standard Terms, your Service shall be deemed to continue while you are on a bona fide leave of absence, to the extent required by applicable law. To the extent applicable law does not require such a leave to be deemed to continue your Service such Service shall be deemed to continue if, and only if, expressly provided in writing by the Administrator or an Officer of the Company or Subsidiary for whom you provide Service. For the purposes of these Standard Terms, the term “Service” means service to the Company or any of its Subsidiaries as an Employee, Director or Consultant.

6. Suspension or Termination of RSUs for Misconduct. If at any time any Authorized Officer notifies the Administrator that they reasonably believe that you have committed an act of misconduct as described in Section 8(c) of the 2007 Plan (embezzlement, fraud, dishonesty, nonpayment of any obligation owed to the Company, breach of fiduciary duty or deliberate disregard of Company rules resulting in loss, damage or injury to the Company, or if you make an unauthorized disclosure of any Company trade secret or confidential information, engage in any conduct constituting unfair competition, induce any customer to breach a contract with the Company or induce any principal for whom the Company acts as agent to terminate such agency relationship), the vesting of your RSUs may be suspended pending a determination of whether an act of misconduct has been committed. If the Administrator or an Authorized Officer determines that you have committed an act of misconduct, all RSUs not vested as of the date the Administrator was notified that you may have committed an act of misconduct shall be cancelled and neither you nor any beneficiary shall be entitled to any claim with respect to the RSUs whatsoever. Any determination by the Administrator or Authorized Officer with respect to the foregoing shall be final, conclusive, and binding on all interested parties.

7. Termination of Service.

(a) Except as expressly provided otherwise in these Standard Terms, if your Service terminates for any reason, whether voluntarily or involuntarily, other than on account of death, Disablement (defined below), Retirement (defined below) or discharge for misconduct, all unvested RSUs shall be cancelled on the date of Service termination, regardless of whether such Service termination is voluntary or involuntary.

(b) For purposes of this Section 7, your Service is not deemed terminated if, prior to sixty (60) days after the date of termination of your Service, you are re-engaged by the Company or a Subsidiary on a basis that would make you eligible for future RSU grants, nor would your transfer from the Company to any Subsidiary or from any one Subsidiary to another, or from a Subsidiary to the Company be deemed a termination of your Service. Further, your provision of service as an employee, director or consultant to any partnership, joint venture or corporation not meeting the requirements of a Subsidiary in which the Company or a Subsidiary is a party shall be considered Service for purposes of this provision if either (a) the entity is designated by the Administrator as a Subsidiary for purposes of this provision or (b) you are specifically designated as providing Service for purposes of this provision.

8. Death. Except as expressly provided otherwise in these Standard Terms, if you die while you are a Service provider, your RSUs will become one hundred percent (100%) vested.

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9. Disability.

(a) Except as expressly provided otherwise in these Standard Terms, if your Service terminates as a result of Disablement, your RSUs will become one hundred percent (100%) vested upon the later of the date of termination of your Service due to your Disablement or the date of determination of your Disablement.

(b) For purposes of these Standard Terms, “Disablement” means your inability to perform the essential duties, responsibilities and functions of your position with the Company or a Subsidiary for a continuous period of one hundred eighty (180) days as a result of any mental or physical disability or incapacity, as determined under the definition of disability in the Company’s long-term disability plan so as to qualify you for benefits under the terms of that plan or as determined by the Administrator to the extent that no such plan is then in effect. You shall cooperate in all respects with the Company if a question arises as to whether you have become disabled (including, without limitation, submitting to an examination by a medical doctor or other health care specialist selected by the Company and authorizing such medical doctor or such other health care specialist to discuss your condition with the Company).

10. Retirement. For purposes of these Standard Terms, “Retirement” shall mean either Standard Retirement (as defined below) or the Rule of 75 (as defined below). Upon your Retirement, the vesting of your RSUs, to the extent that they had not vested on or prior to the date of your Retirement, shall be accelerated as follows:

(a) If you retire at or after age sixty (60) (“Standard Retirement”), you will receive one (1) year of additional vesting from your date of Retirement for every five (5) years that you have provided Service (measured in complete, whole years). No vesting acceleration shall occur for any periods of Service of less than five (5) years; or

(b) If, when you terminate Service, your age plus years of Service (in each case measured in complete, whole years) equals or exceeds seventy-five (75) (“Rule of 75”), you will receive accelerated vesting of any portion of the RSUs that would have vested prior to one (1) year from the date of your Retirement.

You will receive vesting acceleration pursuant to either Standard Retirement or the Rule of 75, but not both. Remaining unvested RSUs shall be cancelled as of the date of your Retirement.

11. Tax Withholding.

(a) To the extent required by applicable federal, state or other law, you shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise by reason of vesting of an RSU and, if applicable, any sale of shares of Common Stock. The Company shall not be required to issue or lift any restrictions on shares of Common Stock or to recognize any purported transfer of shares of Common Stock until such obligations are satisfied. The Administrator may permit these obligations to be satisfied by having the Company withhold a portion of the shares of Common Stock that otherwise would be issued to you upon vesting of the RSUs, or to the extent permitted by the Administrator, by tendering shares of Common Stock previously acquired.

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(b) You are ultimately liable and responsible for all taxes owed by you in connection with your RSUs, regardless of any action the Administrator or the Company takes or any transaction pursuant to this Section 11 with respect to any tax withholding obligations that arise in connection with your RSUs. The Company makes no representation or undertaking regarding the treatment of any tax withholding in connection with the grant, issuance, vesting or settlement of your RSUs or the subsequent sale of any of the shares of Common Stock underlying your RSUs that vest. The Company does not commit and is under no obligation to administer the Plan in a manner that reduces or eliminates your tax liability.

12. Transferability; Rights as a Stockholder.

(a) Unless otherwise provided by the Administrator, each RSU shall be transferable only:

(i) pursuant to your will or upon your death to your beneficiaries;

(ii) by gift to your Immediate Family (defined below), partnerships whose only partners are you or members of your Immediate Family, limited liability companies whose only members are you or members of your Immediate Family, or trusts established solely for the benefit of you or members of your Immediate Family; or

(iii) by gift to a foundation in which you and/or members of your Immediate Family control the management of the foundation’s assets.

(b) For purposes of these Standard Terms, “Immediate Family” is defined as your spouse or domestic partner, children, grandchildren, parents, or siblings. Any purported assignment, transfer or encumbrance that does not qualify under Section 12(a) above shall be void and unenforceable against the Company. Any RSU transferred by you pursuant to this section shall not be transferable by the recipient except by will or the laws of descent and distribution. The transferability of RSUs is subject to any applicable laws of your country of residence or employment.

(c) You will have the rights of a stockholder only after shares of Common Stock have been issued to you following vesting of your RSUs and satisfaction of all other conditions to the issuance of those shares as set forth in these Standard Terms. RSUs shall not entitle you to any rights of a stockholder of Common Stock and there are no voting or dividend rights with respect to your RSUs. RSUs shall remain terminable pursuant to these Standard Terms at all times until they vest and convert into shares. As a condition to having the right to receive shares of Common Stock pursuant to your RSUs, you acknowledge that unvested RSUs shall have no value for purposes of any aspect of your Service relationship with the Company.

13. Disputes. Any question concerning the interpretation of these Standard Terms, your Notice of Grant, the RSUs or the 2007 Plan, any adjustments required to be made thereunder, and any controversy that may arise under the Standard Terms, your Notice of Grant, the RSUs or the 2007 Plan shall be determined by the Administrator (including any person(s) to whom the Administrator has delegated its authority) in its sole and absolute discretion. Such decision by the Administrator shall be final and binding unless determined pursuant to Section 15(g) to have been arbitrary and capricious.

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14. Amendments. The 2007 Plan and RSUs may be amended or altered by the Administrator to the extent provided in the 2007 Plan.

15. Other Matters.

(a) Any prior agreements, commitments or negotiations concerning the RSUs are superseded by these Standard Terms and your Notice of Grant. You hereby acknowledge that a copy of the 2007 Plan has been made available to you. The grant of RSUs to you in any one year, or at any time, does not obligate the Company or any Subsidiary to make a grant in any future year or in any given amount and should not create an expectation that the Company or any Subsidiary might make a grant in any future year or in any given amount. RSUs are not part of your employment contract (if any) with the Company (unless otherwise provided therein), your salary, your normal or expected compensation, or other remuneration for any purposes, including for purposes of computing severance pay or other termination compensation or indemnity.

(b) RSUs are not part of your Service contract (if any, unless otherwise specified therein), your salary, your normal or expected compensation, or other remuneration for any purposes, including for purposes of computing severance pay or other termination compensation or indemnity.

(c) Notwithstanding any other provision of these Standard Terms, if any changes in the financial or tax accounting rules applicable to the RSUs covered by these Standard Terms shall occur which, in the sole judgment of the Administrator, may have an adverse effect on the reported earnings, assets or liabilities of the Company, the Administrator may, in its sole discretion, modify these Standard Terms or cancel and cause a forfeiture with respect to any unvested RSUs at the time of such determination.

(d) Nothing contained in these Standard Terms creates or implies an employment contract or term of employment upon which you may rely.

(e) Notwithstanding any provision of these Standard Terms, the Notice of Grant or the 2007 Plan to the contrary, if, at the time of your termination of Service with the Company, you are a “specified employee” as defined in Section 409A of the Code, and one or more of the payments or benefits received or to be received by you pursuant to the RSUs would constitute deferred compensation subject to Section 409A, no such payment or benefit will be provided under the RSUs until the earliest of (A) the date which is six (6) months after your “separation from service” for any reason, other than death or “disability” (as such terms are used in Section 409A(a)(2) of the Code), (B) the date of your death or “disability” (as such term is used in Section 409A(a)(2)(C) of the Code) or (C) the effective date of a “change in the ownership or effective control” of the Company (as such term is used in Section 409A(a)(2)(A)(v) of the Code). The provisions of this Section 15(e) shall only apply to the extent required to avoid your incurrence of any penalty tax or interest under Section 409A of the Code or any regulations or Treasury guidance promulgated thereunder. In addition, if any provision of the RSUs would cause you to incur any penalty tax or interest under Section 409A of the Code or any regulations or Treasury guidance promulgated thereunder, the Administrator may reform such provision to maintain to the maximum extent practicable the original intent of the applicable provision without violating the provisions of Section 409A of the Code.

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(f) Notwithstanding any provision of these Standard Terms, the Notice of Grant or the 2007 Plan to the contrary, if the Company determines, based upon the advice of the tax advisors for the Company, that part or all of the consideration, compensation or benefits to be paid to you pursuant to the RSUs constitute “parachute payments” under Section 280G(b)(2) of the Code, then, if the aggregate present value of such parachute payments, singularly or together with the aggregate present value of any consideration, compensation or benefits to be paid to you under any other plan, arrangement or agreement which constitute “parachute payments” (collectively, the “Parachute Amount”) exceeds 2.99 times your “base amount,” as defined in Section 280G(b)(3) of the Code (the “Base Amount”), the amounts constituting “parachute payments” which would otherwise be payable to you or for your benefit shall be reduced to the extent necessary so that the Parachute Amount is equal to 2.99 times the Base Amount (the “Reduced Amount”); provided, however, that the Company shall pay to you the Parachute Amount without reduction if the Company determines that payment of the Parachute Amount would generate more after-tax income to you than the Reduced Amount. In the event of a reduction of the payments that would otherwise be paid to you, then the Company may elect which and how much of any particular entitlement shall be eliminated or reduced and shall notify you promptly of such election; provided, however, that the aggregate reduction shall be no more than as set forth in the preceding sentence of this Section 15(f). Within ten (10) days following such election, the Company shall pay you such amounts as are then due pursuant to the RSUs and shall pay you in the future such amounts as become due pursuant to the RSUs. As a result of the uncertainty in the application of Section 280G of the Code at the time of a determination hereunder, it is possible that payments will be made by the Company which should not have been made (“Overpayment”) or that additional payments which are not made by the Company pursuant to this Section 15(f) should have been made (“Underpayment”). In the event of a final determination by the Internal Revenue Service, a final determination by a court of competent jurisdiction or a change in the provisions of the Code or regulations or tax law, that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to you that you shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. In the event of a final determination by the Internal Revenue Service, a final determination by a court of competent jurisdiction or a change in the provisions of the Code or regulations or tax law pursuant to which an Underpayment arises under this Agreement, any such Underpayment shall be promptly paid by the Company to you or for your benefit, together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.

(g) Because these Standard Terms relate to terms and conditions under which you may be issued shares of Common Stock, an essential term of these Standard Terms is that it shall be governed by the laws of the State of Delaware, without regard to choice of law principles of Delaware or other jurisdictions. Any action, suit, or proceeding relating to these Standard Terms or the RSUs granted hereunder shall be brought in the state or federal courts of competent jurisdiction in the State of California.

(h) Copies of the Company’s Annual Report to Stockholders for its latest fiscal year and the Company’s latest quarterly report are available, without charge, at the Company’s business office.

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(i) Any notice required by these Standard Terms shall be given in writing and shall be deemed effective upon personal delivery or upon deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid. Notice shall be addressed to you at the address set forth in the records of the Company. Notice shall be addressed to the Company at:

IRIS International, Inc.

9162 Eton Avenue

Chatsworth, CA 91311

Attention: 2007 Plan Administrator

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EX-10.19

EXHIBIT 10.19

IRIS INTERNATIONAL, INC.

NON-QUALIFIED STOCK OPTION AGREEMENT

IRIS INTERNATIONAL, INC. 2007 STOCK INCENTIVE PLAN

NOTICE OF NON-QUALIFIED STOCK OPTION GRANT

You have been granted the following Non-qualified Stock Options (“Options”) to purchase Common Stock of IRIS International, Inc. (“IRIS” or the “Company”):

Name of Optionee:
Total Number of Shares Granted:
Exercise Price Per Share:	$
Grant Date:
Vesting Commencement Date:
Vesting Schedule:
Expiration Date:

By your signature and the signature of the Company’s representative below, you and the Company agree that the Options are granted under and governed by the terms and conditions of the IRIS International, Inc. 2007 Stock Incentive Plan (a copy of which has been provided to you) and the Non-qualified Stock Option Agreement, which is attached hereto, both of which are made a part of this document.

Optionee:	IRIS International, Inc.
By:	By:
Name:	Its:

IRIS INTERNATIONAL, INC.

2007 STOCK INCENTIVE PLAN

Non-qualified Stock Option Agreement

1. Terms. Unless provided otherwise in the Notice of Non-qualified Stock Option Grant (“Notice of Grant”), the following standard terms and conditions (“Standard Terms”) apply to non-qualified stock options (“Options”) granted to you under the IRIS International, Inc. 2007 Stock Incentive Plan (the “2007 Plan”). Your Notice of Grant, these Standard Terms and the 2007 Plan constitute the entire understanding between you and IRIS. Capitalized and other terms used herein without definition shall have the meanings ascribed thereto in the 2007 Plan.

2. Non-qualified Stock Options. The Options are not intended to be incentive stock options under Section 422 of the Code and will be interpreted accordingly.

3. Price. The exercise price of the Options (the “option price”) is 100% of the market value of Common Stock on the date of grant, as specified in the Notice of Grant.

4. Term and Exercise.

(a) To the extent the Options have become exercisable (vested) during the periods indicated in the Notice of Grant and have not been previously exercised, and subject to termination or acceleration as provided in these Standard Terms and the requirements of these Standard Terms, the Notice of Grant and the 2007 Plan, you may exercise the Options to purchase up to the number of shares of Common Stock set forth in the Notice of Grant by delivering a written notice in the form of Exhibit A attached hereto (“Notice of Exercise”) to the Company in the manner specified pursuant to Section 16(i) hereof. Such Notice of Exercise shall specify the election to exercise Options, the number of shares of Common Stock for which they are being exercised and the form of payment, which must comply with Section 4(b). The Notice of Exercise shall be signed by the person who is entitled to exercise Options. In the event that Options are to be exercised by the Optionee’s representative, the Notice of Exercise shall be accompanied by proof (satisfactory to the Company) of the representative’s right to exercise Options. Options shall be deemed exercised with respect to the number of shares of Common Stock subject to a proper Notice of Exercise upon receipt by the Company of the duly executed Notice of Exercise and payment of the option price of such shares of Common Stock in accordance with Section 4(b). Notwithstanding anything to the contrary in Section 6 or Sections 8 through 11 hereof, no part of the Options may be exercised after the Expiration Date set forth in the Notice of Grant.

(b) The process for exercising the Options (or any part thereof) is governed by these Standard Terms, the Notice of Grant and the 2007 Plan. Exercises of Options will be processed as soon as practicable. The option price may be paid:

(i) in cash;

(ii) by delivery of already owned shares of Common Stock;

(iii) through payment under a broker-assisted sale and remittance program acceptable to the Administrator;

(iv) through net issue exercise based on the following formula:

Net Number =	(A x B) - (A x C)
	B

For purposes of the foregoing formula:

A = the total number of shares with respect to which the Options are then being exercised.

B = the market value of Common Stock on the date immediately preceding the date of the Notice of Exercise.

C = the option price then in effect at the time of such exercise.

(v) by delivery of any other lawful consideration approved in advance by the Administrator; or

(vi) in any combination of the foregoing.

Options may not be exercised for fractional shares. Shares of Common Stock will be issued as soon as practicable (subject to Section 4(c) below). You will have the rights of a stockholder only after the shares of Common Stock have been issued. For administrative or other reasons, the Company may from time to time suspend the ability of employees to exercise options for limited periods of time.

(c) Notwithstanding the foregoing, (i) the Company shall not be obligated to deliver any shares of Common Stock during any period when the Administrator determines that the exercisability of the Options or the delivery of shares hereunder would violate any federal, state or other applicable laws and/or may issue shares subject to any restrictive legends that, as determined by the Company’s counsel, is necessary to comply with securities or other regulatory requirements, and (ii) the date on which shares are issued may include a delay in order to provide the Company such time as it determines appropriate to address tax withholding and other administrative matters.

(d) Notwithstanding anything to the contrary in these Standard Terms or the applicable Notice of Grant, the Administrator may reduce your unvested Options if you change your employment classification from a full-time employee to a part-time employee.

(e) The number of shares of Common Stock for which Options may be exercised as specified in the Notice of Grant shall be adjusted for stock splits and similar matters as specified in and pursuant to the 2007 Plan.

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(f) IF AN EXPIRATION DATE DESCRIBED HEREIN FALLS ON A WEEKDAY, YOU MUST EXERCISE YOUR OPTIONS BEFORE 12:00 P.M. LOS ANGELES TIME ON THE EXPIRATION DATE.

(g) IF AN EXPIRATION DATE DESCRIBED HEREIN FALLS ON A WEEKEND OR ANY OTHER DAY ON WHICH THE NASDAQ STOCK MARKET (“NASDAQ”) IS NOT OPEN, YOU MUST EXERCISE YOUR OPTIONS BEFORE 12:00 P.M. LOS ANGELES TIME ON THE LAST NASDAQ BUSINESS DAY PRIOR TO THE EXPIRATION DATE.

5. Change in Control. In the event that your Service (as defined below) is terminated for Good Reason (as defined below) or for reasons other than an act of misconduct (as described in Section 8(c) of the 2007 Plan) upon the occurrence of a Change in Control (as defined below) or within three (3) months prior thereto or eighteen (18) months thereafter (a “Termination Event”), all of the unvested Options will vest immediately prior to the effective date of such Termination Event and the Options shall become fully exercisable.

(a) “Change in Control” shall mean (i) the dissolution or liquidation of the Company, (ii) approval by the stockholders of the Company of any sale, lease, exchange or other transfer (in one or a series of transactions) of all or substantially all of the assets of the Company, (iii) approval by the stockholders of the Company of any merger or consolidation of the Company in which the holders of voting stock of the Company immediately before the merger or consolidation will not own thirty five percent (35%) or more of the voting stock of the continuing or surviving corporation immediately after such merger or consolidation; or (iv) a change of fifty percent (50%) (rounded to the next whole person) in the membership of the Board within a twelve (12)-month period, unless the election or nomination for election by stockholders of each new director within such period was approved by the vote of a majority of the directors then still in office who were in office at the beginning of the twelve (12)-month period.

(b) “Good Reason” shall mean any of the following (without your express written consent and provided you provide written notice stating in reasonable detail the basis for termination and a thirty (30)-day opportunity to cure to the Company): (i) a material reduction in your responsibilities or duties as such responsibilities or duties exist on the date hereof, except in the event of a termination for an act of misconduct (as described in Section 8(c) of the 2007 Plan), death or disability or your resignation other than for Good Reason; (ii) a reduction of your base salary as it exists on the date hereof unless such reduction (x) is in connection with concurrent and proportional reductions in the salaries of other members of management of the Company, which reductions have been approved by the Board, and (y) reduce your base salary to no less than 80% of your base salary immediately before such reduction; or (iii) any relocation by the Company of your place of employment that would increase your one-way commute to the place of employment by more than fifty (50) miles when compared to your commute immediately prior to the relocation.

6. Leaves of Absence. For any purpose under these Standard Terms, your Service shall be deemed to continue while you are on a bona fide leave of absence, to the extent required by applicable law. To the extent applicable law does not require such a leave to be deemed to continue your Service such Service shall be deemed to continue if, and only if, expressly

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provided in writing by the Administrator or an Officer of the Company or Subsidiary for whom you provide Service. For the purposes of these Standard Terms, the term “Service” means service to the Company or any of its Subsidiaries as an Employee, Director or Consultant.

7. Suspension or Termination of Options for Misconduct. If at any time any Authorized Officer notifies the Administrator that they reasonably believe that you have committed an act of misconduct as described in Section 8(c) of the 2007 Plan (embezzlement, fraud, dishonesty, nonpayment of any obligation owed to the Company, breach of fiduciary duty or deliberate disregard of Company rules resulting in loss, damage or injury to the Company, or if you make an unauthorized disclosure of any Company trade secret or confidential information, engage in any conduct constituting unfair competition, induce any customer to breach a contract with the Company or induce any principal for whom the Company acts as agent to terminate such agency relationship), the vesting of and your ability to exercise your Options may be suspended pending a determination of whether an act of misconduct has been committed. If the Administrator or an Authorized Officer determines that you have committed an act of misconduct, all Options not exercised as of the date the Administrator was notified that you may have committed an act of misconduct shall be cancelled and neither you nor any beneficiary shall be entitled to any claim with respect to the Options whatsoever. Any determination by the Administrator or Authorized Officer with respect to the foregoing shall be final, conclusive, and binding on all interested parties.

8. Termination of Service.

(a) Except as expressly provided otherwise in these Standard Terms, if your Service terminates for any reason, whether voluntarily or involuntarily, other than on account of death, Disablement (defined below), Retirement (defined below) or discharge for misconduct, you may exercise any portion of the Options that had vested on or prior to the date of termination at any time prior to six (6) months after the date of such termination. The Options shall terminate on the expiration of the six (6)-month period to the extent that they are unexercised. All unvested Options shall be cancelled on the date of Service termination, regardless of whether such Service termination is voluntary or involuntary.

(b) For purposes of this Section 8, your Service is not deemed terminated if, prior to sixty (60) days after the date of termination of your Service, you are re-engaged by the Company or a Subsidiary on a basis that would make you eligible for future stock option grants, nor would your transfer from the Company to any Subsidiary or from any one Subsidiary to another, or from a Subsidiary to the Company be deemed a termination of your Service. Further, your provision of service as an employee, director or consultant to any partnership, joint venture or corporation not meeting the requirements of a Subsidiary in which the Company or a Subsidiary is a party shall be considered Service for purposes of this provision if either (a) the entity is designated by the Administrator as a Subsidiary for purposes of this provision or (b) you are specifically designated as providing Service for purposes of this provision.

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9. Death.

(a) Except as expressly provided otherwise in these Standard Terms, if you die while you are a Service provider, your Options will become one hundred percent (100%) vested, and the executor of your will, administrator of your estate or any successor trustee of a grantor trust may exercise the Options, to the extent not previously exercised, at any time prior to two (2) years from the date of death.

(b) Except as expressly provided otherwise in these Standard Terms, if you die prior to six (6) months after your Service terminates for any reason, whether voluntarily or involuntarily, other than on account of Disablement, Retirement or discharge for misconduct, the executor of your will or administrator of your estate may exercise the Options, to the extent not previously exercised and to the extent the Options had vested on or prior to the date of your Service termination, at any time prior to two (2) years from the date of your Service termination.

(c) The Options shall terminate on the applicable expiration date described in this Section 9, to the extent that they are unexercised.

10. Disability.

(a) Except as expressly provided otherwise in these Standard Terms, if your Service terminates as a result of Disablement, your Options will become one hundred percent (100%) vested upon the later of the date of termination of your Service due to your Disablement or the date of determination of your Disablement.

(b) The Options shall terminate two (2) years from the date of determination of Disablement, to the extent that they are unexercised.

(c) For purposes of these Standard Terms, “Disablement” means your inability to perform the essential duties, responsibilities and functions of your position with the Company or a Subsidiary for a continuous period of one hundred eighty (180) days as a result of any mental or physical disability or incapacity, as determined under the definition of disability in the Company’s long-term disability plan so as to qualify you for benefits under the terms of that plan or as determined by the Administrator to the extent that no such plan is then in effect. You shall cooperate in all respects with the Company if a question arises as to whether you have become disabled (including, without limitation, submitting to an examination by a medical doctor or other health care specialist selected by the Company and authorizing such medical doctor or such other health care specialist to discuss your condition with the Company).

11. Retirement. For purposes of these Standard Terms, “Retirement” shall mean either Standard Retirement (as defined below) or the Rule of 75 (as defined below). Upon your Retirement, the vesting of your Options, to the extent that they had not vested on or prior to the date of your Retirement, shall be accelerated as follows:

(a) If you retire at or after age sixty (60) (“Standard Retirement”), you will receive one (1) year of additional vesting from your date of Retirement for every five (5) years that you have provided Service (measured in complete, whole years). No vesting acceleration shall occur for any periods of Service of less than five (5) years; or

(b) If, when you terminate Service, your age plus years of Service (in each case measured in complete, whole years) equals or exceeds seventy-five (75) (“Rule of 75”), you will receive accelerated vesting of any portion of the Options that would have vested prior to one (1) year from the date of your Retirement.

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You will receive vesting acceleration pursuant to either Standard Retirement or the Rule of 75, but not both. Except as expressly provided otherwise in these Standard Terms, following your Retirement from the Company or a Subsidiary, you may exercise the Options at any time prior to two (2) years from the date of your Retirement, to the extent that they had vested as of the date of your Retirement or to the extent that vesting of the Options is accelerated pursuant to this Section 11. The Options shall terminate on the expiration of the two (2)-year period from your date of Retirement, to the extent that they are unexercised.

12. Tax Withholding.

(a) To the extent required by applicable federal, state or other law, you shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise by reason of an Option exercise and, if applicable, any sale of shares of Common Stock. The Company shall not be required to issue or lift any restrictions on shares of Common Stock or to recognize any purported transfer of shares of Common Stock until such obligations are satisfied. The Administrator may permit these obligations to be satisfied by having the Company withhold a portion of the shares of Common Stock that otherwise would be issued to you upon exercise of the Options, or to the extent permitted by the Administrator, by tendering shares of Common Stock previously acquired.

(b) You are ultimately liable and responsible for all taxes owed by you in connection with your Options, regardless of any action the Administrator or the Company takes or any transaction pursuant to this Section 12 with respect to any tax withholding obligations that arise in connection with your Options. The Company makes no representation or undertaking regarding the treatment of any tax withholding in connection with the grant, issuance, vesting or settlement of your Options or the subsequent sale of any of the shares of Common Stock underlying your Options that vest. The Company does not commit and is under no obligation to administer the Plan in a manner that reduces or eliminates your tax liability.

13. Transferability; Rights as a Stockholder.

(a) Unless otherwise provided by the Administrator, each Option shall be transferable only:

(i) pursuant to your will or upon your death to your beneficiaries;

(ii) by gift to your Immediate Family (defined below), partnerships whose only partners are you or members of your Immediate Family, limited liability companies whose only members are you or members of your Immediate Family, or trusts established solely for the benefit of you or members of your Immediate Family; or

(iii) by gift to a foundation in which you and/or members of your Immediate Family control the management of the foundation’s assets.

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(b) For purposes of these Standard Terms, “Immediate Family” is defined as your spouse or domestic partner, children, grandchildren, parents, or siblings. With respect to transfers by gift under Section 13(a)(ii), Options are transferable whether vested or not at the time of transfer. With respect to transfers by gift under Section 13(a)(iii), Options are transferable only to the extent the Options are vested at the time of transfer. Any purported assignment, transfer or encumbrance that does not qualify under
Section 13(a) shall be void and unenforceable against the Company. Any Option transferred by you pursuant to
Section 13(a) shall not be transferable by the recipient except by will or the laws of descent and distribution. The transferability of Options is subject to any applicable laws of your country of residence or employment.

(c) You will have the rights of a stockholder only after shares of Common Stock have been issued to you following exercise of your Options and satisfaction of all other conditions to the issuance of those shares as set forth in these Standard Terms. Options shall not entitle you to any rights of a stockholder of Common Stock and there are no voting or dividend rights with respect to your Options. Options shall remain terminable pursuant to these Standard Terms at all times until they vest and are exercised for shares. As a condition to having the right to receive shares of Common Stock pursuant to the exercise of your Options, you acknowledge that unvested Options shall have no value for purposes of any aspect of your Service relationship with the Company.

14. Disputes. Any question concerning the interpretation of these Standard Terms, your Notice of Grant, the Options or the 2007 Plan, any adjustments required to be made thereunder, and any controversy that may arise under the Standard Terms, your Notice of Grant, the Options or the 2007 Plan shall be determined by the Administrator (including any person(s) to whom the Administrator has delegated its authority) in its sole and absolute discretion. Such decision by the Administrator shall be final and binding unless determined pursuant to Section 16(g) to have been arbitrary and capricious.

15. Amendments. The 2007 Plan and the Options may be amended or altered by the Administrator to the extent provided in the 2007 Plan.

16. Other Matters.

(a) Any prior agreements, commitments or negotiations concerning the Options are superseded by these Standard Terms and your Notice of Grant. You hereby acknowledge that a copy of the 2007 Plan has been made available to you. The grant of Options to you in any one year, or at any time, does not obligate the Company or any Subsidiary to make a grant in any future year or in any given amount and should not create an expectation that the Company or any Subsidiary might make a grant in any future year or in any given amount. Options are not part of your employment contract (if any) with the Company (unless otherwise provided therein), your salary, your normal or expected compensation, or other remuneration for any purposes, including for purposes of computing severance pay or other termination compensation or indemnity.

(b) Options are not part of your Service contract (if any, unless otherwise specified therein), your salary, your normal or expected compensation, or other remuneration for any purposes, including for purposes of computing severance pay or other termination compensation or indemnity.

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(c) Notwithstanding any other provision of these Standard Terms, if any changes in the financial or tax accounting rules applicable to the Options covered by these Standard Terms shall occur which, in the sole judgment of the Administrator, may have an adverse effect on the reported earnings, assets or liabilities of the Company, the Administrator may, in its sole discretion, modify these Standard Terms or cancel and cause a forfeiture with respect to any unvested Options at the time of such determination.

(d) Nothing contained in these Standard Terms creates or implies an employment contract or term of employment upon which you may rely.

(e) Notwithstanding any provision of these Standard Terms, the Notice of Grant or the 2007 Plan to the contrary, if, at the time of your termination of Service with the Company, you are a “specified employee” as defined in Section 409A of the Code, and one or more of the payments or benefits received or to be received by you pursuant to the Options would constitute deferred compensation subject to Section 409A, no such payment or benefit will be provided under the Options until the earliest of (A) the date which is six (6) months after your “separation from service” for any reason, other than death or “disability” (as such terms are used in Section 409A(a)(2) of the Code), (B) the date of your death or “disability” (as such term is used in Section 409A(a)(2)(C) of the Code) or (C) the effective date of a “change in the ownership or effective control” of the Company (as such term is used in Section 409A(a)(2)(A)(v) of the Code). The provisions of this Section 16(e) shall only apply to the extent required to avoid your incurrence of any penalty tax or interest under Section 409A of the Code or any regulations or Treasury guidance promulgated thereunder. In addition, if any provision of the Options would cause you to incur any penalty tax or interest under Section 409A of the Code or any regulations or Treasury guidance promulgated thereunder, the Administrator may reform such provision to maintain to the maximum extent practicable the original intent of the applicable provision without violating the provisions of Section 409A of the Code.

(f) Notwithstanding any provision of these Standard Terms, the Notice of Grant or the 2007 Plan to the contrary, if the Company determines, based upon the advice of the tax advisors for the Company, that part or all of the consideration, compensation or benefits to be paid to you pursuant to the Options constitute “parachute payments” under Section 280G(b)(2) of the Code, then, if the aggregate present value of such parachute payments, singularly or together with the aggregate present value of any consideration, compensation or benefits to be paid to you under any other plan, arrangement or agreement which constitute “parachute payments” (collectively, the “Parachute Amount”) exceeds 2.99 times your “base amount,” as defined in Section 280G(b)(3) of the Code (the “Base Amount”), the amounts constituting “parachute payments” which would otherwise be payable to you or for your benefit shall be reduced to the extent necessary so that the Parachute Amount is equal to 2.99 times the Base Amount (the “Reduced Amount”); provided, however, that the Company shall pay to you the Parachute Amount without reduction if the Company determines that payment of the Parachute Amount would generate more after-tax income to you than the Reduced Amount. In the event of a reduction of the payments that would otherwise be paid to you, then the Company may elect which and how much of any particular entitlement shall be eliminated or reduced and shall notify

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you promptly of such election; provided, however, that the aggregate reduction shall be no more than as set forth in the preceding sentence of this Section 16(f). Within ten (10) days following such election, the Company shall pay you such amounts as are then due pursuant to the Options and shall pay you in the future such amounts as become due pursuant to the Options. As a result of the uncertainty in the application of Section 280G of the Code at the time of a determination hereunder, it is possible that payments will be made by the Company which should not have been made (“Overpayment”) or that additional payments which are not made by the Company pursuant to this Section 16(f) should have been made (“Underpayment”). In the event of a final determination by the Internal Revenue Service, a final determination by a court of competent jurisdiction or a change in the provisions of the Code or regulations or tax law, that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to you that you shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. In the event of a final determination by the Internal Revenue Service, a final determination by a court of competent jurisdiction or a change in the provisions of the Code or regulations or tax law pursuant to which an Underpayment arises under this Agreement, any such Underpayment shall be promptly paid by the Company to you or for your benefit, together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.

(g) Because these Standard Terms relate to terms and conditions under which you may purchase Common Stock, an essential term of these Standard Terms is that it shall be governed by the laws of the State of Delaware, without regard to choice of law principles of Delaware or other jurisdictions. Any action, suit, or proceeding relating to these Standard Terms or the Options granted hereunder shall be brought in the state or federal courts of competent jurisdiction in the State of California.

(h) Copies of the Company’s Annual Report to Stockholders for its latest fiscal year and the Company’s latest quarterly report are available, without charge, at the Company’s business office.

(i) Any notice required by these Standard Terms shall be given in writing and shall be deemed effective upon personal delivery or upon deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid. Notice shall be addressed to you at the address set forth in the records of the Company. Notice shall be addressed to the Company at:

IRIS International, Inc.

9162 Eton Avenue

Chatsworth, CA 91311

Attention: 2007 Plan Administrator

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EXHIBIT A

NOTICE OF EXERCISE

(To be signed only upon exercise of the option)

IRIS International, Inc.

9162 Eton Avenue

Chatsworth, CA 91311

Attention: 2007 Plan Administrator

1. Exercise of Option. The undersigned (the “Optionee”), the holder of the enclosed Non-qualified Stock Option Agreement, hereby irrevocably elects to exercise the purchase rights represented by the options and to purchase thereunder                     * shares (the “Shares”) of Common Stock of IRIS International, Inc. (the “Company”), and herewith encloses, in full payment of the purchase price of such shares being purchased, payment of (check all that apply):

¨ $                     in lawful money of the United States of America; and/or

¨                      shares of the Company’s common stock; and/or

¨ irrevocable instructions to a broker pursuant to a sale and remittance program approved by the Administrator; and/or

¨                      shares of the Company’s common stock pursuant to the net issue exercise provisions of Section 4(b)(iv) of the Non-qualified Stock Option Agreement.

2. Investment and Taxation Representations. In connection with the purchase of the Shares pursuant to the Non-qualified Stock Option Agreement, Optionee represents to the Company the following:

(a) Optionee is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares; and

(b) Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee’s purchase or disposition of the Shares. Optionee represents that Optionee has consulted any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice.

* Insert here the number of shares called for on the face of the Option, or, in the case of a partial exercise, the number of shares being exercised, in either case without making any adjustment for additional Common Stock of the Company, other securities or property that, pursuant to the adjustment provisions of the Option, may be deliverable upon exercise.

I ACKNOWLEDGE AND AGREE THAT THE SHARES ARE SUBJECT TO THE TERMS OF THE STANDARD TERMS INCLUDED WITH THE NOTICE OF NON-QUALIFIED STOCK OPTION GRANT.

Dated:                     

(Signature must conform in all respects to name of holder as specified on the face of the Option)

(Please Print Name)

(Address)

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EX-10.20

EXHIBIT 10.20

IRIS INTERNATIONAL, INC.

INCENTIVE STOCK OPTION AGREEMENT

IRIS INTERNATIONAL, INC. 2007 STOCK INCENTIVE PLAN

NOTICE OF INCENTIVE STOCK OPTION GRANT

You have been granted the following Incentive Stock Options (“Options”) to purchase Common Stock of IRIS International, Inc. (“IRIS” or the “Company”):

Name of Optionee:
Total Number of Shares Granted:
Exercise Price Per Share:	$
Grant Date:
Vesting Commencement Date:
Vesting Schedule:
Expiration Date:

By your signature and the signature of the Company’s representative below, you and the Company agree that the Options are granted under and governed by the terms and conditions of the IRIS International, Inc. 2007 Stock Incentive Plan (a copy of which has been provided to you) and the Incentive Stock Option Agreement, which is attached hereto, both of which are made a part of this document.

Optionee:	IRIS International, Inc.
By:	By:
Name:	Its:

IRIS INTERNATIONAL, INC.

2007 STOCK INCENTIVE PLAN

Incentive Stock Option Agreement

1. Terms. Unless provided otherwise in the Notice of Incentive Stock Option Grant (“Notice of Grant”), the following standard terms and conditions (“Standard Terms”) apply to incentive stock options (“Options”) granted to you under the IRIS International, Inc. 2007 Stock Incentive Plan (the “2007 Plan”). Your Notice of Grant, these Standard Terms and the 2007 Plan constitute the entire understanding between you and IRIS. Capitalized and other terms used herein without definition shall have the meanings ascribed thereto in the 2007 Plan.

2. Incentive Stock Options; $100,000 Limitation. The Options are intended to be incentive stock options under Section 422 of the Code and will be interpreted accordingly. The aggregate market value (determined at the time the Options are granted) of the shares of Common Stock with respect to which ISOs are exercisable for the first time during any calendar year (under all ISO plans of the Company and its Subsidiaries) shall not exceed $100,000. To the extent (and only to the extent) your right to exercise these Options causes these Options (in whole or in part) to not be treated as ISOs by reason of the $100,000 annual limitation under Section 422 of the Code, such Options shall be treated as Non-qualified Stock Options, but shall be exercisable by their terms. The determination of Options to be treated as Non-qualified Stock Options shall be made by taking into account the aggregate market value of the shares of Common Stock underlying Options in the order in which the Options are granted. If the terms of these Options cause the $100,000 annual limitation under Section 422 of the Code to be exceeded, a pro rata portion of each exercise shall be treated as the exercise of a Non-qualified Stock Option.

3. Price. The exercise price of the Options (the “option price”) is 100% of the market value of Common Stock on the date of grant, as specified in the Notice of Grant.

4. Term and Exercise.

(a) To the extent the Options have become exercisable (vested) during the periods indicated in the Notice of Grant and have not been previously exercised, and subject to termination or acceleration as provided in these Standard Terms and the requirements of these Standard Terms, the Notice of Grant and the 2007 Plan, you may exercise the Options to purchase up to the number of shares of Common Stock set forth in the Notice of Grant by delivering a written notice in the form of Exhibit A attached hereto (“Notice of Exercise”) to the Company in the manner specified pursuant to Section 16(i) hereof. Such Notice of Exercise shall specify the election to exercise Options, the number of shares of Common Stock for which they are being exercised and the form of payment, which must comply with Section 4(b). The Notice of Exercise shall be signed by the person who is entitled to exercise Options. Options shall be deemed exercised with respect to the number of shares of Common Stock subject to a proper Notice of Exercise upon receipt by the Company of the duly executed Notice of Exercise and payment of the option price of such shares of Common Stock in accordance with Section 4(b). Notwithstanding anything to the contrary in Section 6 or Sections 8 through 11 hereof, no part of the Options may be exercised after the Expiration Date set forth in the Notice of Grant.

(b) The process for exercising the Options (or any part thereof) is governed by these Standard Terms, the Notice of Grant and the 2007 Plan. Exercises of Options will be processed as soon as practicable. The option price may be paid:

(i) in cash;

(ii) by delivery of already owned shares of Common Stock;

(iii) through payment under a broker-assisted sale and remittance program acceptable to the Administrator;

(iv) through net issue exercise based on the following formula:

Net Number =	(A x B) - (A x C)
	B

For purposes of the foregoing formula:

A= the total number of shares with respect to which the Options are then being exercised.

B= the market value of Common Stock on the date immediately preceding the date of the Notice of Exercise.

C= the option price then in effect at the time of such exercise.

(v) by delivery of any other lawful consideration approved in advance by the Administrator; or

(vi) in any combination of the foregoing.

Options may not be exercised for fractional shares. Shares of Common Stock will be issued as soon as practicable (subject to Section 4(c) below). You will have the rights of a stockholder only after the shares of Common Stock have been issued. For administrative or other reasons, the Company may from time to time suspend the ability of employees to exercise options for limited periods of time.

(c) Notwithstanding the foregoing, (i) the Company shall not be obligated to deliver any shares of Common Stock during any period when the Administrator determines that the exercisability of the Options or the delivery of shares hereunder would violate any federal, state or other applicable laws and/or may issue shares subject to any restrictive legends that, as determined by the Company’s counsel, is necessary to comply with securities or other regulatory requirements, and (ii) the date on which shares are issued may include a delay in order to provide the Company such time as it determines appropriate to address tax withholding and other administrative matters.

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(d) Notwithstanding anything to the contrary in these Standard Terms or the applicable Notice of Grant, the Administrator may reduce your unvested Options if you change your employment classification from a full-time employee to a part-time employee.

(e) The number of shares of Common Stock for which Options may be exercised as specified in the Notice of Grant shall be adjusted for stock splits and similar matters as specified in and pursuant to the 2007 Plan.

(f) IF AN EXPIRATION DATE DESCRIBED HEREIN FALLS ON A WEEKDAY, YOU MUST EXERCISE YOUR OPTIONS BEFORE 12:00 P.M. LOS ANGELES TIME ON THE EXPIRATION DATE.

(g) IF AN EXPIRATION DATE DESCRIBED HEREIN FALLS ON A WEEKEND OR ANY OTHER DAY ON WHICH THE NASDAQ STOCK MARKET (“NASDAQ”) IS NOT OPEN, YOU MUST EXERCISE YOUR OPTIONS BEFORE 12:00 P.M. LOS ANGELES TIME ON THE LAST NASDAQ BUSINESS DAY PRIOR TO THE EXPIRATION DATE.

5. Change in Control. In the event that your Service (as defined below) is terminated for Good Reason (as defined below) or for reasons other than an act of misconduct (as described in Section 8(c) of the 2007 Plan) upon the occurrence of a Change in Control (as defined below) or within three (3) months prior thereto or eighteen (18) months thereafter (a “Termination Event”), all of the unvested Options will vest immediately prior to the effective date of such Termination Event and the Options shall become fully exercisable.

(a) “Change in Control” shall mean (i) the dissolution or liquidation of the Company, (ii) approval by the stockholders of the Company of any sale, lease, exchange or other transfer (in one or a series of transactions) of all or substantially all of the assets of the Company, (iii) approval by the stockholders of the Company of any merger or consolidation of the Company in which the holders of voting stock of the Company immediately before the merger or consolidation will not own thirty five percent (35%) or more of the voting stock of the continuing or surviving corporation immediately after such merger or consolidation; or (iv) a change of fifty percent (50%) (rounded to the next whole person) in the membership of the Board within a twelve (12)-month period, unless the election or nomination for election by stockholders of each new director within such period was approved by the vote of a majority of the directors then still in office who were in office at the beginning of the twelve (12)-month period.

(b) “Good Reason” shall mean any of the following (without your express written consent and provided you provide written notice stating in reasonable detail the basis for termination and a thirty (30)-day opportunity to cure to the Company): (i) a material reduction in your responsibilities or duties as such responsibilities or duties exist on the date hereof, except in the event of a termination for an act of misconduct (as described in Section 8(c) of the 2007 Plan), death or disability or your resignation other than for Good Reason; (ii) a reduction of your base salary as it exists on the date hereof unless such reduction (x) is in connection with

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concurrent and proportional reductions in the salaries of other members of management of the Company, which reductions have been approved by the Board, and (y) reduce your base salary to no less than 80% of your base salary immediately before such reduction; or (iii) any relocation by the Company of your place of employment that would increase your one-way commute to the place of employment by more than fifty (50) miles when compared to your commute immediately prior to the relocation.

6. Leaves of Absence. For any purpose under these Standard Terms, your Service shall be deemed to continue while you are on a bona fide leave of absence, to the extent required by applicable law. To the extent applicable law does not require such a leave to be deemed to continue your Service such Service shall be deemed to continue if, and only if, expressly provided in writing by the Administrator or an Officer of the Company or Subsidiary for whom you provide Service. For the purposes of these Standard Terms, the term “Service” means service to the Company or any of its Subsidiaries as an Employee.

7. Suspension or Termination of Options for Misconduct. If at any time any Authorized Officer notifies the Administrator that they reasonably believe that you have committed an act of misconduct as described in Section 8(c) of the 2007 Plan (embezzlement, fraud, dishonesty, nonpayment of any obligation owed to the Company, breach of fiduciary duty or deliberate disregard of Company rules resulting in loss, damage or injury to the Company, or if you make an unauthorized disclosure of any Company trade secret or confidential information, engage in any conduct constituting unfair competition, induce any customer to breach a contract with the Company or induce any principal for whom the Company acts as agent to terminate such agency relationship), the vesting of and your ability to exercise your Options may be suspended pending a determination of whether an act of misconduct has been committed. If the Administrator or an Authorized Officer determines that you have committed an act of misconduct, all Options not exercised as of the date the Administrator was notified that you may have committed an act of misconduct shall be cancelled and neither you nor any beneficiary shall be entitled to any claim with respect to the Options whatsoever. Any determination by the Administrator or Authorized Officer with respect to the foregoing shall be final, conclusive, and binding on all interested parties.

8. Termination of Service.

(a) Except as expressly provided otherwise in these Standard Terms, if your Service terminates for any reason, whether voluntarily or involuntarily, other than on account of death, Disablement (defined below), Retirement (defined below) or discharge for misconduct, you may exercise any portion of the Options that had vested on or prior to the date of termination at any time prior to three (3) months after the date of such termination. The Options shall terminate on the expiration of the three (3)-month period to the extent that they are unexercised. All unvested Options shall be cancelled on the date of Service termination, regardless of whether such Service termination is voluntary or involuntary.

(b) For purposes of this Section 8, your Service is not deemed terminated if, prior to sixty (60) days after the date of termination of your Service, you are re-hired by the Company or a Subsidiary on a basis that would make you eligible for future stock option grants, nor would your transfer from the Company to any Subsidiary or from any one Subsidiary to another, or from a Subsidiary to the Company be deemed a termination of your Service.

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9. Death.

(a) Except as expressly provided otherwise in these Standard Terms, if you die while you are a Service provider, your Options will become one hundred percent (100%) vested, and the executor of your will, administrator of your estate or any successor trustee of a grantor trust may exercise the Options, to the extent not previously exercised, at any time prior to two (2) years from the date of death.

(b) The Options shall terminate on the applicable expiration date described in this Section 9, to the extent that they are unexercised.

10. Disability.

(a) Except as expressly provided otherwise in these Standard Terms, if your Service terminates as a result of Disablement, your Options will become one hundred percent (100%) vested upon the later of the date of termination of your Service due to your Disablement or the date of determination of your Disablement.

(b) The Options shall terminate one (1) year from the date of determination of Disablement, to the extent that they are unexercised.

(c) For purposes of these Standard Terms, “Disablement” means your inability to perform the essential duties, responsibilities and functions of your position with the Company or a Subsidiary for a continuous period of one hundred eighty (180) days as a result of any mental or physical disability or incapacity, as determined under the definition of disability in the Company’s long-term disability plan so as to qualify you for benefits under the terms of that plan or as determined by the Administrator to the extent that no such plan is then in effect. You shall cooperate in all respects with the Company if a question arises as to whether you have become disabled (including, without limitation, submitting to an examination by a medical doctor or other health care specialist selected by the Company and authorizing such medical doctor or such other health care specialist to discuss your condition with the Company).

11. Retirement. For purposes of these Standard Terms, “Retirement” shall mean either Standard Retirement (as defined below) or the Rule of 75 (as defined below). Upon your Retirement, the vesting of your Options, to the extent that they had not vested on or prior to the date of your Retirement, shall be accelerated as follows:

(a) If you retire at or after age sixty (60) (“Standard Retirement”), you will receive one (1) year of additional vesting from your date of Retirement for every five (5) years that you have provided Service (measured in complete, whole years). No vesting acceleration shall occur for any periods of Service of less than five (5) years; or

(b) If, when you terminate Service, your age plus years of Service (in each case measured in complete, whole years) equals or exceeds seventy-five (75) (“Rule of 75”), you will receive accelerated vesting of any portion of the Options that would have vested prior to one (1) year from the date of your Retirement.

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You will receive vesting acceleration pursuant to either Standard Retirement or the Rule of 75, but not both. Except as expressly provided otherwise in these Standard Terms, following your Retirement from the Company or a Subsidiary, you may exercise the Options at any time prior to three (3) months from the date of your Retirement, to the extent that they had vested as of the date of your Retirement or to the extent that vesting of the Options is accelerated pursuant to this Section 11. The Options shall terminate on the expiration of the three (3)-month period from your date of Retirement, to the extent that they are unexercised.

12. Tax Withholding.

(a) To the extent required by applicable federal, state or other law, you shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise by reason of an Option exercise and, if applicable, any sale of shares of Common Stock. The Company shall not be required to issue or lift any restrictions on shares of Common Stock or to recognize any purported transfer of shares of Common Stock until such obligations are satisfied. The Administrator may permit these obligations to be satisfied by having the Company withhold a portion of the shares of Common Stock that otherwise would be issued to you upon exercise of the Options, or to the extent permitted by the Administrator, by tendering shares of Common Stock previously acquired.

(b) You are ultimately liable and responsible for all taxes owed by you in connection with your Options, regardless of any action the Administrator or the Company takes or any transaction pursuant to this Section 12 with respect to any tax withholding obligations that arise in connection with your Options. The Company makes no representation or undertaking regarding the treatment of any tax withholding in connection with the grant, issuance, vesting or settlement of your Options or the subsequent sale of any of the shares of Common Stock underlying your Options that vest. The Company does not commit and is under no obligation to administer the Plan in a manner that reduces or eliminates your tax liability.

13. Transferability; Rights as a Stockholder.

(a) Unless otherwise provided by the Administrator, each Option shall be transferable only pursuant to your will or upon your death to your beneficiaries. Any purported assignment, transfer or encumbrance that does not qualify under this section shall be void and unenforceable against the Company. Any Option transferred by you pursuant to this Section 13(a) shall not be transferable by the recipient except by will or the laws of descent and distribution. The transferability of Options is subject to any applicable laws of your country of residence or employment.

(b) You will have the rights of a stockholder only after shares of Common Stock have been issued to you following exercise of your Options and satisfaction of all other conditions to the issuance of those shares as set forth in these Standard Terms. Options shall not entitle you to any rights of a stockholder of Common Stock and there are no voting or dividend rights with

6

respect to your Options. Options shall remain terminable pursuant to these Standard Terms at all times until they vest and are exercised for shares. As a condition to having the right to receive shares of Common Stock pursuant to the exercise of your Options, you acknowledge that unvested Options shall have no value for purposes of any aspect of your Service relationship with the Company.

14. Disputes. Any question concerning the interpretation of these Standard Terms, your Notice of Grant, the Options or the 2007 Plan, any adjustments required to be made thereunder, and any controversy that may arise under the Standard Terms, your Notice of Grant, the Options or the 2007 Plan shall be determined by the Administrator (including any person(s) to whom the Administrator has delegated its authority) in its sole and absolute discretion. Such decision by the Administrator shall be final and binding unless determined pursuant to Section 16(g) to have been arbitrary and capricious.

15. Amendments. The 2007 Plan and the Options may be amended or altered by the Administrator to the extent provided in the 2007 Plan.

16. Other Matters.

(a) Any prior agreements, commitments or negotiations concerning the Options are superseded by these Standard Terms and your Notice of Grant. You hereby acknowledge that a copy of the 2007 Plan has been made available to you. The grant of Options to you in any one year, or at any time, does not obligate the Company or any Subsidiary to make a grant in any future year or in any given amount and should not create an expectation that the Company or any Subsidiary might make a grant in any future year or in any given amount. Options are not part of your employment contract (if any) with the Company (unless otherwise provided therein), your salary, your normal or expected compensation, or other remuneration for any purposes, including for purposes of computing severance pay or other termination compensation or indemnity.

(b) Options are not part of your Service contract (if any, unless otherwise specified therein), your salary, your normal or expected compensation, or other remuneration for any purposes, including for purposes of computing severance pay or other termination compensation or indemnity.

(c) Notwithstanding any other provision of these Standard Terms, if any changes in the financial or tax accounting rules applicable to the Options covered by these Standard Terms shall occur which, in the sole judgment of the Administrator, may have an adverse effect on the reported earnings, assets or liabilities of the Company, the Administrator may, in its sole discretion, modify these Standard Terms or cancel and cause a forfeiture with respect to any unvested Options at the time of such determination.

(d) Nothing contained in these Standard Terms creates or implies an employment contract or term of employment upon which you may rely.

(e) Notwithstanding any provision of these Standard Terms, the Notice of Grant or the 2007 Plan to the contrary, if, at the time of your termination of Service with the Company, you are a “specified employee” as defined in Section 409A of the Code, and one or more of the payments or benefits received or to be received by you pursuant to the Options would constitute

7

deferred compensation subject to Section 409A, no such payment or benefit will be provided under the Options until the earliest of (A) the date which is six (6) months after your “separation from service” for any reason, other than death or “disability” (as such terms are used in Section 409A(a)(2) of the Code), (B) the date of your death or “disability” (as such term is used in Section 409A(a)(2)(C) of the Code) or (C) the effective date of a “change in the ownership or effective control” of the Company (as such term is used in Section 409A(a)(2)(A)(v) of the Code). The provisions of this Section 16(e) shall only apply to the extent required to avoid your incurrence of any penalty tax or interest under Section 409A of the Code or any regulations or Treasury guidance promulgated thereunder. In addition, if any provision of the Options would cause you to incur any penalty tax or interest under Section 409A of the Code or any regulations or Treasury guidance promulgated thereunder, the Administrator may reform such provision to maintain to the maximum extent practicable the original intent of the applicable provision without violating the provisions of Section 409A of the Code.

(f) Notwithstanding any provision of these Standard Terms, the Notice of Grant or the 2007 Plan to the contrary, if the Company determines, based upon the advice of the tax advisors for the Company, that part or all of the consideration, compensation or benefits to be paid to you pursuant to the Options constitute “parachute payments” under Section 280G(b)(2) of the Code, then, if the aggregate present value of such parachute payments, singularly or together with the aggregate present value of any consideration, compensation or benefits to be paid to you under any other plan, arrangement or agreement which constitute “parachute payments” (collectively, the “Parachute Amount”) exceeds 2.99 times your “base amount,” as defined in Section 280G(b)(3) of the Code (the “Base Amount”), the amounts constituting “parachute payments” which would otherwise be payable to you or for your benefit shall be reduced to the extent necessary so that the Parachute Amount is equal to 2.99 times the Base Amount (the “Reduced Amount”); provided, however, that the Company shall pay to you the Parachute Amount without reduction if the Company determines that payment of the Parachute Amount would generate more after-tax income to you than the Reduced Amount. In the event of a reduction of the payments that would otherwise be paid to you, then the Company may elect which and how much of any particular entitlement shall be eliminated or reduced and shall notify you promptly of such election; provided, however, that the aggregate reduction shall be no more than as set forth in the preceding sentence of this Section 16(f). Within ten (10) days following such election, the Company shall pay you such amounts as are then due pursuant to the Options and shall pay you in the future such amounts as become due pursuant to the Options. As a result of the uncertainty in the application of Section 280G of the Code at the time of a determination hereunder, it is possible that payments will be made by the Company which should not have been made (“Overpayment”) or that additional payments which are not made by the Company pursuant to this Section 16(f) should have been made (“Underpayment”). In the event of a final determination by the Internal Revenue Service, a final determination by a court of competent jurisdiction or a change in the provisions of the Code or regulations or tax law, that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to you that you shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. In the event of a final determination by the Internal Revenue Service, a final determination by a court of competent jurisdiction or a change in the provisions of the Code or regulations or tax law pursuant to which an Underpayment arises under this Agreement, any such Underpayment shall be promptly paid by the Company to you or for your benefit, together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.

8

(g) Because these Standard Terms relate to terms and conditions under which you may purchase Common Stock, an essential term of these Standard Terms is that it shall be governed by the laws of the State of Delaware, without regard to choice of law principles of Delaware or other jurisdictions. Any action, suit, or proceeding relating to these Standard Terms or the Options granted hereunder shall be brought in the state or federal courts of competent jurisdiction in the State of California.

(h) Copies of the Company’s Annual Report to Stockholders for its latest fiscal year and the Company’s latest quarterly report are available, without charge, at the Company’s business office.

(i) Any notice required by these Standard Terms shall be given in writing and shall be deemed effective upon personal delivery or upon deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid. Notice shall be addressed to you at the address set forth in the records of the Company. Notice shall be addressed to the Company at:

IRIS International, Inc.

9162 Eton Avenue

Chatsworth, CA 91311

Attention: 2007 Plan Administrator

9

EXHIBIT A

NOTICE OF EXERCISE

(To be signed only upon exercise of the option)

IRIS International, Inc.

9162 Eton Avenue

Chatsworth, CA 91311

Attention: 2007 Plan Administrator

1. Exercise of Option. The undersigned (the “Optionee”), the holder of the enclosed Incentive Stock Option Agreement, hereby irrevocably elects to exercise the purchase rights represented by the options and to purchase thereunder                     * shares (the “Shares”) of Common Stock of IRIS International, Inc. (the “Company”), and herewith encloses, in full payment of the purchase price of such shares being purchased, payment of (check all that apply):

¨ $                     in lawful money of the United States of America; and/or

¨                      shares of the Company’s common stock; and/or

¨ irrevocable instructions to a broker pursuant to a sale and remittance program approved by the Administrator; and/or

¨                      shares of the Company’s common stock pursuant to the net issue exercise provisions of Section 4(b)(iv) of the Incentive Stock Option Agreement.

2. Investment and Taxation Representations. In connection with the purchase of the Shares pursuant to the Incentive Stock Option Agreement, Optionee represents to the Company the following:

(a) Optionee is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares; and

(b) Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee’s purchase or disposition of the Shares. Optionee represents that Optionee has consulted any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice.

* Insert here the number of shares called for on the face of the Option, or, in the case of a partial exercise, the number of shares being exercised, in either case without making any adjustment for additional Common Stock of the Company, other securities or property that, pursuant to the adjustment provisions of the Option, may be deliverable upon exercise.

I ACKNOWLEDGE AND AGREE THAT THE SHARES ARE SUBJECT TO THE TERMS OF THE STANDARD TERMS INCLUDED WITH THE NOTICE OF INCENTIVE STOCK OPTION GRANT.

Dated:                     

(Signature must conform in all respects to name of

holder as specified on the face of the Option)

(Please Print Name)

(Address)

2

EX-10.21

EXHIBIT 10.21

RESTRICTED STOCK UNIT DEFERRAL ELECTION

I hereby elect to defer the settlement date of the Restricted Stock Units set forth below granted to me by IRIS International, Inc. (the “Company”) on                     , 20     (the “Restricted Stock Units”), subject to the terms and conditions of the Company’s 2007 Stock Incentive Plan (the “Plan”) and this Restricted Stock Unit Deferral Election (the “Election”). I understand that this Election is irrevocable. The terms of my Election are as follows:

1. Restricted Stock Units to which Election applies. I elect to defer settlement of that portion of the Restricted Stock Units equating to              Shares (as defined below) (the “Deferred Units”).

2. Restricted Stock Units Deferral Elections. I understand that the Deferred Units will be settled in shares of the Company’s common stock (“Shares”) payable in a single lump sum. I understand that if I fail to make an election with respect to any Restricted Stock Units that I will be deemed to have elected settlement of such Restricted Stock Units when such units vest as provided in the Restricted Stock Unit Agreement relating to my Restricted Stock Units (the “Agreement”).

3. Settlement Date. Subject to the terms of the Plan and my Agreement, I will receive Shares in settlement of my Deferred Units (to the extent vested) within thirty (30) days, or such later date as may be required by applicable law, of the earlier of the events I have elected below (as applicable, the “Settlement Date”) (check all that you would like to apply):

¨ 1. I elect a Settlement Date for the Deferred Units on                      (you must select a date no earlier than thirteen months from the date of grant of the Restricted Stock Units. If you elect a Settlement Date prior to the date the Deferred Units vest, the Deferred Units will be settled on the vesting date.)

¨ 2. The date of my “separation from service” as defined under Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (“Section 409A”).

¨ 3. The date of a change in control of the Company (as defined in Section 409A).

¨ 4. The date of my death.

¨ 5. The date of my disability (as defined in Section 409A).

Notwithstanding the foregoing, if the Settlement Date is as a result of my separation from service, as determined by the Company, other than due to my death, and I am a “specified employee” within the meaning of Section 409A at the time of such separation from service, then my Deferred Units will not be settled until the date six (6) months and one (1) day following the date of separation from service, unless I die following my separation from service, in which case, my Deferred Units will be settled as soon as practicable following my death.

4. Change of Settlement Date. I understand that I may make, with the consent of the Company, a subsequent election to further defer settlement of my Deferred Units, and that such an election must be made at least one (1) year prior to my originally selected Settlement Date and I further understand that my newly elected Settlement Date must be at least five (5) years after the date of the originally selected Settlement Date. I further understand that the ability to make such a subsequent deferral election may not be available to me in the future if the Company changes its administration policies to reflect any changes to applicable law governing deferred compensation.

5. Filing of Election. This Election must be filed with the Company no later than                     , 20    ¹.

6. Irrevocability of Election. This Election will become irrevocable as of the date it is executed.

¹ 30 days after date of Restricted Stock Unit grant.

7. Award is Unfunded. I understand that the Company has not formally funded my award and that I am considered a general unsecured creditor of the Company with respect to my rights under the award.

8. Taxes. I understand and acknowledge that current tax law provides that amounts deferred will be taxable as ordinary income in the year paid. I, however, agree and acknowledge that I may be subject to employment taxes on the original vesting date(s). If the Administrator (as defined in the Plan) determines that the Company is required to withhold for any taxes, including, but not limited to, income or employment taxes, prior to the date of deferred payout, I agree that, if I do not make other arrangements that are satisfactory to the Administrator, in its sole discretion, the Company may withhold from other compensation due to me, including, but not limited to, salary. I understand that, upon receipt of deferred payouts, I may owe taxes both (a) to the state where I resided at the time of making this election and, if different, (b) to the state where I reside when I receive a deferred payout.

9. Section 409A. It is the intent of this Election to comply with the requirements of Section 409A so that none of the Deferred Units or Shares issuable thereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply.

10. Subject to Plan. This Election is in all respects subject to the terms and conditions of the Plan. Should any inconsistency exist between this Election, the Plan, the Agreement, and/or any applicable law, then the provisions of either the applicable law or the Plan will control, with the Plan subordinated to the applicable law and the Agreement subordinated to this Election.

Dated:

Name:

Signature:

EX-21

Exhibit 21

Iris International, Inc.

List of Subsidiaries

Susidiary	Jurisdiction	% Owned
StatSpin, Inc.	Massachusetts	100%
Iris Global Network, Inc.	Delaware	100%
Poly U/A Systems, Inc.	Delaware	100%
Advanced Degital Imaging Research, LLC	Texas	100% owned by Stat Spin, Inc.
Iris Diagnostics France S.A.	France	100% owned by Iris Global Network, Inc.
Iris Deutschland GmbH	Germany	100% owned by Iris Global Network, Inc.
Iris Molecular Diagnostics, Inc.	Delaware	100%
Iris International Europe GmbH	Switzerland	100% owned by Iris Global Network, Inc.
Iris International Deutschland	Germany	100% owned by Iris International Europe GmbH
Iris Diagnostics (UK) Ltd.	United Kingdom	100% owned by Iris International Europe GmbH

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

of Iris International, Inc.

Chatsworth, California

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File No’s. 333-27189, 333-37946, 333-86617, 333-48097, 333-110826, 333-115393, 333-118577, 333-135442 and 333-147618) and Form S-8 (File Nos. 33-10631, 33-56772, 33-82560, 333-19265, 333-31391, 333-45348, 333-31393, 333-63304, 333-65547, 333-103462, 333-122501, 333-127952 333-137738, 333-145635 and 333-159676) of IRIS International, Inc. of our reports dated March 15, 2010, relating to the consolidated financial statements, and the effectiveness of Iris International, Inc’s internal control over financial reporting, which appears in this Form 10-K.

/s/ BDO Seidman, LLP

BDO Seidman, LLP

Los Angeles, California

March 15, 2010

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Cesar M. Garcia, certify that:

1. I have reviewed this annual report on Form 10-K of IRIS International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2010

/s/ César M. García

César M. García

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Peter L. Donato, certify that:

1. I have reviewed this annual report on Form 10-K of IRIS International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2010

/s/ Peter L. Donato

Peter L. Donato

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO RULE 13A-14(B) OF THE EXCHANGE ACT AND 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with Annual Report of IRIS International, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, César M. García, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 15, 2010

/s/ César M. García

César M. García

Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO RULE 13A-14(B) OF THE EXCHANGE ACT AND 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with Annual Report of IRIS International, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter L. Donato, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 15, 2010

/s/ Peter L. Donato

Peter L. Donato

Chief Financial Officer