masi-20220702

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________________

FORM 10-Q

________________________________________________


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 2, 2022


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

For the transition period from _________ to _________

Commission File Number 001-33642

________________________________________________

MASIMO CORPORATION

(Exact Name of Registrant as Specified in its Charter)

________________________________________________

Delaware

33-0368882

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification Number)

52 Discovery

Irvine,

California

92618

(Address of Principal Executive Offices)

(Zip Code)

(949)

297-7000

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

MASI

The Nasdaq Stock Market LLC

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

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☒

☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes

☐

☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class

Number of Shares Outstanding as of
July 2, 2022

Common stock, $0.001 par value

52,530,244

Table of Contents

MASIMO CORPORATION

FORM 10-Q FOR THE QUARTER ENDED JULY 2, 2022

TABLE OF CONTENTS


PART I. Financial Information

Item 1.	Financial Statements (unaudited):

	Condensed Consolidated Balance Sheets as of July 2, 2022 and January 1, 2022	3

	Condensed Consolidated Statements of Operations for the three and six months ended July 2, 2022 and July 3, 2021	4

	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended July 2, 2022 and July 3, 2021	5

	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended July 2, 2022 and July 3, 2021	6

	Condensed Consolidated Statements of Cash Flows for the six months ended July 2, 2022 and July 3, 2021	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54

Item 4.	Controls and Procedures	55

PART II. Other Information

Item 1.	Legal Proceedings	55

Item 1A.	Risk Factors	55

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	87



Item 6.	Exhibits	88

Signatures		90

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MASIMO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in millions, except par values)


	July 2, 2022		January 1, 2022
ASSETS
Current assets
Cash and cash equivalents	$	218.0	$	745.3

Trade accounts receivable, net of allowance for credit losses of $2.7 million and $2.2 million at July 2, 2022 and January 1, 2022, respectively	352.7		200.8
Inventories	449.2		201.4
Other current assets	138.3		91.0
Total current assets	1,158.2		1,238.5
Lease receivable, noncurrent	75.4		73.6
Deferred costs and other contract assets	35.4		28.1
Property and equipment, net	370.7		272.8

Customer relationships, net - (Note 9)	215.6		15.3
Acquired technologies, net - (Note 9)	170.9		20.7
Other intangible assets, net	78.0		36.5
Trademarks - (Note 9)	262.0		—
Goodwill	434.5		100.3
Deferred tax assets	55.1		52.6
Other non-current assets	105.3		48.6
Total assets	$	2,961.1	$	1,887.0
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	244.5	$	75.5
Accrued compensation	75.5		70.8
Deferred revenue and other contract liabilities, current	75.4		50.9
Other current liabilities	156.6		70.4
Total current liabilities	552.0		267.6
Long-term debt	922.4		—

Other non-current liabilities	284.0		69.1
Total liabilities	1,758.4		336.7
Commitments and contingencies - (Note 23)
Stockholders’ equity

Preferred stock, $0.001 par value; 5.0 million shares authorized; 0 shares issued and outstanding	—		—
Common stock, $0.001 par value; 100 million shares authorized; 52.5 million and 55.3 million shares issued and outstanding at July 2, 2022 and January 1, 2022, respectively	0.1		0.1
Treasury stock, 19.5 million and 16.5 million shares at July 2, 2022 and January 1, 2022, respectively	(1,169.1)		(767.7)
Additional paid-in capital	759.2		752.5
Accumulated other comprehensive loss	(23.1)		(5.5)
Retained earnings	1,635.6		1,570.9


Total stockholders’ equity	1,202.7		1,550.3
Total liabilities and stockholders’ equity	$	2,961.1	$	1,887.0

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

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MASIMO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in millions, except per share amounts)


	Three Months Ended				Six Months Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021



Revenue	$	565.3	$	305.1	$	869.5	$	604.2
Cost of goods sold	307.1		112.2		406.6		214.4
Gross profit	258.2		192.9		462.9		389.8
Operating expenses:
Selling, general and administrative	188.3		93.9		297.2		190.5
Research and development	47.8		33.9		83.9		68.5

Total operating expenses	236.1		127.8		381.1		259.0
Operating income	22.1		65.1		81.8		130.8
Non-operating income (loss)	4.5		0.1		3.9		(0.7)
Income before provision for income taxes	26.6		65.2		85.7		130.1
Provision for income taxes	8.5		15.0		21.0		26.5
Net income	$	18.1	$	50.2	$	64.7	$	103.6







Net income per share:
Basic	$	0.34	$	0.91	$	1.18	$	1.88
Diluted	$	0.33	$	0.88	$	1.15	$	1.80

Weighted-average shares used in per share calculations:
Basic	53.9		55.0		54.7		55.1
Diluted	55.3		57.4		56.4		57.6

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

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MASIMO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in millions)


	Three Months Ended				Six Months Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Net income	$	18.1	$	50.2	$	64.7	$	103.6
Other comprehensive income, net of tax:
Unrealized (losses) gains from foreign currency translation adjustments	(14.0)		1.2		(16.9)		(1.7)
Change in pension benefits	(0.7)		—		(0.7)		—

Total comprehensive income	$	3.4	$	51.4	$	47.1	$	101.9

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

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MASIMO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in millions)
	Three and Six Months Ended July 2, 2022
	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount














































































































































































































































Balance at January 1, 2022	55.3	$	0.1	16.5	$	(767.7)	$	752.5	$	(5.5)	$	1,570.9	$	1,550.3
Stock options exercised	0.1	—		—	—		2.7		—		—		2.7
Restricted/Performance stock units vested	0.2	—		—	—		—		—		—		—
Shares paid for tax withholding	(0.1)	—		—	—		(25.4)		—		—		(25.4)
Stock-based compensation	—	—		—	—		10.9		—		—		10.9


Net income	—	—		—	—		—		—		46.6		46.6
Foreign currency translation adjustment	—	—		—	—		—		(2.9)		—		(2.9)

Balance at April 2, 2022	55.5	0.1		16.5	(767.7)		740.7		(8.4)		1,617.5		1,582.2
Stock options exercised	—	—		—	—		1.2		—		—		1.2


Stock-based compensation	—	—		—	—		17.3		—		—		17.3
Repurchases of common stock	(3.0)	—		3.0	(401.4)		—		—		—		(401.4)


Net income	—	—		—	—		—		—		18.1		18.1
Foreign currency translation adjustment	—	—		—	—		—		(14.0)		—		(14.0)

Unrealized loss on pension plan	—	—		—	—		—		(0.7)		—		(0.7)
Balance at July 2, 2022	52.5	$	0.1	19.5	$	(1,169.1)	$	759.2	$	(23.1)	$	1,635.6	$	1,202.7

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	Three and Six Months Ended July 3, 2021
	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
































































































































































































Balance at January 2, 2021	55.3	$	0.1	16.0	$	(638.7)	$	703.7	$	1.4	$	1,341.2	$	1,407.7
Stock options exercised	—	—		—	—		2.9		—		—		2.9
Restricted/Performance stock units vested	0.3	—		—	—		—		—		—		—
Shares paid for tax withholding	—	—		—	—		(16.7)		—		—		(16.7)
Stock-based compensation	—	—		—	—		12.7		—		—		12.7
Repurchases of common stock	(0.5)	—		0.5	(128.9)		—		—		—		(128.9)

Net income	—	—		—	—		—		—		53.4		53.4
Foreign currency translation adjustment	—	—		—	—		—		(2.9)		—		(2.9)

Balance at April 3, 2021	55.1	0.1		16.5	(767.6)		702.6		(1.5)		1,394.6		1,328.2
Stock options exercised	—	—		—	—		3.4		—		—		3.4


Stock-based compensation	—	—		—	—		8.3		—		—		8.3


Net income	—	—		—	—		—		—		50.2		50.2
Foreign currency translation adjustment	—	—		—	—		—		1.2		—		1.2

Balance at July 3, 2021	55.1	$	0.1	16.5	$	(767.6)	$	714.3	$	(0.3)	$	1,444.8	$	1,391.3

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

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MASIMO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in millions)


	Six Months Ended
	July 2, 2022		July 3, 2021
Cash flows from operating activities:
Net income	$	64.7	$	103.6
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	79.9		17.3
Stock-based compensation	28.2		20.9
Gain on disposal of equipment, intangibles and other assets	0.3		0.2

Provision for credit losses	0.9		0.5


Changes in operating assets and liabilities:
Increase in accounts receivable	(44.7)		(38.7)
(Increase) decrease in inventories	(67.8)		8.6
(Increase) decrease in other current assets	(8.2)		6.5
Increase in lease receivable, net	(1.7)		(7.5)
Increase in deferred costs and other contract assets	(21.6)		(1.7)

Increase in other non-current assets	(0.3)		(0.2)
Increase in accounts payable	40.4		2.0
Decrease in accrued compensation	(22.6)		(16.3)
Decrease in accrued liabilities	(7.2)		(6.0)
Decrease in income tax payable	(18.5)		(2.0)
Increase (decrease) in deferred revenue and other contract-related liabilities	4.8		(1.2)

Decrease in other non-current liabilities	(1.0)		(0.8)
Net cash provided by operating activities	25.6		85.2
Cash flows from investing activities:


Purchases of property and equipment, net	(30.0)		(14.2)
Increase in intangible assets	(10.5)		(3.0)
Business combinations, net of cash acquired	(985.5)		—
Other strategic investing activities	(1.2)		—
Net cash used in investing activities	(1,027.2)		(17.2)
Cash flows from financing activities:
Borrowings under line of credit	927.0		—
Repayments on line of credit	0.1		—

Debt issuance costs	(8.9)		—

Proceeds from issuance of common stock	4.6		9.1
Payroll tax withholdings on behalf of employees for vested equity awards	(25.4)		(16.7)
Repurchases of common stock	(401.4)		(128.9)

Net cash provided by (used in) financing activities	496.0		(136.5)
Effect of foreign currency exchange rates on cash	(22.2)		0.8
Net decrease in cash, cash equivalents and restricted cash	(527.8)		(67.7)
Cash, cash equivalents and restricted cash at beginning of period	748.4		645.0
Cash, cash equivalents and restricted cash at end of period	$	220.6	$	577.3

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

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Description of the Company

Masimo Corporation is a global medical technology company dedicated to improving lives, taking noninvasive monitoring to new sites and applications while improving patient outcomes and reducing the cost of care. The Company invented Masimo Signal Extraction Technology® (SET®), which provides the capabilities of Measure-through Motion and Low Perfusion™ pulse oximetry to address the primary limitations of conventional pulse oximetry. Historically, the Company has been focused on the core healthcare businesses derived from its SET® technology. During the early stages of the COVID-19 pandemic, the Company strategically expanded into the fast evolving remote patient monitoring and home wellness markets as well as the therapeutics markets.

On April 11, 2022, the Company acquired Viper Holdings Corporation d/b/a Sound United, LLC (Sound United), via the Company’s wholly-owned subsidiary, Sonic Boom Acquisition Corp (Sonic). For more information on Masimo’s acquisition of Sound United, see Note 17, “Business Combinations”. In addition, the Company updated its financial reporting segments to align with the way it manages the business units post-acquisition. See Note 24, “Segment and Enterprise Reporting”, for additional details.

The terms the “Company” and “Masimo” refer to Masimo Corporation and, where applicable, its consolidated subsidiaries.

______________

(1) The use of the trademark Patient SafetyNet™ is under license from the University HealthSystem Consortium.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations. The accompanying condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, including normal recurring accruals, necessary to present fairly the Company’s condensed consolidated financial statements. The accompanying condensed consolidated balance sheet as of January 1, 2022 was derived from the Company’s audited consolidated financial statements at that date. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022 (fiscal year 2021), filed with the SEC on February 15, 2022. The results for the three and six months ended July 2, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 (fiscal year 2022) or for any other interim period or for any future year.

Fiscal Periods

The Company follows a conventional 52/53 week fiscal year. Under a conventional 52/53 week fiscal year, a 52 week fiscal year includes four quarters of 13 weeks while a 53 week fiscal year includes three 13 week fiscal quarters and one 14 week fiscal quarter. The Company’s last 53 week fiscal year was fiscal year 2020. Fiscal year 2022 is a 52 week fiscal year ending December 31, 2022. All references to years in these notes to condensed consolidated financial statements are fiscal years unless otherwise noted.

Use of Estimates

The Company prepares its financial statements in conformity with GAAP, which requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company’s use of estimates include the determination of standalone selling prices, variable consideration, total consideration allocated to each performance obligation within a contract, inventory valuation, valuation of the Company’s equity awards, valuation of identifiable assets and liabilities connected with business combinations, derivative instruments, deferred taxes and any associated valuation allowances, deferred revenue, accounting for pensions, uncertain income tax positions, litigation costs and related accruals. Actual results could differ from such estimates.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Business Combinations

The Company accounts for business combinations using the acquisition method of accounting in accordance with Accounting Standard Codification (ASC) Topic 805, Business Combinations, which requires that once control is obtained, the assets acquired, liabilities assumed and noncontrolling interests in the acquired entity, if applicable, are recorded at their respective fair values at the date of acquisition, with the exception of acquired contract assets and contract liabilities (i.e., deferred revenue) from contracts with customers. These are recognized and measured in accordance with ASC Topic 606, Revenue from Contracts with Customers. The excess of the purchase price over fair values of identifiable assets, liabilities and noncontrolling interests in the acquired entity, if applicable, is recorded as goodwill.

Fair Value Measurements

Authoritative guidance describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

● Level 1—Quoted prices in active markets for identical assets or liabilities.

● Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that can be corroborated by observable market data for substantially the full term of the assets or liabilities.

● Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Pursuant to current authoritative guidance, entities are allowed an irrevocable option to elect the fair value for the initial and subsequent measurement for specified financial assets and liabilities on a contract-by-contract basis. The Company did not elect to apply the fair value option under this guidance to specific assets or liabilities on a contract-by-contract basis. The Company did not carry financial assets measured under the fair value hierarchy based on any of the three levels of inputs (Level 1, 2 and 3) other than cash and cash equivalents during either the six months ended July 2, 2022 or July 3, 2021. The Company carries cash and cash equivalents at cost, which approximates fair value, and are Level 1 under the fair value hierarchy.

For certain other financial assets and liabilities, including restricted cash, accounts receivable, accounts payable and other current assets and liabilities, the carrying amounts approximate their fair value primarily due to the relatively short maturity of these balances. The Company also measures certain non-financial assets at fair value on a non-recurring basis, primarily goodwill, intangible assets and operating lease right-of-use assets, in connection with periodic evaluations for potential impairment.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity from date of purchase of three months or less, or highly liquid investments that are readily convertible into known amounts of cash, to be cash equivalents.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable consist of trade receivables recorded at the time of invoicing of product sales, reduced by reserves for estimated bad debts and returns. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Credit is extended based on an evaluation of the customer’s financial condition. Collateral is generally not required. The Company records an allowance for credit losses that it does not expect to collect based on relevant information, including historical experience, current conditions, and reasonable and supportable forecasts. Accounts are charged off against the allowance when the Company believes they are uncollectible. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified receivables for U.S. customers and receivables from international customers each as a portfolio, and measures expected credit losses on such receivables using an aging methodology.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Inventory

Inventories are stated at the lower of cost or net realizable value. Cost is determined using a standard cost method, which approximates the first in, first out method, and includes material, labor and overhead costs. Inventory valuation adjustments are recorded for inventory items that have become excess or obsolete or are no longer used in current production and for inventory items that have a market price less than carrying value in inventory. The Company generally determines inventory valuation adjustments based on an evaluation of the expected future use of its inventory on an item by item basis and applies historical obsolescence rates to estimate the loss on inventory expected to have a recovery value below cost. The Company also records other specific inventory valuation adjustments when it becomes aware of unique events or circumstances that result in an expected recovery value below cost. For inventory items that have been written down, the reduced value becomes the new cost basis.

Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over estimated useful lives as follows:


			Useful Lives


Buildings and building improvements			7 to 39 years
Computer equipment and software			1 to 12 years
Demonstration units			2 to 3 years
Furniture and office equipment			2 to 15 years
Leasehold improvements			Lesser of useful life or term of lease
Machinery, equipment and tooling			3 to 20 years
Operating lease assets			Lesser of useful life or term of lease
Transportation, vehicles and other			1 to 20 years

Land is not depreciated and construction-in-progress is not depreciated until placed in service. Normal repair and maintenance costs are expensed as incurred, whereas significant improvements that materially increase values or extend useful lives are capitalized and depreciated over the remaining estimated useful lives of the related assets. Upon sale or retirement of depreciable assets, the related cost and accumulated depreciation or amortization are removed from the accounts and any gain or loss on the sale or retirement is recognized in income.

Lessee Right-of-Use (ROU) Assets and Lease Liabilities

The Company determines if an arrangement contains a lease at inception. ROU assets represent the Company’s right to use an asset underlying an operating lease for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from an operating lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company generally estimates the applicable discount rate used to determine the net present value of lease payments based on available information at the lease commencement date. Many of the Company’s lessee agreements include options to extend the lease, which the Company does not include in its lease terms unless they are reasonably certain to be exercised. The Company utilizes a portfolio approach to account for the ROU assets and liabilities associated with certain equipment leases.

The Company has also made an accounting policy election not to separate lease and non-lease components for its real estate leases and to exclude short-term leases with a term of twelve months or less from its ROU assets and lease liabilities. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.

Intangible Assets

Intangible assets consist primarily of patents, trademarks, software development costs, customer relationships and acquired technology. Costs related to patents and trademarks, which include legal and application fees, are capitalized and amortized over the estimated useful lives using the straight-line method. Patent and trademark amortization commences once final approval of the patent or trademark has been obtained. Patent costs are amortized over the lesser of 10 years or the patent’s remaining legal life, which assumes renewals, and trademark costs are amortized over a range of 10 years to 17 years, and their associated amortization cost is included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Company’s policy is to renew its patents and trademarks. Costs to renew patents and trademarks are capitalized and amortized over the remaining useful life of the intangible asset. The Company periodically evaluates the amortization period and carrying basis of patents and trademarks to determine whether any events or circumstances warrant a revised estimated useful life or reduction in value. Capitalized application costs are charged to operations when it is determined that the patent or trademark will not be obtained or is abandoned.

Intangibles purchased as part of an asset acquisition or business combination historically have included patents, trademarks, customer relationships, developed technologies and contractual licenses. In certain circumstances the Company also has acquired non-compete agreements tied to certain employment relationships. The useful life for all of these is largely determined by valuation estimates of remaining economic life. In connection with the Sound United acquisition, the Company acquired certain trademarks/tradenames, which are intangible assets with indefinite useful lives. These brands are expected to maintain brand value for an indefinite period of time.

Impairment of Goodwill, Intangible Assets and Other Long-Lived Assets

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets. Goodwill is not amortized, but instead is tested annually for impairment, or more frequently when events or changes in circumstances indicate that goodwill might be impaired. In assessing goodwill impairment, the Company has the option to first assess the qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company’s qualitative assessment of the recoverability of goodwill considers various macroeconomic, industry-specific and Company-specific factors, including: (i) severe adverse industry or economic trends; (ii) significant Company-specific actions; (iii) current, historical or projected deterioration of the Company’s financial performance; or (iv) a sustained decrease in the Company’s market capitalization below its net book value. If the qualitative assessment indicates that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, or if the Company elects to bypass the qualitative analysis, then the Company performs a quantitative analysis that compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered impaired; otherwise, a goodwill impairment loss is recognized for the lesser of: (a) the amount that the carrying amount of such reporting unit exceeds its fair value; or (b) the amount of the goodwill allocated to such reporting unit. The annual impairment test is performed during the fourth fiscal quarter.

Similar to Goodwill, indefinite-lived intangible assets are not amortized but instead are subject to annual impairment testing, unless circumstances dictate more frequent testing, if impairment indicators exist. Impairment for indefinite-lived assets exists if the carrying value of the indefinite-lived intangible asset exceeds its fair value. Determining whether impairment indicators exist and estimating the fair value of the Company’s indefinite-lived intangible assets if necessary for impairment testing requires significant judgment. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors.

The Company reviews finite lived intangible assets and long-lived assets for impairment 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 the future undiscounted operating cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Employee Defined Benefit Plans

The Company maintains noncontributory defined benefit pension plans that cover employees in Japan and the Netherlands. The Company recognizes the funded status, or difference between the fair value of plan assets and the projected benefit obligations of the pension plan on the condensed consolidated balance sheet, with a corresponding adjustment to accumulated other comprehensive income (loss). If the projected benefit obligation exceeds the fair value of plan assets, the difference or unfunded status represents the pension liability. The Company records a net periodic pension cost in the condensed consolidated statement of operations. The liabilities and annual income or expense is determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate and the expected long-term rate of asset return. The fair values of plan assets are determined based on prevailing market prices. See Note 20, “Employee Benefits”, for further details.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Income Taxes

The Company accounts for income taxes using the asset and liability method, under which the Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for net operating loss and tax credit carryforwards. Tax positions that meet a more-likely-than-not recognition threshold are recognized in the first reporting period that it becomes more-likely-than-not such tax position will be sustained upon examination. A tax position that meets this more-likely-than-not recognition threshold is recorded at the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Previously recognized income tax positions that fail to meet the recognition threshold in a subsequent period are derecognized in that period. Differences between actual results and the Company’s assumptions, or changes in the Company’s assumptions in future periods, are recorded in the period they become known. The Company records potential accrued interest and penalties related to unrecognized tax benefits in income tax expense.

As a multinational corporation, the Company is subject to complex tax laws and regulations in various jurisdictions. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation, evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from the Company’s estimates, which could result in the need to record additional liabilities or potentially to reverse previously recorded tax liabilities.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is recorded against any deferred tax assets when, in the judgment of management, it is more likely than not that all or part of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including recent financial performance, scheduled reversals of temporary differences, projected future taxable income, availability of taxable income in carryback periods and tax planning strategies.

Income taxes are highly susceptible to changes from period to period, requiring management to make assumptions about the Company’s future income over the lives of its deferred tax assets (DTA) and the impact of changes in valuation allowances. Any difference in the assumptions, judgments and estimates mentioned above could result in changes to the Company’s results of operations.

Revenue Recognition, Deferred Revenue and Other Contract Liabilities

The Company generally recognizes revenue following a single, principles-based five-step model to be applied to all contracts with customers and generally provides for the recognition of revenue in an amount that reflects the consideration to which the Company expects to be entitled, net of allowances for estimated returns, discounts or sales incentives, as well as taxes collected from customers that are remitted to government authorities, when control over the promised goods or services are transferred to the customer.

Healthcare segment

While the majority of the Company’s Healthcare segment revenue contracts and transactions contain standard business terms and conditions, there are some transactions that contain non-standard business terms and conditions. As a result, contract interpretation, judgment and analysis is required to determine the appropriate accounting, including: (i) the amount of the total consideration, as well as variable consideration, (ii) whether the arrangement contains an embedded lease, and if so, whether such embedded lease is a sales-type lease or an operating lease, (iii) the identification of the distinct performance obligations contained within the arrangement, (iv) how the arrangement consideration should be allocated to each performance obligation when multiple performance obligations exist, including the determination of standalone selling price, and (v) when to recognize revenue on the performance obligations. Changes in judgments on these assumptions and estimates could materially impact the timing of revenue recognition. Revenue from fixed lease payments related to equipment supplied under sales-type lease arrangements is recognized once control over the equipment is transferred to the customer, while revenue from fixed lease payments related to equipment supplied under operating-type lease arrangements is generally recognized on a straight-line basis over the term of the lease and variable lease payments are recognized as they occur.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Company derives the majority of its Healthcare segment revenue from four primary sources: (i) direct sales under deferred equipment agreements with end-user hospitals where the Company provides up-front monitoring equipment at no up-front charge in exchange for a multi-year sensor purchase commitment; (ii) other direct sales of noninvasive monitoring solutions to end-user hospitals, emergency medical response organizations and other direct customers; (iii) sales of noninvasive monitoring solutions to distributors who then typically resell to end-user hospitals, emergency medical response organizations and other customers; and (iv) sales of integrated circuit boards to original equipment manufacturer (OEM) customers who incorporate the Company’s embedded software technology into their multiparameter monitoring devices. Subject to customer credit considerations, the majority of such sales are made on open account using industry standard payment terms based on the geography within which the specific customer is located.

The Company enters into agreements to sell its monitoring solutions and services, sometimes as a part of arrangements with multiple performance obligations that include various combinations of product sales, equipment leases and services. In the case of contracts with multiple performance obligations, the authoritative guidance provides that the total consideration be allocated to each performance obligation on the basis of relative standalone selling prices. When a standalone selling price is not readily observable, the Company estimates the standalone selling price by considering multiple factors including, but not limited to, features and functionality of the product, geographies, type of customer, contractual prices pursuant to Group Purchasing Organization (GPO) contracts, the Company’s pricing and discount practices, and other market conditions.

Sales under deferred equipment agreements are generally structured such that the Company agrees to provide certain monitoring-related equipment, software, installation, training and/or warranty support at no up-front charge in exchange for the customer’s commitment to purchase sensors over the term of the agreement, which generally ranges from three years to six years. The Company allocates contract consideration under deferred equipment agreements containing fixed annual sensor purchase commitments to the underlying lease and non-lease components at contract inception. In determining whether any underlying lease components are related to a sales-type lease or an operating lease, the Company evaluates the customer’s rights and ability to control the use of the underlying equipment throughout the contract term, including any equipment substitution rights retained by the Company, as well as the Company’s expectations surrounding potential contract/lease extensions or renewals and the customer’s likelihood to exercise any purchase options. Beginning January 2, 2022, for contracts that contain variable lease payments, the Company also classifies as operating leases any components that would result in a day one selling loss should they be otherwise classified as a sales-type lease. Revenue allocable to non-lease performance obligations is generally recognized as such non-lease performance obligations are satisfied. Revenue allocable to lease components under sales-type lease arrangements is generally recognized when control over the equipment is transferred to the customer. Revenue allocable to lease components under operating lease arrangements is generally recognized over the term of the operating lease. The Company generally does not expect to derive any significant value in excess of such asset’s unamortized book value from equipment underlying its operating lease arrangements after the end of the agreement.

Revenue from the sale of products to end-user hospitals, emergency medical response organizations, other direct customers, distributors and OEM customers, is recognized by the Company when control of such products transfer to the customer based upon the terms of the contract or underlying purchase order.

Revenue related to OEM rainbow® parameter software licenses is recognized by the Company upon the OEM’s shipment of its product to its customer, as reported to the Company by the OEM.

The Company provides certain customers with various sales incentives that may take the form of discounts or rebates. The Company records estimates related to these programs as a reduction to revenue at the time of sale. In general, customers do not have a right of return for credit or refund. However, the Company allows returns under certain circumstances. At the end of each period, the Company estimates and accrues for these returns as a reduction to revenue. The Company estimates the revenue constraints related to these forms of variable consideration based on various factors, including expected purchasing volumes, prior sales and returns history, and specific contractual terms and limitations.

Non-healthcare segment

Non-healthcare segment revenue is related to hardware and embedded software that is integrated into final products that are manufactured and sold by the Company. Products and related software are accounted for as a single performance obligation and all intended functionality is available to the customer upon purchase. Non-healthcare segment revenue is recognized upon transfer of control of promised products or service to customers, which is either upon shipment or upon delivery to the customers, depending on delivery terms.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Company offers sales incentives and has customer programs consisting primarily of discounts and market development fund programs, and records them as a contra revenue. Estimates for sales incentives are developed using most likely amount and are included in the transaction price to the extent that a significant reversal of revenue would not result once the uncertainty is resolved. In developing its estimates, the Company also considers the susceptibility of the incentive to outside influences, the length of time until the uncertainty is resolved and the Company’s experience with similar contracts. Reductions in revenue related to discounts are allocated to products on a relative basis based on their respective standard selling price if there are undelivered products in a contract. Judgement is required to determine the timing and amount of recognition of marketing funds which the Company estimates based on past practice of providing similar funds.

Payment terms and conditions vary among the Company’s distribution channels although terms generally include a requirement of payment within 30 to 60 days of product shipment. Sales directly to customers from the Company’s website are paid at the time of product shipment. Prior to determining payment terms for each customers, an evaluation of such customer’s credit risk is performed. Contractual allowances are an offset to accounts receivable.

Shipping and Handling Costs and Fees

All shipping and handling costs are expensed as incurred and are recorded as a component of cost of goods sold in the accompanying condensed consolidated statements of operations. Charges for shipping and handling billed to customers are included as a component of revenue.

Taxes Collected From Customers and Remitted to Governmental Authorities

The Company’s policy is to present revenue net of taxes collected from customers and remitted to governmental authorities.

Deferred Costs and Other Contract Assets

The costs of monitoring-related equipment provided to customers under operating lease arrangements within the Company’s deferred equipment agreements are generally deferred and amortized to cost of goods sold over the life of the underlying contracts. Some of the Company’s deferred equipment agreements also contain provisions for certain allowances to be made directly to the end-user hospital customer at the inception of the arrangement. These allowances are generally allocated to the lease and non-lease components and recognized as a reduction to revenue as the underlying performance obligations are satisfied.

The Company generally invoices its customers under deferred equipment agreements as sensors are provided to the customer. However, the Company may recognize revenue for certain non-lease performance obligations under deferred equipment agreements with fixed annual commitments at the time such performance obligations are satisfied and prior to the customer being invoiced. When this occurs, the Company records an unbilled contract receivable related to such revenue until the customer has been invoiced pursuant to the terms of the underlying deferred equipment agreement.

The incremental costs of obtaining a contract with a customer are capitalized and deferred if the Company expects such costs to be recoverable over the life of the contract and the contract term is greater than one year. Such deferred costs generally relate to certain incentive sales commissions earned by the Company’s internal sales team in connection with the execution of deferred equipment agreements and are amortized to expense over the expected term of the underlying contract.

In connection with the Sound United acquisition, the Company recognized non-healthcare royalty revenue associated with certain prepaid license arrangements. The Company recognizes non-healthcare revenue from the prepaid license arrangements based upon sales-based royalties when a subsequent sale occurs.

Warranty

The Company generally provides a warranty against defects in material and workmanship for a period ranging from six months to forty-eight months, depending on the product type. In traditional sales activities, including direct and OEM sales, the Company establishes an accrued liability for the estimated warranty costs at the time of revenue recognition, with a corresponding provision to cost of goods sold. Customers may also purchase extended warranty coverage or service level upgrades separately or as part of a deferred equipment agreement. Revenue related to extended warranty coverage and service level upgrades is generally recognized over the life of the contract, which reasonably approximates the period over which such services will be provided. The related extended warranty and service level upgrade costs are expensed as incurred.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Changes in the warranty accrual were as follows:


	Six Months Ended
(in millions)	July 2, 2022		July 3, 2021
Warranty accrual, beginning of period	$	2.5	$	2.7
Increase related to acquisition, net of reserve	8.0		—
Accrual for warranties issued	1.8		2.2
Changes in pre-existing warranties (including changes in estimates)	(0.4)		(1.5)
Settlements made	(2.0)		(0.7)
Warranty accrual, end of period	$	9.9	$	2.7

Litigation Costs and Contingencies

The Company records a charge equal to at least the minimum estimated liability for a loss contingency or litigation settlement when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements, and (ii) the range of loss can be reasonably estimated. The determination of whether a loss contingency or litigation settlement is probable or reasonably possible involves a significant amount of management judgment, as does the estimation of the range of loss given the nature of contingencies. Liabilities related to litigation settlements with multiple elements are recorded based on the fair value of each element. Legal and other litigation related expenses are recognized as the services are provided. The Company records insurance and other indemnity recoveries for litigation expenses when both of the following conditions are met: (a) the recovery is probable, and (b) collectability is reasonably assured. Insurance recoveries are only recorded to the extent the litigation costs to which they relate have been incurred and recognized in the financial statements.

Foreign Currency Translation

The Company’s international headquarters is in Switzerland, and its functional currency is the U.S. Dollar. The Company has many other foreign subsidiaries, and the largest transactions in foreign currency translations occur in Japanese Yen, the British Pound, Chinese Yuan and the European Euro.

The Company records certain revenues and expenses in foreign currencies. These revenues and expenses are translated into U.S. Dollars based on the average exchange rate for the reporting period. Assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the exchange rate in effect as of the balance sheet date. Translation gains and losses related to foreign currency assets and liabilities of a subsidiary that are denominated in the functional currency of such subsidiary are included as a component of accumulated other comprehensive income (loss) within the accompanying condensed consolidated balance sheets. Realized and unrealized foreign currency gains and losses related to foreign currency assets and liabilities of the Company or a subsidiary that are not denominated in the underlying functional currency are included as a component of non-operating income (loss) within the accompanying condensed consolidated statements of operations.

Foreign Currency Derivative Instruments

The Company uses foreign currency derivative instruments in the form of forward contracts to hedge certain monetary assets and liabilities, primarily receivables and payables denominated in foreign currencies.

The Company’s objective is to partially offset gains or losses resulting from these exposures with opposing gains or losses on the forward contracts, thereby reducing volatility of earnings created by these foreign currency exposures. The Company did not enter into or hold derivative instruments for speculative trading purposes. In conjunction with the Sound United acquisition, the Company acquired multiple foreign currency forward contracts. The fair values of the forward contracts are estimated at each period end based on quoted market prices and are recorded as either a net asset or liability on the accompanying condensed consolidated balance sheets. These contracts are considered economic hedges but were not designated as hedges. The changes in the fair value of the instruments are recognized in the condensed consolidated statement of operations and were immaterial for the three and six months ended July 2, 2022.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Comprehensive Income

Comprehensive income includes foreign currency translation adjustments, changes to pension benefits and any related tax benefits that have been excluded from net income and reflected in stockholders’ equity.

Net Income Per Share

A computation of basic and diluted net income per share is as follows:


	Three Months Ended				Six Months Ended
(in millions, except per share amounts)	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021

Net income	$	18.1	$	50.2	$	64.7	$	103.6



Basic net income per share:

Weighted-average shares outstanding - basic	53.9		55.0		54.7		55.1
Net income per basic share	$	0.34	$	0.91	$	1.18	$	1.88
Diluted net income per share:
Weighted-average shares outstanding - basic	53.9		55.0		54.7		55.1
Diluted share equivalents: stock options, RSUs and PSUs	1.4		2.4		1.7		2.5
Weighted-average shares outstanding - diluted	55.3		57.4		56.4		57.6
Net income per diluted share	$	0.33	$	0.88	$	1.15	$	1.80

Basic net income per share is computed by dividing net income by the weighted-average number of shares outstanding during the period. Net income per diluted share is computed by dividing the net income by the weighted-average number of shares and potential shares outstanding during the period, if the effect of potential shares is dilutive. Potential shares include incremental shares of stock issuable upon the exercise of stock options and the vesting of both restricted share units (RSUs) and performance stock units (PSUs). For the three months ended July 2, 2022 and July 3, 2021, weighted options to purchase 0.7 million and 0.4 million shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per share because the effect of including such shares would have been antidilutive in the applicable period. For the six months ended July 2, 2022 and July 3, 2021, weighted options to purchase 1.8 million and 0.2 million shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per share because the effect of including such shares would have been antidilutive in the applicable period. Certain RSUs are considered contingently issuable shares as their vesting is contingent upon the occurrence of certain future events. Since such events had not occurred and were not considered probable of occurring as of each of July 2, 2022 and July 3, 2021, 2.7 million weighted-average shares related to such RSUs have been excluded from the calculation of potential shares for each of the three month periods then ended.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Supplemental Cash Flow Information

Supplemental cash flow information includes the following:


	Six Months Ended
(in millions)	July 2, 2022		July 3, 2021
Cash paid during the year for:
Interest expense	$	2.9	$	0.2
Income taxes	39.7		24.2
Operating lease liabilities	4.2		3.7

Non-cash operating activities:
ROU assets obtained in exchange for lease liabilities	$	8.1	$	4.4

Non-cash investing activities:


Unpaid purchases of property and equipment	$	4.1	$	2.4


Unpaid strategic investments	—		6.0
Deposit release to acquire noncontrolling interest(1)	—		3.4
Unpaid purchase consideration to be settled upon net working capital finalization	21.0		—

Non-cash financing activities:
Unsettled common stock proceeds from option exercises	$	—	$	0.2



Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	218.0	$	576.0
Restricted cash	2.6		1.4
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	220.6	$	577.3

______________

(1) See Note 5, “Other Current Assets”, for more details.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Recently Adopted Accounting Pronouncements

In November 2021, the Financial Accounting Standards Board (FASB) issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08). The standard requires companies to apply ASC Topic 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. This creates an exception to the general recognition and measurement principle in ASC Topic 805. ASU 2021-08 is effective for annual reporting periods beginning after December 15, 2022, and for interim periods within those years, and should be adopted prospectively. Early adoption is permitted. The Company’s early adoption of this standard, effective January 3, 2021, did not have a material impact on its consolidated financial statements. Subsequently, upon the closing of the Sound United acquisition, the Company recognized and measured acquired contract assets and contract liabilities (i.e., deferred revenue) in accordance with the ASC Topic 606.

In July 2021, the FASB issued Accounting Standards Update (ASU) No. 2021-05, Leases (Topic 842), Lessors - Certain Leases with Variable Lease Payments (ASU 2021-05). The new standard amends the original ASU No. 2016-02 lease standard by requiring lessors to classify leases as operating leases if they have variable lease payments that do not depend on an index or rate and would have selling losses at lease commencement if they were classified as sales-type. ASU 2021-05 is effective for annual reporting periods beginning after December 15, 2021, and for interim periods within those years, and may be adopted either prospectively or on a retrospective basis for leases that commenced or were modified after the date of initial adoption of ASC 842.

On January 2, 2022, the Company adopted ASU 2021-05 prospectively for leases that commenced or were modified on or after the date of adoption. As a result, certain leases which would have previously been classified as lease receivables (sales-type leases) were classified as operating leases, as they were determined to have variable lease payments that do not depend on an index or rate and would have selling losses at lease commencement. For leases that are classified as operating leases, the Company recorded these operating lease assets within property, plant, and equipment, net of accumulated depreciation. The equipment costs associated with such new operating leases were initially deferred and will subsequently be amortized over the lease term on a straight-line basis, rather than being immediately recognized upon lease commencement. Similarly, revenue associated with such new operating leases is now being recognized over the term of the lease, rather than being immediately recognized at the date of the lease commencement. See Notes 6, 8 and 11 of these condensed consolidated financial statements for further details.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04). The standard provides temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (SOFR). Entities can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. ASU 2020-04 is effective beginning on March 12, 2020, and the Company may elect to apply this standard prospectively through December 31, 2022. The relief is temporary and generally cannot be applied to contract modifications that occur after December 31, 2022 or hedging relationships entered into or evaluated after that date. However, certain optional expedients can be applied to hedging relationships evaluated in periods after December 31, 2022.

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (ASU 2021-01). The new standard clarified the scope and application of the original guidance. ASU 2021-01 is effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020.

On April 11, 2022, the Company adopted ASU 2020-04 and ASU 2021-01 prospectively, in conjunction with the termination of the Company’s Credit Facility and execution of a new Credit Facility, which included both term loans and a revolving line of credit. At the time of transition, the Company no longer held any debt based upon the then-current reference rate, thus, it did not elect any optional practical expedients for contract modifications. Ultimately, the Company transitioned away from an interest rate based on LIBOR to SOFR, and such adoption did not have a material impact on its condensed consolidated financial statements.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

3. Related Party Transactions

The Company’s Chairman and Chief Executive Officer (CEO) is also the Chairman and CEO of Cercacor Laboratories, Inc. (Cercacor). The Company is a party to the following agreements with Cercacor:

•Cross-Licensing Agreement - The Company and Cercacor are parties to a cross-licensing agreement (Cross-Licensing Agreement), which governs each party’s rights to certain intellectual property held by the two companies. The Company is subject to certain annual minimum aggregate royalty obligations for use of the rainbow® licensed technology. The current annual minimum royalty obligation is $5.0 million. Aggregate liabilities payable to Cercacor arising under the Cross-Licensing Agreement were $5.1 million and $3.2 million for the three months ended July 2, 2022 and July 3, 2021, respectively. Aggregate liabilities payable to Cercacor arising under the Cross-Licensing Agreement were $8.5 million and $6.7 million for the six months ended July 2, 2022 and July 3, 2021, respectively.

•Administrative Services Agreement - The Company is a party to an administrative services agreement with Cercacor (G&A Services Agreement), which governs certain general and administrative services that the Company provides to Cercacor. Amounts charged by the Company pursuant to the G&A Services Agreement were $0.1 million and less than $0.1 million for the three months ended July 2, 2022 and July 3, 2021, respectively. Amounts charged by the Company pursuant to the G&A Services Agreement were $0.2 million and $0.1 million for the six months ended July 2, 2022 and July 3, 2021, respectively.

•Lease Agreement - Effective December 2019, the Company entered into a lease agreement with Cercacor for approximately 34,000 square feet of office, research and development space at one of the Company’s owned facilities in Irvine (Cercacor Lease). The term of the Cercacor Lease expires on December 31, 2024. The Company recognized approximately $0.3 million of lease income for each of the three months ended July 2, 2022 and July 3, 2021. The Company recognized approximately $0.6 million of lease income for each of the six months ended July 2, 2022 and July 3, 2021.

Net amounts due to Cercacor at July 2, 2022 and January 1, 2022 were approximately $5.1 million and $3.5 million, respectively.

The Company’s CEO is also the Chairman of the Masimo Foundation for Ethics, Innovation and Competition in Healthcare (Masimo Foundation), a non-profit organization that was founded in 2010 to provide a platform for encouraging ethics, innovation and competition in healthcare. In addition, the Company’s Executive Vice President (EVP), Chief Financial Officer (CFO) serves as the Treasurer of the Masimo Foundation and the Company’s EVP, General Counsel and Corporate Secretary serves as the Secretary for the Masimo Foundation. During the three months ended July 2, 2022 and July 3, 2021, the Company made no cash contributions to the Masimo Foundation. During the six months ended July 2, 2022, the Company made cash contributions of approximately $1.0 million to the Masimo Foundation. During the six months ended July 3, 2021, the Company made no cash contributions to the Masimo Foundation.

During the three and six months ended July 2, 2022 and July 3, 2021, the Company made various in-kind contributions to the Masimo Foundation, mainly in the form of donated administrative services.

The Company’s CEO is also a co-founder and a member of the board of directors of Like Minded Media Ventures (LMMV), a team of storytellers that create content focused in the areas of true stories, social causes and science. LMMV creates stories with a multi-platform strategy, bridging the gap between film, television, digital and social media. The Company entered into a marketing service agreement with LMMV for audiovisual production services promoting brand awareness, including television commercials and digital advertising, during the second quarter of 2020. During the three months ended July 2, 2022 and July 3, 2021, the Company incurred no marketing expenses to LMMV under the marketing service agreement. During the six months ended July 2, 2022 the Company incurred $0.6 million in marketing expenses to LMMV under the marketing service agreement. During the six months ended July 3, 2021 the Company incurred no marketing expenses to LMMV under the marketing service agreement. At July 2, 2022 and January 1, 2022, there was no amount due to LMMV for services rendered.

The Company entered into a software license and professional services agreement with Like Minded Labs (LML), a subsidiary of LMMV, during the second quarter of 2021. Pursuant to the software license agreement, LML granted the Company a perpetual, non-exclusive and fully paid-up right and license to integrate LML’s software into the Company’s products in exchange for a $3.0 million one-time license fee. Pursuant to the professional services agreement, LML will provide professional services to the Company, including the development of custom software intended to support the integration of the licensed software into the Company’s products, as well as future support services upon the Company’s acceptance of deliverables.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

In July 2021, the Company entered into a patent purchase and option agreement with Vantrix Corporation (Vantrix), an acquiree of LML, for certain patents for $0.5 million, and the right to purchase two pools of additional patents from Vantrix for an exercise fee of up to $1.1 million. The agreements with LML and Vantrix include sublicensing provisions whereby the software and patents are licensed back to LML or Vantrix, respectively, for further advancement of the technologies.

The Company maintains an aircraft time share agreement, pursuant to which the Company has agreed from time to time to make its aircraft available to the Company’s CEO for lease on a time-sharing basis. The Company charges the Company’s CEO for personal use based on agreed upon reimbursement rates. For each of the three and six months ended July 2, 2022, the Company’s CEO did not incur any charges pursuant to this agreement. For each of the three and six months ended July 3, 2021, the Company charged the Company’s CEO less than $0.1 million, pursuant to this agreement.

The Company’s President, Consumer is the Chairman of the Sound Start Foundation, a non-profit organization that was founded in 1996 to provide a way of emboldening the mindset to Bring Joy to the World Through Sound. During the three months ended July 2, 2022 and July 3, 2021, the Company made no cash contributions to the Sound Start Foundation.

4. Inventories

Inventories consist of the following:


(in millions)	July 2, 2022		January 1, 2022
Raw materials	$	186.7	$	128.3
Work-in-process	29.3		17.1
Finished goods	233.2		56.0
Total inventories	$	449.2	$	201.4

A significant portion of the increase in the inventory balance at July 2, 2022 was attributable to the Sound United acquisition. See Note 17, Business Combinations for further details.

5. Other Current Assets

Other current assets consist of the following:


(in millions)	July 2, 2022		January 1, 2022
Prepaid expenses	$	62.2	$	30.9
Lease receivable, current	28.9		28.7
Indirect taxes receivable	22.2		12.8
Prepaid income taxes	8.4		7.0
Prepaid rebates and royalties, current	4.0		2.8
Restricted cash(1)	2.6		3.0
Customer notes receivable	2.2		2.4




Contract assets, current	1.5		2.1
Other current assets	6.3		1.3
Total other current assets	$	138.3	$	91.0

______________

(1) Restricted cash includes funds received from the Bill and Melinda Gates Foundation. As the Company incurs costs associated with research and development related to this project, on a quarterly basis, the Company reclasses amounts from the grant to offset costs incurred.

6. Lease Receivable

Effective January 2, 2022, the Company adopted ASU 2021-05 prospectively for leases that commenced or were modified on or after the date of adoption, resulting in the Company recording these operating lease assets within property, plant, and equipment, net of accumulated depreciation. The equipment costs associated with such new operating leases were initially deferred and will subsequently be amortized over the lease term on a straight-line basis.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Company recognizes revenue and costs, as well as a lease receivable, at the time the lease commences pursuant to deferred equipment agreements containing embedded sales-type leases. Lease revenue related to both operating-type and sales-type leases for the three months ended July 2, 2022 and July 3, 2021 was approximately $11.0 million and $18.0 million, respectively, and is included within product revenue in the accompanying condensed consolidated statements of operations. Lease revenue related to both operating-type and sales-type leases for the six months ended July 2, 2022 and July 3, 2021 was approximately $24.0 million and $28.0 million, respectively, and is included within revenue in the accompanying condensed consolidated statements of operations. Costs related to embedded leases within the Company’s deferred equipment agreements are included in cost of goods sold in the accompanying condensed consolidated statements of operations.

Lease receivable from sales-type leases consists of the following:


(in millions)	July 2, 2022		January 1, 2022
Lease receivable	$	104.6	$	102.6
Allowance for credit loss	(0.3)		(0.3)
Lease receivable, net	104.3		102.3
Less: current portion of lease receivable	(28.9)		(28.7)
Lease receivable, noncurrent	$	75.4	$	73.6

As of July 2, 2022, estimated future maturities of customer sales-type lease receivables and operating lease payments for each of the following fiscal years are as follows:


	Future Lease Receivables/Payments (in millions)
Fiscal year	Sales-Type Leases		Operating Leases
2022 (balance of year)	$	15.0	$	1.1
2023	26.9		1.6
2024	23.2		1.6
2025	17.8		1.5
2026	11.1		1.3
Thereafter	10.3		3.0
Total	$	104.3	$	10.1
Less: imputed interest(1)	—
Present value of total lease payments	$	104.3

______________

(1) The calculation of the rates implicit in the leases resulted in negative discount rates. Therefore, the Company as a lessor used a 0% discount rate to measure the net investment in the lease.

7. Deferred Costs and Other Contract Assets

Deferred costs and other contract assets consist of the following:


(in millions)	July 2, 2022		January 1, 2022
Deferred commissions	$	14.7	$	11.9
Prepaid contract allowances	12.1		8.6

Unbilled contract receivables	7.8		5.0
Deferred equipment agreements, net	0.8		2.6
Deferred costs and other contract assets	$	35.4	$	28.1

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

8. Property and Equipment, net

Property and equipment, net, consists of the following:


(in millions)	July 2, 2022		January 1, 2022
Building and building improvements	$	148.7	$	142.1
Machinery, equipment and tooling	139.5		103.5
Land	64.5		57.0
Computer equipment and software	40.2		32.5
Transportation, vehicles and other	33.1		33.1
Leasehold improvements	31.1		21.9

Furniture and office equipment	16.5		14.2
Operating lease assets(1)	14.1		—
Demonstration units	7.8		0.9
Construction-in-progress (CIP)	48.6		25.1
Total property and equipment	544.1		430.3
Accumulated depreciation	(173.4)		(157.5)
Property and equipment, net	$	370.7	$	272.8

______________

(1) Effective January 2, 2022, the Company adopted ASU 2021-05, resulting in the Company recording these operating lease assets within property, plant, and equipment.

A significant portion of the increase in property and equipment at July 2, 2022, as compared to January 1, 2022. was attributable to the Sound United acquisition. See Note 17, “Business Combinations” for further details.

For the three months ended July 2, 2022 and July 3, 2021, depreciation expense of property and equipment was $12.0 million and $6.4 million, respectively. For the six months ended July 2, 2022 and July 3, 2021, depreciation expense of property and equipment was $18.5 million and $12.3 million, respectively.

For the three months ended July 2, 2022 and July 3, 2021, depreciation expense of operating lease assets was $0.9 million and $0.0 million, respectively. For the six months ended July 2, 2022 and July 3, 2021, depreciation expense of operating lease assets was $1.0 million and $0.0 million, respectively.

The balance in CIP at July 2, 2022 and January 1, 2022 related primarily to the capitalized implementation costs related to a new enterprise resource planning software system and costs related to equipment and other facility improvements at the Company’s corporate headquarters, as well as at a new research and development facility, the underlying assets for which have not been completed or placed into service.

On February 14, 2022, the Company’s wholly owned subsidiary, Masimo Canada ULC, entered into a Purchase and Sale Agreement (Purchase Agreement) with Keltic (Prior) Development Limited Partnership (Vendor) for the purchase of a property in Vancouver, British Columbia, Canada for a purchase price of CAD 123.0 million, plus GST (Purchase Price), subject to certain adjustments. The Company has paid CAD 21.0 million as a deposit towards the purchase. The balance of the Purchase Price will be due and payable upon the closing of the transaction, which is currently expected to occur during the second half of 2024.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

9. Intangible Assets, net

Intangible assets, net, consist of the following:


	July 2, 2022						January 1, 2022
(in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible assets subject to amortization:
Customer relationships	$	228.6	$	(13.0)	$	215.6	$	24.6	$	(9.3)	$	15.3
Acquired technologies	183.9		(13.0)		170.9		28.4		(7.7)		20.7
Patents	61.9		(14.0)		47.9		31.5		(13.2)		18.3
Trademarks	18.7		(5.6)		13.1		12.2		(4.1)		8.1
Licenses	8.7		(2.5)		6.2		8.1		(2.0)		6.1
Licenses-related party	7.5		(6.2)		1.3		7.5		(6.0)		1.5
Non-compete agreements(1)	6.0		—		6.0		—		—		—
Capitalized software development costs	5.3		(2.7)		2.6		4.2		(2.6)		1.6
Other	1.9		(1.0)		0.9		2.0		(0.9)		1.1
Total intangible assets subject to amortization, net	$	522.5	$	(58.0)	$	464.5	$	118.5	$	(45.8)	$	72.7
Intangible assets not subject to amortization:
Trademarks					262.0						—
Intangible assets, net					$	726.5					$	72.7

_______________

(1) In connection with the Sound United acquisition, the Company also acquired non-compete agreements with a gross carrying amount equal to $6.0 million.

A significant portion of the increase in intangible assets was attributable to the Sound United acquisition. Please refer to Note 17, “Business Combinations”, for further details.

Finite lived intangible assets have a weighted-average amortization period ranging from twelve years to fourteen years. Total amortization expense for the three months ended July 2, 2022 and July 3, 2021 was $58.9 million and $2.4 million, respectively. Total amortization expense for the six months ended July 2, 2022 and July 3, 2021 was $61.4 million and $5.0 million, respectively.

Total renewal costs for patents and trademarks for the three months ended July 2, 2022 and July 3, 2021 were $0.3 million and $0.2 million, respectively. Total renewal costs for patents and trademarks for the six months ended July 2, 2022 and July 3, 2021 were $0.7 million and $0.4 million, respectively. As of July 2, 2022, the weighted-average number of years until the next renewal was two years for patents and six years for trademarks.

Estimated amortization expense for each of the next fiscal years is as follows:


Fiscal year	Amount (in millions)
2022 (balance of year)	$	23.8
2023	43.8
2024	40.4
2025	45.5
2026	40.7
Thereafter	270.3
Total	$	464.5

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

10. Goodwill

Changes in goodwill were as follows:


	Six Months Ended July 2, 2022
(in millions)	Healthcare		Non-healthcare		Total
Goodwill, beginning of period	$	100.3	$	—	$	100.3
Increase from business combinations	—		337.5		337.5
Foreign currency translation adjustment	(3.3)		—		(3.3)
Goodwill, end of period	$	97.0	$	337.5	$	434.5

A significant portion of the increase in goodwill at July 2, 2022 was attributable to the Sound United acquisition. See Note 17, “Business Combinations”, for further details.

11. Lessee ROU Assets and Lease Liabilities

The Company leases certain facilities in North and South America, Europe, the Middle East and Asia-Pacific regions under operating lease agreements expiring at various dates through January 2032. In addition, the Company leases equipment in the U.S. and Europe pursuant to leases that are classified as operating leases and expire at various dates through August 2026. The majority of these leases are non-cancellable and generally do not contain any material restrictive covenants, material residual value guarantees or other material guarantees. The Company recognizes lease costs under these agreements using a straight-line method based on total lease payments. Certain facility leases contain predetermined price escalations and in some cases renewal options, the longest of which is for five years.

The Company generally estimates the applicable discount rate used to determine the net present value of lease payments based on available information at the lease commencement date. As of July 2, 2022, the weighted-average discount rate used by the Company for all operating leases was approximately 3.8%.

The balance sheet classifications for amounts related to the Company’s operating leases for which it is the lessee are as follows:


(in millions)	Balance sheet classification	July 2, 2022		January 1, 2022
Lessee ROU assets	Other non-current assets	$	66.3	$	30.5

Lessee current lease liabilities	Other current liabilities	16.4		6.4
Lessee non-current lease liabilities	Other non-current liabilities	49.9		26.3
Total operating lease liabilities		$	66.3	$	32.7

As of July 2, 2022 and January 1, 2022, accumulated amortization for lessee ROU assets was $29.5 million and $15.2 million, respectively. The weighted-average remaining lease term for the Company’s operating leases was 6.5 years as of July 2, 2022.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

As of July 2, 2022, estimated future operating lease payments for each of the following fiscal years were as follows:


Fiscal year	Amount (in millions)
2022 (balance of year)	$	9.4
2023	16.8
2024	13.3
2025	9.2
2026	5.8
Thereafter(1)	21.1
Total	75.6
Imputed interest	(9.3)
Present value	$	66.3

______________

(1) Includes optional renewal period for certain leases.

During the three months ended July 2, 2022 and July 3, 2021, operating lease costs were approximately $5.4 million and $2.2 million, respectively. During the six months ended July 2, 2022 and July 3, 2021, operating lease costs were approximately $7.8 million and $4.1 million, respectively.

12. Other Non-Current Assets

Other non-current assets consist of the following:


(in millions)	July 2, 2022		January 1, 2022
Lessee ROU assets, net	$	66.3	$	30.5
Prepaid deposits and other	24.7		3.9
Strategic investments	13.9		13.8
Other non-current assets	0.4		0.4
Total non-current assets	$	105.3	$	48.6

13. Deferred Revenue and Other Contract Liabilities, Current

Deferred revenue and other contract liabilities, current, consist of the following:


(in millions)	July 2, 2022		January 1, 2022
Deferred revenue	$	60.2	$	35.1
Accrued rebates and allowances	31.9		13.6
Accrued customer reimbursements	5.9		7.4

Total deferred revenue and other contract liabilities	98.0		56.1
Less: Non-current portion of deferred revenue	(22.6)		(5.2)
Deferred revenue and other contract liabilities - current	$	75.4	$	50.9

Table of Contents

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Deferred revenue relates to contracted amounts that have been invoiced to customers for which remaining performance obligations must be completed before the Company can recognize revenue. Generally, both healthcare and non-healthcare segments record deferred revenue when revenue is to be recognized subsequent to invoicing.

Healthcare Deferred Revenue

Healthcare deferred revenue primarily relates to undelivered equipment, sensors and services under deferred equipment agreements, extended warranty agreements, and maintenance agreements. Expected revenue from remaining contractual performance obligations (Unrecognized Contract Revenue) includes deferred revenue, as well as other amounts that will be invoiced and recognized as revenue in future periods when the Company completes its performance obligations. Unrecognized Contract Revenue excludes revenue allocable to monitoring-related equipment that is effectively leased to customers under deferred equipment agreements and other contractual obligations for which neither party has performed. The estimated timing of this revenue is based, in part, on management’s estimates and assumptions about when its performance obligations will be completed. As a result, the actual timing of this revenue in future periods may vary, possibly materially. As of July 2, 2022, the Company had approximately $1,236.3 million of Unrecognized Contract Revenue related to executed contracts with an original duration of one year or more. The Company expects to recognize approximately $347.6 million of this amount as revenue within the next twelve months and the remaining balance thereafter.

Non-Healthcare Deferred Revenue

In October 2020, Bowers and Wilkins (B&W), a subsidiary of Sound United, entered into an amendment to a licensing agreement, whereby B&W received a $20.0 million royalty prepayment in relation to sound system units manufactured by B&W for various high-end car manufacturers with a total commitment of $35.0 million to be received by September 30, 2028. As of July 2, 2022, the deferred revenue was $17.9 million.

Changes in deferred revenue were as follows:


(in millions)	Six Months Ended July 2, 2022
Deferred revenue, beginning of the period	$	35.1
Increase from business combinations	18.6
Revenue deferred during the period	22.4
Recognition of revenue deferred in prior periods	(15.9)
Deferred revenue, end of the period	$	60.2

14. Other Current Liabilities

Other current liabilities consist of the following:


(in millions)	July 2, 2022		January 1, 2022

Accrued expenses	$	51.6	$	12.1
Accrued indirect taxes payable	27.6		16.3
Lessee lease liabilities, current	16.4		6.4
Current portion of long-term debt	13.9		—
Accrued warranty	9.9		2.5
Income tax payable	9.3		12.0
Accrued property taxes	8.6		2.0
Accrued legal fees	6.5		7.1
Related party payables	5.2		3.6
Accrued donations	1.6		3.7


Other current liabilities	6.0		4.7

Total other current liabilities	$	156.6	$	70.4

Table of Contents

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

15. Debt


(in millions)	July 2, 2022		January 1, 2022
Term loan - current portion	$	7.5	$	—
Revolver - current portion	—		—
Japanese loans - current portion	6.4		—
Short-term debt	$	13.9	$	—

Term loan - long-term	$	281.7	$	—
Revolver - long-term	629.0		—
Japanese loans - long-term	11.7		—
Long-term debt	922.4		—
Total debt	$	936.3	$	—

Prior Credit Facility

Until April 11, 2022, the Company maintained a credit agreement (Prior Credit Facility) with JPMorgan Chase Bank, N.A., as Administrative Agent and a Lender, and Bank of the West, a Lender (collectively, the Lenders). The Prior Credit Facility provided for up to $150.0 million of unsecured borrowings, with an option, subject to certain conditions, for the Company to increase the aggregate borrowing capacity up to $550.0 million in the future with the Lenders and additional lenders, as required. The Prior Credit Facility also provided for a sublimit of up to $25.0 million for the issuance of letters of credit and a sublimit of $75.0 million for borrowings in specified foreign currencies.

On April 11, 2022, the Company paid off all obligations owing under the Prior Credit Facility, and terminated it. As a result of the repayment, the Company expensed $0.2 million of previously capitalized debt issuance costs.

Credit Facility

On April 11, 2022, concurrently with the closing of the Sound United acquisition, as disclosed in Note 17, “Business Combinations”, the Company entered into a new credit agreement (Credit Facility) with financial institutions party thereto as initial lenders (collectively, the Initial Lenders), Citibank, N.A., as Administrative Agent, Citibank, N.A., JPMorgan Chase Bank, N.A., Bank of the West and BofA Securities, Inc., as joint lead arrangers and joint bookrunners, and JPMorgan Chase Bank, N.A., Bank of the West and BofA Securities, Inc., as co-syndication agents.

The Credit Facility provides for an unsecured term loan of $300.0 million (Term Loan) and $500.0 million of ongoing unsecured revolving commitments (Revolver), with an option, subject to certain conditions, for the Company to increase the aggregate borrowing capacity by an additional $400.0 million (plus additional unlimited amounts if certain incurrence tests are met) in the future with the Initial Lenders and additional lenders, as required. Debt issuance costs of $8.9 million were recorded as a reduction to the carrying amount of the Credit Facility, and are being amortized to interest expense using the effective interest method.

The Credit Facility also provides for a sublimit of up to $50.0 million for the issuance of letters of credit.

Borrowings under the Credit Facility will be deemed, at the Company’s election, either: (a) an Alternate Base Rate (ABR) Loan, which bears interest at the ABR, plus a spread of 0.000% to 0.750% based upon a Company leverage ratio, or (b) a Term SOFR Loan, which bears interest at the Adjusted Term SOFR Rate (as defined below), plus a spread of 1.000% to 1.750% based upon a Company net leverage ratio. Pursuant to the terms of the Credit Facility, the ABR is equal to the greatest of (i) the prime rate, (ii) the Federal Reserve Bank of New York effective rate plus 0.50%, and (iii) the one-month Adjusted Term SOFR plus 1.0%. The Adjusted Term SOFR Rate is equal to the Term SOFR Rate (as defined in the Credit Facility) for the applicable interest period plus a spread adjustment of 0.10%, 0.15% and 0.25% for the interest periods ending one, three and six months, respectively.

The Company is also obligated under the Credit Facility to pay an unused fee ranging from 0.150% to 0.275% per annum, based upon a Company leverage ratio, with respect to any non-utilized portion of the Credit Facility.

Table of Contents

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Company is subject to certain covenants, including financial covenants related to a net leverage ratio and an interest charge coverage ratio, and other customary negative covenants. The Credit Facility also includes customary events of default which, upon the occurrence of any such event of default, provide the Initial Lenders (and any additional lenders) with the right to take either or both of the following actions: (a) immediately terminate the commitments, and (b) declare the loans then outstanding immediately due and payable in full. All unpaid principal under the Credit Facility will become due and payable on April 12, 2027.

On May 16, 2022, the Company entered into the First Amendment to the Credit Agreement (First Amendment) with the Initial Lenders and Citibank, N.A., as administrative agent, which amended the Credit Facility. The First Amendment provides for an additional $205 million of unsecured revolving commitments, increasing the aggregate amount of the Revolver from $500 million to $705 million.

Borrowing rates, financial covenants, affirmative and negative covenants and other restricted terms remain unchanged from the Credit Facility. All unpaid principal under the First Amendment will become due and payable on April 12, 2027. The Company was in compliance with the financial covenants as of July 2, 2022.

For each of the three and six months ended July 2, 2022 and July 3, 2021, the Company incurred total interest expense of $4.5 million and $0 under the Credit Facility, respectively.

On July 13, 2022, the Company entered two interest rate swaps (swaps) as a means to manage the interest rate risks associated with the above floating interest debt facilities. These swaps were designated as cash flow hedges. The notional amounts of these hedges were $500.0 million and $250.0 million. The Company will record the interest swaps in the condensed consolidated balance sheet at fair value.

Furthermore, in connection with the Sound United acquisition, the Company assumed three outstanding loans as follows:

Japanese Revolving Loan

In March 2020, Sound United entered into a secured revolving loan (Japanese Revolving Loan) with Mizuho bank, which allows Sound United to borrow up to ¥800 million (approximately $5.9 million). The Japanese Revolving Loan is an evergreen agreement that terminates upon request by either the financial institution or the borrower and is collateralized with land and buildings in Shirakawa-Shi owned by the borrower. Interest accrues at a rate equal to the Mizuho Tokyo Interbank Offered Rate (TIBOR) plus a fixed spread of 0.50% per annum. In connection with the execution of the Japanese Revolving Loan, the Company incurred debt issuance costs of ¥7.2 million (approximately $0.1 million). As of July 2, 2022, the Company had ¥800 million (approximately $5.9 million) of outstanding borrowing under the Japanese Revolving Loan, which is presented under short-term loans on the accompanying condensed consolidated balance sheets.

The Japanese Revolving Loan agreement contains customary affirmative and negative covenants, such as financial reporting requirements and customary covenants that restrict the borrower’s ability to, among other things, provide collateral for obligations borne by borrower, and determine the eligibility to declare, and amount of potential dividends to be paid during a given fiscal year. The Company was in compliance with the financial covenants as of July 2, 2022.

Japanese Government Loans

In May and June 2020, Sound United received ¥1.48 billion (approximately $10.9 million in non-collateralized Japanese Government Loan facilities (Japanese Government Loans) as part of its local Japanese stimulus program. Interest accrues at a weighted average rate of 1.33% and is repayable in installments with various maturities through June 2035. The non-current portion of the Japanese Government Loans is presented under long-term debt and the current portion is presented under short-term loans on the accompanying condensed consolidated balance sheets. The Company incurred no debt issuance costs in connection with the Japanese Government Loans.

Japanese Equipment Loans

In April and May 2021, Sound United entered into collateralized Japanese Equipment Loans of ¥150 million (approximately $1.1 million), payable in installments through March 2031 with interest of 0.58%, and ¥80 million (approximately $0.6 million) payable in installments through April 2028 with interest of 1.2%. The non-current portion of the Japanese Equipment Loans is presented under long-term debt and the current portion is presented under short-term loans on the accompanying condensed consolidated balance sheets. The Company incurred no debt issuance costs in connection with these Japanese Equipment Loans.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

As of July 2, 2022, the aggregate maturities of principal on all debt for each of the next five years and thereafter is as follows:


Fiscal year	Amount (in millions)
2022 (balance of the year)	$	3.1
2023	6.6
2024	14.1
2025	13.4
2026	12.7
Thereafter	886.4
Total	$	936.3

16. Other Non-Current Liabilities

Other non-current liabilities consist of the following:


(in millions)	July 2, 2022		January 1, 2022
Deferred tax liabilities	$	162.3	$	5.1
Lessee non-current lease liabilities	49.9		26.3
Deferred revenue, non-current	22.6		5.2
Unrecognized tax benefits	16.6		14.9
Income tax payable, non-current	12.7		17.0
Retirement allowance	9.6		—
Indirect tax payable, non-current	8.0		—


Other	2.3		0.6
Total other non-current liabilities	$	284.0	$	69.1

Unrecognized tax benefits relate to the Company’s long-term portion of tax liability associated with uncertain tax positions. Authoritative guidance prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. See Note 22, “Income Taxes”, to these condensed consolidated financial statements for further details.

17. Business Combinations

Sound United Acquisition

On April 11, 2022, the Company completed the previously announced acquisition of Sound United, pursuant to a Merger Agreement dated as of February 15, 2022 (Merger Agreement), by and among the Company, Sonic Boom Acquisition Corp., a wholly-owned subsidiary of the Company (Merger Sub), Viper Holdings Corporation d/b/a Sound United, LLC (Sound United), and, solely in its capacity as the Seller Representative, Viper Holdings, LLC, Merger Sub merged with and into Sound United, with Sound United continuing as a wholly-owned subsidiary of the Company (Merger).

Sound United is a leading innovator of premium, high-performance audio products for consumers around the world, which operates iconic consumer brands: Bowers & Wilkins®, Denon®, Marantz®, HEOS®, Classé®, Polk Audio®, Boston Acoustics® and Definitive Technology®. The brands are linked by a commitment to the highest production standards and a focus on unparalleled audio quality and audio performance. Sound United delivers significant competitive benefits through its platform advantages including global distribution across online, retail and custom installation channels; a cloud-connected home ecosystem; and a state-of-the-art research and development function focused on creating the highest-quality consumer products with world-class industrial design.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Company acquired 100% of the equity interests of Sound United for $1.086 billion in cash, subject to adjustments based on Sound United’s net working capital, transaction expenses, cash and debt as of the closing of the Merger (Closing), payable by the Company in cash. The transaction was primarily funded with the proceeds from the Credit Facility. See Note 15, “Debt”, for additional information about the Credit Facility. There was no contingent consideration resulting from the transaction.

The results of operations of Sound United subsequent to the acquisition date and the acquired assets and assumed liabilities, including the preliminary allocation of goodwill and intangible assets, are included in the non-healthcare segment, including revenue of $208.3 million and a net loss of $26.9 million for the period of April 11, 2022 to July 2, 2022.

Acquisition costs

The Company recognized transaction costs related to the Sound United acquisition of $15.1 million for the three months ended July 2, 2022. These costs include investment banker fees, legal, due diligence, and other external costs that the Company recorded within selling, general and administrative expense.

Purchase price allocations

The purchase price for the Sound United acquisition is preliminary, pending final customary purchase price adjustments. The valuations of the assets acquired and liabilities assumed have not yet been finalized as of July 2, 2022. The purchase price allocation is preliminary and subject to change, including measurement period adjustments, the valuation of intangible assets, leases, deferred taxes, inventory, property, plant and equipment and goodwill. The purchase price allocation will be finalized as the information necessary to complete the required analysis is obtained, which the Company will complete within one year from the acquisition date. Goodwill was calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired in a business combination and represents the future economic benefits expected to arise from intangible assets acquired that do not qualify for separate recognition, including the assembled workforce. Goodwill is not expected to be deductible for tax purposes.

The fair values assigned to assets acquired and liabilities assumed as of July 2, 2022 are based on management’s best estimates and assumptions as of the reporting date and are considered preliminary pending finalization of the valuation analysis.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The table below summarizes the preliminary allocation of fair value of assets acquired and liabilities assumed as of April 11, 2022:


(in millions)	Sound United
Cash consideration(1)	$	1,086.2
Purchase price	$	1,086.2

Assets acquired:
Cash and cash equivalents	$	81.4
Accounts receivables	108.4
Inventories	230.7

Prepaid expenses and other current assets	61.4
Property, plant and equipment	101.5
Intangible asset	657.0
Goodwill	337.5
Long-term other assets	9.5
Total assets acquired	$	1,587.4

Liabilities assumed:
Accounts payable	$	(127.9)
Accrued liabilities and other current liabilities	(153.1)
Deferred tax liabilities	(159.5)
Other long-term liabilities	(60.7)
Total liabilities assumed	$	(501.2)

______________

(1) The purchase price for the Sound United acquisition is preliminary, pending final customary purchase price adjustments.

Identifiable Intangible Assets

The following table sets forth the components of identifiable intangible assets acquired and the weighted average amortization period as of the acquisition date:


	Weighted average amortization period (in years)	July 2, 2022 (in millions)
Trademarks/tradenames	10	$	268.0
Customer relationships	18	204.0
Developed technology	8	156.0
Contractual license agreements	15	29.0
Total	14 years	$	657.0

In determining the fair value of the identifiable intangible assets, the Company utilized various forms of the income approach, depending on the asset being valued. The estimation of fair value requires significant judgment related to cash flow forecasts, discount rates reflecting the risk inherent in each cash flow stream, competitive trends, market comparable and other factors. Other inputs included historical data, current and anticipated market conditions, and growth rates. Contractual license agreements have a weighted average amortization period of 5 years until the next renewal term.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The intangible assets were valued using the following valuation approaches:

Customer relationships

The fair value of customer relationships was determined using the multi-period excess earnings method. The multi-period excess earnings method involves forecasting the net earnings expected to be generated by the asset, reducing them by appropriate returns on contributory assets, and then discounting the resulting net cash flows to a present value using an appropriate discount rate.

Trademarks/tradenames

The fair values of the trademark/tradenames were determined using the relief-from-royalty method under the income approach. This involves forecasting avoided royalties, reducing them by taxes, and discounting the resulting net cash flows to a present value using an appropriate discount rate. Judgment was applied for a number of assumptions in valuing the identified intangible assets including revenue and cash flow forecasts, survival rates, technology life, royalty rate, obsolescence and discount rate.

Developed technology

The fair values of the developed technology was determined using the relief-from-royalty method under the income approach. This involves forecasting avoided royalties, reducing them by taxes, and discounting the resulting net cash flows to a present value using an appropriate discount rate. Judgment was applied for a number of assumptions in valuing the identified intangible assets including revenue and cash flow forecasts, survival rates, technology life, royalty rate, obsolescence and discount rate.

Contractual licensing agreements

The fair value of the contractual license agreements was determined using a variation of the multi-period excess earnings method. This method involves forecasting the net earnings expected to be generated by the asset and then discounting the resulting net cash flows to a present value using an appropriate discount rate.

Unaudited pro forma financial information

The supplemental pro forma financial information has been prepared using the acquisition method of accounting and is based on the historical financial information of Masimo and Sound United, assuming the transaction occurred on January 1, 2021. The supplemental pro forma financial information does not necessarily represent what the combined companies’ revenue or results of operations would have been had the acquisition of Sound United been completed on January 1, 2021, nor is it intended to be a projection of future operating results of the combined company. It also does not reflect any operating efficiencies or potential cost savings that might be achieved from synergies of combining Masimo and Sound United.

The unaudited supplemental pro forma financial information has been calculated after applying Masimo’s accounting policies and adjusting the results of the combined company to reflect incremental amortization and depreciation expense resulting from the fair value adjustments for acquired intangible assets, inventory, property, plant and equipment as well as the net decrease to interest expense resulting from the elimination of the historical interest expense on Sound United’s debt that was paid off at closing partially offset by incremental interest expense resulting from the external debt borrowed by Masimo to fund the acquisition, and the corresponding income tax impact of these adjustments.

Also, during the six months ended July 2, 2022, Masimo and Sound United incurred $18.1 million and $41.1 million of acquisition-related costs, respectively. Additionally, there were $49.3 million of Profit Interest Units paid out in conjunction with the transaction. These expenses are reflected in pro forma net income for the three months ended July 2, 2022, in the table below and the acquisition related expenses incurred by Masimo are included in selling, general and administrative, in the Company’s condensed consolidated statements of comprehensive income for the three and six months ended July 1, 2021.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

There are no other material non-recurring pro forma adjustments directly attributable to the acquisition included in the reported pro forma revenue and pro forma net income.


	Three Months Ended				Six Months Ended
(in millions)	July 2, 2022		July 1, 2021		July 2, 2022		July 1, 2021
Pro forma net revenue	$	572.2	$	511.5	$	1,127.1	$	1,021.6

Pro forma net income (loss)	$	29.0	$	36.0	$	88.8	$	(31.5)

18. Stock Repurchase Program

In July 2018, the Company’s Board of Directors (Board) approved a stock repurchase program, authorizing the Company to purchase up to 5.0 million shares of its common stock over a period of up to three years (2018 Repurchase Program). A total of 1.3 million shares were purchased by the Company pursuant to the 2018 Repurchase Program prior to its expiration in September 2021.

In October 2021, the Board approved a stock repurchase program, authorizing the Company to purchase up to 3.0 million shares of its common stock over a period of up to three years (2021 Repurchase Program). The 2021 Repurchase Program became effective in October 2021 upon the expiration of the 2018 Repurchase Program. The 2021 Repurchase Program was completed in May 2022.

In June 2022, the Board approved a new stock repurchase program, authorizing the Company to purchase up to 5.0 million shares of its common stock on or before December 31, 2027 (2022 Repurchase Program). The 2022 Repurchase Program became effective in July 2022. The Company expects to fund the 2022 Repurchase Program through its available cash, cash expected to be generated from future operations, the Credit Facility and other potential sources of capital. The 2022 Repurchase Program can be carried out at the discretion of a committee comprised of the Company’s CEO and CFO through open market purchases, one or more Rule 10b5-1 trading plans, block trades and privately negotiated transactions. As of July 2, 2022, 5.0 million shares remained available for repurchase pursuant the 2022 Repurchase Program.

The following table provides a summary of the Company’s stock repurchase activities:


	Three Months Ended				Six Months Ended
(in millions, except per share amounts)	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Shares repurchased(1)	3.0		—		3.0		0.5
Average cost per share	$	133.82	$	—	$	133.82	$	235.88
Value of shares repurchased	$	401.4	$	—	$	401.4	$	128.9

______________

(1) Excludes shares withheld from the shares of its common stock actually issued in connection with the vesting of PSU or RSU awards to satisfy certain U.S. federal and state tax withholding obligations.

19. Stock-Based Compensation

Total stock-based compensation expense for the three months ended July 2, 2022 and July 3, 2021 was $17.3 million and $8.3 million, respectively. Total stock-based compensation expense for the six months ended July 2, 2022 and July 3, 2021 was $28.2 million and $21.0 million, respectively. As of July 2, 2022, an aggregate of 10.1 million shares of common stock were reserved for future issuance under the Company’s equity plans, of which 3.6 million shares were available for future grant under the Masimo Corporation 2017 Equity Incentive Plan (2017 Equity Plan). Additional information related to the Company’s current equity incentive plans, stock-based award activity and valuation of stock-based awards is included below.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Equity Incentive Plans

2017 Equity Incentive Plan

On June 1, 2017, the Company’s stockholders ratified and approved the 2017 Equity Plan. The 2017 Equity Plan permits the grant of stock options, restricted stock, RSUs, stock appreciation rights, PSUs, performance shares, performance bonus awards and other stock or cash awards to employees, directors and consultants of the Company and employees and consultants of any parent or subsidiary of the Company. Upon effectiveness, an aggregate of 5.0 million shares were available for issuance under the 2017 Equity Plan. In May 2020, the Company’s stockholders approved an increase of 2.5 million shares to the 2017 Equity Plan. The aggregate number of shares that may be awarded under the 2017 Equity Plan is 7.5 million shares. The 2017 Equity Plan provides that at least 95% of the equity awards issued under the 2017 Equity Plan must vest over a period of not less than one year following the date of grant. The exercise price per share of each option granted under the 2017 Equity Plan may not be less than the fair market value of a share of the Company’s common stock on the date of grant, which is generally equal to the closing price of the Company’s common stock on the Nasdaq Global Select Market on the grant date.

2007 Stock Incentive Plan

Effective June 1, 2017, upon the approval and ratification of the 2017 Equity Plan, the Company’s 2007 Stock Incentive Plan (2007 Equity Plan) terminated, provided that awards outstanding under the 2007 Equity Plan will continue to be governed by the terms of that plan. In addition, upon the effectiveness of the 2017 Equity Plan, an aggregate of 5.0 million shares of the Company’s common stock registered under prior registration statements for issuance pursuant to the 2007 Equity Plan were deregistered and concurrently registered under the 2017 Equity Plan.

Stock-Based Award Activity

Stock Options

The number and weighted-average exercise price of options issued and outstanding under all of the Company’s equity plans are as follows:


	Six Months Ended July 2, 2022
(in millions, except for weighted-average exercise prices)	Shares	Weighted-Average Exercise Price
Options outstanding, beginning of period	3.0	$	81.38
Granted	0.1	150.91
Canceled	—	154.63
Exercised	(0.1)	52.66
Options outstanding, end of period	3.0	$	84.19
Options exercisable, end of period	2.3	$	64.43

Total stock option expense for the three months ended July 2, 2022 and July 3, 2021 was $3.2 million and $2.9 million, respectively. Total stock option expense for the six months ended July 2, 2022 and July 3, 2021 was $6.4 million and $6.7 million, respectively. As of July 2, 2022, the Company had $24.8 million of unrecognized compensation cost related to non-vested stock options that are expected to vest over a weighted-average period of approximately 2.4 years. The weighted-average remaining contractual term of options outstanding with an exercise price less than the closing price of the Company’s common stock as of July 2, 2022 was 4.8 years.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

RSUs

The number of RSUs issued and outstanding under all of the Company’s equity plans are as follows:


	Six Months Ended July 2, 2022
(in millions, except for weighted-average grant date fair value amounts)	Units	Weighted-Average Grant Date Fair Value
RSUs outstanding, beginning of period	2.9	$	104.13
Granted	0.3	149.86
Canceled	—	220.62
Expired	—	—
Vested	—	183.66
RSUs outstanding, end of period	3.2	$	106.28

Total RSU expense for the three months ended July 2, 2022 and July 3, 2021 was $10.0 million and $2.4 million, respectively. Total RSU expense for the six months ended July 2, 2022 and July 3, 2021 was $13.0 million and $4.4 million, respectively. As of July 2, 2022, the Company had $66.0 million of unrecognized compensation cost related to non-vested RSU awards expected to be recognized and vest over a weighted-average period of approximately 4.1 years.

PSUs

The number of PSUs outstanding under all of the Company’s equity plans are as follows:


	Six Months Ended July 2, 2022
(in millions, except for weighted-average grant date fair value amounts)	Units	Weighted-Average Grant Date Fair Value
PSUs outstanding, beginning of period	0.3	$	168.68
Granted(1)	0.3	145.49
Canceled	—	—
Expired	—	—
Vested	(0.2)	127.46
PSUs outstanding, end of period	0.4	$	170.85

______________

(1) On February 14, 2022, the Audit Committee approved the weighted payout percentage for the 2019 PSU awards (three-year performance period), which were based upon the actual fiscal 2021 performance against pre-established performance objectives. Included in the granted amount are those additional PSUs earned based on actual performance achieved. These PSUs were originally awarded at target.

During the six months ended July 2, 2022, the Company awarded 142,900 PSUs that will vest three years from the award date, based on the achievement of certain 2025 performance criteria approved by the Board. If earned, the PSUs granted will vest upon achievement of the performance criteria after the year in which the performance achievement level has been determined. The number of shares that may be earned can range from 0% to 200% of the target amount; therefore, the maximum number of shares that can be issued under these awards is twice the original award of 142,900 PSUs, or 285,800 shares. Based on management’s estimate of the number of units expected to vest, total PSU expense for the three months ended July 2, 2022 and July 3, 2021 was $4.1 million and $3.0 million, respectively. Based on management’s estimate of the number of units expected to vest, total PSU expense for the six months ended July 2, 2022 and July 3, 2021 was $8.8 million and $9.9 million, respectively. As of July 2, 2022, the Company had $90.3 million of unrecognized compensation cost related to non-vested PSU awards expected to be recognized and vest over a weighted-average period of approximately 2.0 years.

Valuation of Stock-Based Award Activity

The fair value of each RSU and PSU is determined based on the closing price of the Company’s common stock on the grant date.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Black-Scholes option pricing model is used to estimate the fair value of options granted under the Company’s stock-based compensation plans. The range of assumptions used and the resulting weighted-average fair value of options granted at the date of grant were as follows:


	Three Months Ended		Six Months Ended
	July 2, 2022(1)	July 3, 2021	July 2, 2022	July 3, 2021
Risk-free interest rate	—%	0.4%	1.0% to 1.9%	0.3% to 0.9%
Expected term (in years)	0.0	5.1	5.7	5.6
Estimated volatility	—%	32.9%	31.2% to 38.9%	30.9% to 34.7%
Expected dividends	0%	0%	0%	0%
Weighted-average fair value of options granted	$—	$66.53	$49.69	$75.72

__________________

(1) No stock options were granted during the three months ended July 2, 2022.

The aggregate intrinsic value of options is calculated as the positive difference, if any, between the market value of the Company’s common stock on the date of exercise or the respective period end, as appropriate, and the exercise price of the options. The aggregate intrinsic value of options outstanding with an exercise price less than the closing price of the Company’s common stock as of July 2, 2022 was $180.8 million. The aggregate intrinsic value of options exercisable with an exercise price less than the closing price of the Company’s common stock as of July 2, 2022 was $172.9 million. The aggregate intrinsic value of options exercised during the six months ended July 2, 2022 was $9.1 million.

20. Employee Benefits

Defined Contribution Plans

The Company sponsors one qualified defined contribution plan or 401(k) plan, the Masimo Retirement Savings Plan (MRSP), covering the Company’s full-time U.S. employees who meet certain eligibility requirements.

The MRSP matches a Masimo employee’s contribution up to 3% of the Masimo employee’s compensation, subject to a maximum amount. The Company may also contribute to the MRSP on a discretionary basis. The Company contributed $1.0 million and $0.9 million to the MRSP for the three months ended July 2, 2022 and July 3, 2021, respectively, all in the form of matching contributions. The Company contributed $2.1 million and $1.9 million to the MRSP for the six months ended July 2, 2022 and July 3, 2021, respectively, all in the form of matching contributions. In addition, the Company sponsors various defined contribution plans in certain locations outside of the United States, the contributions to which were not material for any period. On April 11, 2022, in connection with the Sound United acquisition, the MRSP was amended to allow for participation by eligible SU employees.

Defined Benefit Plans

On April 11, 2022, the Company assumed sponsorship of the two noncontributory defined benefit pension plans (Defined Benefit Plans) which cover employees in Japan and the Netherlands. The Company’s contributions are designed to fund normal cost on a current basis and to fund the estimated prior service cost of benefit improvements. The unit credit actuarial cost method is used to determine the annual cost. The Company pays the entire cost of the Defined Benefit Plan and funds such costs as they accrue. Virtually all of the assets of the Defined Benefit Plan are comprised of equities and participation in equity and fixed income funds.

The service cost component for the Defined Benefit Plans are recorded in cost of sales and operating expenses in the condensed consolidated statement of operations. All other cost components are recorded in other income (expense), net in the condensed consolidated statement of operations. The Company’s net periodic defined benefit costs for each of the three and six months ended July 2, 2022, and July 3, 2021 were not material. The Company is still determining its contributions to the Defined Benefit Plans for the year. No contributions were made to the Defined Benefit Plans during the three and six months ended July 2, 2022 and July 3, 2021. The expected rate of return on the Defined Benefit Plans’ assets for determining net periodic benefit plan cost is 0%.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

21. Non-operating income (loss)

Non-operating income (loss) consists of the following:


	Three Months Ended				Six Months Ended
(in millions)	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Interest income	$	0.2	$	0.2	$	0.5	$	0.4
Interest expense	(4.5)		(0.1)		(4.6)		(0.2)
Realized and unrealized foreign currency (losses) gains	8.8		—		8.0		(0.9)

Total non-operating income (loss)	$	4.5	$	0.1	$	3.9	$	(0.7)

22. Income Taxes

The Company has provided for income taxes in fiscal year 2022 interim periods based on the estimated effective income tax rate for the complete fiscal year, as adjusted for discrete tax events, including excess tax benefits or deficiencies related to stock-based compensation, in the period such events occur. The estimated annual effective tax rate is computed based on the expected annual pretax income of the consolidated entities located within each taxing jurisdiction based on legislation enacted as of the balance sheet date. For the three months ended July 2, 2022 and July 3, 2021, the Company recorded discrete tax benefits of approximately $0.2 million and $1.3 million, respectively, related to excess tax benefits realized from stock-based compensation. For the six months ended July 2, 2022 and July 3, 2021, the Company recorded discrete tax benefits of approximately $1.9 million and $5.6 million, respectively, related to excess tax benefits realized from stock-based compensation.

Deferred tax assets and liabilities are determined based on the future tax consequences associated with temporary differences between income and expenses reported for accounting and tax purposes. A valuation allowance for deferred tax assets is recorded to the extent that the Company cannot determine that the ultimate realization of the net deferred tax assets is more likely than not. Realization of deferred tax assets is principally dependent upon the achievement of future taxable income, the estimation of which requires significant judgment by the Company’s management. The judgment of the Company’s management regarding future profitability may change due to many factors, including future market conditions and the Company’s ability to successfully execute its business plans or tax planning strategies. These changes, if any, may require material adjustments to these deferred tax asset balances.

As of July 2, 2022, the liability for income taxes associated with uncertain tax positions was approximately $23.3 million. If fully recognized, approximately $21.3 million (net of federal benefit on state taxes) would impact the Company’s effective tax rate. It is reasonably possible that the amount of unrecognized tax benefits in various jurisdictions may change in the next twelve months due to the expiration of statutes of limitation and audit settlements. However, due to the uncertainty surrounding the timing of these events, an estimate of the change within the next twelve months cannot currently be made.

The Company conducts business in multiple jurisdictions and, as a result, one or more of the Company’s subsidiaries files income tax returns in U.S. federal, various state, local and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters through fiscal year 2017. All material state, local and foreign income tax matters have been concluded through fiscal year 2014. The Company does not believe that the results of any tax authority examination would have a significant impact on its consolidated financial statements.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

23. Commitments and Contingencies

Employment and Severance Agreements

In July 2017, the Company entered into the First Amendment to that certain Amended and Restated Employment Agreement entered into between the Company and Mr. Kiani on November 4, 2015 (as amended, the Amended Employment Agreement). Pursuant to the terms of the Amended Employment Agreement, upon a “Qualifying Termination” (as defined in the Amended Employment Agreement), Mr. Kiani will be entitled to receive a cash severance benefit equal to two times the sum of his then-current base salary and the average annual bonus paid to Mr. Kiani during the immediately preceding three years, the full amount of the “Award Shares” (as defined in the Amended Employment Agreement) and the full amount of the “Cash Payment” (as defined in the Amended Employment Agreement). In addition, in the event of a “Change in Control” (as defined in the Amended Employment Agreement) prior to a Qualifying Termination, on each of the first and second anniversaries of the Change in Control, 50% of the Cash Payment and 50% of the Award Shares will vest, subject in each case to Mr. Kiani’s continuous employment through each such anniversary date; however, in the event of a Qualifying Termination or a termination of Mr. Kiani’s employment due to death or disability prior to either of such anniversaries, any unvested amount of the Cash Payment and all of the unvested Award Shares shall vest and be paid in full. Additionally, in the event of a Change in Control prior to a Qualifying Termination, Mr. Kiani’s stock options and any other equity awards will vest in accordance with their terms, but in no event later than in two equal installments on each of the one year and two year anniversaries of the Change in Control, subject in each case to Mr. Kiani’s continuous employment through each such anniversary date.

On January 14, 2022, the Company entered into the Second Amendment to the Amended Employment Agreement (Second Amendment) with Mr. Kiani. The Second Amendment provides that the RSUs granted to Mr. Kiani pursuant to the Amended Employment Agreement will vest in full upon the termination of Mr. Kiani’s employment with the Company pursuant to Mr. Kiani’s death or disability. As of July 2, 2022, the expense related to the Award Shares and Cash Payment that would be recognized in the Company’s consolidated financial statements upon the occurrence of a Qualifying Termination under the Amended Employment Agreement, as amended by the Second Amendment, was approximately $664.3 million.

As of July 2, 2022, the Company had severance plan participation agreements with five executive officers. The participation agreements (the Agreements) are governed by the terms and conditions of the Company’s 2007 Severance Protection Plan (the Severance Plan), which became effective on July 19, 2007 and which was amended effective December 31, 2008.

Under each of the Agreements, the applicable executive officer may be entitled to receive certain salary, equity, medical and life insurance benefits if he is terminated by the Company without cause or if he terminates his employment for good reason under certain circumstances. Each executive officer is also required to give the Company six months’ advance notice of his resignation under certain circumstances.

In connection with the Sound United acquisition, effective April 11, 2022, the Company entered into an employee offer letter with Kevin Duffy, which included certain compensation, retention and benefit provisions. In addition, certain severance-related provisions contained in the Fifth Amended and Restated Employment Agreement made and entered into as of November 30, 2017, between DEI Holdings, Inc. and Mr. Duffy continued pursuant to their terms following completion of the Sound United acquisition. On July 11, 2022, the Company sent Mr. Duffy a notice of termination without cause of his employment with the Company, effective as of August 5, 2022. Mr. Duffy has agreed to remain with the Company until August 5, 2022, and to assist the Company with transition and other matters on an as-needed basis following the termination of his employment with the Company.

Cercacor Cross-Licensing Agreement Provisions

The Company’s Cross-Licensing Agreement with Cercacor contains annual minimum aggregate royalty obligations for use of the rainbow® licensed technology. The current annual minimum royalty obligation is $5.0 million. Upon a change in control (as defined in the Cross-Licensing Agreement) of the Company or Cercacor: (i) all rights to the “Masimo” trademark will be assigned to Cercacor if the surviving or acquiring entity ceases to use “Masimo” as a company name and trademark; (ii) the option to license technology developed by Cercacor for use in blood glucose monitoring will be deemed automatically exercised and a $2.5 million license fee for this technology will become immediately payable to Cercacor; and (iii) the minimum aggregate annual royalties payable to Cercacor for carbon monoxide, methemoglobin, fractional arterial oxygen saturation, hemoglobin and/or glucose measurements will increase to $15.0 million per year until the exclusivity period of the agreement ends, plus up to $2.0 million for each additional vital sign measurement with no maximum ceiling for non-vital sign measurements.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Purchase Commitments

Pursuant to contractual obligations with vendors, the Company had $387.4 million of purchase commitments as of July 2, 2022 that are expected to be purchased within one year. These purchase commitments have been made for certain inventory items in order to secure sufficient levels of those items, other critical inventory and manufacturing supplies, and to achieve better pricing.

Other Contractual Commitments

In the normal course of business, the Company may provide bank guarantees to support government hospital tenders in certain foreign jurisdictions. As of July 2, 2022, the Company had approximately $5.4 million in outstanding unsecured bank guarantees.

In certain circumstances, the Company also provides limited indemnification within its various customer contracts whereby the Company indemnifies the parties to whom it sells its products with respect to potential infringement of intellectual property, and against bodily injury caused by a defective Company product. It is not possible to predict the maximum potential amount of future payments under these or similar agreements, due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved. As of July 2, 2022, the Company had not incurred any significant costs related to contractual indemnification of its customers.

Concentrations of Risk

The Company is exposed to credit loss for the amount of its cash deposits with financial institutions in excess of federally insured limits. The Company invests a portion of its excess cash with major financial institutions. As of July 2, 2022, the Company had $218.0 million of bank balances, of which $7.6 million was covered by either the U.S. Federal Deposit Insurance Corporation limit or foreign countries’ deposit insurance organizations.

The Company’s ability to sell its products to U.S. hospitals depends in part on its relationships with GPOs. Many existing and potential customers for the Company’s products become members of GPOs. GPOs negotiate pricing arrangements and contracts, sometimes exclusively, with medical supply manufacturers and distributors, and these negotiated prices are made available to a GPO’s affiliated hospitals and other members. During the three months ended July 2, 2022 and July 3, 2021, revenue from the sale of the Company’s products to customers that are members of GPOs approximated 31.4% and 49.0% of revenue, respectively. During the six months ended July 2, 2022 and July 3, 2021, revenue from the sale of the Company’s products to customers that are members of GPOs approximated 40.0% and 50.1% of revenue, respectively.

For the three months ended July 2, 2022, the Company had sales through one just-in-time distributor that represented 10.6% of revenue. For the three months ended July 3, 2021, the Company had sales through the same two just-in-time distributors that represented 13.7% and 10.8% of revenue, respectively.

For the six months ended July 2, 2022, the Company had sales through one just-in-time distributor that represented 11.6% revenue. For the six months ended July 3, 2021, the Company had sales through the same two just-in-time distributors that represented 14.4% and 10.4% of revenue, respectively.

As of July 2, 2022 and January 1, 2022, one customer represented 6.8% and 15.7%, respectively, of the Company’s accounts receivable balance. The receivable balance related to such customer is fully secured by a letter of credit.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Litigation

On January 2, 2014, a putative class action complaint was filed against the Company in the U.S. District Court for the Central District of California (District Court) by Physicians Healthsource, Inc. The complaint alleged that the Company sent unsolicited facsimile advertisements in violation of the Junk Fax Protection Act of 2005 and related regulations. The complaint sought $500 for each alleged violation, treble damages if the District Court found the alleged violations to be knowing, plus interest, costs and injunctive relief. On March 26, 2019, an amended complaint was filed adding Radha Geismann, M.D. PC as an additional named plaintiff. On June 17, 2019, the plaintiffs filed their motion for class certification. On November 21, 2019, the District Court issued an order denying the plaintiffs’ motion for class certification and granting in part and denying in part the Company’s motion for summary judgment, and deferring ruling on the plaintiffs’ motion for summary judgment. On December 5, 2019, the plaintiffs filed a petition for permission to appeal the order denying class certification, which was denied on January 24, 2020. On July 13, 2020, the District Court issued an order granting in part and denying in part the plaintiffs’ motion for summary judgment. On July 27, 2022, the parties filed a joint stipulation to dismiss the case with prejudice.

On January 9, 2020, the Company filed a complaint against Apple Inc. (Apple) in the District Court for infringement of a number of patents, for trade secret misappropriation, and for ownership and correction of inventorship of a number of Apple patents listing one of its former employees as an inventor. The Company is seeking damages, injunctive relief, and declaratory judgment regarding ownership of the Apple patents. Apple filed petitions for Inter Partes review (IPR) of the asserted patents in the U.S. Patent and Trademark Office (PTO). The PTO instituted IPR of the asserted patents. On October 13, 2020, the District Court stayed the patent infringement claims pending completion of the IPR proceedings. On February 5, 2021, the Company filed a fourth amended complaint. On February 26, 2021, Apple filed a partial motion to dismiss the trade secrets claim in the fourth amended complaint. On April 21, 2021, the District Court issued an order granting in part and denying in part the motion to dismiss. On May 5, 2021, Apple filed its answer to the fourth amended complaint. On December 7, 2021, Apple filed a motion for partial summary judgment on the trade secrets claim, which was denied on February 17, 2022. Trial is currently set to begin on March 27, 2023. In the IPR proceedings, one or more of the challenged claims of three of the asserted patents were found valid. The challenged claims of nine of the asserted patents were found invalid. On April 12, 2022, the Company filed notices of appeal with the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) seeking review of the IPR decisions on five of the asserted patents. On June 8, 2022, the Company filed a notice of appeal with the U.S. Court of Appeals for the Federal Circuit seeking review of the IPR decision on one of the asserted patents. On June 28, 2022, the Company filed notices of appeal with the Federal Circuit seeking review of the IPR decisions on four of the asserted patents.

On June 30, 2021, the Company filed a complaint with the U.S. International Trade Commission (ITC) against Apple for infringement of a number of other patents. The Company filed an amended complaint on July 12, 2021. On August 13, 2021, the ITC issued a Notice of Institution of Investigation on the asserted patents. From June 6-10, 2022, the ITC conducted an evidentiary hearing. The target date for completion of the ITC investigation is January 16, 2023, with an initial determination due September 16, 2022. The Company is seeking an exclusion order and a permanent cease and desist order. Apple filed petitions for IPR of the asserted patents in the PTO. The Company will have the opportunity to respond to the petitions before the PTO determines whether to institute IPRs. Although the Company intends to vigorously pursue all of its legal remedies in its litigation with Apple, there is no guarantee that the Company will be successful in these efforts.

From time to time, the Company may be involved in other litigation and investigations relating to claims and matters arising out of its operations in the normal course of business. The Company believes that it currently is not a party to any other legal proceedings which, individually or in the aggregate, would have a material adverse effect on its consolidated financial position, results of operations or cash flows.

24. Segment and Enterprise Reporting

The Company’s reportable segments are determined based upon the Company’s new organizational structure and the way in which the Company’s Chief Operating Decision Maker (CODM), the CEO, makes operating decisions and assesses financial performance. The CODM considered several factors including, but not limited to, customer base, technology, and homogeneity of products. The two segments are:

•Healthcare - develops, manufactures, and markets a variety of noninvasive monitoring technologies and hospital automation solutions and therapeutics. This segment includes the Company’s core legacy hospital business and new Masimo-technology-enabled consumer products that are distributed through many channels including e-commerce sites, leading national retailers and specialty chains globally.

•Non-healthcare - designs, develops, manufactures, markets and sells a broad portfolio of premium, high-performance audio products and services. This is a new reportable segment comprised primarily of Sound United’s operations.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Income from operations for each segment includes all geographic revenues, related cost of net revenues and operating expenses directly attributable to the segment. The Company uses operating income, as presented in the Company’s financial reports, as the primary measure of segment profitability. The Company does not allocate costs from corporate functions to segment operating income. Items below operating income are not considered when measuring the profitability of a segment. The Company uses the same accounting policies to generate segment results as the Company does for consolidated results. Non-reportable operating segment and unallocated corporate expenses are reported within “Corporate overhead and Other”. Segment information presented herein reflects the impact of these changes for all periods presented. There was no inter-segment revenue for any of the periods presented.

Selected information by reportable segment is presented below for the three and six months ended July 2, 2022 and July 3, 2021:


	Three Months Ended						Six Months Ended
(in millions)	July 2, 2022			July 3, 2021			July 2, 2022			July 3, 2021
Revenues by segment:
Healthcare	$	357.0		$	305.1		$	661.2		$	604.2
Non-healthcare	208.3			—			208.3			—
Total revenue by segment	$	565.3		$	305.1		$	869.5		$	604.2
Gross profit:
Healthcare	$	236.7		$	197.5		442.1			$	395.2
Non-healthcare	72.6			—			72.6			—
Corporate overhead	—			—			—			—
Other(1)	(51.1)			(4.6)			(51.8)			(5.4)
Gross profit	$	258.2		$	192.9		$	462.9		$	389.8
Gross profit margin:
Healthcare	66.3		%	64.7		%	66.9		%	65.4		%
Non-healthcare	34.9			—			34.9			—
Corporate overhead	—			—			—			—
Other(1)	—			(1.5)			—			(0.9)
Gross profit margin:	45.7		%	63.2		%	53.2		%	64.5		%
Operating income (loss):
Healthcare	$	106.5		$	—		$	—		$	—
Non-healthcare	15.2			—			—			—
Corporate overhead	(15.1)			—			—			—
Other(1)	(84.5)			—			—			—
Operating income	$	22.1		$	65.1		$	81.8		$	130.8
Interest income	$	0.2		$	0.2		$	0.5		$	0.4
Interest expense	(4.5)			(0.1)			(4.6)			(0.2)
Other (income) expense, net	8.8			—			8.0			(0.9)
Income before income taxes	$	26.6		$	65.2		$	85.7		$	130.1

_______________

(1) Management excludes certain corporate expenses from segment operating income. In addition, certain amounts that management considers to be non-recurring or non-operational are excluded from segment operating income because management evaluates the operating results of the segments excluding such items. Corporate overhead represents certain costs that are not allocated to the segments for purposes of the CODM assessing performance and allocating resources--for example, the costs of being a publicly traded company.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Company’s depreciation and amortization by segment:


	Three Months Ended				Six Months Ended
(in millions)	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Depreciation and amortization by segment:
Healthcare	$	9.1	$	8.8	$	18.1	$	17.3
Non-healthcare	61.8		—		61.8		—
Total depreciation and amortization	$	70.9	$	8.8	$	79.9	$	17.3

The Company’s total assets by segment:


	As of		As of
(in millions)	July 2, 2022		January 1, 2022
Total assets by segment:
Healthcare	$	2,478.9		$	1,866.4
Non-healthcare	462.1			—
Corporate overhead	20.1			20.6
Other	—			—
Total assets	$	2,961.1		$	1,887.0

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, in connection with the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially and adversely from those expressed or implied by such forward-looking statements. Such forward-looking statements include any expectation of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; factors that may affect our operating results or financial condition; statements concerning new products, technologies or services; statements related to future capital expenditures; statements related to future economic conditions or performance; statements related to our stock repurchase program; statements as to industry trends and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may” or “will,” the negative versions of these terms and similar expressions or variations. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially and adversely from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and in our other Securities and Exchange Commission (SEC) filings, including our Annual Report on Form 10-K for the fiscal year ended January 1, 2022, which we filed with the SEC on February 15, 2022. Furthermore, such forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.

Executive Overview

We are a global medical technology company dedicated to improving lives, taking noninvasive monitoring to new sites and applications while improving patient outcomes and reducing the cost of care. In connection with the acquisition of Viper Holdings Corporation d/b/a Sound United, LLC (Sound United), we announced an organizational structure change designed to enable our growth strategies and strengthen our focus on patient care, thereby creating two reportable segments: healthcare and non-healthcare.

We have commenced reporting under this new structure with this Quarterly Report on Form 10-Q. The core legacy Masimo financial information for the historical periods is unchanged. However, the new healthcare segment excludes certain corporate overhead costs and other costs that are non-reccurring or non-operational in nature. The new non-healthcare segment was created as a result of the Sound United acquisition. Please see Note 17 “Business Combinations”, to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Healthcare

Our healthcare business develops, manufactures and markets a variety of noninvasive patient monitoring technologies, hospital automation solutions, home monitoring devices and consumer products. Our patient monitoring solutions generally incorporate a monitor or circuit board, proprietary single-patient use or reusable sensors, software, cables and/or and other services. We primarily sell our healthcare products to hospitals, emergency medical service (EMS) providers, home care providers, physician offices, veterinarians, long-term care facilities and consumers through our direct sales force, distributors and original equipment manufacturer (OEM) partners.

Our core measurement technologies are Measure-through Motion and Low Perfusion™ pulse oximetry, known as Masimo Signal Extraction Technology® (SET®) pulse oximetry, and advanced rainbow® Pulse CO-Oximetry parameters such as noninvasive hemoglobin (SpHb®), alongside many other modalities, including brain function monitoring, hemodynamic monitoring, regional oximetry, acoustic respiration rate monitoring, capnography, nasal high-flow respiratory support therapy, patient position and activity tracking and neuromodulation technology for the reduction of symptoms associated with opioid withdrawal.

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Our measurement technologies are available on many types of devices, from bedside hospital monitors like the Root® Patient Monitoring and Connectivity Hub, to various handheld and portable devices, and to the tetherless Masimo SafetyNet™ remote patient surveillance solution. The Masimo Hospital Automation™ Platform facilitates data integration, connectivity, and interoperability through solutions like Patient SafetyNet™(1), Replica® and UniView™ to facilitate more efficient clinical workflows and to help clinicians provide the best possible care, both in-person and remotely. Leveraging our expertise in hospital-grade technologies, we are also expanding our suite of products intended for use outside the hospital and products for consumers, including Sleep™, a sleep quality solution, and the Radius Tº™ wireless, wearable continuous thermometer, and the W1 biosensing health watch.

Non-healthcare

Our non-healthcare business develops, manufactures, markets, sells and licenses premium sound, home integration technologies and accessories, along with complete high performance in-vehicle audio systems under iconic consumer brands such as Bowers & Wilkins®, Denon®, Marantz®, HEOS®, Classé®, Polk Audio®, Boston Acoustics® and Definitive Technology®, which offer products with unparalleled quality and performance to consumers, professional sound studios and audiophiles worldwide. Our products are sold direct-to-consumers, or through authorized retailer and wholesalers. We also license our audio technology to select luxury automotive manufacturers such as BMW®, Maserati®, McLaren®, Polestar® and Volvo®. In addition, we maintain partnerships with certain airlines for bespoke headphones allowing for the best in-flight audio experience.

Our broad portfolio of products leverages the latest technologies to create the very best home theater and audio experience, from revolutionizing the industry with a limitless array of Hi-Fi separates and systems, to engineering the first audio visual (AV) receivers and soundbars that work with Amazon’s Alexa. Each brand boasts its own philosophy and unique approach to bringing audio and home entertainment to life. We pioneer innovation that improves how we enjoy and experience media in all forms.

Outlook & Strategy

We continue to be optimistic about the long-term prospects of patient care, hospital automation and advancing our initiatives of making hospital quality patient monitoring available in the home along with advancing consumer healthcare needs and wellness. Healthcare ecosystems are rapidly evolving and becoming visibly more interconnected. Accelerated by the need to adapt to the post-pandemic world, more and more patient care is moving closer to consumers’ homes. The widespread caregiver shortage demands transformative changes in the current healthcare space. Consumers will naturally gravitate toward products that can extend the reach of physicians without any compromise on the quality of care. We have placed tremendous focus on visionary and strategic moves to solidify our position as a market leader in virtual healthcare. Our goal is to reinvent the next generation of highly capable and digitally connected medical devices that offer customizable preventive patient care while improving patient outcomes and reducing the cost of that care. We believe that it is necessary to collaborate across sectors and value chains and to form new symbiotic key relationships with recognizable highly reputable consumer brands.

We sought differentiated growth opportunities to cross-leverage technologies, bringing our core clinically superior solutions into the “home” and “on-the-go” as well as bringing Sound United’s premium technologies into the hospital to advance hospital automation connectivity and cloud-based technologies. The technology and expertise within Sound United will serve us well as we aim to augment our hospital-to-home strategy, providing innovative solutions to improve patient outcomes, and reducing the cost of care™. Furthermore, Sound United unlocks access to large, well-established consumer channels by offering us immediate scale with leading retail establishments across the U.S. and Europe. The collaboration will translate into products that broaden our access to untapped consumer demographics around the world.

Recent Developments & Product Releases

In February 2022, we announced a major expansion of Masimo SafetyNet® that brings robust, secure video conferencing to the remote patient management and connectivity platform to offer a comprehensive telehealth and telemonitoring solution – and for patients, a better “hospital at home” experience.

Also in February 2022, we announced the FDA 510(k) clearance of SedLine® brain function monitoring for pediatric patients (1-17 years of age) and the SedLine® Pediatric EEG Sensor. With this clearance, the potential benefits of SedLine® have been expanded to all patients one year old and above in the United States.

__________________

(1) The use of the trademark Patient SafetyNet™ is under license from the University HealthSystem Consortium.

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In April 2022, we completed the acquisition of Sound United. Sound United operates iconic consumer brands including Bowers & Wilkins®, Denon®, Marantz®, HEOS®, Classé®, Polk Audio®, Boston Acoustics® and Definitive Technology®. Sold worldwide, these brands offer customers products with unparalleled quality and performance, ranging from high-resolution wireless audio to high-performance stereo to multichannel home theater.

Also in April 2022, we announced the introduction of the Denon® DHT-S217 Soundbar with built in subwoofers. The sleek DHT-S217 delivers superb clarity including crystal-clear dialogue with authoritative bass response from two onboard subwoofers that will certainly please both music and movie enthusiasts. The DHT-S217 also incorporates Dolby Atmos 3D® audio technology for a lifelike, cinematic surround sound experience sure to elevate the performance of the latest 4K televisions.

In May 2022, we celebrated our 33rd anniversary by announcing the limited market release of the W1™ biosensing health watch for consumers. The Masimo W1™ is the first of its kind to offer accurate, continuous measurements in a personal, discreet, lifestyle-friendly wrist-worn wearable. The W1™ provides accurate, continuous monitoring of multiple health parameters, including SpO2, PR, PI, PVi®, and RR, alongside step count and fall detection.

Also in May 2022, we announced the FDA 510(k) clearance of O3® regional oximetry for use in monitoring adult somatic tissue oxygen saturation. With this clearance, O3® is now indicated for use in monitoring both absolute and trending regional oxygen saturation (rSO2) in the U.S. in both cerebral and somatic applications for adults. Unlike somatic oximetry solutions that are indicated only for trending measurement, O3® with absolute rSO2 offers clinicians greater confidence that displayed values correlate with tissue oxygenation.

COVID-19 Pandemic

The COVID-19 pandemic has created significant uncertainty in the U.S. and around the globe, resulting in both challenges and opportunities for our business. We are committed to being as transparent as possible with our investors, employees, customers, suppliers and business partners as we collectively work to respond to this crisis. In response to this situation, we implemented a number of precautionary measures at our facilities, including: requiring certain personnel to work remotely from home and enacting social distancing, and mandatory screening for symptoms associated with COVID-19 for personnel that are required to report to our facilities to work. We also introduced new products, such as Masimo SafetyNet™ and Masimo SafetyNet-OPEN™ to help combat the COVID-19 pandemic and made pledges to various charitable organizations to support global COVID-19 relief efforts. We currently believe that our existing liquidity position will be sufficient to fund these ongoing initiatives and our response efforts.

Given the continuing uncertainties related to the COVID-19 pandemic, we cannot predict how it will continue to affect our product demand or our product mix. In addition, the increase in demand we have experienced due to the COVID-19 pandemic could result in potential reductions in future demand if our customers have over purchased our products and need to consume their excess inventory before purchasing additional products. Furthermore, we continue to be exposed to potential disruptions to our manufacturing operations and disruptions in the supply of critical manufacturing components and in our workforce as circumstances surrounding the global impact of the COVID-19 pandemic continue to change. As a federal contractor, we expect that our employees are vaccinated per the federal mandate, and current employees and candidates seeking employment with Masimo may be opposed to being vaccinated and may risk possible termination or may seek employment with an employer that is not required to follow the federal mandate. Please see “Risks Related to Our Revenues” and “Risks Related to our Business and Operations” in Part II, Item 1A of this Quarterly Report on Form 10-Q for additional information on potential negative impacts to us resulting from the COVID-19 pandemic.

Supply Chain and Inflationary Pressures

Despite supply chain uncertainties, recent logistical challenges and the global staffing challenges caused by COVID-19, we are optimistic about our long-term growth opportunities in both the healthcare and non-healthcare segments as our broad portfolio of products and solutions are well suited to address patient and customer needs.

While we anticipate some volatility in our business due to inflationary pressures and continued global supply chain challenges, we are optimistic about continued growth across both segments in the long-term from both our new product launches and our recent acquisitions, but also as we continue to invest in expanding and improving our technologies and embedding them into our direct to consumer markets.

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Russian-Ukraine Conflict

In response to the ongoing conflict in Ukraine, we continue to monitor the developing situation with respect to ongoing business in Russia and the Ukraine, and are working on appropriate contingency plans that will support our desire to serving existing patient populations while remaining compliant with all applicable U.S. and European Union sanctions and regulations. While Russia and Ukraine do not constitute a material portion of our business, a significant escalation or expansion of economic disruption or the conflict’s current scope could have an impact on our business. In the interim, order acceptance for these countries has been halted. For the three and six months ended July 2, 2022, sales derived from customers based in Russia represented an immaterial percentage of our total revenue.

Cercacor

Cercacor Laboratories, Inc. (Cercacor) is an independent entity spun off from us to our stockholders in 1998. Joe Kiani, our Chairman and Chief Executive Officer (CEO), is also the Chairman and CEO of Cercacor. We are a party to a cross-licensing agreement with Cercacor, which was amended and restated effective January 1, 2007 (the Cross-Licensing Agreement), which governs each party’s rights to certain intellectual property held by the two companies. See Note 3, “Related Party Transactions”, to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to Cercacor.

Results of Operations

The following table sets forth, for the periods indicated, our results of operations expressed as U.S. Dollar amounts and as a percentage of revenue.


	Three Months Ended (in million, except percentages)								Six Months Ended (in millions, except percentages)
	July 2, 2022		Percentage of Revenue		July 3, 2021		Percentage of Revenue		July 2, 2022		Percentage of Revenue		July 3, 2021		Percentage of Revenue



Revenue	$	565.3	100.0	%	$	305.1	100.0	%	$	869.5	100.0	%	$	604.2	100.0	%
Cost of goods sold	307.1		54.3		112.2		36.8		406.6		46.8		214.4		35.5
Gross profit	258.2		45.7		192.9		63.2		462.9		53.2		389.8		64.5
Operating expenses:
Selling, general and administrative	188.3		33.3		93.9		30.8		297.2		34.2		190.5		31.5
Research and development	47.8		8.5		33.9		11.1		83.9		9.6		68.5		11.3

Total operating expenses	236.1		41.8		127.8		41.9		381.1		43.8		259.0		42.9
Operating income	22.1		3.9		65.1		21.3		81.8		9.4		130.8		21.6
Non-operating income (loss)	4.5		0.8		0.1		—		3.9		0.4		(0.7)		(0.1)
Income before provision for income taxes	26.6		4.7		65.2		21.4		85.7		9.9		130.1		21.5
Provision for income taxes	8.5		1.5		15.0		4.9		21.0		2.4		26.5		4.4
Net income	$	18.1	3.2	%	$	50.2	16.5	%	$	64.7	7.4	%	$	103.6	17.1	%

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Comparison of the Three Months ended July 2, 2022 to the Three Months ended July 3, 2021

Revenue. Revenue increased $260.2 million, or 85.3%, to $565.3 million for the three months ended July 2, 2022 from $305.1 million for the three months ended July 3, 2021. Contributing to the increase in revenue was approximately $208.3 million, or 80.1% from the Sound United acquisition and $51.9 million, or 17.0% from the growth in our healthcare business.

Revenue by segment: Revenue by segment is comprised of healthcare and non-healthcare segments. The healthcare segment consists of hospital products and services. The non-healthcare segment consists of audio visual and sound related products. The following table details our revenues by segment for each of the three months ended July 2, 2022 and July 3, 2021:


	Three Months Ended (in millions, except percentage)
	July 2, 2022				July 3, 2021				Increase/ (Decrease)		Percentage Change
Healthcare	$	357.0	63.2	%	$	305.1	100.0	%	$	51.9	17.0	%
Non-healthcare	208.3		36.8		—		—		208.3		100.0
Revenue by segment	$	565.3	100.0	%	$	305.1	100.0	%	$	260.2	85.3	%

The increase in healthcare segment revenue was partially attributable to higher sales of consumables, offset by the impact of approximately $6.0 million of unfavorable foreign exchange rate movements from the prior year that decreased the U.S. Dollar translation of foreign sales that were denominated in various foreign currencies.

Revenue generated through our direct and distribution sales channels increased $49.6 million, or 18.2%, to $322.2 million for the three months ended July 2, 2022 compared to $272.6 million for the three months ended July 3, 2021. Revenues from our OEM channel increased $2.3 million, or 7.1%, to $34.8 million for the three months ended July 2, 2022 as compared to $32.5 million for the three months ended July 3, 2021.

During the three months ended July 2, 2022, we shipped approximately 77,100 noninvasive technology boards and instruments.

The non-healthcare revenue segment is a new reportable segment resulting from the Sound United acquisition. Non-healthcare revenue represented below is from April 11, 2022 through July 2, 2022. The non-healthcare segment saw strong demand for consumer audio products from April 11, 2022 through July 2, 2022. Despite the improvement of supply, we still maintain a product backlog due to industry-wide supply chain challenges.

Gross Profit. Gross profit consists of revenue less cost of goods sold. Cost of goods sold includes labor, material, overhead and other similar costs related to the production, supply, distribution and support of our products. Our gross profit for the three months ended July 2, 2022 and July 3, 2021 was as follows:


Gross Profit (in millions, except percentages)
Three Months Ended July 2, 2022	Percentage of Net Revenues	Three Months Ended July 3, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change


$258.2	45.7%	$192.9	63.2%	$65.3	33.9%

Cost of goods sold increased $194.9 million for the three months ended July 2, 2022, compared to the three months ended July 3, 2021, primarily due to higher material, manufacturing and distribution costs associated with the overall increase in sales, the impact of the higher proportion of these types of costs inherent in the newly added non-healthcare segment, and transaction costs incurred related to the Sound United acquisition. Also impacting the increase in cost of goods sold are various expense inefficiencies related to the continued global supply chain constraints in the current logistics environment.

Gross profit decreased to 45.5% for the three months ended July 2, 2022, compared to 63.2% for the three months ended July 3, 2021, primarily due to a change in product revenue mix from the inclusion of non-healthcare product sales.

Selling, General and Administrative. Selling, general and administrative expenses consist primarily of salaries, stock-based compensation and related expenses for sales, marketing and administrative personnel, sales commissions, advertising and promotion costs, professional fees related to legal, accounting and other outside services, public company costs and other corporate expenses. Selling, general and administrative expenses for the three months ended July 2, 2022 and July 3, 2021 were as follows:

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Selling, General and Administrative (in millions, except percentages)
Three Months Ended July 2, 2022	Percentage of Net Revenues	Three Months Ended July 3, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$188.3	33.3%	$93.9	30.8%	$94.4	100.5%

Selling, general and administrative expenses increased $94.4 million, or 100.5%, for the three months ended July 2, 2022, compared to the three months ended July 3, 2021. This increase was primarily attributable to the Sound United acquisition in the form of higher compensation and other employee-related costs of approximately $36.2 million, higher transaction-related costs of approximately $19.3 million, higher occupancy and other office-related costs of approximately $11.5 million, higher advertising and marketing-related costs of approximately $12.8 million, and higher legal and professional fees of $9.7 million.

Research and Development. Research and development expenses consist primarily of salaries, stock-based compensation and related expenses for engineers and other personnel engaged in the design and development of our products. These expenses also include third-party fees paid to consultants, prototype and engineering supply expenses and the costs of clinical trials. Research and development expenses for the three months ended July 2, 2022 and July 3, 2021 were as follows:


Research and Development (in millions, except percentages)
Three Months Ended July 2, 2022	Percentage of Net Revenues	Three Months Ended July 3, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$47.8	8.5%	$33.9	11.1%	$13.9	41.0%

Research and development expenses increased $13.9 million, or 41.0%, for the three months ended July 2, 2022, compared to the three months ended July 3, 2021, primarily due to the Sound United acquisition in the form of higher compensation and employee-related costs of approximately $8.8 million, higher engineering project costs of approximately $2.1 million, higher occupancy and other office-related costs of approximately $1.7 million, and higher professional fees of approximately $0.7 million.

Non-operating Income. Non-operating income consists primarily of interest income, interest expense and foreign exchange gains and losses. Non-operating income for the three months ended July 2, 2022 and July 3, 2021 was as follows:


Non-operating Income (in millions, except percentages)
Three Months Ended July 2, 2022	Percentage of Net Revenues	Three Months Ended July 3, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$4.5	0.8%	$0.1	—%	$4.4	4,400.0%

Non-operating income was $4.5 million for the three months ended July 2, 2022, as compared to $0.1 million of non-operating income for the three months ended July 3, 2021, primarily due to the net impact of realized and unrealized foreign currency transactions incurred during the period of approximately $8.8 million which was offset by interest expense incurred under our Credit Facility of approximately $4.5 million.

Provision for Income Taxes. Our provision for income taxes for the three months ended July 2, 2022 and July 3, 2021 was as follows:


Provision for Income Taxes (in millions, except percentages)
Three Months Ended July 2, 2022	Percentage of Net Revenues	Three Months Ended July 3, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$8.5	1.5%	$15.0	4.9%	$(6.5)	(43.3)%

For the three months ended July 2, 2022, we recorded a provision for income taxes of approximately $8.5 million, or an effective tax provision rate of 32.0%, as compared to a provision for income taxes of approximately $15.0 million, or an effective tax provision rate of 23.0%, for the three months ended July 3, 2021. The increase in our effective tax rate for the three months ended July 2, 2022 resulted primarily from the impact of the Sound United acquisition. Also contributing to the increase in our effective tax provision rate was a decrease in the amount of excess tax benefits realized from stock-based compensation of approximately $1.1 million compared to the three months ended July 3, 2021.

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Comparison of the Six Months ended July 2, 2022 to the Six Months ended July 3, 2021

Revenue. Revenue increased $265.3 million, or 43.9%, to $869.5 million for the six months ended July 2, 2022 from $604.2 million for the six months ended July 3, 2021. Contributing to the increase in revenue was approximately $208.3 million, or 34.5% from the Sound United acquisition and $57.0 million, or 9.4% from the growth in our healthcare business.


	Six Months Ended (in millions, except percentages)
	July 2, 2022				July 3, 2021				Increase/ (Decrease)		Percentage Change
Healthcare	$	661.2	76.0	%	$	604.2	100.0	%	$	57.0	9.4	%
Non-healthcare	208.3		24.0		—		—		208.3		100.0
Revenue by segment	$	869.5	100.0	%	$	604.2	100.0	%	$	265.3	43.9	%

The increase in healthcare segment revenue was partially attributable to higher sales of consumables, offset by the impact of approximately $10.3 million of unfavorable foreign exchange rate movements from the prior year that decreased the U.S. Dollar translation of foreign sales that were denominated in various foreign currencies.

Revenue generated through our direct and distribution sales channels increased $56.2 million, or 10.5%, to $590.8 for the three months ended July 2, 2022, compared to $534.6 for the three months ended July 3, 2021. Revenues from our OEM channel increased $0.8 million, or 1.1%, to $70.4 million for the three months ended July 2, 2022 as compared to $69.6 million for the three months ended July 3, 2021.

During the six months ended July 2, 2022, we shipped approximately 152,800 noninvasive technology boards and instruments.

The non-healthcare revenue segment is a new reportable segment resulting from the Sound United acquisition. Non-healthcare revenue represented below is from April 11, 2022 through July 2, 2022. The non-healthcare segment saw strong demand for consumer audio products during the six months ended July 2, 2022. Despite the improvement of supply, we still maintain a product backlog due to industry-wide supply chain challenges.

Gross Profit. Gross profit consists of total revenue less cost of goods sold. Our gross profit for the six months ended July 2, 2022 and July 3, 2021 was as follows:


Gross Profit (in millions, except percentages)
Six Months Ended July 2, 2022	Percentage of Net Revenues	Six Months Ended July 3, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change


$462.9	53.2%	$389.8	64.5%	$73.1	18.8%

Cost of goods sold increased $192.2 million for the six months ended July 2, 2022 compared to the six months ended July 3, 2021, primarily due to higher material, manufacturing and distribution costs associated with the overall increase in sales, the impact of the higher proportion of these types of costs inherent in the newly added non-healthcare segment, and transaction costs incurred related to the Sound United acquisition. Also impacting the increase in cost of goods sold are various expense inefficiencies related to the continued global supply chain constraints in the current logistics environment.

Gross profit decreased to 53.2% for the six months ended July 2, 2022 compared to 64.5% for the six months ended July 3, 2021, primarily due to costs associated with an elevated level of customer installations and higher material, manufacturing and distribution costs, along with the inclusion of non-healthcare product costs.

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Selling, General and Administrative. Selling, general and administrative expenses for the six months ended July 2, 2022 and July 3, 2021 were as follows:


Selling, General and Administrative (in millions, except percentages)
Six Months Ended July 2, 2022	Percentage of Net Revenues	Six Months Ended July 3, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$297.2	34.2%	$190.5	31.5%	$106.7	56.0%

Selling, general and administrative expenses increased $106.7 million, or 56.0%, for the six months ended July 2, 2022, compared to the six months ended July 3, 2021. This increase was primarily due to the Sound United acquisition in the form of higher compensation and other employee-related costs of approximately $36.0 million, higher transaction-related to costs of approximately $21.3 million, higher legal and professional fees of approximately $17.5 million, higher occupancy and other office-related costs of approximately $12.6 million and higher advertising and marketing-related costs of approximately $13.9 million.

Research and Development. Research and development expenses for the six months ended July 2, 2022 and July 3, 2021 were as follows:


Research and Development (in millions, except percentages)
Six Months Ended July 2, 2022	Percentage of Net Revenues	Six Months Ended July 3, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$83.9	9.6%	$68.5	11.3%	$15.4	22.5%

Research and development expenses increased $15.4 million, or 22.5%, for the six months ended July 2, 2022 compared to the six months ended July 3, 2021, primarily due to the Sound United acquisition in the form of higher compensation-related costs of approximately $9.6 million, higher engineering project costs of approximately $2.8 million and higher occupancy and other office-related costs of approximately $2.2 million.

Non-operating Income (Loss). Non-operating income (loss) consists primarily of interest income, interest expense and foreign exchange gains and losses. Non-operating income (loss) for the six months ended July 2, 2022 and July 3, 2021 was as follows:


Non-operating Income (Loss) (in millions, except percentages)
Six Months Ended July 2, 2022	Percentage of Net Revenues	Six Months Ended July 3, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$3.9	0.4%	$(0.7)	(0.1)%	$4.6	(657.1)%

Non-operating income increased by $4.6 million for the six months ended July 2, 2022, compared to the six months ended July 3, 2021, primarily due to the net impact of realized and unrealized foreign currency denominated transactions incurred during the period of approximately $8.0 million, which were offset by interest expense incurred under our Credit Facility of approximately $4.6 million.

Provision for Income Taxes. Our provision for income taxes for the six months ended July 2, 2022 and July 3, 2021 was as follows:


Provision for Income Taxes (in millions, except percentages)
Six Months Ended July 2, 2022	Percentage of Net Revenues	Six Months Ended July 3, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$21.0	2.4%	$26.5	4.4%	$(5.5)	(20.8)%

For the six months ended July 2, 2022, we recorded a provision for income taxes of approximately $21.0 million, or an effective tax rate of 24.5%, as compared to a provision for income taxes of approximately $26.5 million, or an effective tax rate of 20.4%, for the six months ended July 3, 2021. The increase in our tax rate for the six months ended July 2, 2022 resulted primarily from the impact of the Sound United acquisition. Also contributing to the increase in our effective tax provision rate was a decrease in the amount of excess tax benefits realized from stock-based compensation of approximately $3.7 million as compared to the six months ended July 3, 2021.

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Liquidity and Capital Resources

Our principal sources of liquidity consist of our existing cash and cash equivalent balances, future funds expected to be generated from operations and available borrowing capacity under our Credit Facility. As of July 2, 2022, we had approximately $606.2 million in working capital, of which approximately $218.0 million was in cash and cash equivalents. In addition to net working capital, we had approximately $71.4 million of available borrowing capacity (net of outstanding letters of credit) under our Credit Facility.

In managing our day-to-day liquidity and capital structure, we generally do not rely on foreign earnings as a source of funds. As of July 2, 2022, we had cash totaling $97.9 million held outside of the U.S., of which approximately $27.6 million was accessible without additional tax cost and approximately $35.8 million was accessible at an incremental estimated tax cost of up to $0.4 million. The tax cost on the remaining $34.5 million is not determinable at this time. We currently have sufficient funds on-hand and cash held outside the U.S. that is available without additional tax cost to fund our global operations. In the event funds that are treated as permanently reinvested are repatriated, we may be required to accrue and pay additional U.S. taxes to repatriate these funds.

Cash Flows

The following table summarizes our cash flows:


	Six Months Ended (in millions)
	July 2, 2022		July 3, 2021
Net cash provided by (used in):
Operating activities	$	25.6	$	85.2
Investing activities	(1,027.2)		(17.2)
Financing activities	496.0		(136.5)
Effect of foreign currency exchange rates on cash	(22.2)		0.8
Decrease in cash, cash equivalents and restricted cash	$	(527.8)	$	(67.7)

Operating Activities. Cash provided by operating activities was approximately $25.6 million for the six months ended July 2, 2022, generated primarily from net income from operations of $64.7 million. Non-cash activity included depreciation and amortization of $79.9 million and stock-based compensation of approximately $28.2 million. Additional uses of cash included changes in operating assets and liabilities, including an increase in inventories of approximately $67.8 million, an increase in accounts receivable of approximately $44.7 million, a decrease in accrued compensation of approximately $22.6 million, an increase in deferred costs and other contract assets of approximately $21.6 million, a decrease in income tax payable of approximately $18.5 million, an increase in other current assets of approximately $8.2 million, a decrease in accrued liabilities of approximately $7.2 million, an increase in lease receivables, net of approximately $1.7 million and a decrease in other non-current liabilities of approximately $1.0 million. These uses of cash were offset by other changes in operating assets and liabilities, including an increase in accounts payable of approximately $40.4 million, an increase in deferred revenue and other contract-related liabilities of approximately $4.8 million.

For the six months ended July 3, 2021, cash provided by operating activities was approximately $85.2 million, generated primarily from net income from operations of $103.6 million. Non-cash activity included stock-based compensation of $20.9 million and depreciation and amortization of $17.3 million. Additional uses of cash included a decrease in other current assets of approximately $6.5 million and an increase in accounts payable of approximately $2.0 million. These sources of cash were partially offset by other changes in operating assets and liabilities, including a decrease in accrued compensation, accrued liabilities, income tax payable, deferred revenue and other contract-related liabilities of approximately $16.3 million, $6.0 million, $2.0 million and $1.2 million, respectively, primarily due to the timing of payments; an increase in accounts receivable of approximately $38.7 million, primarily due to the timing of cash receipts and an increase in lease receivable of approximately $7.5 million.

Investing Activities. Cash used in investing activities for the six months ended July 2, 2022 was approximately $1,027.2 million, consisting primarily of approximately $985.5 million for business combinations, net of cash acquired approximately $30.0 million for purchases of property and equipment, approximately $10.5 million of capitalized intangible asset costs related primarily to patent and trademark costs and license fees and approximately $1.2 million for strategic investments.

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For the six months ended July 3, 2021, cash used in investing activities was approximately $17.2 million, consisting primarily of approximately $14.2 million for purchases of property and equipment and $3.0 million of capitalized intangible asset costs related primarily to patent and trademark costs.

Financing Activities. Cash provided by financing activities for the six months ended July 2, 2022 was approximately $496.0 million, consisting primarily of proceeds from borrowings under the line of credit of approximately $927.0 million and the issuance of common stock related to employee equity awards of approximately $4.6 million, which were partially offset by the repurchases of our common stock of approximately $401.4 million, withholding of shares for employee payroll taxes for vested equity awards of approximately $25.4 million and debt issuance costs of approximately $8.9 million.

For the six months ended July 3, 2021, cash used in financing activities was approximately $136.5 million, consisting primarily of repurchases of our common stock of approximately $128.9 million and withholding of shares for employee payroll taxes for vested equity awards of approximately $16.7 million, which were partially offset by proceeds from the issuance of common stock related to employee equity awards of approximately $9.1 million.

Capital Resources and Prospective Capital Requirements

We expect to fund our future operating, investing and financing activities through our available cash, future cash from operations, our Credit Facility and other potential sources of capital. In addition to funding our working capital requirements, we anticipate additional capital expenditures primarily related to investments in infrastructure growth. Possible additional uses of cash may include acquisitions of and/or strategic investments in technologies or technology companies, investments in property and repurchases of common stock under our authorized stock repurchase program. However, any repurchases of common stock will be subject to numerous factors, including the availability of our common stock, general market conditions, the trading price of our common stock, availability of capital, alternative uses for capital and our financial performance. In addition, the amount and timing of our actual investing activities will vary significantly depending on numerous factors, including the timing and amount of capital expenditures, costs of product development efforts, our timetable for infrastructure expansion, any stock repurchase activity and costs related to our domestic and international regulatory requirements. Despite these investment requirements and potential expenditures, we anticipate that our existing cash and cash equivalents and amounts available under our Credit Facility will be sufficient to meet our working capital requirements, capital expenditures and other operational funding needs for at least the next 12 months. For additional information related to our Credit Facility, please see Note 15, “Debt”, to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of net revenues, expenses, assets and liabilities. We regularly evaluate our estimates and assumptions related to our critical accounting policies, including revenue recognition, inventory valuation, stock-based compensation, business combinations, deferred taxes and related valuation allowances, uncertain tax positions, tax contingencies, litigation costs and loss contingencies.

These estimates and judgments are based on historical experience and on various other factors that we believe to be reasonable under the circumstances, and form the basis for making management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. Although we regularly evaluate these estimates and assumptions, changes in judgments and uncertainties relating to these estimates could potentially result in materially different results under different assumptions and conditions. If these estimates differ significantly from actual results, the impact on the condensed consolidated financial statements may be material.

There have been no material changes to any of our critical accounting policies during the six months ended July 2, 2022. For a description of these critical accounting policies, please refer to “Critical Accounting Estimates” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 1, 2022, which was filed with the SEC on February 15, 2022.

Recent Accounting Pronouncements

For details regarding any recently adopted and recently issued accounting standards, see Note 2, “Summary of Significant Accounting Policies”, to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks that may arise from adverse changes in market rates and prices, such as interest rates, foreign exchange fluctuations and inflation. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates to the increase or decrease in the amount of interest income we can earn on our cash and cash equivalents and on the increase or decrease in the amount of interest expense we must pay with respect to our various outstanding debt instruments. As of July 2, 2022, the carrying value of our cash equivalents approximated fair value. We have limited risk associated with interest rates fluctuations related to interest expense under our Credit Facility. Declines in interest rates over time will reduce our interest income while increases in interest rates will increase our interest income. A hypothetical 100 basis point change in interest rates along the entire interest rate yield curve would increase or decrease our interest rate yields on our investments, interest income and credit facilities by approximately $0.1 million for each $10.0 million in interest-bearing investments and by $0.1 million for each additional $10.0 million of debt.

Foreign Currency Exchange Rate Risk

A majority of our assets and liabilities are maintained in the United States in U.S. Dollars and a majority of our sales and expenditures are transacted in U.S. Dollars. However, we also transact with foreign customers in currencies other than the U.S. Dollar. These foreign currency revenues, when converted into U.S. Dollars, can vary depending on average exchange rates during a respective period. In addition, certain of our foreign subsidiaries transact in their respective country’s local currency, which is also their functional currency. As a result, expenses of these foreign subsidiaries, when converted into U.S. Dollars can also vary depending on average monthly exchange rates during a respective period.

We are exposed to foreign currency gains or losses on outstanding foreign currency denominated receivables and payables, as well as our foreign currency denominated cash balances and certain intercompany transactions. In addition, other transactions between us or our subsidiaries and a third-party, denominated in a currency different from the functional currency, are foreign currency transactions. Realized and unrealized foreign currency gains or losses on these transactions are also included in our statements of operations as incurred.

The balance sheets of each of our foreign subsidiaries whose functional currency is not the U.S. Dollar are translated into U.S. Dollars at the rate of exchange at the balance sheet date and the statements of comprehensive income and cash flows are translated into U.S. Dollars using an approximation of the average monthly exchange rates applicable during the period. Any foreign exchange gain or loss as a result of translating the balance sheets of our foreign subsidiaries whose functional currency is not the U.S. Dollar is included in equity as a component of accumulated other comprehensive income.

Our foreign currency exchange rate exposures are primarily with the Canadian Dollar, Euro, Japanese Yen, Swedish Krona, the British Pound, Mexican Peso, Turkish Lira and Australian Dollar. Foreign currency exchange rates may experience significant volatility from one period to the next. Specifically, during the six months ended July 2, 2022, we estimate fluctuations in the exchange rates between the U.S. Dollar and other foreign currencies, including the Euro, the Japanese Yen, the British Pound, the South Korean Won and the Australian Dollar, unfavorably impacted our revenues by $22.2 million.

We currently enter into forward exchange contracts to hedge foreign currency exposures, but do not use derivative financial instruments for trading or speculative purposes. The effect of additional changes in foreign currency exchange rates could have a material effect on our future operating results or cash flows, depending on which foreign currency exchange rates change and depending on the directional change (either a strengthening or weakening against the U.S. Dollar). We estimate that the potential impact of a hypothetical 10% adverse change in all applicable foreign currency exchange rates from the rates in effect as of July 2, 2022 would have resulted in an estimated reduction of $16.9 million in reported pre-tax income for the six months ended July 2, 2022. As our foreign operations continue to grow, our exposure to foreign currency exchange rate risk may become more significant.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations during the periods presented. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could have a material adverse effect on our business, financial condition and results of operations.

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Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (SEC) regulations, rules and forms and that such information is accumulated and communicated to our management, including our CEO and Chief Financial Officer (CFO), as appropriate, to allow for timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by Rule 13a-15(b) or Rule 15d-15(b) promulgated by the SEC under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

The Sound United acquisition was completed on April 11, 2022. The financial results of Sound United are included in our unaudited condensed consolidated financial statements for the quarter ended July 2, 2022. The Sound United business represented approximately $208.3 million of revenue and $26.9 million of net loss for the second quarter of fiscal year 2022. As this acquisition occurred in the second quarter of fiscal year 2022, the scope of our assessment of our internal control over financial reporting does not include Sound United. This exclusion is in accordance with the SEC’s general guidance that an assessment of a recently acquired business may be omitted from our scope during the first year following the date of acquisition.

During the three months ended July 2, 2022, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information set forth in Note 23, “Commitments and Contingencies”, to our accompanying condensed consolidated financial statements under the caption “Litigation” included in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors

The following risk factors and other information included in this Quarterly Report on Form 10-Q should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the following risks come to fruition, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you could lose all or part of your investment. Risk factors marked with an asterisk (*) below include a substantive change from or an update to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2022, filed with the SEC on February 15, 2022.

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Summary of Material Risk Factors

Below is a summary of the principal factors that make an investment in our securities speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this summary, and other risks that we face, can be found following this summary and should be carefully considered together with all of the other information appearing in this Quarterly Report on Form 10-Q.

•We currently derive the majority of our healthcare revenue from our Masimo SET® platform, Masimo rainbow SET® platform and related products. If these technologies and related products do not continue to achieve market acceptance, our business, financial condition and results of operations would be adversely affected.

•*Some of our products are in development or have been recently introduced into the market and may not achieve market acceptance, which could limit our growth and adversely affect our business, financial condition and results of operations.

•*If we are not able to maintain and enhance the value and reputation of our non-healthcare brands, or if our reputation is otherwise damaged, our business and operating results could be harmed.

•Our ability to commercialize new products, new or improved technologies and additional applications for Masimo SET® and our licensed rainbow® technology is limited to certain markets by our Cross-Licensing Agreement with Cercacor Laboratories, Inc. (Cercacor), which may impair our growth and adversely affect our business, financial condition and results of operations.

•*We face competition from other companies, many of which have substantially greater resources than we do. If we do not successfully develop and commercialize enhanced or new products that remain competitive with products or alternative technologies developed by others, we could lose revenue opportunities and customers, and our ability to grow our business would be impaired, adversely affecting our financial condition and results of operations.

•We depend on our domestic and international OEM partners for a portion of our revenue. If they do not devote sufficient resources to the promotion of products that use our technologies, our business would be harmed.

•*If we fail to maintain or develop relationships with GPOs, sales of our healthcare products would decline.

•*Inadequate levels of coverage or reimbursement from governmental or other third-party payers for our healthcare products, or for procedures using our healthcare products, may cause our revenue to decline or prevent us from realizing revenues from future products.

•Consolidation in the healthcare industry could lead to demands for price concessions or to the exclusion of existing market participants from certain markets, which could have an adverse effect on our business, results of operations or financial condition.

•*The loss of any large customer or distributor, or any cancellation or delay of a significant purchase by a large customer, could reduce our net sales and harm our operating results.

•Counterfeit Masimo sensors and third-party reprocessed single-patient-use Masimo sensors may harm our reputation and adversely affect our business, financial condition and results of operations.

•*A regional or global recession and other negative macro-economic trends could adversely affect our non-healthcare business.

•*Competition and other conflicts with our non-healthcare distribution partners could harm our business and operating results.

•*Certain of our non-healthcare products are dependent on integrations with third-party technology.

•If the patents we own or license, or our other intellectual property rights, do not adequately protect our technologies, we may lose market share to our competitors and be unable to operate our business profitably.

•If third-parties claim that we infringe their intellectual property rights, we may incur liabilities and costs and may have to redesign or discontinue selling certain products.

•We believe competitors may currently be violating and may in the future violate our intellectual property rights. As a result, we may initiate litigation to protect and enforce our intellectual property rights, which may result in substantial expense and may divert management’s attention from implementing our business strategy.

•The laws of foreign countries may not adequately protect our intellectual property rights.

•Our failure to obtain and maintain FDA clearances or approvals on a timely basis, or at all, would prevent us from commercializing our current, upgraded or new medical devices in the U.S., which could severely harm our business.

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•*If we or our suppliers fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.

•Regulatory reforms may impact our ability to develop and commercialize our healthcare products and technologies.

•*If our healthcare products cause or contribute to a death or serious injury, or malfunction in a way that would likely cause or contribute to a death or serious injury, we will be subject to medical device reporting regulations and other applicable laws, and may need to initiate voluntary corrective actions or in certain circumstances be required to take corrective actions, such as the recall of our healthcare products.

•Promotion of our healthcare products using claims that are off-label, unsubstantiated, false or misleading could subject us to substantial penalties.

•The regulatory environment governing information, data security and privacy is increasingly demanding and continues to evolve.

•We may be subject to or otherwise affected by federal and state healthcare laws, including fraud and abuse laws, and could face substantial penalties if we are unable to fully comply with these laws.

•*Legislative and regulatory changes in the healthcare industry could have a negative impact on our financial performance. Furthermore, our business, financial condition, results of operations and cash flows could be significantly and adversely affected by healthcare reform legislation in the U.S. or in our key international markets.

•*Our business, financial condition and results of operations may be adversely affected by the COVID-19 pandemic.

•We may experience conflicts of interest with Cercacor with respect to business opportunities and other matters.

•We will be required to assign to Cercacor and pay Cercacor for the right to use certain products and technologies we develop that relate to the monitoring of non-vital sign parameters, including improvements to Masimo SET®.

•In the event that the Cross-Licensing Agreement is terminated for any reason, or Cercacor grants a license to rainbow® technology to a third-party, our business would be adversely affected.

•Rights provided to Cercacor in the Cross-Licensing Agreement may impede a change in control of our company.

•*If we are unable to obtain key materials and components from sole or limited source suppliers, we will not be able to deliver our products to customers.

•*Future strategic initiatives, including acquisitions of businesses and strategic investments, could negatively affect our business, financial condition and results of operations if we fail to integrate the acquired businesses and their employees successfully into our existing operations or achieve the desired results of our investment.

•*Our new products and changes to existing products as a result of our acquisition of Sound United could fail to attract or retain users or generate revenue and profits. Further, we may not be successful in our non-healthcare expansion, which could adversely affect our business, reputation or financial results.

•*Our Credit Facility contains certain covenants and restrictions that may limit our flexibility in operating our business.

•Concentration of ownership of our stock among our existing directors, executive officers and principal stockholders may prevent new investors from influencing significant corporate decisions.

•Our corporate documents and Delaware law contain provisions that could discourage, delay or prevent a change in control of our company, prevent attempts to replace or remove current management and reduce the market price of our stock.

•Our bylaws provide that the state or federal courts located within the State of Delaware are the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

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Risks Related to Our Revenues

We currently derive the majority of our healthcare revenue from our Masimo SET® platform, Masimo rainbow SET® platform and related products. If these technologies and related products do not continue to achieve market acceptance, our business, financial condition and results of operations would be adversely affected.

Our healthcare business is highly dependent upon the continued success and market acceptance of our proprietary Masimo SET® and Masimo rainbow SET® technologies that serve as the basis of our primary healthcare product offerings. Continued market acceptance of products incorporating these technologies will depend upon us continuing to provide evidence to the medical community that our products are cost-effective and offer significantly improved performance compared to conventional pulse oximeters. Healthcare providers that currently have significant investments in competitive pulse oximetry products may be reluctant to purchase our products. If hospitals and other healthcare providers do not believe our Masimo SET® and Masimo rainbow SET® platforms are cost-effective, safe or more accurate or reliable than competitive pulse oximetry products, they may not buy our healthcare products in sufficient quantities to enable us to generate revenue growth from the sale of these products. In addition, allegations regarding the safety and effectiveness of our products, whether or not substantiated, may impair or impede the acceptance of our products.

*Some of our products are in development or have been recently introduced into the market and may not achieve market acceptance, which could limit our growth and adversely affect our business, financial condition and results of operations.

Many of our noninvasive measurement technologies are considered disruptive. These technologies have performance levels that we believe are acceptable for many clinical environments but may be insufficient in others. In addition, these technologies may perform better in some patients and settings than others. Over time, we hope to continue to improve the performance of these technologies and educate the clinical community on how to properly evaluate them. If we are successful in these endeavors, we expect these technologies will become more useful in more environments and will become more widely adopted. Our product portfolio continues to expand, and we are investing significant resources to enter into, and in some cases create, new markets for our products. For example, our recent acquisition of Viper Holdings Corporation d/b/a Sound United, LLC (Sound United) expanded our business and product strategy to additionally focus on non-healthcare products to integrate with our successful medical technology. See the risk factor with the heading “Our new products and changes to existing products as a result of our acquisition of Sound United could fail to attract or retain users or generate revenue and profits. Further, we may not be successful in our non-healthcare expansion, which could adversely affect our business, reputation or financial results” for additional risks related to this expansion of our business.

We are continuing to invest in sales and marketing resources to achieve market acceptance of our products, but are unable to guarantee that our technologies will achieve general market acceptance.

The degree of market acceptance of our healthcare products will depend on a number of factors, including but not limited to:

•perceived clinical benefits from our products;

•perceived cost effectiveness of our products;

•perceived safety and effectiveness of our products;

•reimbursement available through government and private healthcare programs for using some of our products; and

•introduction and acceptance of competing products or technologies.

Further, market acceptance of our non-healthcare products will depend on certain additional factors, including but not limited to:

•perceived quality of our non-healthcare brands and technology;

•our ability to accurately forecast consumer demand and maintain manufacturing capacity to meet such demand;

•our ability to introduce new innovative products that align with rapidly changing consumer tastes; and

•implementation of pricing and marketing strategies that drive consumer adoption without eroding our premium market position.

If our products do not gain market acceptance or if our customers prefer our competitors’ products, our potential revenue growth would be limited, which would adversely affect our business, financial condition and results of operations.

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*If we are not able to maintain and enhance the value and reputation of our non-healthcare brands, or if our reputation is otherwise damaged, our business and operating results could be harmed.

Our non-healthcare business in the premium audio market depends on the reputation associated with our brands, including Bowers & Wilkins®, Denon®, Marantz®, HEOS®, Classé®, Polk Audio®, Boston Acoustics® and Definitive Technology®, for providing high-quality products and consumer experiences. The reputation of our brands is dependent on a number of factors, including product quality, research and development, trademark protection and sales and marketing initiatives, each of which requires a wide variety of talented professionals and significant expenditures.

The value of our brands could be damaged by a number of factors, including defects or other quality issues, perceived lack of innovation, evolving consumer tastes, or ineffective marketing strategies. Further, certain third-parties, such as installers of home audio systems or independent retailers over which we exert no control may damage our reputation if their services or business practices negatively impact the consumer experience with our products. Damage to our brands’ reputation or other negative consumer perceptions may adversely affect our business, financial condition and results of operations.

Our ability to commercialize new products, new or improved technologies and additional applications for Masimo SET® and our licensed rainbow® technology is limited to certain markets by our Cross-Licensing Agreement with Cercacor Laboratories, Inc. (Cercacor), which may impair our growth and adversely affect our business, financial condition and results of operations.

Since 1998, we have been a party to a cross-licensing agreement with Cercacor, (as amended, the Cross-Licensing Agreement), under which we granted Cercacor:

•an exclusive, perpetual and worldwide license, with sublicense rights, to use all Masimo SET® technology owned by us, including all improvements to this technology, for the monitoring of non-vital signs parameters and to develop and sell devices incorporating Masimo SET® for monitoring non-vital signs parameters in any product market in which a product is intended to be used by a patient or pharmacist rather than by a professional medical caregiver, which we refer to as the “Cercacor Market”; and

•a non-exclusive, perpetual and worldwide license, with sublicense rights, to use all Masimo SET® technology owned by us for measurement of vital signs in the “Cercacor Market”.

Non-vital signs measurements consist of body fluid constituents other than vital signs measurements, including, but not limited to, carbon monoxide, methemoglobin, blood glucose, hemoglobin and bilirubin. Under the Cross-Licensing Agreement, we are only permitted to sell devices utilizing Masimo SET® for the monitoring of non-vital signs parameters in markets where the product is intended to be used by a professional medical caregiver, including, but not limited to, hospital caregivers and alternate care facility caregivers, rather than by a patient or pharmacist, which we refer to as the “Masimo Market”. Accordingly, our ability to commercialize new products, new or improved technologies and additional applications for Masimo SET® is limited. In particular, our inability to expand beyond the “Masimo Market” may limit our ability to maintain or increase our revenue and impair our growth.

Pursuant to the Cross-Licensing Agreement, we have licensed from Cercacor the right to make and distribute products in the “Masimo Market” that utilize rainbow® technology for certain noninvasive measurements. As a result, the opportunity to expand the market for our products incorporating rainbow® technology is also limited, which could limit our ability to maintain or increase our revenue and impair our growth.

*We face competition from other companies, many of which have substantially greater resources than we do. If we do not successfully develop and commercialize enhanced or new products that remain competitive with products or alternative technologies developed by others, we could lose revenue opportunities and customers, and our ability to grow our business would be impaired, adversely affecting our financial condition and results of operations.

The industries in which we compete are intensely competitive and significantly affected by new product introductions and other market activities of industry participants. A number of our competitors have substantially greater capital resources, larger product portfolios, larger customer bases, larger sales forces and greater geographic presence, have established stronger reputations with specific customers, and have built relationships with Group Purchasing Organizations and other hospital purchasing groups (collectively, GPOs) that may be more effective than ours. Our Masimo SET® platform faces additional competition from companies developing products for use with third-party monitoring systems, as well as from companies that currently market their own pulse oximetry monitors. In addition, competitors with larger product portfolios than ours are engaging in bundling practices, whereby they offer increased discounts to hospitals that purchase their requirements for a variety of different products from the competitor, including products that we do not offer, effectively pricing their competing products at a loss.

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Continuing technological advances and new product introductions in the industries in which we compete place our products at risk of obsolescence. Our long-term success depends upon the development and successful commercialization of new products, new or improved technologies and additional applications for our existing technologies. In our non-healthcare business, we face significant risks associated with new product introductions, including accurately forecasting initial consumer demand, effectively managing any third-party strategic alliances related to manufacturing and commercialization, as well as the risk that new products may not achieve market acceptance or, if acceptance is achieved, may negatively impact the sales of older products. Accordingly, if we cannot properly manage the introduction of new products, our operating results and financial condition may be adversely impacted. In addition, the research and development process is time-consuming and costly and may not result in products or applications that we can successfully commercialize. In particular, we may not be able to successfully commercialize our healthcare products for applications other than arterial blood oxygen saturation and pulse rate monitoring, such as for respiration rate, hemoglobin, carboxyhemoglobin and methemoglobin monitoring.

If we do not successfully adapt our products and applications, we could lose revenue opportunities and customers. Furthermore, one or more of our competitors may develop products that are substantially equivalent to those of our healthcare products that are cleared or approved for use, or those of our original equipment manufacturer (OEM) partners, in which case a competitor of ours may use our products or those of our OEM partners as predicate devices to more quickly obtain regulatory clearance or approval of their competing products. Competition could result in pressure from our customers to reduce the price of our products and could cause them to place fewer orders for our products, which could, in turn, cause a reduction in our revenues and product gross margins, thereby adversely impacting our business, financial condition and results of operations.

Some of the world’s largest technology companies that have not historically operated in the healthcare or medical device space, such as Alphabet Inc., Amazon.com, Inc., Apple Inc., Samsung Electronics Co., Ltd. and others, have developed or may develop products and technologies that may compete with our current or future products and technologies. For example, in September 2020, Apple, Inc. announced that its Apple Watch Series 6 includes a pulse oximetry monitoring feature, which may compete with certain of our existing products and products in development, including the consumer versions of our iSpO2® and MightySat® pulse oximeters, as well as our Masimo W1® wearable. In addition, in September 2021, Apple, Inc. announced that its Apple Watch Series 7 includes a blood oxygen level monitoring feature and a sleep tracking function, both of which compete with our existing products. In our non-healthcare business, our competition includes the technology companies referenced above as well as sellers of consumer audio products, such as Bang & Olufsen®, Bose®, Harman International®, JBL®, Sonos® and Sony®. Many of these companies have substantially greater capital, research and development, and sales resources than we have. To effectively compete, we may need to expand our product offerings and distribution channels, which in the interim could increase our research and development costs and decrease our operating margins, thereby adversely impacting our business, financial condition and results of operations.

We depend on our domestic and international OEM partners for a portion of our revenue. If they do not devote sufficient resources to the promotion of products that use our technologies, our business would be harmed.

We are, and will continue to be, dependent upon our domestic and international OEM partners for a portion of our revenue through their marketing, selling and distribution of certain of their products that incorporate our technologies. Although we expect that our OEM partners will accept and actively market, sell and distribute products that incorporate our technologies, they may not do so. Because products that incorporate our technologies may represent a relatively small percentage of business for some of our OEM partners, they may have less incentive to promote these products over other products that do not incorporate these technologies.

In addition, some of our OEM partners offer products that compete with ours and also may be involved in intellectual property disputes with us. Therefore, we cannot guarantee that our OEM partners, or any company that may acquire any of our OEM partners, will vigorously promote products incorporating our technologies. The failure of our OEM partners to successfully market, sell or distribute products incorporating our technologies, the termination of OEM agreements, the loss of OEM partners or the inability to enter into future OEM partnership agreements would have a material adverse effect on our business, financial condition and results of operations.

*If we fail to maintain or develop relationships with GPOs, sales of our healthcare products would decline.

Our ability to sell our healthcare products to hospitals depends, in part, on our relationships with GPOs. Many existing and potential customers for our products are members of GPOs. GPOs negotiate pricing arrangements and contracts with medical supply manufacturers and distributors that may include provisions for sole sourcing and bundling, which generally reduce the choices available to member hospitals.

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These negotiated prices are made available to a GPO’s members. If we are not one of the providers selected by a GPO, the GPO’s members may be less likely or unlikely to purchase our products. If a GPO has negotiated a strict sole source, market share compliance or bundling contract for another manufacturer’s products, we may be prohibited from making sales to members of such GPO for the duration of such contractual arrangement. Shipments of our pulse oximetry products to customers that are members of GPOs represent approximately 85% of our U.S. healthcare product sales. Our failure to renew our contracts with GPOs may cause us to lose market share in our healthcare business and could have a material adverse effect on our business, financial condition and results of operations. In addition, if we are unable to develop new relationships with GPOs, our competitive position would likely suffer and our opportunities to grow our revenues and business would be harmed.

*Inadequate levels of coverage or reimbursement from governmental or other third-party payers for our healthcare products, or for procedures using our healthcare products, may cause our revenue to decline or prevent us from realizing revenues from future products.

Sales of our healthcare products depend in part on the reimbursement and coverage policies of governmental and private healthcare payers. The lack of adequate coverage and reimbursement for our healthcare products or the procedures in which our healthcare products are used may deter customers from purchasing our products.

We cannot guarantee that governmental or third-party payers will reimburse or begin reimbursing a customer for the cost of our healthcare products or the procedures in which our healthcare products are used. For example, some insurance carriers have issued policies denying coverage for transcutaneous hemoglobin measurement on the grounds that the technology is investigational in the outpatient setting. Other payers are continuing to investigate our products to determine if they will provide reimbursement for the use of such products. In addition, we may incur significant expenses to generate clinical data to demonstrate not only the safety and efficacy, but also the cost-effectiveness of our products in order to obtain favorable reimbursement policies from payers.

These trends could lead to pressure to reduce prices for our current and future healthcare products, hinder our ability to obtain market adoption, cause a decrease in the size of the market or potentially increase competition, any of which could have a material adverse effect on our business, financial condition and results of operations.

We do not control payer decision-making with respect to coverage and payment levels for our products. Additionally, we expect many payers to continue to explore cost-containment strategies (e.g., comparative and cost-effectiveness analyses, so-called “pay-for-performance” programs implemented by various public government healthcare programs and private third-party payers, and expansion of payment bundling initiatives, and other such methods that shift medical cost risk to providers) that may potentially impact coverage and/or payment levels for our current products or products we develop in the future.

Outside of the U.S., reimbursement systems vary by country. These systems are often subject to the same pressures to curb rising healthcare costs and control healthcare expenditures as those in the U.S. In addition, as economies of emerging markets develop, these countries may implement changes in their healthcare delivery and payment systems. If adequate levels of reimbursement from third-party payers outside of the U.S. are not obtained, sales of our products outside of the U.S. may be adversely affected.

Consolidation in the healthcare industry could lead to demands for price concessions or to the exclusion of existing market participants from certain markets, which could have an adverse effect on our business, results of operations or financial condition.

Because healthcare costs have risen significantly over the past decade, numerous initiatives and reforms initiated by legislators, regulators and third-party payers to curb these costs have resulted in a consolidation trend in the healthcare industry to aggregate purchasing power. As the healthcare industry consolidates, competition to provide products and services to industry participants has become, and will continue to become, more intense. This has resulted in, and will likely continue to result in, greater pricing pressures and the exclusion of certain existing market participants from important market segments as GPOs, independent delivery networks and large single accounts continue to use their market power to consolidate purchasing decisions for hospitals.

We expect that market demand, government regulation, third-party coverage and reimbursement policies and societal pressures will continue to impact the worldwide healthcare industry, resulting in further business consolidations and alliances among our customers, which may reduce competition, exert further downward pressure on the prices of our healthcare products and adversely impact our business, financial condition and results of operations.

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Our healthcare customers may reduce, delay or cancel purchases due to a variety of factors, such as lower hospital census levels or third-party guidelines, which could adversely affect our business, financial condition and results of operations.

Our healthcare customers are facing growing levels of uncertainties, including variations in overall hospital census for paying patients and the impact of such census variations on hospital budgets. As a result, many hospitals are reevaluating their entire cost structure, including the amount of capital they allocate to medical device technologies and products. In addition, certain of our products, including our rainbow® measurements such as carbon monoxide, methemoglobin and hemoglobin, that are sold with upfront license fees and more complex and expensive sensors, could also be impacted by hospital budget reductions. Any reductions in capital spending budgets by hospitals could have a significant negative impact on our OEM customers who, due to their traditionally larger capital equipment sales model, could see declines in purchases from their hospital customers. This, in turn, could reduce our board sales to our OEM customers.

From time to time, states and other local regulatory authorities may issue guidelines regarding the appropriate scope and use of our products. For example, some of our noninvasive monitoring devices may be subject to authorization by individual states as part of the Emergency Medical Services (EMS) scope of practice procedures. A lack of inclusion into scope of practice procedures may limit adoption of our products.

Additionally, increases in demand resulting from global medical crises such as the ongoing COVID-19 pandemic may be short lived. If the increased demand results in a stockpiling of our healthcare products by, or excess inventory at, our customers, future orders may be delayed or canceled until such on-hand inventory is consumed.

*The loss of any large customer or distributor, or any cancellation or delay of a significant purchase by a large customer, could reduce our net sales and harm our operating results.

Our healthcare business has a concentration of OEM, distributor and direct customers. For example, sales to two just-in-time distributors each represented 10% or more of our healthcare product sales for the fiscal quarter ended July 2, 2022. Similarly, within our non-healthcare business, we sell products through distributors, resellers, direct-to-consumer and to large retailers. No individual retailers represented more than 10% of our non-healthcare product sales for the fiscal quarter ended July 2, 2022.

We cannot provide any assurances that we will retain our current customers, groups of customers or distributors, that they will maintain their current or forecasted demand for our products, or that we will be able to attract and retain additional customers in the future. If for any reason we were to lose our ability to sell to a specific group or class of customers or through a distributor, we could experience a significant reduction in revenue or loss of market share, which would adversely impact our operating results.

Our revenues could also be negatively affected by any rebates, discounts or fees that are required by, or offered to, GPOs and customers, including wholesalers or distributors. Additionally, some just-in-time distributors of our healthcare products have been demanding higher fees, which we may be obligated to pay in order to continue to offer products to our customers through these distributors or which may obligate us to distribute our products directly to our customers. The loss of any large customer or distributor, an increase in distributor fees, or the risks associated with selling directly to our customers could have a material adverse effect on our business, financial condition and results of operations.

Counterfeit Masimo sensors and third-party reprocessed single-patient-use Masimo sensors may harm our reputation and adversely affect our business, financial condition and results of operations.

We believe that other entities are manufacturing and selling counterfeit Masimo sensors. In addition, certain medical device reprocessors have been collecting our used single-patient-use sensors from hospitals and then reprocessing, repackaging and reselling those sensors to hospitals. These counterfeit and third-party reprocessed sensors are sold at lower prices than new Masimo sensors. Our experience with both these counterfeit sensors and third-party reprocessed sensors is that they provide inferior performance, increased sensor consumption, reduced comfort and a number of monitoring problems. Notwithstanding these limitations, some of our customers have indicated a willingness to purchase some of their sensor requirements from these counterfeit manufacturers and third-party reprocessors in an effort to reduce their sensor costs.

These counterfeit and reprocessed sensors have led and may continue to lead to confusion with our genuine Masimo products, have reduced and may continue to reduce our revenue, and, in some cases, have harmed and may continue to harm our reputation if customers conclude incorrectly that these counterfeit or reprocessed sensors are original Masimo sensors.

In addition, we have expended a significant amount of time and expense investigating issues caused by counterfeit and reprocessed sensors, troubleshooting problems stemming from such sensors, educating customers about why counterfeit and reprocessed sensors do not perform to their expectations, enforcing our proprietary rights against the counterfeit manufacturers and reprocessors, and enforcing our contractual rights.

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In response to these counterfeit sensors and third-party reprocessors, we have incorporated X-Cal® technology into certain products to ensure our customers get the performance they expect by using genuine Masimo sensors and that such sensors do not continue to be used beyond their useful life. However, some customers may object to the X-Cal® technology, potentially resulting in the loss of customers and revenues.

We also offer our own Masimo reprocessed sensors, which meet the same performance specifications as our new Masimo sensors, to our customers. Reprocessed sensors sold by us are also offered at a lower price and, therefore, may reduce certain customer demand for our new sensors. As a result, increased sales of our own Masimo reprocessed sensors may result in lower revenues, which could negatively impact our business, financial condition and results of operations.

*A regional or global recession and other negative macro-economic trends could adversely affect our non-healthcare business.

Our non-healthcare products are generally considered non-essential, discretionary products. As such, many of these products can be especially sensitive to general downturns in the economy. Negative macroeconomic conditions, such as high inflation, recession, changes to monetary policy, increasing interest rates and decreasing consumer confidence can adversely impact demand for these products, which could negatively impact our business, financial condition and results of operations.

*Competition and other conflicts with our non-healthcare distribution partners could harm our business and operating results.

Several of our existing non-healthcare products compete, and future products may compete, with the product offerings of some of our significant channel and distribution partners. These partners may choose to market and promote their own products over ours or could cease or reduce selling or promotion of our products. Any reduction in our ability to place and promote our non-healthcare products, or increased competition from our distribution partners for available shelf or website placement, especially during peak retail sales periods, could adversely affect our non-healthcare business. In addition, the expansion of our direct-to-consumer channel in our non-healthcare business through our brand websites could increase our competition with our channel partners and cause these partners to reduce their purchases of our non-healthcare products. Conflicts in our sales channels could arise and cause channel partners to divert resources away from the promotion and sale of our products. Any of these situations could adversely impact our business, financial condition and results of operations.

*Certain of our non-healthcare products are dependent on integrations with third-party technology.

We integrate our non-healthcare products with technologies from third-parties, some of which have developed or may develop and sell competitive products. If these third-parties view us as a competitive threat, they may cease doing business with us or disable (or require us to disable) the technology they integrate into our products. If one or more of these third-parties do not maintain their integration with our products or seek to adversely modify the terms under which they provide integration in a manner that is unacceptable to us, our products may lose important functionality, our reputation may be harmed, and our business, financial condition and results of operations may be damaged.

Risks Related to Our Intellectual Property

If the patents we own or license, or our other intellectual property rights, do not adequately protect our technologies, we may lose market share to our competitors and be unable to operate our business profitably.

Our success depends significantly on our ability to protect our rights to the technologies used in our products. Our utilization of patent protection, trade secrets and a combination of copyright and trademark laws, as well as nondisclosure, confidentiality and other contractual arrangements, to protect our intellectual property afford us only limited protection and may not adequately protect our rights or permit us to gain or maintain any competitive advantage.

Certain of our patents related to our technologies have begun to expire. Upon the expiration of our issued or licensed patents, we generally lose some of our rights to exclude competitors from making, using, selling or importing products using the technology based on the expired patents.

Furthermore, in recent years, the U.S. Supreme Court has ruled on several patent cases and several laws have been enacted that, in certain situations, potentially narrow the scope of patent protection available and weaken the rights of patent owners. As a result, we believe large technology companies may be pursuing an “efficient infringement” strategy, having concluded that it is cheaper to infringe third-party intellectual property rights than to acquire, license or otherwise respect them. There can be no assurance that we will be successful in securing additional patents on commercially desirable improvements, that such additional patents will adequately protect our innovations or offset the effect of expiring patents, or that competitors will not be able to design around our patents.

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In addition, third-parties have challenged, and may continue to challenge, our issued patents through procedures such as Inter-Partes Review (IPR). In many IPR challenges, the U.S. Patent and Trademark Office (PTO) cancels or significantly narrows issued patent claims. IPR challenges could increase the uncertainties and costs associated with the maintenance, enforcement and defense of our issued and future patents and could have a material adverse effect on our business, financial condition and results of operations.

We also utilize unpatented proprietary technology and know-how and often rely on confidentiality agreements and intellectual property assignment agreements with our employees, OEM partners, independent distributors and consultants to protect such unpatented proprietary technology and know-how. However, such agreements may not be enforceable or may not provide meaningful protection for our proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements, or in the event that our competitors discover or independently develop similar or identical designs or other proprietary information.

We rely on the use of registered and common law trademarks with respect to our brands and the names of some of our products. Common law trademarks provide less protection than registered trademarks. Loss of rights in our trademarks could adversely affect our business, financial condition and results of operations.

If third-parties claim that we infringe their intellectual property rights, we may incur liabilities and costs and may have to redesign or discontinue selling certain products.

Searching for existing intellectual property rights may not reveal important intellectual property and our competitors may also have filed for patent protection, which may not be publicly-available information, or claimed trademark rights that have not been revealed through our searches. In addition, some of our employees were previously employed at our competitors. We may be subject to claims that our employees have disclosed, or that we have used, trade secrets or other proprietary information of our employees’ former employers. Our efforts to identify and avoid infringing on third-parties’ intellectual property rights may not always be successful. Any claims of patent or other intellectual property infringement against us, even those without merit, could:

•be expensive and time-consuming to defend and result in payment of significant damages to third-parties;

•force us to stop making or selling products that incorporate the intellectual property;

•require us to redesign, reengineer or rebrand our products, product candidates and technologies;

•require us to enter into royalty agreements that would increase the costs of our products;

•require us to indemnify third-parties pursuant to contracts in which we have agreed to provide indemnification for intellectual property infringement claims;

•divert the attention of our management and other key employees; and

•result in our customers or potential customers deferring or limiting their purchase or use of the affected products impacted by the claims until the claims are resolved;

any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, new patents obtained by our competitors could threaten the continued commercialization of our products in the market even after they have already been introduced.

We believe competitors may currently be violating and may in the future violate our intellectual property rights. As a result, we may initiate litigation to protect and enforce our intellectual property rights, which may result in substantial expense and may divert management’s attention from implementing our business strategy.

We believe that the success of our business depends, in part, on obtaining patent protection for our products and technologies, defending our patents and preserving our trade secrets. We were previously involved in significant litigation to protect our patent positions related to some of our pulse oximetry signal processing patents that resulted in various settlements. We believe some of the new market entrants in the healthcare and monitoring space, including some of the world’s largest technology companies, may be infringing our intellectual property, and we may be required to engage in additional litigation to protect our intellectual property in the future. In addition, we believe that certain individuals who previously held high level technical and clinical positions with us misappropriated our intellectual property for the benefit of themselves and other companies. For example, on January 9, 2020, we initiated litigation against Apple Inc. for infringement of a number of patents, for trade secret misappropriation and for ownership and correction of inventorship of a number of Apple Inc. patents that list one of our former employees as an inventor. Our ongoing and future litigation could result in significant additional costs and further divert the attention of our management and key personnel from our business operations and the implementation of our business strategy and may not be successful or adequate to protect our intellectual property rights.

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The laws of foreign countries may not adequately protect our intellectual property rights.

Intellectual property protection laws in foreign countries differ substantially from those in the U.S. If we fail to apply for intellectual property protection in foreign countries, or if we cannot adequately protect our intellectual property rights in these foreign countries, our competitors may be able to compete more effectively against us, which could adversely affect our competitive position, as well as our business, financial condition and results of operations.

Risks Related to Our Regulatory Environment

Our failure to obtain and maintain FDA clearances or approvals on a timely basis, or at all, would prevent us from commercializing our current, upgraded or new medical devices in the U.S., which could severely harm our business.

Unless an exemption applies, each medical device that we market in the U.S. must first undergo premarket review pursuant to the Federal Food, Drug, and Cosmetic Act (FDCA) by receiving clearance of a 510(k) premarket notification, receiving clearance through the de novo classification review process or obtaining approval of a premarket approval (PMA) application. Even if regulatory clearance or approval of a product is granted, the U.S. Food and Drug Administration (FDA) may clear or approve our products only for limited indications for use. Additionally, the FDA may not grant 510(k) clearance on a timely basis, if at all, for new products or new uses that we propose for Masimo SET® or licensed rainbow® technology.

The traditional FDA 510(k) clearance process for our medical devices has generally taken between four to nine months. However, our more recent experience and interactions with the FDA, along with information we have received from other medical device manufacturers, suggests that, in some cases, the FDA is requiring applicants to provide additional or different information and data for 510(k) clearance than it had previously required, and that the FDA may not rely on approaches that it had previously accepted to support 510(k) clearance. As a result, FDA 510(k) clearance can be delayed for our products in some cases.

To support our product applications to the FDA, we frequently are required to conduct clinical testing of our products. Such clinical testing must be conducted in compliance with FDA requirements pertaining to human research. Among other requirements, we must obtain informed consent from study subjects and approval by institutional review boards before such studies may begin. We must also comply with other FDA requirements such as monitoring, record-keeping, reporting and the submission of information regarding certain clinical trials to a public database maintained by the National Institutes of Health. In addition, if the study involves a significant risk device, we are required to obtain the FDA’s approval of the study under an Investigational Device Exemption (IDE). Compliance with these requirements can require significant time and resources. In addition, public health emergencies and other extraordinary circumstances may disrupt the conduct of our clinical trials. If the FDA determines that we have not complied with such requirements, the FDA may refuse to consider the data to support our applications or may initiate enforcement actions.

Even though 510(k) clearances have been obtained, if safety or effectiveness problems are identified with our products, we may need to initiate a recall of such products. Furthermore, our new products or significantly modified marketed products could be denied 510(k) clearance and be required to undergo the more burdensome PMA or de novo classification review processes. The process of obtaining a de novo classification or PMA approval is much more costly, lengthy and uncertain than the process for obtaining 510(k) clearance.

De novo classification review generally takes six months to one year from the time of submission of the de novo request, although it can take longer. Approval of a PMA generally takes one year from the time of submission of the PMA, but may be longer.

We sell consumer versions of our iSpO2® and MightySat® pulse oximeters that are not intended for medical use. Some of our products or product features may not be subject to the 510(k) process and/or other regulatory requirements in accordance with specific FDA guidance and policies, such as the FDA guidance related to mobile medical applications. In addition, some of our products or product features may not be subject to device regulation pursuant to Section 520(o) of the FDCA, which excludes certain software functions from the statutory definition of a device. In addition, we may market certain products pursuant to enforcement discretion policies the FDA previously announced to address the need for these products as a result of the COVID-19 pandemic. Such policies only remain in effect during the public health emergency, such that we will need to seek clearance or approval of such products to continue marketing these products at the end of the COVID-19 pandemic. If the FDA changes its policies or concludes that our marketing of these products is not in accordance with its current policies and/or Section 520(o) of the FDCA, we may be required to seek clearance or approval of these devices through the 510(k), de novo classification review or PMA processes.

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The failure of our OEM partners to obtain required FDA clearances or approvals for products that incorporate our healthcare technologies could have a negative impact on our revenue.

Our healthcare OEM partners are required to obtain their own FDA clearances in the U.S. for most products incorporating our technologies. The FDA clearances we have obtained may not make it easier for our OEM partners to obtain clearances of products incorporating these technologies, or the FDA may not grant clearances on a timely basis, if at all, for any future products incorporating our technologies that our OEM partners propose to market.

*If we or our suppliers fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.

Our healthcare products, along with the manufacturing processes, labeling and promotional activities for those products, are subject to continual review and periodic inspections by the FDA and other regulatory bodies. Among other requirements, we and certain of our suppliers are required to comply with the FDA’s Quality System Regulation (QSR), which governs the methods and documentation of the design, control testing, production, component suppliers control, quality assurance, complaint handling, labeling control, packaging, storage and shipping of our healthcare products. The FDA enforces the QSR through announced and unannounced inspections. We are also subject to similar state requirements and licenses.

In addition to the FDA, from time to time we are subject to inspections by the California Food and Drug Branch, international regulatory authorities and other similar governmental agencies. The standards used by these regulatory authorities are complex and may differ from those used by the FDA.

Failure by us or one of our suppliers to comply with statutes and regulations administered by the FDA and other regulatory bodies or failure to adequately respond to any FDA Form 483 observations, any California Food and Drug Branch notices of violation or any similar reports could result in, among other things, any of the following:

•warning letters or untitled letters issued by the FDA;

•fines, civil penalties, in rem forfeiture proceedings, injunctions, consent decrees and criminal prosecution;

•import alerts;

•unanticipated expenditures to address or defend such actions;

•delays in clearing or approving, or refusal to clear or approve, our products;

•withdrawals or suspensions of clearance or approval of our products or those of our third-party suppliers by the FDA or other regulatory bodies;

•product recalls or seizures;

•orders for physician notification or device repair, replacement or refund;

•interruptions of production or inability to export to certain foreign countries; and

•operating restrictions.

In addition, many of our healthcare and non-healthcare products are subject to various laws, regulations and legal requirements, including those governing consumer protection, product import and export, hazardous materials usage and discharge, product related energy consumption, electrical safety, wireless emissions, e-commerce, packaging and recycling. Compliance with these requirements, which vary widely depending on jurisdiction, is time consuming and expensive.

If we fail to comply with applicable legal requirements, it would harm our reputation and adversely affect our business, financial condition and results of operations.

Failure to obtain regulatory authorizations in foreign jurisdictions may prevent us from marketing our products abroad.

We currently market and intend to continue to market our products internationally. Outside of the U.S., we can generally market our healthcare products only if we receive a marketing authorization (and/or meet certain pre-marketing requirements) and, in some cases, pricing approval, from the appropriate regulatory authorities. The regulatory registration/licensing process varies among international jurisdictions and may require additional or different product testing than required to obtain FDA clearance. FDA clearance does not ensure new product registration/licensing by foreign regulatory authorities, and we may be unable to obtain foreign regulatory registration/licensing on a timely basis, if at all.

In addition, clearance by one foreign regulatory authority does not ensure clearance by any other foreign regulatory authority or by the FDA. If we fail to receive necessary approvals to commercialize our products in foreign jurisdictions on a timely basis, or at all, our business, financial condition and results of operations could be adversely affected.

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Furthermore, foreign regulatory requirements may change from time to time, which could adversely affect our ability to market new products, and/or continue to market existing products, internationally. Certain significant changes in the international regulatory landscape have recently taken place or will take place in the near future. These include the new EU Medical Devices Regulation (EU) 2017/745 (MDR), which came into effect on May 26, 2021 and a new regulatory regime in the UK effective since January 1, 2021 as a result of the UK’s exit from the EU.

Modifications to our marketed medical devices may require new regulatory clearances or premarket approvals, or may require us to cease marketing or to recall the modified devices until clearances or approvals are obtained.

We have made modifications to our medical devices in the past and we may make additional modifications in the future. Any modification to a medical device that is cleared by the FDA that could significantly affect its safety or effectiveness or that could constitute a major change in its intended use would require a new clearance or approval and certain modifications to devices cleared or approved by foreign regulatory authorities may also require a new clearance or approval.

We may not be able to obtain such clearances or approvals in a timely fashion, or at all. Delays in obtaining future clearances would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would have an adverse effect on our business, financial condition and results of operations.

For device modifications that we conclude do not require a new regulatory clearance or approval, we may be required to recall and to stop marketing the modified devices if the government agency disagrees with our conclusion and requires new clearances or approvals for the modifications. This could have an adverse effect on our business, financial condition and results of operations.

During the COVID-19 pandemic, the FDA has issued enforcement policies under which the agency has said it will not require clearance of a new 510(k) for certain modifications to 510(k)-cleared non-invasive vital-sign patient monitoring devices. However, these policies remain in effect only during the COVID-19 pandemic. Manufacturers that make modifications pursuant to these policies will need to stop marketing the modifications at the end of the COVID-19 pandemic unless the manufacturer receives 510(k) clearance for the modifications.

Regulatory reforms may impact our ability to develop and commercialize our healthcare products and technologies.

From time to time, legislation is drafted and introduced by governments that could significantly change the statutory provisions governing the clearance or approval, manufacture and marketing of medical devices. For example, in August 2017, Congress enacted the FDA Reauthorization Act of 2017 (FDARA). FDARA reauthorized the FDA to collect device user fees, including a new user fee for de novo classification requests, and contained substantive amendments to the device provisions of the FDCA. Among other changes, FDARA required that the FDA update and revise its processes for scheduling inspections of device establishments, communicating about those inspections with manufacturers and providing feedback on the manufacturer’s responses to Form 483s. The statute also required that the FDA study the impact of device servicing, including third-party services, and created a new process for device sponsors to request classification of accessory devices as part of the PMA application for the parent device or to request a separate classification of accessory devices.

In addition, regulations and guidance are often revised or reinterpreted by the government agency in ways that may significantly affect our business or products. Future regulatory changes could make it more difficult for us to obtain or maintain approval to develop and commercialize our products and technologies. Public health emergencies may also prompt temporary or permanent regulatory reforms that could change the processes governing the clearance or approval, manufacture and marketing of medical devices.

In the EU, for example, the new MDR became applicable to our medical devices on May 26, 2021. The MDR requires medical devices and their manufacturers to comply with more stringent standards than before. The MDR also imposes new and enhanced obligations on importers and distributors of medical devices in the EU. Although the MDR is subject to certain transitional periods, both we and others involved in the distribution and commercialization of our medical devices in the EU will need to comply with more stringent EU rules.

Due to Brexit, from January 1, 2021, a new regulatory framework applies to medical devices commercialized in Great Britain (England, Scotland and Wales). This is now separate from the regime in the EU. Although certain transition periods apply until June 30, 2023, the medical devices we intend to commercialize in Great Britain will need to conform to different requirements than the requirements in the EU. These factors are likely to add more complexity to our regulatory compliance obligations in Europe and our ability to commercialize medical devices in European markets.

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*If our healthcare products cause or contribute to a death or serious injury, or malfunction in a way that would likely cause or contribute to a death or serious injury, we will be subject to medical device reporting regulations and other applicable laws, and may need to initiate voluntary corrective actions or in certain circumstances be required to take corrective actions, such as the recall of our healthcare products.

Regulatory agencies in many countries require us to report anytime our healthcare products cause or contribute to a death or serious injury, or malfunction in a way that would likely cause or contribute to a death or serious injury. For example, under the FDA medical device reporting regulations, we are required to report to the FDA any incident in which a product of ours may have caused or contributed to a death or serious injury or in which a product of ours malfunctioned and, if the malfunction were to recur, would be likely to cause or contribute to death or serious injury. In addition, all manufacturers placing medical devices on the market in the EU are legally required to report any serious or potentially serious incidents involving devices produced or sold by the manufacturer to the relevant authority in those jurisdictions where any such incident occurred.

The FDA and similar foreign regulatory authorities have the authority to require the recall of our commercialized healthcare products in the event of material deficiencies or defects in, for example, design, labeling or manufacture. The FDA must find that there is a reasonable probability that the device would cause serious adverse health consequences or death in order to require a recall. The standard for recalling deficient products may be different in foreign jurisdictions. Manufacturers may, under their own initiative, recall a product if any material deficiency is found in a device or they become aware of a safety issue involving a marketed product. A government-mandated or voluntary recall by us or by one of our distributors could occur as a result of component failures, manufacturing errors, design or labeling defects or other deficiencies and issues.

We may initiate certain field actions, such as a product correction or removal of our products in the future. In addition, third- parties that commercialize products incorporating our technologies may initiate similar actions or product corrections. Any correction or removal initiated by us to reduce a health risk posed by our device, or to remedy a violation of the FDCA or other regulations caused by the device that may present a risk to health, must be reported to the FDA. If the FDA subsequently determines that a report was required for a correction or removal of our products that we did not believe required a report, we could be subject to enforcement actions.

In addition, our non-healthcare products, including components we source from third parties, may be found to have design or manufacturing defects. Such defects may result in additional costs for product modifications, voluntary or mandated product recalls or other liabilities resulting from product malfunctions. For example, defects in our audio products may result in overheating or electrical shock, creating a risk of personal injury or property damage.

Any recalls or corrections of our products or third-party products that incorporate our technologies, or enforcement actions would divert managerial and financial resources and could have an adverse effect on our financial condition and results of operations. In addition, given our dependence upon patient, physician and consumer perceptions, any negative publicity associated with any recalls could materially and adversely affect our business, financial condition, results of operations and growth prospects.

Promotion of our healthcare products using claims that are off-label, unsubstantiated, false or misleading could subject us to substantial penalties.

Obtaining 510(k) clearance permits us to promote our products for the uses cleared by the FDA. Use of a device outside its cleared or approved indications is known as “off-label” use. Physicians may use our products off-label because the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine, but we may not promote our products “off-label”. While we may request additional cleared indications for our current products, the FDA may deny those requests, require additional expensive clinical data to support any additional indications or impose limitations on the intended use of any cleared product as a condition of clearance. If the FDA determines that our products were promoted for off-label use or that false, misleading or inadequately substantiated promotional claims have been made by us or our OEM partners, it could request that we or our OEM partners modify those promotional materials or it could take regulatory or enforcement actions, including the issuance of an untitled letter, warning letter, injunction, seizure, civil fine and criminal penalties. While certain U.S. courts have held that truthful, non-misleading, off-label information is protected under the First Amendment under certain circumstances, the FDA continues to take the position that off-label promotion is subject to enforcement action.

It is also possible that other federal, state or foreign enforcement authorities may take action if they consider our communications, including promotional or training materials, to constitute promotion of an uncleared or unapproved use. If not successfully defended, enforcement actions related to off-label promotion could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. In any such event, our reputation could be damaged, adoption of our products could be impaired and we could be subject to extensive fines and penalties.

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Additionally, we must have adequate substantiation for the claims we make for our products. If any of our claims are determined to be false, misleading or deceptive, our products could be considered misbranded under the FDCA or in violation of the Federal Trade Commission Act. We could also face lawsuits from our competitors under the Lanham Act alleging that our marketing materials are false or misleading.

The regulatory environment governing information, data security and privacy is increasingly demanding and continues to evolve.

Personal privacy and data security have become significant issues in the U.S., Europe, the Middle East, Canada, China and many other jurisdictions where we offer our products. The regulatory framework for privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future.

Several U.S. states have passed comprehensive privacy laws that will go into effect in 2023. Of note among them is the California Consumer Privacy Rights Act (CPRA), which amends and expands the California Consumer Privacy (CCPA). The CPRA goes into effect on January 1, 2023, along with the CCPA, governs the transmission, security and privacy of California residents’ personal information. The CPRA has a twelve month look-back period for enforcement purposes. Among many new requirements, the CPRA creates a category for sensitive data including health and other personal information that requires additional safeguards and disclosures. In addition, the CPRA expands consumers’ rights and has enhanced enforcement mechanisms such as the creation of a California Privacy Protection Agency that will investigate and enforce the CPRA and its promulgating regulations. The CPRA also requires us to make disclosures to consumers about our data collection, use and sharing practices, allows consumers to opt out of certain data sales to third parties, affords new consumer rights, and provides a cause of action for data breaches with the possibility of significant statutory damage awards as well as injunctive or declaratory relief if there has been unauthorized access, theft or disclosure of specified personal information due to failure to implement reasonable security procedures.

We continue to be subject to federal privacy laws such as the Health Insurance Portability and Accountability Act of 1996 (HIPAA) in connection with any personal health information or medical information that we may obtain or have access to in connection with the operation of our business. Moreover, a comprehensive federal data privacy bill, the American Data Privacy and Protection Act, has been proposed and, if passed, will further change the privacy and data security compliance landscape. In addition, the SEC recently passed a cybersecurity rule that may go into effect as early as the first half of 2023. The new cybersecurity rule will require, among other things, increased monitoring and reporting of data security incidents.

All 50 U.S. states have data breach notification laws that, if violated, could result in penalties, fines and litigation. In addition, many states have implemented or are in the process of implementing related legislation, including state-specific biometric privacy laws that have resulted in class-action lawsuits against businesses. The full impact of these laws on our business is yet to be determined, but it could result in increased operating expenses as well as additional exposure to the risk of litigation by or on behalf of consumers.

Internationally, the European Data Protection Board recently released new guidelines on enforcement and fines related to the General Data Protection Regulation (GDPR). The new guidelines suggest a tougher stance on enforcement and stiffer fines for companies that violate the GDPR. This is in addition to the continued complexities involving the transfer of personal data from Europe to the U.S. following the Schrems II decision. The U.S. and the European Commission have been in discussions for a new Trans-Atlantic data privacy framework, i.e., Privacy Shield 2.0, that is anticipated to go into effect at the end of 2022 or beginning of 2023, which will require additional compliance efforts.

Other international jurisdictions, including Canada, China, Saudi Arabia, the UAE, and Brazil, among others, have also implemented laws relating to data privacy and protection. Although we believe that we are complying with the GDPR and similar laws, these laws are still relatively new. Therefore, as international data privacy and protection laws continue to evolve, and as new regulations, interpretive guidance and enforcement information become available, we may incur incremental costs to modify our business practices to comply with these requirements. In addition, our internal control policies and procedures may not always protect us from reckless, intentional or criminal acts committed by our employees or agents.

In addition, our recently acquired non-healthcare business may subject us to additional privacy regulations.

We may be required to make costly system modifications to comply with applicable data privacy and security laws. Violations of these laws, or allegations of such violations, could subject us to criminal or civil, monetary or and non-monetary penalties, disrupt our operations, involve significant management distraction, subject us to class action lawsuits and result in a material adverse effect on our business, financial condition and results of operations.

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We may be subject to or otherwise affected by federal and state healthcare laws, including fraud and abuse laws, and could face substantial penalties if we are unable to fully comply with these laws.

Healthcare fraud and abuse laws potentially applicable to our operations include, but are not limited to:

•the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving any bribe, kickback or other remuneration intended to induce the purchase, order or recommendation of an item or service reimbursable under a federal healthcare program (such as the Medicare or Medicaid programs);

•the federal False Claims Act and other federal laws which prohibit, among other things, knowingly and willfully presenting, or causing to be presented, claims for payment from Medicare, Medicaid, other government payers or other third-party payers that are false or fraudulent;

•the Physician Payments Sunshine Act, which requires medical device companies to track and publicly report, with limited exceptions, all payments and transfers of value to physicians and teaching hospitals in the U.S.; and

•state laws analogous to each of the above federal laws, such as state anti-kickback and false claims laws that may apply to items or services reimbursed by governmental programs and non-governmental third-party payers, including commercial insurers.

If we are found to have violated any such laws or other similar governmental regulations, including their foreign counterparts, that are directly or indirectly applicable to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion of our products from reimbursement under Medicare, Medicaid and other federal healthcare programs, and the curtailment or restructuring of our operations. Any penalties could adversely affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully defend against such action, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

*Legislative and regulatory changes in the healthcare industry could have a negative impact on our financial performance. Furthermore, our business, financial condition, results of operations and cash flows could be significantly and adversely affected by healthcare reform legislation in the U.S. or in our key international markets.

Changes in the healthcare industry in the U.S. and abroad could adversely affect the demand for our products and the way in which we conduct our business. For example, the Patient Protection and Affordable Care Act (the ACA), enacted in 2010, required most individuals to have health insurance, established new regulations on health plans, created insurance-pooling mechanisms and reduced Medicare spending on services provided by hospitals and other providers. The long-term viability of the ACA, and its impact on our business and results of operations, remains uncertain. There have also been recent U.S. Congressional actions to repeal and replace the ACA, and future actions are expected. For example, the Tax Cuts and Jobs Act of 2017 (TCJA), among other things, eliminated the individual mandate requiring most Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage effective January 1, 2019.

Although we cannot predict the ultimate content or timing of any healthcare reform legislation or other court challenges to the ACA, potential changes resulting from any amendment, repeal, replacement or invalidation of these programs, including any reduction in the future availability of healthcare insurance benefits, may decrease the number of people who are insured, which could adversely affect our business and future results of operations.

Our medical devices and business activities are subject to rigorous regulation by the FDA and other federal, state and international governmental authorities. These authorities and members of Congress have been increasing their scrutiny over the medical device industry. In recent years, Congress, the Department of Justice, the Office of Inspector General of the Department of Health and Human Services and the Department of Defense have issued subpoenas and other requests for information to medical device manufacturers, primarily related to financial arrangements with healthcare providers, regulatory compliance and marketing and product promotional practices. Furthermore, certain state governments have enacted legislation to limit and/or increase transparency of interactions with healthcare providers, pursuant to which we are required by law to disclose payments and other transfers of value to healthcare providers licensed by certain states.

We anticipate that the government will continue to scrutinize the healthcare industry closely, and any new regulations or statutory provisions could result in delays or increased costs during the periods of product development, clinical trials and regulatory review and approval, as well as increased costs to assure compliance.

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Risks Related to Our Business and Operations

*Our business, financial condition and results of operations may be adversely affected by the COVID-19 pandemic.

The COVID-19 pandemic has created significant uncertainty in the U.S. and around the globe, resulting in both challenges and opportunities for our business. Government-imposed travel restrictions and business closures arising from the COVID-19 pandemic have resulted, and may continue to result, in direct operational and administrative disruptions to our domestic and foreign facilities. In addition, quarantines, shelter-in-place and similar orders by local governments have impacted and could further impact the productivity of our manufacturing, engineering, sales and administrative staff and facilities in the United States and other countries. Further, sales of our non-healthcare products have been, and may continue to be, negatively affected by forced closures of retail stores, insufficient retail staffing and decreased retail foot traffic.

If we are required or otherwise elect to mandate vaccines for our employees, we may experience workforce constraints due to shortages of vaccinated personnel, strains on the labor market, limitations on hiring new employees and difficulty retaining and securing employees who are vaccinated. In addition, our suppliers who are subject to similar vaccination mandates or regulations may experience similar constraints, thereby affecting their ability to provide to us with sufficient inventory or material to meet our demands and needs in a timely manner. All of these factors could negatively affect our business and operations.

Furthermore, global supply chains and the timely availability of raw materials, component parts and products may be materially disrupted by the COVID-19 pandemic and measures taken to combat COVID-19, such as quarantines, government mandates surrounding vaccinations, factory slowdowns or shutdowns, border closings and travel restrictions. In addition, our suppliers have experienced, and may continue to experience, difficulties in delivering raw materials, components and products to us as transportation networks and distribution facilities have been disrupted, resulting in delays at ports of arrival. Furthermore, the availability of shipping containers has decreased and there have been global changes in the types of goods being shipped, all of which have resulted in increased shipping costs and shipping delays, which may affect the availability of raw materials, component parts and products to meet our sales demand. For example, we utilize semiconductor chips in certain products that we manufacture. Semiconductor chips have been subject to an ongoing global supply shortage and our ability to source semiconductor chips or the components that use semiconductor chips was adversely affected in the first and second quarters of 2022 and may continue to be adversely affected in the future. Component delivery lead times have increased and are expected to continue to increase, which may cause delays in our production of products and increase the cost to obtain semiconductor chips and components that use semiconductor chips. If this semiconductor chip shortage or shortages of other component parts continues, we may continue to experience delays, production interruptions, increased costs and an inability to fulfill engineering design changes or customer demand, each of which could adversely affect our business and financial performance.

The COVID-19 pandemic has also led to extreme volatility in capital markets, and has adversely affected, and may continue to adversely affect, the market price of our common stock. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, a continued or widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity in the future. The extent to which COVID-19 impacts our business and financial results continues to depend on numerous evolving factors that we may not be able to accurately predict.

*If our employees become ill or otherwise incapacitated, our operations may be adversely impacted.

We have implemented a number of safety measures for our facilities, including limiting facility access, social distancing, temperature checking and increased sanitation standards. While we have developed and implemented, and continue to develop and implement, health and safety guidelines in an effort to try to mitigate the negative impact of COVID-19, there can be no assurances that our measures will be sufficient to protect our employees in our workplace or that our employees will not otherwise be exposed to COVID-19 outside of our workplace. If a number of our employees become ill, incapacitated or are otherwise unable to continue working during the current or any future pandemic or epidemic, our operations may be adversely impacted.

We may experience conflicts of interest with Cercacor with respect to business opportunities and other matters.

Prior to our initial public offering in August 2007, our stockholders owned 99% of the outstanding shares of capital stock of Cercacor, and we believe that a number of our stockholders, including certain of our directors and executive officers, continue to own shares of Cercacor stock. Joe Kiani, our Chairman and Chief Executive Officer (CEO), is also the Chairman and CEO of Cercacor.

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Due to the interrelated nature of Cercacor with us, conflicts of interest may arise with respect to transactions involving business dealings between us and Cercacor, potential acquisitions of businesses or products, the development and ownership of technologies and products, the sale of products, markets and other matters in which our best interests and the best interests of our stockholders may conflict with the best interests of the stockholders of Cercacor. In addition, we and Cercacor may disagree regarding the interpretation of certain terms in the Cross-Licensing Agreement. We cannot guarantee that any conflict of interest will be resolved in our favor, or that, with respect to our transactions with Cercacor, we will negotiate terms that are as favorable to us as if such transactions were with another third-party.

We will be required to assign to Cercacor and pay Cercacor for the right to use certain products and technologies we develop that relate to the monitoring of non-vital sign parameters, including improvements to Masimo SET®.

Under the Cross-Licensing Agreement, if we develop certain products or technologies that relate to the noninvasive monitoring of non-vital sign parameters, including improvements to Masimo SET® for the noninvasive monitoring of non-vital sign parameters, we would be required to assign these developments to Cercacor and then license the technology back from Cercacor in consideration for upfront payments and royalty obligations to Cercacor. Therefore, these products and technologies would be deemed to have been developed or improved exclusively by Cercacor.

In addition, we will not be reimbursed by Cercacor for our expenses relating to the development or improvement of any such products or technologies, which expenses may be significant. As a result of these terms, we may not generate any revenue from the further development of certain products and technologies for the monitoring of non-vital sign parameters, including improvements to Masimo SET®, which could adversely affect our business, financial condition and results of operations.

In the event that the Cross-Licensing Agreement is terminated for any reason, or Cercacor grants a license to rainbow® technology to a third-party, our business would be adversely affected.

Cercacor owns all of the proprietary rights to certain rainbow® technology developed with our proprietary Masimo SET® for products intended to be used in the “Cercacor Market”, and all rights to any non-vital signs measurement for which we do not exercise an option pursuant to the Cross-Licensing Agreement. In addition, Cercacor has the right to terminate the Cross-Licensing Agreement or grant licenses covering rainbow® technology to third-parties if we breach certain terms of the agreement, including any failure to meet our minimum royalty payment obligations or failure to use commercially reasonable efforts to develop or market products incorporating licensed rainbow® technology. If we lose our exclusive license to rainbow® technology, we would lose the ability to prevent others from making, using, selling or importing products using rainbow® technology in our market. As a result, we would likely be subject to increased competition within our market, and Cercacor or competitors who obtain a license to rainbow® technology from Cercacor would be able to offer related products.

We may not be able to commercialize our products incorporating licensed rainbow® technology cost-effectively or successfully.

As a result of the royalties that we must pay to Cercacor, it is generally more expensive for us to make products that incorporate licensed rainbow® technology than products that do not include licensed rainbow® technology.

Accordingly, we may not be able to sell products incorporating licensed rainbow® technology at a price the market is willing to accept. If we cannot commercialize our products incorporating licensed rainbow® technology successfully, we may not be able to generate sufficient revenue from these products to be profitable, which could adversely affect our business, financial condition and results of operations.

Rights provided to Cercacor in the Cross-Licensing Agreement may impede a change in control of our company.

Under the Cross-Licensing Agreement, a change in control includes the resignation or termination of Joe Kiani from his position as CEO of either Masimo or Cercacor. A change in control also includes other customary events, such as the sale or merger of Masimo or Cercacor to a non-affiliated third-party or the acquisition of 50% or more of the voting power of Masimo or Cercacor by a non-affiliated third-party. In the event we undergo a change in control, we are required to immediately pay a $2.5 million fee to exercise an option to license technology developed by Cercacor for use in blood glucose monitoring.

Additionally, our royalties payable to Cercacor will become subject to specified minimums, and the minimum aggregate annual royalties for licensed rainbow® measurements payable to Cercacor related to carbon monoxide, methemoglobin, fractional arterial oxygen saturation, hemoglobin and blood glucose will increase to $15.0 million, plus up to $2.0 million for other rainbow® measurements. Further, if the surviving or acquiring entity ceases to use “Masimo” as a company name and trademark following a change in control, all rights to the “Masimo” trademark will automatically be assigned to Cercacor. This could delay or discourage transactions involving an actual or potential change in control of us, including transactions in which our stockholders might otherwise receive a premium for their shares over our then-current trading price. In addition, our requirement to assign all future improvements for non-vital signs to Cercacor could impede a change in control of our company.

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*If we are unable to obtain key materials and components from sole or limited source suppliers, we will not be able to deliver our products to customers.

We depend on certain sole or limited source suppliers for certain key materials and components, including digital signal processor chips and analog-to-digital converter chips for certain products. These suppliers are located around the world, and the production and shipment of such materials and components may be constrained globally due to freight carrier delays and other disruptions to the supply chain, as well as a reduction in employees associated with the COVID-19 pandemic. We may experience manufacturing problems related to these suppliers and other outside sources if such suppliers fail to develop, manufacture or ship products and components to us on a timely basis, or provide us with products and components that do not meet our quality standards and required quantities. We have experienced supply constraints with regard to certain digital signal processor chips and other components during the pandemic, which adversely affected our sales during the first and second quarters of 2022 and may adversely affect our future sales. In addition, from time to time there have been industry-wide shortages of certain components that we use in certain products. We may also experience price increases for materials, components and shipping with no guarantee that such increases can be passed along to our customers, which could adversely impact our gross margins.

If any of these problems occur, we may be unable to obtain substitute sources for these products and components on a timely basis or on terms acceptable to us, which could harm our ability to manufacture our own products and components profitably or on time.

*Future strategic initiatives, including acquisitions of businesses and strategic investments, could negatively affect our business, financial condition and results of operations if we fail to integrate the acquired businesses and their employees successfully into our existing operations or achieve the desired results of our investment.

We have acquired several businesses since our inception and we may acquire additional businesses in the future. For example, on April 11, 2022, we completed our acquisition of Sound United. In connection with the Sound United acquisition, on April 11, 2022 we entered into a Credit Agreement (Credit Facility) with the financial institutions party thereto as initial lenders, Citibank, N.A., as administrative agent, and Citibank, N.A., JPMorgan Chase Bank, N.A., Bank of the West and BofA Securities, Inc., as joint lead arrangers and joint bookrunners, and JPMorgan Chase Bank, N.A., Bank of the West and BofA Securities, Inc., as co-syndication agents. The Credit Facility was amended on May 16, 2022 and currently provides for an unsecured term loan of $300 million and up to $705 million of ongoing unsecured revolving commitments, with an option, subject to certain conditions, for us to increase the aggregate borrowing capacity by an additional $400 million (plus additional unlimited amounts if certain incurrence tests are met) in the future with the initial lenders and additional lenders, as required. Future acquisitions may require additional debt or equity financing, which could be dilutive to our existing stockholders or reduce our earnings per share or other financial metrics. Even if we complete acquisitions, there are many factors that could affect whether such acquisition, including our recently completed acquisition of Sound United, will be beneficial to our business, including, without limitation:

•payment of above-market prices for acquisitions and higher than anticipated acquisition costs;

•issuance of common stock as part of the acquisition price or a need to issue stock options or other equity-based compensation to newly-hired employees of target companies, resulting in dilution of ownership to our existing stockholders;

•reduced profitability if an acquisition is not accretive to our business over either the short-term or the long-term;

•difficulties in integrating any acquired companies, personnel, products and other assets into our existing business;

•delays in realizing the benefits of the acquired company, products or other assets;

•regulatory challenges and becoming subject to additional regulatory requirements;

•cybersecurity and compliance-related issues;

•diversion of our management’s time and attention from other business concerns;

•limited or no direct prior experience in new markets or countries we may enter;

•unanticipated issues dealing with unfamiliar suppliers, service providers or other collaborators of the acquired company;

•higher costs of integration than we anticipated;

•write-downs or impairments of goodwill or other intangible assets associated with the acquired company;

•difficulties in retaining key employees of the acquired business who are necessary to manage these acquisitions;

•negative impacts on our relationships with our employees, clients, customers or collaborators;

•intellectual property and other litigation, other claims or liabilities in connection with the acquisition; and

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•changes in the overall financial model as certain acquired companies may have a different revenue, gross profit margin or operating expense profile.

Further, our ability to benefit from future acquisitions and/or external strategic investments depends on our ability to successfully conduct due diligence, negotiate acceptable terms, evaluate prospective opportunities and bring acquired technologies and/or products to market at acceptable margins and operating expense levels. For example, we acquired TNI medical AG® (TNI®) and added softFlow® technology to our product portfolio. In addition, we acquired LiDCO Group, Plc, which specializes in hemodynamic monitoring solutions. As these are our first therapeutic and hemodynamic monitoring solutions, the integration of these technologies may require substantial management time and attention and may divert attention and resources from other important areas, including our existing business and product lines, and we may not be able to sell softFlow® technology and hemodynamic monitoring solutions at acceptable margins and operating expense levels. Our failure in any of these tasks could result in unforeseen liabilities associated with an acquired company, acquiring a company on unfavorable terms or selecting and eventually acquiring a suboptimal acquisition target.

We may also discover deficiencies in internal controls, data adequacy and integrity, product quality, regulatory compliance, product liabilities or other undisclosed liabilities that we did not uncover prior to our acquisition or investment, which could result in us becoming subject to penalties, other liabilities or asset impairments. In addition, if we do not achieve the anticipated benefits of an acquisition or other external investment as rapidly as expected, or at all, investors or analysts may downgrade our stock.

We also expect to continue to carry out internal strategic initiatives that we believe are necessary to grow our revenues and expand our business, both in the U.S. and abroad. For example, we have continued to invest in international expansion programs designed to increase our worldwide presence and take advantage of market expansion opportunities around the world. Although we believe our investments in these initiatives continue to be in the long-term best interests of Masimo and our stockholders, there are no assurances that such initiatives will yield favorable results for us. Accordingly, if these initiatives are not successful, our business, financial condition and results of operations could be adversely affected.

If these risks materialize, our stock price could be materially adversely affected. Any difficulties in the integration of acquired businesses or unexpected penalties, liabilities or asset impairments in connection with such acquisitions or investments could have a material adverse effect on our business, financial condition and results of operations.

*Our new products and changes to existing products as a result of our acquisition of Sound United could fail to attract or retain users or generate revenue and profits. Further, we may not be successful in our non-healthcare expansion, which could adversely affect our business, reputation or financial results.

In connection with the Sound United acquisition, we have expanded our business and product strategy to additionally focus on non-healthcare consumer products to integrate with our successful medical technology businesses. Further, we may introduce certain changes to our existing healthcare products or introduce new and unproven products. Prior to the Sound United acquisition, we did not have significant experience with consumer hardware products, and Sound United does not have experience with healthcare products, which may adversely affect our ability to successfully develop and market these products and technologies and integrate them with our existing products and platforms. We expect this will be a complex, evolving, and long-term strategic initiative that will involve the development of new and emerging technologies, continued investment in medical technology and consumer products, and collaboration with other companies, developers, partners and other participants. However, our non-healthcare business may not develop in accordance with our vision and expectations, and market acceptance of features, products or services we build for our consumer business may be uncertain. We may be unsuccessful in our research and product development efforts, including if we are unable to develop relationships with key participants in the consumer products business. Our new strategic efforts may also divert resources and management attention from other areas of our business. In addition, as our non-healthcare business continues to evolve, we may be subject to a variety of laws and regulations in the United States and international jurisdictions, which we were not previously affected by, including in the areas of privacy, which may delay or impede the development of our products and services, increase our operating costs, require significant management time and attention, or otherwise harm our business. As a result of these or other factors, our non-healthcare expansion and investments may not be successful in the foreseeable future, or at all, which could adversely affect our business, reputation, or financial results.

*Our Credit Facility contains certain covenants and restrictions that may limit our flexibility in operating our business.

Our Credit Facility contains various affirmative covenants and restrictions that limit our ability to engage in specified types of transactions, including:

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•incurring specified types of additional indebtedness, there can be no assurance that we will be able to obtain any additional debt or equity financing at the time needed or that such financing will be available on terms that are favorable or acceptable to us (including guarantees or other contingent obligations);

•paying dividends on, repurchasing or making distributions in respect of our common stock or making other restricted payments, subject to specified exceptions;

•making specified investments (including loans and advances);

•selling or transferring certain assets;

•creating certain liens;

•consolidating, merging, selling or otherwise disposing of all or substantially all of our assets; and

•entering into certain transactions with any of our affiliates.

In addition, under our Credit Facility, we are required to satisfy and maintain specified financial ratios and other customary affirmative and negative covenants. Our ability to meet those financial ratios and affirmative and negative covenants could be affected by events beyond our control and, therefore, we cannot be assured that we will be able to continue to satisfy these requirements. A breach of any of these ratios or covenants could result in a default under our Credit Facility. Upon the occurrence of an event of default, the Lenders could elect to declare all amounts outstanding under our Credit Facility immediately due and payable, terminate all commitments to extend further credit and pursue legal remedies for recovery, all of which could adversely affect our business and financial condition. See Note 15, “Debt”, to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on our Credit Facility.

Further, if we do not achieve the anticipated benefits from the recent Sound United acquisition, our ability to service our indebtedness may be adversely impacted. Even if we achieve the anticipated benefits from the acquisition, we may be required to raise substantial additional financing to fund working capital, capital expenditures, acquisitions, or other general corporate purposes. Our ability to arrange additional financing and make payments of principal and interest on our indebtedness will depend on our future performance, which will be subject to general economic, financial, and business conditions as well as other factors affecting our operations, many of which are beyond our control.

Risks Related to Our Stock

Concentration of ownership of our stock among our existing directors, executive officers and principal stockholders may prevent new investors from influencing significant corporate decisions.

As of July 2, 2022, our current directors and executive officers and their affiliates, in the aggregate, beneficially owned approximately 9.7% of our outstanding stock. Subject to any fiduciary duties owed to our other stockholders under Delaware law, these stockholders may be able to exercise significant influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, and will have some control over our management and policies in their roles as stockholders. Some of these persons or entities may have interests that are different from yours. For example, these stockholders may support proposals and actions with which you may disagree or which are not in your best interests.

The concentration of ownership could delay or prevent a change in control of us, or otherwise discourage a potential acquirer from attempting to obtain control of us, which in turn could reduce the price of our stock.

In addition, these stockholders could use their voting influence to maintain our existing management and directors in office or support or reject other management and Board proposals that are subject to stockholder approval, such as amendments to our employee stock plans and approvals of significant financing transactions.

Our corporate documents and Delaware law contain provisions that could discourage, delay or prevent a change in control of our company, prevent attempts to replace or remove current management and reduce the market price of our stock.

Provisions in our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition involving us that our stockholders may consider favorable. For example, our certificate of incorporation authorizes our Board to issue up to 5.0 million shares of “blank check” preferred stock. As a result, without further stockholder approval, our Board has the

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authority to attach special rights, including voting and dividend rights, to this preferred stock, including pursuant to a stockholder rights plan. With these rights, preferred stockholders could make it more difficult for a third-party to acquire us.

In addition, our certificate of incorporation provides for a staggered Board, whereby directors serve for three-year terms, with one-third of the directors coming up for reelection each year. A staggered Board will make it more difficult for a third-party to obtain control of our Board through a proxy contest, which may be a necessary step in an acquisition of us that is not favored by our Board.

We are also subject to anti-takeover provisions under the General Corporation Law of the State of Delaware. Under these provisions, if anyone becomes an “interested stockholder,” we may not enter into a “business combination” with that person for three years without special approval, which could discourage a third-party from making a takeover offer and could delay or prevent a change in control of us. For purposes of these provisions, an “interested stockholder” generally means someone owning 15% or more of our outstanding voting stock or an affiliate of ours that owned 15% or more of our outstanding voting stock during the past three years, subject to certain exceptions as described in the General Corporation Law of the State of Delaware.

Our bylaws provide that the state or federal courts located within the State of Delaware are the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our bylaws provide that the state or federal courts located within the State of Delaware are the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees or stockholders to our stockholders, (iii) any action asserting a claim against us arising pursuant to the General Corporation Law of the State of Delaware, our certificate of incorporation or our bylaws or as to which the General Corporation Law of the State of Delaware confers jurisdiction on the Court of Chancery of the State of Delaware, or (iv) any action asserting a claim governed by the internal affairs doctrine. However, this choice of forum provision does not apply to (a) actions in which the Court of Chancery in the State of Delaware concludes that an indispensable party is not subject to the jurisdiction of Delaware courts, or (b) actions in which a federal court has assumed exclusive jurisdiction to a proceeding. This choice of forum provision is not intended to apply to any actions brought under the Securities Act of 1933, as amended (the Securities Act), or the Securities Exchange Act of 1934, as amended (the Exchange Act). Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees or stockholders, which may discourage such lawsuits against us and our directors, officers and other employees or stockholders.

Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the choice of forum provision in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition and results of operations.

General Risk Factors

We may experience significant fluctuations in our periodic financial results and may not maintain our current levels of profitability in the future.

Our operating results have fluctuated in the past and are likely to fluctuate in the future. Many of the countries in which we operate, including the U.S. and several of the members of the EU, have experienced and continue to experience uncertain economic conditions resulting from global as well as local factors. In addition, continuing uncertainty in the U.S. economy may result in continued inflationary pressures globally and in the U.S. in particular, which may contribute to future interest rate volatility.

Our business or financial results may be adversely impacted by these uncertain economic conditions, including: adverse changes in interest rates, foreign currency exchange rates, tax laws or tax rates; inflation; contraction in the availability of credit in the marketplace due to legislation or other economic conditions, which may potentially impair our ability to access the capital markets on terms acceptable to us or at all; changes in consumer spending during a recession; and the effects of government initiatives to manage economic conditions.

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We are also unable to predict how changing global economic conditions or potential global health concerns such as the COVID-19 pandemic will affect our critical customers, suppliers and distributors. Any negative impact of such matters on our critical customers, suppliers or distributors may also have an adverse impact on our results of operations or financial condition. Our expense levels are based, in part, on our expectations regarding future revenue levels and are relatively fixed in the short-term.

As a result, if our revenue for a particular period was below our expectations, we would not be able to proportionately reduce our operating expenses for that period. Any revenue shortfall would have a disproportionately negative effect on our operating results for the period.

In addition, the methods, estimates and judgments that we use in applying our accounting policies are, by their nature, subject to substantial risks, uncertainties and assumptions. Factors may arise over time that lead us to change our methods, estimates and judgments, the impact of which could significantly affect our results of operations. See “Critical Accounting Policies and Estimates” contained in Part I, Item 2 of this Quarterly Report on Form 10-Q.

Recent accounting changes related to our embedded leases within certain deferred equipment agreements have also resulted in the acceleration of the timing related to our recognition of revenue and expenses associated with certain equipment provided to healthcare customers at no up-front charge. Since we cannot control the timing of when our customers will request us to deliver such equipment, our revenue and costs with respect to leased equipment could vary substantially in any given quarter or year, which could further increase quarterly or annual fluctuations within our financial results.

Due to these and other factors, you should not rely on our results for any one quarter as an indication of our future performance. If our operating results fail to meet or exceed the expectations of securities analysts or investors, our stock price could drop suddenly and significantly.

Future changes in accounting pronouncements and tax laws, or the interpretation thereof, could have a significant impact on our reported results, and may affect our historical reporting of previous transactions.

New accounting pronouncements or taxation rules, and evolving interpretations thereof, have occurred and are likely to occur in the future. Future changes made by new accounting standards may apply prospectively or retrospectively, depending on the method of adoption, and may recast previously reported results. For additional information related to the impact of new accounting pronouncements, please see Note 2, “Summary of Significant Accounting Policies”, to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In addition, future changes to the U.S. tax code and its regulations could have a material impact on our effective tax rate and the implementation of these changes could require us to make substantial changes to our business practices, allocate resources, and increase our costs, which could negatively affect our business, results of operations and financial condition.

If we lose the services of our key personnel, or if we are unable to attract and retain other key personnel, we may not be able to manage our operations or meet our growth objectives.

We are highly dependent on our senior management, especially Joe Kiani, our CEO, and other key officers. We are also heavily dependent on our engineers and field sales team, including sales representatives and clinical specialists. We believe certain of our competitors with greater financial resources than us have targeted our key personnel for recruitment and will likely continue to do so in the future. To the extent that key personnel depart, we may be required to bring on new hires that require training and take time before they achieve full productivity. New employees may not become as productive as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals. The loss of the services of members of our key personnel, including as a result of the COVID-19 pandemic, or the inability to attract and retain qualified personnel in the future could prevent the implementation and completion of our objectives, including the development and introduction of our products. In general, our key personnel may terminate their employment at any time and for any reason without notice, unless the individual is a participant in our 2007 Severance Protection Plan, in which case the individual has agreed to provide us with six months’ notice if such individual decides to voluntarily resign. We do not maintain any “key person” life insurance policies with respect to any of our key personnel.

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*We are involved, and may become involved in the future, in disputes and other legal or regulatory proceedings that, if adversely decided or settled, could materially and adversely affect our business, financial condition and results of operations.

We are, and may in the future become, party to litigation, regulatory proceedings or other disputes. In general, claims made by or against us in disputes and other legal or regulatory proceedings can be expensive and time-consuming to bring or defend against, requiring us to expend significant resources and divert the efforts and attention of our management and other personnel from our business operations. These potential claims may include, but are not limited to personal injury and class action lawsuits, intellectual property claims and regulatory investigations relating to the advertising and promotional claims about our products and employee claims against us based on, among other things, discrimination, harassment or wrongful termination. In addition, we may become subject to claims against companies we acquire based on circumstances arising prior to the acquisition, and the sellers of the acquired company may have no obligation to reimburse us for any resulting damages or expenses. Any litigation, proceedings or dispute, even those without merit, may divert our financial and management resources that would otherwise be used to benefit the future performance of our operations. Any adverse determination against us in these proceedings, or even the allegations contained in the claims, regardless of whether they are ultimately found to be without merit, may also result in settlements, injunctions or damages that could have a material adverse effect on our business, financial condition and results of operations.

Changes to government immigration regulations may materially affect our workforce and limit our supply of qualified professionals, or increase our cost of securing workers.

We recruit professionals on a global basis and must comply with the immigration laws in the countries in which we operate, including the U.S. Some of our employees are working under Masimo-sponsored temporary work visas, including H1-B visas. Statutory law limits the number of new H1-B temporary work permit petitions that may be approved in a fiscal year. Furthermore, there is a possibility that the current U.S. immigration visa program may be significantly overhauled, and the number of H1-B visas available, as well as the process to obtain them, may be subject to significant change. Any resulting changes to this visa program could impact our ability to recruit, hire and retain qualified skilled personnel. If we are unable to obtain work visas in sufficient quantities or at a sufficient rate for a significant period of time, our business, operating results and financial condition could be adversely affected.

*The risks inherent in operating internationally, including the purchase, sale and shipment of our components and products across international borders, may adversely impact our business, financial condition and results of operations.

We currently derive approximately 41% of our net sales from international operations. In addition, we purchase a portion of our raw materials and components from international sources. The sale and shipment of our products across international borders, as well as the purchase of materials and components from international sources, subject us to extensive U.S. and foreign governmental trade regulations, including those related to duties, tariffs and conflict minerals. Compliance with such regulations is costly and we could be exposed to potentially significant penalties, fines and interest if we are found not to be in compliance with such regulations. Any failure to comply with applicable legal and regulatory obligations could impact us in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments, restrictions on certain business activities, and exclusion or debarment from government contracting. We have historically engaged in transactions with entities related to or located in countries subject to certain U.S. export restrictions. For example, we have had sales of medical products destined for Iran.

In addition, changes in policy in the U.S. and other countries regarding international trade, including import and export regulation and international trade agreements, could negatively impact our business. In recent years, the U.S. has imposed tariffs on goods imported from China and certain other countries, which has resulted in retaliatory tariffs by China and other countries. Changes or uncertainty in tariffs or further retaliatory trade measures taken by China or other countries in response could affect the demand for our products and services, impact the competitive position of our products, prevent us from being able to sell products in certain countries or otherwise adversely impact our results of operations. The implementation of more restrictive trade policies, such as more detailed inspections, higher tariffs or new barriers to entry, could negatively impact our business, results of operations and financial condition.

In addition, our international operations expose us and our representatives, agents and distributors to risks inherent in operating in foreign jurisdictions. These risks include, but are not limited to:

•the imposition of additional U.S. and foreign governmental controls or regulations;

•the imposition of costly and lengthy new export licensing requirements;

•a shortage of high-quality sales people and distributors;

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•the loss of any key personnel who possess proprietary knowledge, or who are otherwise important to our success in certain international markets;

•changes in duties and tariffs, license obligations and other non-tariff barriers to trade;

•the imposition of new trade restrictions;

•the imposition of restrictions on the activities of foreign agents, representatives and distributors;

•compliance with foreign tax laws, regulations and requirements;

•pricing pressure;

•changes in foreign currency exchange rates;

•laws and business practices favoring local companies;

•political instability and actual or anticipated military or political conflicts, including the ongoing conflict between Ukraine and Russia and the global impact of restrictions and sanctions imposed on Russia;

•financial and civil unrest worldwide;

•outbreaks of illnesses, pandemics or other local or global health issues;

•the inability to collect amounts paid by foreign government customers to our appointed foreign agents;

•longer payment cycles, increased credit risk and different collection remedies with respect to receivables; and

•difficulties in enforcing or defending intellectual property rights.

The U.S. government initiated substantial changes in U.S. trade policy and U.S. trade agreements, including tariffs on certain foreign goods. In response to these tariffs, certain foreign governments instituted or are considering imposing tariffs on certain U.S. goods. In addition, the U.S. has negotiated new trade agreements that could impact us, including the United States-Mexico-Canada Agreement (USMCA), which went into force on July 1, 2020 and replaced the North American Free Trade Agreement. A trade war, trade barriers or other governmental actions related to tariffs, international trade agreements, import or export restrictions or other trade policies could adversely impact demand for our products, our costs, customers, suppliers and/or the U.S. economy or certain sectors thereof and, therefore, adversely affect our business, financial condition and results of operations.

The U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and their intermediaries from promising or making improper payments to foreign officials for the purpose of obtaining an advantage to secure or retain business. Because of the predominance of government-sponsored healthcare systems around the world, many of our customer relationships outside of the U.S. are with governmental entities and are therefore subject to such anti-bribery laws. We have adopted policies and practices that help us ensure compliance with these anti-bribery laws. However, such policies and practice may require us to invest in additional monitoring resources or forgo certain business opportunities in order to ensure global compliance with these laws.

Although these activities have not been financially material to our business, financial condition or results of operations, and were undertaken in accordance with general licenses authorizing such activities issued by the U.S. Treasury Department’s Office of Foreign Assets Control, we may not be successful in ensuring compliance with limitations or restrictions on business in Iran or any other countries subject to economic sanctions and embargoes imposed by the United States. Also, the failure to comply with applicable legal and regulatory obligations could result in the disruption of our shipping, manufacturing and sales activities. Any material decrease in our international sales would adversely affect our business, financial condition and results of operations.

Our operations may be adversely impacted by our exposure to risks related to foreign currency exchange rates.

We market our products in certain foreign markets through our subsidiaries and other international distributors. As a result, events that result in global economic uncertainty could significantly affect our results of operations in the form of gains and losses on foreign currency transactions and potential devaluation of the local currencies of our customers relative to the U.S. Dollar.

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While a majority of our sales are transacted in U.S. Dollars, some of our sales agreements with foreign customers provide for payment in currencies other than the U.S. Dollar. These foreign currency revenues, when converted into U.S. Dollars, can vary depending on the approximation of the exchange rates applied during a respective period. Similarly, certain of our foreign subsidiaries transact business in their respective country’s local currency, which is also their functional currency. In addition, certain production costs related to our manufacturing operations are denominated in local currency. As a result, expenses of these foreign subsidiaries and certain production costs, when converted into U.S. Dollars, can vary depending on average monthly exchange rates during a respective period.

We are also exposed to foreign currency gains or losses on outstanding foreign currency denominated receivables and payables, as well as cash deposits. When converted to U.S. Dollars, these receivables, payables and cash deposits can vary depending on the monthly exchange rates at the end of the period. In addition, certain intercompany transactions may give rise to realized and unrealized foreign currency gains or losses based on the currency underlying such intercompany transactions. Accordingly, our operating results are subject to fluctuations in foreign currency exchange rates.

The balance sheets of our foreign subsidiaries whose functional currency is not the U.S. Dollar are translated into U.S. Dollars at the rate of exchange at the balance sheet date and the statements of operations and cash flows are translated into U.S. Dollars using an approximation of the average monthly exchange rates applicable during the period. Any foreign currency exchange gain or loss as a result of translating the balance sheets of our foreign subsidiaries whose functional currency is not the U.S. Dollar is included in equity as a component of accumulated other comprehensive income (loss).

We currently do not hedge our foreign currency exchange rate risk. As a result, changes in foreign exchange rates could have a material adverse effect on our business, financial condition and results of operations. For additional information related to our foreign currency exchange rate risk, please see Quantitative and Qualitative Disclosures about Market Risk in Part I, Item 3 of this Quarterly Report on Form 10-Q.

*We currently manufacture our products at a limited number of locations and any disruption to, expansion of, or changes in trade programs related to such manufacturing operations could adversely affect our business, financial condition and results of operations.

We rely on manufacturing facilities in California, New Hampshire, Mexico, Asia and Europe that may be affected by natural or man-made disasters. Earthquakes are of particular significance since some of our facilities are located in earthquake-prone areas. We are also vulnerable to damage from other types of disasters, including power loss, attacks from extremist or terrorist organizations, epidemics, communication failures, fire, floods and similar events. Our facilities and the manufacturing equipment we use to produce our products would be difficult to replace and could require substantial time to repair if significant damage were to result from any of these occurrences.

If one of our manufacturing facilities was affected by a natural or man-made disaster, we would be forced to rely on third-party manufacturers if we could not shift production to our other manufacturing facilities. Furthermore, our insurance for damage to our property and the disruption of our business from casualties may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all. If the lease for any of our leased facilities is terminated, we are unable to renew any of our leases or we are otherwise forced to seek alternative facilities, or if we voluntarily expand one or more of our manufacturing operations to new locations, we may incur additional transition costs and experience a disruption in the supply of our products until the new facilities are available and operating. Additionally, we have occasionally experienced seasonality and other shortages among our manufacturing workforce, and if we continue to experience such seasonality or other workforce shortages or otherwise have issues retaining employees or contractors at our manufacturing facilities, we may not be able to meet our customers’ demands.

Our global manufacturing and distribution are dependent upon our manufacturing facilities in multiple countries, and the expedient importation of raw materials and exportation of finished goods between the U.S. and these facilities. Undue delays and/or closures of cross-border transit facilities, or any restrictions by local governments related to the movement of goods to the U.S., may adversely affect our ability to fulfill orders and supply our customers, as well as adversely impact our business, operating results and financial condition.

In addition, delays and closures of shipping ports, or ports of entry into the U.S., including as a result of labor strikes or shortages, may delay our ability to fulfill order and supply of our non-healthcare consumer products, which could also adversely impact our business, operating results and financial condition.

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Our manufacturing facilities in Mexico are authorized to operate under the Mexican Maquiladora (IMMEX) program. The IMMEX program allows us to import certain items from the U.S. into Mexico duty-free, provided that such items, after processing, are exported from Mexico within a stipulated timeframe. Maquiladora status, which is renewed periodically, is subject to various restrictions and requirements, including compliance with the terms of the IMMEX program and other local regulations. Failure to comply with the IMMEX program regulations, including any changes thereto, could increase our manufacturing costs and adversely affect our business, operating results and financial condition.

*If we do not accurately forecast customer demand, we may hold suboptimal inventory levels that could adversely affect our business, financial condition and results of operations.

If we are unable to meet the demand of our customers, our customers may cancel orders or purchase products from our competitors, which could reduce our revenue and gross profit margin. Conversely, if product demand decreases, we may be unable to timely adjust our manufacturing cost structure, resulting in excess capacity, which would lower gross product margins. Similarly, if we are unable to forecast demand accurately, we could be required to record charges related to excess or obsolete inventory, which would also lower our gross margin.

In addition, we may experience seasonal demand for our non-healthcare products and demand for such products could decrease significantly during a recession. Any shortfalls in expected revenue due to a mismatch in supply of and demand for our products, could cause our operating results to suffer significantly.

If we fail to comply with the reporting obligations of the Exchange Act or if we fail to maintain adequate internal control over financial reporting, our business, results of operations and financial condition and investors’ confidence in us could be adversely affected.

We are required to prepare and disclose certain information under the Exchange Act, in a timely manner and meet our reporting obligations in their entirety, and our failure to do so could subject us to penalties under federal securities laws and regulations of The Nasdaq Stock Market LLC, expose us to lawsuits and restrict our ability to access financing on favorable terms, or at all.

If we fail to maintain adequate internal controls over financial reporting, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, any material weakness in our internal control environment could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business, negatively impact the trading price of our stock, and adversely affect investors’ confidence in our company and our ability to access capital markets for financing.

Changing laws and increasingly complex corporate governance and public disclosure requirements could have an adverse effect on our business and operating results.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the California Transparency in Supply Chains Act, the UK Modern Slavery Act and new regulations issued by the SEC and The Nasdaq Stock Market LLC, have created, and will create, additional compliance requirements for us. For example, the Dodd-Frank Act includes provisions regarding, among other things, advisory votes on named executive officer compensation and “conflict minerals” reporting. Complying with these rules and regulations has increased and will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business, financial condition and results of operations.

We may also need to hire additional employees or engage outside consultants to comply with these requirements, which will increase our costs and expenses. To maintain high standards of corporate governance and public disclosure, we have invested in, and intend to continue to invest in, reasonably necessary resources to comply with evolving standards.

In addition, stockholder litigation surrounding executive compensation and disclosure of executive compensation has increased with the passage of the Dodd-Frank Act. Furthermore, our stockholders in certain instances have not approved our advisory vote on named executive officer compensation that is being voted on by our stockholders annually pursuant to the Dodd-Frank Act. If we are involved in a lawsuit related to compensation matters or any other matters not covered by our directors’ and officers’ liability insurance, we may incur significant expenses in defending against such lawsuits, or be subject to significant fines or required to take significant remedial actions, each of which could adversely affect our business, financial condition and results of operations.

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*If product liability claims are brought against us, we could face substantial liability and costs.

Our products expose us to product liability claims and product recalls, including, but not limited to, those that may arise from unauthorized off-label use, malfunctions, design flaws or manufacturing defects related to our products or the use of our products with incompatible components or systems. In addition, as we continue to expand our product portfolio, we may enter or create new markets, including consumer markets, that may expose us to additional product liability risks. For example, with the acquisition of TNI® in March 2020, we added softFlow® technology to our product portfolio. While this technology provides efficient, quiet and comfortable respiratory support to patients, it may present increased risk of infection to caregivers. In addition, with the Sound United acquisition, we added multiple broadly distributed premium audio brands to our product portfolio and significantly expanded our consumer base worldwide, which could expose us to increased product liability claims.

We cannot be certain that our product liability insurance will be sufficient to cover any or all damages for product liability claims that may be brought against us in the future. Furthermore, we may not be able to obtain or maintain insurance in the future at satisfactory rates or in adequate amounts to protect us against any product liability claims.

Additionally, the laws and regulations regarding product liability are constantly evolving, both through the passage of new legislation at the state and federal levels and through new interpretations of existing legislation. For example, in February 2017, the Washington Supreme Court determined that, under the Washington Product Liability Act, medical device manufacturers have a duty to warn hospitals of any potential risks posed by their products. As the legal and regulatory landscape surrounding product liability change, we may become exposed to greater liability than currently anticipated.

Any losses that we may suffer from product liability claims, and the effect that any product liability litigation may have upon the reputation and marketability of our technology and products, together with the corresponding diversion of the attention of our key employees, may subject us to significant damages and could adversely affect our business, financial condition and results of operations.

We may incur environmental and personal injury liabilities related to certain hazardous materials used in our operations.

Certain manufacturing processes for our products may involve the storage, use, generation and disposal of certain hazardous materials and wastes, including silicone adhesives, solder and solder paste, sealants, epoxies and various solvents such as methyl ethyl ketone, acetone and isopropyl alcohol. As a result, we are subject to certain environmental laws, as well as certain other laws and regulations, that restrict the materials that can be used in our products or in our manufacturing processes. For example, products that we sell in Europe are subject to regulation in the EU markets under the Restriction of the Use of Hazardous Substances Directive (RoHS). RoHS prohibits companies from selling products that contain certain hazardous materials in EU member states. In addition, the EU’s Registration, Evaluation, Authorization, and Restriction of Chemicals Directive also restricts substances of very high concern in products. Compliance with such regulations may be costly and, therefore, we may incur significant costs to comply with these laws and regulations.

In addition, new environmental laws may further affect how we manufacture our products, how we use, generate or dispose of hazardous materials and waste, or further affect what materials can be used in our products. Any required changes to our operations or products may increase our manufacturing costs, detrimentally impact the performance of our products, add greater testing lead-times for product introductions or have other similar effects.

In connection with our research and manufacturing activities, we use, and our employees may be exposed to, materials that are hazardous to human health, safety or the environment. The risk of accidental injury to our employees or contamination from these materials cannot be eliminated, and we could be held liable for any resulting damages, the related liability for which could exceed our reserves. We do not specifically insure against environmental liabilities. If an enforcement action were to occur, our reputation and our business and financial condition may be harmed, even if we were to prevail or settle the action on terms favorable to us.

We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively.

Increased global cybersecurity vulnerabilities, cybersecurity threats and sophisticated and targeted cybersecurity attacks pose a risk to the security of our systems and networks, including the confidentiality, availability and integrity of any underlying information and data, and those of our customers, partners, suppliers and third-party service providers. Our ability to effectively manage and maintain our internal business information, and to ship products to customers and invoice them on a timely basis, depends significantly on our enterprise resource planning system and other information systems.

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Portions of our information technology systems may experience interruptions, delays or cessations of service or produce errors in connection with ongoing systems implementation work. In addition, interfaces between our products and our customers’ computer networks could provide additional opportunities for cybersecurity attacks on us and our customers. The techniques used to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote areas of the world. Cybersecurity attacks in particular are evolving and include, but are not limited to: threats, malicious software, ransomware, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, misappropriation of confidential or otherwise protected information and corruption of data. As a result, there can be no assurance that our protective measures will prevent or detect security breaches that could have a significant impact on our business, reputation, financial condition and results of operations.

The failure of these systems to operate or integrate effectively with other internal, customer, supplier or third-party service provider systems and to protect the underlying information technology system and data integrity, including from cyber-attacks, intrusions or other breaches or unauthorized access of these systems, or any failure by us to remediate any such attacks or breaches, may also result in damage to our reputation or competitiveness, delays in product fulfillment and reduced efficiency of our operations, and could require significant capital investments to remediate any such failure, problem or breach, all of which could adversely affect our business, financial condition and results of operations.

*The impact of the Russian invasion of Ukraine on the global economy, energy supplies and raw materials is uncertain, but may prove to negatively impact our business and operations.

The short and long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time. We continue to monitor any adverse impact that the outbreak of war in Ukraine and the subsequent institution of sanctions against Russia by the United States and several European and Asian countries may have on the global economy in general, on our business and operations and on the businesses and operations of our suppliers and customers. For example, a prolonged conflict may result in challenges associated with timely receipt of customer payments and banking transactions, increased inflation, escalating energy prices and constrained availability, and thus increasing costs, of raw materials. In addition, as a result of the current conflict, we have stopped selling non-healthcare products in Russia indefinitely. We will continue to monitor this fluid situation and develop contingency plans as necessary to address any disruptions to our business operations as they develop. To the extent the war in Ukraine may adversely affect our business as discussed above, it may also have the effect of heightening many of the other risks described herein. Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including inflation; disruptions to our global technology infrastructure, including through cyberattack, ransom attack, or cyber-intrusion; adverse changes in international trade policies and relations; our ability to maintain or increase our product prices; disruptions in global supply chains; our exposure to foreign currency fluctuations; and constraints, volatility, or disruption in the capital markets, any of which could negatively affect our business and financial condition.

*Our stock price may be volatile, and your investment in our stock could suffer a decline in value.

There has been and could continue to be significant volatility in the market price and trading volume of equity securities. For example, our closing stock price ranged from $112.97 to $284.87 per share from January 2, 2022 to July 2, 2022. Factors contributing to our stock price volatility may include our financial performance, as well as broader economic, political and market factors, including the COVID-19 pandemic. In addition to the other risk factors previously discussed in this Quarterly Report on Form 10-Q, there are many other factors that we may not be able to control that could have a significant effect on our stock price. These include, but are not limited to:

•actual or anticipated fluctuations in our operating results or future prospects;

•our announcements or our competitors’ announcements of new products;

•the public’s reaction to our press releases, including those relating to our earnings or financial guidance, our other public announcements and our filings with the SEC;

•strategic actions by us or our competitors, such as acquisitions or restructurings;

•new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

•changes in accounting standards, policies, guidance, interpretations or principles;

•changes in our growth rates or our competitors’ growth rates;

•developments regarding our patents or proprietary rights or those of our competitors;

•ongoing legal proceedings;

•our inability to raise additional capital as needed;

•concerns or allegations as to the safety or efficacy of our products;

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•changes in financial markets or general economic conditions, including the effects of recession or slow economic growth in the U.S. and abroad;

•effects of public health crises, epidemics and pandemics, such as the COVID-19 pandemic;

•sales of stock by us or members of our management team, our Board or certain institutional stockholders; and

•changes in stock market analyst recommendations or earnings estimates regarding our stock, other comparable companies or our industry generally.

Therefore, you may not be able to resell your shares at or above the price you paid for them.

Our investors could experience substantial dilution of their investments as a result of subsequent exercises of our outstanding options, vesting of outstanding restricted stock units (RSUs) and performance stock units (PSUs), or the grant of future equity awards by us.

As of July 2, 2022, approximately 10.1 million shares of our common stock were reserved for issuance under our equity incentive plans, of which approximately 3.0 million shares were subject to options outstanding at such date at a weighted-average exercise price of $84.19 per share, approximately 3.2 million shares were subject to outstanding RSUs, approximately 0.4 million shares were subject to outstanding PSUs and approximately 3.6 million shares were available for future awards under our 2017 Equity Incentive Plan. Over the past 36 months, we have experienced higher rates of stock option exercises compared to many earlier periods, and this trend may continue. To the extent outstanding options are exercised or outstanding RSUs or PSUs vest, our existing stockholders may incur dilution.

We rely on equity awards to motivate current employees and to attract new employees. The grant of future equity awards by us to our employees and other service providers may further dilute our stockholders.

Future resales of our stock, including those by our insiders and a few investment funds, may cause our stock price to decline.

A significant portion of our outstanding shares are held by our directors, our executive officers and a few investment funds. Resales by these stockholders of a substantial number of such shares, announcements of any proposed resale of substantial amounts of our stock or the perception that substantial resales may be made, could significantly reduce the market price of our stock. Some of our directors and executive officers have entered into Rule 10b5-1 trading plans pursuant to which they have arranged to sell shares of our stock from time to time in the future. Generally, these sales require public filings. Actual or potential sales by these insiders, including those under a pre-arranged Rule 10b5-1 trading plan, could be interpreted by the market as an indication that the insider has lost confidence in our stock and reduce the market price of our stock.

We have registered and expect to continue to register shares reserved under our equity plans pursuant to Registration Statements on Form S-8. All shares issued pursuant to a Registration Statement on Form S-8 can be freely sold in the public market upon issuance, subject to restrictions on our affiliates under Rule 144. If a large number of these shares are sold in the public market, the sales could reduce the trading price of our stock.

We may elect not to declare cash dividends on our stock, may elect to only pay dividends on an infrequent or irregular basis, or may elect not to make any additional stock repurchases. As a result, any return on your investment may be limited to the value of our stock. In addition, the payment of any future dividends or the repurchase of our stock might limit our ability to pursue other growth opportunities.

Our Board may from time to time declare, and we may pay, dividends on our outstanding shares in the manner and upon the terms and conditions permitted under applicable law. However, we may elect to retain all future earnings for the operation and expansion of our business, rather than paying cash dividends on our stock. In addition, under certain circumstances, our Credit Facility may limit our ability to pay cash dividends, repurchase our common stock or make other distributions to stockholders. Any payment of cash dividends on our stock will be at the discretion of our Board and will depend upon our results of operations, earnings, capital requirements, financial condition, business prospects, contractual restrictions and other factors deemed relevant by our Board. In addition, our Credit Facility places limitations on our ability to pay dividends. In the event our Board declares any dividends, there is no assurance with respect to the amount, timing or frequency of any such dividends.

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Any repurchase of our common stock under the stock repurchase plan authorized by our Board in June 2022 (Repurchase Program) will be at the discretion of a committee comprised of our CEO and Chief Financial Officer, and will depend on several factors, including, but not limited to, results of operations, capital requirements, financial conditions, available capital from operations or other sources, including debt, and the market price of our common stock. Therefore, there is no assurance with respect to the amount, price or timing of any such repurchases. We may elect to retain all future earnings for the operation and expansion of our business, rather than repurchasing additional outstanding shares. For additional information related to our Repurchase Program, please see Note 18, “Stock Repurchase Program”, to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In the event we pay dividends, or make any stock repurchases in the future, our ability to finance any material expansion of our business, including through acquisitions, investments or increased capital spending, or to fund our operations, may be limited. In addition, any repurchases we may make in the future may not prove to be at optimal prices. Our Board may modify or amend the Repurchase Program, or adopt a new stock repurchase program, at any time at its discretion without stockholder approval.

*Environmental, social and corporate governance (ESG) regulations, global climate change, corporate citizenship and related matters/provisions may make our supply chain more complex, and our reporting of such matters and may adversely affect our business.

There is an increasing focus on the governance of environmental and social risks. Our customers, including distributors and retail partners have adopted, or may adopt, procurement policies that include ESG provisions that their suppliers or manufacturers must comply with, or they may seek to include such provisions in their terms and conditions. An increasing number of participants in our industries are also joining voluntary ESG groups or organizations. These ESG provisions and initiatives are subject to change, can be unpredictable, and may be difficult and expensive for us to comply with, given the complexity of our supply chain and the outsourced manufacturing of certain components of our products. If we are unable to comply, or are unable to cause our suppliers to comply, with such policies or provisions, a customer may cease purchasing products from us, and may take legal action against us, which could harm our reputation, revenue and results of operations.

Further, increased public awareness and concern regarding global climate change may result in new or enhanced legal requirements. There continues to be a lack of consistent climate legislation, which creates economic and regulatory uncertainty. Such uncertainty may have an impact on our business, from the demand for our products to our costs of compliance in the manufacturing and servicing of our products, all of which may impact our results of operations. In addition, climate change initiatives and legislation could also disrupt our operations by impacting the availability and cost of materials within our supply chain, and could also increase insurance and other operating costs. In addition, the SEC has announced proposed rules that, among other matters, will establish a framework for reporting climate related risks. To the extent that any proposed rules impose additional reporting obligations, we could face increased costs. Separately, the SEC has also announced that it is scrutinizing existing climate change related disclosures in public filings, increasing the potential for enforcement if the SEC were to allege our existing climate disclosures are misleading or deficient.

Investors, stockholders, consumers, customers, suppliers and other third-parties are increasingly focusing on ESG and corporate social responsibility endeavors and reporting and transparency. Certain institutional investors, investment funds, other influential investors, customers, suppliers and other third-parties are also increasingly focused on ESG practices. Companies that do not adapt to or comply with the evolving investor or stakeholder expectations and standards, or which are perceived to have not responded appropriately, may suffer from reputational damage and result in the business, financial condition and/or stock price of a company being materially and adversely affected. Further, this increased focus on ESG issues may result in new regulations and/or third-party requirements that could adversely impact our business, or certain shareholders reducing or eliminating their holdings of our stock. Additionally, an allegation or perception that we have not taken sufficient action in these areas could negatively harm our reputation.

Previously enacted state laws in California seek to impose gender and diversity quotas for boards of directors of public companies headquartered in California.

In September 2018, California enacted Senator Bill 826 (SB 826), which generally required public companies with principal executive offices in California to have at least two female directors on its board of directors if the company has at least five directors, and at least three female directors on its board of directors if the company has at least six directors. On May 13, 2022, Los Angeles Superior Court declared SB 826 unconstitutional and, although it is unclear whether this decision may be appealed, the State of California is currently precluded from enforcing SB 826.

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Additionally, on September 30, 2020, California enacted Assembly Bill 979 (AB 979), which generally required public companies with principal executive offices in California to include specified numbers of directors from “underrepresented communities”. A director from an “underrepresented community” means a director who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaska Native, gay, lesbian, bisexual or transgender. By December 31, 2021, each public company with principal executive offices in California was required to have at least one director from an underrepresented community. By December 31, 2022, a public company with more than four but fewer than nine directors would be required to have a minimum of two directors from underrepresented communities, and a public company with nine or more directors would need to have a minimum of three directors from underrepresented communities. On April 1, 2022, the Los Angeles Superior Court declared AB 979 unconstitutional and, although it is unclear whether this decision may be appealed, the State of California is currently precluded from enforcing AB 979.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Repurchases and Withholdings of Equity Securities

During the quarter ended July 2, 2022, we effected stock repurchases pursuant to our stock repurchase program. In addition, we satisfied certain U.S. federal and state tax withholding obligations due upon the vesting of performance share units by withholding a number of shares of our common stock with an aggregate fair market value on the date of vesting equal to the tax withholding obligations from the shares of our common stock being issued in connection with such award. Shares repurchased by us or withheld to satisfy tax withholding obligations during each fiscal month of the quarter ended July 2, 2022 were as follows:


Period	Total Number of Shares Purchased or Withheld		Average Price Paid Per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1)
April 3, 2022 to April 30, 2022	—		$	—		—		3,000,000
May 1, 2022 to May 28, 2022	3,000,000	(1)	133.80		(1)	3,000,000	(1)	—
May 29, 2022 to July 2, 2022	145	(2)	—		(2)	—		5,000,000	(3)
Total	3,000,145		$	133.80		3,000,000		5,000,000	(3)

______________

(1) In October 2021, our Board authorized the 2021 Repurchase Program, whereby we were authorized to repurchase up to 3.0 million shares of our common stock. The 2021 Repurchase Program can be carried out at the discretion of a committee comprised of our CEO and CFO through open market purchases, one or more Rule 10b5-1 trading plans, block trades and privately negotiated transactions.

(2) Comprised solely of shares of our common stock withheld from employees to satisfy tax withholding obligations. Average price paid price share represents fair market value of our common stock on the date of withholding.

(3) In June 2022, our Board approved a new stock repurchase program, authorizing us to purchase up to 5.0 million shares of our common stock on or before December 31, 2027 (2022 Repurchase Program) The 2022 Repurchase Program became effective in July 2022 and can be carried out at the discretion of a committee comprised of our CEO and CFO through open market purchases, one or more Rule 10b5-1 trading plans, block trades and privately negotiated transactions.

Shares repurchased by us during each fiscal month of the quarter ended July 2, 2022 were as follows:


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1)
April 3, 2022 to April 30, 2022	—	$	—	—	3,000,000
May 1, 2022 to May 28, 2022	3,000,000	133.80		3,000,000	—
May 29, 2022 to July 2, 2022	—	—		—	5,000,000	(2)
Total	3,000,000	$	133.80	3,000,000	5,000,000	(2)

_____________

(2) In June 2022, our Board approved the 2022 Repurchase Program, authorizing us to purchase up to 5.0 million shares of our common stock on or before December 31, 2027. The 2022 Repurchase Program became effective in July 2022 and can be carried out at the discretion of a committee comprised of our CEO and CFO through open market purchases, one or more Rule 10b5-1 trading plans, block trades and privately negotiated transactions.

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Item 6. Exhibits

EXHIBIT INDEX

Exhibit

Number

Description of Document

3.1

(1)

Amended and Restated Certificate of Incorporation (Exhibit 3.2)

3.2

(2)

Second Amended and Restated Bylaws adopted on October 24, 2019 (Exhibit 3.1)

4.1

(1)

Amended Form of Common Stock Certificate

4.2

(1)

Fifth Amended and Restated Registration Rights Agreement made and entered into as of September 14, 1999, between Masimo Corporation and certain of its stockholders (Exhibit 4.2)

4.3#*+

Masimo Retirement Savings Plan

10.1*†

Shelter Labor Services Agreement, dated December 27, 2000, between Industrial Vallera de Mexicali, S.A. de C.V. and the Registrant

10.2*†

Purchase Agreement, dated July 26, 2001, between Jabil Circuit, Inc. and the Registrant

10.3

(3)

Credit Agreement, dated as of April 11, 2022, among Masimo Corporation, as the Borrower, the Lenders and issuing banks party hereto and Citibank, N.A. as Administrative Agent (Exhibit 10.1)

10.4

(4)

First Amendment to Credit Agreement, dated as of May 16, 2022, among Masimo Corporation, each of the lenders party hereto with an Incremental Revolving Commitment,each Issuing Bank and CITIBANK, N.A., as administrative agent (Exhibit 10.1)

10.5*^†

Lease agreement, dated as of August 21, 2021, related to Land at Dale Road, Worthing, West Sussex by and between Londonmetric Distribution Limited and B&W Group Limited and DEI Sales, Inc.

10.6*^†

Contract for Sale of Freehold Land with Leaseback at Dale Road, Worthing, West Sussex, between B&W Group LTD and Londonmetric Distribution Limited and DEI Sales, Inc. dated August 31, 2021

10.7*†

Lease Contract of the Hengli Industrial Park, dated April 1, 2016, between Zhuhai Free Trade Zone Minsheng Industrial Warehousing Co., Ltd. and Bowers & Wilkins Trading (Zhuhai) Co., Ltd.

10.8*†

Lease Contract of the Hengli Industrial Park - Warehouse, dated November 1, 2016, between Zhuhai Free Trade Zone Minsheng Industrial Warehousing Co., Ltd. and Bowers & Wilkins Trading (Zhuhai) Co., Ltd.

10.9*^†

Purchase agreement, dated as of May 23, 2019, between ANAM Electronics Co. Ltd. and DEI Sales Inc. dba Sound United

10.10*^†

OEM/ODM Agreement, dated as of February 24, 2012, between Tymphany HK Ltd. and D&M Holdings, Inc.

10.11*†

Quality Agreement, dated as of February 24, 2012, between Tymphany HK Ltd and D&M Holdings, Inc.

10.12*^†

Purchase Agreement, dated as of April 3, 2019, between Tonly Electronics Sales Limited and DEI Sales, Inc. dba Sound United

10.13*†

License Agreement , dated as of October 1 , 2014 , between Harman International Industries, Incorporated, a nd B&W Group Ltd.

10.14*†

Amendment No. 1 to the License Agreement , b y and between Harman International Industries, Incorporated and B&W Group Ltd. effective as of October 1, 2014, is entered into and made effective as of October 13 , 2 020

10.15*

G uar a ntee , dated as of October 11, 2020 , b etween Sound United, LLC and Harman International Industries, Incorporated

21.1*

List of Registrant’s Subsidiaries

31.1*

Certification of Joe Kiani, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended

31.2*

Certification of Micah Young, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended

32.1**

Certification of Joe Kiani, Chief Executive Officer, and Micah Young, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended

101.INS*

XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

101.INS*

XBRL Taxonomy Extension Schema Document

101.SCH*

XBRL Taxonomy Extension Calculation Linkbase Document

101.CAL*

XBRL Taxonomy Extension Definition Linkbase Document

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EXHIBIT INDEX

101.DEF*

XBRL Taxonomy Extension Label Linkbase Document

101.LAB*

XBRL Taxonomy Extension Presentation Linkbase Document

101.PRE*

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

104

Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of July 2, 2022 and January 1, 2022, (ii) Condensed Consolidated Statements of Operations for the three and six months ended July 2, 2022 and July 3, 2021, respectively, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended July 2, 2022 and July 3, 2021, respectively, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended July 2, 2022 and July 3, 2021, respectively, and (v) Notes to Condensed Consolidated Financial Statements.

______________

(1) Incorporated by reference to the exhibits to the Company’s Registration Statement on Form S-1 (No. 333-142171), originally filed on April 17, 2007. The number given in parentheses indicates the corresponding exhibit number in such Form S-1, as amended.

(2) Incorporated by reference to the exhibit to the Company’s Current Report on Form 8-K filed on October 30, 2019. The number given in parentheses indicates the corresponding exhibit number in such Form 8-K.

(3) Incorporated by reference to the exhibit to the Company’s Quarterly Report on Form 10-Q filed on May 3, 2022. The number given in parentheses indicates the corresponding exhibit number in such Form 10-Q.

(4) Incorporated by reference to the exhibit to the Company’s Current Report on Form 8-K filed on May 20, 2022. The number given in parentheses indicates the corresponding exhibit number in such Form 8-K.

# Indicates management or compensatory plan.

* Filed herewith.

** Furnished herewith.

+ Non-material schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the SEC.

^ Non-material schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the SEC.

† Certain identified information has been omitted pursuant to Item 601(b)(10) of Regulation S-K because such information is both (i) not material and (ii) of the type that the Company treats as private or confidential. The Registrant hereby undertakes to furnish supplemental copies of the unredacted exhibit upon request by the SEC.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MASIMO CORPORATION

Date: August 9, 2022

By:

/s/ JOE KIANI

Joe Kiani

Chief Executive Officer and Chairman

Date: August 9, 2022

By:

/s/ MICAH YOUNG

Micah Young

Executive Vice President and Chief Financial Officer

Document

Exhibit 4.3

PRE-APPROVED

DEFINED CONTRIBUTION PLAN

FIDELITY BASIC PLAN DOCUMENT NO. 17


PRE-APPROVED
DEFINED CONTRIBUTION PLAN

PREAMBLE	.	1

ARTICLE 1.	ADOPTION AGREEMENT	6

ARTICLE 2.	DEFINITIONS	6
2.01.	DEFINITIONS	17
2.02.	INTERPRETATION AND CONSTRUCTION OF TERMS	17
2.03.	SPECIAL EFFECTIVE DATES	17

ARTICLE 3.	SERVICE	17
3.01.	CREDITING OF ELIGIBILITY SERVICE	17
3.02.	RE-CREDITING OF ELIGIBILITY SERVICE FOLLOWING TERMINATION OF EMPLOYMENT	17
3.03.	CREDITING OF VESTING SERVICE	18
3.04.	APPLICATION OF VESTING SERVICE TO A PARTICIPANT’S ACCOUNT FOLLOWING A BREAK IN VESTING SERVICE	18
3.05.	APPLICATION OF VESTING SERVICE TO A PARTICIPANT’S ACCOUNT FOLLOWING A BREAK IN VESTING SERVICE	18
3.06.	CHANGE IN SERVICE CREDITING	18

ARTICLE 4.	PARTICIPATION	18
4.01.	DATE OF PARTICIPATION	18
4.02.	TRANSFERS OUT OF COVERED EMPLOYMENT	19
4.03.	TRANSFERS INTO COVERED EMPLOYMENT	19
4.04.	RESUMPTION OF PARTICIPATION FOLLOWING REEMPLOYMENT	19

ARTICLE 5.	CONTRIBUTIONS	19
5.01.	CONTRIBUTIONS SUBJECT TO LIMITATIONS	19
5.02.	COMPENSATION TAKEN INTO ACCOUNT IN DETERMINING CONTRIBUTIONS	19
5.03.	DEFERRAL CONTRIBUTIONS	20
5.04.	EMPLOYEE CONTRIBUTIONS	22
5.05.	NO DEDUCTIBLE EMPLOYEE CONTRIBUTIONS	22
5.06.	ROLLOVER CONTRIBUTIONS	22
5.07.	QUALIFIED NONELECTIVE EMPLOYER CONTRIBUTIONS	23
5.08.	MATCHING EMPLOYER CONTRIBUTIONS	24
5.09.	QUALIFIED MATCHING EMPLOYER CONTRIBUTIONS	24
5.10.	NONELECTIVE EMPLOYER CONTRIBUTIONS	24
5.11.	VESTED INTEREST IN CONTRIBUTIONS	25
5.12.	TIME FOR MAKING CONTRIBUTIONS	26


5.13.	EXCLUSIVE BENEFIT AND RETURN OF EMPLOYER CONTRIBUTIONS	26
5.14.	FROZEN PLAN	27

ARTICLE 6.	LIMITATIONS ON CONTRIBUTIONS	27
6.01.	SPECIAL DEFINITIONS	27
6.02.	CODE SECTION 402(G) LIMIT ON DEFERRAL CONTRIBUTIONS	33
6.03.	ADDITIONAL LIMIT ON DEFERRAL CONTRIBUTIONS (“ADP” TEST)	34
6.04.	ALLOCATION AND DISTRIBUTION OF “EXCESS CONTRIBUTIONS”	35
6.05.	REDUCTIONS IN DEFERRAL OR EMPLOYEE CONTRIBUTIONS TO MEET CODE REQUIREMENTS	36
6.06.	LIMIT ON MATCHING EMPLOYER CONTRIBUTIONS AND EMPLOYEE CONTRIBUTIONS (“ACP” TEST)	36
6.07.	ALLOCATION, DISTRIBUTION, AND FORFEITURE OF “EXCESS AGGREGATE CONTRIBUTIONS”	37
6.08.	INCOME OR LOSS ON DISTRIBUTABLE CONTRIBUTIONS	37
6.09.	DEEMED SATISFACTION OF “ADP” TEST	37
6.10.	DEEMED SATISFACTION OF “ACP” TEST WITH RESPECT TO MATCHING EMPLOYER CONTRIBUTIONS	39
6.11.	CHANGING TESTING METHODS	40
6.12.	CODE SECTION 415 LIMITATIONS	41

ARTICLE 7.	PARTICIPANTS’ ACCOUNTS	42
7.01	INDIVIDUAL ACCOUNTS	43
7.02	VALUATION OF ACCOUNTS	43

ARTICLE 8.	INVESTMENT OF CONTRIBUTIONS	43
8.01.	MANNER OF INVESTMENT	43
8.02.	INVESTMENT DECISIONS	43
8.03.	PARTICIPANT DIRECTIONS TO TRUSTEE	44
8.04.	LIFE INSURANCE	44

ARTICLE 9.	PARTICIPANT LOANS	45
9.01.	SPECIAL DEFINITION	45
9.02.	PARTICIPANT LOANS	45
9.03.	PARTICIPANT LOANS	45
9.04.	AVAILABILITY OF LOANS	45
9.05.	LIMITATION ON LOAN AMOUNT	45
9.06.	INTEREST RATE	45
9.07.	LEVEL AMORTIZATION	45
9.08.	SECURITY	46
9.09.	LOAN REPAYMENTS	46
9.10.	DEFAULT	46


9.11.	EFFECT OF TERMINATION WHERE PARTICIPANT HAS OUTSTANDING LOAN BALANCE	46
9.12.	DEEMED DISTRIBUTIONS UNDER CODE SECTION 72(P)	46
9.13.	DETERMINATION OF VESTED INTEREST UPON DISTRIBUTION WHERE PLAN LOAN IS OUTSTANDING	47

ARTICLE 10.	IN-SERVICE WITHDRAWALS	47
10.1.	AVAILABILITY OF IN-SERVICE WITHDRAWALS	47
10.2	WITHDRAWAL OF EMPLOYEE CONTRIBUTIONS	47
10.3	WITHDRAWAL OF ROLLOVER CONTRIBUTIONS	47
10.4.	AGE 59 1/2 WITHDRAWALS	47
10.5.	HARDSHIP WITHDRAWALS	48
10.6.	ADDITIONAL IN-SERVICE WITHDRAWAL RULES	49
10.7.	RESTRICTIONS ON IN-SERVICE WITHDRAWALS	49
10.8.	QUALIFIED RESERVIST DISTRIBUTIONS	49
10.9.	AGE 62 DISTRIBUTION OF MONEY PURCHASE BENEFITS	49

ARTICLE 11.	RIGHT TO BENEFITS	49
11.01.	NORMAL OR EARLY RETIREMENT	50
11.02.	LATE RETIREMENT	50
11.03.	DISABILITY RETIREMENT	50
11.04.	DEATH	50
11.05.	OTHER TERMINATION OF EMPLOYMENT	50
11.06.	APPLICATION FOR DISTRIBUTION	51
11.07.	APPLICATION OF VESTING SCHEDULE FOLLOWING PARTIAL DISTRIBUTION	51
11.08	FORFEITURES	51
11.09.	APPLICATION OF FORFEITURES	51
11.10.	REINSTATEMENT OF FORFEITURES	52
11.11.	ADJUSTMENT FOR INVESTMENT EXPERIENCE	52

ARTICLE 12.	DISTRIBUTIONS	52
12.01.	RESTRICTIONS ON DISTRIBUTIONS	52
12.02.	TIMING OF DISTRIBUTION FOLLOWING RETIREMENT OR TERMINATION OF EMPLOYMENT	53
12.03.	PARTICIPANT CONSENT TO DISTRIBUTION	53
12.04.	REQUIRED COMMENCEMENT OF DISTRIBUTION TO PARTICIPANTS	54
12.05.	REQUIRED COMMENCEMENT OF DISTRIBUTION TO BENEFICIARIES	54
12.06.	WHEREABOUTS OF PARTICIPANTS AND BENEFICIARIES	55

ARTICLE 13.	FORM OF DISTRIBUTION	55
13.01.	NORMAL FORM OF DISTRIBUTION UNDER PROFIT SHARING PLAN	55
13.02.	CASH OUT OF SMALL ACCOUNTS	55
13.03.	MINIMUM DISTRIBUTIONS	56
13.04.	DIRECT ROLLOVERS	59
13.05.	NOTICE REGARDING TIMING AND FORM OF DISTRIBUTION	60


13.06.	DETERMINATION OF METHOD OF DISTRIBUTION	60
13.07.	NOTICE TO TRUSTEE	60

ARTICLE 14.	SUPERSEDING ANNUITY DISTRIBUTION PROVISIONS	60
14.01.	SPECIAL DEFINITIONS	60
14.02.	APPLICABILITY	61
14.03.	ANNUITY FORM OF PAYMENT	61
14.04.	“QUALIFIED JOINT AND SURVIVOR ANNUITY” AND “QUALIFIED PRERETIREMENT SURVIVOR ANNUITY” REQUIREMENTS	62
14.05.	WAIVER OF THE “QUALIFIED JOINT AND SURVIVOR ANNUITY” AND/OR “QUALIFIED PRERETIREMENT SURVIVOR ANNUITY” RIGHTS	62
14.06.	SPOUSE’S CONSENT TO WAIVER	63
14.07.	NOTICE REGARDING “QUALIFIED JOINT AND SURVIVOR ANNUITY”	63
14.08.	NOTICE REGARDING “QUALIFIED PRERETIREMENT SURVIVOR ANNUITY”	63
14.09.	FORMER SPOUSE	64

ARTICLE 15.	TOP-HEAVY PROVISIONS	64
15.01.	DEFINITIONS	64
15.02.	APPLICATION	66
15.03.	MINIMUM CONTRIBUTION	66
15.04.	DETERMINATION OF MINIMUM REQUIRED CONTRIBUTION	67
15.05.	ACCELERATED VESTING	67
15.06.	EXCLUSION OF COLLECTIVELY-BARGAINED EMPLOYEES	67

ARTICLE 16.	AMENDMENT AND TERMINATION	67
16.01.	AMENDMENTS BY THE EMPLOYER THAT DO NOT AFFECT PRE-APPROVED STATUS	67
16.02.	AMENDMENTS BY THE EMPLOYER ADOPTING PROVISIONS NOT INCLUDED IN PRE-APPROVED PLAN, THROUGH THE PLAN SUPERSEDING PROVISIONS ADDENDUM	68
16.03.	AMENDMENT BY THE PRE-APPROVED PLAN PROVIDER	68
16.04.	AMENDMENTS AFFECTING VESTED INTEREST AND/OR ACCRUED BENEFITS	68
16.05.	RETROACTIVE AMENDMENTS MADE BY PRE-APPROVED PLAN PROVIDER	68
16.06.	TERMINATION AND DISCONTINUATION OF CONTRIBUTIONS	68
16.07.	DISTRIBUTION UPON TERMINATION OF THE PLAN	69
16.08.	MERGER OR CONSOLIDATION OF PLAN; TRANSFER OF PLAN ASSETS	69

ARTICLE 17.	AMENDMENT AND CONTINUATION OF PRIOR PLAN; TRANSFER OF FUNDS TO OR FROM OTHER QUALIFIED PLANS	69
17.01.	AMENDMENT AND CONTINUATION OF PRIOR PLAN	69
17.02.	TRANSFER OF FUNDS FROM AN EXISTING PLAN	70
17.03.	TRANSFER OF ASSETS FROM TRUST	71

ARTICLE 18.	MISCELLANEOUS	72


18.01.	COMMUNICATION TO PARTICIPANTS	72
18.02.	LIMITATION OF RIGHTS	72
18.03.	NONALIENABILITY OF BENEFITS	72
18.04.	QUALIFIED DOMESTIC RELATIONS ORDERS PROCEDURES	72
18.05.	APPLICATION OF PLAN PROVISIONS FOR MULTIPLE EMPLOYER PLANS	73
18.06.	VETERANS REEMPLOYMENT RIGHTS	73
18.07.	FACILITY OF PAYMENT	74
18.08.	INFORMATION BETWEEN EMPLOYER AND/OR ADMINISTRATOR AND TRUSTEE	74
18.09.	EFFECT OF FAILURE TO QUALIFY UNDER CODE	74
18.10.	DIRECTIONS, NOTICES AND DISCLOSURE	74
18.11.	GOVERNING LAW	74
18.12.	DISCHARGE OF DUTIES BY FIDUCIARIES	74

ARTICLE 19.	PLAN ADMINISTRATION	74
19.01.	POWERS AND RESPONSIBILITIES OF THE ADMINISTRATOR	75
19.02.	NONDISCRIMINATORY EXERCISE OF AUTHORITY	75
19.03.	CLAIMS AND REVIEW PROCEDURES	75
19.04.	NAMED FIDUCIARY	75
19.05.	COSTS OF ADMINISTRATION	75

ADDENDUM	RE: THE BIPARTISAN BUDGET ACT OF 2018, AND CODE SECTIONS 401(K) AND 401(M) 2019 FINAL HARDSHIP REGULATIONS...........................................	76

Preamble.

This Pre-Approved Plan consists of two parts: (1) an Adoption Agreement that is a separate document incorporated by reference into this Basic Plan Document; and (2) this Basic Plan Document. Each part of the Pre-Approved Plan contains substantive provisions that are integral to the operation of the plan. The Adoption Agreement is the means by which an adopting Employer elects the optional provisions that shall apply under its plan. The Basic Plan Document describes the standard provisions elected in the Adoption Agreement. The Pre-Approved Plan is intended to qualify under Code Section 401(a). Depending upon the Adoption Agreement completed by an adopting Employer, the Pre-Approved Plan may be used to implement a profit sharing plan with or without a cash or deferred arrangement intended to qualify under Code Section 401(k). To the extent the Employer selects provisions available to it through an Addendum to the Adoption Agreement, such Addendum will be included with the Plan’s Adoption Agreement and the provisions in such Addendum will supplement or alter provisions appearing in the Adoption Agreement in the manner described within that Addendum. Provisions appearing on the Plan Superseding Provisions Addendum of the Adoption Agreement, if present, supersede any conflicting provisions appearing in the Adoption Agreement, Basic Plan Document or any addendum to either in the manner described therein.

Article 1. Adoption Agreement.

Article 2. Definitions.

2.01. Definitions.

Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context:

(a) "Account" means an account established for the purpose of recording any contributions made on behalf of a Participant and any income, expenses, gains, or losses incurred thereon. The Administrator shall establish and maintain sub-accounts within a Participant's Account as necessary to depict accurately a Participant's interest under the Plan.

(b) "Active Participant" means any Eligible Employee who has met the requirements of Article 4 to participate in the Plan and who may be entitled to receive allocations under the Plan.

(c) "Administrator" means the Employer adopting this Plan, as listed in Subsection 1.02(a) of the Adoption Agreement, or another person or entity designated by the Employer in Subsection 1.01(c) of the Adoption Agreement.

(d) "Adoption Agreement" means Article 1, under which the Employer establishes and adopts, or amends the Plan and designates the optional provisions selected by the Employer. The provisions of the Adoption Agreement shall be an integral part of the Plan.

(e) "Annuity Starting Date" means the first day of the first period for which an amount is payable as an annuity or in any other form permitted under the Plan.

(f) "Basic Plan Document" means this Fidelity Pre-Approved Plan document, qualified with the Internal Revenue Service as Basic Plan Document No. 17.

(g) "Beneficiary" means the person or persons (including a trust) entitled under Section 11.04 or 14.04 to receive benefits under the Plan upon the death of a Participant.

(h) "Break in Vesting Service" means, unless provided otherwise in the Adoption Agreement, a 12-consecutive-month period beginning on an Employee's Severance Date or any anniversary thereof in which the child of the individual, (iii) by reason of the placement of a child with the individual in connection with the adoption of such child by the individual, or (iv) for purposes of caring for a child for the period beginning immediately following such birth or placement.

(2) If an individual is absent from work because of FMLA leave and returns to employment with the Employer or a Related Employer following such FMLA leave, he shall not incur a Break in Vesting Service due to such FMLA leave. For purposes of this paragraph, "FMLA leave" means an approved leave of absence pursuant to the Family and Medical Leave Act of 1993.

(i) "Catch-Up Contribution" means any Deferral Contribution made to the Plan by the Employer in accordance with the provisions of Subsection 5.03(a).

(j) "Code" means the Internal Revenue Code of 1986, as amended from time to time.

(k) "Compensation" means the base compensation described in (1) below paid or made available to an Eligible Employee by the Employer (in the course of the Employer's trade or business) for services to the Employer as an Eligible Employee with the adjustments described in (2) below.

(1) Base Compensation. One of the following shall be elected by the Employer in Subsection 1.05(a) as the base compensation:

(A) The W-2 definition shall include wages as defined in Code Section 3401(a) (for purposes of income tax withholding at the source) plus amounts that would be included in wages but for an election under Code Section 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B), 402(k), or 457(b) and all other payments of compensation to an Eligible Employee for which the Employer is required to furnish the Eligible Employee a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)).

(B) The Code Section 3401(a) wages definition shall include wages within the meaning of Code Section 3401(a) for the purposes of income tax withholding at the source but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)) plus amounts that would be included in wages but for an election under Code Section 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B), 402(k), or 457(b).

(C) The Code Section 415 definition shall include wages, salaries, and fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the employer maintaining the plan to the extent that the amounts are includible in gross income (or would have been includible in gross income but for the Eligible Employee’s election under Code Section 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b), or 457(b)), including, but not limited to, commissions paid salespersons, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements, or other expense allowances under a nonaccountable plan (as described in Section 1.62-2(c)of the Income Tax Regulations), and excluding the following:

(i) Employer contributions (other than elective contributions described in Code Section 402(e)(3), 408(k)(6), 408(p)(2)(A)(i), or 457(b)) to a plan of deferred compensation (including a simplified employee pension described in Code Section 408(k) or a simple retirement account described in Code Section 408(p), and whether or not qualified) to the extent such contributions are not includible in the employee’s gross income for the taxable year in which contributed, and any distributions (whether or not includible in gross income when distributed) from a plan of deferred compensation (whether or not qualified), other than, if the employer so elects in the Compensation Addendum to the Adoption Agreement, amounts received during the year by an Employee is not credited with an Hour of Service. Notwithstanding the foregoing, the following special rules apply in determining whether an Employee who is on leave has incurred a Break in Vesting Service: (1) If an individual is absent from work because of maternity/paternity leave on the first anniversary of his Severance Date, the 12-consecutive-month period beginning on the individual's Severance Date shall not constitute a Break in Vesting Service. For purposes of this paragraph, "maternity/paternity leave" means a leave of absence (i) by reason of the pregnancy of the individual, (ii) by reason of the birth of a employee pursuant to a nonqualified unfunded deferred compensation plan to the extent includible in gross income;

(ii) Amounts realized from the exercise of a nonstatutory stock option (that is, an option other than a statutory stock option as defined in Section 1.421-1(b) of the Treasury Regulations), or when restricted stock (or property) held by the

employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture;

(iii) Amounts realized from the sale, exchange or other disposition of stock acquired under a statutory stock option;

(iv) Other amounts that receive special tax benefits, such as premiums for group term life insurance (but only to the extent that the premiums are not includible in the gross income of the employee and are not salary reduction amounts that are described in Code Section 125);

(v) Other items of remuneration that are similar to any of the items listed in (i) through (iv).

(2) Adjustments. Self-Employed Individuals will have the Compensation described in (A) below. Unless specifically excluded by the Employer’s election in Subsection 1.05(b), the amounts described in (B) shall be included in Compensation. Additionally, Compensation excludes any amounts elected by the Employer in Subsection 1.05(b) or (c), as applicable, of the Adoption Agreement and any severance amounts (for purposes of this Subsection 2.01(j), “severance amounts” are amounts paid after severance from employment except any such amounts described in (B) below). Deemed Code Section 125 compensation (amounts under a plan of the Employer that are not available to a Participant in cash in lieu of group health coverage, because the Participant is unable to certify that he has other health coverage) shall only be included in the definition of Compensation if so elected by the Employer on the Compensation Addendum to the Adoption Agreement.

(A) Self-Employed Individuals. Notwithstanding the foregoing, for any Self-Employed Individual, Compensation means Earned Income; provided, however, that if the Employer elects to exclude specified items from Compensation, such Earned Income shall be adjusted in a similar manner so that it is equivalent under regulations issued under Code Section 414(s) to Compensation for Participants who are not Self-Employed Individuals. "Earned Income" means the net earnings of a Self-Employed Individual derived from the trade or business with respect to which the Plan is established and for which the personal services of such individual are a material income-providing factor, excluding any items not included in gross income and the deductions allocated to such items, except that net earnings shall be determined with regard to the deduction allowed under Code Section 164(f), to the extent applicable to the Employer. Net earnings shall be reduced by contributions of the Employer to any qualified plan, to the extent a deduction is allowed to the Employer for such contributions under Code Section 404.

(B) Includable Amounts. Unless otherwise elected by the Employer in Subsection 1.05(b) or (c), as applicable, of the Adoption Agreement, Compensation includes the following:

(i) Differential Wages as defined below; and

(ii) any of the following, provided payment is made within the post-severance period defined below:

(I) a payment of regular compensation for services during the Eligible Employee’s regular working hours, or compensation for services outside the Eligible Employee’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments to the extent such payment would have been made prior to a severance from employment if the Eligible Employee had continued in employment with the Employer;

(II) payments for “unused leave” (i.e., unused accrued bona fide sick, vacation, or other leave, but only if the Eligible Employee would have been able to use the leave if employment had continued); and

(III) payments received by a Participant pursuant to a nonqualified unfunded deferred compensation plan, but only if the payment would have been paid to the Participant at the same time if the Participant had not severed employment and only to the extent that the payment is includible in the Participant’s gross income.

The following terms have the following meanings:

(C) An Eligible Employee has a “severance from employment” when (i) the employee ceases to be an employee of an employer (applying the aggregation rules in Code Section 414) maintaining a plan and (ii) in connection with a change of employment, the individual’s new employer does not maintain such plan with respect to the individual. The determination of whether an Eligible Employee ceases to be an employee of an employer maintaining a plan is based on all of the relevant facts and circumstances.

(D) “Differential Wages” means Compensation paid to an Employee by the Employer with regard to military service meeting the definition of differential wage payment found in Code Section 3401(h)(2).

(E) The "post-severance period" means the period beginning on the Eligible Employee's severance from employment and ending on the later of (i) 2-1/2 months after or (ii) the end of the Limitation Year that includes the date of the Eligible Employee’s severance from employment.

(3) Timing Rules. Compensation shall generally be based on the amount actually paid or made available to the Eligible Employee during the Plan Year or, for purposes of Article 5, if so elected by the Employer in Subsection 1.05(b) of the Adoption Agreement, during that portion of the Plan Year during which the Eligible Employee is an Active Participant. Compensation is treated as paid on a date if it is actually paid on that date or it would have been paid on that date but for an election under Code Section 125, 132(f)(4), 401(k), 403(b), 408(k), 408(p)(2)(A)(i), or 457(b). If the Plan Year and the Limitation Year are based on the same 12-month period, Compensation may include amounts earned, but not paid during the Plan Year solely because of the timing of pay periods and pay dates, provided:

(A) such amounts are paid during the first few weeks of the next Plan Year;

(B) such amounts are included on a uniform and consistent basis with respect to all similarly situated Participants; and

(4) Short Plan Years. If the initial Plan Year of a new plan consists of fewer than 12 months, calculated from the Effective Date listed in Subsection 1.01(g)(1) of the Adoption Agreement through the end of such initial Plan Year, Compensation for such initial Plan Year shall be determined from such Effective Date through the end of the initial Plan Year. Notwithstanding the foregoing, if selected in Subsection 1.05 of the Adoption Agreement, for purposes of allocating Nonelective Employer Contributions under Section 1.12 of the Adoption Agreement (other than 401(k) Safe Harbor Nonelective Employer Contributions), Compensation for the initial Plan Year shall be determined by using the 12-month period ending on the last day of the Plan Year.

(5) Annual Compensation Limit (Code Section 401(a)(17) Limit). The annual Compensation of each Active Participant taken into account for determining benefits provided under the Plan for

any 12-month determination period shall not exceed the annual Compensation limit under Code Section 401(a)(17) as in effect on the first day of the determination period (e.g., $275,000 for determination periods beginning in 2018). A "determination period" means the Plan Year or other 12-consecutive-month period over which Compensation is otherwise determined for purposes of the Plan (e.g., the Limitation Year).

The annual Compensation limit under Code Section 401(a)(17) shall be adjusted by the Secretary to reflect increases in the cost of living, as provided in Code Section 401(a)(17)(B); provided, however, that the dollar increase in effect on January 1 of any calendar year is effective for determination periods beginning in such calendar year. If a Plan determines Compensation over a determination period that contains fewer than 12 calendar months (a "short determination period"), then the Compensation limit for such "short determination period" is equal to the Compensation limit for the calendar year in which the "short determination period" begins multiplied by the ratio obtained by dividing the number of months (counting any portion of a month as a whole month) in the "short determination period" by 12; provided, however, that such proration shall not apply if there is a "short determination period" due to the Employer’s election in Subsection 1.05(b) of the Adoption Agreement to determine contributions based only on Compensation paid during the portion of the Plan Year during which an individual was an Active Participant.

Rather than requiring an Active Participant to cease making Deferral Contributions for a Plan Year after his Compensation has reached the annual Compensation limit under Code Section 401(a)(17), an Active Participant may make Deferral Contributions until his total Deferral Contributions for a Plan Year equals the product of (i) such Active Participant's Compensation for the Plan Year up to the annual Compensation limit multiplied by (ii) the deferral limit specified in Subsection 1.07(a)(1)(A) of the Adoption Agreement or Subsection 5.03(a), as applicable. Also, rather than requiring an Active Participant to cease making Employee Contributions once the annual Compensation limit is reached, an Active Participant may make Employee Contributions until his total Employee Contributions for a Plan Year equals the product of (i) such Active Participant's Compensation for the Plan Year up to the annual Compensation limit multiplied by (ii) the contribution limit specified in Subsection 1.08(a) of the Adoption Agreement or Section 6.05, as applicable.

(l) "Contribution Period" means the period for which Matching Employer and Nonelective Employer Contributions are made and calculated. The Contribution Period for Matching Employer Contributions described in Subsection 1.11 of the Adoption Agreement is the period specified by the Employer in Subsection 1.11(d) of the Adoption Agreement.

The Contribution Period for Nonelective Employer Contributions is the Plan Year, unless the Employer designates a different Contribution Period in Subsection 1.12(c) of the Adoption Agreement.

(m) "Deferral Contribution" means any contribution made to the Plan by the Employer in accordance with the provisions of Section 5.03.

(n) "Early Retirement Age" means the early retirement age specified in Subsection 1.14(b) of the Adoption Agreement, if any.

(o) "Effective Date" means the effective date specified by the Employer in Subsection 1.01(g)(1). The Employer may select special Effective Dates with respect to specified Plan provisions, as set forth in Section (a) of the Special Effective Dates Addendum to the Adoption Agreement. In the event that another plan is merged into and made a part of the Plan, the effective date of the merger shall be reflected in the Plan Mergers Addendum to the Adoption Agreement. Any Effective Date which is given in the Plan shall be construed to mean that the prior provision or merging plan existed until the last minute of the last day prior to that Effective Date and that the new provision or merger is effective on the first minute of the stated Effective Date.

(p) "Eligibility Computation Period" means each 12-consecutive-month period beginning with an Employee's Employment Commencement Date and each anniversary thereof.

(q) "Eligibility Service" means an Employee's service that is taken into account in determining his eligibility to participate in the Plan as may be required under Subsection 1.04(b) of the Adoption Agreement. Eligibility Service shall be credited in accordance with Article 3.

(r) "Eligible Employee" means any Employee of the Employer who is in the class of Employees eligible to participate in the Plan. The Employer must specify in Subsection 1.04(d) of the Adoption Agreement any Employee or class of Employees not eligible to participate in the Plan. Regardless of the provisions of Subsection 1.04(d), the following Employees are automatically excluded from eligibility to participate in the Plan:

(1) any individual who is a signatory to a contract, letter of agreement, or other document that acknowledges his status as an independent contractor not entitled to benefits under the Plan or any individual (other than a Self-Employed Individual) who is not otherwise classified by the Employer as a common law employee, even if such independent contractor or other individual is later determined to be a common law employee; and

(2) any Employee who is a resident of Puerto Rico.

If the Employer elects, in Subsection 1.04(d)(2)(A) of the Adoption Agreement, to exclude collective bargaining employees from the eligible class, the exclusion applies to any Employee of the Employer included in any unit of Employees covered by a collective bargaining agreement between employee representatives and one or more employers, unless the collective bargaining agreement requires the Employee to be covered under the Plan. The term "employee representatives" does not include any organization more than half the members of which are owners, officers, or executives of the Employer.

If the Employer does not elect, in Subsection 1.04(d)(2)(C) of the Adoption Agreement, to exclude Leased Employees from the eligible class, contributions or benefits provided by the leasing organization which are attributable to services performed for the Employer shall be treated as provided by the Employer and there shall be no duplication of benefits under this Plan.

Anything to the contrary herein notwithstanding, unless the Employer elects to exclude statutory employees who are full-time life insurance salespersons (as described in Code Section 7701(a)(20)) from the eligible class in Subsection 1.04(d)(2)(E) of the Adoption Agreement, such statutory employees are Eligible Employees.

(s) "Employee" means any common law employee (or statutory employee who is a full-time life insurance salesperson as described in Code Section 7701(a)(20)) of the Employer or a Related Employer, any Self-Employed Individual, and any Leased Employee. Notwithstanding the foregoing, a Leased Employee shall not be considered an Employee if Leased Employees do not constitute more than 20 percent of the Employer's non-highly compensated work-force (taking into account all Related Employers) and the Leased Employee is covered by a money purchase pension plan maintained by the leasing organization and providing (1) a nonintegrated employer contribution rate of at least 10 percent of compensation, as defined for purposes of Code Section 415(c)(3), (2) full and immediate vesting, and (3) immediate participation by each employee of the leasing organization.

(t) "Employee Contribution" means any after-tax contribution made by an Active Participant to the Plan.

(u) "Employer" means the employer named in Subsection 1.02(a) of the Adoption Agreement and any Related Employer designated in the Participating Employers Addendum to the Adoption Agreement. If the Employer has elected in Subsection (c) of the Participating Employers Addendum to the Adoption Agreement that the term "Employer" includes all Related Employers, an employer that becomes a Related Employer as a result of an asset or stock acquisition, merger or other similar transaction shall not be

included in the term "Employer" for periods prior to the first day of the second Plan Year beginning after the date of such transaction, unless the Employer has designated therein to accept such Related Employer as a participating employer prior to that date. Notwithstanding the foregoing, the term "Employer" for purposes of authorizing any particular action under the Plan means solely the employer named in Subsection 1.02(a).

If the organization or other entity named in the Adoption Agreement is a sole proprietor or a professional corporation and the sole proprietor of such proprietorship or the sole shareholder of the professional corporation dies, then the legal representative of such sole proprietor or shareholder shall be deemed to be the Employer until such time as, through the disposition of such sole proprietor's or sole shareholder's estate or otherwise, any organization or other entity succeeds to the interests of the sole proprietor in the proprietorship or the sole shareholder in the professional corporation. The legal representative of a sole proprietor or shareholder shall be (1) the person appointed as such by the sole proprietor or shareholder prior to his death under a legally enforceable power of attorney, or, if none, (2) the executor or administrator of the sole proprietor's or shareholder's estate.

If a participating Employer designated through Subsection 1.02(b) of the Adoption Agreement is not related to the Employer (hereinafter "un-Related Employer"), the term "Employer" includes such un-Related Employer and the provisions of Section 18.05 shall apply.

(v) "Employment Commencement Date" means the date on which an Employee first performs an Hour of Service.

(w) "Entry Date" means the date(s) specified by the Employer in Subsection 1.04(e) of the Adoption Agreement as of which an Eligible Employee who has met the applicable eligibility requirements begins to participate in the Plan. The Employer may specify different Entry Dates for purposes of eligibility to participate in the Plan for purposes of (1) making Deferral Contributions and (2) receiving allocations of Matching and/or Nonelective Employer Contributions.

(x) "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended.

(y) "401(k) Safe Harbor Matching Employer Contribution" means any Matching Employer Contribution made by the Employer to the Plan in accordance with Subsection 1.11(a)(3) or the Matching Employer Contributions Addendum to the Adoption Agreement, Section 5.08, and Section 6.09, that is intended to satisfy the requirements of Code Section 401(k)(12)(B) or 401(k)(13)(D)(i)(I). 401(k) Safe Harbor Matching Employer Contributions are subject to the same distribution restrictions as Qualified Matching Employer Contributions pursuant to applicable regulations and will only satisfy the “ACP” test if the requirements of Section 6.10 are met.

(z) "401(k) Safe Harbor Nonelective Employer Contribution" means any Nonelective Employer Contribution made by the Employer to the Plan in accordance with Subsection 1.12(a)(3) or the Nonelective Employer Contributions Addendum to the Adoption Agreement, Section 5.10, and Section 6.09, that is intended to satisfy the requirements of Code Section 401(k)(12)(C) or 401(k)(13)(D)(i)(II). 401(k) Safe Harbor Nonelective Employer Contributions are subject to the same distribution restrictions as Qualified Nonelective Employer Contributions pursuant to applicable regulations and will only satisfy the “ACP” test if the requirements of Section 6.10 are met.

(aa) "Fund Share" means the share, unit, or other evidence of ownership in a Permissible Investment.

(bb) "Highly Compensated Employee" means both highly compensated active Employees and highly compensated former Employees.

A highly compensated active Employee includes any Employee who performs service for the Employer during the "determination year" and who (1) at any time during the "determination year" or the "look-back year" was a five percent owner or (2) received “415 Compensation” (as defined in Section

6.01(m)) from the Employer during the "look-back year" in excess of the dollar amount specified in Code Section 414(q)(1)(B)(i) adjusted pursuant to Code Section 415(d) (e.g., $120,000 for "determination years" beginning in 2018 and "look-back years" beginning in 2017) and, if elected by the Employer in Subsection 1.06(d)(1) of the Adoption Agreement, was a member of the top-paid group for such year.

For this purpose, the "determination year" shall be the Plan Year. The "look-back year" shall be the twelve-month period immediately preceding the "determination year", unless the Employer has elected in Subsection 1.06(c)(1) of the Adoption Agreement to make the "look-back year" the calendar year beginning within the preceding Plan Year.

A highly compensated former Employee includes any Employee who separated from service (or was deemed to have separated) prior to the "determination year", performs no service for the Employer during the "determination year", and was a highly compensated active Employee for either the separation year or any "determination year" ending on or after the Employee's 55th birthday, as determined under the rules in effect for determining Highly Compensated Employees for such separation year or "determination year".

The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of Employees in the top-paid group, shall be made in accordance with Code Section 414(q) and the Treasury Regulations issued thereunder.

For purposes of this Subsection 2.01(bb), if the initial Plan Year of a new plan consists of fewer than 12 months, calculated from the Effective Date listed in Subsection 1.01(g)(1) of the Adoption Agreement through the end of such initial Plan Year, Compensation for such initial Plan Year shall be determined over the 12-month period ending on the last day of the Plan Year.

(cc) "Hour of Service", with respect to any individual, means:

(1) Each hour for which the individual is directly or indirectly paid, or entitled to payment, for the performance of duties for the Employer or a Related Employer, each such hour to be credited to the individual for the Eligibility Computation Period in which the duties were performed;

(2) Each hour for which the individual is directly or indirectly paid, or entitled to payment, by the Employer or a Related Employer (including payments made or due from a trust fund or insurer to which the Employer contributes or pays premiums) on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity, disability, layoff, jury duty, military duty, or leave of absence, each such hour to be credited to the individual for the Eligibility Computation Period in which such period of time occurs, subject to the following rules:

(A) No more than 501 Hours of Service shall be credited under this paragraph (2) on account of any single continuous period during which the individual performs no duties, unless the individual performs no duties because of military duty, the individual's employment rights are protected by law, and the individual returns to employment with the Employer or a Related Employer during the period that his employment rights are protected under Federal law;

(B) Hours of Service shall not be credited under this paragraph (2) for a payment which solely reimburses the individual for medically-related expenses, or which is made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, unemployment compensation or disability insurance laws; and

(C) If the period during which the individual performs no duties falls within two or more Eligibility Computation Periods and if the payment made on account of such period is not calculated on the basis of units of time, the Hours of Service credited with respect to such

period shall be allocated between not more than the first two such Eligibility Computation Periods on any reasonable basis consistently applied with respect to similarly situated individuals;

(3) Each hour not counted under paragraph (1) or (2) for which he would have been scheduled to work for the Employer or a Related Employer during the period that he is absent from work because of military duty, provided the individual's employment rights are protected under Federal law and the individual returns to work with the Employer or a Related Employer during the period that his employment rights are protected, each such hour to be credited to the individual for the Eligibility Computation Period for which he would have been scheduled to work; and

(4) Each hour not counted under paragraph (1), (2), or (3) for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to be paid by the Employer or a Related Employer, shall be credited to the individual for the Eligibility Computation Period to which the award or agreement pertains rather than the Eligibility Computation Period in which the award, agreement, or payment is made.

Hours of Service attributable to a predecessor employer pursuant to Section 3.05 shall be considered as Hours of Service attributable to the Employer. For purposes of paragraphs (2) and (4) above, Hours of Service shall be calculated in accordance with the provisions of Section 2530.200b-2(b) and (c) of the Department of Labor regulations, which are incorporated herein by reference.

If the Employer does not maintain records that accurately reflect the actual Hours of Service to be credited to an Employee, 190 Hours of Service will be credited to the Employee for each month worked, unless the Employer has elected to credit Hours of Service in accordance with one of the other equivalencies set forth in paragraph (e) of Department of Labor Regulation Section 2530.200b-3, as provided in the Eligibility, Service and Vesting Addendum to the Adoption Agreement.

(dd) "Inactive Participant" means any individual who was an Active Participant, but is no longer an Eligible Employee and who has an Account under the Plan.

(ee) "Investment Fiduciary" means the Administrator or another person or entity designated by the Employer in Subsection 1.01(c) of the Adoption Agreement having the responsibility for all investment-related decisions described throughout the Plan, other than those made by Participants and Beneficiaries pursuant to Section 1.24 of the Adoption Agreement.

(ff) "Leased Employee" means any individual who provides services to the Employer or a Related Employer (the "recipient") but is not otherwise an employee of the recipient if (1) such services are provided pursuant to an agreement between the recipient and any other person (the "leasing organization"), (2) such individual has performed services for the recipient (or for the recipient and any related persons within the meaning of Code Section 414(n)(6)) on a substantially full-time basis for at least one year, and (3) such services are performed under primary direction of or control by the recipient. The determination of who is a Leased Employee shall be made in accordance with any rules and regulations issued by the Secretary of the Treasury or his delegate.

(gg) "Limitation Year" means the 12-consecutive-month period designated by the Employer in Subsection 1.01(f) of the Adoption Agreement. If no other Limitation Year is designated by the Employer, the Limitation Year shall be the calendar year. All qualified plans of the Employer and any Related Employer must use the same Limitation Year. If the Limitation Year is amended to a different 12-consecutive-month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made.

(hh) "Matching Employer Contribution" means any contribution made by the Employer to the Plan in accordance with Section 5.08 or 5.09 on account of an Active Participant's eligible contributions, as elected by the Employer in Subsection 1.11(c) of the Adoption Agreement.

(ii) "Nonelective Employer Contribution" means any contribution made by the Employer to the Plan in accordance with Section 5.10.

(jj) "Non-Highly Compensated Employee" means any Employee who is not a Highly Compensated Employee.

(kk) "Normal Retirement Age" means the normal retirement age specified in Subsection 1.14(a) of the Adoption Agreement. If the Employer enforces a mandatory retirement age in accordance with Federal law, the Normal Retirement Age is the lesser of that mandatory age or the age specified in Subsection 1.14(a).

(ll) "Participant" means any individual who is either an Active Participant or an Inactive Participant.

(mm) "Permissible Investment" means each investment available for investment of assets of the Plan as generally described in the Service Agreement.

(nn) "Plan" means the plan established by the Employer in the form of the Pre-Approved Plan, as set forth herein as a new plan or as an amendment to an existing plan, by executing the Adoption Agreement, together with any and all amendments hereto.

(oo) "Plan Year" means the 12-consecutive-month period ending on the date designated in Subsection 1.01(d) of the Adoption Agreement, except that the initial Plan Year of a new Plan may consist of fewer than 12 months,

calculated from the Effective Date listed in Subsection 1.01(g)(1) of the Adoption Agreement through the end of such initial Plan Year, in which event Compensation for such initial Plan Year shall be treated as provided in Subsection 2.01(k). Additionally, in the event the Plan has a short Plan year, i.e., a Plan Year consisting of fewer than 12 months, otherwise applicable limits and requirements that are applied on a Plan Year basis shall be prorated, but only if and to the extent required by law.

(pp) "Pre-Approved Plan" means the Pre-Approved Provider’s plan as approved by the IRS.

(qq) "Pre-Approved Plan Provider" means FMR LLC or its successor.

(rr) "Qualified Matching Employer Contribution" means any contribution made by the Employer to the Plan on account of Deferral Contributions or Employee Contributions made by or on behalf of Active Participants in accordance with Section 5.09, that may be included in determining whether the Plan meets the "ADP" test described in Section 6.03.

(ss) "Qualified Nonelective Employer Contribution" means any contribution made by the Employer to the Plan in accordance with Section 5.07.

(tt) "Reemployment Commencement Date" means the date on which an Employee who terminates employment with the Employer and all Related Employers first performs an Hour of Service following such termination of employment.

(uu) "Related Employer" means any employer other than the Employer named in Subsection 1.02(a) of the Adoption Agreement if the Employer and such other employer are members of a controlled group of corporations (as defined in Code Section 414(b)) or an affiliated service group (as defined in Code Section 414(m)), or are trades or businesses (whether or not incorporated) which are under common control (as defined in Code Section 414(c)), or such other employer is required to be aggregated with the Employer pursuant to regulations issued under Code Section 414(o).

(vv) "Required Beginning Date" means:

(1) for a Participant who is not a five percent owner, April 1 of the calendar year following the calendar year in which occurs the later of (i) the Participant's retirement or (ii) the Participant's

attainment of age 70 1/2; provided, however, that a Participant may elect to have his Required Beginning Date determined without regard to the provisions of clause (i).

(2) for a Participant who is a five percent owner, April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2.

Once the Required Beginning Date of a five percent owner or a Participant who has elected to have his Required Beginning Date determined in accordance with the provisions of Section 2.01(vv)(1)(ii) has occurred, such Required Beginning Date shall not be re-determined, even if the Participant ceases to be a five percent owner in a subsequent year or continues in employment with the Employer or a Related Employer.

For purposes of this Subsection 2.01(vv), a Participant is treated as a five percent owner if such Participant is a five percent owner as defined in Code Section 416(i) (determined in accordance with Code Section 416 but without regard to whether the Plan is top-heavy) at any time during the Plan Year ending with or within the calendar year in which such owner attains age 70 1/2.

(ww) "Rollover Contribution" means any distribution from an eligible retirement plan, as defined in described in Section 5.06, that an Employee or Participant elects to contribute to the Plan, or have considered as contributed, in accordance with the provisions of Section 5.06.

(xx) "Roth 401(k) Contribution" means any Deferral Contribution made to the Plan by the Employer in accordance with the provisions of Subsection 5.03(b) that is not excludable from gross income and is intended to satisfy the requirements of Code Section 402A.

(yy) "Self-Employed Individual" means an individual who has Earned Income for the taxable year from the Employer or who would have had Earned Income but for the fact that the trade or business had no net profits for the taxable year, including, but not limited to, a partner in a partnership, a sole proprietor, a member in a limited liability company or a shareholder in a subchapter S corporation.

(zz) "Service Agreement" means the agreement between the Employer and the Pre-Approved Plan Provider (or an agent or affiliate of the Pre-Approved Plan Provider) relating to the provision of investment and other services to the Plan and shall include any addendum to the agreement and any other separate written agreement between the Employer and the Pre-Approved Plan Provider (or an agent or affiliate of the Pre-Approved Plan Provider) relating to the provision of services to the Plan.

(aaa) "Severance Date" means the earlier of (i) the date an Employee retires, dies, quits, or is discharged from employment with the Employer and all Related Employers or (ii) the 12-month anniversary of the date on which the Employee was otherwise first absent from employment; provided, however, that if an individual terminates or is absent from employment with the Employer and all Related Employers because of military duty, such individual shall not incur a Severance Date if his employment rights are protected under Federal law and he returns to employment with the Employer or a Related Employer within the period during which he retains such employment rights, but, if he does not return to such employment within such period, his Severance Date shall be the earlier of (1) the first anniversary of the date his absence commenced or (2) the last day of the period during which he retains such employment rights.

(bbb) “Spouse” means the person to whom an individual is married for purposes of Federal income taxes.

(ccc) "Trust" means the trust created by the Employer and the Trustee to hold the assets of the Plan. The provisions of the Plan override any conflicting provision contained in the Trust or any other custodial account or trust documents used with the Plan.

(ddd) "Trust Agreement" means the separate agreement between the Employer and the Trustee under which the assets of the Plan are held, administered, and managed.

(eee) "Trustee" means the individual(s) or entity designated as the Trustee under the Trust Agreement, or its successor or permitted assigns. The term Trustee shall include any delegate of the Trustee as may be provided in the Trust Agreement.

(fff) "Trust Fund" means the property held in Trust by the Trustee for the benefit of Participants and their Beneficiaries.

(ggg) "Vesting Service" means an Employee's service that is taken into account in determining his vested interest in his Matching Employer and Nonelective Employer Contributions sub-accounts as may be required under Section 1.16 of the Adoption Agreement. Vesting Service shall be credited in accordance with Article 3.

2.02. Interpretation and Construction of Terms. Where required by the context, the noun, verb, adjective, and adverb forms of each defined term shall include any of its other forms. Pronouns used in the Plan are in the masculine gender but include all individuals. Wherever used herein, the singular shall include the plural, and the plural shall include the singular,unless the context requires otherwise. Any titles, headings and/or subheadings used in the Plan have been inserted for convenience of reference and are to be ignored in any construction of the Plan’s provisions.

2.03. Special Effective Dates. Some provisions of the Plan are only effective beginning as of a specified date or until a specified date. Any such special effective dates are specified within Plan text where applicable and are exceptions to the general Plan Effective Date as defined in Section 2.01(o).

3.01. Crediting of Eligibility Service. If the Employer has selected an Eligibility Service requirement in Subsection 1.04(b) of the Adoption Agreement for an Eligible Employee to become an Active Participant, Eligibility Service shall be credited to an Employee as follows:

(a) If the Employer has selected the one year or two years requirement, an Employee shall be credited with a year of Eligibility Service for each Eligibility Computation Period during which the Employee has been credited with the number of Hours of Service specified in that Subsection, as applicable. An Eligible Employee who has attained the required number of Hours of Service shall be credited with that year of service on the last day of that Eligibility Computation Period. When the Employer has selected an eligibility requirement with a specified number of Hours of Service, such Hours of Service must be attained during an Eligibility Computation Period.

(b) If the Employer has specified a number of months which requires a minimum number of Hours of Service during the Eligibility Computation Period as the requirement, an Employee shall be credited with Eligibility Service for each Eligibility Computation Period during which the Employee has been credited with the number of months specified within which the requisite number of Hours of Service has been earned or has earned the maximum number of Hours of Service specified, as applicable.

(c) If the Employer has selected a days or months requirement which does not require a minimum number of Hours of Service during the Eligibility Computation Period, an Employee shall be credited with Eligibility Service for the aggregate of the periods beginning with the Employee's Employment Commencement Date (or Reemployment Commencement Date) and ending on his subsequent Severance Date; provided, however, that an Employee who has a Reemployment Commencement Date within the 12-consecutive-month period following the earlier of the first date of his absence or his Severance Date shall be credited with Eligibility Service for the period between his Severance Date and his Reemployment Commencement Date. A day of Eligibility Service shall be credited for each day on which an Employee is credited with Eligibility Service. Months of Eligibility Service shall be measured from the Employee's Employment Commencement Date or Reemployment Commencement Date to the corresponding date in the applicable following month.

3.02 Re-Crediting of Eligibility Service Following Termination of Employment. An Employee whose employment with the Employer and all Related Employers terminates and who is subsequently reemployed by the Employer or a Related Employer shall be re-credited upon reemployment with his Eligibility Service earned prior to his termination of employment.

3.03. Crediting of Vesting Service. If the Plan provides for Matching Employer and/or Nonelective Employer Contributions that are not 100 percent vested when made, Vesting Service shall be credited to an Employee, subject to any modifications elected by the Employer in Section 1.16 of the Adoption Agreement, for the aggregate of the periods beginning with the Employee's Employment Commencement Date (or Reemployment Commencement Date) and ending on his subsequent Severance Date; provided, however, that an Employee who has a Reemployment Commencement Date within the 12-consecutive-month period following the earlier of the first date of his absence or his Severance Date shall be credited with Vesting Service for the period between his Severance Date and his Reemployment Commencement Date. Fractional periods of a year shall be expressed in terms of days.

3.04. Application of Vesting Service to a Participant's Account Following a Break in Vesting Service. The following rules describe how Vesting Service earned before and after a Break in Vesting Service shall be applied for purposes of determining a Participant's vested interest in his Matching Employer and Nonelective Employer Contributions sub-accounts:

(a) If a Participant incurs five-consecutive Breaks in Vesting Service, all years of Vesting Service earned by the Employee after such Breaks in Service shall be disregarded in determining the Participant's vested interest in his Matching Employer and Nonelective Employer Contributions sub-account balances attributable to employment before such Breaks in Vesting Service. However, Vesting Service earned both before and after such Breaks in Vesting Service shall be included in determining the Participant's vested interest in his Matching Employer and Nonelective Employer Contributions sub-account balances attributable to employment after such Breaks in Vesting Service.

(b) If a Participant incurs fewer than five-consecutive Breaks in Vesting Service, Vesting Service earned both before and after such Breaks in Vesting Service shall be included in determining the Participant's vested interest in his Matching Employer and Nonelective Employer Contributions sub-account balances attributable to employment both before and after such Breaks in Vesting Service.

3.05. Service with Predecessor Employer. If the Plan is the plan of a predecessor employer, an Employee's Eligibility and Vesting Service shall include years of service with such predecessor employer. If elected in Section 1.17 of the Adoption Agreement, in any case in which the Plan is not the plan maintained by a predecessor employer, service for any employer described in Section 1.17 shall be treated as Eligibility and Vesting Service as indicated therein.

3.06. Change in Service Crediting. Unless provided otherwise in the Adoption Agreement, if an amendment to the Plan or a transfer from employment as an Employee covered under another qualified plan maintained by the Employer or a Related Employer results in a change in the method of crediting Eligibility and/or Vesting Service with respect to a Participant between the Hours of Service crediting method set forth in Section 2530.200b-2 of the Department of Labor Regulations and the elapsed-time crediting method set forth in Section 1.410(a)-7 of the Treasury Regulations, each Participant with respect to whom the method of crediting Eligibility and/or Vesting Service is changed shall have his Eligibility and/or Vesting Service determined in the manner set forth in Section 1.410(a)-7(f)(1) of the Treasury Regulations.

Article 4. Participation.

4.01. Date of Participation. If the Plan is an amendment, as indicated in Subsection 1.01(g)(2)(B) of the Adoption Agreement, all employees who were active participants in the Plan immediately prior to the Effective Date shall continue as Active Participants on the Effective Date, provided that they are Eligible Employees on the Effective Date. If elected by the Employer in Subsection 1.04(f) of the Adoption Agreement, all Eligible Employees who are in the service of the Employer on the date specified in Subsection 1.04(f) (and, if this is an amendment, as indicated in Subsection 1.01(g)(2)(B), were not active participants in the Plan immediately prior to that date) shall become Active Participants on the date elected by the Employer in Subsection 1.04(f). Any other Eligible Employee

shall become an Active Participant in the Plan on the Entry Date coinciding with or immediately following the date on which he first satisfies the eligibility requirements set forth in Subsections 1.04(a) and (b) of the Adoption Agreement.

Any age and/or Eligibility Service requirement that the Employer elects to apply in determining an Eligible Employee's eligibility to make Deferral Contributions shall also apply in determining an Eligible Employee's eligibility to make Employee Contributions, if Employee Contributions are permitted under the Plan, and to receive Qualified Nonelective Employer Contributions. An Eligible Employee who has met the eligibility requirements with respect to certain contributions, but who has not met the eligibility requirements with respect to other contributions, shall become an Active Participant in accordance with the provisions of the preceding paragraph, but only with respect to the contributions for which he has met the eligibility requirements.

Notwithstanding any other provision of the Plan, if the Employer selects in Subsection 1.01(g)(5) of the Adoption Agreement that the Plan is a frozen plan, no Employee who was not already an Active Participant on the date the Plan was frozen shall become an Active Participant while the Plan is frozen. If the Employer amends the Plan to remove the freeze, Employees shall again become Active Participants in accordance with the provisions of the amended Plan.

4.02. Transfers Out of Covered Employment. If any Active Participant ceases to be an Eligible Employee, but continues in the employ of the Employer or a Related Employer, such Employee shall cease to be an Active Participant, but shall continue as an Inactive Participant until his entire Account balance is forfeited or distributed. An Inactive Participant shall not be entitled to receive an allocation of contributions or forfeitures under the Plan for the period that he is not an Eligible Employee and wages and other payments made to him by the Employer or a Related Employer for services other than as an Eligible Employee shall not be included in Compensation for purposes of determining the amount and allocation of any contributions to the Account of such Inactive Participant. Such Inactive Participant shall continue to receive credit for Vesting Service completed during the period that he continues in the employ of the Employer or a Related Employer.

4.03. Transfers Into Covered Employment. If an Employee who is not an Eligible Employee becomes an Eligible Employee, such Eligible Employee shall become an Active Participant immediately as of his transfer date if such Eligible Employee has already satisfied the eligibility requirements and would have otherwise previously become an Active Participant in accordance with Section 4.01. Otherwise, such Eligible Employee shall become an Active Participant in accordance with Section 4.01.

Wages and other payments made to an Employee prior to his becoming an Eligible Employee by the Employer or a Related Employer for services other than as an Eligible Employee shall not be included in Compensation for purposes of determining the amount and allocation of any contributions to the Account of such Eligible Employee.

4.04. Resumption of Participation Following Reemployment. If a Participant who terminates employment with the Employer and all Related Employers is reemployed as an Eligible Employee, he shall again become an Active Participant on his Reemployment Commencement Date. If a former Employee is reemployed as an Eligible Employee on or after an Entry Date coinciding with or following the date on which he met the age and service requirements elected by the Employer in Section 1.04 of the Adoption Agreement, he shall become an Active Participant on his Reemployment Commencement Date. Any other former Employee who is reemployed as an Eligible Employee shall become an Active Participant as provided in Section 4.01 or 4.03. Any distribution which a Participant is receiving under the Plan at the time he is reemployed by the Employer or a Related Employer shall cease, except as otherwise required under Section 12.04.

Article 5. Contributions.

5.01. Contributions Subject to Limitations. All contributions made to the Plan under this Article 5 shall be subject to the limitations contained in Article 6.

5.02. Compensation Taken into Account in Determining Contributions. Compensation for purposes of determining contributions other than minimum contributions described in Section 15.03 shall be determined in accordance with Section 1.05 of the Adoption Agreement.

5.03. Deferral Contributions. If so provided in Subsection 1.07(a) of the Adoption Agreement, each Active Participant may elect to execute a salary reduction agreement with the Employer to reduce his Compensation by an amount, as specified in Subsection 1.07(a), for each payroll period or to reduce some portion of his Compensation in accordance with procedures determined by the Administrator which shall be uniform and nondiscriminatory with regard to all Participants (except as permitted pursuant to Section 6.05). Except as specifically elected by the Employer within Subsections 1.07(a) with respect to each payroll period, an Active Participant may not elect to make Deferral Contributions in excess of the percentage of Compensation specified by the Employer in Subsection 1.07(a)(1)(A) and Subsection 5.03(a) below. Notwithstanding the foregoing, if the Employer has elected 401(k) Safe Harbor Matching Contributions in Option 1.11(a)(3) of the Adoption Agreement, a Participant must be permitted to make Deferral Contributions under the Plan sufficient to receive the full 401(k) Safe Harbor Matching Employer Contribution provided under Subsection (a)(1) or (2), as applicable of the 401(k) Safe Harbor Matching Employer Contributions Addendum to the Adoption Agreement. To satisfy the ADP and/or ACP tests (described in Article 6) on the basis of 401(k) Safe Harbor Matching Employer Contributions, the Plan may not limit Deferral Contributions except as permitted under Treasury Regulations Section 1.401(k)-3(c)(6).

An Active Participant's salary reduction agreement shall become effective on the first day of the first payroll period for which the Employer can reasonably process the request, but not earlier than the later of (a) the effective date of the provisions permitting Deferral Contributions or (b) the date the Employer adopts such provisions. The Employer shall make a Deferral Contribution on behalf of the Participant corresponding to the amount of said reduction. Under no circumstances may a salary reduction agreement be adopted retroactively.

An Active Participant may elect to change or discontinue the amount by which his Compensation is reduced by notice to the Employer as provided in Subsection 1.07(a)(1)(C) or (D). Notwithstanding the Employer's election in Subsection 1.07(a)(1)(C) or (D), if the Employer has elected 401(k) Safe Harbor Matching Employer Contributions in Subsection 1.11(a)(3) or 401(k) Safe Harbor Nonelective Employer Contributions in Subsection 1.12(a)(3) of the Adoption Agreement, an Active Participant may elect to change or discontinue the amount by which his Compensation is reduced by notice to the Employer within a reasonable period, as specified by the Employer (but not less than 30 days), of receiving the notice described in Section 6.09.

Based upon the Employer's elections in Subsection 1.07(a), the following special types of Deferral Contributions may be made to the Plan:

(a) Catch-Up Contributions. If elected by the Employer in Subsection 1.07(a)(2) of the Adoption Agreement, an Active Participant who has attained or is expected to attain age 50 before the close of the taxable year shall be eligible to make Catch-Up Contributions to the Plan in excess of an otherwise applicable Plan limit, but not in excess of (i) the dollar limit in effect under Code Section 414(v)(2)(B)(i) for the taxable year or (ii) when added to the other Deferral Contributions made by the Participant for the taxable year, the limit specified in 1.07(a)(2), which cannot exceed 100 percent of the Participant's "effectively available Compensation," as defined in this Section 5.03. An otherwise applicable Plan limit is a limit that applies to Deferral Contributions without regard to Catch-Up Contributions, including, but not limited to, (1) the dollar limitation on Deferral Contributions under Code Section 402(g), described in Section 6.02, (2) the limitations on annual additions in effect under Code Section 415, described in Section 6.12, (3) the limitation on Deferral Contributions for Highly Compensated Employees under Code Section 401(k)(3), described in Section 6.03, and (4) the limitation on Deferral Contributions for Highly Compensated Employees which the Administrator may impose, in accordance with the provisions of Section 6.05

In the event that the deferral limit described in Subsection 1.07(a)(1)(A) or the administrative limit described in Section 6.05, as applicable, is changed during the Plan Year, for purposes of determining Catch-Up Contributions for the Plan Year, such limit shall be determined using the time-weighted average

method described in Section 1.414(v)-1(b)(2)(i)(B)(1) of the Treasury Regulations, applying the alternative definition of compensation permitted under Section 1.414(v)-1(b)(2)(i)(B)(2) of the Treasury Regulations.

(b) Roth 401(k) Contributions. Notwithstanding any other provision of the Plan to the contrary, if the Employer elects in Subsection 1.07(a)(3) of the Adoption Agreement to permit Roth 401(k) Contributions, then a Participant may irrevocably designate all or a portion of his Deferral Contributions made pursuant to Subsection 1.07(a) as Deferral Contributions that are includible in the Participant’s gross income at the time deferred, pursuant to Code Section 402A and any applicable guidance or regulations issued thereunder (“Roth 401(k) Contributions”). A Participant may change his designation prospectively with respect to future Deferral Contributions as of the date or dates elected by the Employer in Subsection 1.07(a)(1)(C). The Administrator will maintain all such contributions made pursuant to Code Section 402A separately and make distributions in accordance with the Plan unless required to do otherwise by Code Section 402A and any applicable guidance or regulations issued thereunder.

(c) Automatic Enrollment Contributions. If the Employer elected Option 1.07(a)(4) of the Adoption Agreement, for each Eligible Employee to whom the Employer has elected to apply the automatic enrollment contribution provisions, such Eligible Employee's Compensation shall be reduced as soon as administratively feasible in accordance with the Administrator’s separate written procedures and the Deferrals Addendum, if applicable. The Administrator’s separate procedures shall be drafted to be in accord with the Deferrals Addendum, if applicable, and cover specifics surrounding automatic enrollment (including but not limited to, deferral and increase rates and timing, differences among different groups of employees and coverage for an EACA). The Administrator’s separate procedures may provide that a Participant’s affirmative election out of automatic enrollment expires annually and, in such case, if a Participant fails to complete a new affirmative election subsequent to their prior election expiring, the Participant becomes subject to the default deferral percentage as outlined in the Administrator’s separate procedures; provided, however, that each year, the Participant can always complete a new affirmative election and designate a new deferral percentage. These amounts shall be contributed to the Plan on behalf of such an Eligible Employee as Deferral Contributions. If the Employer has designated in Subsection 1.07(a)(4) that the Plan has an EACA, then the Employer shall also provide to each Eligible Employee covered by the EACA a comprehensive notice, written in a manner calculated to be understood by the average Participant, of the Eligible Employee’s rights and obligations under the Plan within the time described in Section 6.09 for a safe harbor contribution notice. If the Employer has elected through the Deferrals Addendum), then a Participant who has made automatic enrollment contributions pursuant to the EACA has a permissible withdrawal available pursuant to the following:

(1) The EACA Participant must make any such election within ninety days of the date of his automatic enrollment indicated therein. Upon making such an election, the EACA Participant’s Deferral Contribution election will be set to zero until such time as the EACA Participant’s Deferral Contribution rate has changed pursuant to Subsection 1.07(a)(1).

(2) The amount of such withdrawal shall be equal to the amount of the EACA Deferrals through the end of the fifteen-day period beginning on the date the Participant makes the election described in (1) above, adjusted for allocable gains and losses to the date of such withdrawal.

(3) Any amounts attributable to Employer Matching Contributions allocated to the Account of an EACA Participant with respect to EACA Deferrals that have been withdrawn pursuant to such permissible withdrawal shall be forfeited. In the event that Employer Matching Contributions would otherwise be allocated to the EACA Participant’s Account with respect to EACA Deferrals that have been so withdrawn, the Employer shall not contribute such Employer Matching Contributions to the Plan.

(4) In the event such withdrawal provision is removed from the Plan via an amendment, the transaction continues to be available to EACA Participants who were covered by this provision and who were enrolled automatically prior to the effective date of the provision’s removal.

Except as provided in paragraph (1) above with respect to an EACA Participant who elects a permissible withdrawal, an Active Participant's Compensation shall continue to be reduced and Deferral Contributions made to the Plan on his behalf until the Active Participant elects to change or discontinue the percentage by which his Compensation is reduced by notice to the Plan Administrator in accordance with procedures the Plan Administrator has developed for that purpose. An Eligible Employee may affirmatively elect not to have his Compensation reduced in accordance with this Subsection 5.03(c) by notice to the Plan Administrator within a reasonable period ending no later than the date Compensation subject to reduction hereunder becomes available to the Eligible Employee.

Notwithstanding any other provision of this Section or of any Participant's salary reduction agreement, in no event shall a Participant be permitted to make Deferral Contributions in excess of his "effectively available Compensation." A Participant's "effectively available Compensation" is his Compensation remaining after all applicable amounts have been withheld (e.g., tax-withholding and withholding of contributions to a cafeteria plan).

5.04. Employee Contributions. If so provided by the Employer in Subsection 1.08(a) of the Adoption Agreement, each Active Participant may elect to make non-deductible Employee Contributions to the Plan in accordance with the rules and procedures established by the Employer and subject to the limits provided through Subsection 1.08(a).

5.05. No Deductible Employee Contributions. No deductible Employee Contributions may be made to the Plan. Deductible Employee Contributions made prior to January 1, 1987 shall be maintained in a separate sub-account. No part of the deductible Employee Contributions sub-account shall be used to purchase life insurance.

5.06. Rollover Contributions. If so provided by the Employer in Subsection 1.09 of the Adoption Agreement, subject to any limits or modifications provided therein, an Eligible Employee or Participant who is or was entitled to receive a distribution that is eligible for rollover to a qualified plan under Code Section 408(d)(3) or an eligible rollover distribution, as defined in Code Section 402(c)(4) and Treasury Regulations issued thereunder, including an eligible rollover distribution received by such Eligible Employee or Participant as a surviving Spouse or as a Spouse or former Spouse who is an alternate payee under a qualified domestic relations order, from an eligible retirement plan, as defined in Section 13.04 (except that such definition shall also include for these purposes a qualified defined benefit plan described in Code Section 401(a)), may elect to contribute all or any portion of such distribution to the Trust directly from such eligible retirement plan (a "direct rollover"). Except as otherwise provided in Subsection 1.09(b) of the Adoption Agreement and to the extent permitted by the Trustee, Rollover Contributions shall be made in the form of cash, Fund Shares, or promissory notes evidencing a plan loan to the Eligible Employee.

Notwithstanding the foregoing, the Plan shall not accept the following as Rollover Contributions:

(a) the contributions excluded by the Employer, if any, in Subsection 1.09(a);

(b) any rollover of after-tax employee contributions that is not made by a direct rollover;

(c) any rollover from an individual retirement account or annuity described in Code Section 408(a) or (b) (including a Roth IRA under Code Section 408A) to the extent such amount would not otherwise be includible in the Employee's income; or

(d) except as provided in Subsection 1.09(b), any rollover amounts which are not “designated Roth contributions” which are to be contributed to the Plan as “designated Roth contributions.”

To the extent the Plan accepts Rollover Contributions of after-tax employee contributions, the Plan will separately account for such contributions, including separate accounting for the portion of the Rollover Contribution that is includible in gross income and the portion that is not includible in gross income.

Except with regard to a rollover made pursuant to Subsection 1.09(b), any rollover of "designated Roth contributions", as defined in Subsection 6.01(e), shall be subject to the requirements of Code Section 402(c). To the extent the Plan accepts Rollover Contributions of "designated Roth contributions", the Plan will separately account for such contributions in accordance with the provisions of Section 7.01, including separate accounting for the

portion of the Rollover Contribution that is includible in gross income and the portion that is not includible in gross income, if applicable. If the Plan accepts a direct rollover of "designated Roth contributions", the Trustee and the Plan Administrator shall be entitled to rely on a statement from the distributing plan's administrator identifying (i) the Eligible Employee's basis in the rolled over amounts and (ii) the date on which the Eligible Employee's 5-taxable-year period of participation (as required under Code Section 402A(d)(2) for a qualified distribution of "designated Roth contributions") started under the distributing plan. If the 5-taxable-year period of participation under the distributing plan would end sooner than the Eligible Employee's 5-taxableyear period of participation under the Plan, the 5-taxable-year period of participation applicable under the distributing plan shall continue to apply with respect to the Rollover Contribution.

Notwithstanding the above, if so provided in Subsection 1.09(b), and as limited as provided therein, a Participant or Beneficiary may elect to have any portion of his Account otherwise distributable under the terms of the Plan, which is not “designated Roth contributions” under the Plan and meets the definition of an “eligible rollover distribution” found in Section 13.04(c), be considered “designated Roth contributions” for purposes of the Plan. Any assets converted in such a way shall be separately accounted for and shall still be subject to distribution constraints found in Article 14 applicable to them prior to the conversion. Such assets shall also retain any distribution rights, such as those found in Article 10, applicable to them prior to the conversion and shall be treated as Rollover Contributions for purposes of withdrawal pursuant to Section 10.03. Each such in-plan rollover shall be subject to its own 5-taxable year period of participation and subject to the requirements of Code Section 408A(d)(3)(F). Also, if elected by the Employer in Section 1.09(c) of the Adoption Agreement, any Participant meeting the requirements set forth in Section 1.09(c) may elect to have any part of the portions of his Account as may be described and limited therein, which are not “designated Roth contributions” and are not currently distributable under the Plan, be considered “designated Roth contributions” for purposes of the Plan. Any assets converted in such a way shall be considered a rollover only for purposes of this Section, be separately accounted for, be maintained in such records as are necessary for the proper reporting thereof, and have any distribution constraints, such as those found in Article 14, applicable to them prior to the conversion continue to apply to them. A conversion in accordance with the preceding sentence will not eliminate any Code Section 411(d)(6) protected distribution rights attributable to the amount being converted.

An Eligible Employee who has not yet become an Active Participant in the Plan in accordance with the provisions of Article 3 may make a Rollover Contribution to the Plan. Such Eligible Employee shall be treated as a Participant under the Plan for all purposes of the Plan, except eligibility to have Deferral Contributions made on his behalf and to receive an allocation of Matching Employer or Nonelective Employer Contributions.

The Administrator shall require such information from Eligible Employees as it deems necessary to ensure that amounts contributed under this Section 5.06 meet the requirements for tax-deferred rollovers established by this Section and by Code Section 402(c) and develop procedures to govern the Plan’s acceptance of Rollover Contributions.

If a Rollover Contribution made under this Section is later determined by the Administrator not to have met the requirements of this Section or of the Code or Treasury regulations, the Trustee shall, within a reasonable time after such determination is made, and on instructions from the Administrator, distribute to the Employee the amounts then held in the Trust attributable to such Rollover Contribution.

A Participant's Rollover Contributions sub-account shall be subject to the terms of the Plan, including Article 14, except as otherwise provided in this Section.

5.07. Qualified Nonelective Employer Contributions. The Employer may, in its discretion, make a Qualified Nonelective Employer Contribution for the Plan Year in any amount it deems necessary for a permissible purpose. Unless another allocation method will be utilized to address a correction in accordance with the Employee Plans Compliance Resolution System (EPCRS, as described in Revenue Procedure 2016-51 and any subsequent guidance), any Qualified Nonelective Employer Contribution shall be allocated to Participants in accordance with Subsection 1.10(a) of the Adoption Agreement.

Participants shall not be required to satisfy any Hours of Service or employment requirement for the Plan Year in order to receive an allocation of Qualified Nonelective Employer Contributions.

Qualified Nonelective Employer Contributions shall be distributable only in accordance with Section 1.401(k)-6 of the Treasury Regulations.

5.08. Matching Employer Contributions. If so provided by the Employer in Section 1.11(a) of the Adoption Agreement, the Employer shall make Matching Employer Contributions on behalf of each of its "eligible" Participants as indicated therein. The amount of the Matching Employer Contribution shall be determined in accordance with Subsections 1.11(a) and/or the Matching Employer Contributions Addendum to the Adoption Agreement, as applicable. If the Employer has elected to make Matching Employer Contributions in accordance with Subsection 1.11(a)(2) or 1.11(b) of the Adoption Agreement, then such contributions shall be made in the amount and frequency described within timelyadopted governance from that Employer’s board of directors or other governing body under applicable local law. If the Employer has selected Subsection 1.11(d)(5) with respect to discretionary Matching Employer Contributions made in accordance with Subsection 1.11(a)(2), such governance shall also specify the period for which discretionary Matching Employer Contributions will be made. After such adoption, the Employer must provide the Administrator written instructions describing (1) how the Matching Employer Contribution will be allocated to “eligible” Participants, (2) the Contribution Period(s) to which the Matching Employer Contribution allocation(s) apply(-ies), and (3) if applicable, a description of the designated groups of “eligible” Participants receiving such allocation(s). Additionally, for Plan Years beginning after the Effective Date listed in Section 1.01(g)(1) of the Adoption Agreement, a summary of these instructions must be communicated to Participants who receive discretionary Matching Employer Contributions. The summary must be communicated to Participants no later than 60 days following the date on which the discretionary Matching Employer Contribution is made to the Plan.

Notwithstanding the foregoing, unless otherwise elected in Subsection 1.11(c)(1)(A) of the Adoption Agreement, the Employer shall not make Matching Employer Contributions, other than 401(k) Safe Harbor Matching Employer Contributions, with respect to an "eligible" Participant's Catch-Up Contributions. If, due to application of a Plan limit, Matching Employer Contributions other than 401(k) Safe Harbor Matching Employer Contributions are attributable to CatchUp Contributions, such Matching Employer Contributions, plus any income and minus any loss allocable thereto, shall be forfeited and applied as provided in Section 11.09.

5.09. Qualified Matching Employer Contributions. If so provided by the Employer in Subsection 1.11(f) of the Adoption Agreement, prior to making its Matching Employer Contribution (other than any 401(k) Safe Harbor Matching Employer Contribution) to the Plan, the Employer may designate all or a portion of such Matching Employer Contribution as a Qualified Matching Employer Contribution. The Employer shall notify the Trustee of such designation at the time it makes its Matching Employer Contribution. Qualified Matching Employer Contributions shall be distributable only in accordance with Section 1.401(k)-6 of the Treasury Regulations.

If the amount of an Employer's Qualified Matching Employer Contribution is determined based on a Participant's Compensation, and the Qualified Matching Employer Contribution is necessary to satisfy the "ADP" test described in Section 6.03, the compensation used in determining the amount of the Qualified Matching Employer Contribution shall be "testing compensation", as defined in Subsection 6.01(s). If the Qualified Matching Employer Contribution is not necessary to satisfy the "ADP" test described in Section 6.03, the compensation used to determine the amount of the Qualified Matching Employer Contribution shall be Compensation as defined in Subsection 2.01(k).

5.10. Nonelective Employer Contributions. If so provided by the Employer in Subsection 1.12(a) and/or (b) of the Adoption Agreement, the Employer shall make Nonelective Employer Contributions to the Trust in accordance with Section 1.12 of the Adoption Agreement to be allocated among "eligible" Participants as indicated therein. Nonelective Employer Contributions shall be allocated as follows:

(a) If the Employer has elected a fixed contribution formula, Nonelective Employer Contributions shall be allocated among "eligible" Participants in the manner specified in Section 1.12 or the 401(k) Safe Harbor Nonelective Employer Contributions Addendum to the Adoption Agreement, as applicable.

(b) If the Employer has elected a discretionary contribution amount, Nonelective Employer Contributions shall be allocated among "eligible" Participants, as determined in accordance with Section 1.12, as follows:

(1) If the non-integrated formula is elected in Subsection 1.12(b)(1), Nonelective Employer Contributions shall be allocated to "eligible" Participants in the ratio that each "eligible" Participant's Compensation bears to the total Compensation paid to all "eligible" Participants for the Contribution Period.

(2) If the integrated formula is elected in Subsection 1.12(b)(2), Nonelective Employer Contributions shall be allocated in the following steps:

(A) First, to each "eligible" Participant in the same ratio that the sum of the "eligible" Participant's Compensation and "excess Compensation" for the Plan Year bears to the sum of the Compensation and "excess Compensation" of all "eligible" Participants for the Plan Year. This allocation as a percentage of the sum of each "eligible" Participant's Compensation and "excess Compensation" shall not exceed the "permitted disparity limit", as defined in Section 1.12.

Notwithstanding the foregoing, if in any Plan Year an "eligible" Participant has reached the "cumulative permitted disparity limit", such "eligible" Participant shall receive an allocation under this Subsection 5.10(b)(2)(A) based on two times his Compensation for the Plan Year, rather than the sum of his Compensation and "excess Compensation" for the Plan Year. If an "eligible" Participant did not benefit under a qualified defined benefit plan or target benefit plan for any Plan Year beginning on or after January 1, 1994, the "eligible" Participant shall have no "cumulative disparity limit".

(B) Second, if any Nonelective Employer Contributions remain after the allocation in Subsection 5.10(b)(2)(A), the remaining Nonelective Employer Contributions shall be allocated to each "eligible" Participant in the same ratio that the "eligible" Participant's Compensation for the Plan Year bears to the total Compensation of all "eligible" Participants for the Plan Year.

Notwithstanding the provisions of Subsections 5.10(b)(2)(A) and (B) above, if in any Plan Year an "eligible" Participant benefits under another qualified plan or simplified employee pension, as defined in Code Section 408(k), that provides for or imputes permitted disparity, the Nonelective Employer Contributions for the Plan Year allocated to such "eligible" Participant shall be in the ratio that his Compensation for the Plan Year bears to the total Compensation paid to all "eligible" Participants.

For purposes of this Subsection 5.10(b)(2), the following definitions shall apply:

(C) "Cumulative permitted disparity limit" means 35 multiplied by the sum of an "eligible" Participant's annual permitted disparity fractions, as defined in Sections 1.401(l)-5(b)(3) through (b)(7) of the Treasury Regulations, attributable to the "eligible" Participant's total years of service under the Plan and any other qualified plan or simplified employee pension, as defined in Code Section 408(k), maintained by the Employer or a Related Employer. For each Plan Year commencing prior to January 1, 1989, the annual permitted disparity fraction shall be deemed to be one, unless the Participant never accrued a benefit under any qualified plan or simplified employee pension maintained by the Employer or a Related Employer during any such Plan Year. In determining the annual permitted disparity fraction for any Plan Year, the Employer may elect to assume that the full disparity limit has been used for such Plan Year.

(D) "Excess Compensation" means Compensation in excess of the "integration level" specified by the Employer in Subsection 1.12(b)(2) of the Adoption Agreement.

5.11. Vested Interest in Contributions.

(a) Participant's vested interest in the following sub-accounts shall be 100 percent:

(1)his Deferral Contributions sub-account;

(2)his Qualified Nonelective Employer Contributions sub-account;

(3)his Qualified Matching Employer Contributions sub-account;

(4)his 401(k) Safe Harbor Nonelective Employer Contributions sub-account (unless QACA has been selected on the 401(k) Safe Harbor Nonelective Employer Contributions Addendum to the Adoption Agreement);

(5)his 401(k) Safe Harbor Matching Employer Contributions sub-account (unless QACA has been selected on the 401(k) Safe Harbor Matching Employer Contributions Addendum to the Adoption Agreement);

(6)his Rollover Contributions sub-account;

(7)his Employee Contributions sub-account; and

(8)his deductible Employee Contributions sub-account

(b) Contributions attributable to a QACA shall become 100% vested no later than upon a Participant’s completion of two Years of Service.

Except as otherwise specifically provided in the Vesting Schedule Addendum to the Adoption Agreement or as may be required under Section 15.05, a Participant's vested interest in his Nonelective Employer Contributions sub-account attributable to Nonelective Employer Contributions other than those described in Subsection 5.11(a)(4) above, shall be determined in accordance with the vesting schedule elected by the Employer in Subsection 1.16(c)(1) of the Adoption Agreement. Except as otherwise specifically provided in the Vesting Schedule Addendum to the Adoption Agreement, a Participant's vested interest in his Matching Employer Contributions sub-account attributable to Matching Employer Contributions other than those described in Subsection 5.11(a)(5) above, shall be determined in accordance with the vesting schedule elected by the Employer in Subsection 1.16(c)(2) of the Adoption Agreement.

5.12. Time for Making Contributions. The Employer shall pay its contribution for each Plan Year not later than the time prescribed by law for filing the Employer's Federal income tax return for the fiscal (or taxable) year with or within which such Plan Year ends (including extensions thereof).

If the Employer has elected the payroll period as the Contribution Period in Subsection 1.11(d) of the Adoption Agreement, the Employer shall remit any 401(k) Safe Harbor Matching Employer Contributions made during a Plan Year quarter to the Trustee no later than the last day of the immediately following Plan Year quarter.

The Employer must remit Employee Contributions and Deferral Contributions to the Trustee as of the earliest date on which such contributions can reasonably be segregated from the Employer's general assets, but not later than the 15th business day of the calendar month following the month in which such amount otherwise would have been paid to the Participant, or within such other time frame as may be determined by applicable regulation or legislation.

The Trustee shall have no authority to inquire into the correctness of the amounts contributed and remitted to the Trustee or to determine whether any contribution is payable under this Article 5. The Administrator shall be the named fiduciary responsible for ensuring the Employer remits contributions and loan repayments to the Trust and shall have the duty and responsibility for the collection of such contributions and repayments when not timely made by the Employer, provided that the Administrator may appoint another named fiduciary to handle such responsibility and notify the Trustee of such appointment in writing.

5.13. Exclusive Benefit and Return of Employer Contributions. In accordance with Code Section 401(a)(2) and ERISA Section 403(c) (if applicable), Plan assets shall be held for the exclusive purpose of providing benefits to Participants and Beneficiaries and defraying the reasonable expenses of administering the Plan, and no such assets shall ever revert to the Employer except that if the Employer or the Plan Administrator so direct:

(a)contributions made by the Employer by mistake of fact may be returned to the Employer within 1 year of the date of payment,

(b)contributions that are conditioned on the deductibility thereof under Code Section 404 may be returned to the Employer within 1 year of the disallowance of the deduction, and

(c)contributions that are conditioned on the initial qualification of the Plan under the Code may be returned to the Employer within 1 year after such qualification is denied by determination of the Internal Revenue Service, but only if an application for determination of such qualification is made within the time prescribed by law for filing the Employer’s federal income tax return for its taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe.

All contributions under the Plan are hereby expressly conditioned on the initial qualification of the Plan and their deductibility under the Code.

5.14. Frozen Plan. If the Employer has elected Subsection 1.01(g)(5) of the Adoption Agreement, then in accordance therewith and notwithstanding any other provision of the Plan to the contrary, the Plan is a frozen plan. If the Employer amends the Plan to remove the freeze, contributions shall resume in accordance with the provisions of the amended Plan.

Article 6. Limitations on Contributions.

6.01. Special Definitions. For purposes of this Article, the following definitions shall apply:

(a)"Annual additions" mean the sum of the following amounts allocated to an Active Participant for a Limitation Year:

(1)all employer contributions allocated to an Active Participant's account under qualified defined contribution plans maintained by the "415 employer", including amounts applied to reduce employer contributions as provided under Section 11.09, but excluding amounts treated as Catch-Up Contributions;

(2)all employee contributions allocated to an Active Participant's account under a qualified defined contribution plan or a qualified defined benefit plan maintained by the "415 employer" if separate accounts are maintained with respect to such Active Participant under the defined benefit plan;

(3)all forfeitures allocated to an Active Participant's account under a qualified defined contribution plan maintained by the "415 employer";

(4)all amounts allocated to an "individual medical benefit account" which is part of a pension or annuity plan maintained by the "415 employer";

(5)all amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a key employee, as defined in Code Section 419A(d)(3), under a "welfare benefit fund" maintained by the "415 employer"; and

(6)all allocations to an Active Participant under a "simplified employee pension".

(b)"Contribution percentage" means the ratio (expressed as a percentage) of (1) the "contribution percentage amounts" allocated to an "eligible participant's" Accounts for the Plan Year to (2) the "eligible participant's" "testing compensation" for the Plan Year.

(c)"Contribution percentage amounts" mean those amounts included in applying the "ACP" test.

(1) "Contribution percentage amounts" include the following:

(A)any Employee Contributions made by an "eligible participant" to the Plan;

(B)any Matching Employer Contributions on eligible contributions as elected by the Employer in Subsection 1.11(c) of the Adoption Agreement, made for the Plan Year, but excluding (A) Qualified Matching Employer Contributions that are taken into account in satisfying the "ADP" test described in Section 6.03 and (B) Matching Employer Contributions that are forfeited (to the extent the forfeiture is completed prior to applying the “ACP” test) either to correct "excess aggregate contributions" or because the contributions to which they relate are "excess deferrals", "excess contributions", "excess aggregate contributions", or Catch-Up Contributions (in the event the Plan does not provide for Matching Employer Contributions with respect to Catch-Up Contributions);

(C)Qualified Nonelective Employer Contributions allocated as of a date within the “testing

year” and designated at the time of contribution as applying for the “ACP” test;

(D)401(k) Safe Harbor Nonelective Employer Contributions may be included to the extent such contributions are not required to satisfy the safe harbor contribution requirements under Section 1.401(k)-3(b) of the Treasury Regulations, excluding 401(k) Safe Harbor Nonelective Employer Contributions that are taken into account in satisfying the "ADP" test described in Section 6.03; and

(E)Deferral Contributions, when necessary to pass the “ACP” test, provided that the "ADP" test described in Section 6.03 is satisfied or treated as satisfied (except as in accordance with Section 6.09) both including Deferral Contributions included as "contribution percentage amounts" and excluding such Deferral Contributions.

(2) Notwithstanding the foregoing, for any Plan Year in which the "ADP" test described in Section 6.03 is deemed satisfied pursuant to Section 6.09 with respect to some or all Deferral Contributions, "contribution percentage amounts":

(A)shall not include any Deferral Contributions with respect to which the "ADP" test is deemed satisfied; and

(B)may have the following Matching Employer Contributions excluded:

(i)if the requirements described in Section 6.10 for deemed satisfaction of the "ACP" test with respect to some or all Matching Employer Contributions are met, those Matching Employer Contributions with respect to which the "ACP" test is deemed satisfied; or

(ii)if the "ADP" test is deemed satisfied using 401(k) Safe Harbor Matching Employer Contributions, but the requirements described in Section 6.10 for deemed satisfaction of the "ACP" test with respect to Matching Employer Contributions are not met, any Matching Employer Contributions made on behalf of an "eligible participant" for the Plan Year that do not exceed four percent of the "eligible participant's" Compensation for the Plan Year.

(3) Notwithstanding any other provisions of this Subsection, if an Employer elects to change from the current year testing method described in Subsection 1.06(a)(1) of the Adoption Agreement to the prior year testing method described in Subsection 1.06(a)(2) of the Adoption Agreement, the following shall not be considered "contribution percentage amounts" for purposes of determining the "contribution percentages" of Non-Highly Compensated Employees for the prior year immediately preceding the Plan Year in which the change is effective:

(A)Qualified Matching Employer Contributions that were taken into account in satisfying the "ADP" test described in Section 6.03 for such prior year;

(B) Qualified Nonelective Employer Contributions that were taken into account in satisfying the "ADP" test described in Section 6.03 or the "ACP" test described in Section 6.06 for such prior year; and

(C) 401(k) Safe Harbor Nonelective Employer Contributions that were taken into account in satisfying the "ADP" test described in Section 6.03 or the "ACP" test described in Section 6.06 for such prior year or that were required to satisfy the safe harbor contribution requirements under Section 1.401(k)-3(b) of the Treasury Regulations for such prior year.;

To be included in determining an "eligible participant's" "contribution percentage" for a Plan Year, Employee Contributions must be made to the Plan before the end of such Plan Year and other "contribution percentage amounts" must be allocated to the "eligible participant's" Account as of a date within such Plan Year and made before the last day of the 12-month period immediately following the Plan Year to which the "contribution percentage amounts" relate. If an Employer has elected the prior year testing method described in Subsection 1.06(a)(2) of the Adoption Agreement, "contribution percentage amounts" that are taken into account for purposes of determining the "contribution percentages" of Non-Highly Compensated Employees for the prior year relate to such prior year. Therefore, such "contribution percentage amounts" must be made before the last day of the Plan Year being tested.

(d)"Deferral ratio" means the ratio (expressed as a percentage) of (1) the amount of "includable contributions" made on behalf of an Active Participant for the Plan Year to (2) the Active Participant's "testing compensation" for such Plan Year. An Active Participant who does not receive "includable contributions" for a Plan Year shall have a "deferral ratio" of zero.

(e)"Designated Roth contributions" mean any Roth 401(k) Contributions made to the Plan and any "elective deferrals" made to another plan that would be excludable from a Participant's income, but for the Participant's election to designate such contributions as Roth contributions and include them in income.

(f)"Determination year" means (1) for purposes of determining income or loss with respect to "excess deferrals", the calendar year in which the "excess deferrals" were made and (2) for purposes of determining income or loss with respect to "excess contributions", and "excess aggregate contributions", the Plan Year in which such "excess contributions" or "excess aggregate contributions" were made.

(g)"Elective deferrals" mean all employer contributions, other than Deferral Contributions, made on behalf of a Participant pursuant to an election to defer under any qualified cash or deferred arrangement as described in Code Section 401(k), any simplified employee pension cash or deferred arrangement as described in Code Section 402(h)(1)(B), any eligible deferred compensation plan under Code Section 457, any plan as described under Code Section 501(c)(18), and any employer contributions made on behalf of a Participant pursuant to a salary reduction agreement for the purchase of an annuity contract under Code Section 403(b). "Elective deferrals" include "designated Roth contributions" made to another plan. "Elective deferrals" do not include any deferrals properly distributed as excess "annual additions" or any deferrals treated as catch-up contributions in accordance with the provisions of Code Section 414(v).

(h)"Eligible participant" means any Active Participant who is eligible to make Employee Contributions, or Deferral Contributions (if the Employer takes such contributions into account in calculating "contribution percentages"), or to receive a Matching Employer Contribution. Notwithstanding the foregoing, the term "eligible participant" shall not include any Active Participant who is included in a unit of Employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers.

(i)"Excess aggregate contributions" with respect to any Plan Year mean the excess of

(1)The aggregate "contribution percentage amounts" actually taken into account in computing the average "contribution percentages" of "eligible participants" who are Highly Compensated Employees for such Plan Year, over

(2)The maximum amount of "contribution percentage amounts" permitted to be made on behalf of Highly Compensated Employees under Section 6.06 (determined by reducing "contribution percentage amounts" made for the Plan Year on behalf of "eligible participants" who are Highly Compensated Employees in order of their "contribution percentages" beginning with the highest of such "contribution percentages").

"Excess aggregate contributions" shall be determined after first determining "excess deferrals" and then determining "excess contributions".

(j)"Excess contributions" with respect to any Plan Year mean the excess of

(1)The aggregate amount of "includable contributions" actually taken into account in computing the average "deferral percentage" of Active Participants who are Highly Compensated Employees for such Plan Year, over

(2)The maximum amount of "includable contributions" permitted to be made on behalf of Highly Compensated Employees under Section 6.03 (determined by reducing "includable contributions" made for the Plan Year on behalf of Active Participants who are Highly Compensated Employees in order of their "deferral ratios", beginning with the highest of such "deferral ratios").

(k)"Excess deferrals" mean those Deferral Contributions and/or "elective deferrals" that are includable in a Participant's gross income under Code Section 402(g) to the extent such Participant's Deferral Contributions and/or "elective deferrals" for a calendar year exceed the dollar limitation under such Code Section for such calendar year.

(l)"Excess 415 amount" means the excess of an Active Participant's "annual additions" for the Limitation Year over the "maximum permissible amount".

(m)“415 compensation” means Compensation (as defined in Section 2.01(k)), subject to the following:

(1)"415 compensation" does not exclude any amounts elected by the Employer in Subsection 1.05(b) of the Adoption Agreement.

(2)“415 compensation” shall be based on compensation for all services to the "415 employer."

(3)“415 compensation” shall be based on the amount actually paid or made available to the Participant (or, if earlier, includible in the gross income of the Participant) during the Limitation Year.

(4)An Eligible Employee's severance from employment, as defined in Section 2.01(k), shall be applied using the modification to the employer aggregation rules prescribed in Code Section 415(h).

4.“415 compensation” may include amounts earned, but not paid during the Limitation Year solely because of the timing of pay periods and pay dates, provided

(A)such amounts are paid during the first few weeks of the next Limitation Year;

(B)such amounts are included on a uniform and consistent basis with respect to all similarly situated Participants; and

(C)no such amounts are included in more than one Limitation Year.

(6) If the initial Plan Year of a new plan consists of fewer than 12 months, calculated from the Effective Date listed in Subsection 1.01(g)(1) of the Adoption Agreement through the end of such initial Plan Year and if the Employer has designated in Subsection 1.01(f) of the Adoption Agreement that the Limitation Year is based on the Plan Year, for purposes of determining Compensation for such initial Plan Year, the Limitation Year shall be the 12-month period ending on the last day of the Plan Year.

In addition, “415 compensation” shall not reflect compensation for a Limitation Year greater than the limit under Code Section 401(a)(17) that applies to that Limitation Year.

(n)"415 employer" means the Employer and any other employers which constitute a controlled group of corporations (as defined in Code Section 414(b) as modified by Code Section 415(h)) or which constitute trades or businesses (whether or not incorporated) which are under common control (as defined in Code Section 414(c) as modified by Code Section 415(h)) or which constitute an affiliated service group (as defined in Code Section 414(m)) and any other entity required to be aggregated with the Employer pursuant to regulations issued under Code Section 414(o).

(o)"Includable contributions" mean those amounts included in applying the "ADP" test.

(1) "Includable contributions" include the following:

(A)any Deferral Contributions made on behalf of an Active Participant, including "excess deferrals" of Highly Compensated Employees and "designated Roth contributions", except as specifically provided in Subsection 6.01(o)(2);

(B)Qualified Nonelective Employer Contributions allocated as of a date within the “testing year” and designated at the time of contribution as applying for the "ADP" test; and

(C)to the extent necessary to satisfy the “ADP” test, Qualified Matching Employer Contributions on Deferral Contributions or Employee Contributions made for the Plan Year allocated as of a date within the “testing year” and so designated at the time of contribution; provided, however, that the maximum amount of Qualified Matching Employer Contributions included in "includable contributions" with respect to an Active Participant shall not exceed the greater of 5% of the Active Participant's "testing compensation" or 100% of his Deferral Contributions for the Plan Year.

(2) "Includable contributions" shall not include the following:

(A)Catch-Up Contributions, except to the extent that a Participant's Deferral Contributions are classified as Catch-Up Contributions as provided in Section 6.04 solely because of a failure of the "ADP" test described in Section 6.03;

(B)"excess deferrals" of Non-Highly Compensated Employees that arise solely from Deferral Contributions made under the Plan or plans maintained by the Employer or a Related Employer;

(C)Deferral Contributions that are taken into account in satisfying the "ACP" test described in Section 6.06;

(D)additional elective contributions made pursuant to Code Section 414(u) that are treated as Deferral Contributions;

(E)for any Plan Year in which the "ADP" test described in Section 6.03 is deemed satisfied pursuant to Section 6.09 with respect to some or all Deferral Contributions, the following:

(i) any Deferral Contributions with respect to which the "ADP" test is deemed satisfied; and

(ii) Qualified Matching Employer Contributions, except to the extent that the "ADP" test described in Section 6.03 must be satisfied with respect to some Deferral Contributions and such Qualified Matching Employer Contributions are used in applying the "ADP" test.

(3) Notwithstanding any other provision of this Subsection, if an Employer elects to change from the current year testing method described in Subsection 1.06(a)(1) of the Adoption Agreement to the prior year testing method described in Subsection 1.06(a)(2) of the Adoption Agreement, the following shall not be considered "includable contributions" for purposes of determining the "deferral ratios" of Non-Highly Compensated Employees for the prior year immediately preceding the Plan Year in which the change is effective:

1)Deferral Contributions that were taken into account in satisfying the "ACP" test described in Section 6.06 for such prior year pursuant to Subsection 6.01(c)(1)(E) above;

2)Qualified Nonelective Employer Contributions that were taken into account in satisfying the "ADP" test described in Section 6.03 or the "ACP" test described in Section 6.06 for such prior year;

3)401(k) Safe Harbor Nonelective Employer Contributions that were taken into account in satisfying the "ADP" test described in Section 6.03 or the "ACP" test described in Section 6.06 for such prior year or that were required to satisfy the safe harbor contribution requirements under Section 1.401(k)-3(b) of the Treasury Regulations for such prior year;

4)401(k) Safe Harbor Matching Employer Contributions that were taken into account in satisfying the "ADP" test described in Section 6.03 for such prior year or that were required to satisfy the safe harbor contribution requirements under Section 1.401(k)-3(c) of the Treasury Regulations for such prior year; and

5)Qualified Matching Employer Contributions that were taken into account in satisfying the "ADP" test described in Section 6.03 or the "ACP" test described in Section 6.06 for such prior year.

To be included in determining an Active Participant's "deferral ratio" for a Plan Year, "includable contributions" must be allocated to the Participant's Account as of a date within such Plan Year and made before the last day of the 12-month period immediately following the Plan Year to which the "includable contributions" relate. If an Employer has elected the prior year testing method described in Subsection 1.06(a)(2), "includable contributions" that are taken into account for purposes of determining the "deferral ratios" of Non-Highly Compensated Employees for the prior year relate to such prior year. Therefore, such "includable contributions" must be made before the last day of the Plan Year being tested.

a."Individual medical benefit account" means an individual medical benefit account as defined in Code Section 415(l)(2).

b."Maximum permissible amount" means for a Limitation Year with respect to any Active Participant the lesser of (1) the maximum dollar amount permitted for the Limitation Year under Code Section 415(c)(1)(A) adjusted as provided in Code Section 415(d) (e.g., $51,000 for the Limitation Year ending in 2013) or (2) 100 percent of the Active Participant's “415 compensation” for the Limitation Year. If a short Limitation Year is created because of an amendment changing the Limitation Year to a different 12-consecutive-month period, the dollar limitation specified in clause (1) above shall be adjusted by multiplying it by a fraction the numerator of which is the number of months (counting any portion of a month as a whole month) in the short Limitation Year and the denominator of which is 12.

The limitation specified in clause (2) above shall not apply to any contribution for medical benefits within the meaning of Code Section 401(h) or 419A(f)(2) after separation from service which is otherwise treated as an "annual addition" under Code Section 419A(d)(2) or 415(l)(1).

a."Simplified employee pension" means a simplified employee pension as defined in Code Section 408(k).

b."Testing compensation" means any definition of compensation allowable under Code Section 414(s) or applicable guidance or regulations issued thereunder. "Testing compensation" shall be based on the amount actually paid to a Participant during the "testing year" or, at the option of the Employer, during that portion of the "testing year" during which the Participant is an Active Participant; provided, however, that if the Employer elected different Eligibility Service requirements for purposes of eligibility to make Deferral Contributions and to receive Matching Employer Contributions, then "testing compensation" must be based on the amount paid to a Participant during the full "testing year".

The annual "testing compensation" of each Active Participant taken into account in applying the "ADP" test described in Section 6.03 and the "ACP" test described in Section 6.06 for any "testing year" shall not exceed the annual compensation limit under Code Section 401(a)(17) as in effect on the first day of the "testing year" (e.g., $255,000 for the "testing year" beginning in 2013). This limit shall be adjusted by the Secretary to reflect increases in the cost of living, as provided in Code Section 401(a)(17)(B); provided, however, that the dollar increase in effect on January 1 of any calendar year is effective for "testing years" beginning in such calendar year. If a Plan determines "testing compensation" over a period that contains fewer than 12 calendar months (a "short determination period"), then the Compensation limit for such "short determination period" is equal to the Compensation limit for the calendar year in which the "short determination period" begins multiplied by the ratio obtained by dividing the number of full months in the "short determination period" by 12; provided, however, that such proration shall not apply if there is a "short determination period" because an election was made, in accordance with any rules and regulations issued by the Secretary of the Treasury or his delegate, to apply the "ADP" test described in Section 6.03 and/or the "ACP" test described in Section 6.06 based only on “testing compensation” paid during the portion of the "testing year" during which an individual was an Active Participant.

a."Testing year" means:

a.if the Employer has elected the current year testing method in Subsection 1.06(a)(1) of the Adoption Agreement, the Plan Year being tested.

b.if the Employer has elected the prior year testing method in Subsection 1.06(a)(2) of the Adoption Agreement, the Plan Year immediately preceding the Plan Year being tested.

a."Welfare benefit fund" means a welfare benefit fund as defined in Code Section 419(e).

To the extent that types of contributions defined in Section 2.01 are referred to in this Article 6, the defined term includes similar contributions made under other plans where the context so requires.

6.02. Code Section 402(g) Limit on Deferral Contributions. In no event shall the amount of Deferral Contributions, other than Catch-Up Contributions, made under the Plan for a calendar year, when aggregated with the "elective deferrals" made under any other plan maintained by the Employer or a Related Employer, exceed the dollar limitation contained in Code Section 402(g) in effect at the beginning of such calendar year.

A Participant may assign to the Plan any "excess deferrals" made during a calendar year by notifying the Administrator on or before March 15 following the calendar year in which the "excess deferrals" were made of the amount of the "excess deferrals" to be assigned to the Plan. A Participant is deemed to notify the Administrator of any "excess deferrals" that arise by taking into account only those Deferral Contributions made to the Plan and those "elective deferrals" made to any other plan maintained by the Employer or a Related Employer. Notwithstanding any other provision of the Plan, "excess deferrals", plus any income and minus any loss allocable thereto, as determined under Section 6.08, shall be distributed no later than April 15 to any Participant to whose Account "excess deferrals" were so assigned for the preceding calendar year and who claims "excess deferrals" for such calendar year. In the event that "excess deferrals" are allocated to a Participant's Deferral Contributions sub-accounts, such "excess deferrals" will be distributed first from the Participant's Deferral Contributions for the Plan Year other than his Roth 401(k) Contributions then from his Roth 401(k) Contributions unless provided otherwise in the Adoption Agreement.

"Excess deferrals" to be distributed to a Participant for a calendar year shall be reduced by any "excess contributions" for the Plan Year beginning within such calendar year that were previously distributed or re-characterized in accordance with the provisions of Section 6.04.

Any Matching Employer Contributions attributable to "excess deferrals", plus any income and minus any loss allocable thereto, as determined under Section 6.08, shall be forfeited and applied as provided in Section 11.09.

"Excess deferrals" shall be treated as "annual additions" under the Plan, unless such amounts are distributed no later than the first April 15 following the close of the calendar year in which the "excess deferrals" were made.

6.03. Additional Limit on Deferral Contributions ("ADP" Test). Except to the extent the Employer has elected in Subsection 1.11(a)(3) or Subsection 1.12(a)(3) of the Adoption Agreement to make 401(k) Safe Harbor Matching Employer Contributions or 401(k) Safe Harbor Nonelective Employer Contributions for a Plan Year and the "ADP" test is deemed satisfied in accordance with Section 6.09, notwithstanding any other provision of the Plan to the contrary, the Deferral Contributions, excluding additional elective contributions made pursuant to Code Section 414(u) that are treated as Deferral Contributions and Catch-Up Contributions (except to the extent that a Participant's Deferral Contributions are classified as Catch-Up Contributions as provided in Section 6.04 solely because of a failure of the "ADP" test described herein), made with respect to the Plan Year on behalf of Active Participants who are Highly Compensated Employees for such Plan Year may not result in an average "deferral ratio" for such Active Participants that exceeds the greater of:

1.the average "deferral ratio" for the "testing year" of Active Participants who are Non-Highly Compensated Employees for the "testing year" multiplied by 1.25; or

2.the average "deferral ratio" for the "testing year" of Active Participants who are Non-Highly Compensated Employees for the "testing year" multiplied by two, provided that the average "deferral ratio" for Active Participants who are Highly Compensated Employees for the Plan Year being tested does not exceed the average "deferral ratio" for Participants who are Non-Highly Compensated Employees for the "testing year" by more than two percentage points.

For the first Plan Year in which the Plan provides a cash or deferred arrangement, the average "deferral ratio" for Active Participants who are Non-Highly Compensated Employees used in determining the limits applicable under Subsections 6.03(a) and (b) shall be either three percent or the actual average "deferral ratio" for such Active Participants for such first Plan Year, as elected by the Employer in Section 1.06(b) of the Adoption Agreement.

The "deferral ratios" of Active Participants who are included in a unit of Employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement shall be disaggregated from the "deferral ratios" of other Active Participants and the provisions of this Section 6.03 shall be applied separately with respect to each group.

The "deferral ratio" for any Active Participant who is a Highly Compensated Employee for the Plan Year being tested and who is eligible to have "includable contributions" allocated to his accounts under two or more cash or deferred arrangements described in Code Section 401(k) that are maintained by the Employer or a Related Employer, shall be determined as if such "includable contributions" were made under the Plan. If a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different plan years, all "includable contributions" made during the Plan Year under all such arrangements shall be treated as having been made under the Plan. Notwithstanding the foregoing, certain plans, and contributions made thereto, shall be treated as separate if mandatorily disaggregated under regulations under Code Section 401(k).

If this Plan satisfies the requirements of Code Section 401(k), 401(a)(4), or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Code Sections only if aggregated with this Plan, then this Section shall be applied by determining the "deferral ratios" of Employees as if all such plans were a single plan. Plans may be aggregated in order to satisfy Code Section 401(k) only if they have the same plan year and use the same method to satisfy the "ADP" test.

Notwithstanding anything herein to the contrary, if the Plan permits Employees to make Deferral Contributions prior to the time the Employees have completed the minimum age and service requirements of Code Section 410(a)(1)(A) and the Employer elects, pursuant to Code Section 410(b)(4)(B), to disaggregate the Plan into two component plans for purposes of complying with Code Section 410(b)(1), one benefiting Employees who have completed such minimum age and service requirements and the other benefiting Employees who have not, the Plan must be disaggregated in the same manner for ADP testing purposes, unless the Plan applies the alternative rule in Code Section 401(k)(3)(F). In determining the component plans for purposes of such disaggregation, the Employer may apply the maximum entry dates permitted under Code Section 410(a)(4) and may utilize the Plan Year for purposes of determining Hours of Service.

The Employer shall maintain records sufficient to demonstrate satisfaction of the "ADP" test and the amount of Qualified Nonelective Employer Contributions and/or Qualified Matching Employer Contributions used in such test.

6.04. Allocation and Distribution of "Excess Contributions". Unless provided otherwise in the Adoption Agreement, the "excess contributions" allocable to the Account of a Participant, plus any income and minus any loss allocable thereto, as determined under Section 6.08, shall be distributed to the Participant no later than the last day of the Plan Year immediately following the Plan Year in which the "excess contributions" were made, unless the Employer elected Catch-Up Contributions in Subsection 1.07(a)(4) of the Adoption Agreement and such "excess contributions" are classified as Catch-Up Contributions.

If "excess contributions" are to be distributed from the Plan and such "excess contributions" are distributed more than 2 1/2 months (this period may be 6 months if the Plan has adopted an EACA within Subsection 1.07(a)(6) of the Adoption Agreement and has elected, pursuant to the Administrator’s separate written procedures established pursuant to Subsection 5.03(c), to cover all Eligible Employees by the EACA) after the last day of the Plan Year in which the "excess contributions" were made, a ten percent excise tax shall be imposed on the Employer maintaining the Plan with respect to such amounts.

The "excess contributions" allocable to a Participant's Account shall be determined by reducing the "includable contributions" made for the Plan Year on behalf of Active Participants who are Highly Compensated Employees in order of the dollar amount of such "includable contributions", beginning with the highest such dollar amount. "Excess contributions" allocated to a Participant for a Plan Year shall be reduced by the amount of any "excess deferrals" previously distributed for the calendar year ending in such Plan Year.

"Excess contributions" shall be treated as "annual additions".

For purposes of distribution, "excess contributions" shall be considered allocated among a Participant's Deferral Contributions sub-accounts and, if applicable, the Participant's Qualified Nonelective Employer Contributions sub-account and/or Qualified Matching Employer Contributions sub-account in the order prescribed and communicated to the Trustee, which order shall be uniform with respect to all Participants and nondiscriminatory. In the event that "excess contributions" are allocated to a Participant's Deferral Contributions sub-accounts, such "excess contributions" will be distributed first from the Participant's Deferral Contributions for the Plan Year other than his Roth 401(k) Contributions then from his Roth 401(k) Contributions unless provided otherwise in the Adoption Agreement.

Any Matching Employer Contributions attributable to "excess contributions", plus any income and minus any loss allocable thereto, as determined under Section 6.08, shall be forfeited and applied as provided in Section 11.09.

6.05. Reductions in Deferral or Employee Contributions to Meet Code Requirements. If the Administrator anticipates that the Plan will not satisfy the "ADP" and/or "ACP" test for the year, the Administrator may reduce the rate of Deferral Contributions and/or Employee Contributions of Participants who are Highly Compensated Employees to an amount determined by the Administrator to be necessary to satisfy the "ADP" and/or "ACP" test.

6.06. Limit on Matching Employer Contributions and Employee Contributions ("ACP" Test). The provisions of this Section 6.06 shall not apply to Active Participants who are included in a unit of Employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers. The provisions of this Section shall not apply to Matching Employer Contributions made on account of amounts deferred pursuant to Code Section 457 under a separate eligible deferred compensation plan.

Except to the extent the Employer has elected in Subsection 1.11(a)(3) or Subsection 1.12(a)(3) of the Adoption Agreement to make 401(k) Safe Harbor Matching Employer Contributions or 401(k) Safe Harbor Nonelective Employer Contributions for a Plan Year and the "ACP" test is deemed satisfied in accordance with Section 6.10, notwithstanding any other provision of the Plan to the contrary, Matching Employer Contributions and Employee Contributions made with respect to a Plan Year by or on behalf of "eligible participants" who are Highly Compensated Employees for such Plan Year may not result in an average "contribution percentage" for such "eligible participants" that exceeds the greater of:

a.the average "contribution percentage" for the "testing year" of "eligible participants" who are Non-Highly

Compensated Employees for the "testing year" multiplied by 1.25; or

a.the average "contribution percentage" for the "testing year" of "eligible participants" who are Non-Highly Compensated Employees for the "testing year" multiplied by two, provided that the average "contribution percentage" for the Plan Year being tested of "eligible participants" who are Highly Compensated Employees does not exceed the average "contribution percentage" for the "testing year" of "eligible participants" who are NonHighly Compensated Employees for the "testing year" by more than two percentage points.

For the first Plan Year in which the Plan provides for "contribution percentage amounts" to be made, the "ACP" for "eligible participants" who are Non-Highly Compensated Employees used in determining the limits applicable under paragraphs (a) and (b) of this Section shall be either three percent or the actual "ACP" of such eligible participants for such first Plan Year, as elected by the Employer in Section 1.06(b) of the Adoption Agreement.

The "contribution percentage" for any "eligible participant" who is a Highly Compensated Employee for the Plan Year and who is eligible to have "contribution percentage amounts" allocated to his accounts under two or more plans described in Code Section 401(a) that are maintained by the Employer or a Related Employer, shall be determined as if such "contribution percentage amounts" were contributed to the Plan. If a Highly Compensated Employee participates in two or more such plans that have different plan years, all "contribution percentage amounts" made during the Plan Year under such other plans shall be treated as having been contributed to the Plan. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under Treasury Regulations issued under Code Section 401(m).

If this Plan satisfies the requirements of Code Section 401(m), 401(a)(4) or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Code Sections only if aggregated with this Plan, then this Section shall be applied by determining the "contribution percentages" of Employees as if all such plans were a single plan. Plans may be aggregated in order to satisfy Code Section 401(m) only if they have the same plan year and use the same method to satisfy the "ACP" test.

Notwithstanding anything herein to the contrary, if the Plan permits Employees to make Employee Contributions and/or receive Matching Employer Contributions prior to the time the Employees have completed the minimum age and service requirements of Code Section 410(a)(1)(A) and the Employer elects, pursuant to Code Section 410(b)(4)(B), to disaggregate the Plan into two component plans for purposes of complying with Code Section 410(b)(1), one benefiting Employees who have completed such minimum age and service requirements and the other benefiting Employees who have not, the Plan must be disaggregated in the same manner for ACP testing purposes, unless the Plan applies the alternative rule in Code Section 401(m)(5)(C). In determining the component plans for purposes of such disaggregation, the Employer may apply the maximum entry dates permitted under Code Section 410(a)(4).

The Employer shall maintain records sufficient to demonstrate satisfaction of the "ACP" test and the amount of Deferral Contributions, Qualified Nonelective Employer Contributions, and/or Qualified Matching Employer Contributions used in such test.

6.07. Allocation, Distribution, and Forfeiture of "Excess Aggregate Contributions". Notwithstanding any other provision of the Plan, the "excess aggregate contributions" allocable to the Account of a Participant, plus any income and minus any loss allocable thereto, as determined under Section 6.08, shall be forfeited, if forfeitable, or if not forfeitable, distributed to the Participant no later than the last day of the Plan Year immediately following the Plan Year in which the "excess aggregate contributions" were made. If such excess amounts are distributed more than 2 1/2 months (this period may be 6 months if the Plan has adopted an EACA within Subsection 1.07(a)(6) of the Adoption Agreement and has elected, pursuant to the Administrator’s separate written procedures established pursuant to Subsection 5.03(c), to cover all Eligible Employees by the EACA) after the last day of the Plan Year in which such "excess aggregate contributions" were made, a ten percent excise tax shall be imposed on the Employer maintaining the Plan with respect to such amounts.

The "excess aggregate contributions" allocable to a Participant's Account shall be determined by reducing the "contribution percentage amounts" made for the Plan Year on behalf of "eligible participants" who are Highly Compensated Employees in order of the dollar amount of such "contribution percentage amounts", beginning with the highest such dollar amount.

"Excess aggregate contributions" shall be treated as "annual additions".

"Excess aggregate contributions" shall be forfeited or distributed from a Participant's Employee Contributions subaccount, Matching Employer Contributions sub-account and, if applicable, the Participant's Deferral Contributions subaccount and/or Qualified Nonelective Employer Contributions sub-account in the order prescribed and communicated to the Trustee, which order shall be uniform with respect to all Participants and nondiscriminatory. In the event that "excess aggregate contributions" are allocated to a Participant's Deferral Contributions sub-accounts, such "excess aggregated contributions" will be distributed first from the Participant's Deferral Contributions for the Plan Year other than his Roth 401(k) Contributions then from his Roth 401(k) Contributions unless provided otherwise in the Adoption Agreement.

Forfeitures of "excess aggregate contributions" shall be applied as provided in Section 11.09.

6.08. Income or Loss on Distributable Contributions. The income or loss allocable to "excess deferrals", "excess contributions", and "excess aggregate contributions" shall be determined under one of the following methods:

a.the income or loss attributable to such distributable contributions shall be the income or loss for the "determination year" allocable to the Participant's Account to which such contributions were made multiplied by a fraction, the numerator of which is the amount of the distributable contributions and the denominator of which is the balance of the Participant's Account to which such contributions were made,

determined as of the end of the "determination year" without regard to any income or loss occurring during the "determination year"; or

b.the income or loss attributable to such distributable contributions shall be the income or loss on such contributions for the "determination year", determined under any other reasonable method. Any reasonable method used to determine income or loss hereunder shall be used consistently for all Participants in determining the income or loss allocable to distributable contributions hereunder and shall be the same method that is used by the Plan in allocating income or loss to Participants' Accounts.

6.09. Deemed Satisfaction of "ADP" Test. Notwithstanding any other provision of this Article 6 to the contrary, if the Employer has elected in Subsection 1.11(a)(3) or Subsection 1.12(a)(3) of the Adoption Agreement to make 401(k) Safe Harbor Matching Employer Contributions or 401(k) Safe Harbor Nonelective Employer Contributions, the portion of the Plan for which the election applies shall be deemed to have satisfied the "ADP" test described in Section 6.03 for a Plan Year provided all of the following requirements are met with regard to the Active Participants within such portion of the Plan:

a.The 401(k) Safe Harbor Matching Employer Contribution or 401(k) Safe Harbor Nonelective Employer Contribution must be allocated to an Active Participant's Account, unless provided otherwise in the Adoption Agreement, as of a date within such Plan Year and must be made before the last day of the 12-month period immediately following such Plan Year.

b.If the Employer has elected to make 401(k) Safe Harbor Matching Employer Contributions, such 401(k) Safe Harbor Matching Employer Contributions must be made with respect to Deferral Contributions made by the Active Participant for such Plan Year.

c.The Employer shall provide to each Active Participant during the Plan Year a comprehensive notice, written in a manner calculated to be understood by the average Active Participant, of the Active Participant's rights and obligations under the Plan. If the Employer either (i) is considering amending its Plan to satisfy the "ADP" test using 401(k) Safe Harbor Nonelective Employer Contributions, as provided in Section 6.11, or (ii) has selected 401(k) Safe Harbor Nonelective Employer Contributions under Subsection 1.12(a)(3) and selected Subsection (a)(2), but not Subsection (a)(2)(A) of the 401(k) Safe Harbor Nonelective Employer Contributions Addendum, the notice shall include a statement that the Plan may be amended to provide a 401(k) Safe Harbor Nonelective Employer Contribution for the Plan Year. The notice shall be provided to each Active Participant within one of the following periods, whichever is applicable:

1.if the Employee is an Active Participant 90 days before the beginning of the Plan Year, within the period beginning 90 days and ending 30 days, or any other reasonable period as required by Sections l.401(k)-3 and 1.401(m)-3 of the Treasury Regulations, before the first day of the Plan Year; or

2.if the Employee becomes an Active Participant after the date described in paragraph (1) above, within the period beginning 90 days before and ending on the date he becomes an Active Participant.

However, in the case of a notice for an automatic contribution arrangement pursuant to Code Section 401(k)(13), the notice must be provided sufficiently early to allow an Eligible Employee to make an election to avoid the contribution pursuant to Section 5.03(c). Notwithstanding the preceding requirement, the Administrator cannot make a Participant’s default contribution pursuant to Section 5.03(c) effective any later than the earlier of (i) the pay date for the second payroll period that begins after the date the notice is provided; or, (ii) the first pay date that occurs at least 30 days after the notice is provided.

If the notice provides that the Plan may be amended to provide a 401(k) Safe Harbor Nonelective Employer Contribution for the Plan Year and the Plan is amended to provide such contribution, a supplemental notice shall be provided to all Active Participants stating that a 401(k) Safe Harbor Nonelective Employer

Contribution in the specified amount shall be made for the Plan Year. Such supplemental notice shall be provided to Active Participants at least 30 days before the last day of the Plan Year.

a.If the Employer has elected to make 401(k) Safe Harbor Matching Employer Contributions, the ratio of Matching Employer Contributions made on behalf of each Highly Compensated Employee for the Plan Year to each such Highly Compensated Employee's eligible contributions for the Plan Year is not greater than the ratio of Matching Employer Contributions to eligible contributions that would apply to any Non-Highly Compensated Employee for whom such eligible contributions are the same percentage of Compensation, adjusted as provided in Section 5.02, for the Plan Year.

b.Except as otherwise provided in Subsection 6.11(b) or with respect to a Plan Year described in (2) below, the Plan is amended to provide for 401(k) Safe Harbor Matching Employer Contributions or 401(k) Safe Harbor Nonelective Employer Contributions before the first day of such Plan Year and, except as otherwise provided in Subsection 6.11(d) or with respect to a Plan Year described in (1) through (4) below, such provisions remain in effect for an entire 12-month Plan Year. The 12-month Plan Year requirement shall not apply to:

1.The first Plan Year of a newly established Plan (other than a successor plan) if such Plan Year is at least 3 months long, provided that the 3-month requirement shall not apply in the case of a newly established employer that establishes a plan as soon as administratively feasible;

2.The Plan Year in which a cash or deferred arrangement is first added to an existing plan (other than a successor plan) if the cash or deferred arrangement is effective no later than 3 months before the end of such Plan Year;

3.Any short Plan Year resulting from a change in Plan Year if (i) the Plan satisfied the safe harbor requirements for the immediately preceding Plan Year and (ii) the Plan satisfies the safe harbor requirements for the immediately following Plan Year (or the immediately following 12 months, if the following Plan Year has fewer than 12 months);

4.The final Plan Year of a terminating Plan if any of the following applies: (i) the Plan would satisfy the provisions of paragraph Subsection 6.11(d) below, other than the provisions of paragraph Subsection 6.11(d)(3), treating the termination as an election to reduce or suspend 401(k) Safe Harbor Matching Employer Contributions or 401(k) Safe Harbor Nonelective Employer Contributions; (ii) the termination is in connection with a transaction described in Code Section 410(b)(6)(C); or (iii) the Employer incurs a substantial business hardship comparable to a substantial business hardship described in Code Section 412(d).

Notwithstanding any other provision of this Section, if the Employer has elected a more stringent eligibility requirement in Section 1.04 of the Adoption Agreement for 401(k) Safe Harbor Matching Employer Contributions or 401(k) Safe Harbor Nonelective Employer Contributions than for Deferral Contributions, the Plan shall be disaggregated in accordance with Section 6.03 and treated as two separate plans pursuant to Code Section 410(b)(4)(B). The separate disaggregated plan that satisfies Code Section 401(k)(12) shall be deemed to have satisfied the "ADP" test. The other disaggregated plan shall be subjected to the "ADP" test described in Section 6.03. If the Employer has elected in Subsection (b) of the 401(k) Safe Harbor Matching Employer Contributions Addendum to the Adoption Agreement or Section (b) of the 401(k) Safe Harbor Nonelective Employer Contributions Addendum to the Adoption Agreement to exclude some Participants from receiving 401(k) Safe Harbor Matching Employer Contributions or 401(k) Safe Harbor Nonelective Employer Contributions, the Plan shall be deemed to have satisfied the "ADP" test only with respect to those employees who are eligible to receive such contributions. The remainder of the Plan shall be subjected to the "ADP" test described in Section 6.03.

Except as otherwise provided in Subsection 6.11(d) regarding amendments suspending or eliminating 401(k) Safe Harbor Matching Contributions or 401(k) Safe Harbor Nonelective Employer Contributions, a plan that does not meet the requirements specified in (a) through (e) above with respect to a Plan Year may not default to ADP testing in accordance with Section 6.03 above.

6.10. Deemed Satisfaction of "ACP" Test With Respect to Matching Employer Contributions. The portion of the Plan that is deemed to satisfy the "ADP" test pursuant to Section 6.09 shall also be deemed to have satisfied the "ACP" test described in Section 6.06 with respect to Matching Employer Contributions, if Matching Employer Contributions to the Plan for the Plan Year meet all of the following requirements:

a.Matching Employer Contributions meet the requirements of Subsections 6.09(a) and (b) as if they were 401(k) Safe Harbor Matching Employer Contributions;

b.the percentage of eligible contributions matched does not increase as the percentage of Compensation contributed increases;

c.the ratio of Matching Employer Contributions made on behalf of each Highly Compensated Employee for the Plan Year to each such Highly Compensated Employee's eligible contributions for the Plan Year is not greater than the ratio of Matching Employer Contributions to eligible contributions that would apply to each Non-Highly Compensated Employee for whom such eligible contributions are the same percentage of Compensation, adjusted as provided in Section 5.02, for the Plan Year;

d.eligible contributions matched do not exceed six percent of a Participant's Compensation; and

e.if the Employer elected in Subsection 1.11(a)(2) or 1.11(b) of the Adoption Agreement to provide discretionary Matching Employer Contributions, the Employer also elected in Subsection 1.11(a)(2)(A) or 1.11(b)(1) of the Adoption Agreement, as applicable, to limit the dollar amount of such discretionary Matching Employer Contributions allocated to a Participant for the Plan Year to no more than four percent of such Participant's Compensation for the Plan Year.

The portion of the Plan not deemed to have satisfied the "ACP" test pursuant to this Section shall be subject to the "ACP" test described in Section 6.06 with respect to Matching Employer Contributions.

If the Plan provides for Employee Contributions, the "ACP" test described in Section 6.06 must be applied with respect to such Employee Contributions.

6.11. Changing Testing Methods. In accordance with Treas. Regs. 1.401(k)-1(e)(7) and 1.401(m)-1(c)(2), it is impermissible for the Employer to use "ADP" and "ACP" testing for a Plan Year in which it is intended for the Plan through its written terms to be a Code Section 401(k) safe harbor plan and Code Section 401(m) safe harbor plan and the Employer fails to satisfy the requirements of such safe harbors for the Plan Year. Notwithstanding any other provisions of the Plan, if the Employer elects to change between the "ADP" testing method and the safe harbor testing method, the following shall apply:

a.Except as otherwise specifically provided in this Section or Subsection 6.09, or applicable regulation, the Employer may not change from the "ADP" testing method to the safe harbor testing method unless Plan provisions adopting the safe harbor testing method are adopted before the first day of the Plan Year in which they are to be effective and remain in effect for an entire 12-month Plan Year.

b.A Plan may be amended during a Plan Year to make 401(k) Safe Harbor Nonelective Employer

Contributions to satisfy the testing rules for such Plan Year if:

1.The Employer provides both the initial and subsequent notices described in Section 6.09 for such Plan Year within the time period prescribed in Section 6.09.

2.The Employer amends its Adoption Agreement no later than 30 days prior to the end of such Plan Year to provide for 401(k) Safe Harbor Nonelective Employer Contribution in

accordance with the provisions of the 401(k) Safe Harbor Nonelective Employer Contributions Addendum to the Adoption Agreement.

a.Except as otherwise specifically provided in this Section, a Plan may not be amended during the Plan Year to discontinue 401(k) Safe Harbor Nonelective or Matching Employer Contributions and revert to the "ADP" testing method for such Plan Year.

b.A Plan may be amended to reduce or suspend 401(k) Safe Harbor Matching Contributions or 401(k) Safe Harbor Nonelective Employer Contributions for a Plan year, if the Employer provides in the notice described in Section 6.09(b) that the plan may be amended during the Plan Year to reduce or suspend such contributions or the Employer is operating at an economic loss (as described in Code Section 412(c)(2)(A)), and revert to the "ADP" testing method (and, if applicable, the “ACP” testing method) for such Plan Year if:

1.All Eligible Employees are provided notice of the reduction or suspension describing (i) the consequences of the amendment, (ii) the procedures for changing their salary reduction agreements, and (iii) the effective date of the reduction or suspension.

2.The reduction or suspension of such contributions is no earlier than the later of (i) 30 days after the date the notice described in paragraph (1) is provided to Eligible Employees or (ii) the date the amendment is adopted.

3.Active Participants are given a reasonable opportunity before the reduction or suspension occurs, including a reasonable period after the notice described in paragraph (1) is provided to Eligible Employees, to change amounts elected or deemed elected under Section 5.03 and, if applicable, Section 5.04.

4.With regard to 401(k) Safe Harbor Matching Employer Contributions, the Plan satisfies the 401(k) Safe Harbor Matching Employer Contributions provisions of the Adoption Agreement in effect prior to the amendment with respect amounts elected or deemed elected under Section 5.03 and, if applicable, Section 5.04 made through the effective date of the amendment.

5.With regard to 401(k) Safe Harbor Nonelective Employer Contributions, the Plan satisfies the 401(k) Safe Harbor Nonelective Employer Contributions provisions of the Adoption Agreement in effect prior to the amendment with respect to the safe harbor compensation (compensation meeting the requirements of Section 1.401(k)-3(b)(2) of the Treasury Regulations) paid through the effective date of the amendment.

If the Employer amends its Plan in accordance with the provisions of this paragraph (d), the "ADP" test described in Section 6.03 and the “ACP” test described in Section 6.06 shall be applied as if they had been in effect for the entire Plan Year using the current year testing method in Subsection 1.06(a)(1) of the Adoption Agreement.

6.12. Code Section 415 Limitations. Notwithstanding any other provisions of the Plan, the following limitations shall apply:

a.Employer Maintains Single Plan. If the "415 employer" does not maintain any other qualified defined contribution plan or any "welfare benefit fund", "individual medical benefit account", or "simplified employee pension" in addition to the Plan, the provisions of this Subsection 6.12(a) shall apply.

1.If a Participant does not participate in, and has never participated in any other qualified defined contribution plan, "welfare benefit fund", "individual medical benefit account", or "simplified employee pension" maintained by the "415 employer", which provides an "annual addition", the amount of "annual additions" to the Participant's Account for a Limitation Year shall not exceed the lesser of the "maximum permissible amount" or any

other limitation contained in the Plan. If a contribution that would otherwise be contributed or allocated to the Participant's Account would cause the "annual additions" for the Limitation Year to exceed the "maximum permissible amount", the amount contributed or allocated shall be reduced so that the "annual additions" for the Limitation Year shall equal the "maximum permissible amount".

2.Prior to the determination of a Participant's actual “415 compensation” for a Limitation Year, the "maximum permissible amount" may be determined on the basis of a reasonable estimation of the Participant's “415 compensation” for such Limitation Year, uniformly determined for all Participants similarly situated. Any Employer contributions to be made based on estimated annual “415 compensation” shall be reduced by any "excess 415 amounts" carried over from prior Limitation Years.

3.As soon as is administratively feasible after the end of the Limitation Year, the "maximum permissible amount" for such Limitation Year shall be determined on the basis of the Participant's actual "415 compensation" for such Limitation Year.

a.Employer Maintains Multiple Defined Contribution Type Plans. Unless the Employer specifies another method for limiting "annual additions" in the 415 Correction Addendum to the Adoption Agreement, if the "415 employer" maintains any other qualified defined contribution plan or any "welfare benefit fund", "individual medical benefit account", or "simplified employee pension" in addition to the Plan, the provisions of this Subsection 6.12(b) shall apply.

(1) If a Participant is covered under any other qualified defined contribution plan or any "welfare benefit fund", "individual medical benefit account", or "simplified employee pension" maintained by the "415 employer", that provides an "annual addition", the amount of "annual additions" to the Participant's Account for a Limitation Year shall not exceed the lesser of:

1)the "maximum permissible amount", reduced by the sum of any "annual additions" to the Participant's accounts for the same Limitation Year under such other qualified defined contribution plans and "welfare benefit funds", "individual medical benefit accounts", and "simplified employee pensions", or

2)any other limitation contained in the Plan.

If the "annual additions" with respect to a Participant under other qualified defined contribution plans, "welfare benefit funds", "individual medical benefit accounts", and "simplified employee pensions" maintained by the "415 employer" are less than the "maximum permissible amount" and a contribution that would otherwise be contributed or allocated to the Participant's Account under the Plan would cause the "annual additions" for the Limitation Year to exceed the "maximum permissible amount", the amount to be contributed or allocated shall be reduced so that the "annual additions" for the Limitation Year shall equal the "maximum permissible amount". If the "annual additions" with respect to the Participant under such other qualified defined contribution plans, "welfare benefit funds", "individual medical benefit accounts", and "simplified employee pensions" in the aggregate are equal to or greater than the "maximum permissible amount", no amount shall be contributed or allocated to the Participant's Account under the Plan for the Limitation Year.

1.Prior to the determination of a Participant's actual “415 compensation” for the Limitation Year, the amounts referred to in Subsection 6.12(b)(1)(A) above may be determined on the basis of a reasonable estimation of the Participant's “415 compensation” for such Limitation Year, uniformly determined for all Participants similarly situated. Any Employer contribution to be made based on estimated annual “415 compensation” shall be reduced by any "excess 415 amounts" carried over from prior Limitation Years.

2.As soon as is administratively feasible after the end of the Limitation Year, the amounts referred to in Subsection 6.12(b)(1)(A) shall be determined on the basis of the Participant's actual "415 compensation" for such Limitation Year.

a.Corrections. In correcting an “excess 415 amount” in a Limitation Year, the Employer may use any appropriate correction under the Employee Plans Compliance Resolution System, or any successor thereto.

b.Exclusion from Annual Additions. Restorative payments allocated to a Participant’s Account, which include payments made to restore losses to the Plan resulting from actions (or a failure to act) by a fiduciary for which there is a reasonable risk of liability under Title I of ERISA or under other applicable federal or state law, where similarly situated Participants are similarly treated do not give rise to an “annual addition” for any Limitation Year.

Article 7. Participants' Accounts.

7.01. Individual Accounts. The Administrator shall establish and maintain an Account for each Participant that shall reflect Employer and Employee contributions made on behalf of the Participant and earnings, expenses, gains and losses attributable thereto, and investments made with amounts in the Participant's Account. The Administrator shall separately account for any Deferral Contributions made on behalf of a Participant and the earnings, expenses, gains and losses attributable thereto. The Administrator shall establish and maintain such other accounts, including plan-level accounts not specifically described within the Plan, and records as it decides in its discretion to be reasonably required or appropriate in order to discharge its duties under the Plan. The Administrator shall notify the Trustee of all Accounts established and maintained under the Plan.

If "designated Roth contributions", as defined in Section 6.01, are held under the Plan either as Rollover Contributions or because of an Active Participant's election to make Roth 401(k) Contributions under the terms of the Plan, separate accounts shall be maintained with respect to such "designated Roth contributions." Contributions and withdrawals of "designated Roth contributions" will be credited and debited to the "designated Roth contributions" sub-account maintained for each Participant within the Participant's Account. The Plan will maintain a record of the amount of "designated Roth contributions" in each such sub-account. Gains, losses, and other credits or charges will be separately allocated on a reasonable and consistent basis to each Participant's "designated Roth contributions" sub-account and the Participant's other sub-accounts within the Participant's Account under the Plan. No contributions other than "designated Roth contributions" and properly attributable earnings will be credited to each Participant's "designated Roth contributions" sub-account.

7.02. Valuation of Accounts. Participant Accounts shall be valued at their fair market value at least annually as of a "determination date", as defined in Subsection 15.01(a), in accordance with a method consistently followed and uniformly applied, and on such date earnings, expenses, gains and losses on investments made with amounts in each Participant's Account shall be allocated to such Account.

Article 8. Investment of Contributions.

8.01. Manner of Investment. All contributions made to the Accounts of Participants shall be held for investment by the Trustee. The Accounts of Participants shall be invested and reinvested only in Permissible Investments generally described in the Service Agreement.

8.02. Investment Decisions. Investments in Participant Accounts shall be directed in accordance with the Employer's election in Subsection 1.24 of the Adoption Agreement.

a.With respect to those Participant Accounts for which Investment Fiduciary investment direction is elected, the Investment Fiduciary shall direct the Trustee with respect to the investment and reinvestment of assets in the Permissible Investments.

b.With respect to those Participant Accounts for which Participant investment direction is elected, each Participant shall direct the investment of his Account among the Permissible Investments.

1.While any balance remains in the Account of a Participant after his death, the Beneficiary of the Participant shall make decisions as to the investment of the Account as though the Beneficiary were the Participant. To the extent not prohibited by a qualified domestic relations order as defined in Code Section 414(p), an alternate payee shall make

investment decisions with respect to any segregated account established in the name of the alternate payee as provided in Section 18.04.

2.If the Trustee receives any contribution under the Plan as to which investment instructions have not been provided, such amount shall be invested in the Permissible Investment(s) directed by the Investment Fiduciary.

To the extent that the Employer elects to allow Participants to direct the investment of their Account in Section 1.24 of the Adoption Agreement, the Plan is intended to constitute a plan described in ERISA Section 404(c)(1) and regulations issued thereunder. The fiduciaries of the Plan shall be relieved of liability for any losses that are the direct and necessary result of investment instructions given by the Participant, his Beneficiary, or an alternate payee under a qualified domestic relations order.

If one of the Permissible Investments for the Plan is employer securities (as defined in Section 407(d)(1) of ERISA) of a publicly traded company or one treated as publicly traded pursuant to Section 401(a)(35)(F) of the Code, the Plan must have no fewer than three Permissible Investments, other than such employer securities, each of which must be diversified and have materially different risk and return characteristics. To the extent contributions to the Plan have been required to be invested in such employer securities through Section 1.24(b) and subject to any restrictions described therein, a Participant or Beneficiary must be permitted to direct the investment of the proceeds from an exchange out of employer securities into one of the Permissible Investments described in this paragraph. Except as provided in Reg. Section 1.401(a)(35)-1 and other applicable guidance, the Plan shall not impose restrictions or conditions with respect to the investment of employer securities that are not imposed on the other Permissible Investments, except any restrictions or conditions imposed by reason of the application of securities laws.

a.All dividends, interest, gains and distributions of any nature received in respect of Fund Shares shall be reinvested in additional shares of that Permissible Investment, except as otherwise directed by the Investment Fiduciary.

b.Expenses attributable to the acquisition of investments shall be charged to the Account of the Participant for which such investment is made as directed by the Investment Fiduciary.

The Investment Fiduciary, as named fiduciary for the Plan, may appoint one or more investment managers (as defined under Section 3(38) of ERISA) who may have such duties as the Investment Fiduciary in its sole discretion shall determine in its appointment and agreement with such investment manager(s), up to and including any authority to determine what shall be the Permissible Investments for the Plan at any given time, what restrictions will exist upon those and how unallocated accounts under the Plan and contributions described in Section 8.02(b)(2) of the Plan shall be invested. Such agreement(s) may limit, to the extent permissible under ERISA, the Investment Fiduciary’s authority and responsibility for the Plan’s Permissible Investments so delegated to the investment manager(s). The Investment Fiduciary shall retain the authority to revoke any such appointment of an investment manager and, if such investment manager is not the Trustee, shall notify the Trustee of any such revocation in a mutually agreed upon form and manner. The Investment Fiduciary may appoint an investment manager (which may be an affiliate of the Trustee) to determine the allocation of amounts held in Participants' Accounts among various investment options (the "Managed Account" option) for Participants who direct the Trustee to invest any portion of their accounts in the Managed Account option. The investment options utilized under the Managed Account option may be those generally available under the Plan or may be as selected by the investment manager for use under the Managed Account option. Participation in the Managed Account option shall be subject to such conditions and limitations (including account minimums) as may be imposed by the investment manager. Notwithstanding anything else herein to the contrary, an investment manager (which may be the Trustee or an affiliate of the Trustee) may also be appointed to manage any Permissible Investment subject to management by such investment manager.

The Investment Fiduciary may also, by written instrument, allocate and delegate its fiduciary responsibilities in accordance with ERISA Section 405.

8.03. Participant Directions to Trustee. The method and frequency for change of investments shall be determined under the rules applicable to the Permissible Investments, including any additional rules limiting the

frequency of investment changes, as may be agreed upon by the recordkeeper. The Trustee shall have no duty to inquire into the investment decisions of a Participant, Beneficiary, or alternate payee or to advise such individual regarding the purchase, retention, or sale of assets credited to his Account.

8.04. Life Insurance. All insurance contracts must provide that proceeds shall be payable to the Plan; provided, however, that the policy holder shall be required to pay over all proceeds of any such contract to the Participant's designated Beneficiary in accordance with the distribution provisions of this Plan. A Participant's Spouse shall be the designated Beneficiary of the proceeds in all circumstances unless a qualified election has been made in accordance with Article 14. Under no circumstances shall the policy holder retain any part of the proceeds. In the event of any conflict between the terms of the Plan and the terms of any insurance contract purchased hereunder, the Plan provisions shall control.

Any life insurance contracts held for the Plan are subject to the following limits:

a.Ordinary life - For purposes of these incidental insurance provisions, ordinary life insurance contracts are contracts with both nondecreasing death benefits and nonincreasing premiums. If such contracts are held, less than 1/2 of the aggregate employer contributions allocated to any Participant shall be used to pay the premiums attributable to them.

b.Term and universal life - No more than 1/4 of the aggregate employer contributions allocated to any participant shall be used to pay the premiums on term life insurance contracts, universal life insurance contracts, and all other life insurance contracts which are not ordinary life.

c.Combination - The sum of 1/2 of the ordinary life insurance premiums and all other life insurance premiums shall not exceed 1/4 of the aggregate employer contributions allocated to any Participant.

Article 9. Participant Loans.

9.01 Special Definition. For purposes of this Article, a "participant" is any Participant or Beneficiary, including an alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), who is a party-in-interest (as determined under ERISA Section 3(14)) with respect to the Plan.

9.02. Participant Loans. If so provided by the Employer in Section 1.18 of the Adoption Agreement, the Administrator shall allow "participants" to apply for a loan from their Accounts under the Plan, subject to the provisions of this Article 9.

9.03. Separate Loan Procedures. All Plan loans shall be made and administered in accordance with separate loan procedures that are hereby incorporated into the Plan by reference. The separate loan procedures shall describe the portions of a Participant’s Account from which loans may be calculated or taken.

9.04. Availability of Loans. Loans shall be made available to all "participants" on a reasonably equivalent basis. Loans shall not be made available to "participants" who are Highly Compensated Employees in an amount greater than the amount made available to other "participants".

9.05. Limitation on Loan Amount. No loan to any "participant" shall be made to the extent that such loan when added to the outstanding balance of all other loans to the "participant" would exceed the lesser of (a) $50,000 reduced by the excess (if any) of the highest outstanding balance of plan loans during the one-year period ending on the day before the loan is made over the outstanding balance of plan loans on the date the loan is made, or (b) one-half the present value of the "participant's" vested interest in his Account. For purposes of the above limitation, plan loans include all loans from all plans maintained by the Employer and any Related Employer.

9.06. Interest Rate. Subject to the requirements of the Servicemembers Civil Relief Act, all loans shall bear a reasonable rate of interest as determined by the Administrator based on the prevailing interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances.

9.07. Level Amortization. All loans shall by their terms require that repayment (principal and interest) be amortized in level payments, not less frequently than quarterly, over a period not extending beyond five years from the date of the loan unless such loan is for the purchase of a "participant's" primary residence. Notwithstanding the foregoing, the amortization requirement may be waived while a "participant" is on a leave of absence from employment with the Employer and any Related Employer either without pay or at a rate of pay which, after withholding for employment and income taxes, is less than the amount of the installment payments required under the terms of the loan, provided that the period of such waiver shall not exceed one year, unless the "participant" is absent because of military leave during which the "participant" performs services with the uniformed services (as defined in chapter 43 of title 38 of the United States Code), regardless of whether such military leave is a qualified military leave in accordance with the provisions of Code Section 414(u). Installment payments must resume after such leave of absence ends or, if earlier, after the first year of such leave of absence, in an amount that is not less than the amount of the installment payments required under the terms of the original loan. Unless a "participant" is absent because of military leave, as discussed below, no waiver of the amortization requirements shall extend the period of the loan beyond five years from the date of the loan, unless the loan is for purchase of the "participant's" primary residence. If a "participant" is absent because of military leave during which the "participant" performs services with the uniformed services (as defined in chapter 43 of title 38 of the United States Code), regardless of whether such military leave is a qualified military leave in accordance with the provisions of Code Section 414(u), waiver of the amortization requirements may extend the period of the loan to the maximum period permitted for such loan under the separate loan procedures extended by the period of such military leave.

9.08 Security. Loans must be secured by the "participant's" vested interest in his Account not to exceed 50 percent of such vested interest. If the provisions of Section 14.04 apply to a Participant, a Participant must obtain the consent of his or her Spouse, if any, to use his vested interest in his Account as security for the loan. Spousal consent shall be obtained no earlier than the beginning of the 180-day period that ends on the date on which the loan is to be so secured. The consent must be in writing, must acknowledge the effect of the loan, and must be witnessed by a Plan representative or notary public. Such consent shall thereafter be binding with respect to the consenting Spouse or any subsequent Spouse with respect to that loan. Any revision of such a loan permitted by Q & A 24(c) of Section 1.401(a)-20 of the Treasury Regulations and the Plan's separate loan procedures shall be treated as a new loan made on the date of such revision for purposes of spousal consent.

9.09. Loan Repayments. If a "participant's" loan is being repaid through payroll withholding, the Employer shall remit any such loan repayment to the Trustee as of the earliest date on which such amount can reasonably be segregated from the Employer's general assets, but not later than the earlier of (a) the close of the period specified in the separate loan procedures for preventing a default or (b) the 15th business day of the calendar month following the month in which such amount otherwise would have been paid to the "participant".

9.10. Default. The Administrator shall treat a loan in default if:

(a) any scheduled repayment remains unpaid at the end of the cure period specified in the separate loan procedures for that payment (unless payment is not made due to a waiver of the amortization schedule for a "participant" who is on a leave of absence, as described in Section 9.07), or

(b) there is an outstanding principal balance existing on a loan after the last scheduled repayment date.

Upon default, the entire outstanding principal and accrued interest shall be immediately due and payable. If a distributable event (as defined by the Code) has occurred, the Administrator shall direct the Trustee to foreclose on the promissory note and offset the "participant's" vested interest in his Account by the outstanding balance of the loan. If a distributable event has not occurred, the Administrator shall direct the Trustee to foreclose on the promissory note and offset the "participant's" vested interest in his Account as soon as a distributable event occurs. The Trustee shall have no obligation to foreclose on the promissory note and offset the outstanding balance of the loan except as directed by the Administrator.

9.11. Effect of Termination Where Participant has Outstanding Loan Balance. If so provided in Section 1.18(a) of the Adoption Agreement, if a Participant has an outstanding loan balance at the time his employment terminates, the entire outstanding principal and accrued interest shall be due and payable by the end of the cure

period specified in the separate loan procedures. Any outstanding loan amounts that are immediately due and payable hereunder shall be treated in accordance with the provisions of Sections 9.10 and 9.12 as if the Participant had defaulted on the outstanding loan.

9.12. Deemed Distributions Under Code Section 72(p). Notwithstanding the provisions of Section 9.10, if a "participant's" loan is in default, the "participant" shall be treated as having received a taxable "deemed distribution" for purposes of Code Section 72(p), whether or not a distributable event has occurred. The tax treatment of that portion of a defaulted loan that is secured by Roth 401(k) Contributions shall be determined in accordance with Code Section 402A and guidance issued thereunder.

The amount of a loan that is a deemed distribution ceases to be an outstanding loan for purposes of Code Section 72, except as otherwise specifically provided herein, and a Participant shall not be treated as having received a taxable distribution when the Participant's Account is offset by the outstanding balance of the loan amount as provided in Section 9.10. In addition, interest that accrues on a loan after it is deemed distributed shall not be treated as an additional loan to the Participant and shall not be included in the income of the Participant as a deemed distribution. Notwithstanding the foregoing, unless a Participant repays a loan that has been deemed distributed, with interest thereon, the amount of such loan, with interest, shall be considered an outstanding loan under Code Section 72(p) for purposes of determining the applicable limitation on subsequent loans under Section 9.05.

If a Participant makes payments on a loan that has been deemed distributed, payments made on the loan after the date it was deemed distributed shall be treated as Employee Contributions to the Plan for purposes of increasing the Participant's tax basis in his Account, but shall not be treated as Employee Contributions for any other purpose under the Plan, including application of the "ACP" test described in Section 6.06 and application of the Code Section 415 limitations described in Section 6.12.

The provisions of this Section 9.12 regarding treatment of loans that are deemed distributed shall not apply to loans made prior to January 1, 2002, except to the extent provided under the transition rules in Q & A 22(c)(2) of Section 1.72(p)-l of the Treasury Regulations.

9.13. Determination of Vested Interest Upon Distribution Where Plan Loan is Outstanding. Notwithstanding any other provision of the Plan, the portion of a "participant's" vested interest in his Account that is held by the Plan as security for a loan outstanding to the "participant" in accordance with the provisions of this Article shall reduce the amount of the Account payable at the time of death or distribution, but only if the reduction is used as repayment of the loan. If less than 100 percent of a "participant's" vested interest in his Account (determined without regard to the preceding sentence) is payable to the "participant's" surviving Spouse or other Beneficiary, then the Account shall be adjusted by first reducing the "participant's" vested interest in his Account by the amount of the security used as repayment of the loan, and then determining the benefit payable to the surviving Spouse or other Beneficiary.

Article 10. In-Service Withdrawals.

10.01. Availability of In-Service Withdrawals. Except as otherwise provided in this Article, as permitted under Section 11.02 with respect to Participants who continue in employment past Normal Retirement Age, or as required under Section 12.04 with respect to Participants who continue in employment past their Required Beginning Date, a Participant shall not be permitted to make a withdrawal from his Account under the Plan prior to retirement or termination of employment with the Employer and all Related Employers, if any.

(a) Active Military Distribution (HEART Act): If so provided by the Employer in Subsection 1.19(c)(3), a Participant performing service in the uniformed services as described in Code Section 3401(h)(2)(A) shall be treated as having been severed from employment with the Employer for purposes of Code Section 401(k)(2)(B)(i)(I) and shall, as long as that service in the uniformed services continues, have the option to request a distribution of all or any part of his or her Account restricted from distribution only due to Code Section 401(k)(2)(B)(i)(I). Any distribution taken by a Participant pursuant to the previous sentence shall be considered an eligible rollover distribution pursuant to Section 13.04(c) of the Plan and any Participant taking a distribution under this Subsection shall be suspended from making Deferral

Contributions and Employee Contributions under the Plan for a period of 6 months following the date of any such distribution.

10.02. Withdrawal of Employee Contributions. A Participant may elect to withdraw up to 100 percent of the amount then credited to his Employee Contributions sub-account. Such withdrawals may be made in accordance with the frequency constraints selected through Subsection 1.19(c) of the Adoption Agreement.

10.03. Withdrawal of Rollover Contributions. A Participant may elect to withdraw up to 100 percent of the amount then credited to his Rollover Contributions sub-account. Such withdrawals may be made at any time.

10.04. Age 59 1/2 Withdrawals. If so provided by the Employer in Subsection 1.19(b) of the Adoption Agreement or the In-Service Withdrawals Addendum to the Adoption Agreement, a Participant who continues in employment as an Employee and who has attained the age of 59 1/2 is permitted to withdraw upon request all or any portion of his Accounts specified by the Employer in Subsection 1.19(b) of the Adoption Agreement or the In-Service Withdrawals Addendum to the Adoption Agreement, as applicable and as may be limited therein.

10.05. Hardship Withdrawals. If so provided by the Employer in Subsection 1.19(a) of the Adoption Agreement, a Participant who continues in employment as an Employee may apply for a hardship withdrawal. Unless provided otherwise in the Service Agreement, the Participant may apply by certifying to the Administrator all of the required criteria specified in this Section. Such certification shall represent that the Participant has documentation substantiating the hardship. Such a hardship withdrawal may include all or any portion of the Accounts specified by the Employer in Subsection 1.19(a)(1) of the Adoption Agreement and the In-Service Withdrawals Addendum to the Adoption Agreement, if applicable, excluding any earnings on the Deferral Contributions sub-account accrued after the later of December 31, 1988 or the last day of the last Plan Year ending before July 1, 1989. The minimum amount, if any, that a Participant may withdraw because of hardship is the dollar amount specified by the Employer in Subsection 1.19(a).

For purposes of this Section 10.05, a withdrawal is made on account of hardship if made on account of an immediate and heavy financial need of the Participant where such Participant lacks other available resources. The Administrator shall direct the Trustee with respect to hardship withdrawals and those withdrawals shall be based on the following special rules:

(a) The following are the only financial needs considered immediate and heavy:

(1) expenses incurred or necessary for medical care (that would be deductible under Code Section 213(d), determined without regard to whether the expenses exceed any applicable income limit) of the Participant, the Participant's Spouse, children, or dependents, or a primary beneficiary of the Participant;

(2) costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant;

(3) payment of tuition, related educational fees, and room and board for the next 12 months of postsecondary education for the Participant, the Participant's Spouse, children or dependents (as defined in Code Section 152, without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), or a primary beneficiary of the Participant;

(4) payments necessary to prevent the eviction of the Participant from, or a foreclosure on the mortgage on, the Participant's principal residence;

(5) payments for funeral or burial expenses for the Participant's deceased parent, Spouse, child, or dependent (as defined in Code Section 152, without regard to subsection (d)(1)(B) thereof), or a primary beneficiary of the Participant;

(6) expenses for the repair of damage to the Participant's principal residence that would qualify for a casualty loss deduction under Code Section 165 (determined without regard to whether the loss exceeds any applicable income limit); or

(7) any other financial need determined to be immediate and heavy under rules and regulations issued by the Secretary of the Treasury or his delegate; provided, however, that any such financial need shall constitute an immediate and heavy need under this paragraph (7) no sooner than administratively practicable following the date such rule or regulation is issued.

For purposes of this Section, the term “primary beneficiary” means a Beneficiary under the Plan who has an unconditional right to all or a portion of the Participant’s Account upon the death of the Participant.

(b) A distribution shall be considered as necessary to satisfy an immediate and heavy financial need of the Participant only if:

(1) The Participant has obtained all distributions, other than the hardship withdrawal, and all nontaxable (at the time of the loan) loans currently available under all plans maintained by the Employer or any Related Employer;

(2) The Participant suspends Deferral Contributions and Employee Contributions to the Plan for the 6month period following receipt of his hardship withdrawal. The suspension must also apply to all elective contributions and employee contributions to all other qualified plans and non-qualified plans maintained by the Employer or any Related Employer, other than any mandatory employee contribution portion of a defined benefit plan, including stock option, stock purchase, and other similar plans, but not including health and welfare benefit plans (other than the cash or deferred arrangement portion of a cafeteria plan); and

(2) The withdrawal amount is not in excess of the amount of an immediate and heavy financial need (including amounts necessary to pay any Federal, state or local income taxes or penalties reasonably anticipated to result from the distribution).

10.06. Additional In-Service Withdrawal Rules. To the extent required under Code Section 411(d)(6), in-service withdrawals that were available under a prior plan shall be available under the Plan and indicated using Subsection 1.19(g) of the Adoption Agreement. The Employer may also elect additional in-service withdrawal options using Section 1.19(g).

10.07. Restrictions on In-Service Withdrawals. The following restrictions apply to any in-service withdrawal made from a Participant's Account under this Article:

(a) Except with regard to a rollover made pursuant to Subsection 1.09(b), if the provisions of Section 14.04 apply to a Participant's Account, the Participant must obtain the consent of his Spouse, if any, to obtain an in-service withdrawal.

(b) The Participant may elect to receive in-service withdrawals under this Article in any form of distribution described in Section 1.20 of the Adoption Agreement. However, if the provisions of Section 14.04 apply to a Participant's Account, the Participant shall receive the in-service withdrawal in the form of a "qualified joint and survivor annuity", as defined in Subsection 14.01(a), unless the consent rules in Section 14.05 are satisfied, or the Participant has elected to receive the in-service withdrawal in the form of a "qualified optional survivor annuity", as defined in Subsection 14.01(b).

(c) Notwithstanding any other provision of the Plan to the contrary other than the provisions of Section 10.09, 11.02 or 12.04, a Participant shall not be permitted to make an in-service withdrawal from his Account of amounts attributable to contributions made to a money purchase pension plan, except employee and/or rollover contributions that were held in a separate account(s) under such plan.

10.08. Qualified Reservist Distributions. If so elected by the Employer in Section 1.19(d) of the Adoption Agreement, and notwithstanding anything herein to the contrary, a Participant ordered or called to active duty for a period in excess of 179 days or for an indefinite period by reason of being a member of a reserve component (as defined in Section 101 of Title 37, United States Code), shall be eligible to elect to receive a Qualified Reservist Distribution. A “Qualified Reservist Distribution” means a distribution from the Participant’s Account of amounts

attributable to Deferral Contributions, provided such distribution is made during the period beginning on the date of the order or call to active duty and ending at the close of the active duty period.

10.09. Age 62 Distribution of Money Purchase Benefits. If so elected by the Employer in Section 1.19(e) of the Adoption Agreement, a Participant who has attained at least age 62 shall be eligible to elect to receive a distribution of vested benefit amounts accrued as a result of the Participant’s participation in a money purchase pension plan (due to a merger into this Plan of money purchase pension plan assets), if any.

Article 11. Right to Benefits.

11.01. Normal or Early Retirement. Each Participant who continues in employment as an Employee until his Normal Retirement Age or, if so elected by the Employer in Subsection 1.14(b) of the Adoption Agreement, Early Retirement Age, shall have a vested interest in his Account of 100 percent regardless of any vesting schedule elected in Section 1.16 of the Adoption Agreement. If a Participant retires upon the attainment of Normal or Early Retirement Age, such retirement is referred to as a normal retirement.

11.02. Late Retirement. If a Participant continues in employment as an Employee after his Normal Retirement Age, he shall continue to have a 100 percent vested interest in his Account and shall continue to participate in the Plan until the date he establishes with the Employer for his late retirement. If so elected by the Employer in Section 1.19(f) of the Adoption Agreement, until he retires, he has a continuing right to elect to receive distribution of all or any portion of his Account in accordance with the provisions of Articles 12 and 13; provided, however, that a Participant may not receive any portion of his Deferral Contributions, Qualified Nonelective Employer Contributions, Qualified Matching Employer Contributions, 401(k) Safe Harbor Matching Employer Contributions, or 401(k) Safe Harbor Nonelective Employer Contributions sub-accounts prior to his attainment of age 59 1/2.

11.03. Disability Retirement. If so elected by the Employer in Subsection 1.14(c) of the Adoption Agreement, a Participant who becomes disabled while employed as an Employee, or, unless provided otherwise in the Additional Provisions Addendum to the Adoption Agreement, while performing qualified military service as defined in Code Section 414(u)(5), shall have a 100 percent vested interest in his Account regardless of any vesting schedule elected in Section 1.16 of the Adoption Agreement. An Employee is considered disabled if he satisfies any of the requirements for disability retirement selected by the Employer in Section 1.15 of the Adoption Agreement and terminates his employment with the Employer. Such termination of employment is referred to as a disability retirement.

11.04. Death. A Participant who dies while employed as an Employee, or while performing qualified military service as defined in Code Section 414(u)(5), shall have a 100 percent vested interest in his Account and his designated Beneficiary shall be entitled to receive the balance of his Account, plus any amounts thereafter credited to his Account. If a Participant whose employment as an Employee has terminated dies, his designated Beneficiary shall be entitled to receive the Participant's vested interest in his Account.

A copy of the death notice or other sufficient documentation must be provided to the Administrator using procedures established by the Administrator. If upon the death of the Participant there is, in the opinion of the Administrator, no designated Beneficiary for part or all of the Participant's Account, such amount shall be paid to his surviving Spouse or, if none, to his estate (such Spouse or estate shall be deemed to be the Beneficiary for purposes of the Plan). If a Beneficiary dies after benefits to such Beneficiary have commenced, but before they have been completed, and, in the opinion of the Administrator, no person has been designated to receive such remaining benefits, then such benefits shall be paid in a lump sum to the deceased Beneficiary's estate.

Subject to the requirements of Section 14.04, a Participant may designate a Beneficiary, or change any prior designation of Beneficiary by giving notice to the Administrator using procedures established by the Administrator. If more than one person is designated as the Beneficiary, their respective interests shall be as indicated on the designation form. In the case of a married Participant, the Participant's Spouse shall be deemed to be the designated Beneficiary unless the Participant's Spouse has consented to another designation in the manner described in Section 14.06. Notwithstanding the foregoing, if a Participant’s Account is subject to the requirements of Section 14.04 and

the Employer has specified in Subsection 1.20(d)(2)(B)(ii) of the Adoption Agreement that less than 100 percent of the Participant’s Account that is subject to Section 14.04 shall be used to purchase the “qualified preretirement survivor annuity”, as defined in Section 14.01, the Participant may designate a Beneficiary other than his Spouse for the portion of his Account that would not be used to purchase the “qualified preretirement survivor annuity,” regardless of whether the Spouse consents to such designation.

11.05. Other Termination of Employment. If a Participant terminates his employment with the Employer and all Related Employers, if any, for any reason other than death or normal, late, or disability retirement, he shall be entitled to a termination benefit equal to the sum of (a) his vested interest in the balance of his Matching Employer and/or Nonelective Employer Contributions sub-account(s), such vested interest to be determined in accordance with Section 5.11 and the vesting schedule(s) selected by the Employer in Section 1.16 of the Adoption Agreement and/or the Vesting Addendum to the Adoption Agreement, and (b) the balance of his Deferral, Employee, Qualified Nonelective Employer, Qualified Matching Employer, and Rollover Contributions sub-accounts.

11.06. Application for Distribution. Except as provided in Subsection 1.21(a) of the Adoption Agreement, a Participant (or his Beneficiary, if the Participant has died) who is entitled to a distribution hereunder must request such distribution, using procedures established by the Administrator, unless the Employer has elected in Subsection 1.20(e)(1) of the Adoption Agreement to cash out de minimus Accounts and the Participant's vested interest in his Account does not exceed the amount subject to automatic distribution pursuant to Section 13.02.

11.07. Application of Vesting Schedule Following Partial Distribution. If a distribution from a Participant's Matching Employer and/or Nonelective Employer Contributions sub-account has been made to him at a time when his vested interest in such Account balance is less than 100 percent, the vesting schedule(s) in Section 1.16 of the Adoption Agreement shall thereafter apply only to the balance of his Account attributable to Matching Employer and/or Nonelective Employer Contributions allocated after such distribution. The balance of the Account from which such distribution was made shall be transferred to a separate account immediately following such distribution.

At any relevant time prior to a forfeiture of any portion thereof under Section 11.08, a Participant's vested interest in such separate account shall be equal to P(AB+(RxD))-(RxD), where P is the Participant's vested interest expressed as a percentage at the relevant time determined under Section 11.05; AB is the account balance of the separate account at the relevant time; D is the amount of the distribution; and R is the ratio of the account balance at the relevant time to the account balance after distribution. Following a forfeiture of any portion of such separate account under Section 11.08 below, the Participant's vested interest in any balance in such separate account shall remain 100 percent.

11.08. Forfeitures. If a Participant terminates his employment with the Employer and all Related Employers before his vested interest in his Matching Employer and/or Nonelective Employer Contributions sub-accounts is 100 percent, the nonvested portion of his Account (including any amounts credited after his termination of employment) shall be forfeited by him as follows:

(a) If the Inactive Participant elects to receive distribution of his entire vested interest in his Account, the nonvested portion of his Account shall be forfeited upon the complete distribution of such vested interest, subject to the possibility of reinstatement as provided in Section 11.10. For purposes of this Subsection, if the value of an Employee's vested interest in his Account balance is zero, the Employee shall be deemed to have received a distribution of his vested interest immediately following termination of employment.

(b) If the Inactive Participant elects not to receive distribution of his vested interest in his Account following his termination of employment, the non-vested portion of his Account shall be forfeited after the Participant has incurred five consecutive Breaks in Vesting Service.

Except as otherwise provided in the Adoption Agreement, no forfeitures shall occur solely as a result of a Participant's withdrawal of Employee Contributions.

11.09. Application of Forfeitures. Any forfeitures occurring during a Plan Year may be used to pay administrative expenses under the Plan at any time, if so directed by the Administrator. Except as provided otherwise in the Adoption Agreement, any forfeitures not used to pay administrative expenses under the Plan shall be applied to reduce the contributions of the Employer for the immediately following Plan Year and held and applied in accordance with this Section 11.09.

Pending application, forfeitures shall be invested as directed by the Investment Fiduciary.

Except as permitted pursuant to EPCRS and notwithstanding any other provision of the Plan to the contrary, in no event may forfeitures be used to reduce the Employer's obligation to remit to the Trust (or other appropriate Plan funding vehicle) loan repayments made pursuant to Article 9, Deferral Contributions, or Employee Contributions.

11.10. Reinstatement of Forfeitures. If a Participant forfeits any portion of his Account under Subsection 11.08(a) because of distribution of his complete vested interest in his Account, but again becomes an Eligible Employee, then the amount so forfeited, without any adjustment for the earnings, expenses, losses, or gains of the assets credited to his Account since the date forfeited, shall be recredited to his Account (or to a separate account as described in Section 11.07, if applicable) if he repays the entire amount of his distribution not attributable to Employee Contributions or Rollover Contributions before the earlier of:

(a) his incurring five-consecutive Breaks in Vesting Service following the date complete distribution of his vested interest was made to him; or

(b) five years after his Reemployment Commencement Date.

If an Employee is deemed to have received distribution of his complete vested interest as provided in Section 11.08, the Employee shall be deemed to have repaid such distribution on his Reemployment Commencement Date.

Upon such an actual or deemed repayment, the provisions of the Plan (including Section 11.07) shall thereafter apply as if no forfeiture had occurred. The amount to be recredited pursuant to this paragraph shall be derived first from the forfeitures, if any, which as of the date of recrediting have yet to be applied as provided in Section 11.09 and, to the extent such forfeitures are insufficient, from a special contribution to be made by the Employer.

11.11. Adjustment for Investment Experience. If any distribution under this Article 11 is not made in a single payment, the amount retained by the Trustee after the distribution shall be subject to adjustment until distributed to reflect the income and gain or loss on the investments in which such amount is invested and any expenses properly charged under the Plan and Trust to such amounts.

Article 12. Distributions.

12.01. Restrictions on Distributions.

(a) Severance from Employment Rule. A Participant, or his Beneficiary, may not receive a distribution from the Participant's Deferral Contributions, Qualified Nonelective Employer Contributions, Qualified Matching Employer Contributions, 401(k) Safe Harbor Matching Employer Contributions or 401(k) Safe Harbor Nonelective Employer Contributions sub-accounts earlier than upon the Participant's severance from employment with the Employer and all Related Employers, death, or disability, except as otherwise provided in Article 10, Section 11.02 or Section 12.04. If the Employer elected Subsection 1.21(c) of the Adoption Agreement, distribution from the Participant's Deferral Contributions, Qualified Nonelective Employer Contributions, Qualified Matching Employer Contributions, 401(k) Safe Harbor Matching Employer Contributions or 401(k) Safe Harbor Nonelective Employer Contributions sub-accounts may be further postponed in accordance with the provisions of Subsection 12.01(b) below.

(b) Same Desk Rule. If the Employer elected in Subsection 1.21(b) of the Adoption Agreement to preserve the separation from service rules in effect for Plan Years beginning before January 1, 2002, a

Participant, or his Beneficiary, may not receive a distribution from the Participant's Deferral Contributions, Qualified Nonelective Employer Contributions, Qualified Matching Employer Contributions, 401(k) Safe Harbor Matching Employer Contributions or 401(k) Safe Harbor Nonelective Employer Contributions sub-accounts earlier than upon the Participant's separation from service with the Employer and all Related Employers, death, or disability, except as otherwise provided in Article 10, Section 11.02 or Section 12.04. Notwithstanding the foregoing, amounts may also be distributed from such sub-accounts, in the form of a lump sum only, upon:

(1) The disposition by a corporation to an unrelated corporation of substantially all of the assets (within the meaning of Code Section 409(d)(2)) used in a trade or business of such corporation if such corporation continues to maintain the Plan with respect to the Participant after the disposition, but only with respect to former Employees who continue employment with the corporation acquiring such assets.

(2) The disposition by a corporation to an unrelated entity of such corporation's interest in a subsidiary (within the meaning of Code Section 409(d)(3)) if such corporation continues to maintain the Plan with respect to the Participant, but only with respect to former Employees who continue employment with such subsidiary.

In addition to the distribution events described in paragraph (a) or (b) above, as applicable, such amounts may also be distributed upon the termination of the Plan provided that the Employer does not maintain another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7) or 409(a), a simplified employee pension plan as defined in Code Section 408(k), a SIMPLE IRA plan as defined in Code Section 408(p), a plan or contract described in Code Section 403(b) or a plan described in Code Section 457(b) or (f)) at any time during the period beginning on the date of plan termination and ending 12 months after all assets have been distributed from the Plan. Subject to Section 14.04, such a distribution must be made in a lump sum.

12.02 Timing of Distribution Following Retirement or Termination of Employment. The balance of a Participant's vested interest in his Account shall be distributable upon his termination of employment with the Employer and all Related Employers, if any, because of death, normal, early, or disability retirement (as permitted under the Plan), or other termination of employment. Notwithstanding the foregoing, a Participant may elect to postpone distribution of his Account until the date in Subsection 1.21(a) of the Adoption Agreement, unless the Employer has elected in Subsection 1.20(e)(1) of the Adoption Agreement to cash out de minimus Accounts and the Participant's vested interest in his Account does not exceed the amount subject to automatic distribution pursuant to Section 13.02. A Participant who elects to postpone distribution has a continuing election to receive such distribution prior to the date as of which distribution is required, unless such Participant is reemployed as an Employee.

Consistent with the provisions of Section 11.06, if a Participant (or his Beneficiary, if the Participant has died) whose Account is not subject to cash out in accordance with Section 13.02 does not request a distribution when his Account becomes distributable hereunder, he shall be deemed to have elected to postpone distribution of his Account until the earlier of the date he requests distribution or the date in Subsection 1.21(a).

12.03. Participant Consent to Distribution. As required under Code Section 411(a)(11)(A) and consistent with Section 11.06, no distribution shall be made to the Participant before he reaches his Normal Retirement Age (or age 62, if later) without the Participant's consent, unless the Employer has elected in Subsection 1.20(e)(1) of the Adoption Agreement to cash out de minimus Accounts and the Participant's vested interest in his Account does not exceed the amount subject to automatic distribution pursuant to Section 13.02. Such consent shall be made within the 180-day period ending on the Participant's Annuity Starting Date. Once a Participant reaches his Normal Retirement Age (or age 62, if later), distribution shall be made upon the Participant's request, as provided in Section 12.02.

If a Participant's vested interest in his Account exceeds the maximum cash out limit permitted under Code Section 411(a)(11)(A) ($5,000 as of January 1, 2018), the consent of the Participant's Spouse must also be obtained if the Participant's Account is subject to the provisions of Section 14.04 and distribution is made before the

Participant reaches his Normal Retirement Age (or age 62, if later), unless the distribution shall be made in the form of a "qualified joint and survivor annuity" or "qualified preretirement survivor annuity" as those terms are defined in Section 14.01. A Spouse's consent to early distribution, if required, must satisfy the requirements of Section 14.06.

Notwithstanding any other provision of the Plan to the contrary, neither the consent of the Participant nor the Participant's Spouse shall be required to the extent that a distribution is required to satisfy Code Section 401(a)(9) or Code Section 415. In addition, upon termination of the Plan if it does not offer an annuity option (purchased from a commercial provider) and if the Employer or any Related Employer does not maintain another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)) the Participant's Account shall, without the Participant's consent, be distributed to the Participant. However, if any Related Employer maintains another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)) then the Participant's Account shall be transferred, without the Participant's consent, to the other plan if the Participant does not consent to an immediate distribution.

12.04. Required Commencement of Distribution to Participants. In no event shall distribution to a Participant commence later than the date in Section 1.21(a) of the Adoption Agreement, which date shall not be later than the earlier of the dates described in (a) and (b) below:

(a) unless the Participant (and his Spouse, if appropriate) elects otherwise, the 60th day after the close of the Plan Year in which occurs the latest of (i) the date on which the Participant attains Normal Retirement Age, or age 65, if earlier, (ii) the date on which the Participant's employment with the Employer and all Related Employers ceases, or (iii) the 10th anniversary of the year in which the Participant commenced participation in the Plan; and

(b) the Participant's Required Beginning Date.

Notwithstanding the provisions of Subsection 12.04(a) above, the failure of a Participant (and the Participant's Spouse, if applicable) to consent to a distribution shall be deemed to be an election to defer commencement of payment as provided in Section 12.02 above.

12.05. Required Commencement of Distribution to Beneficiaries. Subject to the requirements of Subsection 12.05(a) below, if a Participant dies before his Annuity Starting Date, the Participant’s Beneficiary shall receive distribution of the Participant’s vested interest in his Account in the form provided under Article 13 or 14, as applicable, beginning as soon as reasonably practicable following the date the Beneficiary’s application for distribution is filed with the Administrator. If distribution is to be made to a Participant’s Spouse, it shall be made available within a reasonable period of time after the Participant’s death that is no less favorable than the period of time applicable to other distributions.

(a) Death of Participant Before Distributions Begin. If the Participant dies before distributions begin, the Participant’s entire vested interest will be distributed, or begin to be distributed, no later than as follows:

(1) If the Participant’s surviving Spouse is the Participant’s sole “designated beneficiary,” then, except as otherwise elected under Subsection 12.05(b), minimum distributions, as described in Section 13.03, will begin to the surviving Spouse by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70 ½, if later.

(2) If the Participant’s surviving Spouse is not the Participant’s sole “designated beneficiary,” then, except as otherwise elected under Subsection 12.05(b), minimum distributions, as described in Section 13.03, will begin to the “designated beneficiary” by December 31 of the calendar year immediately following the calendar year in which the Participant died.

(3) If there is no “designated beneficiary” as of September 30 of the year following the year of the Participant’s death, the Participant’s entire vested interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(4) If the Participant’s surviving Spouse is the Participant’s sole “designated beneficiary” and the surviving Spouse dies after the Participant but before distributions to the surviving Spouse begin, this Subsection 12.05(a), other than Subsection 12.05(a)(1), will apply as if the surviving Spouse were the Participant.

For purposes of this Subsection 12.05(a), unless Subsection 12.05(a)(4) applies, distributions are considered to begin on the Participant’s Required Beginning Date. If Subsection 12.05(a)(4) applies, distributions are considered to begin on the date distributions are required to begin to the surviving Spouse under Subsection 12.05(a)(1). If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s Required Beginning Date (or to the Participant’s surviving Spouse before the date distributions are required to begin to the surviving Spouse under Subsection 12.05(a)(1)), the date distributions are considered to begin is the date distributions actually commence.

(b) Election of 5-Year Rule. Participants or Beneficiaries may elect on an individual basis whether the 5-year rule described in Subsection 12.05(a)(3) or the minimum distribution rule described in Section 13.03 applies to distributions after the death of a Participant who has a “designated beneficiary.” The election must be made no later than the earlier of September 30 of the calendar year in which distribution would be required to begin under Subsection 12.05(a), or by September 30 of the calendar year which contains the fifth anniversary of the Participant’s (or, if applicable, the surviving Spouse’s) death. If neither the Participant nor the Beneficiary makes an election under this Subsection 12.05(b), distributions will be made in accordance with Subsection 12.05(a) and Section 13.03.

Subject to the requirements of Subsection 12.05(a) above, if a Participant dies on or after his Annuity Starting Date, but before his entire vested interest in his Account is distributed, his Beneficiary shall receive distribution of the remainder of the Participant’s vested interest in his Account beginning as soon as reasonably practicable following the Participant’s date of death in a form that provides for distribution at least as rapidly as under the form in which the Participant was receiving distribution.

For purposes of this Section 12.05, “designated beneficiary” is as defined in Subsection 13.03(c)(1).

12.06. Whereabouts of Participants and Beneficiaries. The Administrator shall at all times be responsible for determining the whereabouts of each Participant or Beneficiary who may be entitled to benefits under the Plan and shall direct the Trustee as to the maintenance of a current address of each such Participant or Beneficiary.

If the Administrator is unable after diligent attempts to locate a Participant or Beneficiary who is entitled to a benefit under the Plan, the benefit otherwise payable to such Participant or Beneficiary shall be forfeited and applied as provided in Section 11.09. If a benefit is forfeited because the Administrator determines that the Participant or Beneficiary cannot be found, such benefit shall be reinstated by the Employer if a claim is filed by the Participant or Beneficiary with the Administrator and the Administrator confirms the claim to the Employer.

Article 13. Form of Distribution.

13.01. Normal Form of Distribution Under Profit Sharing Plan. Unless a Participant's Account is subject to the requirements of Section 14.03 or 14.04, distributions to a Participant shall be made in a lump sum or, if elected by the Participant and provided by the Employer in Section 1.20 of the Adoption Agreement, under a systematic withdrawal plan (installments). Subject to the requirements of Article 14, if applicable, a Participant may elect other forms of distribution which appear in the Adoption Agreement. The recipient of payments under a systematic withdrawal plan may, with regard to all remaining payments or any portion thereof, elect to accelerate installment payments, decelerate installment payments, stop such payments altogether, or receive a lump sum distribution of the remainder of his Account balance, as long as, in any event, the requirements of Code Section 401(a)(9) are satisfied. If the Employer elects partial withdrawals in Section 1.20(c) of the Adoption Agreement, the preceding sentence applies to a Participant who elects installment payments with respect to such a withdrawal. Beneficiaries and alternate payees as provided in Section 18.04 may elect any form of distribution available to a Participant, except that annuities may only be elected by Beneficiaries in accordance with the provisions of Article 14.

Notwithstanding anything herein to the contrary, if distribution to a Participant commences on the Participant's Required Beginning Date as determined under Subsection 2.01(vv), the Participant may elect to receive distributions under a systematic withdrawal plan that provides the minimum distributions required under Code Section 401(a)(9), as described in Section 13.03.

A Participant whose distribution includes an outstanding loan balance may roll over that outstanding loan in-kind to a plan which agrees to accept such an outstanding loan in accordance with the provisions of Section 9.11.

13.02. Cash Out Of Small Accounts. Notwithstanding any other provision of the Plan to the contrary, if the Employer elected to cash out small Accounts as provided in and pursuant to Subsection 1.20(e)(1) of the Adoption Agreement, the Participant's vested interest in his Account shall be distributed following the Participant's termination of employment because of retirement, disability, or other termination of employment. For purposes of determining whether an amount being distributed pursuant to this Section 13.02 will be subject to a direct rollover by the Administrator, a Participant's “designated Roth contributions”, as defined in Subsection 6.01(e), will be considered separately from the amount within the Participant's non-Roth sub-account.

If the Employer elected to cash out small Accounts as provided in Subsection 1.20(e)(1) and if distribution is to be made to a Participant's Beneficiary following the death of the Participant and the Beneficiary's vested interest in the Participant's Account does not exceed the maximum cash out limit permitted under Code Section 411(a)(11)(A), distribution shall be made to the Beneficiary in a lump sum following the Participant's death.

13.03. Minimum Distributions. Unless a Participant’s vested interest in his Account is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the Participant’s Required Beginning Date, as of the first “distribution calendar year” distributions will be made in accordance with this Section. If a Participant's Account is subject to the provisions of Section 14.04, in lieu of the minimum distribution required hereunder, the Administrator may distribute the Participant’s full vested interest in his Account in the form of an annuity purchased from an insurance company. Any annuity purchased on behalf of a Participant will provide for distributions thereunder to be made in accordance with the requirements of Code Section 401(a)(9) and the Treasury Regulations issued thereunder and the minimum distribution incidental benefit requirement of Code Section 401(a)(9)(G).

Notwithstanding the foregoing or any other provisions of this Section, distributions may be made under a designation made before January 1, 1984, in accordance with Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of Subsection 13.03(d) below.

(a) Required Minimum Distributions During a Participant’s Lifetime. During a Participant’s lifetime, the minimum amount that will be distributed for each “distribution calendar year” is the lesser of:

a.the quotient obtained by dividing the Participant’s “account balance” by the distribution period in the Uniform Lifetime Table set forth in Q & A 2 of Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s age as of the Participant’s birthday in the “distribution calendar year”; or

b.if the Participant’s sole “designated beneficiary” for the “distribution calendar year” is the Participant’s Spouse, the quotient obtained by dividing the Participant’s “account balance” by the number in the Joint and Last Survivor Table set forth in Q & A 3 of Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s and Spouse’s attained ages as of the Participant’s and Spouse’s birthdays in the “distribution calendar year.”

Required minimum distributions will be determined under this Subsection 13.03(a) beginning with the first “distribution calendar year” and up to and including the “distribution calendar year” that includes the Participant’s date of death. A Participant who has retired may elect at any time to take any portion of his Account in excess of the amount required to be paid pursuant to this Subsection 13.03(a).

a.Required Minimum Distributions After Participant’s Death.

(1) If a Participant dies on or after the date distributions begin and there is a “designated beneficiary,” the minimum amount that will be distributed for each “distribution calendar year” after the year of the Participant’s death is the quotient obtained by dividing the Participant’s “account balance” by the longer of the remaining “life expectancy” of the Participant or the remaining “life expectancy” of the Participant’s “designated beneficiary,” determined as follows:

a.The Participant’s remaining “life expectancy” is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

b.If the Participant’s surviving Spouse is the Participant’s sole “designated beneficiary,” the remaining life expectancy of the surviving Spouse is calculated for each distribution calendar year after the year of the Participant’s death using the surviving Spouse’s age as of the Spouse’s birthday in that year. For “distribution calendar years” after the year of the surviving Spouse’s death, the remaining “life expectancy” of the surviving Spouse is calculated using the age of the surviving Spouse as of the Spouse’s birthday in the calendar year of the Spouse’s death, reduced by one for each subsequent calendar year.

c.If the Participant’s surviving Spouse is not the Participant’s sole “designated beneficiary,” the “designated beneficiary’s” remaining “life expectancy” is calculated using the age of the “designated beneficiary” in the year following the year of the Participant’s death, reduced by one for each subsequent year.

1.If the Participant dies on or after the date distributions begin and there is no “designated beneficiary” as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each “distribution calendar year” after the year of the Participant’s death is the quotient obtained by dividing the Participant’s “account balance” by the Participant’s remaining “life expectancy” calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

2.Unless the Participant or Beneficiary elects otherwise in accordance with Subsection 12.05(b), if the Participant dies before the date distributions begin and there is a “designated beneficiary,” the minimum amount that will be distributed for each “distribution calendar year” after the year of the Participant’s death is the quotient obtained by dividing the Participant’s “account balance” by the remaining “life expectancy” of the Participant’s “designated beneficiary,” determined as provided in Subsection 13.03(b)(1).

3.If the Participant dies before the date distributions begin and there is no “designated beneficiary” as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s full vested interest in his Account will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

4.If the Participant dies before the date distributions begin, the Participant’s surviving Spouse is the Participant’s sole “designated beneficiary,” and the surviving Spouse dies before distributions are required to begin to the surviving Spouse under Subsection 12.05(a)(1), Subsections 13.03(b)(3) and (4) will apply as if the surviving Spouse were the Participant.

For purposes of this Subsection 13.03(b), unless Subsection 13.03(b)(5) applies, distributions are considered to begin on the Participant’s Required Beginning Date. If Subsection 13.03(b)(5) applies, distributions are considered to begin on the date distributions are required to begin to the surviving Spouse under Subsection 12.05(a)(1). If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s Required Beginning Date (or to the Participant’s surviving Spouse before the date distributions are required to begin to the surviving Spouse under Subsection 12.05(a)(1)), the date distributions are considered to begin is the date distributions actually commence.

a.Definitions. For purposes of this Section 13.03, the following special definitions shall apply:

1.“Designated beneficiary” means the individual who is the Participant’s Beneficiary as defined under Section 2.01(g) and is the designated beneficiary under Code Section 401(a)(9) and Section 1.401(a)(9)-4 of the Treasury Regulations.

2.“Distribution calendar year” means a calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first “distribution calendar year” is the calendar year immediately preceding the calendar year which contains the Participant’s Required Beginning Date. For distributions beginning after the Participant’s death, the first “distribution calendar year” is the calendar year in which distributions are required to begin under Subsection 12.05(a). The required minimum distribution for the Participant’s first “distribution calendar year” will be made on or before the Participant’s Required Beginning Date. The required minimum distribution for other “distribution calendar years,” including the required minimum distribution for the “distribution calendar year” in which the Participant’s Required Beginning Date occurs, will be made on or before December 31 of that “distribution calendar year.”

3.“Life expectancy” means life expectancy as computed by use of the Single Life Table in Q & A 1 of Section 1.401(a)(9)-9 of the Treasury Regulations.

4.A Participant’s “account balance” means the balance of the Participant's vested interest in his Account as of the last valuation date in the calendar year immediately preceding the “distribution calendar year” (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the Account as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The “account balance” for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the “distribution calendar year” if distributed or transferred in the valuation calendar year.

a.Section 242(b)(2) Elections. Notwithstanding any other provisions of this Section and subject to the requirements of Article 14, if applicable, distribution on behalf of a Participant, including a five-percent owner, may be made pursuant to an election under Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982 and in accordance with all of the following requirements:

a.The distribution is one which would not have disqualified the Trust under Code Section 401(a)(9), if applicable, or any other provisions of Code Section 401(a), as in effect prior to the effective date of Section 242(a) of the Tax Equity and Fiscal Responsibility Act of 1982.

b.The distribution is in accordance with a method of distribution elected by the Participant whose vested interest in his Account is being distributed or, if the Participant is deceased, by a Beneficiary of such Participant.

c.Such election was in writing, was signed by the Participant or the Beneficiary, and was made before January 1, 1984.

d.The Participant had accrued a benefit under the Plan as of December 31, 1983.

e.The method of distribution elected by the Participant or the Beneficiary specifies the form of the distribution, the time at which distribution will commence, the period over which distribution will be made, and in the case of any distribution upon the Participant's death, the Beneficiaries of the Participant listed in order of priority.

A distribution upon death shall not be made under this Subsection 13.03(d) unless the information in the election contains the required information described above with respect to the distributions to be made upon the death of the Participant. For any distribution which commences before January 1, 1984, but continues after December 31, 1983, the Participant or the Beneficiary to whom such distribution is being made will be presumed to have designated the method of distribution under which the distribution is being made, if this method of distribution was specified in writing and the distribution satisfies the requirements in Subsections 13.03(d)(1) and (5). If an election is revoked, any subsequent distribution will be in accordance with the other provisions of the Plan. Any changes in the election will be considered to be a revocation of the election. However, the mere substitution or addition of another Beneficiary (one not designated as a Beneficiary in the election), under the election will not be considered to be a revocation of the election, so long as such substitution or addition does not alter the period over which distributions are to be made under the election directly, or indirectly (for example, by altering the relevant measuring life).

The Administrator shall direct the Trustee regarding distributions necessary to comply with the minimum

distribution rules set forth in this Section 13.03.

13.04. Direct Rollovers.

Notwithstanding any other provision of the Plan to the contrary, a "distributee" may elect, at the time and in the manner prescribed by the Administrator, to have any portion or all of an "eligible rollover distribution" paid directly to an "eligible retirement plan" specified by the "distributee" in a direct rollover; provided, however, that a "distributee" may not elect a direct rollover with respect to a portion of an "eligible rollover distribution" if such portion totals less than $500. In applying the $500 minimum on rollovers of a portion of a distribution, any "eligible rollover distribution" from a Participant's “designated Roth contributions”, as defined in Subsection 6.01(e), will be considered separately from any "eligible rollover distribution" from the Participant's non-Roth sub-accounts.

The portion of any "eligible rollover distribution" consisting of Employee Contributions may only be rolled over to an individual retirement account or annuity described in Code Section 408(a) or (b) or to a qualified defined contribution plan described in Code Section 401(a), 403(a) or 403(b) that provides for separate accounting with respect to such accounts, including separate accounting for the portion of such "eligible rollover distribution" that is includible in income (including the earnings on the portion that is not so includible) and the portion that is not includible in income. That portion of any "eligible rollover distribution" consisting of Roth 401(k) Contributions, may only be rolled over to another designated Roth account established for the individual under an applicable retirement plan described in Code Section 402A(e)(1) that provides for "designated Roth contributions", as defined in Section 6.01, or to a Roth individual retirement account described in Code Section 408A, subject to the rules of Code Section 402(c).

For purposes of this Section 13.04, the following definitions shall apply:

(a) "Distributee" means a Participant, the Participant's surviving Spouse, and the Participant's Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, who is entitled to receive a distribution from the Participant's vested interest in his Account. The term “distributee” shall also include a designated beneficiary (as defined in Code Section 401(a)(9)(E)) of a Participant who is not the surviving Spouse of the Participant who may only elect to roll over such a distribution to an individual retirement plan described in clause (i) or (ii) of paragraph (8)(B) of Code Section 402(c) established for the purposes of receiving such distribution. (b) "Eligible retirement plan" means an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), a qualified defined contribution plan described in Code Section 401(a), an annuity contract described in

Code Section 403(b), an eligible deferred compensation plan described in Code Section 457(b) that is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state, provided that such 457 plan provides for separate accounting with respect to such rolled over amounts, that accepts "eligible rollover distributions", or a Roth individual retirement account described in Code Section 408A However, for a “distributee” who is a designated beneficiary of the Participant (and not the Participant’s surviving Spouse), the definition of “eligible retirement plan” shall be limited as described in (a) above.

(c) "Eligible rollover distribution" means any distribution of all or any portion of the balance to the credit of the "distributee", except that an "eligible rollover distribution" does not include the following:

a.any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the "distributee" or the joint lives (or joint life expectancies) of the "distributee" and the "distributee's" designated beneficiary, or for a specified period of ten years or more;

b.any distribution to the extent such distribution is required under Code Section 401(a)(9); or

c.any hardship withdrawal made in accordance with the provisions of Section 10.05 or the InService Withdrawals Addendum to the Adoption Agreement.

13.05. Notice Regarding Timing and Form of Distribution. Within the period beginning 180 days before a Participant's Annuity Starting Date and ending 30 days before such date, the Administrator shall provide such Participant with written notice containing a general description of the material features of each form of distribution available under the Plan and an explanation of the financial effect of electing each form of distribution available under the Plan. The notice shall also inform the Participant of his right to defer receipt of the distribution until the date in Subsection 1.21(a) of the Adoption Agreement, the consequences of failing to defer, and his right to make a direct rollover.

Distribution may commence fewer than 30 days after such notice is given, provided that:

1.the Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option);

2.the Participant, after receiving the notice, affirmatively elects a distribution, with his Spouse's written consent, if necessary;

3.if the Participant's Account is subject to the requirements of Section 14.04, the following additional requirements apply:

a.the Participant is permitted to revoke his affirmative distribution election at any time prior to the later of (A) his Annuity Starting Date or (B) the expiration of the seven-day period beginning the day after such notice is provided to him; and

b.distribution does not begin to such Participant until such revocation period ends.

13.06. Determination of Method of Distribution. Subject to Section 13.02, the Participant shall determine the method of distribution of benefits to himself and may determine the method of distribution to his Beneficiary. If the Participant does not determine the method of distribution to his Beneficiary or if the Participant permits his Beneficiary to override his determination, the Beneficiary, in the event of the Participant's death, shall determine the method of distribution of benefits to himself as if he were the Participant. A determination by the Beneficiary must be made no later than the close of the calendar year in which distribution would be required to begin under Section 12.05 or, if earlier, the close of the calendar year in which the fifth anniversary of the death of the Participant occurs.

13.07 Notice to Trustee. The Administrator shall notify the Trustee in any medium acceptable to the Trustee, which may be specified in the Service Agreement, whenever any Participant or Beneficiary is entitled to receive benefits under the Plan. To facilitate distributions, the Administrator shall develop processes and procedures to communicate to the Trustee the form of payment of benefits that such Participant or Beneficiary shall receive, the name of any designated Beneficiary or Beneficiaries, and any such other information as the Trustee shall require.

Article 14. Superseding Annuity Distribution Provisions.

14.01. Special Definitions. For purposes of this Article, the following special definitions shall apply:

1."Qualified joint and survivor annuity" means (1) if the Participant is not married on his Annuity Starting Date, an immediate annuity payable for the life of the Participant or (2) if the Participant is married on his Annuity Starting Date, an immediate annuity for the life of the Participant with a survivor annuity for the life of the Participant's Spouse (to whom the Participant was married on the Annuity Starting Date) equal to 50 percent (or the percentage designated in the Forms of Payment Addendum to the Adoption Agreement) of the amount of the annuity which is payable during the joint lives of the Participant and such Spouse, provided that the survivor annuity shall not be payable to a Participant's Spouse if such Spouse is not the same Spouse to whom the Participant was married on his Annuity Starting Date.

2."Qualified optional survivor annuity" means a joint and survivor annuity that the Participant, subject to the spousal consent rules described in Section 14.05, may elect and which (1) if the survivor annuity portion of the Plan’s qualified joint and survivor annuity (as defined in (a) above) is less than 75%, then has a survivor annuity portion of 75% or (2) if the survivor annuity portion of the Plan’s qualified joint and survivor annuity (as defined in (a) above) is greater than or equal to 75%, then has a survivor annuity portion of 50%. The “qualified optional survivor annuity” shall be designated in the Forms of Payment Addendum as a joint and survivor annuity.

3."Qualified preretirement survivor annuity" means an annuity purchased with at least 50 percent of a Participant's vested interest in his Account that is payable for the life of a Participant's surviving Spouse. The Employer shall specify that portion of a Participant's vested interest in his Account that is to be used to purchase the "qualified preretirement survivor annuity" in the Forms of Payment Addendum to the Adoption Agreement.

14.02. Applicability. Except as otherwise specifically provided in the Plan, the provisions of this Article shall apply to a Participant's Account only if:

1.the Plan includes assets transferred from a money purchase pension plan;

2.the Plan is an amendment and restatement of a plan that provided an annuity form of payment and such form of payment has not been eliminated;

3.the Plan is an amendment and restatement of a plan that provided an annuity form of payment and such form of payment has been eliminated, but the Participant elected a life annuity form of payment before the effective date of the elimination;

4.the Participant's Account contains assets attributable to amounts directly or indirectly transferred from a plan that provided an annuity form of payment and such form of payment has not been eliminated;

5.the Participant's Account contains assets attributable to amounts directly or indirectly transferred from a plan that provided an annuity form of payment and such form of payment has been eliminated, but the Participant elected a life annuity form of payment before the effective date of the elimination.

14.03. Annuity Form of Payment. To the extent provided through Section 1.20 of the Adoption Agreement, a Participant may elect distributions made in whole or in part in the form of an annuity contract. Any annuity contract distributed under the Plan shall be subject to the provisions of this Section 14.03 and, to the extent provided therein, Sections 14.04 through 14.09.

1.At the direction of the Administrator, the Trustee shall purchase the annuity contract on behalf of a Participant or Beneficiary from an insurance company. Such annuity contract shall be nontransferable.

2.The terms of the annuity contract shall comply with the requirements of the Plan and distributions under such contract shall be made in accordance with Code Section 401(a)(9) and the Treasury Regulations issued thereunder.

3.The annuity contract may provide for payment over the life of the Participant and, upon the death of the Participant, may provide a survivor annuity continuing for the life of the Participant's designated Beneficiary. Such an annuity may provide for an annuity certain feature for a period not exceeding the life expectancy of the Participant or, if the annuity is payable to the Participant and a designated Beneficiary, the joint life and last survivor expectancy of the Participant and such Beneficiary. If the Participant dies prior to his Annuity Starting Date, the annuity contract distributed to the Participant's Beneficiary may provide for payment over the life of the Beneficiary, and may provide for an annuity certain feature for a period not exceeding the life expectancy of the Beneficiary. The types of annuity contracts provided under the Plan shall be limited to the types of annuities described in Section 1.20 of the Adoption Agreement and the Forms of Payment Addendum to the Adoption Agreement. (d) The annuity contract must provide for non-increasing payments.

14.04. "Qualified Joint and Survivor Annuity" and "Qualified Preretirement Survivor Annuity" Requirements. The requirements of this Section 14.04 apply to a Participant's Account if:

1.the Plan includes assets transferred from a money purchase pension plan;

2.the Employer has selected in Subsection 1.20(d)(2) of the Adoption Agreement that distribution in the form

of a life annuity is the normal form of distribution with respect to such Participant's Account; or

1.the Employer has indicated on the Forms of Payment Addendum to the Adoption Agreement that distribution in the form of a life annuity is an optional form of distribution with respect to such Participant's Account and the Participant is permitted to elect and has elected distribution in the form of an annuity contract payable over the life of the Participant.

If a Participant's Account is subject to the requirements of this Section, distribution shall be made to the Participant

with respect to such Account in the form of a "qualified joint and survivor annuity" (with a survivor annuity in the percentage amount specified by the Employer in the Forms of Payment Addendum to the Adoption Agreement) in the amount that can be purchased with such Account, unless the Participant waives the "qualified joint and survivor annuity" as provided in Section 14.05. If the Participant dies prior to his Annuity Starting Date, distribution shall be made to the Participant's surviving Spouse, if any, in the form of a "qualified preretirement survivor annuity" in the amount that can be purchased with such Account, unless the Participant waives the "qualified preretirement survivor annuity" as provided in Section 14.05, or the Participant's surviving Spouse elects in writing to receive distribution in one of the other forms of payment provided under the Plan. A Participant's Account that is subject to the requirements of this Section shall be used to purchase the "qualified preretirement survivor annuity" and the balance of the Participant's vested interest in his Account that is not used to purchase the "qualified preretirement survivor

annuity" shall be distributed to the Participant's designated Beneficiary in accordance with the provisions of Sections 11.04 and 12.05.

14.05. Waiver of the "Qualified Joint and Survivor Annuity" and/or "Qualified Preretirement Survivor Annuity" Rights. A Participant may waive the "qualified joint and survivor annuity" described in Section 14.04 and elect another form of distribution permitted under the Plan at any time during the 180-day period ending on his Annuity Starting Date; provided, however, that if the Participant is married, his Spouse must consent in writing to such election as provided in Section 14.06. A Participant may waive or revoke a waiver of the "qualified joint and survivor annuity" described in Section 14.04 and elect another form of distribution permitted under the Plan at any time and any number of times during the 180-day period ending on his Annuity Starting Date; provided, however, that if the Participant is married and is electing a form of distribution other than the "qualified joint and survivor annuity" or the "qualified optional survivor annuity", his Spouse must consent in writing to such election as provided in Section 14.06.

A Participant may waive the "qualified preretirement survivor annuity" and designate a non-Spouse Beneficiary at any time during the "applicable election period"; provided, however, that the Participant's Spouse must consent in writing to such election as provided in Section 14.06. The "applicable election period" begins on the later of (1) the date the Participant's Account becomes subject to the requirements of Section 14.04 or (2) the first day of the Plan Year in which the Participant attains age 35 or, if he terminates employment prior to such date, the date he terminates employment with the Employer and all Related Employers. The "applicable election period" ends on the earlier of the Participant's Annuity Starting Date or the date of the Participant's death. A Participant whose employment has not terminated may elect to waive the "qualified preretirement survivor annuity" prior to the Plan Year in which he attains age 35, provided that any such waiver shall cease to be effective as of the first day of the Plan Year in which the Participant attains age 35.

A Participant's waiver of the "qualified joint and survivor annuity" or "qualified preretirement survivor annuity" shall be valid only if the applicable notice described in Section 14.07 or 14.08 has been provided to the Participant.

14.06. Spouse's Consent to Waiver. A Spouse's written consent must acknowledge the effect of the Participant's election and must be witnessed by a Plan representative or a notary public. In addition, the Spouse's written consent must either (a) specify any non-Spouse Beneficiary designated by the Participant and that such designation may not be changed without written spousal consent or (b) acknowledge that the Spouse has the right to limit consent as provided in clause (a) above, but permit the Participant to change the designated Beneficiary without the Spouse's further consent.

A Participant's Spouse shall be deemed to have given written consent to a Participant's waiver if the Participant establishes to the satisfaction of a Plan representative that spousal consent cannot be obtained because the Spouse cannot be located or because of other circumstances set forth in Code Section 401(a)(11) and Treasury Regulations issued thereunder.

Any written consent given or deemed to have been given by a Participant's Spouse hereunder shall be irrevocable and shall be effective only with respect to such Spouse and not with respect to any subsequent Spouse.

In addition, with regard to a Participant's waiver of the "qualified joint and survivor annuity" form of distribution, the Spouse's written consent must either (a) specify the form of distribution elected instead of the "qualified joint and survivor annuity", and that such form may not be changed (except to a "qualified joint and survivor annuity") without written spousal consent or (b) acknowledge that the Spouse has the right to limit consent as provided in clause (a) above, but permit the Participant to change the form of distribution elected without the Spouse's further consent. To the extent a Participant's Account is subject to the requirements of Section 14.04, a Spouse's consent to a Participant's waiver shall be valid only if the applicable notice described in Section 14.07 or 14.08 has been provided to the Participant.

14.07. Notice Regarding "Qualified Joint and Survivor Annuity". The notice provided to a Participant under Section 14.05 shall include a written explanation that satisfies the requirements of Code Section 417(a)(3) and regulations issued thereunder. The notice will include a description of the following: (i) the terms and conditions of a qualified joint and survivor annuity and the qualified optional survivor annuity; (ii) the participant's right to make

and the effect of any election to waive the qualified joint and survivor annuity form of benefit; (iii) the rights of a participant's spouse; and (iv) the right to make, and the effect of, a revocation of a previous election to waive the qualified joint and survivor annuity.

14.08. Notice Regarding "Qualified Preretirement Survivor Annuity". If a Participant's Account is subject to the requirements of Section 14.04, the Participant shall be provided with a written explanation of the "qualified preretirement survivor annuity" comparable to the written explanation provided with respect to the "qualified joint and survivor annuity", as described in Section 14.07. Such explanation shall be furnished within whichever of the following periods ends last:

1.the period beginning with the first day of the Plan Year in which the Participant reaches age 32 and ending with the end of the Plan Year preceding the Plan Year in which he reaches age 35;

2.a reasonable period ending after the Employee becomes an Active Participant;

3.a reasonable period ending after Section 14.04 first becomes applicable to the Participant's Account; or (d) in the case of a Participant who separates from service before age 35, a reasonable period ending after such separation from service.

For purposes of the preceding sentence, the two-year period beginning one year prior to the date of the event described in Subsection 14.08(b), (c) or (d) above, whichever is applicable, and ending one year after such date shall be considered reasonable, provided, that in the case of a Participant who separates from service under Subsection 14.08(d) above and subsequently recommences employment with the Employer, the applicable period for such Participant shall be redetermined in accordance with this Section 14.08.

14.09. Former Spouse. For purposes of this Article, a former Spouse of a Participant shall be treated as the Spouse or surviving Spouse of the Participant, and a current Spouse shall not be so treated, to the extent required under a qualified domestic relations order, as defined in Code Section 414(p).

Article 15. Top-Heavy Provisions.

15.01. Definitions. For purposes of this Article, the following special definitions shall apply:

1."Determination date" means, for any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, "determination date" means the last day of that Plan Year.

2."Determination period" means the Plan Year containing the "determination date".

3."Distribution period" means (i) for any distribution made to an employee on account of severance from employment, death, disability, or termination of a plan which would have been part of the “required aggregation group” had it not been terminated, the one-year period ending on the "determination date" and (ii) for any other distribution, the five-year period ending on the "determination date".

4."Key employee" means any Employee or former Employee (including any deceased Employee) who at any time during the "determination period" was (1) an officer of the Employer or a Related Employer having annual Compensation greater than the dollar amount specified in Code Section 416(i)(1)(A)(I) adjusted under Code Section 416(i)(1) for Plan Years beginning after December 31, 2002 (e.g., $175,000 for Plan Years beginning in 2018), (2) a five-percent owner of the Employer or a Related Employer, or (3) a one-percent owner of the Employer or a Related Employer having annual Compensation of more than $150,000. The determination of who is a "key employee" shall be made in accordance with Code Section 416(i)(1) and any applicable guidance or regulations issued thereunder.

5."Permissive aggregation group" means the "required aggregation group" plus any other qualified plans of the Employer or a Related Employer which, when considered as a group with the "required aggregation group", would continue to satisfy the requirements of Code Sections 401(a)(4) and 410.

6."Required aggregation group" means:

a.Each qualified plan of the Employer or Related Employer in which at least one "key employee" participates, or has participated at any time during the "determination period" or, unless and until modified by future Treasury guidance, any of the four preceding Plan Years (regardless of whether the plan has terminated), and

b.any other qualified plan of the Employer or Related Employer which enables a plan described in Subsection 15.01(f)(1) above to meet the requirements of Code Section 401(a)(4) or 410.

(g) "Top-heavy plan" means a plan in which any of the following conditions exists:

a.the "top-heavy ratio" for the plan exceeds 60 percent and the plan is not part of any "required aggregation group" or "permissive aggregation group";

b.the plan is a part of a "required aggregation group" but not part of a "permissive aggregation group" and the "top-heavy ratio" for the "required aggregation group" exceeds 60 percent; or

c.the plan is a part of a "required aggregation group" and a "permissive aggregation group" and the "top-heavy ratio" for both groups exceeds 60 percent.

Notwithstanding the foregoing, a plan is not a "top-heavy plan" for a Plan Year if it consists solely of a cash or deferred arrangement that satisfies the nondiscrimination requirements under Code Section 401(k) by application of Code Section 401(k)(12) or 401(k)(13) and, if matching contributions are provided under such plan, satisfies the nondiscrimination requirements under Code Section 401(m) by application of Code Section 401(m)(11) or 401(m)(12).

(h) "Top-heavy ratio" means:

a.With respect to the Plan, or with respect to any "required aggregation group" or "permissive aggregation group" that consists solely of defined contribution plans (including any simplified employee pension, as defined in Code Section 408(k)), a fraction, the numerator of which is the sum of the account balances of all "key employees" under the plans as of the "determination date" (including any part of any account balance distributed during the "distribution period"), and the denominator of which is the sum of all account balances (including any part of any account balance distributed during the "distribution period") of all participants under the plans as of the "determination date". Both the numerator and denominator of the "top-heavy ratio" shall be increased, to the extent required by Code Section 416, to reflect any contribution which is due but unpaid as of the "determination date".

b.With respect to any "required aggregation group" or "permissive aggregation group" that includes one or more defined benefit plans which, during the "determination period", has covered or could cover an Active Participant in the Plan, a fraction, the numerator of which is the sum of the account balances under the defined contribution plans for all "key employees" and the present value of

accrued benefits under the defined benefit plans for all "key employees", and the denominator of which is the sum of the account balances under the defined contribution plans for all participants and the present value of accrued benefits under the defined benefit plans for all participants. Both the numerator and denominator of the "top-heavy ratio" shall be increased for any distribution of an account balance or an accrued benefit made during the "distribution period" and any contribution due but unpaid as of the "determination date".

For purposes of Subsections 15.01(h)(1) and (2) above, the value of accounts shall be determined as of the most recent "determination date" and the present value of accrued benefits shall be determined as of the date used for computing plan costs for minimum funding that falls within 12 months of the most recent "determination date", except as provided in Code Section 416 and the regulations issued thereunder for the first and second plan years of a defined benefit plan. When aggregating plans, the value of accounts and accrued benefits shall be calculated with reference to the "determination dates" that fall within the same calendar year.

The accounts and accrued benefits of a Participant who is not a "key employee" but who was a "key employee" in a prior year, or who has not performed services for the Employer or any Related Employer at any time during the one-year period ending on the "determination date", shall be disregarded. The calculation of the "topheavy ratio", and the extent to which distributions, rollovers, and transfers are taken into account, shall be made in accordance with Code Section 416 and the regulations issued thereunder. Deductible employee contributions shall not be taken into account for purposes of computing the "top-heavy ratio".

For purposes of determining if the Plan, or any other plan included in a "required aggregation group" of which the Plan is a part, is a "top-heavy plan", the accrued benefit in a defined benefit plan of an Employee other than a "key employee" shall be determined under the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Employer or a Related Employer, or, if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional accrual rate of Code Section 411(b)(1)(C).

Notwithstanding any other provision herein to the contrary, Compensation for purposes of this Article 15 shall be based on the amount actually paid or made available to the Participant (or, if earlier, includible in the gross income of the Participant) during the Plan Year, does not exclude any amounts elected by the Employer in Subsection 1.05(b) of the Adoption Agreement except moving expenses paid or reimbursed by the Employer if it is reasonable to believe they are deductible by the Employee, and shall include Differential Wages as defined in Section 2.01(k)(2)(B)(i).

15.02. Application. If the Plan is or becomes a "top-heavy plan" in any Plan Year or is automatically deemed to be a "topheavy plan" in accordance with the Employer's selection in Subsection 1.22(a)(1) of the Adoption Agreement, the provisions of this Article shall apply and shall supersede any conflicting provision in the Plan. Notwithstanding the foregoing, the provisions of this Article shall not apply if Subsection 1.22(a)(3) of the Adoption Agreement is selected.

15.03. Minimum Contribution. Except as otherwise specifically provided in this Section 15.03, the Nonelective Employer Contributions made for the Plan Year on behalf of any Active Participant who is not a "key employee", when combined with the Matching Employer Contributions made on behalf of such Active Participant for the Plan Year, shall not be less than the lesser of three percent (or five percent, if selected by the Employer in Subsection 1.22(b) of the Adoption Agreement) of such Participant's Compensation for the Plan Year or, in the case where neither the Employer nor any Related Employer maintains a defined benefit plan which uses the Plan to satisfy Code Section 401(a)(4) or 410, the largest percentage of Employer contributions made on behalf of any "key employee" for the Plan Year, expressed as a percentage of the "key employee's" Compensation for the Plan Year. Catch-Up Contributions made on behalf of a "key employee" for the Plan Year shall not be taken into account for purposes of determining the amount of the minimum contribution required hereunder.

If an Active Participant is entitled to receive a minimum contribution under another qualified plan maintained by the Employer or a Related Employer that is a "top-heavy plan", no minimum contribution shall be made hereunder unless the Employer has provided in Subsection 1.22(b)(1) of the Adoption Agreement that the minimum contribution shall be made under this Plan in any event. If the Employer has provided in Subsection 1.22(b)(2) that an alternative means shall be used to satisfy the minimum contribution requirements where an Active Participant is covered under multiple plans that are "topheavy plans", no minimum contribution shall be required under this Section, except as provided under the 416 Contributions Addendum to the Adoption Agreement. If a minimum contribution is required to be made under the Plan for the Plan Year on behalf of an Active Participant who is not a "key employee" and who is a participant in a defined benefit plan maintained by the Employer or a Related Employer that is aggregated with the Plan, the minimum contribution shall not be less than five percent of such Participant's Compensation for the Plan Year.

The minimum contribution required under this Section shall be made to the Account of an Active Participant even though, under other Plan provisions, the Active Participant would not otherwise be entitled to receive a contribution, or would have received a lesser contribution for the Plan Year, because (a) the Active Participant failed to complete the Hours of Service requirement selected by the Employer in Subsection 1.11(e) or 1.12(d) of the Adoption Agreement, or (b) the Participant's Compensation was less than a stated amount; provided, however, that no minimum contribution shall be made for a Plan Year to the Account of an Active Participant who is not employed by the Employer or a Related Employer on the last day of the Plan Year.

That portion of a Participant's Account that is attributable to minimum contributions required under this Section 15.03, to the extent required to be nonforfeitable under Code Section 416(b), may not be forfeited under Code Section 411(a)(3)(B).

15.04. Determination of Minimum Required Contribution. For purposes of determining the amount of any minimum contribution required to be made on behalf of a Participant who is not a "key employee" for a Plan Year, the Matching Employer Contributions made on behalf of such Participant and the Nonelective Employer Contributions allocated to such Participant for the Plan Year shall be aggregated. If the aggregate amount of such contributions, when expressed as a percentage of such Participant's Compensation for the Plan Year, is less than the minimum contribution required to be made to such Participant under Section 15.03, the Employer shall make an additional contribution on behalf of such Participant in an amount that, when aggregated with the Qualified Nonelective Contributions, Matching Employer Contributions and Nonelective Employer Contributions previously allocated to such Participant, will equal the minimum contribution required to be made to such Participant under Section 15.03.

15.05. Accelerated Vesting. If applicable, for any Plan Year in which the Plan is or is deemed to be a "top-heavy plan" and all Plan Years thereafter, the top-heavy vesting schedule described within Subsection 1.22(c) of the Adoption Agreement shall automatically apply in lieu of any less favorable schedule specified in the Vesting Schedule Addendum to the Adoption Agreement. The top-heavy vesting schedule applies to all benefits within the meaning of Code Section 411(a)(7) except those already subject to a vesting schedule which vests at least as rapidly in all cases as the schedule described within Subsection 1.22(c), including benefits accrued before the Plan becomes a "top-heavy plan". Notwithstanding the foregoing provisions of this Section 15.05, the top-heavy vesting schedule does not apply to the Account of any Participant who does not have an Hour of Service after the Plan initially becomes or is deemed to have become a "top-heavy plan" and such Employee's Account attributable to Employer Contributions shall be determined without regard to this Section.

15.06. Exclusion of Collectively-Bargained Employees. Notwithstanding any other provision of this Article 15, Employees who are included in a unit covered by a collective bargaining agreement between employee representatives and one or more employers may be included in determining whether or not the Plan is a "top-heavy plan"; provided, however, that if a "key employee" is covered by a collective bargaining agreement for the "determination period," all Employees covered by such agreement shall be included. No Employees in a unit covered by a collective bargaining agreement shall be entitled to a minimum contribution under Section 15.03 or accelerated vesting under Section 15.05, unless otherwise provided in the collective bargaining agreement.

Article 16. Amendment and Termination.

16.01. Amendments by the Employer that do not Affect Pre-Approved Status. The Employer reserves the authority through a board of directors' resolution or similar action, subject to the provisions of Article 1 and Section 16.04, to amend the Plan as provided herein, and such amendment shall not affect the status of the Plan as a pre-approved plan.

a.The Employer may amend the Adoption Agreement to make a change or changes in the provisions previously elected by it. Such amendment may be made either by (1) completing an amended Adoption Agreement, or (2) adopting an amendment in the form provided by the Pre-Approved Plan Provider. Any such amendment must be filed with the Trustee.

b.The Employer may adopt certain model amendments published by the Internal Revenue Service which specifically provide that their adoption shall not cause the Plan to be treated as an individually designed plan. (c) The Employer may adopt or change the separate loan procedures described in Section 9.03 by a board of directors' resolution or similar action, or any procedure established thereby.

16.02. Amendments by the Employer Adopting Provisions not Included in Pre-Approved Plan, through the Plan Superseding Provisions Addendum. The Employer reserves the authority, subject to the provisions of Section 16.04, to amend the Plan by adopting provisions that are not included in the Pre-Approved Plan. Such amendment(s) shall be made through use of the Plan Superseding Provisions Addendum to the Adoption Agreement. In accordance with Section 1.26(a), the following amendments will not impact reliance on the opinion letter:

a.Amendments to administrative provisions of the plan such as provisions relating to investments, plan claims procedures, and employer contact information provided the amended provisions are not in conflict with any other provision of the plan and do not cause the plan to fail to qualify under Code Section 401(a).

b.Interim amendments or discretionary amendments that are related to a change in qualification requirements. An Employer that amends the Plan for any other reason will no longer have reliance on the opinion letter.

16.03. Amendment by the Pre-Approved Plan Provider. Effective as of the date the Pre-Approved Plan Provider receives approval from the Internal Revenue Service of the Pre-Approved Plan, the Pre-Approved Plan Provider may in its discretion amend the Pre-Approved Plan at any time, which amendment may also apply to the Plan maintained by the Employer. The Pre-Approved Plan Provider shall satisfy any recordkeeping and notice requirements imposed by the Internal Revenue Service in order to maintain its amendment authority. The Pre-Approved Plan Provider shall provide a copy of any such amendment to each Employer adopting its Pre-Approved Plan at the Employer's last known address as shown on the books maintained by the Pre-Approved Plan Provider or its affiliates.

The Pre-Approved Plan Provider will no longer have the authority to amend the Plan on behalf of an adopting Employer as of the earlier of (a) the date of the adoption of an Employer amendment to the Plan to incorporate a provision that is not allowable in the pre-approved plan program, as described in Section 6.03 of Rev. Proc. 2017-41 (or the successor thereto), or (b) the date the Internal Revenue Service gives notice that the Plan is being treated as an individually-designed plan due to the nature and extent of amendments, pursuant to Section 8.06(3) of Rev. Proc. 2017-41 (or the successor thereto).

16.04. Amendments Affecting Vested Interest and/or Accrued Benefits. Except as permitted by Section 16.05, Section 1.20(d) of the Adoption Agreement, and/or Code Section 411(d)(6) and regulations issued thereunder, no amendment to the Plan shall be effective to the extent that it has the effect of decreasing a Participant's Account or eliminating an optional form of benefit with respect to benefits attributable to service before the amendment. Furthermore, if the vesting schedule of the Plan is amended, the nonforfeitable interest of a Participant in his Account, determined as of the later of the date the amendment is adopted or the date it becomes effective, shall not be less than the Participant's nonforfeitable interest in his Account determined without regard to such amendment.

If the Plan's vesting schedule is amended because of a change to "top-heavy plan" status, as described in Subsection 15.01(g), the accelerated vesting provisions of Section 15.05 shall continue to apply for all Plan Years thereafter, regardless of whether the Plan is a "top-heavy plan" for such Plan Year.

16.05. Retroactive Amendments made by Pre-Approved Plan Provider. An amendment made by the Pre-Approved Plan Provider in accordance with Section 16.03 may be made effective on a date prior to the first day of the Plan Year in which it is adopted if, in published guidance, the Internal Revenue Service either permits or requires such an amendment to be made to enable the Plan and Trust to satisfy the applicable requirements of the Code and all requirements for the retroactive amendment are satisfied.

16.06. Termination and Discontinuation of Contributions. The Employer has adopted the Plan with the intention and expectation that assets shall continue to be held under the Plan on behalf of Participants and their Beneficiaries indefinitely and, unless the Plan is a frozen plan as provided in Subsection 1.01(g)(5) of the Adoption Agreement, that contributions under the Plan shall be continued indefinitely. However, said Employer has no obligation or liability whatsoever to maintain the Plan for any length of time and may amend the Plan to discontinue contributions under the Plan or terminate the Plan at any time without any liability hereunder for any such discontinuance or termination.

If the Plan is not already a frozen plan, the Employer may amend the Plan to discontinue further contributions to the Plan by selecting Subsection 1.01(g)(5) of the Adoption Agreement. An Employer that has selected in Subsection 1.01(g)(5) may change its selection and provide for contributions under the Plan to recommence with the intention that such contributions continue indefinitely, as provided in the preceding paragraph.

The Employer may terminate the Plan by written notice delivered to the Trustee. Notwithstanding the effective date of the termination of the Plan, loan payments being made pursuant to Section 9.07 shall continue to be remitted to the Trust until the loan has been defaulted or distributed pursuant to Sections 9.10 and 9.11 or Section 9.13, respectively.

16.07. Distribution upon Termination of the Plan. Upon termination or partial termination of the Plan or complete discontinuance of contributions thereunder, each Participant (including a terminated Participant with respect to amounts not previously forfeited by him) who is affected by such termination or partial termination or discontinuance shall have a vested interest in his Account of 100 percent. Subject to Section 12.01 and Article 14, upon receipt of instructions from the Administrator, the Trustee shall distribute to each Participant or other person entitled to distribution the balance of the Participant's Account in a single lump sum payment. In the absence of such instructions, the Trustee shall notify the Administrator of such situation and the Trustee shall be under no duty to make any distributions under the Plan until it receives instructions from the Administrator. Upon the completion of such distributions, the Trust shall terminate, the Trustee shall be relieved from all liability under the Trust, and no Participant or other person shall have any claims thereunder, except as required by applicable law.

If distribution is to be made to a Participant or Beneficiary who cannot be located, following the Administrator’s completion of such search methods as described in applicable Department of Labor guidance, the Administrator shall give instructions to the Trustee to roll over the distribution to an individual retirement account established by the Administrator in the name of the missing Participant or Beneficiary, which account shall satisfy the requirements of the Department of Labor automatic rollover safe harbor generally applicable to amounts less than or equal to the maximum cashout amount specified in Code Section 401(a)(31)(B)(ii) ($5,000 as of January 1, 2018) that are mandatorily distributed from the Plan. In the alternative, the Employer may direct the Trustee, subject to applicable guidance, to transfer the Account of any such missing Participant or Beneficiary, regardless of the amount of any such Account to the Pension Benefit Guarantee Corporation. In the absence of such instructions, the Trustee shall make no distribution to the distributee.

16.08. Merger or Consolidation of Plan; Transfer of Plan Assets. In case of any merger or consolidation of the Plan with, or transfer of assets and liabilities of the Plan to, any other plan, provision must be made so that each Participant would, if the Plan then terminated, receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer if the Plan had then terminated.

Article 17. Amendment and Continuation of Prior Plan; Transfer of Funds to or from Other Qualified Plans.

17.01. Amendment and Continuation of Prior Plan. In the event the Employer has previously established a plan (the "prior plan") which is a defined contribution plan under the Code and which on the date of adoption of the Plan meets the applicable requirements of Code Section 401(a), the Employer may, in accordance with the provisions of the prior plan, amend and restate the prior plan in the form of the Plan and become the Employer hereunder, subject to the following:

a.Subject to the provisions of the Plan, each individual who was a Participant in the prior plan immediately prior to the effective date of such amendment and restatement shall become a Participant in the Plan on the effective date of the amendment and restatement, provided he is an Eligible Employee as of that date.

b.Except as provided in Section 16.04, no election may be made under the vesting provisions of the Adoption Agreement if such election would reduce the benefits of a Participant under the Plan to less than the benefits to which he would have been entitled if he voluntarily separated from the service of the Employer immediately prior to such amendment and restatement.

c.No amendment to the Plan shall decrease a Participant's accrued benefit or eliminate an optional form of benefit, except as permitted under Subsection 1.20(d) of the Adoption Agreement.

d.The amounts standing to the credit of a Participant's account immediately prior to such amendment and restatement which represent the amounts properly attributable to (1) contributions by the Participant and (2) contributions by the Employer and forfeitures shall constitute the opening balance of his Account or Accounts under the Plan.

e.Amounts being paid to an Inactive Participant or to a Beneficiary in accordance with the provisions of the prior plan shall continue to be paid in accordance with such provisions.

f.Any election and waiver of the "qualified preretirement survivor annuity", as defined in Section 14.01, in effect after August 23, 1984, under the prior plan immediately before such amendment and restatement shall be deemed a valid election and waiver of Beneficiary under Section 14.04 if such designation satisfies the requirements of Sections 14.05 and 14.06, unless and until the Participant revokes such election and waiver under the Plan. (g) Except as otherwise agreed within the Service Agreement, all assets of the predecessor trust shall be invested by the Trustee as soon as reasonably practicable pursuant to Article 8. The Employer agrees to assist the Trustee in any way requested by the Trustee in order to facilitate the transfer of assets from the predecessor trust to the Trust Fund.

17.02. Transfer of Funds from an Existing Plan. The Employer may from time to time direct the Trustee, in accordance with such rules as the Trustee may establish, to accept cash, Fund Shares or participant loan promissory notes transferred for the benefit of Participants from a trust forming part of another qualified plan under the Code, provided such plan is a defined contribution plan. Such transferred assets shall become assets of the Trust as of the date they are received by the Trustee. Such transferred assets shall be credited to Participants' Accounts in accordance with their respective interests immediately upon receipt by the Trustee. A Participant's vested interest under the Plan in transferred assets which were fully vested and nonforfeitable under the transferring plan or which were transferred to the Plan in a manner intended to satisfy the requirements of subsection (b) of this Section shall be fully vested and nonforfeitable at all times. A Participant's interest under the Plan in transferred assets which were transferred to the Plan in a manner intended to satisfy the requirements of subsection (a) of this Section shall be determined in accordance with the terms of the Plan, but applying the Plan's vesting schedule or the transferor plan's vesting schedule, whichever is more favorable, for each year of Vesting Service completed by the Participant. Such transferred assets shall be invested by the Trustee in accordance with the provisions of Subsection 17.01(g) as if such assets were transferred from a prior plan, as defined in Section 17.01. Except as otherwise provided below, no transfer of assets in accordance with this Section 17.02 may cause a loss of an accrued or optional form of benefit protected by Code Section 411(d)(6).

The terms of the Plan as in effect at the time of the transfer shall apply to amounts transferred to the Plan from another defined contribution plan regardless of whether such application would have the effect of eliminating or reducing an optional form of benefit provided by such other plan that is protected by Code Section 411(d)(6) and that was previously available with respect to the transferred amount, provided that such transfer satisfies the requirements set forth in either (a) or (b):

a.(1) The transfer is conditioned upon a voluntary, fully informed election by the Participant to transfer his entire account balance to the Plan. As an alternative to the transfer, the Participant is offered the opportunity to retain the form of benefit previously available to him (or, if the transferor plan is terminated, to receive any optional form of benefit for which the participant is eligible under the transferor plan as required by Code Section 411(d)(6));

1.The amounts being transferred are not part of either (i) a qualified cash or deferred arrangement or (ii) an employee stock ownership plan, as defined in Code Section 4975(e)(7);

2.The defined contribution plan from which the transfer is made is not a money purchase pension plan and

3.The transfer is made either in connection with an asset or stock acquisition, merger or other similar transaction involving a change in employer of the employees of a trade or business (i.e., an acquisition or disposition within the meaning of Section 1.410(b)-2(f) of the Treasury Regulations) or in connection with the participant's change in employment status such that the participant is not entitled to additional allocations under the transferor plan.

a.(1) The transfer satisfies the requirements of subsection (a)(1) of this Section 17.02;

1.The transfer occurs at a time when the Participant is eligible, under the terms of the transferor plan, to receive an immediate distribution of his account;

2.The transfer occurs at a time when the participant is not eligible to receive an immediate distribution of his entire nonforfeitable account balance in a single sum distribution that would consist entirely of an eligible rollover distribution within the meaning of Code Section 401(a)(31)(C); and

3.The amount transferred, together with the amount of any contemporaneous Code Section 401(a)(31) direct rollover to the Plan, equals the entire nonforfeitable account of the participant whose account is being transferred.

It is the Employer's obligation to ensure that all assets of the Plan, other than those maintained in a separate trust or fund, are transferred to the Trustee.

17.03. Transfer of Assets from Trust. The Employer may direct the Trustee to transfer all or a specified portion of the Trust assets to any other plan or plans maintained by the Employer or the employer or employers of an Inactive Participant or Participants, provided that the Trustee has received evidence satisfactory to it that such other plan meets all applicable requirements of the Code, subject to the following:

a.The assets so transferred shall be accompanied by instructions from the Employer naming the persons for whose benefit such assets have been transferred, showing separately the respective contributions by the Employer and by each Inactive Participant, if any, and identifying the assets attributable to the various contributions. The Trustee shall not transfer assets hereunder until all applicable filing requirements are met. The Trustee shall have no further liabilities with respect to assets so transferred.

b.A transfer of assets made pursuant to this Section may result in the elimination or reduction of an optional form of benefit protected by Code Section 411(d)(6), provided that the transfer satisfies the requirements set forth in either (1) or (2):

(1) (i) The transfer is conditioned upon a voluntary, fully informed election by the Participant to transfer his entire Account to the other defined contribution plan. As an alternative to the transfer, the Participant is offered the opportunity to retain the form of benefit previously available to him (or, if the Plan is terminated, to receive any optional form of benefit for which the Participant is eligible under the Plan as required by Code Section 411(d)(6));

a.If the Plan includes a qualified cash or deferred arrangement under Code Section 401(k), the defined contribution plan to which the transfer is made must include a qualified cash or deferred arrangement; and

b.The transfer is made either in connection with an asset or stock acquisition, merger or other similar transaction involving a change in employer of the employees of a trade or business (i.e., an acquisition or disposition within the meaning of Section 1.410(b)-2(f) of the Treasury Regulations) or in connection with the Participant's change in employment status such that the Participant becomes an Inactive Participant.

(2) (i) The transfer satisfies the requirements of subsection (1)(i) of this Section;

a.The transfer occurs at a time when the Participant is eligible, under the terms of the Plan, to receive an immediate distribution of his benefit;

b.The transfer occurs at a time when the Participant is not eligible to receive an immediate distribution of his entire nonforfeitable Account in a single sum distribution that would consist entirely of an eligible rollover distribution within the meaning of Code Section 401(a)(31)(C);

c.The Participant is fully vested in the transferred amount in the transferee plan; and

d.The amount transferred, together with the amount of any contemporaneous Code Section 401(a)(31) direct rollover to the transferee plan, equals the entire nonforfeitable Account of the Participant whose Account is being transferred.

Article 18. Miscellaneous.

18.01. Communication to Participants. The Plan shall be communicated to all Eligible Employees by the Employer promptly after the Plan is adopted.

18.02. Limitation of Rights. Neither the establishment of the Plan and the Trust, nor any amendment thereof, nor the creation of any fund or account, nor the payment of any benefits, shall be construed as giving to any Participant or other person any legal or equitable right against the Employer, Administrator or Trustee, except as provided herein; and in no event shall the terms of employment or service of any Participant be modified or in any way affected hereby. It is a condition of the Plan, and each Participant expressly agrees by his participation herein, that each Participant shall look solely to the assets held in the Trust for the payment of any benefit to which he is entitled under the Plan.

No Participant or Beneficiary shall have or acquire any right, title or interest in or to the Plan assets or any portion of the Plan assets, except by the actual payment or distribution from the Plan to such Participant or Beneficiary of such Participant’s or Beneficiary’s benefit to which he or she is entitled under the provisions of the Plan. Whenever the Plan pays a benefit in excess of the maximum amount of payment required under the provisions of the Plan, the Administrator will have the right to recover any such excess payment, plus earnings at the Administrator’s discretion, on behalf of the Plan from the Participant and/or Beneficiary, as the case may be. Notwithstanding anything to the contrary herein stated, this right of recovery includes, but is not limited to, a right of offset against future benefit payments to be paid under the Plan to the Participant and/or Beneficiary, as the case may be, which the Administrator may exercise in its sole discretion.

18.03. Nonalienability of Benefits. Except as provided in Code Sections 401(a)(13)(C) and (D)(relating to offsets ordered or required under a criminal conviction involving the Plan, a civil judgment in connection with a violation or alleged violation of fiduciary responsibilities under ERISA, or a settlement agreement between the Participant and the Department of Labor in connection with a violation or alleged violation of fiduciary responsibilities under ERISA), Section 1.401(a)13(b)(2) of the Treasury Regulations (relating to Federal tax levies), or as otherwise required by law, the benefits provided hereunder shall not be subject to alienation, assignment, garnishment, attachment, execution or levy of any kind, either voluntarily or involuntarily, and any attempt to cause such benefits to be so subjected shall not be recognized. The preceding sentence shall also apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a Participant pursuant to a domestic relations order, unless such order is determined in accordance with procedures established by the Administrator to be a qualified domestic relations order, as defined in Code Section 414(p), or any domestic relations order entered before January 1, 1985.

18.04. Qualified Domestic Relations Orders Procedures. The Administrator must establish reasonable procedures to determine the qualified status of a domestic relations order. Upon receiving a domestic relations order, the Participant and any alternate payee named in the order shall be notified, in writing, of the receipt of the order and the Plan's procedures for determining the qualified status of the order. Within a reasonable period of time after receiving the domestic relations order, the Administrator must determine the qualified status of the order. The Participant and each alternate payee shall be provided notice of such determination by mailing to the individual's address specified in the domestic relations order, or in a manner consistent with the Department of Labor regulations.

If any portion of the Participant's Account is payable during the period the Administrator is making its determination of the qualified status of the domestic relations order, the Administrator must make a separate accounting of the amounts payable. If the Administrator determines the order is a qualified domestic relations order within 18 months of the date amounts first are payable following receipt of the order, the Administrator shall direct the Trustee to distribute the payable amounts in accordance with the order. If the determination of the qualified status of the order is not made within the 18month determination period, the Administrator shall direct the Trustee to distribute the payable amounts in the manner the Plan would distribute if the order did not exist and shall apply the order prospectively if the Administrator later determines that the order is a qualified domestic relations order.

The Trustee shall set up segregated accounts for each alternate payee as directed by the Administrator.

A domestic relations order shall not fail to be deemed a qualified domestic relations order merely because it permits distribution or requires segregation of all or part of a Participant's Account with respect to an alternate payee prior to the Participant's earliest retirement age (as defined in Code Section 414(p)) under the Plan. A distribution to an alternate payee prior to the Participant's attainment of the earliest retirement age is available only if the alternate payee consents to a distribution occurring prior to the Participant's attainment of earliest retirement age.

Notwithstanding any other provisions of this Section or of a domestic relations order, if the Employer has elected to cash out small Accounts as provided in Subsection 1.20(e)(1) of the Adoption Agreement and the alternate payee's benefits under the Plan do not exceed the maximum cash out limit permitted under Code Section 411(a)(11)(A), distribution shall be made to the alternate payee in a lump sum as soon as practicable following the Administrator's determination that the order is a qualified domestic relations order.

18.05. Application of Plan Provisions for Multiple Employer Plans. When elected in the Participating Employers Addendum to the Adoption Agreement, and notwithstanding any other provision of the Plan to the contrary, if one of the Employers designated in the Participating Employers Addendum is not or has ceased to be a Related Employer (hereinafter "un-Related Employer"), the Plan shall be treated as a multiple employer plan (as defined in Code Section 413(c)) in accordance with applicable guidance. Any subsequent removal of an un-Related Employer will not be treated as a termination of the Plan with regard to that un-Related Employer and not be considered a distributable event for Participants still employed with that un-Related Employer.

For the period, if any, that the Plan is a multiple employer plan, each un-Related Employer shall be treated as a separate Employer for purposes of contributions, application of the "ADP" and "ACP" tests described in Sections 6.03 and 6.06, application of the Code Section 415 limitations described in Section 6.12, top-heavy determinations and application of the top-heavy requirements under Article 15, and application of such other Plan provisions as the Employers determine to be appropriate. For any such period, the Pre-Approved Plan Provider shall continue to treat the Employer as an adopter of this Pre-Approved Plan for purposes of notice or other communications in connection with the Plan, and other Plan-related services. The Administrator shall be responsible for administering the Plan as a multiple employer plan.

18.06. Veterans Reemployment Rights. Notwithstanding any other provision of the Plan to the contrary, contributions, benefits, and service credit with respect to qualified military service shall be provided in accordance with Code Section 414(u) and the regulations thereunder. The Administrator shall notify the Trustee of any Participant with respect to whom additional contributions are made because of qualified military service. Additional contributions made to the Plan pursuant to Code Section 414(u) shall be treated as Deferral Contributions (if Option 1.07(a)(5) is selected in the Adoption Agreement, including, to the extent designated by the Participant, Roth 401(k) Contributions), Employee Contributions, Matching Employer Contributions, Qualified Matching Employer Contributions, Qualified Nonelective Employer Contributions, or Nonelective Employer Contributions based on the character of the contribution they are intended to replace; provided, however, that the Plan shall not be treated as failing to meet the requirements of Code Section 401(a)(4), 401(k)(3), 401(k)(12), 401(m), 410(b), or 416 by reason of the making of or the right to make such contribution. Notwithstanding the foregoing, Participants dying and/or becoming disabled while performing qualified military service as defined in Code Section 414(u)(5) shall not be treated as having resumed employment pursuant to this Section on the day prior to dying or becoming disabled for purposes of calculating contributions pursuant to Code Section 414(u)(9).

18.07. Facility of Payment. In the event the Administrator determines, on the basis of medical reports or other evidence satisfactory to the Administrator, that the recipient of any benefit payments under the Plan is incapable of handling his affairs by reason of minority, illness, infirmity or other incapacity, the Administrator may direct the Trustee to disburse such payments to a person or institution designated by a court which has jurisdiction over such recipient or a person or institution otherwise having the legal authority under state law for the care and control of such recipient. The receipt by such person or institution of any such payments shall be complete acquittance therefore, and any such payment to the extent thereof, shall discharge the liability of the Trust for the payment of benefits hereunder to such recipient.

18.08. Information between Employer and/or Administrator and Trustee. The Employer and/or Administrator will furnish the Trustee, and the Trustee will furnish the Employer and/or Administrator, with such information relating to the Plan and Trust as may be required by the other in order to carry out their respective duties hereunder, including without limitation information required under the Code and any regulations issued or forms adopted by the Treasury Department thereunder or under the provisions of ERISA and any regulations issued or forms adopted by the Department of Labor thereunder.

18.09. Effect of Failure to Qualify Under Code. Notwithstanding any other provision contained herein, if the Employer's plan fails to be a qualified plan under the Code, such plan can no longer participate in this pre-approved plan arrangement and shall be considered an individually designed plan.

18.10. Directions, Notices and Disclosure. Any notice or other communication in connection with this Plan shall be deemed delivered in writing if addressed as follows and if either actually delivered at said address or, in the case of a letter, three business days shall have elapsed after the same shall have been deposited in the United States mail, first-class postage prepaid and registered or certified:

a.If to the Employer or Administrator, to it at such address as the Administrator shall direct pursuant to the

Service Agreement;

a.If to the Trustee, to it at the address set forth in Section 1.29 of the Adoption Agreement;

or, in each case at such other address as the addressee shall have specified by written notice delivered in accordance with the foregoing to the addressor's then effective notice address.

Any direction, notice or other communication provided to the Employer, the Administrator or the Trustee by another party which is stipulated to be in written form under the provisions of this Plan may also be provided in any medium which is permitted under applicable law or regulation. Any written communication or disclosure to Participants required under the provisions of this Plan may be provided in any other medium (electronic, telephone or otherwise) that is permitted under applicable law or regulation.

18.11. Governing Law. Unless provided otherwise in the Adoption Agreement, the Plan shall be construed, administered and enforced according to ERISA, and to the extent not preempted thereby, the laws of the Commonwealth of Massachusetts.

18.12. Discharge of Duties by Fiduciaries. The Trustee, the Employer and any other fiduciary shall discharge their duties under the Plan in accordance with the requirements of ERISA solely in the interests of Participants and their Beneficiaries and with the care, skill, prudence, and diligence under the applicable circumstances that a prudent man acting in a like capacity and familiar with such matters would use in conducting an enterprise of like character with like aims.

Article 19. Plan Administration.

19.01. Powers and Responsibilities of the Administrator. The Administrator has the full power and the full responsibility to administer the Plan in all of its details, subject, however, to the requirements of ERISA. The Administrator is the agent for service of legal process for the Plan. In addition to the powers and authorities expressly conferred upon it in the Plan, the Administrator shall have all such powers and authorities as may be necessary to carry out the provisions of the Plan, including the discretionary power and authority to interpret and construe the provisions of the Plan, such interpretation to be final and conclusive on all persons claiming benefits under the Plan; to make benefit determinations; to utilize the correction programs or systems established by the Internal Revenue Service (such as the Employee Plans Compliance and Resolution System) or the Department of Labor; and to resolve any disputes arising under the Plan. The Employer may elect through Section 1.01(c) of the Adoption Agreement to allocate the responsibilities of the Administrator among one or more persons or entities as indicated therein or within the Fiduciary Addendum to the Adoption Agreement. The Administrator may also, by written instrument, allocate and delegate its fiduciary responsibilities in accordance with ERISA Section 405, including allocation of such responsibilities to an administrative committee or committees formed to administer the Plan.

19.02. Nondiscriminatory Exercise of Authority. Whenever, in the administration of the Plan, any discretionary action by the Administrator, Investment Fiduciary or other fiduciary named on the Fiduciary Addendum to the Adoption Agreement is required, such fiduciary shall exercise its authority in a nondiscriminatory manner so that all persons similarly situated shall receive substantially the same treatment.

19.03. Claims and Review Procedures. As required under Section 2560.503-1(b)(2) of Regulations issued by the Department of Labor, the claims and review procedures are described in detail in the summary plan description for the Plan.

Unless provided otherwise in the Adoption Agreement, claims will also be subject to the restrictions described below.

A Participant, Beneficiary or alternate payee (collectively referred to as “Claimant” in this section) seeking judicial review of an adverse benefit determination under the Plan, whether in whole or in part, is required to exhaust all claims and review procedures under the Plan as described in the summary plan description for the Plan before filing suit in state or federal court. The Claimant must file any suit or legal action (including, without limitation, a civil action under Section 502(a) of ERISA) within 12 months of the date the final adverse benefit determination is issued. Notwithstanding the foregoing, any Claimant that fails to engage in or exhaust the claims and review procedures must file any suit or legal action within 12 months of the date of the alleged facts or conduct giving rise to the claim (including, without limitation, the date the Claimant alleges he or she became entitled to the Plan

benefits requested in the suit or legal action). A Claimant who fails to file such suit or legal action within the 12 months limitations period will lose any rights to bring any such suit or legal action thereafter. In any such suit or legal action, a Claimant is prohibited from presenting any evidence not timely presented as part of the Plan’s administrative claims review process.

19.04. Named Fiduciary. The Administrator is a "named fiduciary" for purposes of ERISA Section 402(a)(1) and has the powers and responsibilities with respect to the management and operation of the Plan described herein.

19.05. Costs of Administration. All reasonable costs and expenses (including legal, accounting, and employee communication fees) incurred by the Administrator and the Trustee in administering the Plan and Trust may be paid from the forfeitures (if any) resulting under Section 11.08, from the ERISA account established under this Section, if any, or from the remaining Trust Fund. All such costs and expenses paid from the remaining Trust Fund shall, unless allocable to the Accounts of particular Participants, be charged against the Accounts of all Participants as directed by the Administrator. Amounts a service provider agrees to credit to the Plan in recognition of the service provider’s compensation for Plan services may be allocated to an ERISA account from which the Administrator may pay Plan expenses and/or allocate amounts to the Accounts of Participants and Beneficiaries pro rata based on their Account balances in the Trust as set forth in the Fiduciary Addendum to the Adoption Agreement.

PRE-APPROVED DEFINED CONTRIBUTION PLAN

Addendum

RE: The Bipartisan Budget Act of 2018, and Code Sections 401(k) and 401(m) 2019 Final Hardship Regulations

Amendments for Fidelity Basic Plan Document No. 17

PREAMBLE

Adoption and Effective Date of Amendment. This amendment of the Plan is adopted to reflect statutory changes pursuant to the Bipartisan Budget Act of 2018 (BBA) and Code Sections 401(k) and 401(m) 2019 Final Hardship Regulations and any related guidance. This amendment is intended as good faith compliance with the requirements of the BBA and those final regulations and is to be construed in accordance with guidance issued thereunder.

Except as provided otherwise below, the amendments contained herein shall be effective for Plan Years beginning after December 31, 2018.

Supersession of Inconsistent Provisions. This amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this amendment.

Article 1. Qualified Matching Employer Contributions. Section 5.09 is amended by replacing the first paragraph in its entirety with the following:

If so provided by the Employer in Subsection 1.11(f) of the Adoption Agreement, prior to making its Matching Employer Contribution (other than any 401(k) Safe Harbor Matching Employer Contribution) to the Plan, the Employer may designate all or a portion of such Matching Employer Contribution as a Qualified Matching Employer Contribution. The Employer shall notify the Trustee of such designation at the time it makes its Matching Employer Contribution. Qualified Matching Employer Contributions shall be distributable only in accordance with the distribution provisions that are applicable to Deferral Contributions; provided, however, that a Participant shall not be permitted to take Qualified Matching Employer Contributions as part of a Qualified Reservist Distribution pursuant to Section 10.08. Qualified Matching Employer Contributions shall not be included in the amounts available for hardship withdrawals unless specified in the In-Service Withdrawals Addendum.

Article 2. Qualified Nonelective Employer Contributions Section 5.07 is amended by replacing the last paragraph it in its entirety with the following:

Qualified Nonelective Employer Contributions shall be distributable only in accordance with the distribution provisions that are applicable to Deferral Contributions; provided, however, that a Participant shall not be permitted to take Qualified Nonelective Employer Contributions as part of a Qualified Reservist Distribution pursuant to Section 10.08. Qualified Nonelective Employer Contributions shall not be included in the amounts available for hardship withdrawals unless specified in the In-Service Withdrawals Addendum.

Article 3. Hardship Distributions Section 10.05 is amended and replaced in its entirety with the following:

If so provided by the Employer in Subsection 1.19(a) of the Adoption Agreement, a Participant who continues in employment as an Employee may apply for a hardship withdrawal. Unless provided otherwise in the Service Agreement, the Participant may apply by certifying to the Administrator all of the required criteria specified in this Section. Such certification shall represent that the Participant has documentation substantiating the hardship. Such a hardship withdrawal may include all or any portion of the Accounts specified by the Employer in Subsection 1.19(a)(1) of the Adoption Agreement and the In-Service Withdrawals Addendum to the Adoption Agreement, if applicable. The minimum amount, if any, that a Participant may withdraw because of hardship is the dollar amount specified by the Employer in Subsection 1.19(a) of the Adoption Agreement.

Pre-Approved Defined Contribution Plan – 07/29/2020

a.expenses incurred or necessary for medical care (that would be deductible under Code Section 213(d), determined without regard to whether the expenses exceed any applicable income limit) of the Participant, the Participant's Spouse, children, or dependents, or a primary beneficiary of the Participant;

b.costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant;

c.payment of tuition, related educational fees, and room and board for the next 12 months of postsecondary education for the Participant, the Participant's Spouse, children or dependents (as defined in Code Section 152, without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), or a primary beneficiary of the Participant;

d.payments necessary to prevent the eviction of the Participant from, or a foreclosure on the mortgage on, the Participant's principal residence;

e.payments for funeral or burial expenses for the Participant's deceased parent, Spouse, child, or dependent (as defined in Code Section 152, without regard to subsection (d)(1)(B) thereof), or a primary beneficiary of the Participant;

f.expenses for the repair of damage to the Participant's principal residence that would qualify for a casualty loss deduction under Code Section 165 (determined without regard to Code Section 165(h)(5) and whether the loss exceeds any applicable income limit);

g.expenses and losses (including loss of income) incurred by the Participant on account of a disaster declared by the Federal Emergency Management Agency (FEMA) under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, Public Law 100-707, provided that

h.the employee's principal residence or principal place of employment at the time of the disaster was located in an area designated by FEMA for individual assistance with respect to the disaster; or any other financial need determined to be immediate and heavy under rules and regulations issued by the Secretary of the Treasury or his delegate; provided, however, that any such financial need shall constitute an immediate and heavy need under this paragraph (8) no sooner than administratively practicable following the date such rule or regulation is issued.

(b) Except to the extent provided otherwise on the Adoption Agreement Addendum regarding the Bipartisan Budget Act of 2018, and Code Sections 401(k) and 401(m) 2019 Final Hardship Regulations, the distribution shall be considered as necessary to satisfy an immediate and heavy financial need of the Participant only if:

a.The Participant has obtained all distributions, other than the hardship withdrawal.

b.The withdrawal amount is not in excess of the amount of an immediate and heavy financial need (including amounts necessary to pay any Federal, state or local income taxes or penalties reasonably anticipated to result from the distribution).

AMENDMENT TO 1.16 VESTING

A Participant's vested interest in Matching Employer Contributions and/or Nonelective Employer Contributions,other than those described in Subsection 5.11(a) of the Basic Plan Document, shall be based upon his years of Vesting Service and the schedule selected in Subsection 1.16(c) below, except as provided in the Vesting Schedule Addendum to the Adoption Agreement or as provided in Subsection 1.22(c).

(a) When years of Vesting Service are determined, the elapsed time method shall be used.

(b) Years of Vesting Service shall exclude service prior to the Plan's original effective date as listed in Subsection 1.01(g)(1) or Subsection 1.01(g)(2), as applicable.

(1)

Nonelective Employer Contributions

(2)

Matching Employer Contributions

(check one):

(A)

N/A - No Noelective Employer

(A)

N/A - No Noelective Employer

(B)

100$% Vesting immediately

(B)

100$% Vesting immediately

(C)

3 year cliff (see C below)

(C)

3 year cliff (see C below)

(D)

6 year graduated (see D below)

(D)

6 year graduated (see D below)

(E)

Other vesting (complete E1 below)

(E)

Other vesting (complete E1 below)


Years of Vesting Service	Applicable Vesting Schedule(s)
	C	D	E1	E2
0	—%	—%	—%	—%
1	—%	—%	25%	25%
2	—%	20%	50%	50%
3	100%	40%	75%	75%
4	100%	60%	100%	100%
5	100%	80%	100%	100%
6 or more	100%	100%	100%	100%

Note: A schedule elected under E1 or E2 above must be, at each year, at least as favorable as one of the schedules in C or D above. If the vesting schedule is amended, any such amendment must satisfy the requirements of section 16.04 of the Basic Plan Document.

Note: The amendment of the plan to add a Fixed Nonelective Employer Contribution, Discretionary Nonelective Employer Contribution, 401(k) Safe Harbor Nonelective Employer Contribution, Fixed Matching Employer Contribution, Discretionary Matching Employer Contribution, Additional Matching Employer Contribution, or 401(k) Safe Harbor Matching Employer Contribution and an attendant vesting schedule does not constitute an amendment to a vesting schedule under Section 1.16(e) below, unless a contribution source of the same type exists under the Plan on the effective date of such amendment. Any amendment to the vesting schedule of one such contribution source shall not require the amendment of the vesting schedule of any other such contribution source, notwithstanding the fact that one or more Participants may be subject to different vesting schedules for such different contribution sources.

(d) A vesting schedule or schedules different from the vesting schedule(s) selected above applies to certain Participants. See Eligibility, Service and Vesting Addendum to the Adoption Agreement.

(e) If the Plan's vesting schedule is amended and an Active Participant's vested interest, as calculated by using the amended vesting schedule, is less in any year than the Active Participant's vested interest calculated under the Plan's vesting schedule immediately prior to the amendment, the amended vesting schedule shall apply only to Employees first hired on or after the effective date of the change in vesting schedule.

1.17 PREDECESSOR EMPLOYER SERVICE

(a) þ Section 3.05 of the Basic Plan Document requires service to be credited for purposes of eligibility under Subsection 1.04(b) and vesting under Subsection 1.16 in certain situations. Additionally, the Plan shall credit service for such purposes in the following situations):

(1) þ Service with the following employer(s) (for the employees and time periods described, if applicable):

All current employees of Connected Care as of February 3, 2020

Employees of Sapphire Technology Café employed on 07/06/20

All current LiDCO employees as of February 2, 2021

(2) Additional grants of service of a more general nature (e.g., covering situations s such as corporate actions or mergers). See Eligibility, Service and Vesting Addendum.

PARTICIPATING EMPLOYERS ADDENDUM

for

Plan Name: Masimo Retirement Savings Plan

Note: All participating employers must be a business entity of a type recognized under Treasury Regulation Section

301.7701-2(a).

(a) þ Only the following Related Employers (as defined in Subsection 2.01(uu) of the Basic Plan Document) participate in the Plan (list each participating Related Employer and its Employer Tax Identification Number):

D&M Holdings, Inc., 02-0672028

DEI Sales, Inc., 33-0157199

Masimo Americas, 20-1901752

Masimo Semiconductor, 45-4677220

Masimo Technology Cafe, LLC, 85-0986929

(b) ¨ All Related Employer(s) as defined in Subsection 2.01(uu) of the Basic Plan Document participate in the Plan as soon as administratively feasible.

_____________________________________________________________________________________________

(c) ¨ All Related Employer(s) as defined in Subsection 2.01(uu) of the Basic Plan Document participate in the Plan at the time described in Subsection 2.01(u) of the Basic Plan Document.

_____________________________________________________________________________________________

(d) Notwithstanding the previous specific inclusion of an employer as a participating employer through an election in (a), (b), or (c) above, unless specified otherwise by the Employer, a participating employer will cease participating in the Plan immediately when it is no longer a Related Employer and the term "Employer" shall not include such employer unless provided otherwise below.

(1) þ If the common control relationship (as defined in Code Section 414(c)) of any participating employer changes in such a way that such participating employer is no longer a Related Employer, then such employer shall continue to be a participating employer and the Plan shall be a multiple employer plan as provided in Section 18.05 of the Basic Plan Document.

Document

Exhibit 10.1

*** Certain identified information has been omitted from this exhibit because it is both (i) not material and (ii) of the type that the Registrant treats as private or confidential. Such omitted information is indicated by brackets (“[…***…]”) in this exhibit. ***

SHELTER LABOR SERVICES AGREEMENT

This Agreement is made and entered into this 27th day of December, 2000, by and between Industrial Vallera de Mexicali, S.A. de C.V., a Mexican Corporation (IVEMSA) and MASIMO CORPORATION (MASIMO) a Delaware Corporation, which will be in force once at least five employees had been hired, and which is executed in accordance with the following:

Recitals

First. That Industrial Vallera de Mexicali, S.A. de C.V. is a mercantile corporation duly incorporated under Mexican laws, and that its business purpose is to offer administrative, accounting, customs and traffic, and human resources services to foreign companies that want to have a maquiladora process in this city of Mexicali, B.C

Second. That Mr. Sergio Tagliapietra N., has enough faculties to act and enter this shelter agreement on behalf of IVEMSA.

Third. MASIMO states that it is an American Corporation duly incorporated under the laws of the State of Delaware, in the United States of America, and that Mr. Gary L. Waite is empowered to act as legal representative of such corporation.

Fourth. MASIMO declares that it desires to contract the services offered by IVEMSA, according to the following:

CLAUSES

I.SCOPE OF AGREEMENT. Pursuant to this Agreement, IVEMSA agrees to render the administrative services for the Maquila operation to MASIMO or to those third parties that MASIMO may indicate, under the terms of this agreement. Therefore, MASIMO will operate under the IVEMSA quality system until notified to operate under MASIMO quality system, according to this agreement. IVEMSA will be responsible for the following functions: general management and administration of Maquiladora operations including personnel recruiting, employee relations, import/export. supervision and documentation, general accounting and all payroll services. In addition, IVEMSA will serve as project manager in planning and executing the transfer of the new company into Mexico, including the coordination of building improvements as required by MASIMO for the manufacturing site that has been previously selected and approved, according to the layout and building improvements list herein attached as exhibit “A.”

MASIMO will be responsible not only for any and all payment herein established, but also for the direct supervision of personnel within the facility, supervision and guard of raw material, equipment and operational control.

II.LABOR PROVISIONS. IVEMSA shall make its best effort to supply MASIMO with all personnel needed, to be hired under the following provisions:

a.Upon each written request by MASIMO, IVEMSA shall employ and make available to MASIMO the requested number of personnel, who meet the basic qualifications.

b.Basic qualifications as established in every job description, for assembly line personnel will be supplied to IVEMSA at the time of this Agreement.

c.IVEMSA will screen and hire all prospective employees for assembly operations, according to the number or employees determined by MASIMO. In relation to Administrative and Director Positions MASIMO will decide not only the number of employees, but also the background they shall meet, and MASIMO will have the final hiring decision.

d.Any salaried or Management personnel requested by MASIMO and supplied by IVEMSA will be at a mutually agreed daily salary rate. Such personnel will be billed for on a weekly basis.

e.The agreed daily salary rates shall include all fringe costs such as taxes, insurance, and other normal employee costs for this type of personnel.

f.As used in this contract, the term “fringe” shall mean those benefits required under Mexican law or benefits required to maintain a stable work force, as determined by MASIMO. (Exhibit “C” articles from the Mexican Federal Labor Law GLW 27 Dec 00)

g.IVEMSA shall prepare. each individual labor proposal for indirect labor in order to prepare the corresponding agreement for each employee. The Labor Proposal shall be previously approved by MASIMO, even though IVEMSA appears as and is the employer, and which shall contain a confidentiality clause.

h.IVEMSA agrees to terminate any employee upon the written request of MASIMO, and MASIMO hereby assumes responsibility regarding severance pay as pass through expense

i.The labor billings and fringes will be invoiced weekly on a pass through basis based on hours paid, and shall be billed in U.S. Dollars at the exchange rate prevailing at the time of payment, for the sale of dollars in the Mexican Banking Institution instructed by IVEMSA.

j.The administrative service charge as quoted hereunder will be invoiced weekly using the listed Hourly Rate Schedule.

III.HOURLY RATE SCHEDULE The administrative service charge will be invoiced weekly as follows:

[…***…]

For the above purposes the following policies shall be observed:

1.IVEMSA agrees to maintain, at all times, complete accounting, administrative, payroll, tax and book-keeping records pertaining to such personnel.

2.Wages and salaries, authorized overtime, taxes, profit sharing, special bonuses, rate premiums and fringe benefits approved by MASIMO for the personnel assigned to its operation will be billed as a “pass through”, including severance or termination payments for employees terminated by IVEMSA during such period due to instructions from MASIMO.

3.Efficiency/productivity programs and bonuses may be implemented at MASIMO requests. The cost of such programs and bonuses will be treated as a “pass through” expense.

4.Authorized overtime hours will be billed as a pass through.

5.For second shift operations, IVEMSA will bill MASIMO and pay employees for forty-eight (48) hours per week, while, pursuant to the labor laws of Mexico, the employees will only work forty-five (45) hours per week. The same obligation will be observed for the third shift, even though the employees will work only 42 hours, as provided by Mexican Labor Law.

6.The above rates are binding for the first 36 months of the term of this Agreement, as said term is set forth hereunder. Such rates will be adjusted every year in accordance with any changes in the minimum or professional wages, as well as any inflationary change that may affect he operations of IVEMSA. No employees of IVEMSA shall be deemed employees of MASIMO under Mexican law. All personnel policies of IVEMSA, with respect to any changes to those policies must be approved by MASIMO in advance of implementation to insure production programs and/or quality of product are not degraded. Delays due to lack of prompt authorization will not be attributable to IVEMSA.IVEMSA shall immediately notify MASIMO of any labor disputes between IVEMSA and its workers and/or the union or coalition which represents them in the event that such disputes or disagreements may result in IVEMSA’s receiving a strike notice or in having raw materials or equipment in IVEMSA’s possession property of MASIMO which may be subjected to liens or attachments of any nature.

7.MASIMO responsibilities for labor claims or lawsuits and due to MASIMO direct supervision of personnel shall include the payment of obligations derived from Mexican Federal Labor Law, Infonavit Income Tax and Federal Payroll Tax Laws. Attending Conciliatory will be IVEMSA’s responsibility.

8.IVEMSA will be responsible for any liability arising from the failure to act as per item III above or by negligence from any of IVEMSA’s administrative personnel (including central services: Overall General Management, Accounting, Human Resources, Customs and Traffic and Project Management personnel only).

IV.IVEMSA RESPONSIBILITIES. The hourly rate schedule includes the following services that are provided by IVEMSA:

A.OVERALL GENERAL MANAGEMENT

■Active non - monetary participation on MASIMO’s behalf within the National Maquiladora Association.

■Active non - monetary participation on MASIMO’s behalf within the local Maquiladora Association.

■Active non - monetary participation on MASIMO’s behalf within the Chamber of Industry.

■Customs interface when it is needed.

■Maintain a close relationship with government officials, etc.

■Supervision of the Accounting, Human Resource, Customs and Traffic and Project departments.

B.ACCOUNTING DEPARTMENT

■Submit monthly declarations of: State & Federal Taxes (Income Tax, Value Added Tax, Assets Tax, the corresponding contributions to the National Fund for the Workers Housing, to the Retirement Savings System, to the Mexican Institute of Social Security, etc.)

■Submit monthly reports to the Federal and State government agencies.

■Submit monthly adjustments to the Mexican Institute of Social Security.

■Weekly payroll and Work Order Reports.

■Review and authorize purchase orders.

■Review local suppliers.

■Pay suppliers, taxes and others.

■Invoicing.

C.CUSTOMS AND TRAFFIC DEPARTMENT

■Analysis of customs documentation

■Import permits, balances, reports, etc.

■Preparation of invoices for raw material, machinery and equipment.

■Raw materials inventory and control. Once IVEMSA receives the raw material, IVEMSA shall advice MASIMO about the quantities of kits received, within the following five working days, in order to MASIMO be able to know if there were losses.

■Control balances on import permits.

■Follow up of shipments through customs.

■Preparation of invoices for finished product, and scrap returns.

■Coordination with U.S. and Mexican Customs Brokers.

■Supervision of loading and unloading of goods.

■According to your needs, we can negotiate and contract transportation for your merchandise, obtaining the best price and service.

■Expand the Maquiladora program when assembling new products, including machinery and raw materials permits.

■Provide information to the accounting department for the preparation of the SECOFI/INEGI questionnaire, whenever they are needed.

D.HUMAN RESOURCES

■Recruitment, interviews and selection of personnel (candidate’s analysis, reference verification, general facts).

■Develop files for each employee with the proper documentation, individual labor agreement, IMSS registration number, etc.

■Induction of new personnel.

■Seniority acknowledgement letter, rights and obligations within the Labor Board.

■Development of policies and procedures manual (vacations, Christmas bonus, uniforms, safety equipment, work hours, breaks, etc.)

■Direct communication with personnel and management to detect problems or concerns regarding salary, promotions with .supervisor, leaders, etc.)

■Social security: registration, interface employee/ company/ social security, modifications (salary, status, etc)

■Weekly personnel report: turnover, absenteeism, personnel increase or decrease, promotions, personnel requirements, individual control.

■Social and sport activities according to calendar: Rosca de Reyes, candies, barbecues, volley-ball and basquet-ball tournaments, children’s day, mother’s day, Halloween, Christmas party.

■Hygiene and. Safety: Integration of the Hygiene and Safety Commission, Safety or Hygiene courses from IMSS, company audits, the use of fire extinguishers, fire drills, monthly reports to the Labor Board, enforce of the Hygiene and Safety requirements. IVEMSA is liable to have established a pest control at the facility, which should be in force at least once monthly.

■Monthly meetings: support general management preparing the different topics to be discussed, educational talks.

■Filing for and attaining Mexican Immigration work permits (Any fees required are MASIMO responsibility).

■Attend any conciliatory action exercised by a worker.

E.PROJECT DEVELOPMENT SUPERVISION

■At the initial stage, interface between MASIMO and the IVEMSA group

■Site selection assistance

■Building improvements coordination

■Coordination with the different departments (accounting, human resources and customs and traffic) to have the proper documentation and permits to begin operations.

■Assistance in filing for the Functioning License with the Baja California State Ecology Department (any fees required are MASIMO responsibility).

■Assistance in acquiring any information required for the development of the project.

5.CAPITAL EQUIPMENT. While in IVEMSA’s possession, IVEMSA will maintain an accurate control log of all of MASIMO’s capital equipment and assets which will contain, but not be limited to:

1. Description of asset

2. Serial numbers

3. Model numbers and manufacturer.

4. Value, if available.

MASIMO agrees to provide IVEMSA with a list of all assets in order to facilitate this record keeping. A Bailment Agreement reflecting title and other pertinent information will be attached to this ocuments as Exhibit “B”

MASIMO will have the obligation to pay for maintenance of the assets and equipment used in the services contracted hereunder.

V.MANUFACTURING FACILITY TO BE PROVIDED BY IVEMSA. IVEMSA agrees to provide MASIMO, with a manufacturing facility under this agreement, and if the facility meets the following criteria, such facility will be guaranteed by MASIMO as may be provided for in the Lease Agreement and hereunder. Delays in starting operation due to lack of approval or guaranty for facility by MASIMO will not be a responsibility to IVEMSA.

A. The plant space shall be located in Mexicali, Baja California, Mexico or any other site mutually agreed upon by IVEMSA and MASIMO.

B. The building will be inspected and pre-approved by MASIMO before any final purchase or lease contracts are signed.

C. All MASIMO required improvements to the building will be made at MASIMO’s expense. All such improvements will be pre-approved in writing by MASIMO.

D. IVEMSA agrees to make its best effort to expedite the start up of the plant in the most timely manner possible, further, MASIMO will exert its best efforts whenever its approval is required.

E. Rental payment will be the obligation of MASIMO or as may otherwise be agreed in this agreement, but at all times guaranteed by MASIMO.

F. In the event IVEMSA does not want to be responsible for the lease agreement any more, a subrogation may take place, in which MASIMO will take the place of IVEMSA, appearing as Lessee. This situation shall be expressly allowed in the lease agreement.

VI.MASIMO’S RESPONSIBILITIES.

A.MASIMO will be responsible for the following:

1.All components, materials, supplies, tools, fixtures, workbenches, machines and data processing equipment necessary to produce MASIMO products.

2.All required office equipment, supplies and costs for on site MASIMO’s and IVEMSA personnel.

3.All required “product specific” safety supplies.

4.All required material handling equipment and packaging including pallets, containers and bags.

5.Insurance on building, equipment, transportation and materials provided, leased or guaranteed by MASIMO. The building insurance will not be in force whenever an act of nature or God takes place. The insurance on building refers in this paragraph shall only cover any damage arisen from the nature of the manufacturing activities and/or any material, chemical or product used.

6.Capital equipment maintenance.

7.Facility maintenance per the attached lease agreement.

8.Execution of Lease Agreement and/or guaranties therefore.

B.MASIMO will be responsible for payment of:

1.Any expenses incurred due to performance, on its own risk and expense, of any improvements needed to carry on in its operation.

2.Expenses for moving equipment.

3.Legal fees to incorporate the new company in Mexico, if MASIMO exercises its option to operate independently of IVEMSA.

4.Costs for U.S. duties on labor, materials and equipment during the term of this Agreement and extensions therefore, including final exportation due to termination of Agreement, shall be MASIMO's responsibility. MASIMO will be the importer or record at U.S. Customs.

5.Facility and U.S. warehouse rent.

6.Expenses for electrical hookup and usage.

7.Expenses for telephone hookup and usage.

8.Expenses for water hookup and usage.

9.Purified drinking water, janitorial supplies, toilet supplies.

10.Hazardous waste disposal.

11.Miscellaneous: Trash collection, medical services (as established by the Mexican Labor Law and the Social Security Law), security services.

12.Any and all sums that are applicable under the terms of clause II, concerning labor liabilities.

13.U.S. and Mexican Custom’s Brokers Fees.

14.U.S. and Mexican duties, taxes and bonds.

15.Freight to and from Mexicali, Baja California.

16.Government licenses.

VII.PASS THROUGH COSTS. Pass Through Costs are any and all costs and expenses related to operation activities, labor payments and raw material, equipment and machinery guarding. All pass through expenses stipulated hereunder, that are paid by IVEMSA in Mexican Pesos will be billed to MASIMO in U.S. Dollars, currency of the United States of America, at the exchange rate in force at the billing date for the sale of dollars , in the Mexican Banking Institution with which IVEMSA operates regularly.

All pass-through expenses to be billed and paid by MASIMO mustbe regularly scheduled and set forth in a budget approved by MASIMO.

It is expressly understood and so agreed by MASIMO that upon signature of this Agreement, and prior to the initiation of services independently of the obligation set forth in the following clause, MASIMO will deposit the amount indicated by IVEMSA which represents the initial amount to be disbursed by MASIMO for payroll. Such sum will be adjusted once the actual invoice for services corresponding to such period is produced and sent to MASIMO in a monthly basis.

VIII.INVOICING. Invoices for labor, indirect personnel, administrative fees and all other expenses to be paid by MASIMO shall be submitted by IVEMSA to MASIMO in accordance with the normal billing practices and invoiced by IVEMSA on a weekly basis to MASIMO to the Accounts Payable Department. Invoices shall be supported by documentation satisfactory to MASIMO and shall be approved by a MASIMO representative prior to payment.

MASIMO shall pay all invoices to an account designated in writing by IVEMSA. In the event of a dispute with respect to the charges submitted in an invoice, the undisputed portion of the invoice shall be paid by MASIMO within the terms specified herein, and payments of the disputed portion will be withheld pending resolution of such dispute. IVEMSA shall maintain accounts and complete records of all hours of direct labor employees engaged in the manufacturing for which payment under this agreement is to be computed on the basis of actual time paid, and charges of any kind payable by MASIMO under this agreement. Such records shall be maintained in accordance with recognized commercial accounting practices as to provide prompt and reasonable accounting information to MASIMO agreed hereunder. MASIMO has the right to audit records specific to MASIMO such as, but not limited to, payroll and time keeping records.

IX.OTHER TERMS OF PROPOSAL.

A.MASIMO will provide full assistance in the training of quality assurance, manufacturing and assembly personnel as well as providing clear and specific quality - control requirements and timely feedback on workmanship quality.

B.Any termination of seniority benefits required by Mexican law and owed to employees due to a special work force reduction requested by MASIMO will be paid by IVEMSA and billed to MASIMO at cost. IVEMSA will negotiate the lowest benefits payment possible and will provide MASIMO the opportunity to participate in such negotiations directly or through MASIMO appointed agent. MASIMO shall create a special fund for severance payments as stated, to be adjusted annually, the base for the severance includes the following:

a)Three months severance pay, (for unjustified layoffs according to Mexican Labor Law)

b)One day for every month of work completed,

c)Vacation and Christmas bonus time due,

d)If the layoffs are without justified cause according to article 47 of Mexican Labor Law, twenty days wages per year of seniority will be due.

The obligation to create a fund will be executed and complied with by means of an additional sum in an amount equal to ten percent of the weekly payroll that will be added to the invoice or billed separately as may be applicable under Mexican Tax Laws. The 10% as mentioned above will be paid until such time that it represents full payment of termination pay and benefits to all workers then hired, and shall continue to be updated if such becomes necessary due to increase in hand labor. Such obligation may be substituted by means of a bond sufficient to pay for termination of up to 70 (seventy) employees. Once such number of personnel is reached, MASIMO will substitute or increase the value of the bond to cover any additional number of workers hired or contemplated to be hired within a period of six months. Such bond shall be placed in favor of IVEMSA through a legal Mexican Institution authorized to issue such bonds.

Any amount integrated in the fund referred in this clause, shall be MASIMO’s property, even though the fund will be managed by IVEMSA. This fund shall be created through an account in a Bank Institution designated by IVEMSA, and any interest this account may earned, shall be on benefit of MASIMO.

MASIMO shall deliver to IVEMSA prior to the initiation of services, evidence of any and all bonds, insurance or other documents to assure IVEMSA that all obligations have been complied with, within a period of thirty days as of the date of signature of this agreement, or immediately after following request by IVEMSA. not to exceed seven calendar days.

C.Terms of payments of Administrative services billing is net seven days. Invoices can be telefaxed to MASIMO weekly to commence payment processing to the following fax number: (001) (949) 250-9686. Hard originals will follow by mail.

A deposit will be required in order to expedite the pre – operation expenses payments, and a wire transfer will be required for the payment of pass - through expenses. Both the deposit and the wire transfer shall be made by MASIMO within ten (10) days following the enter of this agreement, at the bank institution called Wells Fargo Bank branch number 0275 addressed at 250 Fourth St. Calexico, CA. 92231, account number 219476272 and ABA number 121000248 at the name of Industrial Vallera de Mexicali, S.A. de C.V.

MASIMO will send a written notification when a deposit would be made to this account, and IVEMSA will return to MASIMO either an invoice or Memo as proof of the receipt of the monies.

D.All U.S. Customs tariffs and Mexican duties and any similar payments to the government of the United States or Mexico under this Agreement shall be paid by MASIMO.

E.IVEMSA shall be responsible for obtaining all necessary city, state or federal Mexican importation and exportation permits needed to import and export equipment, production tools, raw materials and components into Mexico. IVEMSA agrees to assist MASIMO in gathering the proper information and documentation necessary for all permits. MASIMO agrees to supply to the best of its ability, all information required for such permits.

X.COMMUNICATIONS Both MASIMO and IVEMSA agree that clear communication lines between them are vital to this agreement. Accordingly, the following provisions are agreed upon:

A.All changes in this agreement or other subsequent agreements will be in writing and signed by the parties to this agreement at the time of such change or subsequent agreement.

B.MASIMO and IVEMSA each agree to designate a Program Manager who will be responsible for all activities under this agreement. All communications under this agreement will be directed to these persons. For this purpose, MASIMO appoints Mr. Gary L. Waite as Program Manager to supervise and make any decision toward to the compliance of this agreement.

C.Each Program Manager will be clearly indicated by name and will designate which address and phone number should be used to communicate all business maters.

D.MASIMO will provide IVEMSA with a list of personnel authorized to make purchases or contracts on its behalf. The list should indicate each person’s name in addition to what type of purchases or contracts he or she is allowed to signed and the dollar limits for each contract.

XI.TERM OF AGREEMENT AND OPTION TO EXTEND. This agreement shall be effective upon execution, for a period of thirty six (36) months.

Providing that MASIMO is current with all its contractual obligations under this agreement, IVEMSA agrees to grant successive options to extend this agreement on the same terms and conditions with the exception of adjustment of cost and fees for additional twelve months periods; provided that such option shall be exercised by MASIMO in writing at least (90) ninety days prior to the expiration of this agreement or any extensions thereof.

XII.TERMINATION FOR CAUSE

A.Either party shall give the other ninety days prior written notice of termination of this agreement based on clauses XII paragraphs D.1, and D.3 below, and thirty days prior written notice of termination for cause of this agreement based on clause XII paragraph D.2, D.4, D.5 and D.6 below.

B.In the event of termination for cause on ninety days notice by MASIMO, this agreement shall terminate immediately upon the expiration of said ninety days provided that MASIMO is current in payment of all invoices to IVEMSA; the termination shall be effective immediately upon the 91st day or immediately thereafter upon payment of all invoices that are outstanding on the 90th day. In the event some invoices are in dispute on the 90th day, the termination shall be effective on the 91st day notwithstanding those outstanding invoices provided written notice by MASIMO to IVEMSA of the disputed invoices has been given prior thereto and all non -disputed invoices have been paid.

C.In the event of termination by MASIMO for cause on thirty days notice, this agreement shall terminate as provided, however, such termination shall be subject to the condition that MASIMO is current in payment of all invoices to IVEMSA, and any and all additional monies due hereunder. In any such event, MASIMO shall have the right to give NEMSA notice of termination of this agreement as provided without any responsibility, liability or obligation on the part of MASIMO for the remaining term of this agreement, nor for the payment of rent, except for labor obligations that deal with severance provisions under Mexican law. The termination for cause on thirty days notice, shall be effective immediately upon the 31st day or immediately thereafter upon payment of all invoices that are outstanding on the 30th day. In the event some invoices are in dispute on the 30th day, the termination shall be effective on the 31st day notwithstanding those outstanding invoices provided written notice by MASIMO to IVEMSA of the disputed invoices has been given prior thereto and all non -disputed invoices have been paid.

D.Causes for termination of this agreement are as follows:

• ONE PARTY’S DEFAULT

1.Either party fails to perform any material provision of this agreement and fails to cure such default in performance within a thirty day period of time following its receipt of notice from the other party specifying such a default exists.

2.If either party becomes insolvent, or makes an assignment for the benefit of creditors, or is adjudicated bankrupt in any voluntary or involuntary bankruptcy proceeding, this agreement will be terminated thirty days from receipt of insolvency notice.

3.Either party is delinquent in the fulfillment of its normal business obligations such as payment of taxes, labor or civil obligations to the extent that such obligations represent a real and present danger to the interest of the other party, and if such delinquency is not cured within thirty calendar days of notice given by the non - delinquent party.

• MAYOR FORCE

4.In the event of any act of the United States or Mexican authorities, whether administrative, executive or judicial, which may effect a significant or material change in the Maquiladora Program, or result in the appropriation, forcible purchase or surrender in any other manner, of the assets of the business of IVEMSA or MASIMO, or may otherwise result in the prevention of IVEMSA or its Mexican subsidiary from doing business in Mexico.

5.Theft of MASIMO’s equipment, materials and/or inventories under the custody and/or control of IVEMSA provided such theft is substantial and/or continuous. Substantial and/or continuous theft, for purpose of this provision, shall be defined as thefts cumulatively totaling U.S. $20,000.00 (Twenty thousand dollars U.S. currency) in value during any consecutive twelve months period.

6.Political an/or civil unrest or commotion, strikes, walkouts, riots, vandalism, malicious, mischief, if these prevent the efficient production of process in the plant or seriously affect employer/employee relations.

E.In the event that any provision, term or condition of this agreement is in conflict with any law, rule, regulation, or guideline of the government of the United States or Mexico, or any state or political subdivision of either, or of any department or agency of either, or is in conflict with any judgment, whether by good faith consent or otherwise, of any court of the United States of Mexico, or if either party has received notification of any proposed official action by any such government, agency, department, or court with respect to any such conflict, then, in such event, either party hereto may propose to the other, appropriate modifications to this agreement in order to cure or avoid such conflict or the effect thereof, and if agreement regarding such modification can not be reached within forty -five days from the making of such proposal, the parties agree to submit this dispute to arbitration under the rules of the American Arbitration Association as provided below.

In the event described before, the remaining provisions shall be in all legal forces and shall not be at any time considered as null.

XIII.TERMINATION WITHOUT CAUSE

A.In the event that MASIMO wishes to terminate this agreement without cause at any time during the first year of this agreement, MASIMO shall be subject, independently of the obligation of payment for any outstanding amounts hereunder, […***…]. If termination without cause arises at any time during the second year of this agreement, MASIMO shall be subject to pay […***…] . This penalty shall be sufficient to compensate IVEMSA for damages caused due to early termination or termination without cause, in addition to (I) any amounts due and payable for services rendered hereunder, (II) additional pass through expenses as agreed and (III) seniority payments made by IVEMSA as a consequence of such earlier termination as provided or in clause IX, paragraph B). Such amounts shall be considered to indemnify IVEMSA for any investment made regarding hiring or administrative personnel, software, equipment, consulting assistance and all other items related specifically to this area.

However, in the event of termination of this agreement by MASIMO during the first year hereof, MASIMO will be released of any such penalty fee, provided that MASIMO is able to transfer this Agreement to any third party at IVEMSA’s satisfaction, and such third party contracts IVEMSA’s services for the remaining two years, under the terms and provisions of Section XII - A and B below.

For the purposes of termination as stated. on the first paragraph of this letter A, the right of termination during the second year may be exercised exclusively after six months have elapsed as of the conclusion of the first year of business. If IVEMSA decides to terminate this agreement without any cause, IVEMSA shall give a one hundred twenty - days prior notice to MASIMO, period in which MASIMO would be able to seek another Shelter supplier and make any arrangement in order to continue as Lessee of the facility.

If IVEMSA decides to terminate this agreement without any cause, IVEMSA shall be subject to payment of […***…], sufficient to compensate MASIMO for damages caused due to early termination or termination without cause by IVEMSA. In such event, MASIMO will assume any and all operations conducted by IVEMSA as well as any and all liabilities derived from such operations, including employees hiring and conditions.

XVI.ASSIGNMENT

A.This contract shall not be assigned or in any other fashion conveyed, in whole or in part by IVEMSA, to any third party, without first obtaining MASIMO’s written consent in each and every such instance.

B.MASIMO shall have the right to assign this agreement and to assign its rights and delegate its duties under this agreement either in whole or in part (an “assignment”) at any time with the prior written consent by IVEMSA no consent is required if the assignment is for the benefit of a MASIMO subsidiary, successor, affiliated or related legal entity, including any portion or substantially all of the assets of MASIMO.

If MASIMO wants to assign this agreement to a different legal entity from such mentioned above, MASIMO must submit this situation to the approval of IVEMSA, and provide IVEMSA with all documentation an information related to such legal entity, in order to be able to make a decision in a reasonable time. IVEMSA shall not withhold the authorization unreasonably.

XV.NEW COMPANY

LOS DOS PARRAFOS ANTERIORES SON CONTRADICTORIOS CON EL PARRAFO SIGUIENTE.

A.MASIMO may after the eighteenth month, initiate any proceeding toward the establishment of its owned subsidiary in Mexico. As established in the preceding paragraph, the “incubator” phase shall continue until the termination of the three - year term, herein agreed, at which time IVEMSA and MASIMO shall agree on terms and conditions under which the incubator phase shall operate.

B.Once MASIMO has incorporated the Mexican Company and the Mexican Company has obtained a Maquiladora Program issued by the Mexican Ministry of Commerce and Industrial Development (SECOFI) or the corresponding authority at such time, pursuant to Mexican Law, IVEMSA agrees to assist and collaborate with MASIMO and its Mexican Company, in order to have MASIMO Mexican Company take over IVEMSA’s manufacturing of the products herein contemplated, subject to the terms and conditions of paragraph A above.

C.MASIMO at any time may instruct IVEMSA to incorporate its own MASIMO Mexican Company, notwithstanding the fact that MASIMO will continue to be under the “incubator-shelter” system as specified in item A above.

XVI.MAQUILADORA TRANSFER

A.Upon organization and under the terms of paragraph A) of Clause XV above, MASIMO shall cause its Mexican Company to carry out with IVEMSA, and IVEMSA shall carry out with the Mexican Company, the transfer of all machinery, equipment, inventory, work in process, materials, components and any other asset property of MASIMO or consigned by MASIMO to IVEMSA, from the Mexican Customs manifests (pedimentos) under IVEMSA, to manifests under MASIMO Mexican Company (hereinafter the “Maquiladora Transfer”). Said Maquiladora transfer shall be carried out in an orderly fashion, pursuant to the provision for such effect set forth under Mexican Customs Law and the Decree.

B.MASIMO will notify IVEMSA of the time in which the Maquiladora transfer is to take place between IVEMSA and MASIMO Mexican Company pursuant to the legal provisions contained in the decree, the Mexican Customs law and its regulations, and paragraph A) of Clause XV above.

C.IVEMSA shall be responsible to pay all of the tariffs, duties, customs broker fees or any other expenses that it may incur in order to carry out the maquiladora transfer from IVEMSA to MASIMO Mexican Company on an export basis. Theses expenses shall be treated as pass through expense and will be invoiced to MASIMO in accordance with section VIII of this Agreement.

XVIII.TRANSFER OF OPERATION TO MASIMO MEXICAN COMPANY.

A.Starting the third year of operations under this Agreement or the terms stipulated in paragraph paragraph A) of Clause XV above, MASIMO and its Mexican Company shall have the right to take over the Manufacturing operations conducted by IVEMSA on behalf of MASIMO and its Mexican Company.

B.MASIMO and its Mexican Company shall notify IVEMSA in writing, at least 90 days, prior to the date on which MASIMO Mexican Company shall take the manufacturing conducted by IVEMSA as per paragraph A) immediately preceding.

C.As soon as MASIMO and/or its Mexican Company takes over the manufacturing conducted by IVEMSA, IVEMSA shall assign in favor of MASIMO Mexican Company all of IVEMSA’s rights and obligations as lessee under the lease agreement, as well as all of the utilities connected to the facility consequently MASIMO and/or its Mexican Company will be solely responsible to lessor.

D.IVEMSA commits itself to obtain the consent of the lessor under the facility’s lease agreement, to assign the lease in favor of MASIMO Mexican Company.

E.Prior to the transfer of IVEMSA’s operation to MASIMO Mexican Company, IVEMSA shall deliver to MASIMO Mexican Company all of the control records referred to in this agreement.

F.The whole incubator process will not produce at any moment, any kind of penalty to MASIMO, except as specified in item XIII.A above.

XIX.SUBSTITUTION OF EMPLOYER.

A.Prior to the transfer of the operation from IVEMSA to MASIMO Mexican Company under the terms of this agreement, as set forth in section XIV, MASIMO shall cause the Mexican Company to carry out a substitution of employer procedure, and at the request of MASIMO Mexican Company and/or MASIMO, IVEMSA agrees to carry out such substitution of employer procedure involving all of the personnel working for IVEMSA under this agreement.

The substitution of employer shall be carried out through agreement signed between IVEMSA and MASIMO Mexican Company where MASIMO Mexican Company will assume all rights and obligations which IVEMSA has over IVEMSA’s employees hired for MASIMO under the provisions set forth in this agreement. Said substitution of employer agreement shall be presented before the local labor board for approval. There shall not be any severance payment obligations for MASIMO and/or its Mexican Company related or as a result of the employer substitution agreement provided that, in accordance with Mexican Labor Law, MASIMO and/or its Mexican Company do not modify the labor conditions under which the employees were hired by IVEMSA. In the event any conflicts arises with such employees due to employer substitution, modifications in the labor conditions by MASIMO and/or its Mexican Company, MASIMO and/or its Mexican Company will be solely responsible for any and all severance payments, and IVEMSA will exert its best efforts in assisting MASIMO and/or its Mexican Company in any such negotiations. IVEMSA consequently shall not be liable for any suits or claims brought about by any IVEMSA employees hereunder, as a result or as a consequence of the employee substitution agreement, nor expenses arising for it (such as attorney’s fee, indemnification, etc.), and MASIMO and/or its Mexican Company shall solely assume such risks and shall keep IVEMSA free and clear of any such claims and/or liabilities.

XIX.WARRANTS. IVEMSA warrants and agrees to support MASIMO to the best of its ability and experience utilizing its best efforts through the term, including utilization of qualified sources and contracts representing all services necessary to perform the functions required to operate this agreement successfully and to ensure that MASIMO’s desires in this project will be met in all phases.

XX.CONFIDENTIALITY. IVEMSA will use its best efforts to maintain MASIMO’s identity in confidence. IVEMSA will hold in confidence all information, documents and other materials designated by MASIMO as being proprietary. IVEMSA will also protect MASIMO’s trade secrets including all matters specified in this agreement and all procedures involved with MASIMO’s products, and any and all other information that MASIMO may acquire as a consequence of this agreement. For the compliance of this obligation, the parties agree to enter the Confidentiality Agreement herein attached as Exhibit “___,” as may be approved by IVEMSA, and which provided for protection of both parties rights to confidentiality and secrecy

MASIMO will use its best effort to maintain IVEMSA’s identity in confidence. MASIMO will hold in confidence all information, documents and other materials designated by IVEMSA as being proprietary. MASIMO will also protect IVEMSA’ s trade secrets including all matters specified in this agreement and all procedures involved with IVEMSA’s know-how, techniques and any and all other information that MASIMO may acquire as a consequence of this agreement.

XXI.CONFLICT OF INTEREST. IVEMSA, including its successors and/or principles, agrees that, during the term of this contract and any extensions thereof, it will not enter into any agreements, contracts, oral or written, or associations with any company, corporation or individuals that are associated in any way competitive with MASIMO products, manufacturing, distribution or sales, as disclosed to IVEMSA.

XXII.IVEMSA ADDITIONAL RESPONSIBILITIES.

A.IVEMSA will perform all interface relations with local, State and Federal governments and will obtain all necessary approvals, licenses and permits required to import equipment and materials into Mexico and operate under Mexico’s Maquiladora Programs, including but not limited to compliance with all Mexican Environmental Laws, rules, regulations and treaties and all applicable U.S. Environmental Laws, rules, regulations and treaties.

B.It is understood that IVEMSA will coordinate with MASIMO to ensure the importation of product and equipment to Mexico and subsequent export back to the U.S. of finished product, waste and any equipment in conformance with existing U.S. and Mexican government procedures and laws.

XXIII.ASSISTANCE BY MASIMO. It is expressly understood that MASIMO shall have the sole responsibility of carrying out the maquila operation to be performed hereunder, and that the obligation of IVEMSA is limited solely to the administrative management and initial start up operations of MASIMO. Consequently, MASIMO shall undertake at its sole direction, through its authorized qualified personnel, the direction, training, quality control and supervision of personnel at IVEMSA’s plant to manufacture MASIMO’s products. MASIMO agrees to pay directly for all costs for such assistance, in addition to all those hereinafter agreed upon.

XXIV.MANUFACTURING STANDARDS. IVEMSA shall not be obligated to, nor be liable for the quality and design contained in the manufacturing information. Therefore, it should be the express responsibility of MASIMO to establish guidelines and policies to provide for quality control. MASIMO shall have the right to free access to the plant and offices of IVEMSA precisely at the site where the operation for MASIMO is conducted, at all times during working hours, for the purpose of reviewing the manufacturing and production facilities and the manufacturing methods being employed by IVEMSA in the manufacturing of the products.

STORAGE FACILITIES AND DELIVERY OF COMPLETED PRODUCTS.- IVEMSA, without being obligated to, shall reasonably assist MASIMO in securing and maintaining adequate facilities for all raw material received from MASIMO as well as work in progress and completed products in such manner as to prevent loss or damage of any kind of raw materials, work in progress and completed products. IVEMSA shall also further assist MASIMO in maintaining adequate records of the same, including inventory, work in progress, completed products and any other records and reports reasonably required by MASIMO. Delivery of completed products shall be made by IVEMSA to MASIMO or its designee at such time and place with such carriers as may be designated by MASIMO and in accordance with shipping instructions received from the latter. IVEMSA agrees to adhere to all shipping and handling procedures requested by MASIMO for which the latter shall prepare forms and operating procedures to be furnished by MASIMO.

XXV.INSURANCE. Insurance for all raw materials of MASIMO in the possession of IVEMSA shall be obtained with an insurer approved by MASIMO, and for the account and benefits of MASIMO. Said insurance shall be in an amount sufficient to cover risks indicated by MASIMO and subject to terms and conditions satisfactory to MASIMO. Costs for such insurance shall be paid by MASIMO. If obtained from a Mexican Company, insurance coverage shall provide for dollar replacement value, or as otherwise determined by MASIMO.

For such purpose, and if IVEMSA is to obtain such insurance on behalf of MASIMO, then MASIMO will provide to IVEMSA a written statement certifying under oath, the value of the raw materials and all property of MASIMO in possession of IVEMSA, so as to allow IVEMSA to obtain the insurance in an amount sufficient to cover such properties. From time to time MASIMO shall update any such information to duly support such insurance. Consequently, IVEMSA is hereby released of any responsibility regarding losses or damages to the raw materials as indicated herein. Further MASIMO shall pay for any insurance that may be required under the lease agreement and/or shall compensate IVEMSA for any such insurance that it may have procured or paid on behalf of MASIMO, which shall be billed as pass through to MASIMO. Notwithstanding the above mentioned, IVEMSA shall put its best efforts to secure the guarding of those materials and equipment owned by MASIMO, as if they were of its own property as may be reasonably possible. Furthermore, MASIMO, under the terms of the Bailment Agreement executed or to be executed with IVEMSA assumes responsibility for providing each and every piece of machinery, equipment, tool, utensils, and items necessary to implement the production process. In this regard, MASIMO shall be bound to obtain any and all insurance necessary to protect such items from loss or damages, thereby releasing IVEMSA from any and all responsibilities in connection therewith.

XXVI.INDEMNITY

A.Neither party shall be liable to the other for any delay resulting from the circumstance that it is temporarily unable to perform its obligation under this agreement because of fire, flood, strikes, labor troubles or other industrial disturbances, freight embargoes, governmental restrictions or regulations, war (declared or undeclared), riots, insurrections, or other causes beyond its control.

B.In view of the fact that IVEMSA will use machinery, equipment and materials imported temporarily into Mexico, under permits to be granted in each case by the Mexican authorities, and since all of such operations shall be subject to the laws, regulations and rulings concerning the Maquiladora industries, the parties hereto expressly agree that neither party shall be liable to the other in the event of a failure to receive the necessary permits for importation of such machinery, equipment and materials, or by virtue of any orders given by the Mexican authorities which are not consequence of the fault of either of the parties hereto, which results in the delay, interruption, prevention or impossibility of performance part or all of the manufacturing operations of this agreement. MASIMO shall be. responsible for any and all liabilities as a result of claims or suits due to, because of, or arising out of, any and all personal injuries, and/or property damage arising out of the operation and/or the manufacture, handling, storage and delivery of the raw materials and/ or the products referred to in this Agreement, considering that IVEMSA will only be rendering administrative services as specified hereunder. IVEMSA shall indemnify and hold MASIMO harmless against and in respect of any and all claims, demands, losses, liabilities, costs, expenses, obligations and damages, including reasonable attorneys’ fees, suffered or incurred by MASIMO which arise, result from or relate to any breach of or failure by IVEMSA and/or its employees, agents or representatives, to perform any of its representations, warranties, covenants or agreements in this Agreement or in any exhibit or agreement attached to this Agreement or referenced or related thereto, or which arise, result from or relate to any liability or obligation of MASIMO resulting from the negligent actions of IVEMSA, as may be duly proven by MASIMO.

XXVII.MISCELLANEOUS.

A.IVEMSA agrees that MASIMO may inspect all personnel records under MASIMO project during reasonable working hours. Furthermore, to the extent that IVEMSA maintains any legal, or other records in any way related to MASIMO or its business, such records shall be made available to MASIMO for review and inspection on a reasonable basis.

B.IVEMSA shall obtain and retain during the terms of this agreement and all contract and all required licenses and permits, and shall provide MASIMO copies of all licenses and permits, including but not limited to all customs permits. In addition, IVEMSA shall provide copies of such records to MASIMO’s Mexican legal counsel as requested by MASIMO from time to time.

C.IVEMSA covenants and warrants that the performance of its obligations under this agreement will comply with all applicable laws, rules regulations and order of the United States and Mexico and of any state or political subdivision thereof, as well as all treaties an agreements between the United States and Mexico. IVEMSA agrees to indemnify and hold MASIMO free and harmless against any loss, cost, expense, damage, attorney’s fee’s and cost or any other liability incurred by reason of failure to do so.

D.In carrying out its responsibilities under this agreement, IVEMSA on behalf of itself, agrees not to pay or agree to pay, directly or indirectly, any funds or anything of value to any public official in Mexico for the purpose of influencing such official’s acts or decisions. If IVEMSA directly offers, pays, promises gives or authorizes payment of any money or of anything of value to any government or public official for the purpose of influencing any official act or decision of such official in the course of carrying out this agreement, this agreement will be void ab initio and

IVEMSA will surrender any claim for payment under this agreement and will refund any payments received under this agreement.

E.IVEMSA shall immediately give written notice to MASIMO of any governmental regulatory action, labor suit or claim filed with the labor board or any suit or claim filed in California, United States, or Baja California, Republic of Mexico.

F.Nothing in this agreement whether expressed or implied is intended to confer any right or remedies under or by reason of this agreement on any person other than IVEMSA and MASIMO, the parties hereto.

G.Any dispute arising due to the interpretation or application of any covenant herein contained, the parties agree to submit it to arbitration, under the rules of the American Arbitration Association (AAA), according to the following statements:

a.This agreement is made and entered into in the State of California and shall be governed by and construed and enforced in accordance with the laws of the State of California. Therefore this legal frame should be use whenever a disputed is submit under arbitration.

b.Each party will chose an arbitrator from the list of arbitrators of the AAA, whose fees shall be paid by each party.

c.In the event those two arbitrators may not get a common final resolution, a third arbitrator shall be appointed, whose fees will be paid by the parties in the same proportion to each one.

d.If an appeal process is allowed by the AAA, the losing party may be able to exercise this option. In the event that the AAA does not stipulate anything about appeal’ expenses, they will be at first paid by the appellant and shall be reimbursed by the other party in case the appellant wins in this first appeal.

e.Any other expense, such as copies, expert or/and appraiser’ fees, etc, shall be covered by the party that asks for the appeal.

f.If there is a general fee established by the AAA, this will be paid by both parties in the same proportion.

g.The arbitration hearing will be held in Orange County in the State of California, U.S.A. and the language to be used shall be English.

H.The language in all parts of this agreements shall in all cases be construed according to its fair meaning and not strictly for or against any of the parties hereto.

I.This agreement may be executed in any number of identical counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument when each party has signed one such counterpart.

J.This agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof and the transactions contemplated hereby.

K.Except as otherwise provided in this agreement, IVEMSA and MASIMO shall not be responsible for any loss or breach due to delay in delivery or performance hereunder caused by third parties, governmental regulations, controls or directions, outbreak of a state of emergency, acts of God, war, hostilities, civil commotion, riots, epidermis, perils of the sea or other natural casualties, fires, strikes, walkouts or other similar cause or causes beyond the control of the parties.

L.When necessary herein all terms used in the singular shall apply to the plural and all terms used in the masculine or feminine gender shall apply to the neuter.

M.All notices and demands of any kind which either party hereto may be required or desire to serve upon the other party under the terms of this agreement shall in writing and shall be served upon the other party by personal service upon such other party or by leaving a copy of such notice or demand at the address hereinafter set forth, whereupon service shall be deemed complete, or by mailing a copy thereof by certified United States mail, postage prepaid with return receipt requested, addressed as follows:


1. IVEMSA -			Attention to Mr. Sergio Tagliapietra 233 Paulin Avenue, PMB 5765, Calexico, CA. 92231-2646.
2. To MASIMO -			Attention to Mr. Gary L. Waite 2852 Kelvin Avenue Irvine, CA. 92614 Phone: (949) 250-9688 Fax: (949) 250-9686
With copy to:			Arter & Hadden LLP Attention to: Mr. Chris Kilpatrick Jamboree Center Five Park Plaza, Suite 1000 Irvine, California 92614 – 8528 Phone: (949) 252-7500 Fax (949) 833-9604
With copy to:			Bufete Enriquez de Rivera, S.C. Attention to: Yissel Vidal Lerdo 1595, Col. Nueva Mexicali, B.C., 21100 Phone: (6) 552-5060 Fax: (6) 554-8180

In case of service by United States mail, it shall be deemed complete on the day actual delivery is made, as shown by the addressee’s registry or certification received or by the expiration of the third day after the date of mailing, whichever occurs first. The address to which notices or demand should be delivered or sent may be changed from time to time by notice served, as hereinabove provided, by either party upon the other party.

N.Each individual executing this agreement on behalf of the partnership or corporation represents and warrants that he is duly authorized to execute and deliver this agreement on behalf of such partnership or corporation, by a its partners or board of directors, and binding upon such partnership or corporation its terms.

O.Subject to the restrictions against contained, this agreement shall insure be binding upon permitted assigns and of each of the parties hereto.

P.Time is of the essence for the performance satisfaction of all conditions of this agreement.

Q.The waiver by one party of the performance condition or promise shall not invalidate it be considered as a waiver by such party condition or promise. The delay in pursuing insisting upon full performance for any covenant, condition or promise shall later pursuing any remedies or insisting the same or any similar breach or failure.

R.IVEMSA agrees that it shall treat as confidential relating to any processes utilized by and shall not reveal such information authorized in writing by MASIMO to do

S.All exhibits to which reference is made deemed to be incorporated here in by each forth.

In the city of Calexico, California, this 27th day of December, 2000.


INDUSTRIAL VALLERA D MEXICALI, S.A. DE. C.V.,
/s/ Sergio Tagliapietra
Mr. Sergio Tagliapietra

MASIMO CORPORATION
/s/ Joe Kiani Joe Kiani President, CEO			/s/ Gary L. Waite Mr. Gary L. Waite Vice – President
Joe Kiani			Mr. Gary L. Waite
President, CEO			Vice-President

Exhibit “A”

Layout and building improvement lists to be added when suitable site is selected.

/s/ Gary Waite

Masimo

VP Manufacturing

27 Dec 2000

A-1

Exhibit “B”

Batment Agreement, or list or Masimo assets transferred to IVEMSA under the Shelter Labor Agreement.

List to be established and maintained upon initial production transfer. This is a Masimo responsibility.

/s/ G. L. Waite

Masimo VP Manufacturing

27 Dec 00

B-1

Exhibit “C”

These are the main articles from the Mexican Federal Labor Law, that will help you in the understanding of some concepts established in the shelter agreement. We are editing our English version of the whole labor law.

Salary

Article 84. The salary, includes cash payments for daily wage, bonuses, receipts, housing, premiums, commissions, benefits in kind and any other amount or benefit given to the worker for his work.

Article 87. Workers shall be entitled to a Christmas bonus equal to at least fifteen days for salary, which shall be paid before December 20.

Those who have not completed one year of service, even when they are or not working at the date which it is paid, shall be entitled to be paid in proportion to the time worked.

Article 88. The period for payment of salaries shall never exceed one week for individual who perform manual labor, and fifteen days for other workers.

Article 89. To determine the amount of the indemnification that should be paid to the workers, the salary for the day on which the right to the indemnification arises shall be used as the basis, including therein the daily, wage and, the proportion of benefits mentioned in Article 84.

To determine the daily salary when the salary is established by the week or by the month, it shall be divided by seven or by thirty, as the case may be.

Termination of labor relationship

Article 48. The worker may, at his election, request from the Conciliation and Arbitration Board to be reinstated in his job or to receive and indemnification equal to three months’ salary.

If the employer fails to show the cause of rescission in the proceedings, the worker shall be entitled, in addition to whatever the action exercised might have been, to be paid the salaries accrued from the date of dismissal to the effective date of the award.

Article 49. The employer shall be exempt from the obligation to reinstate the worker, if he pays the indemnification determined in Article 50, in the following cases:

I.When the worker have been employed for less than a year;

II.If he shows before the Conciliation and Arbitration Board that the worker, because of the work he performs or the characteristics of his job, is in direct and permanent contact with him and the Board considers, taking into account the circumstances of the case, that a normal relationship is not possible;

III.In the case of confidential employees;

IV.In the case of domestic service; and

V.In the case of occasional workers.

Article 50. The indemnification referred to in the preceding article shall consist of:

I.An amount equal to the amount of salaries for one-half of the period of services rendered, if the employment contract were for a definite period of less than one year; if it exceeded one year, an amount equal to the amount of salaries for six months for the first year, plus an amount equal to twenty days of salary for each of the .succeeding years during which services were rendered;

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II.The salary of twenty days for each year of services rendered, if the employment contract were for an indefinite period; and

III.In addition to the indemnification referred to in, the preceding paragraphs, n amount equal to three months’ salary, plus the salaries. accrued from the date of dismissal until the indemnification are paid.

Article 51. The following are causes for rescission of the employment contract, without responsibility of the worker:

I.If the employer or the employers’ association deceives him with respect to the conditions of the job at the time the job is offered to him. This cause for rescission shall cease to be effective after the worker has been working for thirty days.

II.If the employer, his family, his officers or administrative personnel, during working hours, commit dishonest or violent acts, make threats, offend or mistreat the worker, his spouse, parents, children of brothers and sisters;

III.If the employer, his family or employees, outside or working hours; commit any of the offenses listed in the preceding paragraph, and the offense is of such serious nature that it makes the work relationship impossible;

IV.If the employer reduces the worker’s salary;

V.If the worker fails to receive his salary on the usual or agreed date or place;

VI.If the employer maliciously causes damage to his working tools or utensils;

VII.If there is serious danger for the security of health of the worker. or his family, due either to the lack of hygienic conditions in the establishment or to failure to comply with the preventive and safety measures established by the laws;

VIII.If the employer, through negligence or inexcusable carelessness, endangers .the safety of the establishment or of the persons in it; and

IX.Causes similar to those set forth in the preceding paragraphs, of equal seriousness and of similar consequences insofar as the work is concerned.

Article 52. The worker may terminate his employment within thirty days following the date on which any of the causes listed in the preceding article arises, and shall be entitled to be indemnified by the employer in the terms of Article 50.

Article 53. The following are causes of termination of employment contracts:

I.Mutual consent of the parties;

II.Death of the worker;

III.The termination of the work or the expiration of the period or the expenditure of capital, according to Articles 36, 37 and 38;

IV.The physical or mental disability or the manifest inability of the worker which makes the performance of the work impossible; and

V.The cases to which Article 434 refers.

Article 54. In the case of paragraph IV of the preceding article, if the disability results from a nonoccupational hazard, the worker shall be entitled to be paid one month’s salary plus twelve days for each year of service, according to the provisions of Article 162, or, if possible, if he so desires, to be given another job compatible with his ability, regardless of any benefits to which he may be entitled according to the laws.

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Article 55. If, in the proceeding, the employer fails to prove the cause of termination, the worker shall have the rights indicated in Article 48.

Seniority

Article 162. Permanent workers are entitled to a seniority premium, according to the following rules:

I.The seniority premium shall be an amount equal to twelve days of salary for each year of services.

II.In determining the amount of the salary, the provisions of Articles 485 and 486 shall. apply.

III.The seniority premium shall be. paid to workers, ‘who voluntarily resign, provided that they have completed, at least, fifteen years of service. It shall also be paid to those who cease to work for. a justifiable reason and those who are terminated, regardless or whether the, termination is justified or not;

IV.In cases of voluntary retirement of the workers, the following rules for the payment of the premium shall be observed:

a.If the number of workers to be retired within one year does not exceed ten percent of the total number. of workers of the enterprise or establishment, or the number of workers. in a specific category, the payment shall. be made at the time of retirement.

b.If the number of workers to be retired exceeds ten percent, those retiring first shall be paid, and payment to workers exceeding such percentage may be deferred to the following year.

c.If a number of workers in excess of such percentage retires at the same time, the premium shall be paid to those with the greatest seniority, and payment to the remaining workers may be deferred to the following year;

V.In case of death of the worker, whatever his seniority may be, the premium payable shall be paid to the persons mentioned in Article 501; and

VI.The seniority premium to which this article refers shall be paid to the workers of their beneficiaries, in addition to any other benefit to which they may be entitled.

Vacations

Article 76. Workers with more than one year of service shall enjoy an annual period of paid vacations that shall, in no event, are less than six working days. It shall be increased by two working days, up to twelve, for each subsequent year of service. Following the fourth year, the vacations period shall be increased by two working days each subsequent five-year period.

Article 77. Workers who do not perform continuous services, and seasonal workers, shall be entitled to an annual vacation period in proportion to the number of days worked during the year.

Article 78. The workers shall enjoy at least six consecutive days of vacation.

Article 79. Monetary compensation may not be given in lieu of vacations. If the work relationship ends before the first year of service is completed, the worker shall be entitled to remuneration in proportion to the length of service.

Article 80. The workers shall be entitled to a premium of not less than twenty-five percent over their salaries for the vacation period.

Article 81. Vacation time shall be granted to the workers within six months following completion of the first year of service. Employers shall give to each employee, annually, a statement showing the employee’s seniority and, according to such seniority, the vacation time to which he is entitled and the date when his vacation should be taken.

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Article 117. Workers shall participate in the profits of the enterprises, according to the percentage determined by the National Commission for the Participation of the Workers in the Profits of the Enterprises.

Article 118. In determining the percentage to which the preceding article refers, the National Commission shall carry out the investigations and the appropriate and necessary studies to -learn the. general conditions of the national economy, and, shall take into consideration the need to encourage the industrial development of the country, the right of capital to obtain reasonable return and the necessary reinvestment of capital.

Article 122. The distribution of profits among the workers shall be made within sixty days following the date on which the annual tax must be paid, even though the objection of the workers is pending.

When the Ministry of. Finance and Public Credit increase the amount of taxable income, without and objection from the workers or without been resolved it, an additional distribution will be made within the 30 days following the date in which the resolution is notified.

Just in case of the resolution is impugning by the employer, it will be suspended the payment of the additional distribution until the final resolution, guaranteeing the interest of the workers.

The amount of the profits not claimed in the year in which they are payable, shall be added to the distributable profits of the following year.

Article 123. The distributable profits shall be divided into two equal portions: the first shall be distributed equally among all the workers, taking into consideration the number of days worked by each one during the year, regardless of the amount of the salary. The second shall be distributed inn proportion to. the amount of the salaries earned for work performed during the year.

Article 124. For purposes of this chapter, salary is the amount received in cash by each worker as daily wage. Bonuses, receipts, and other benefits to which Article 84 refers, as well as the amounts received by the worker for overtime work, are not considered part of the salary.

In cases of salary per unit of work. and,. in general, when the remuneration is variable, average receipts obtained during the year shall be taken -as the daily wage.

Christmas Bonus

Article 87. Workers shall be entitled to a Christmas bonus equal to at least fifteen days for salary, which shall be paid before December 20.

Those who have not completed one year of service, even when they are or not working at the date which it is paid, shall be entitled to be paid in proportion to the time worked.

Minimum Salary

Article 90. Minimum salary is the lowest amount in cash that- a worker should receive for services rendered in a work period.

The minimum salary shall be sufficient to satisfy the ordinary material, social and cultural needs of a head of household, and to provide for the compulsory education of the children.

It is considered as social utility, the establishing of institutions and measures to protect the acquisitive salary’s capacity and to facilitate the access to the workers to obtain their satisfactories.

Article 91. The minimum salaries may be general, for one or more geographic areas, which may comprise one, or more Federated Entities, for a particular branch of the economic activity, or for specific professions, trades or woks, within one or several geographic areas.

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Article 94. The minimum salaries shall be established by a National Commission integrated by workers’, employers’, and government’s representatives, which could be helped by the Special Commissions. that it consider indispensable for its work, with Consultative character.

INFONAVIT

Article 136. Agricultural, industrial, mining or any other kind of enterprises are required to provide comfortable and hygienic housing to their workers. To comply with this requirement the enterprises should contribute to the National Fund for Housing, 5% of the workers’ salaries.

Article 137. The National Fund for Workers Housing, will have as purpose to create financing systems that allow the workers to obtain cheap housing loan, to acquire, build, repair, or improve their houses and to pay the credits granted to them for theses concepts.

Article 138. The resources of the National Fund for Workers Housing will be administrated by an organism integrated in a tripartite way with representatives of the Federal government, workers and employers.

Article 139. The Law created by such organism, sill rule the processes and manners according with which the workers will be able to acquire the property of houses and obtain the credits referred in Article 137.

EMPLOYER’S SUBSTITUTION

Article 41. The substitution of employer shall not affect the work relationships of the Enterprise or establishment. The substituted employer shall. be jointly and severally liable with the new employer for the obligations derived from the work relationship and from this Law which arose prior to the date of the substitution, for a period of up to six months. After this period has expired, liability rests exclusively with the new employer.

The six-month period referred to in the preceding paragraph shall be counted from the date that notice of the substitution is given to the union or to the workers.

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Document

Exhibit 10.2

February 24, 2005

Masimo Corporation

40 Parker

Irvine CA 92618

Attention: Kathy Spain, Buyer; and Gary Waite, VP Manufacturing

RE: Purchase Agreement between Masimo Corporation and Seller, dated July 26, 2001 (the “Agreement”)

Dear Ms. Spain & Mr. Waite:

As you may know, Varian, Inc. (“Varian”) and Jabil Circuit, Inc. (“Jabil) have signed a definitive agreement under which Jabil will acquire Varian’s Electronic Manufacturing business (the “Transaction”). Jabil is a global leader in the electronics manufacturing services sector. The Transaction is expected to close in March, 2005. We’re very excited about joining the Jabil team while continuing to provide. the customer focused service you have grown to expect from us.

As may be required under the Agreement, this letter serves as a notice to you of the proposed Transaction, and hereby requests your written consent to assign the Agreement in its entirety to Jabil.

Your signature below will constitute your acknowledgement that as of and following the consummation of the Transaction, the Agreement will be assigned to Jabil in its entirety, and Jabil will be subject to the same obligations and enjoy the same rights that Varian was subject to and enjoyed under the Agreement as of immediately prior to the Transaction. Please (i) countersign this letter where indicated, (ii) fax the signed consent letter to Renee Myers (fax: 480-829-4000), and (iii) return the original, executed letter to Ms Renee Myers at Varian Electronics Manufacturing, 615 South River Drive, Tempe, AZ 85281 as soon as possible, but no later than March 2, 2004.

If you have any questions, please do not hesitate to contact Gene Sparks at Gene.Sparks@varianinc.com or 480-829-4097, or Renee Myers at renee.myers@varianinc.com or 480-968-6790, extension 4447.


			Very truly yours,
			Varian, Inc.
			By:			/s/ Gene Sparks
						Name: Gene Sparks
						Title: Director Business Development

CONSENT AND ACKNOWLEDGEMENT GIVEN:

Masimo Corporation

By:

/s/ G.L. Waite

Name:

Gary Waite

Title:

VP Manufacturing

Date:

3 March 2005

Purchase Agreement

by and between

VARIAN, INC. ELECTRONICS MANUFACTURING (“VEM”)

and

MASIMO CORPORATION (“Masimo”)

PURCHASE AGREEMENT

This Purchase Agreement (“Agreement”) is entered into this 26th day of July 2001 by and between Varian, Inc. Electronics Manufacturing, a Delaware corporation having its place of business at 615 South River Drive, Tempe, Arizona 85281 (“VEM”) and Masimo Corporation, having its place of business at 2852 Kelvin Avenue, Irvine, CA 92614 (“Customer”).

Customer has created a market for Customer’s Products and is solely responsible for the sales and marketing of the Products. VEM has developed processes and practices for manufacturing products for many different electronic applications and at Customer’s request desires to manufacture Customer’s Products in accordance with Customer’s specifications. Customer acknowledges that VEM’s expertise is manufacturing and that VEM’s responsibility related to the Customer’s Products is limited to this extent. The parties agree as follows:

1.0WORK, LICENSE

VEM agrees to use reasonable commercial efforts to perform the work (hereinafter “Work”) pursuant to purchase orders or changes thereto issued by Customer and accepted by VEM. Work shall mean to procure labor, components, materials, equipment and other supplies and to manufacture, assemble, and test printed circuit board products more particularly described on Exhibit 1.0 (hereinafter “Products”) pursuant to detailed written specifications for each such Product which are provided by Customer and accepted by VEM and to deliver such Products. For each Product or revision thereof, written specifications shall include but are not limited to bill of materials, designs, schematics, assembly drawings, process documentation, test specifications, current revision number, and approved vendor list (hereinafter “Specifications”).

VEM is granted by Customer a non-exclusive license during the term of this Agreement to use Customer’s patents, trade secrets and other intellectual property as necessary to perform VEM’s obligations under this Agreement.

2.0FORECASTS, ORDERS, MATERIAL PROCUREMENT

2.1Forecast. Customer shall provide VEM, on a monthly basis, a rolling six (6) month Product order forecast.

2.2Purchase Orders. Customer will issue written purchase orders once per calendar month which specify all Work to be completed within a minimum four (4) month period commencing on the date of the purchase order. Each purchase order shall reference this Agreement and the applicable written Specifications as described in Section 1.0. Purchase orders shall normally be deemed accepted by VEM, provided however that VEM may reject any order that represents a significant deviation from Customer’s most recent rolling Product order forecasts for the same time period. VEM shall notify Customer of rejection of any purchase order within five (5) working days of receipt of such order.

Customer may use its standard purchase order form to release items, quantities, prices, schedules, change notices, specifications, or other notice provided for hereunder. The parties agree that the terms and conditions contained in this Agreement shall prevail over any terms and conditions of any purchase order, acknowledgment form or other instrument used for ordering Work under this Agreement.

2.3Material Procurement. Customer’s accepted purchase orders will constitute authorization for VEM to procure, using standard purchasing practices, the labor, and the “Inventory” necessary for the manufacture of Products covered by such purchase orders. The Inventory includes components, materials and supplies.

In addition, Customer authorizes VEM to purchase, components, materials, and supplies: (i) with lead times exceeding the period covered by the accepted purchase orders for the Products to the extent necessary for the manufacture of additional Product covered by the Customer’s forecast (“Long Lead Time Components”) and, (ii) purchased in quantities above the required amount for purchase orders to achieve price targets (“Economic Order Inventory”), and (iii) purchased in excess of requirements for purchase orders because of minimum lot sizes available from manufacturers (“Minimum Order Inventory”). Together these are called “Special Inventory”.

The term “lead time” in this Section shall mean the lead time recorded on VEM’s MRP system at the time of procurement of Inventory and Special Inventory or at the time of the cancellation of the purchase order or termination of this Agreement whichever is greater.

VEM may purchase Long Lead-Time Components sufficient to meet all deliveries under the purchase orders and Product forecast in effect at the time the order with the supplier is placed, and may reasonably purchase Minimum Order Inventory even if greater than the amount necessary to meet purchase orders and Product forecast. Economic Order Inventory shall be purchased by VEM only with the prior approval of Customer.

In addition upon Customer’s written request, VEM may from time to time hold Long Lead-Time Components and finished Products in inventory to increase Customer’s sourcing flexibility. The components and quantities of all such inventory and the associated cost will be documented in a separate letter and signed by both VEM and Customer.

Customer will be responsible under the conditions provided elsewhere in this Agreement for all Inventory and Special Inventory purchased by VEM under this Section 2.3.

2.4Preferred Supplier. Customer shall provide a list of vendors currently approved to provide the materials and components specified in the bill of materials for the Product (the “Approved Vendor List” or “AVL”). VEM shall purchase from vendors on a current AVL the materials and components required to manufacture the Product. Customer shall give VEM every opportunity to be included on AVL’s for materials and components that VEM can supply, and if VEM is competitive with other suppliers with respect to reasonable and unbiased criteria for acceptance established by Customer, VEM shall be included on such AVL’s. If VEM is on an AVL and its prices and quality are competitive with other vendors, Customer will raise no objection to VEM sourcing materials and components from itself.

3.0 SHIPMENTS, SCHEDULE CHANGE, CANCELLATION

3.1Shipments. All Products delivered pursuant to the terms of this Agreement shall be suitably packed for shipment in accordance with Customer’s Specifications, marked for shipment to Customer’s destination specified in the applicable purchase order and delivered to a carrier or forwarding agent. Shipment will be F.O.B. VEM’s facility at which time risk of loss and title will pass to Customer. All freight, insurance and other shipping expenses, as well as any special packing expenses not included in the original price quotation for the Products, will be. paid by Customer.

3.2Quantity Increases and Shipment Schedule Changes. For any accepted purchase order, Customer may (i) increase the quantity of Products, or (ii) reschedule the quantity of Products and their shipment date as provided in the table below:


Maximum Allowable Variance From Purchase Order Quantities/Shipment Dates
# of days before Shipment Date on Purchase Order	Allowable Quantity Increases	Maximum Reschedule Quantity	Maximum Reschedule Period
0-14	0%	0%	0
15-30	0%	0%	0
31-60	20%	20%	30 days
61-90	35%	30%	30 days
91-120	50%	50%	60 days

Any purchase order quantities increased or rescheduled pursuant to this Section may not be subsequently increased or rescheduled without the prior written approval of VEM. Allowable quantity increases are subject to material availability. VEM will use reasonable commercial efforts to meet quantity increases.

All other changes in quantity or shipment date beyond the permitted variances set for above, require VEM’s prior written consent and shall be subject to an inventory carrying charge of 1.5% per month of the cost of finished Product, and Inventory and Special Inventory procured to support the changed quantity.

If there are extra costs to meet a reschedule or increase in excess of the above limits, VEM will inform Customer for its acceptance and approval in advan

3.3Cancellation. Customer may not cancel any portion of Product quantity of an accepted purchase order without VEM’s prior written approval, not to be unreasonably withheld. If the parties agree upon a cancellation, Customer will pay VEM for Products, Inventory, and Special Inventory affected by the cancellation as follows: (i) 100% of the current price for all finished Products in VEM’s possession, (ii) 110% of the cost of all Inventory and Special Inventory in VEM’s possession and not returnable to the vendor or usable for other customers, whether in raw form or work in process, less the salvage value thereof, (iii) 110% of the cost of all Inventory and Special Inventory on order and not cancelable, and (iv) any vendor cancellation charges incurred with respect to Inventory and Special Inventory accepted for cancellation or return by the vendor.

The term “cost” as it relates to Inventory and Special Inventory in this subsection shall mean the cost represented on the bill of materials supporting the most current Product price at the time of cancellation or termination.

VEM will use reasonable commercial efforts to return unused Inventory and Special Inventory and to cancel pending orders for such inventory, and to otherwise mitigate the amounts payable by Customer. Customer shall pay amounts due under this section within ten (10) days of receipt of an invoice. VEM will ship the Products, Inventory and Special Inventory paid for by Customer under this section to Customer promptly upon said payment by Customer. In the event Customer does not pay within ten (10) days, VEM will be entitled to dispose of Products, Inventory and Special Inventory in a commercially reasonable manner and credit to Customer any monies received from third parties. VEM shall then submit an invoice for the balance amount due and Customer agrees to pay said amount within ten (10) days of its receipt of the invoice.

4.0ENGINEERING CHANGES

Customer may request, in writing, that VEM incorporate engineering changes into the Product. Such request will include a description of the proposed engineering change sufficient to permit VEM to evaluate its feasibility and cost. VEM’s evaluation shall be in writing and shall state the costs and time of implementation and the impact on the delivery schedule and pricing of the Product. VEM will not be obligated to proceed with the engineering change until the parties have agreed upon the changes to the Product’s Specifications, delivery schedule and Product pricing and upon the implementation costs to be borne by the Customer including, without limitation, the cost of Inventory and Special Inventory on-hand and on-order that becomes obsolete.

5.0TOOLING, NON-RECURRING EXPENSES, MANUFACTURING SOFTWARE

VEM shall provide tooling that is not Product-specific at its expense. Customer shall pay for or obtain and consign to VEM any Product specific tooling and other reasonably necessary non-recurring expenses, to be set forth in VEM’s quotation. If VEM is to conduct Product testing, Customer will provide VEM with applicable and required board-level and completed unit test software and procedures necessary to perform testing of Products. All software related to manufacture or testing of the Products that Customer provides to VEM is and shall remain the property of Customer. Customer grants VEM a license to copy, modify and use such software required to perform VEM’s obligations under this Agreement. All software developed by Customer that is used or useful in connection with the Products shall remain the property of Customer and VEM shall have no right or license to use, copy, modify or distribute any such software.

6.0PRODUCT TITLE, INSPECTION AND WARRANTY

6.1Product Title. The Products delivered by VEM will be inspected as required by Customer within ten (10) days of receipt per Customer’s incoming Acceptance Procedure. If Products are found to be defective in […***…] or workmanship, Customer has the right to reject such Products during said period. Customer may return defective Products. VEM will issue credit for the assembly price plus freight, after obtaining a return material authorization number from VEM to be displayed on the shipping container and completing a failure report. VEM will issue return material authorizations within five (5) days of Customer’s request. Rejected Products will be promptly repaired or replaced, at VEM’s option, and returned. Customer shall bear all of the risk, and all costs and expenses, associated with Products that have been returned to VEM for which there is no defect found. If the Product is source inspected by Customer prior to shipment, Customer will inspect goods within five (5) days of its request date.

6.2Express Limited Warranty. VEM warrants that the Products-will have been manufactured in accordance with Customer’s applicable Specifications and will be free from defects in workmanship for a period of twelve (12) months from the date of shipment. […***…]. This express limited warranty does not apply to (a) materials consigned or supplied by Customer to VEM; (b) defects resulting from Customer’s Specifications or the design of the Products; (c) Product that has been abused, damaged, altered or misused by any person or entity after title passes to Customer. With respect to first articles, prototypes, pre-production units, test units or other similar Products, VEM makes no representations or warranties whatsoever. Notwithstanding anything else in this Agreement, VEM assumes no liability for or obligation related to the performance, accuracy, specifications, failure to meet specifications or defects of or due to tooling, designs or instructions produced or supplied by Customer and Customer shall be liable for costs or expenses incurred by VEM related thereto. Upon any failure of a Product to comply with the above warranty, VEM’s sole obligation, and Customer’s sole remedy, is for VEM, at its option, to promptly repair or replace such unit and return it to Customer freight prepaid. Customer shall return Products covered by the warranty freight pre-paid after completing a failure report and obtaining a return material authorization number from VEM to be displayed on the shipping container. Customer shall bear all of the risk, and all costs and expenses, associated with Products that have been returned to VEM for which there is no defect found.

VEM MAKES NO OTHER WARRANTIES ON THE PRODUCTS, EXPRESS, IMPLIED, STATUTORY, OR IN ANY OTHER PROVISION OF THIS AGREEMENT OR COMMUNICATION WITH CUSTOMER, AND VEM SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

7.0PAYMENT TERMS, ADDITIONAL COSTS AND PRICE CHANGES

7.1Price and Payment Terms. The price for Products to be manufactured will be agreed by the parties and will be indicated on the purchase orders issued by Customer and accepted by VEM. The initial price shall be as set forth on the Price List attached hereto and incorporated herein. The price for Products may be reviewed periodically by the parties. All prices quoted are exclusive of federal, state and local excise, sales, use and similar taxes, and any duties, and Customer shall be responsible for all such items. Payment for any Products, services or other costs to be paid by Customer hereunder is due thirty (30) days net from the date of invoice and shall be made in lawful U.S. currency. Customer agrees to pay 1.5% monthly interest on ail late payments. Furthermore, if Customer is late with payments, or VEM has reasonable cause to believe Customer may not be able to pay, VEM may require prepayment or delay shipments or suspend work until assurances of payment satisfactory to VEM are received.

7.2Credit Terms. VEM will, in good faith, review Customer’s creditworthiness periodically and may provide more favorable terms once it feels it is prudent: to do so. Customer agrees to provide all reasonably necessary financial information required for VEM to make a proper assessment of creditworthiness.

7.3Additional Costs. Customer is responsible for (a) any expediting charges reasonably necessary because of a change in Customer’s requirements beyond the permitted variances set forth in paragraph 3.2 above, which charges are preapproved, (b) any overtime or downtime charges incurred as a result of delays in the normal production or interruption in the workflow process and caused by: (1) Customer’s change in the Specifications; or (2) Customer’s failure to provide sufficient quantities or a reasonable quality level of materials where applicable to sustain the production schedule. Customer caused delays as a result of Customer-supplied materials will result in a special charge to the Customer of 1.5% of the sales price of the delayed Product for each month, or part thereof delayed.

7.4Price Changes. The price of Products to Customer may be increased by VEM if (a) the market price of fuels, materials, raw materials, equipment, labor and other production costs increase beyond normal variations in pricing as demonstrated by VEM, and (b) the parties agree to the increase. Price increases agreed to by the parties will be applied to all purchase orders accepted by VEM after the date of such agreement.

7.5[…***…]

8.0TERM AND TERMINATION

8.1Term. The term of this Agreement shall commence on the date hereof above and shall continue for one (1) year thereafter until terminated as provided in Section 8.2 or 10.9. After the expiration of the initial term hereunder (unless this Agreement has been terminated), this Agreement shall be automatically renewed for separate but successive one-year terms unless either party provides written notice to the other prior to the date that is ninety (90) days prior to the end of any term that it does not intend to renew this Agreement.

8.2Termination. This Agreement may be terminated by either party (a) for any reason upon six (6) months written notice to the other party, or (b) if the other party defaults inany payment to the terminating party and such default continues without a cure for a period of fifteen (15) days after the delivery of written notice thereof by the terminating party to the other party, (c) if the other party defaults in the performance of any other material term or condition of this Agreement and such default continues unremedied for a period of thirty (30) days after the delivery of written notice thereof by the terminating party to the other party, or (d) pursuant to Section 10.9. Expiration or termination of this Agreement under any of the foregoing provisions shall not affect the amounts due under this Agreement by either party that exist as of the date of expiration or termination, and as of such date the provisions of Section 3.3 shall apply with respect to payment and shipment to Customer of finished Products, Inventory, and Special Inventory in existence as of such date, EXCEPT THAT if Customer terminates this Agreement on the basis of a breach by VEM, the provisions of Section 3.3 (ii) and (iii) shall be changed to read 100% and the provisions of Section 3.3 (iv) and (v) shall not apply. Notwithstanding termination or expiration of this Agreement, Sections 6.2, 8.0, 9.0, and 10.0 shall survive said termination or expiration.

9.0LIABILITY, LIMITATION

9.1Patents, Copyrights, Trade Secrets, Other Proprietary Rights. Customer shall defend, indemnify and hold harmless VEM from all claims, liabilities, costs, damages, judgments and attorney’s fees resulting from or arising out. of any alleged and/or actual infringement or other violation of any patents, patent rights, trademarks, trademark rights, trade names, trade name rights, copyrights, trade secrets, proprietary rights and processes directly relating to VEM performance of the Work. VEM shall promptly notify Customer in writing of the initiation of any such claims, give Customer an adequate opportunity to defend, including complete control of such defense, and provide reasonable assistance to Customer, at Customer’s expense, in connection with the defense and settlement of any such claim.

THE FOREGOING STATES THE ENTIRE LIABILITY OF THE PARTIES TO EACH OTHER CONCERNING INFRINGEMENT OF PATENT, COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHTS.

9.2Product Liability. Customer agrees that, if notified promptly in writing and given sole control of the defense and all related settlement negotiations, Customer will defend VEM from any claim or action and will hold VEM harmless from any loss, liability, damage or injury, including death, which arises from any alleged defect of any Products.

9.3No Other Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES OF ANY KIND OR NATURE ARISING OUT OF THIS AGREEMENT OR THE SALE OF PRODUCTS, WHETHER SUCH LIABILITY IS ASSERTED ON THE BASIS OF CONTRACT, TORT (INCLUDING THE POSSIBILITY OF NEGLIGENCE OR STRICT LIABILITY), OR OTHERWISE, EVEN IF THE PARTY HAS BEEN WARNED OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE, AND EVEN IF ANY OF THE LIMITED REMEDIES IN THIS AGREEMENT FAIL OF THEIR ESSENTIAL PURPOSE, BUT EXCLUDING LIABILITY ASSERTED ON THE BASE OF BREACH OF CONFIDENTIALITY OBLIGATIONS.

10.0MISCELLANEOUS

10.1Confidentiality. The exchange of confidential information of each party shall be governed by the Confidentiality Agreement attached hereto.

10.2Entire Agreement. This Agreement, including the Confidentiality Agreement attached hereto, constitutes the entire agreement between the Parties with respect to the transactions contemplated hereby and supersedes all prior agreements and understandings between the parties relating to such transactions. Customer shall hold the existence and terms of this Agreement confidential, unless it obtains VEM’s express written consent otherwise. In all respects, this Agreement shall govern, and any other documents relating to the transactions contemplated by this Agreement, including, without limitation, preprinted terms and conditions on Customer’s purchase orders, shall be of no effect. This Agreement will be deemed to have been drafted by both parties.

10.3Amendments. This Agreement may be amended only by written consent of both parties.

10.4Independent Contractor. Neither party shall, for any purpose, be deemed to be an agent of the other party and the relationship between the parties shall only be that of independent contractors. Neither party shall have any right or authority to assume or create any obligations or to make any representations or warranties on behalf of any other party, whether express or implied, or to bind the other party in any respect whatsoever.

10.5Expenses. In the event a dispute between the parties hereunder with respect to this Agreement must be resolved by litigation or other proceeding or a party must engage an attorney to enforce its right hereunder, the prevailing party shall be entitled to receive reimbursement for all associated reasonable costs and expenses (including, without limitation, attorneys fees) from the other party.

10.6Governing Law, Venue. This Agreement shall be governed by and construed under the laws of the State of California, excluding its choice of law principles. The parties consent to the exclusive jurisdiction of the state and Federal courts in Santa Clara County, California.

10.7Successors, Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives. Neither party shall have the right to assign or otherwise transfer its rights or obligations under this Agreement except with the prior written consent of the other party, not to be unreasonably withheld.

10.8Force Majeure. In the event that either party is prevented from performing or is unable to perform any of its obligations under this Agreement (other than a payment obligation) due to any Act of God, fire, casualty, flood, earthquake, war, strike, lockout, epidemic, destruction of production facilities, riot, insurrection, materials unavailability, or any other cause beyond the reasonable control of the party invoking this section, and if such party shall have used its commercially reasonable efforts to mitigate its effects, including performing the work at a satellite facility, such party shall give prompt written notice to the other party, its performance shall be excused, and the time for the performance shall be extended for the period of delay or inability to perform due to such occurrences. During the period of delay or inability to perform, Customer may obtain from other sources, Products that are included on accepted purchase orders, and those Products obtained shall be cancelled from purchase orders issued to VEM with no penalty to Customer. Regardless of the excuse of Force Majeure, if such party is not able to perform within thirty (30) days after such event, the other party may terminate the Agreement.

10.9Notices. All notices required or permitted under this Agreement ill be in writing and will be deemed received (i) when delivered personally; (ii) when sent by confirmed facsimile; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) day after deposit with a commercial overnight carrier. All communications will be sent to the addresses set forth above or to such other address as may be designated by a party by giving written notice to the other party pursuant to his section.

ACCEPTED AND AGREED TO:

CUSTOMER:

VARIAN, INC. ELECTRONICS MANUFACTURING

/s/ G.L. Waite

/s/ Wilson Rudd

By:

Gary White

By:

Wilson Rudd

Title:

Vice President, Manufacturing

Title:

Vice President

Document

Exhibit 10.5

DATED

21 August 2021

LEASE

relating to

Land at Dale Road, Worthing, West Sussex, BN11 2RX

between

LONDONMETRIC DISTRIBUTION LIMITED

and

B & W GROUP LIMITED

and

DEI SALES, INC.


CONTENTS

CLAUSE


1. Interpretation			5
2. Grant			12
3. Tenant covenants			13
4. Payment of Annual Rent			13
5. Payment method			13
6. No set-off			13
7. Interest			13
8. Rates and Taxes.			13
9. Utilities			14
10. Common items			14
11. Costs			14
12. Prohibition of dealings			14
13. Assignments			14
14. Underletting			15
15. Sharing Occupation			17
16. Charging			17
17. Notification and registration of dealings			17
18. Repair			17
19. Decoration			18
20. Alterations			18
21. Signs			19
22. Returning the Property to the Landlord			19
23. Use			20
24. Condition of the Property			20
25. Allow entry			20
26. Keyholders and emergency contact details			20
27. Compliance with laws			21
28. Energy Performance Certificates			22
29. Sustainability			22
30. Energy Use and Consumption			23
31. Waste Management and Recycling			23
32. Environmental Law			23
33. Registration of this lease			24
34. Closure of registered title			24
35. Encroachments and preservation of rights			24
36. Guarantor consent and replacement			24
37. Guarantor			25
38. Indemnity			25
39. Title Matters			25
40. Landlord covenants			25
41. Quiet enjoyment			25
42. Exercise of right of entry			25
43. Re-entry and forfeiture			26
44. Section 62 of the LPA 1925			26
45. Compensation on vacating			26
46. No restriction on Landlord’s use			26
47. Limitation of liability			26
48. Breach of repair and maintenance obligation			26
49. Notices			27
50. Consents and approvals			27
51. VAT			28
52. Notices			28
53. Joint and several liability			28
54. Entire agreement			28
55. Contracts (Rights of Third Parties) Act 1999			28
56. Governing Law			29
57. Jurisdiction			29

LR1. Date of lease

31 August 2021

LR2. Title number(s)

LR2.1 Landlord’s title number(s)

WSX254730

LR2.2 Other title numbers

None

LR3. Parties to this lease

Landlord

LONDONMETRIC DISTRIBUTION LIMITED
1 CURZON STREET, LONDON, W1J 5HB
COMPANY REGISTERED NUMBER 09269541

Tenant

B & W GROUP LIMITED
DALE ROAD, WORTHING, WEST SUSSEX, BN11 2RX
COMPANY REGISTERED NUMBER 00880499

Other parties

None

Guarantor

DEI SALES INC.
A FLORIDA CORPORATION WITH DOCUMENT NUMBER
P04000120412 WHOSE PHYSICAL OFFICE IS AT 5541
FERMI COURT, CARLSBAD, CA 92008, UNITED STATES
OF AMERICA AND WHOSE REGISTERED OFFICE IS
C/O CT CORPORATION SYSTEM, 1200 SOUTH PINE
ISLAND ROAD, PLANTATION, FL 33324, UNITED STATES
OF AMERICA

LR4. Property

In the case of a conflict between this clause and the remainder of this lease then, for the purposes of registration, this clause shall prevail.

See the definition of “Property” in Clause 1.1 of this lease.

LR5. Prescribed statements etc.

LR5.1 Statements prescribed under rules 179 (dispositions in favour of a charity), 180 (dispositions by a charity) or 196 (leases under the Leasehold Reform, Housing and Urban Development Act 1993) of the Land Registration Rules 2003.

None.

LR5.2 This lease is made under, or by reference to, provisions of:

None.

LR6. Term for which the Property is leased

The term specified in the definition of “Contractual Term” in Clause 1.1 of this lease.

LR7. Premium

None.

LR8. Prohibitions or restrictions on disposing of this lease

This lease contains a provision that prohibits or restricts dispositions.

LR9. Rights of acquisition etc.

LR9.1 Tenant’s contractual rights to renew this lease, to acquire the reversion or another lease of the Property, or to acquire an interest in other land

None.

LR9.2 Tenant’s covenant to (or offer to) surrender this lease

None.

LR9.3 Landlord’s contractual rights to acquire this lease

None.

LR10. Restrictive covenants given in this lease by the Landlord in respect of land other than the Property

None.

LR11. Easements

LR11.1 Easements granted by this lease for the benefit of the Property

None.

LR11.2 Easements granted or reserved by this lease over the Property for the benefit of other property

None.

LR12. Estate rent charge burdening the Property

None.

LR13. Application for standard form of restriction

None.

LR14. Declaration of trust where there is more than one person comprising the Tenant

This lease is dated 31 August 2021

PARTIES

(1)LONDONMETRIC DISTRIBUTION LIMITED incorporated and registered in England and Wales with company number 09269541 whose registered office is at 1 Curzon Street, London, W1J 5HB (Landlord)

(2)B & W GROUP LTD incorporated and registered in England and Wales with company number 00880499 whose registered office is at Dale Road, Worthing, West Sussex, BN 11 2BH (Tenant)

(3)DEI SALES, INC., a Florida corporation, document number P04000120412 whose physical office is at 5541 Fermi Court, Carlsbad, CA 92008, United States of America and whose registered office is c/o CT Corporation System, 1200 South Pine Island Road, Plantation, FL 33324, United States of America (Guarantor)

BACKGROUND

(A)The Landlord is the freehold owner of the Property.

(B)The Landlord has agreed to grant a lease of the Property to the Tenant on the terms set out in this lease.

AGREED TERMS

1.Interpretation

The following definitions and rules of interpretation apply in this lease.

1.1Definitions:

Accounting Principles: generally accepted accounting principles in the United Kingdom including relevant requirements of the Companies Act 2006 and UK accounting standards issued by the Financial Reporting Council.

Annual Rent: rent at an initial amount of nine hundred and seventy-two thousand pounds sterling […***…] per annum and then as revised under Schedule 3 and any interim rent determined under the LTA 1954.

Asset Rating: has the meanings given to it in the EPC Regulations.

Accounts: audited accounts of the proposed assignee, including a profit and loss account and balance sheet, drawn up in respect of an accounting period and:

(a)in respect of a proposed assignee incorporated or resident in the United Kingdom:

(i)audited by an independent accountant duly registered as an auditor qualified to audit company accounts;

(ii)prepared in accordance with the Accounting Principles; and

(b)in respect of a proposed assignee who is a company, prepared in accordance with the provisions of the Companies Act 2006; and

(c)in respect of a proposed assignee who is not incorporated or resident in the United Kingdom:

(i)audited by reputable accountants qualified to act as auditors in the country of incorporation or residence of the proposed assignee who have certified them to provide a true and fair view of the matters to which they relate;

(ii)prepared in accordance with accepted accounting principles and statutory requirements applicable in that country; and

(iii)that the Landlord, acting reasonably, accepts have been prepared and audited to standards reasonably comparable with those applying in the United Kingdom.

Assignment Test: means that either:

(a)

(i)Accounts for the proposed assignee are produced to the Landlord for each of the two immediately preceding annual accounting periods (the latest of which must be within the last 12 months) (the “Assignee’s Accounts”); and

(ii)the Assignee’s Accounts show:

(A)a Revenue of […***…] or more; and

(B)EBITDA equivalent to five times the Annual Rent (excluding VAT) then payable under the Lease (ignoring any cesser of rent or rent abatement) or more

in each case in each of those two financial years.

(b)a guarantor is provided for the proposed assignee and there is produced to the Landlord for that guarantor audited accounts for that guarantor for the most recent audited year (“the guarantor’s most recent audited year” being the financial year of the guarantor ending last before its then current financial year) and for the two financial years of the guarantor preceding the guarantor’s most recent audited year which show:

(i)a Revenue of […***…] or more;

(ii)the EBITDA equivalent to[…***…] the Annual Rent (excluding VAT) then payable under the Lease (ignoring any cesser of rent or rent abatement) or more in either each of those three financial years; and

(iii)total assets of […***…] the Annual Rent (excluding VAT) then payable under the Lease (ignoring any cesser of rent or rent abatement) in each of those two financial years.

Authorised Person: any:

a)undertenant or person deriving title under the Tenant;

b)workers, contractors or agents of the Tenant or of any person referred to in paragraph (a) of this definition; or

c)person at the Property with the actual or implied authority of the Tenant or any person referred to in paragraph (a) or paragraph (b) of this definition.

Base Specification: the reinstatement specification at Schedule 8.

CDM Regulations: the Construction (Design and Management) Regulations 2015 (SI 2015/51).

Contractual Term: a term of fifteen (15) years from and including the date of this lease and expiring on 30 August 2036.

Covenants: the covenants contained in Schedule 2 of the Deed of Surrender dated 11 July 1997 made between (1) The Borough Council of Worthing and (2) The County Council of West Sussex;

Covenanted Land: the land shown edged blue on the Plan at Schedule 9 ;

Default Interest Rate: 4% per annum above the Interest Rate.

EBITDA: has the meaning given to it in Schedule 7.

Energy Assessor: an individual who is a member of an accreditation scheme approved by the Secretary of State in accordance with regulation 22 of the EPC Regulations.

Energy Performance Certificate: a certificate as defined in regulation 2(1) of the EPC Regulations.

Environment: any of the following:

a)land including (without limitation) any building, structure, or receptacle in, on, over, or under it;

b)water including (without limitation) surface, coastal, and ground waters;

c)air including (without limitation) the atmosphere within any natural or man- made structure or receptacle above or below ground,

d)and any living organism, including humans, or systems supported by these;

Environmental Laws: means any laws, common law, code of practice, guidance, procedure or standard applicable to the United Kingdom relating to the protection of the Environment including (without limitation) matters affecting human health and safety, the health of other living organisms, and/or the disposal, spillage, release, emission;

Environmental Performance: means all or any of the following:

(a)the consumption of energy and associated generation of greenhouse gas emissions;

(b)the consumption of water;

(c)waste generation and management; and

(d)any other environmental impact arising from the use or operation of the Property;

EPC Regulations: Energy Performance of Buildings (England and Wales) Regulations 2012 (SI 2012/3118).

Excluded Insurance Items: any:

a)glass forming part of the Property; and

b)tenant’s fixtures that are installed by or for the Tenant, any undertenant or occupier of the Property and that form part of the Property.

Group Company: a company within the same group of companies as the Tenant within the meaning of section 42 of the LTA 1954.

Guarantor means the party so named in the Prescribed Clauses and any person who from time to time guarantees the obligations of the Tenant under this Lease.

Highways Licences: both (a) a licence to plant in the Highway Roundabout Island dated 9 December 2004 made between West Sussex County Council (1) and B & W Loudspeakers Ltd (2) and (b) a licence to place apparatus under the Highway dated 10 May 2002 made between West Sussex County Council (1) and B & W Loudspeakers Ltd (2);

Insolvency Event: subject to clause 4, any one or more of the following:

a)the taking of any step in connection with any voluntary arrangement or any other compromise or arrangement for the benefit of any creditors of the Tenant or any Guarantor;

b)the making of an application for an administration order or the making of an administration order in relation to the Tenant or any Guarantor;

c)the giving of any notice of intention to appoint an administrator, or the filing at court of the prescribed documents in connection with the appointment of an administrator,

or the appointment of an administrator, in any case in relation to the Tenant or any Guarantor;

d)the appointment of a receiver or manager or an administrative receiver in relation to any property or income of the Tenant or any Guarantor;

e)the commencement of a voluntary winding-up in respect of the Tenant or any Guarantor, except a winding-up for the purpose of amalgamation or reconstruction of a solvent company in respect of which a statutory declaration of solvency has been filed with the Registrar of Companies;

f)the making of a petition for a winding-up order or a winding-up order in respect of the Tenant or any Guarantor;

g)the striking-off of the Tenant or any guarantor from the Register of Companies or the making of an application for the Tenant or any Guarantor to be struck-off or is dissolved;

h)the Tenant or any Guarantor otherwise ceasing to exist (but excluding where the Tenant or any Guarantor dies);

i)the Tenant or any guarantor enters into any arrangement, scheme, compromise or composition with its creditors (whether pursuant to Part I or Part VIII of the Insolvency Act 1986 or otherwise);

j)the Tenant or any Guarantor applies for or obtains or extends a moratorium under Part A1 of the Insolvency Act 1986;

k)the Tenant or any Guarantor enters into a restructuring plan pursuant to Part 26A of the Companies Act 2006;

l)the Tenant or any Guarantor is unable to pay its debts within the meaning of section 123 of the Insolvency Act 1986 or pay his debts under section 268 of the Insolvency Act 1986;

m)the making of an application for a bankruptcy order, the presentation of a petition for a bankruptcy order or the making of a bankruptcy order against the Tenant or any Guarantor; or

n)any analogous or equivalent proceedings, actions or events to those referred to above in paragraphs (a) - (m) are instituted or occur in relation to the Tenant and/or any Guarantor in any other jurisdiction;

Insurance Rent: the aggregate in each year of:

a)the gross cost of any premiums that the Landlord expends (before discount or commission is allowed or paid to the Landlord) and properly incurred fees and other expenses that the Landlord incurs in insuring the Property (excluding the Excluded Insurance Items) against the Insured Risks for the Reinstatement Cost in accordance with this lease;

b)the gross cost of the premium before any discount or commission for insurance for loss of Annual Rent from the Property for three (3) years; and

c)any IPT and any VAT (except to the extent that the Landlord obtains credit for such VAT as input tax or otherwise recovers it) payable on any sum set out in paragraphs (a) and (b) of this definition.

Insured Risks: fire, explosion, lightning, earthquake, tempest, storm, flood, bursting and overflowing of water tanks, apparatus or pipes, damage to underground water, oil or gas pipes or electricity wires or cables, impact by aircraft and aerial devices and articles dropped from them, impact by vehicles, terrorism, subsidence, ground slip, heave, riot, civil commotion, strikes, labour or political

disturbances, malicious damage to the extent, in each case, that cover is generally available on normal commercial terms in the UK insurance market at the time the insurance is taken out, and any other risks against which the Landlord decides to insure against from time to time subject in all cases to any excesses, limitations and exclusions imposed by the insurers and Insured Risk means any one of the Insured Risks.

Interest Rate: the base rate from time to time of Barclays Bank plc or, if that base rate stops being used or published, a comparable commercial rate specified by the Landlord (acting reasonably).

IPT: Insurance Premium Tax chargeable under the Finance Act 1994 or any similar replacement or additional tax.

LPA 1925: Law of Property Act 1925.

LTA 1927: Landlord and Tenant Act 1927.

LTA 1954: Landlord and Tenant Act 1954.

LTCA 1995: Landlord and Tenant (Covenants) Act 1995.

Material Defect: a defect in the reasonable opinion of the Tenant in the design construction or building of the Property or the materials or equipment used on it attributable to any defective design, defective workmanship or materials or defective supervision or preparation of construction of the installation of anything at the Property.

Permit: any consent, approval, authorisation, permission, permit, licence, registration, or notification required under any Environmental Law;

Permitted Use: a sui generis mixed use of storage and distribution (use class B8); general industrial (use Class B2); and offices (use class E(g)(i)) where such use classes are as that set out in the Town and Country (Use Classes) Order 1987 (as amended) as at the date of this Lease except for the Covenanted Land which shall only be used as industrial open storage purposes (except as otherwise developed as at the date of this Lease);

Planning Consent: any permission, approval, consent, certificate or determination pursuant to the Planning Acts including (without limitation) a planning permission;

Planning Acts: the Town and Country Planning Act 1990, the Planning (Listed Buildings and Conservation Areas) Act 1990, the Planning (Hazardous Substances) Act 1990, the Planning (Consequential Provisions) Act 1990, the Planning and Compensation Act 1991, the Planning and Compulsory Purchase Act 2004, the Planning Act 2008, the Localism Act 2011, the Neighbourhood Planning Act 2017 and any other legislation relating to town and country planning in force from time to time;

President: the president for the time being of the Royal Institution of Chartered Surveyors or a person acting on their behalf.

Property: the land and buildings at Dale Road, Worthing, West Sussex, BN11 2RX registered at the Land Registry with freehold title absolute under title number WSX254730.

Property Damage: damage to or destruction of the Property (excluding the Excluded Insurance Items) that makes the Property unfit for occupation and use.

Rates and Taxes: all present and future rates, taxes and other impositions and outgoings payable in respect of the Property, its use and any works carried out there (or a fair proportion of the total cost of those rates, taxes, impositions and outgoings if any are payable in respect of the Property together with any other property) but excluding any taxes:

a)payable by the Landlord in connection with dealing with or disposition of the reversion to this lease; or

b)(except VAT) payable by the Landlord by reason of the receipt of any of the Rents due under this lease.

Recommendation Report: a report as defined in regulation 4 of the EPC Regulations.

Reinstatement Cost: the sum equal to the Landlord’s reasonable estimate from time to time of the full cost of reinstatement of the Property (excluding the Excluded Insurance Items) and including any costs of demolition, site clearance, site protection, shoring up, professionals’ and statutory fees and incidental expenses and any other work to the Property that may be required by law and any VAT on all such costs, fees and expenses.

Relevant Period: each period of twelve months ending on or about the last day of the proposed assignee’s financial year and each period of twelve months ending on or about the last day of each financial quarter.

Rents: the rents set out in clause 2.2.

Rent Commencement Date: the date of this lease.

Rent Payment Dates: 25 March, 24 June, 29 September and 25 December.

Revenue: means the aggregate of all sums of money or other consideration received or receivable for all goods sold, leased, hired or otherwise disposed of by the proposed assignee and for all services sold or performed by the proposed assignee excluding VAT, purchase tax and any similar sales or excise tax imposed directly on the proposed assignee in respect of the supply of goods or services;

Rights: the rights granted in Schedule 1.

Service Media: all media for the supply or removal of Utilities and all structures, plant, machinery and equipment ancillary to those media.

Signs: signs, fascia, awnings, placards, boards, posters and advertisements.

Term: the Contractual Term and any statutory continuation of this lease.

Termination Date: the date on which the Term ends (however it ends).

Title Matters: the matters set out in the charges register of title WSX254730 at 11:00:49 on 25 June 2021.

Transaction: is:

a)any dealing with this lease or the devolution or transmission of or parting with possession of any interest in it;

b)the creation of any underlease or other interest out of this lease or out of any interest or underlease derived from it and any dealing, devolution or transmission of or parting with possession of any such interest or underlease; or

c)the making of any other arrangement for the occupation of the Property.

Transfer Covenants: the covenants contained in paragraph 3.5 of Part III of the First Schedule and the Second Schedule of the transfer dated 19 January 2001 made between (1) The Borough Council of Worthing and (2) B & W Loudspeakers Limited;

Uninsured Risks: any of the risks expressly specified in the definition of Insured Risks where such risks are not insured against at the date of the relevant damage or destruction because:

a)of an exclusion or limitation imposed by the insurers; or

b)insurance for such risks was not generally available in the London insurance market on reasonable terms acceptable to the Landlord at the time the insurance policy was entered into;

but will not include loss or damage (or the risk of it) caused by reason of the Tenant’s acts or omissions or those acts and omissions caused by reason of an Authorised Person and Uninsured Risk means any one of the Uninsured Risks.

Utilities: electricity, gas, water, sewage, air-conditioning, heating, energy, telecommunications, ventilation, data and all other services and utilities.

Utility Costs: all costs in connection with the supply or removal of Utilities to or from the Property (or a fair proportion of the total cost if any of those costs are payable in respect of the Property together with any other property).

VAT: value added tax chargeable in the UK.

A reference to this lease, except a reference to the date of this lease or to the grant of this lease, is a reference to this deed and any deed, licence, consent, approval or other instrument supplemental or collateral to it.

1.2The Schedules form part of this lease and shall have effect as if set out in full in the body of this lease. Any reference to this lease includes the Schedules.

1.3Unless the context otherwise requires, references to clauses, Schedules and Annexes are to the clauses, Schedules and Annexes of this lease and references to paragraphs are to paragraphs of the relevant Schedule.

1.4Clause, Schedule and paragraph headings shall not affect the interpretation of this lease.

1.5A reference to:

(1)the Landlord includes a reference to the person entitled to the immediate reversion to this lease;

1.athe Tenant includes a reference to its successors in title and assigns; and

1.ba guarantor of the tenant covenants of this lease including the Guarantor and a guarantor who has entered into an authorised guarantee agreement.

1.6In relation to any payment, a reference to a fair proportion is to a fair proportion of the total amount payable, determined conclusively (except as to questions of law) by the Landlord.

1.7A person includes a natural person, corporate or unincorporated body (whether or not having separate legal personality).

1.8Unless the context otherwise requires, a reference to one gender shall include a reference to the other genders.

1.9The expressions authorised guarantee agreement, landlord covenant and tenant covenant each has the meaning given to it by the LTCA 1995.

1.10Any obligation on the Tenant or any Guarantor not to do something includes an obligation not to allow that thing to be done and an obligation to use best endeavours to prevent that thing being done by another person.

1.11References to:

(a)the consent of the Landlord are to the consent of the Landlord given in accordance with clause 50.1;

(b)the approval of the Landlord are to the approval of the Landlord given in accordance with clause 50.3; and

(c)any consent or approval required from the Landlord shall be construed as also including a requirement to obtain the consent or approval of any mortgagee of the Landlord where such consent or approval is required under the terms of the mortgage. Except that nothing in this

lease shall be construed as imposing on any mortgagee any obligation (or indicating that such an obligation is imposed on any mortgagee by the terms of the mortgage) not unreasonably to refuse any such consent.

1.12Unless the context otherwise requires, references to the Property are to the whole and any part of.

1.13Unless the context otherwise requires, any words following the terms including, include, in particular, for example or any similar expression shall be construed as illustrative and shall not limit the sense of the words, description, definition, phrase or term preceding those terms.

1.14For the purposes of the definition of Insolvency Event:

(a)where any of the paragraphs in that definition apply in relation to:

(i)a partnership or limited partnership (as defined in the Partnership Act 1890 and the Limited Partnerships Act 1907 respectively), that paragraph shall apply subject to the modifications referred to in the Insolvent Partnerships Order 1994 (SI 1994/2421) (as amended); and

(ii)a limited liability partnership (as defined in the Limited Liability Partnerships Act 2000), that paragraph shall apply subject to the modifications referred to in the Limited Liability Partnerships Regulations 2001 (SI 2001/1090) (as amended); and

(b)Insolvency Event includes any analogous proceedings or events that may be taken pursuant to the legislation of another jurisdiction in relation to a tenant or guarantor incorporated or domiciled in such relevant jurisdiction.

1.15A reference to writing or written excludes fax and email.

1.16Unless the context otherwise requires, words in the singular shall include the plural and in the plural shall include the singular.

1.17A working day is any day which is not a Saturday, a Sunday, a bank holiday or a public holiday in England or Wales.

1.18Unless expressly provided otherwise in this lease, a reference to legislation or a legislative provision is a reference to it as amended, extended or re-enacted from time to time.

1.19Unless expressly provided otherwise in this lease, a reference to legislation or a legislative provision shall include all subordinate legislation made from time to time under that legislation or legislative provision.

1.20If any provision or part-provision of this lease is or becomes invalid, illegal or unenforceable, it shall be deemed deleted, but that shall not affect the validity and enforceability of the rest of this lease.

2.Grant

2.1The Landlord lets the Property to the Tenant (at the request of the Guarantor):

(a)for the Contractual Term;

(b)with full title guarantee;

(c)together with the Rights;

(d)excepting and reserving the Reservations; and

(e)subject to all easements, quasi easements, rights and privileges affecting the Property and the Title Matters.

2.2The grant in clause 2.1 is made with the Tenant paying as rent to the Landlord:

(a)the Annual Rent;

(b)the Insurance Rent;

(c)all interest payable under this lease; and

(d)all other sums payable under this lease; and

(e)all VAT chargeable on the other rents set out in this clause 2.2.

3.Tenant covenants

The Tenant covenants with the Landlord to observe and perform the tenant covenants of this lease during the Term or (if earlier) until the Tenant is released from the tenant covenants of this lease by virtue of the LTCA 1995.

4. Payment of Annual Rent

The Tenant must pay the Annual Rent by four equal installments in advance on or before the Rent Payment Dates except that:

(a)the Tenant must pay the first installment of Annual Rent on the Rent Commencement Date; and

(b)that first installment of Annual Rent shall be the proportion of the Annual Rent calculated on a daily basis for the period from and including the Rent Commencement Date to and including the day before the next Rent Payment Date after the Rent Commencement Date.

5.Payment method

The Tenant must pay the Annual Rent and all other sums payable under this lease by:

(a)electronic means from an account held in the name of the Tenant to the account notified from time to time to the Tenant by the Landlord; or

(b)any other method that the Landlord reasonably requires from time to time and notifies to the Tenant.

6.No set-off

The Tenant must pay the Annual Rent and all other sums payable under this lease in full without any set-off, counterclaim, deduction or withholding (other than any deduction or withholding of tax as required by law).

7. Interest

7.1If any of the Annual Rent or any other sum payable by the Tenant under this lease has not been paid on its due date (or, if no date is specified, not paid within 3 working days after the date of demand), the Tenant must pay to the Landlord interest on that amount at the Default Interest Rate (both before and after any judgment). Such interest shall accrue on that amount on a daily basis for the period beginning on and including its due date to and including the date of payment.

7.2If the Landlord does not demand or accept any of the Annual Rent or any other sum due from, or tendered by, the Tenant under this lease because the Landlord reasonably believes that the Tenant is in breach of any of the tenant covenants of this lease, then, when that amount is accepted by the Landlord, the Tenant must pay to the Landlord interest on that amount at the Default Interest Rate. Such interest shall accrue on that amount on a daily basis for the period beginning on and including its due date to and including the date it is accepted by the Landlord.

8.Rates and Taxes.

8.1The Tenant must pay all Rates and Taxes.

8.2The Tenant must not make any proposal to alter the rateable value of the Property (or that value as it appears on any draft rating list) without the approval of the Landlord.

9.Utilities

9.1The Tenant must pay all Utility Costs.

9.2The Tenant must comply with all laws and with any recommendations of the relevant suppliers relating to the supply and removal of Utilities to or from the Property.

10.Common items

The Tenant must pay to the Landlord on demand a fair proportion of all properly incurred costs payable by the Landlord (including all properly incurred professional fees and disbursements) for the maintenance, repair, lighting, cleaning, rebuilding and renewal of all Service Media, structures and other items not on or in the Property but used or capable of being used by the Property in common with other land.

11. Costs

The Tenant must pay on demand and on a full indemnity basis the costs and expenses of the Landlord including any solicitors’ or other professionals’ costs and expenses (whether incurred before or after the Termination Date) in connection with, or in contemplation of, any of the following:

(a)the enforcement of the tenant covenants of this lease (including the recovery of any arrears);

(b)the preparation and service of any notice in connection with this Lease;

(c)serving any notice or taking any proceedings in connection with this lease under section 146 or 147 of the LPA 1925 (notwithstanding that forfeiture is avoided otherwise than by relief granted by the court);

(d)serving any notice in connection with this lease under section 17 of the LTCA 1995;

(e)the preparation and service of a schedule of dilapidations in connection with this lease provided that that schedule is served on or before the date which is six months from and including the Termination Date; or

(f)any consent or approval applied for under this lease, whether or not it is granted (unless the consent or approval is unreasonably withheld by the Landlord);

12.Prohibition of dealings

Except as expressly permitted by clause 13 and clause 14 and clause 15 and clause 16, the Tenant must not:

(a)assign, underlet, charge, part with or share possession or occupation of the whole or part of either this lease or the Property; or

(b)assign, part with or share any of the benefits or burdens of this lease, or in any interest derived from it, whether by a virtual assignment or other similar arrangement; or

(c)hold the lease on trust for any person (except pending registration of a dealing permitted by this lease at HM Land Registry or by reason only of joint legal ownership).

13.Assignments

13.1Except as provided for in this clause 13 (Assignments) the Tenant may not assign the Lease.

13.2The Tenant may assign the whole of this lease with the consent of the Landlord (such consent not to be unreasonably withheld).

13.3The Landlord and the Tenant agree that, for the purposes of section 19(1 A) of the LTA 1927, the Landlord may give its consent to an assignment subject to all or any of the following conditions:

(a)Except for an assignment of whole to a Group Company, (if the Landlord reasonably requires) a condition that the assignor enters into an authorised guarantee agreement substantially in the form set out in Schedule 6 in favour of the Landlord (with such amendments and additions as the Landlord may reasonably require);

(b)a condition that any guarantor of the assignor (other than a guarantor under an authorised guarantee agreement) enters into a guarantee in favour of the Landlord in a form reasonably required by the Landlord guaranteeing that the assignor will comply with the terms of the authorised guarantee agreement; or

(c)a condition that a person of standing acceptable to the Landlord (acting reasonably) enters into a guarantee and indemnity of the tenant covenants of this lease in the form set out in Schedule 5 (but with such amendments and additions as the Landlord may reasonably require).

13.4The Landlord and the Tenant agree that, for the purposes of section 19(1A) of the LTA 1927, the Landlord may refuse its consent to an assignment if any of the following circumstances exist:

(a)the Annual Rent or any other sum due under this lease is outstanding;

(b)there is a material breach of covenant by the Tenant that has not been remedied;

(c)if (in the reasonable opinion of the Landlord) the Assignment Test has not been satisfied;

(d)in the Landlord’s reasonable opinion, the proposed assignee (together with any guarantor, if applicable) is not of equal or greater covenant strength to the Tenant (when assessed together with any Guarantor) as at the date of this Lease to enable it to comply with the covenants and conditions contained in this lease; or

(e)the proposed assignee (or any proposed guarantor) is a corporation registered in, or an individual whose usual place of abode is in a jurisdiction in which a court order obtained in England and Wales will not be enforced without any consideration of the merits of the case.

13.5Nothing in this clause shall prevent the Landlord from giving consent subject to any other reasonable condition nor from refusing consent to an assignment in any other circumstance where it is reasonable to do so.

14.Underletting

14.1The Tenant may underlet the whole or part of the Property in accordance with this clause 14 and with the, consent of the Landlord (such consent not to be unreasonably withheld) and provided that the Tenant does not create more than three concurrent underleases at any time.

14.2The Tenant must not underlet the whole or part of the Property:

(a)together with any property, or any right over property, that is not included within this lease;

(b)at a fine or premium or reverse premium;

(c)allowing any rent-free period to the undertenant that exceeds the period that is then usual in the open market for such a letting;

(d)unless the underlease has first been validly excluded from the provisions of the LTA 1954 (where it is a lease that might otherwise acquire security of tenure under Part II of the LTA 1954);

(e)other than for a term that will expire on the earlier of (a) no later than three days before the Contractual Term expires by effluxion of time and (b) the date that this lease ends or is otherwise determined in accordance with this lease;

(f)unless the undertenant has first entered into a direct covenant in favour of the Landlord to observe and perform the tenant covenants in the underlease and any document that is collateral or supplemental to it; and

(g)unless a person of standing acceptable to the Landlord (acting reasonably) enters into a guarantee and indemnity of the tenant covenants of the underlease in favour of the Landlord in the form set out in Schedule 5 (but with such amendments and additions as the Landlord may reasonably require).

14.3Any underletting by the Tenant must include:

(a)an agreement between the Tenant and the undertenant that the provisions of sections 24 to 28 of the LTA 1954 are excluded from applying to the tenancy created by the underlease (where the underlease was required to be contracted out under clause 14.2(d));

(b)the reservation of a rent which is not less than the open market rental value of the Property at the date on which the Landlord grants consent to the underletting or that reasonably attributable to the part of the Property underlet;

and which is payable at the same times as the Annual Rent under this lease (but this shall not prevent an underlease providing for a rent-free period of a length permitted by clause 14.2(c));

(c)provisions for the review of rent at the same dates and on the same basis as the review of the Annual Rent in this lease;

(d)a covenant by the undertenant not to:

(i)assign or charge the whole or any part of the underlease;

(ii)part with, share possession or share occupation of the whole or any part of the underlet property;

(iii)underlet the whole or part only of the underlet property; and

(iv)hold the underlease on trust for any person (except pending registration of a dealing permitted by the underlease at HM Land Registry or by reason only of joint legal ownership);

(a)a covenant to comply with the terms of this lease except the covenant to pay the Annual Rent;

(b)covenants by the undertenant not to use the Property other than for the Permitted Use and including covenants consistent with this Lease and the Permitted Use;

(c)contains a right of re-entry on breach of any covenant by the undertenant; and

(d)provisions requiring the consent or approval of the Landlord to be obtained in respect of any matter for which the consent or approval of the Landlord is required under this lease.

14.4Any underletting by the Tenant must otherwise be:

(a)by deed;

(b)consistent with and include tenant covenants no less onerous than those in this lease excluding the covenant in this lease to pay the Annual Rent; and

(c)in a form approved by the Landlord (such approval not to be unreasonably withheld).

14.5In relation to any underlease granted by the Tenant, the Tenant must:

(a)not vary the terms of the underlease nor accept a surrender of the underlease without the consent of the Landlord (such consent not to be unreasonably withheld);

(b)enforce the tenant covenants in the underlease and not waive any of them nor allow any reduction in the rent payable under the underlease; and

(c)ensure that in relation to any rent review the revised rent is not agreed without the approval of the Landlord (such approval not to be unreasonably withheld).

15.Sharing Occupation

15.1The Tenant may share occupation of the Property with a Group Company for as long as that company remains a Group Company and provided that no relationship of landlord and tenant is established by that arrangement and the Tenant notifies the Landlord of the name of each occupier within five (5) working days of it having taken up occupation.

16.Charging

The Tenant may charge the whole of this lease with the consent of the Landlord (such consent not to be unreasonably withheld).

17. Notification and registration of dealings

17.1Within one month of any Transaction, the Tenant must:

(a)give the Landlord notice of the Transaction;

(b)deliver a certified copy of any document effecting or evidencing the Transaction to the Landlord (including a certified copy of any notice served under, or any declaration or statutory declaration made in accordance with, section 38A of the LTA 1954 as part of such Transaction); and

(c)pay the Landlord a registration fee of £50 (plus VAT).

17.2In respect of every Transaction that is registrable at HM Land Registry, the Tenant must:

(a)promptly following completion of the Transaction apply to register it (or procure that the relevant person applies to register it);

(b)(or must procure that) any requisitions raised by HM Land Registry in connection with an application to register a Transaction are responded to promptly and properly; and

(c)within one month of completion of the registration, send the Landlord official copies of its title (and where applicable of the undertenant’s title).

17.3If requested by the Landlord, the Tenant must promptly supply the Landlord with full details of the occupiers of the Property and the terms on which they occupy it.

18.Repair

18.1The Tenant must:

(a)subject to clause 18.2, keep the Property in good and substantial repair and condition;

(b)keep the Property clean, tidy and clear of rubbish; and

(c)replace as soon as possible with glass of similar appearance and of similar or better quality any glass forming part of the Property that becomes cracked or broken.

18.2The Tenant shall not be liable to repair the Property (excluding any Excluded Insurance Items) to the extent that any disrepair has been caused by an Insured Risk unless and to the extent that:

(a)the policy of insurance of the Property has been vitiated or any insurance proceeds withheld in consequence of any act or omission of the Tenant (except where the Tenant has paid an amount equal to any insurance money that the insurers refuse to pay in accordance with paragraph 3.2(f) of Schedule 6); or

(b)the insurance cover in relation to that disrepair is limited as referred to in paragraph 1.3 of Schedule 4.

18.3To keep all plant, machinery and equipment at the Property in good and substantial repair and condition, such work to be carried out by qualified persons in accordance with all applicable codes of practice and guidance.

18.4As soon as reasonably practicable (and in any event within 2 months) to inform the Landlord in writing if a member of the Tenant’s facilities management team becomes aware of any Material Defect in the Property.

18.5To maintain and replace (where necessary in accordance with past practice and at the Tenant’s absolute discretion) any landlord’s fixtures and fittings in the Property with new ones of equivalent quality to the satisfaction of the Landlord (acting reasonably).

19.Decoration

19.1The Tenant must:

(a)decorate the exterior and interior of the Property as often as is reasonably necessary and also in the last three months before the Termination Date;

(b)carry out all decoration (including all appropriate preparatory work) in a good and proper manner using good quality materials that are appropriate to the Property and the Permitted Use; and

(c)carry out:

(i)any decoration of the exterior of the Property required at any time during the Term (including in the last three months before the Termination Date); and

(ii)the decoration of the interior of the Property required in the last three months before the Termination Date;

to the reasonable satisfaction of the Landlord and using materials, designs and colours approved by the Landlord (acting reasonably).

20.Alterations

In this clause 20 (Alterations) Non-Structural Alterations means non-structural alterations to the Property together with amendments to technical installations and M&E systems.

20.1Except as permitted by this clause 20, the Tenant must not make any alteration or addition to the Property.

20.2The Tenant may make structural alterations and improvements to the Property with the prior written consent of the Landlord (such consent not to be unreasonably withheld or delayed).

20.3The Tenant may make Non-Structural Alterations to the Property without the consent of the Landlord provided that in the case of Non-Structural Alterations, the Tenant has given the Landlord written details of any revision to the fit-out drawings of such Non-Structural Alterations within three months of completion of those Non-Structural Alterations.

20.4The Tenant is responsible for obtaining all third-party authorisations to the works described at clauses 20.2 and 20.3 with the Landlord’s co-operation (where required) at the Tenant’s cost.

20.5Any alterations or improvements or works carried out pursuant to this clause 20 must:

(a)not adversely affect the character, value, structural stability or statutory compliance of the Property or invalidate any warranties or guarantees; and

(b)The Tenant must not make any alterations which may materially adversely affect the energy efficiency or the Asset Rating of the Property; and

(c)be carried out in a good and workmanlike manner, using good quality materials which are fit for their intended purpose and in accordance with all required consents and relevant codes of practice and guidance; and

(d)provide the Landlord with any information relating to the alterations or improvements or work as may be reasonably required by its insurers; and

(e)where relevant given the nature of the works, use all reasonable endeavours to procure duly executed guarantees and/or collateral warranties in favour of the Landlord (in a form previously agreed by the Landlord acting reasonably) where guarantees and/or collateral warranties are provided by any contractors or consultants in favour of the Tenant in respect of any structural alterations.

21.Signs

21.1The Tenant must not:

(a)display any Signs inside the Property that are visible from the outside; or

(b)attach any Signs to the exterior of the Property;

except Signs of a design, size and number and in positions that are appropriate to the nature and location of the Property and to the Permitted Use.

21.2The Tenant may renew the Signs where necessary with the Landlord’s prior written consent (not to be unreasonably withheld or delayed).

22.Returning the Property to the Landlord

22.1The Tenant must return the Property to the Landlord on the Termination Date with vacant possession and in the repair and condition required by this lease.

22.2Unless otherwise required by the Landlord no less than six months prior to the Termination Date, the Tenant must by the Termination Date:

(a)remove all alterations and additions made, and all items fixed to or fastened to, the Property during the Contractual Term (whether or not they have been authorised by the Landlord);

(b)remove any Signs erected by the Tenant at the Property whether before or during the Contractual Term;

(c)return the Property in accordance with the Base Specification; and

(d)make good all damage caused in so doing to the Landlord’s satisfaction (acting reasonably).

22.3If the Tenant does not comply with its obligations under this clause 22, without prejudice to the Landlord’s other rights and remedies, to pay the Landlord the cost of remedying the breach, together with an amount equal to the Annual Rent in respect of a reasonable period required to remedy the breach.

22.4The Tenant:

(a)irrevocably appoints the Landlord to be the Tenant’s agent to store or dispose of any chattels or items fixed to the Property by the Tenant and left by the Tenant for more than ten working days after the Termination Date; and

(b)must indemnify the Landlord in respect of any claim made by a third party in relation to that storage or disposal

22.5The Landlord shall not be liable to the Tenant by reason of that storage or disposal.

23.Use

23.1The Tenant must not use the Property for any purpose other than the Permitted Use.

23.2The Tenant must not:

(a)use the Property for any illegal purposes nor for any purpose or in a manner that would cause loss, damage, injury, nuisance or inconvenience to the Landlord or any property that neighbours the Property;

(b)use the Property as a betting shop or an amusement arcade or otherwise for the purposes of gaming or gambling;

(c)hold any auction at the Property;

(d)allow any noise, music, flashing lights, fumes or smells to emanate from the Property so as to cause a nuisance or annoyance to any property that neighbours the Property;

(e)overload any part of the Property nor overload or block any Service Media at or serving the Property;

(f)store, sell or display any offensive, dangerous, illegal, explosive or highly flammable items at the Property;

(g)interfere with any Service Media at the Property;

(h)keep any pets or any other animal, bird, fish, reptile or insect at the Property (except guide dogs or other animals used as aids provided they are not kept at the Property overnight or left unattended); or

(i)allow any person to sleep at or reside on the Property.

23.3Nothing in this Lease will be deemed to constitute any representation or warranty by the Landlord that the Property can lawfully be used for any purpose authorised by this Lease.

24.Condition of the Property

24.1No representations by or on behalf of the Landlord have been made to the Tenant as to the state or condition of the Property.

24.2The Tenant has made its own independent investigation of the Property and is relying solely on such investigation.

25.Allow entry

25.1Subject to clause 25.2, the Tenant must allow all those entitled to exercise any right to enter the Property to enter the Property:

(a)except in the case of an emergency (when no notice shall be required), after having given reasonable notice (which need not be in writing) to the Tenant;

(b)at any reasonable time (whether or not during usual business hours); and

(c)with their workers, contractors, agents and professional advisers.

25.2The Tenant must allow any person authorised by the terms of a Third Party Right to enter the Property in accordance with that Third Party Right.

26.Keyholders and emergency contact details

The Tenant must provide to the Landlord in writing the names, addresses, email addresses and telephone numbers of at least two people who each:

(a)hold a full set of keys for the Property;

(b)hold all the access codes for the Tenant’s security systems (if any) at the Property; and

(c)may be contacted in case of emergency at any time outside the Tenant’s usual business hours.

27.Compliance with laws

27.1The Tenant must comply with all laws relating to:

(a)the Property and the occupation and use of the Property by the Tenant;

(b)the use or operation of all Service Media and any other machinery and equipment at or serving the Property whether or not used or operated;

(c)any works carried out at the Property; and

(d)all materials kept at or disposed of from the Property.

27.2Within three working days of receipt of any notice or other communication affecting the Property (and whether or not served pursuant to any law) the Tenant must:

(a)send a copy of the relevant document to the Landlord; and

(b)take all steps necessary to comply with the notice or other communication and take any other action in connection with it as the Landlord may require.

27.3The Tenant must not:

(a)apply for any Planning Consent for the Property without the Landlord’s consent (such consent not to be unreasonably withheld where the application relates to works permitted under this lease); or

(b)implement any Planning Consent for the Property without the Landlord’s consent (such consent not to be unreasonably withheld).

27.4Unless the Landlord otherwise notifies the Tenant, before the Termination Date the Tenant must carry out and complete any works stipulated to be carried out to the Property (whether before or after the Termination Date) as a condition of any Planning Consent for the Property that is implemented before the Termination Date by the Tenant, any undertenant or any other occupier of the Property.

27.5Within five (5) working days of submission to provide the Landlord with a copy of any application for a Planning Consent which the Tenant makes and to keep the Landlord fully informed of the progress of any such application and its result.

27.6Notwithstanding any consent for works which may be granted by the Landlord under this Lease, to supply to the Landlord a copy of any Planning Consent and not to implement any such Planning Consent without the Landlord’s prior consent (which will not be unreasonably withheld or delayed in the case of any matter where consent has otherwise been granted by the Landlord pursuant to the terms of this Lease).

27.7Not to enter into any agreement or obligation or serve any purchase notice under the Planning Acts without the Landlord’s prior consent (which may be given or withheld in the Landlord’s absolute discretion),

27.8To pay and satisfy any charge or levy which may be imposed in respect of any development by the Tenant on or at the Property.

27.9The Tenant must:

(a)comply with its obligations under the CDM Regulations;

(b)maintain the health and safety file for the Property in accordance with the CDM Regulations;

(c)give that health and safety file to the Landlord at the Termination Date;

(d)procure, and give to the Landlord at the Termination Date, irrevocable, non-exclusive, non-terminable, royalty-free licence(s) for the Landlord to copy and make full use of that health and safety file for any purpose relating to the Property. Those licence(s) must carry the right to grant sub-licences and be transferable to third parties without the consent of the grantor; and

(e)supply all information to the Landlord that the Landlord reasonably requires from time to time to comply with the Landlord’s obligations under the CDM Regulations.

27.10The Tenant must indemnify the Landlord against any liability under the Defective Premises Act 1972 in relation to the Property by reason of any failure of the Tenant to comply with any of the tenant covenants in this lease.

27.11The Tenant must keep:

(a)the Property equipped with all fire prevention, detection and fighting machinery and equipment and fire alarms which are required under all relevant laws or required by the insurers of the Property or reasonably required by the Landlord; and

(b)that machinery, equipment and alarms properly maintained and available for inspection.

28.Energy Performance Certificates

28.1When the current Energy Performance Certificate for the Property has expired, the Landlord must commission a new Energy Performance Certificate from an Energy Assessor approved by the Landlord.

28.2The Tenant must:

(a)co-operate with the Landlord so far as is reasonably necessary to allow the Landlord to obtain an Energy Performance Certificate and Recommendation Report for the Property; and

(b)allow such access to any Energy Assessor appointed by the Landlord as is reasonably necessary to inspect the Property for the purposes of preparing an Energy Performance Certificate and Recommendation Report for the Property.

28.3The Tenant shall not be required to commission a new Energy Performance Certificate for the Property.

28.4If the Tenant does anything which invalidates a valid Energy Performance Certificate for the Property whether pursuant to the EPC Regulations or otherwise, the Tenant will, if required to do so by the Landlord, provide information reasonably required by the Landlord to assist and indemnify the Landlord against the cost in obtaining a valid Energy Performance Certificate in accordance with the EPC Regulations.

29.Sustainability

29.1Collaboration and Information Sharing

(a)The Landlord and the Tenant confirm that they:

(i)wish to promote and improve the Environmental Performance of the Property wherever reasonably practicable; and

(ii)wish to co-operate with each other (without legal obligation) to identify appropriate strategies to promote and improve the Environmental Performance of the Property.

(b)The Tenant will share the Environmental Performance information it holds relating to the Property. This information will be shared on a regular basis with each other and with any third party that the Landlord and the Tenant agree should receive the information.

(c)The Landlord and Tenant will use the Environmental Performance information only for the purpose of:

(i)monitoring the Environmental Performance of the Property;

(ii)measuring the Environmental Performance of the Property against any agreed targets; and

(iii)reporting on the Environmental Performance of the Property at an asset or a corporate level and otherwise (unless they are under a statutory disclosure obligation), the Landlord and the Tenant must keep the information shared under this clause confidential.

(d)The Landlord may provide an environmental forum (the “Forum”) that will meet on a regular basis at reasonable times and on reasonable notice (but not more than once a quarter) to

(i)consider the adequacy and improvement of information sharing on energy and water use, waste production and recycling;

(ii)review the Environmental Performance of the Property;

(iii)agree targets and strategies for a travel plan for travelling to and from the Property; and

(iv)agree targets and strategies to improve the Environmental Performance of the Property.

(e)The Forum may take any form that affords an appropriate means of communication and exchange of views, whether by meeting or in person or not.

(f)The Landlord and the Tenant will each nominate a suitable person to participate in the Forum. They will try to ensure that their nominees attend and participate in any Forum meetings or discussions of which appropriate advance notice has been given.

(g)The Landlord and the Tenant may agree to allow third parties to participate in any Forum for a specified period or for a specified purpose.

30.Energy Use and Consumption

30.1The Tenant must:

(a)observe all reasonable regulations made by the Landlord for the use of energy within the Property provided that a written copy of such regulations is provided to the Tenant; and

(b)take all reasonable steps to improve energy efficiency and reduce consumption at the Property as are reasonably practical.

31.Waste Management and Recycling

31.1The Tenant must:

(a)comply with all applicable requirements and reasonable recommendations of the competent authorities relating to the collection of refuse from the Property; and

(b)observe all reasonable regulations made by the Landlord in respect of recycling for the Property.

32.Environmental Law

32.1To comply with all Environmental Laws relating to the Property.

32.2To obtain, maintain in force, and comply with, all Permits necessary to carry out the Permitted Use and to operate any trade or business at the Property in accordance with the Permitted Use.

32.3To provide the Landlord upon reasonable request with all information relating to the Tenant’s compliance with Environmental Law at the Property including (without limitation) copies of any Permit.

33.Registration of this lease

The Tenant must:

(a)apply to register this lease at HM Land Registry promptly and in any event within one month following the grant of this lease;

(b)ensure that any requisitions raised by HM Land Registry in connection with its application to register this lease at HM Land Registry are responded to promptly and properly; and

(c)send the Landlord official copies of its title within one month of completion of the registration.

34.Closure of registered title

The Tenant must make an application to HM Land Registry to close the registered title of this lease and the easements granted by this lease promptly (and in any event within one month following the Termination Date.

34.1The Tenant must:

(a)ensure that any requisitions raised by HM Land Registry in connection with its application to HM Land Registry pursuant to clause 34 are responded to promptly and properly; and

(b)keep the Landlord informed of the progress and completion of that application.

35.Encroachments and preservation of rights

35.1The Tenant must not permit any encroachment over the Property or permit any easements or other rights to be acquired over the Property.

35.2If any encroachment over the Property is made or attempted or any action is taken by which an easement or other right may be acquired over the Property, the Tenant must:

(a)immediately inform the Landlord and give the Landlord notice of that encroachment or action; and

(b)at the request and cost of the Tenant, adopt such measures as may be reasonably required or deemed proper for preventing any such encroachment or the acquisition of any such easement or other right.

35.3The Tenant must preserve all rights of light and other easements enjoyed by the Property.

35.4The Tenant must not prejudice the acquisition of any right of light or other easement for the benefit of the Property by obstructing any window or opening or giving any acknowledgement that the right is enjoyed with the consent of any third party or by any other act or default of the Tenant.

35.5If any person takes or threatens to take any action to obstruct or interfere with any easement or other right enjoyed by the Property or any such easement in the course of acquisition, the Tenant must:

(a)immediately inform the Landlord and give the Landlord notice of that action; and

(b)at the request and cost of the Tenant, adopt such measures as may be reasonably required or deemed proper for preventing or securing the removal of the obstruction or the interference.

36.Guarantor consent and replacement

36.1For so long as any Guarantor remains liable to the Landlord, the Tenant must, if the Landlord so requests, procure that the Guarantor does all or any of the following:

(a)joins in any consent or approval required under this lease; and

(b)consents to any variation of the tenant covenants of this lease.

36.2Within three (3) working days to notify the Landlord if any of the Insolvency Events occur in relation to any Guarantor and, within one month of the occurrence of such event, procure that one or more guarantors acceptable to the Landlord (acting reasonably) enter into covenants with the Landlord in the form set out in Schedule 5 (with such amendments and additions as the Landlord may reasonably require) and pay the Landlord’s reasonable and proper legal costs in connection with that deed.

37.Guarantor

The Guarantor covenants with the Landlord in the terms of Schedule 5.

38. Indemnity

The Tenant must keep the Landlord indemnified against all liabilities, expenses, costs (including, but not limited to, any solicitors’ or other professionals’ costs and expenses), claims, damages and losses (including, but not limited to, any diminution in the value of the Landlord’s interest in the Property and loss of amenity of the Property) suffered or incurred by the Landlord arising out of or in connection with:

(a)any breach of any tenant covenants in this lease;

(b)any use or occupation of the Property or the carrying out of any works permitted or required to be carried out under this lease; or

(c)any act, default, neglect or omission of the Tenant or any Authorised Person.

39.Title Matters

The Tenant covenants with the Landlord to:

(a)comply with all Title Matters, the Covenants and the Transfer Covenants;

(b)comply with all of the covenants on behalf of the Licensee in the Highways Licences; and

(c)keep the Landlord indemnified against all liabilities, payments, expenses, costs (including but not limited to any reasonable and properly incurred solicitors’ or other professionals’ costs and expenses) claims, damages and losses suffered or incurred by the Landlord arising out of or in connection with the Title Matters, the Highways Licences and the Transfer Covenants.

40.Landlord covenants

The Landlord covenants with the Tenant to observe and perform the landlord covenants of this lease during the Term.

41. Quiet enjoyment

The Landlord covenants with the Tenant that the Tenant shall have quiet enjoyment of the Property without any interruption by the Landlord or any person claiming under the Landlord except as otherwise permitted by this lease.

42. Exercise of right of entry

In exercising any right of entry on to the Property pursuant to Schedule 2, the Landlord must:

(a)except in case of emergency, give reasonable notice of its intention to exercise that right to the Tenant;

(b)where reasonably required by the Tenant, exercise that right only if accompanied by a representative of the Tenant;

(c)cause as little damage as possible to the Property and to any property belonging to or used by the Tenant;

(d)cause as little inconvenience as reasonably possible to the Tenant; and

(e)promptly make good any physical damage caused to the Property by reason of the Landlord exercising that right.

43.Re-entry and forfeiture

43.1The Landlord may re-enter the Property (or any part of the Property in the name of the whole) at any time after any of the following occurs:

(a)the whole or any part of the Rents is unpaid 14 days after becoming payable (whether it has been formally demanded or not);

(b)any breach of any condition of, or tenant or Guarantor covenant in, this lease; or

(c)an Insolvency Event.

43.2If the Landlord re-enters the Property (or any part of the Property in the name of the whole) pursuant to this clause, this lease shall immediately end but without prejudice to any right or remedy of the Landlord in respect of any breach of covenant by the Tenant and/or any Guarantor.

44.Section 62 of the LPA 1925

The grant of this lease does not create by implication any easements or other rights for the benefit of the Property or the Tenant and the operation of section 62 of the LPA 1925 is excluded.

45. Compensation on vacating

Any right of the Tenant (or anyone deriving title under the Tenant) to claim compensation from the Landlord on leaving the Property under the LTA 1954 is excluded (except to the extent that the legislation prevents that right being excluded).

46. No restriction on Landlord’s use

Nothing in this lease shall impose or be deemed to impose any restriction on the use by the Landlord of any neighbouring or adjoining property.

47. Limitation of liability

The Landlord shall not be liable to the Tenant for any failure of the Landlord to perform any landlord covenant in this lease unless the Landlord knows it has failed to perform the covenant (or reasonably should know this) and has not remedied that failure within a reasonable time.

48. Breach of repair and maintenance obligation

48.1The Landlord may enter the Property to inspect its condition and state of repair and give the Tenant a notice of any breach of any of the tenant covenants in this lease relating to the condition or repair of the Property.

48.2Following the service of a notice pursuant to clause 48.1, the Landlord may enter the Property and carry out the required works if the Tenant:

(a)has not begun any works required to remedy any breach specified in that notice within two months of the notice or, if works are required as a matter of emergency, immediately; or

(b)is not carrying out the required works with all due speed.

48.3The costs incurred by the Landlord in carrying out any works pursuant to clause 48.2 (and any professional fees and any VAT in respect of those costs) shall be a debt due from the Tenant to the Landlord and payable on demand.

48.4Any action taken by the Landlord pursuant to this clause 48 shall be without prejudice to the Landlord’s other rights (including those under clause 43).

49.Notices

49.1Except where this lease specifically states that a notice need not be in writing, any notice given under or in connection with this lease shall be in writing and given:

(a)by hand:

(i)if the party is a company incorporated in the United Kingdom, at that party’s registered office address;

(ii)if the party is a company not incorporated in the United Kingdom, at that party’s principal place of business in the United Kingdom; or

(iii)in any other case, at that party’s last known place of abode or business in the United Kingdom; or

(b)by pre-paid first-class post or other next working day delivery service:

(i)if the party is a company incorporated in the United Kingdom, at that party’s registered office address;

(ii)if the party is a company not incorporated in the United Kingdom, at that party’s principal place of business in the United Kingdom; or

(iii)in any other case, at that party’s last known place of abode or business in the United Kingdom.

49.2If a notice complies with the criteria in clause 49.1, whether or not this lease requires that notice to be in writing, it shall be deemed to have been received if:

(a)delivered by hand, at the time the notice is left at the proper address; or

(b)sent by pre-paid first-class post or other next working day delivery service, on the second working day after posting.

49.3This clause does not apply to the service of any proceedings or other documents in any legal action or, where applicable, any arbitration or other method of dispute resolution.

50.Consents and approvals

50.1Where the consent of the Landlord is required under this lease, a consent shall only be valid if it is given by deed unless:

(a)it is given in writing and signed by the Landlord; and

(b)it expressly states that the Landlord waives the requirement for a deed in that particular case.

50.2If a waiver is given pursuant to clause 50.1, it shall not affect the requirement for a deed for any other consent.

50.3Where the approval of the Landlord is required under this lease, an approval shall only be valid if it is in writing and signed by or on behalf of the Landlord unless:

(a)the approval is being given in a case of emergency; or

(b)this lease expressly states that the approval need not be in writing.

50.4If the Landlord gives a consent or approval under this lease, the giving of that consent or approval shall not:

(a)imply that any consent or approval required from a third party has been obtained; or

(b)obviate the need to obtain any consent or approval from a third party.

50.5Where the Tenant requires the consent or approval of any mortgagee to any act or omission under this lease, then (subject to clause 1.11) at the cost of the Tenant the Landlord must use reasonable endeavours to obtain that consent or approval.

50.6Where:

(a)the consent of a mortgagee is required under this lease, a consent shall only be valid if it would be valid as a consent given under the terms of the mortgage; or

(b)the approval of a mortgagee is required under this lease, an approval shall only be valid if it would be valid as an approval given under the terms of the mortgage.

51.VAT

51.1All sums payable by either party under or in connection with this lease are exclusive of any VAT that may be chargeable.

51.2A party to this lease must pay VAT in respect of all taxable supplies made to that party in connection with this lease on the due date for making any payment or, if earlier, the date on which that supply is made for VAT purposes.

51.3Every obligation on either party, under or in connection with this lease, to pay any sum by way of a refund or indemnity, includes an obligation to pay an amount equal to any VAT incurred on that sum by the receiving party (except to the extent that the receiving party obtains credit for such VAT).

52.Notices

Within three (3) working days of receipt of any notice or other communication affecting the Property, its use or occupation, to send a copy to the Landlord and to take all steps necessary to comply with the notice or communication and take any other action in respect of it which the Landlord may reasonably require.

53. Joint and several liability

Where a party comprises more than one person, those persons shall be jointly and severally liable for the obligations and liabilities of that party arising under this lease. The party to whom those obligations and liabilities are owed may take action against, or release or compromise the liability of, or grant time or other indulgence to, any one of those persons without affecting the liability of any other of them.

54. Entire agreement

54.1This lease and the documents annexed to it constitute the whole agreement between the parties and supersede all previous discussions, correspondence, negotiations, arrangements, understandings and agreements between them relating to their subject matter.

54.2Each party acknowledges that in entering into this lease and any documents annexed to it it does not rely on, and shall have no remedies in respect of, any representation or warranty (whether made innocently or negligently).

54.3Nothing in this lease constitutes or shall constitute a representation or warranty that the Property may lawfully be used for any purpose allowed by this lease.

54.4Nothing in this clause shall limit or exclude any liability for fraud.

55.Contracts (Rights of Third Parties) Act 1999

This lease does not give rise to any rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this lease.

56. Governing Law

This lease and any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with it or its subject matter or formation shall be governed by and construed in accordance with the law of England and Wales.

57. Jurisdiction

Each party irrevocably agrees that the courts of England and Wales shall have exclusive jurisdiction to settle any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with this lease or its subject matter or formation.

This document has been executed as a deed and is delivered and takes effect on the date stated at the beginning of it.

Schedule 1 Rights

1.In common with the Landlord and any other person authorised by the Landlord, the Landlord grants to the Tenant the following easements (for the benefit of the Property) and the following other rights:

2.A right of access to the Property twenty-four hours a day three hundred and sixty five days a year.

Schedule 2 Reservations

1.The right to enter the Property for any other purpose mentioned in or connected with:

(a)this lease;

(b)the Reservations; or

(c)the Landlord’s interest in the Property.

2.The following rights are excepted and reserved to the Landlord:

2.1The right, at all reasonable times (and except in an emergency when no notice need be given) upon reasonable notice, to enter upon the Property to connect into, inspect, repair, clean, maintain, alter, replace or lay any Service Media, the person exercising such right doing as little damage to the Property as reasonably practicable and making good any physical damage caused to the Property; and

2.2the right to erect scaffolding at the Property and the right to (and to permit others to) develop, build, alter, redevelop and use any adjoining or neighbouring property (whether or not owned by the Landlord) as the Landlord may think fit and to grant any easement right or privilege for the benefit of such property or to consent to the same notwithstanding that the access of light or air to the Property may be obstructed or affected as a result and the Tenant will not be entitled to compensation for any damage or disturbance caused by or suffered through any such use or development.

2.3The Reservations are:

(a)excepted and reserved notwithstanding that the exercise of any of the Reservations or the works carried out pursuant to them result in a reduction in the flow of light or air to the Property or loss of amenity for the Property provided that they do not materially adversely affect the use and enjoyment of the Property for the Permitted Use.

(b)may be exercised by:

(i)the Landlord;

(ii)anyone else who is or becomes entitled to exercise them; and

(iii)anyone authorised by the Landlord.

2.4No party exercising any of the Reservations, nor its workers, contractors, agents and professional advisers, shall be liable to the Tenant or to any undertenant or other occupier of or person at the Property for any loss, damage, injury, nuisance or inconvenience arising by reason of its exercising any of the Reservations except for:

(a)Physical damage to the Property.

(b)Any loss, damage, injury, nuisance or inconvenience in relation to which the law prevents the Landlord from excluding liability.

Schedule 3 Rent review

1.Definitions

For the purposes of this Schedule:

Accountant: an independent professionally qualified chartered accountant:

(a)previously agreed upon by the parties; or

(b)in the absence of such agreement, nominated on the application of either party at any time after the date one month after the relevant Review Date by the President for the time being of the Institute of Chartered Accountants in England and Wales or his appointed deputy,

provided that if the Accountant dies or otherwise becomes unwilling or incapable of acting the President referred to in paragraph (b) may upon the application of either party discharge him and appoint another Accountant to act in his place in the same capacity and this will be repeated as many times as the circumstances may require;

Index: means the Consumer Prices Index (CPI) published by the Office for National Statistics or such other body on whom the duties for the preparation of such Index shall devolve;

Multiple: the figure calculated to four decimal places by the following formula:

M = A/B

where:

“M” is the Multiple

“A” is the most recent published figure for the Index before the expiration of Year 1, Year 2, Year 3, Year 4, Year 5, Year 6, Year 7, Year 8, Year 9 and Year 10 (as applicable); and

“B” is the most recent published figure for the Index before the expiration of the immediately preceding Year to the relevant Year (or the Term Commencement Date in the case of the calculation for Year 1 under this Lease),

PROVIDED THAT if on any relevant date the Multiple is calculated to be a figure greater than 1.0300 then the Multiple at that date shall be deemed to be 1.0300 and if the Multiple is calculated to be a negative figure then the Multiple at that date shall be deemed to be 1.0000;

“Review Date” means 31 August 2026 (the “First Review Date”) and 31 August 2031(the “Second Review Date”)

(and “relevant Review Date” is to be construed accordingly);

“Revised Rent” means the figure determined in accordance with the following formula (as applicable):

(a)First Review Date

RR = A x B x C x D x E x F

where:

“RR” is the Revised Rent;

“A” is the Rent payable immediately prior to the First Review Date (disregarding any rent suspension);

“B” is the Multiple for Year 1;

“C” is the Multiple for Year 2;

“D” is the Multiple for Year 3;

“E” is the Multiple for Year 4;

“F” is the Multiple for Year 5;

PROVIDED THAT where the formula produces an RR which is greater than the sum of 1.1590 (115.9%) multiplied by the Annual Rent reserved by this Lease immediately before the First Review Date then the RR shall be deemed to be 1.1590 (115.9%) multiplied by the Annual Rent reserved by this Lease immediately before the First Review Date

(b)Second Review Date

RR = G x H x l x J x K x L

where:

“RR” is the Revised Rent;

“G” is the Rent payable immediately prior to the Second Review Date (disregarding any rent suspension);

“H” is the Multiple for Year 6;

“I” is the Multiple for Year 7;

“J” is the Multiple for Year 8;

“K” is the Multiple for Year 9;

“L” is the Multiple for Year 10;

PROVIDED THAT where the formula produces an RR which is greater than the sum of 1.1590 (115.9%) multiplied by the Annual Rent reserved by this Lease immediately before the Second Review Date then the RR shall be deemed to be 1.1590 (115.9%) multiplied by the Annual Rent reserved by this Lease immediately before the Second Review Date

“Year” means each of Year 1, Year 2, Year 3, Year 4, Year 5, Year 6, Year 7, Year 8, Year 9 and Year 10, as applicable, and “relevant Year” shall be construed accordingly;

“Year 1” means the first period of 12 months of the Contractual Term; and

“Year 2”, “Year 3”, “Year 4”, “Year 5”, “Year 6”, “Year 7”, “Year 8”, “Year 9” and “Year” 10” means the consecutive second, third, fourth, fifth, sixth, seventh, eighth, ninth and tenth 12 month periods of the Contractual Term.

1.2.1Revised Rent

With effect from and including each Review Date the Annual Rent shall be reviewed and the Annual Rent payable up to but not including the next Review Date shall be the higher of:

(a)the Annual Rent reserved by this Lease immediately before the relevant Review Date; and

(b)the Revised Rent.

1.2.2Failure to Agree

1.2.1The Landlord will notify the Tenant of the proposed amount of the Annual Rent payable from each Review Date.

1.2.2If the Tenant disputes the Landlord’s calculation by reason of any adjustments that need to be made to reflect any rebasing of the Index between any Review Dates or if the Index ceases to exist or for any other bona fide reason then the Tenant may refer the matter to the determination of the Accountant.

1.2.3If the Tenant refers the proposed amount of the Annual Rent to the Accountant, the Accountant will:

(a)act as an independent expert in calculating the Annual Rent for the period following the relevant Review Date on the basis of his considered judgment of the increase in consumer retail prices in the United Kingdom since the time of the last Review Date (or the date of commencement of the Term in the case of the first Review Date);

(b)allow the parties a reasonable opportunity of making one set of written representations and one set of written counter-representations to him;

(c)take those representations and counter-representations into account; and

(d)give written reasons for his determination.

1.2.4The award of the Accountant will be binding on the parties (except in the case of manifest error) and the costs of the reference to him and of his determination including his own fees and expenses and the legal and other costs of the parties will lie in his award but failing such award his costs will be borne equally by the parties who will each bear their own costs.

1.2.5If the amount of the Annual Rent payable from the relevant Review Date has not been agreed by the relevant Review Date the Tenant will continue to pay the Annual Rent at the rate applicable immediately before the relevant Review Date and on the later of:

(a)The date 10 working days after the day on which the Revised Rent is finally agreed or determined; and

(b)The date 10 working days following receipt by the Tenant of a valid VAT invoice from the Landlord for any increased rent, the Tenant will pay the amount of any increase for the period from and including the relevant Review Date up to the rent payment date following that agreement or determination together with interest at the Interest Rate on each part of that payment for the period on and from the date on which that part would have been payable had the Revised Rent been agreed before the Review Date up to the date on which payment was due.

1.3Memorandum of Review

a.Within 20 working days after the Annual Rent is notified by the Landlord or determined by the Accountant (as applicable) a memorandum recording the increased Annual Rent will be executed by the parties at their own cost and attached to this Lease and to the Counterpart (but that memorandum will be regarded as evidential only and its absence will not affect the liability of the Tenant to pay any increased Annual Rent).

1.4Time not of the Essence

a.Time is not of the essence for the purposes of this Schedule 3.

1.5Worked Example

Worked examples as follows from a base rent of […***…] with the percentages being the percentage increases in the Index during the relevant year.

Example 1

Variable CPI with below and above the 0% collar and all below the 3% cap


CPI figures:
Year 1			0.70%
Year 2			0.10%
Year 3			-1.10%
Year 4			2.60%
Year 5			2.80%


End of year 1 […***…]	X	1.007 =	[…***…]
End of year 2 […***…]	X	1.001 =	[…***…]
End of year 3 […***…]	X	1.000 =	[…***…]
End of year 4 […***…]	X	1.026 =	[…***…]
End of year 5 […***…]	X	1.028 =	[…***…]

Example 2

Variable CPI both above and below the 3% cap


CPI figures:
Year 1			0.70%
Year 2			0.10%
Year 3			1.10%
Year 4			3.60%
Year 5			2.80%


End of year 1 […***…]	X	1.007	[…***…]
End of year 2 […***…]	X	1.001	[…***…]
End of year 3 […***…]	X	1.011	[…***…]
End of year 4 […***…]	X	1.03	[…***…]
End of year 5 […***…]	X	1.028	[…***…]

Example 3

All CPI above the 3% cap


CPI figures:
Year 1			3.70%
Year 2			3.10%
Year 3			4.10%
Year 4			3.60%
Year 5			3.80%


End of year 1 […***…]	X	1.03 =	[…***…]
End of year 2 […***…]	X	1.03 =	[…***…]
End of year 3 […***…]	X	1.03 =	[…***…]
End of year 4 […***…]	X	1.03 =	[…***…]
End of year 5 […***…]	X	1.03 =	[…***…]

Schedule 4 Insurance

1.Landlord’s obligation to insure

1.1Subject to paragraph 1.2 and paragraph 1.3 of this Schedule, the Landlord must keep the Property insured against loss or damage by the Insured Risks for the Reinstatement Cost.

1.2The Landlord shall not be obliged to insure:

(a)the Excluded Insurance Items or repair any damage to or destruction of the Excluded Insurance Items. References to the Property in this Schedule 4 shall exclude the Excluded Insurance Items;

(b)any alterations to the Property that form part of the Property unless:

(i)those alterations are permitted or required under this lease;

(ii)those alterations have been completed in accordance with this lease and (where applicable) in accordance with the terms of any consent or approval given under this lease; and

(iii)the Tenant has notified the Landlord of the amount for which those alterations should be insured and provided evidence of that amount that is satisfactory to the Landlord (acting reasonably); or

(c)the Property when the insurance is vitiated by any act or omission of the Tenant or any Authorised Person.

1.3The Landlord’s obligation to insure is subject to any reasonable and market-standard limitations, excesses and conditions that may be imposed by the insurers.

2.Landlord to provide insurance details

2.1In relation to any insurance effected by the Landlord under this Schedule 4, the Landlord must:

(a)at the request of the Tenant (such request not to be made more frequently than once a year) supply the Tenant with full details of the insurance policy;

(b)procure that the Tenant is informed of any material change in the scope, level or terms of cover as soon as reasonably practicable;

(c)use reasonable endeavours to procure that the Landlord’s insurer permits the interest of the Tenant to be noted on the policy of insurance either specifically or by way of a general noting of tenants’ interests under the conditions of the insurance policy;

3.Tenant’s obligations

3.1The Tenant must pay to the Landlord on demand:

(a)the Insurance Rent;

(b)any amount that is deducted or disallowed by the insurers pursuant to any excess provision in the insurance policy; and

(c)any costs that the Landlord incurs in obtaining a valuation of the Property for insurance purposes provided that the Tenant shall not be obliged to contribute towards the costs of any such valuations carried out more frequently than once every one (1) year.

3.2The Tenant must:

(a)immediately inform the Landlord if any matter occurs in relation to the Tenant or the Property that any insurer or underwriter may treat as material in deciding whether or on what terms to

insure or to continue to insure the Property and must also give the Landlord notice of that matter;

(b)not do or omit to do anything as a result of which:

(i)any insurance policy for the Property may become void or voidable or otherwise prejudiced;

(ii)the payment of any policy money may be withheld; or

(iii)any increased or additional insurance premium may become payable (unless the Tenant has previously notified the Landlord and has paid any increased or additional premium (including any IPT due on that amount));

(c)comply at all times with the requirements and recommendations of the insurers relating to the Property where written details of those requirements or recommendations have first been given to the Tenant;

(d)give the Landlord immediate notice of the occurrence of any damage or loss relating to the Property arising from an Insured Risk or an Uninsured Risk or any other event that might affect any insurance policy relating to the Property;

(e)except for the Excluded Insurance Items, not effect any insurance of the Property but, if the Tenant becomes entitled to the benefit of any insurance proceeds in respect of the Property, pay those proceeds or cause them to be paid to the Landlord; and

(f)pay the Landlord within 7 days of demand an amount equal to any insurance money that the insurers of the Property refuse to pay in relation to the Property by reason of any act, default, neglect or omission of the Tenant or any Authorised Person.

4.Rent suspension

4.1Subject to paragraph 4.2 of this Schedule 4, if any Property Damage by an Insured Risk occurs, payment of the Annual Rent (or a fair proportion of it according to the nature and extent of that Property Damage) shall be suspended until the earlier of:

(a)the date on which the Property has been reinstated so that it is fit for occupation and use; and

(b)the date which is three years from and including the date on which that Property Damage occurred.

4.2The Annual Rent shall not be suspended under paragraph 4.1 of this Schedule 4 if the Property Damage is caused by:

(a)an Insured Risk and:

(i)the policy of insurance in relation to the Property has been vitiated in whole or in part as a result of any act or omission of the Tenant or any Authorised Person; and

(ii)the Tenant has not complied with paragraph 3.2(f) of this Schedule 4.

4.3The Landlord shall refund to the Tenant as soon as reasonably practicable a due proportion of the Annual Rent paid in advance that relates to any period after the date of damage or destruction but only to the extent that such sums would otherwise have been suspended pursuant to clause 4.1.

5.Landlord’s obligation to reinstate following damage or destruction by an Insured

5.1Following any damage to or destruction of the Property by an Insured Risk, the Landlord must:

(a)use reasonable endeavours to obtain all necessary planning and other consents to enable the Landlord to reinstate the Property; and

(b)reinstate the Property except that the Landlord shall not be obliged to:

(i)reinstate unless all necessary planning and other consents are obtained;

(ii)reinstate if the insurance has been vitiated or payment of the insurance moneys refused in whole or in part as a result of the act, default or neglect of the Tenant or an Authorised Person

and the Tenant has not paid the sums due under paragraph 3.1(b) and paragraph 3.2(f) of this Schedule 4;

(i)provide accommodation or facilities identical in layout or design so long as accommodation reasonably equivalent to that previously at the Property is provided; or

(ii)reinstate after a notice to terminate has been served pursuant to this Schedule 4.

6.Termination if reinstatement impossible or impractical following Property Damage by an Insured Risk

Following Property Damage by an Insured Risk, if the Landlord (acting reasonably) considers that it is impossible or impractical to reinstate the Property, the Landlord may terminate this lease by giving notice to the Tenant within six (6) months from and including the date on which that Property Damage occurred.

7.Uninsured Risks

(a)If the whole or part of the Property are destroyed or damaged by an Uninsured Risk so as to render the Property inaccessible or unfit for occupation or use then the Landlord may give the Tenant notice either that:

(i)it wishes to reinstate at its own cost (a “Reinstatement Notice”); or

(ii)it does not wish to reinstate, in which case this Lease will terminate with immediate effect, but without prejudice to the rights and remedies of either party in respect of any earlier breach.

(b)If the Landlord does not give the Tenant a Reinstatement Notice within 12 months of the date of damage or destruction, then the Tenant may (unless the Landlord has served a Reinstatement Notice in the meantime) give notice to the Landlord terminating this Lease with immediate effect, but without prejudice to the rights and remedies of either party in respect of any earlier breach.

(c)If the Landlord gives the Tenant a Reinstatement Notice then clauses 5 (Reinstatement), and paragraph 6.(Option to determine) will apply as if the damage or destruction had been caused by an Insured Risk and the loss of rent insurance period in clauses 6 (Rent suspension) and 7 (Option to determine) will be deemed to be three years.

8.Termination if reinstatement not complete by expiry of rent suspension

If Property Damage by an Insured Risk occurs and the Property has not been reinstated so as to make it fit for occupation and use by the date which is three years after the date on which that Property Damage occurred, either party (in the case of the Tenant, provided that the insurance has not been vitiated or payment of the insurance moneys refused in whole or in part as a result of the act or default of the Tenant) may at any time thereafter terminate this lease by giving notice to the other provided that:

(a)such notice is served before the Property has been reinstated so as to make it fit for occupation and use; and

(b)where the Tenant serves the notice, the failure to reinstate so that the Property is fit for occupation and use is not caused by a breach of the Tenant’s obligations under clause 3 of this Schedule 4.

9.Consequences of termination

9.1If either party gives a notice to terminate this lease in accordance with this Schedule 4:

(a)this lease shall terminate with immediate effect from the date of the notice;

(b)none of the parties shall have any further rights or obligations under this lease except for the rights of any party in respect of any earlier breach of this lease; and

(c)any proceeds of the insurance for the Property shall belong to the Landlord.

Schedule 5 Guarantee

1.The Guarantor as principal debtor and primary obligor irrevocably:

1.1guarantees to the Landlord that the Tenant will, until the Tenant is released by virtue of the 1995 Act,:

1.1.1pay the rents and all other sums payable under this Lease and observe and perform the tenant covenants of this Lease; and

1.1.2observe and perform the obligations on the part of the Tenant in any AGA;

and if the Tenant defaults the Guarantor will itself comply with those covenants and obligations; and

1.2covenants to indemnify the Landlord against all losses, damages, costs and expenses incurred by the Landlord as a result of the Tenant’s failure to make such payments or observe and perform such covenants and obligations; and

1.3covenants to join in and give its consent to the terms of any consent, approval, variation or other document which may be entered into by the Tenant related to or in connection with this Lease and all of the obligations of the Guarantor will remain in full force and effect in respect of this Lease and will extend and apply to this Lease as varied by any supplemental document.

2.The liability of the Guarantor will not be reduced or discharged by:

2.1any time or indulgence or other concession granted by the Landlord to the Tenant (or any other person);

2.2any neglect, delay or forbearance of the Landlord in endeavouring to obtain payment of the rents or in enforcing the performance or observance of any of the covenants and obligations of the Tenant (or any other person) under this Lease or any AGA;

2.3any refusal by the Landlord to accept rents at a time when the Landlord believes that it was entitled, or (after the service of a notice under section 146 of the 1925 Act) would have been entitled, to re-enter the Premises;

2.4any consents, approvals, agreements or arrangements which may be given by the Landlord to the Tenant or agreed between them;

2.5the surrender by the Tenant of part of the Premises, in which event the liability of the Guarantor will continue in respect of the Premises not so surrendered after making any necessary apportionments under section 140 of the 1925 Act;

2.6the Tenant being dissolved, or being struck off the register of companies or otherwise ceasing to exist, or, if the Tenant is an individual, by the Tenant dying or becoming incapable of managing its affairs; or

2.7(except to the extent that the liability of the Guarantor is affected by section 18 of the 1995 Act) any variation of the terms of this Lease whether or not the same is prejudicial to the Guarantor;

2.8any right to set-off or counterclaim that the Tenant or the Guarantor may have;

2.9the existence or occurrence in relation to the Tenant or the Guarantor of any matter referred to in any of clauses clause 43.1 or clause 43.2. (insolvency related events); or

2.10any other act, omission, matter or thing by which, but for this provision, the obligations of the Guarantor would have been discharged or diminished (except a release by deed given by the Landlord to the Guarantor).

3.If the Landlord requires, by giving to the Guarantor written notice within six months of:

3.1.this Lease being forfeited

3.2.the Landlord receiving notice ability of the Tenant under this Lease being disclaimed or of the Tenant ceasing to exist;

a.the Guarantor will at the Guarantor’s own cost (including payment of the Landlord’s costs) accept the grant of a new lease of the Premises;

3.3.for a term starting and taking effect on the date of the disclaimer or forfeiture of this Lease;

3.4.ending on the date when this Lease would have ended if the disclaimer or forfeiture had not happened;

3.5.at the same rent as the Annual Rent reserved under this Lease (unless there is a rent review due or one becomes due before completion of the new lease, in which case the rent will be that which would have been agreed or decided under this Lease) together with all other sums payable;

3.6.containing rent review dates on each unimplemented rent review date under this Lease that falls after the term commencement date of the new lease;

a.and otherwise on the same terms and conditions as this Lease;

4.If the Landlord does not require the Guarantor to take a new lease, the Guarantor will pay to the Landlord within seven days of demand a sum equal to the rents and all other sums which would have been payable under this Lease, but for the forfeiture or disclaimer of the Lease or the Tenant ceasing to exist, for the period of six months following the date of such event or (if earlier) until the date upon which rent becomes payable in the event that the Landlord re-lets the Premises.

5.The Guarantor will not claim in competition with the Landlord in any insolvency proceedings or arrangement of the Tenant and will pay to the Landlord any money it receives under such proceedings or arrangement to the extent of its liability to the Landlord.

6.Any payment or dividend that the Landlord receives from the Tenant, or its estate, or any other person in connection with any insolvency proceedings or arrangement involving the Tenant will be taken and applied as a payment in gross and will not prejudice the right of the Landlord to recover from the Guarantor to the full extent of the Guarantor’s obligations under this schedule.

7.The Guarantor will not exercise any right or remedy that it may have, whether against the Tenant or any other person, in respect of any amount paid or other obligation performed by the Guarantor under this schedule unless and until all the Guarantor’s obligations under this schedule have been fully performed.

8.The Guarantor will not be entitled to claim or participate in any other security held by the Landlord in respect of the Tenant’s liability to pay the rents reserved by this Lease or to observe and perform the tenant covenants of this Lease.

9.The Guarantor represents and warrants to the Landlord that it has full power, authority and legal right to enter into this guarantee and that its obligations are legally binding and enforceable.

10.The provisions of this schedule are in addition to any other security that the Landlord may at any time hold from the Guarantor or the Tenant or any other person in respect of the Tenant’s liability to pay the rents reserved by this Lease or to observe and perform the tenant covenants of this Lease and will not merge in, or be affected by, any other security.

11.The provisions of this schedule will be severable and distinct from one another and, if at any time any one or more of those provisions is, or becomes (in whole or in part) invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired.

Schedule 6 Authorised guarantee agreement

[…***…]

DATED

---------------

Authorised Guarantee Agreement

relating to

Lease of land at [address of Property]

[between/among]

[Landlord]

and

[Tenant]

and

[Tenant’s Guarantor]


CONTENTS

CLAUSE


1. Interpretation			3
2. Nature of agreement			4
3. Guarantee and indemnity			5
4. Tenant’s liability			5
5. Variations and supplemental documents			6
6. Tenant to take a new lease			6
7. Rent at the date of disclaimer or forfeiture			7
8. Payments in gross and restrictions on the Tenant			7
9. Other securities			8
10. Costs			8
11. Indemnity			8
12. The Tenant’s Guarantor			8
13. Notices			9
14. Third Party Rights			9
15. Governing law			9
16. Severability			9
17. Jurisdiction			10

This deed is dated [DATE]

Parties

(1)[FULL COMPANY NAME] incorporated and registered in England and Wales with company number [NUMBER] whose registered office is at [REGISTERED OFFICE ADDRESS] OR [INDIVIDUAL NAME] of [INDIVIDUAL ADDRESS] (Landlord)

(2)[FULL COMPANY NAME] incorporated and registered in England and Wales with company number [NUMBER] whose registered office is at [REGISTERED OFFICE ADDRESS] OR [INDIVIDUAL NAME] of [INDIVIDUAL ADDRESS] (Tenant)

(3)[FULL COMPANY NAME] incorporated and registered in England and Wales with company number [NUMBER] whose registered office is at [REGISTERED OFFICE ADDRESS] OR [INDIVIDUAL NAME] of [INDIVIDUAL ADDRESS] (Tenant’s Guarantor)

BACKGROUND

(A)This agreement is supplemental and collateral to the Lease.

(B)The Landlord is entitled to the immediate reversion to the Lease.

(C)The residue of the term granted by the Lease is vested in the Tenant.

(D)The Tenant intends to assign the Lease and in accordance with the provisions of the Lease has agreed to enter into an authorised guarantee agreement with the Landlord.

(E)In the [Lease OR Guarantee Document] the Tenant’s Guarantor entered into a guarantee and other covenants in respect of the tenant covenants of the Lease.

Agreed terms

1.Interpretation

The following definitions and rules of interpretation apply in this agreement.

1.1Definitions:

Assignee: the person or persons defined as assignee in the Licence to Assign.

[Guarantee Document: a [DESCRIPTION OF RELEVANT DOCUMENT] dated [DATE] and made between [PARTIES].]

Lease: a lease of the Property dated [DATE] made between [PARTIES] and all documents supplemental or collateral to that lease.

Licence to Assign: a licence to assign the Lease dated [DATE] and made between [PARTIES].

Property: [ADDRESS/DESCRIPTION OF THE PROPERTY] as [more particularly described in and] demised by the Lease.

LTA 1954: Landlord and Tenant Act 1954.

LTCA 1995: Landlord and Tenant (Covenants) Act 1995.

Working Day: any day which is not a Saturday, a Sunday, a bank holiday or a public holiday in England.

1.2References to the Landlord includes a reference to the person entitled to the immediate reversion to the Lease from time to time.

1.3References to the Tenant’s Guarantor include a reference to the personal representatives of any individual that comprises the Tenant’s Guarantor.

1.4The expression tenant covenants has the meaning given to it by the LTCA 1995.

1.5Clause headings shall not affect the interpretation of this agreement.

1.6A person includes a natural person, corporate or unincorporated body (whether or not having separate legal personality).

1.7A reference to a company shall include any company, corporation or other body corporate.

1.8Unless the context otherwise requires, words in the singular shall include the plural and in the plural shall include the singular.

1.9Unless the context otherwise requires, a reference to one gender shall include a reference to the other genders.

1.10Unless otherwise specified, a reference to a statute or statutory provision is a reference to it as amended, extended or re-enacted from time to time.

1.11A reference to a statute or statutory provision shall include all subordinate legislation made from time to time under that statute or statutory provision.

1.12A reference to laws in general is a reference to all local, national and directly applicable supra-national laws as amended, extended or re-enacted from time to time and shall include all subordinate laws made from time to time under them and all orders, notices, codes of practice and guidance made under them.

1.13Unless otherwise specified, a reference to writing or written includes fax but not email.

1.14Unless the context otherwise requires, references to clauses are to the clauses of this agreement.

1.15Any words following the terms including, include, in particular, for example or any similar expression shall be construed as illustrative and shall not limit the sense of the words, description, definition, phrase or term preceding those terms.

1.16References to completion of the assignment (and similar expressions) are to the date on which the deed of assignment to the Assignee is dated and not to the registration of that deed at HM Land Registry.

2.Nature of agreement

2.1This agreement is an authorised guarantee agreement for the purposes of section 16 of the LTCA 1995 and is entered into as a condition of the Landlord’s consent granted in the Licence to Assign. The obligations imposed on the Tenant [and the Tenant’s Guarantor] by this agreement are owed to the Landlord.

2.2The provisions of this agreement shall take effect on the date the Tenant is released from the tenant covenants of the Lease by virtue of the LTCA 1995.

2.3Where the Tenant comprises more than one person, those persons shall be jointly and severally liable for the obligations and liabilities of the Tenant arising under this agreement or the assignment. The Landlord may take action against, or release or compromise the liability of, or grant time or other indulgence to, any one of those persons without affecting the liability of any other of them

3.Guarantee and indemnity

3.1The Tenant guarantees to the Landlord that the Assignee shall pay the rents reserved by the Lease and any interim rent determined under the LTA 1954 and observe and perform the tenant covenants of the Lease and that if the Assignee fails to pay any of those rents or to observe or perform any of those tenant covenants, the Tenant shall pay or observe and perform them.

3.2The Tenant covenants with the Landlord as principal obligor and as a separate and independent obligation and liability from its obligations and liabilities under clause 3.1 to indemnify and keep indemnified the Landlord against any failure by the Assignee either:

(a)to pay any of the rents reserved by the Lease and any interim rent determined under the LTA 1954; or

(b)to observe or perform any of the tenant covenants of the Lease.

4.Tenant’s liability

4.1The liability of the Tenant under clause 3 shall continue until the end of the term of the Lease (however it may end) and during any statutory continuation of it, or until the Assignee is released from the tenant covenants of the Lease by virtue of the LTCA 1995, if earlier.

4.2The liability of the Tenant shall not be reduced, discharged or otherwise adversely affected by any of the following:

(a)any time or indulgence granted by the Landlord to the Assignee (or to any person to whom the Assignee has assigned the Lease pursuant to an assignment that is an excluded assignment under section 11 of the LTCA 1995);

(b)any delay or forbearance by the Landlord in enforcing the payment of any of the rents or the observance or performance of any of the tenant covenants of the Lease or in making any demand in respect of any of them;

(c)any refusal by the Landlord to accept any rent or other payment due under the Lease where the Landlord believes that the acceptance of such rent or payment may prejudice its ability to re-enter the Property;

(d)the Landlord exercising any right or remedy against the Assignee for any failure to pay the rents reserved by the Lease or to observe or perform the tenant covenants of the Lease;

(e)the Landlord taking any action or refraining from taking any action in connection with any other security held by the Landlord in respect of the Assignee’s liability to pay the rents reserved by the Lease and observe and perform the tenant covenants of the Lease (including the release of any such security);

(f)a release or compromise of the liability of any one of the persons who is the Tenant, or the grant of any time or concession to any one of them;

(g)any legal limitation on or disability of the Assignee or any invalidity or irregularity of any of the tenant covenants of the Lease or any unenforceability of any of them against the Assignee;

(h)the Assignee being dissolved or being struck off the register of companies or otherwise ceasing to exist;

(i)without prejudice to clause 6, the disclaimer of the liability of the Assignee under the Lease;

(j)the surrender of the Lease in respect of part only of the Property, except that the Tenant shall not be under any liability in relation to the surrendered part in respect of any period after the surrender; or

(k)any other act or omission except an express written release by deed of the Tenant by the Landlord.

4.3Any sum payable by the Tenant under this agreement shall be paid without any deduction, set-off or counter-claim against the Landlord or the Assignee.

5.Variations and supplemental documents

5.1The Tenant shall, at the request of the Landlord, join in and give its consent to the terms of any licence, consent, variation or other document that may be entered into by the Assignee in connection with the Lease.

5.2The liability of the Tenant shall not be released by any variation of the rents reserved by, or the tenant covenants of, the Lease, whether or not:

5.1the variation is material or prejudicial to the Tenant;

(a)the variation is made in any document; or

(b)the Tenant has consented, in writing or otherwise, to the variation.

5.2Except to the extent that its liability is affected by section 18 of the LTCA 1995, the Tenant’s liability under this agreement shall apply to:

(a)the rents reserved by the Lease as varied and any interim rent determined under the LTA 1954; and

(b)the tenant covenants of the Lease as varied.

6.Tenant to take a new lease

6.1If the Lease is being forfeited or the liability of the Assignee under the Lease is disclaimed and the Landlord gives the Tenant written notice not later than six months after the Landlord receives notice of that Lease being forfeited or disclaimed, the Tenant shall enter into a new lease of the Property on the terms set out in clause 6.2.

6.2The rights and obligations under the new lease shall take effect beginning on the date of the disclaimer or the forfeiture and the new lease shall:

6.1be granted subject to the right of any person to have the Lease vested in them by the court and to the terms on which any such order may be made and subject to the rights of any third party existing at the date of the grant;

(a)be for a term that expires at the same date as the end of the contractual term granted by the Lease had there been no disclaimer or forfeiture;

(b)(subject to clause 7.1) reserve as an initial annual rent an amount equal to the rent which is [first] reserved under the Lease at the date of the disclaimer or forfeiture or which would be payable but for any abatement or suspension of such annual rent or restriction on the right to collect it and which is subject to review on the same terms and dates provided by the Lease; and

(c)be excluded from sections 24 to 28 of the LTA 1954; and

(d)otherwise be on the same terms as the Lease (as varied, save to the extent that the Tenant is not bound by any such variation by virtue of section 18 of the LTCA 1995).

6.2The parties confirm that:

(a)the Landlord served a notice on the Tenant, as required by section 38A(3)(a) of the LTA 1954, applying to the tenancy to be entered into by the Tenant pursuant to clause 6.1 [not less than 14 days] before this agreement was entered; and

(b)[the Tenant] [[NAME OF DECLARANT], who was duly authorised by the Tenant to do so], made a [statutory] declaration dated [DATE] in accordance with the requirements of section 38A(3)(b) of the LTA 1954.

6.3The Tenant shall pay the Landlord’s solicitors costs and disbursements (on a full indemnity basis) and any VAT on them in relation to the new lease and shall execute and deliver to the Landlord a counterpart of the new lease within one month after service of the Landlord’s notice under clause 6.1.

6.4The grant of a new tease and its acceptance by the Tenant shall be without prejudice to any other rights which the Landlord may have against the Tenant or against any other person or in respect of any other security that the Landlord may have in connection with the Lease.

6.5If the Landlord does not require the Tenant to take a new lease, the Tenant will pay to the Landlord within seven days of demand a sum equal to the rents and all other sums which would have been payable under the Lease, but for the forfeiture or disclaimer of the Lease or the Assignee ceasing to exist, for the period of six months following the date of such event or (if earlier) until the date upon which rent becomes payable in the event that the Landlord re lets the Property.

7.Rent at the date of disclaimer or forfeiture

7.1If at the date of the disclaimer or forfeiture there is a rent review pending under the Lease, then:

(a)the initial annual rent to be reserved by the new lease shall be subject to review on the date on which the term of the new lease commences on the same basis as a review of the rent [first] reserved under the Lease, such review date to be included in the new lease; and

(b)the provisions in the new lease relating to the payment of any shortfall and interest following [agreement or determination of] a rent review shall apply in relation to any shortfall between the rent [first] reserved under clause 6.2(c) and the rent determined under clause 7.1(a)), in respect of the period after the date of the disclaimer.

7.2If clause 7.1 applies, then the review for which it provides shall be in addition to any rent reviews that are required under clause 6.2(c).

8.Payments in gross and restrictions on the Tenant

8.1Any payment or dividend that the Landlord receives from the Assignee (or its estate) or any other person in connection with any insolvency proceedings or arrangement involving the Assignee shall be taken and applied as a payment in gross and shall not prejudice the right of the Landlord to recover from the Tenant to the full extent of the obligations that are the subject of this agreement.

8.2The Tenant shall not claim in competition with the Landlord in any insolvency proceedings or arrangement of the Assignee in respect of any payment made by the Tenant pursuant to this agreement. If it otherwise receives any money in such proceedings or arrangement, it shall hold that money on trust for the Landlord to the extent of its liability to the Landlord.

8.3The Tenant shall not, without the consent of the Landlord, exercise any right or remedy that it may have (whether against the Assignee or any other person) in respect of any amount paid or other obligation performed by the Tenant under sis agreement unless and until all the obligations of the Tenant under this agreement have been fully performed.

9.Other securities

9.1The Tenant warrants that it has not taken and covenants that it shall not take any security from or over the assets of the Assignee in respect of any liability of the Assignee to the Tenant. If the Tenant does take or hold any such security it shall hold it for the benefit of the Landlord.

9.2This agreement is in addition to and independent of any other security that the Landlord may from time to time hold from the Tenant or the Assignee or any other person in respect of the liability of the Assignee to pay the rents reserved by the Lease and to observe and perform the tenant covenants of the Lease. It shall not merge in or be affected by any other security.

9.3The Tenant shall not be entitled to claim or participate in any other security held by the Landlord in respect of the liability of the Assignee to pay the rents reserved by the Lease or to observe and perform the tenant covenants of the Lease.

10.Costs

The Tenant shall pay the costs and disbursements of the Landlord’s solicitors and its managing agents in connection with this agreement. This obligation extends to costs and disbursements assessed on a

full indemnity basis and to any value added tax in respect of those costs and disbursements except to the extent that the Landlord is able to recover that value added tax.

11.Indemnity

The Tenant shall indemnify the Landlord against all liabilities, expenses, costs (including but not limited to any solicitors’ or other professionals’ costs and expenses), claims, damages and losses suffered or incurred by the Landlord arising out of or in connection with any breach or negligent performance or non-performance of this agreement.

12.The Tenant’s Guarantor

12.1The Tenant’s Guarantor consents to the Tenant entering into this agreement.

12.2Subject to clause 12.7, the Tenant’s Guarantor agrees that its guarantee and other obligations under the [Lease OR Guarantee Document] shall remain fully effective and:

12.1to the extent that any provision of this agreement varies the terms of the Lease, shall apply to the Lease as varied; [and]

(a)subject to clause 12.2(a) shall not be released or diminished by any provision of this agreement.

12.2Subject to clause 12.7 the Tenant’s Guarantor confirms that its guarantee under the Guarantee Document extends and applies to the covenants given by and the obligations on the part of the Tenant under this agreement.

12.3Subject to clause 12.7 and section 24(2) of the LTCA 1995, the Tenant’s Guarantor:

(a)guarantees to the Landlord that the Tenant will observe and perform its obligations under this agreement and that if the Tenant fails to do so, the Tenant’s Guarantor will observe and perform them; and

(b)covenants with the Landlord as principal obligor and as a separate and independent obligation and liability from its obligations and liabilities under clause 12.4(a) to indemnify and keep indemnified the Landlord against any failure by the Tenant to observe and perform its covenants under this agreement.

12.4The liability of the Tenant’s Guarantor under clause 12.4 shall not be affected by:

(a)any of the matters referred to in clause 4.2;

(b)any delay or forbearance by the Landlord in enforcing the performance by the Tenant of its obligations under this agreement or making any demand for payment by the Tenant in accordance with this agreement;

(c)any legal limitation on or disability of the Tenant;

(d)the Tenant being dissolved, or being struck off the register of companies or otherwise ceasing to exist; or

(e)any other act or omission except an express [written] release by deed of the Tenant’s Guarantor by the Landlord.

12.5The liability of each of the persons making up the Tenant’s Guarantor is joint and several.

12.6Nothing in this agreement shall prevent or limit the operation of section 18 of the LTCA 1995.

13.Notices

13.1Any notice given to a party under or in connection with this agreement must be in writing and must be delivered by hand or sent by pre-paid first-class post or other next working day delivery service, at the

address given for that party in this agreement or as otherwise notified in writing by the relevant party to each other party to this agreement.

13.2Any notice given in accordance with clause 13.1 will be deemed to have been received:

(a)if delivered by hand, on signature of a delivery receipt or at the time the notice or document is left at the proper address; or

(b)if sent by pre-paid first-class post or other next working day delivery service, at 9.00 am on the second working day after posting or at the time recorded by the delivery service.

13.3A notice given under this agreement shall not be validly given if sent by fax or email.

13.4This clause does not apply to the service of any proceedings or other documents in any legal action or, where applicable, any arbitration or other method of dispute resolution.

14.Third Party Rights

This agreement shall not give rise to any rights under the Contracts (Rights of Third Parties) Act 1999.

15.Governing law

This agreement and any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with it or its subject matter or formation shall be governed by and construed in accordance with the law of England and Wales.

16.Severability

Each of the provisions of this agreement will be severable and distinct from one another and, if at any time any one or more of those provisions is, or becomes (in whole or in part) invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired.

17.Jurisdiction

Each party to this agreement irrevocably agrees that the courts of England and Wales shall have exclusive jurisdiction to settle any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with this licence or its subject matter or formation.

This document has been executed as a deed and is delivered and takes effect on the date stated at the beginning of it.

Schedule 7 EBITDA

[…***…]

Schedule 8 Base Specification

[…***…]

Schedule 9 Covenant Land

[…***…]


Executed as deed by London Metric Distribution Limited acting by Valentine Beresford a director, in the presence of: /s/ Hugh Chivers SIGNATURE OF WITNESS NAME, ADDRESS AND OCCUPATION OF WITNESS Hugh Chivers Kitchenham Farmhouse, Bodiam, East Sussex Chartered Surveyor			/s/ V.T. Beresford SIGNATURE OF DIRECTOR Director
Executed as deed by B & W Group Ltd acting by Geoffrey Ivor Edwards, a director, in the presence of: ……………………………………………………………. SIGNATURE OF WITNESS NAME, ADDRESS AND OCCUPATION OF WITNESS ………………………………………………………… ………………………………………………………… …………………………………………………………			……………………. SIGNATURE OF DIRECTOR Director
Executed as a deed by DEI Sales Inc. a company incorporated in Florida, United States of America acting by Scott St. Clair who, in accordance with the laws of that territory is acting under the authority of the company.
			……………………… Signature in the name of the company Signature of Scott St. Clair Authorised signatory

Document

Exhibit 10.6

DATED

31 August 2021

CONTRACT FOR THE SALE OF FREEHOLD LAND WITH LEASEBACK

at

Dale Road, Worthing, West Sussex, BN11 2RX

between

B & W GROUP LTD

and

LONDONMETRIC DISTRIBUTION LIMITED

and

DEI SALES, INC.

CONTENTS


CLAUSE
1. Interpretation			2
2. Sale and purchase			4
3. Grant of the lease			4
4. Conditions			5
5. Risk and insurance			6
6. Deposit			6
7. Deducing title			6
8. Title guarantee			6
9. Matters affecting the Property			6
10. Transfer			7
11. Buyer’s title pending registration			7
12. VAT			7
13. Completion			7
14. Capital allowances election			8
15. Buyer’s acknowledgement of condition			8
16. Opinion Letter			8
17. Discharge of Charges			8
18. Contracts			9
19. Lien and Overage			9
20. Title Covenants			10
21. Title Indemnity Insurance Policy			10
22. Cancellation of notice			10
23. Entire agreement			10
24. Joint and several liability			10
25. Notices			11
26. Third party rights			12
27. Guarantee			12
28. Governing law			12
29. Jurisdiction			12

This contract is dated 31 August 2021

Parties

(1)B & W GROUP LIMITED incorporated and registered in England and Wales with company number 00880499 whose registered office is at Dale Road, Worthing, West Sussex, BN11 2BH (Seller)

(2)LONDONMETRIC DISTRIBUTION LIMITED incorporated and registered in England and Wales with company number 09269541 whose registered office is at 1 Curzon Street, London, W1J 5HB (Buyer)

(3)DEI SALES INC., a Florida corporation, document number P04000120412 whose physical office is at 5541 Fermi Court, Carlsbad, CA 92008, United States of America and whose registered office is c/o CT Corporation System, 1200 South Pine Island Road, Plantation, FL 33324, United States of America (Guarantor)

Agreed terms

1.Interpretation

The following definitions and rules of interpretation apply in this contract.

1.1Definitions:

2001 Transfer: means the transfer of the Property dated 19 January 2001 and made between (1) The Borough Council of Worthing and (2) B & W Loudspeakers Limited;

2001 Overage: means the overage provisions set out in paragraph 5 of the Second Schedule of the 2001 Transfer;

Actual Completion Date: means the date on which completion of the sale of the Property actually takes place.

Business Day: a day (not including a Saturday or a Sunday) when London clearing banks are open for trading.

Buyer’s Conveyancer: Stephenson Harwood LLP of 1 Finsbury Circus, London, EC2M 7SH (ref. 01-60-01542).

CAA 2001: Capital Allowances Act 2001.

Charges: the charges appearing at

(a)entries C15, C16 and C17 in favour of Cerberus Business Finance LLC (incorporated in New York, United States of America) of 874 Third Avenue, New York, NY10022, United States of America and

(b)entries C18, C19 and C20 in favour of Virtus Group, LP (incorporated in Texas, United States of America) of 3300 N Interstate 35, Suite 350, Austin, TX 78705, United States of America

as at 11:00:49 on 25 June 2021

Completion Date: 21 August 2021.

Contract Rate: interest at 3% per annum above the base rate from time to time of Barclays Bank plc.

Contracts:

(a)a smartestenergy electricity supply contract dated 1 November 2018;

(b)a GazProm Energy gas supply contract dated 30 August 2018; and

(c)an IMServ communications data supply contract dated 11 March 2020;

Deposit: […***…] exclusive of VAT.

Electronic Payment: payment by electronic means in same day cleared funds from an account held in the name of the Buyer’s Conveyancer at a clearing bank to an account in the name of the Seller’s Conveyancer.

Lease: the lease of the Property dated on the date of this contract and made between the Buyer (as Landlord) (1) and the Seller (as Tenant) (2) in the form annexed to this contract at Schedule 3 with such amendments as the parties (acting reasonably) may agree in writing.

Lien: means the vendor’s lien in favour of the Borough Council of Worthing relating to the 2001 Transfer and noted in entry 13 of the Charges Register of title number WSX254730;

Opinion Letter: an opinion letter from Fowler White Burnett of Brickell Arch, 1395 Brickell Avenue, 14th Floor, Miami, Florida, 33131, United States of America and in the form annexed at Schedule 4;

Overage Covenants: the covenants contained in Schedule 2 of the Deed of Surrender dated 11 July 1997 made between (1) The Borough Council of Worthing and (2) The County Council of West Sussex;

Part 1 Conditions: the conditions in Part 1 of the Standard Commercial Property Conditions (Third Edition - 2018 Revision) and Condition means any one of them.

Part 2 Conditions: the conditions in Part 2 of the Standard Commercial Property Conditions (Third Edition - 2018 Revision) and Condition means any one of them.

Property: the freehold property at Dale Road, Worthing, West Sussex, BN11 2RX and registered at HM Land Registry with absolute title under title number WSX254730.

Purchase Price: Eighteen million nine hundred and seventy-five thousand pounds sterling […***…] exclusive of VAT.

Reliance Letter: an agreed form reliance letter from CBRE in respect of the following reports:

a)the CBRE Environmental Due Diligence Report addressed to the Seller dated May 2021;

b)the CBRE Summary Building Survey addressed to the Seller dated 5 May 2021; and

c)the CBRE Geomatics & 3D Services Report addressed to the Seller dated February 2021.

Rent: the initial rent of […***…] per annum (subject to review) exclusive of VAT.

Rent Commencement Date: the Actual Completion Date.

Rent Payment: The Rent payable by the Seller to the Buyer on the Completion Date shall be calculated in accordance with the following formula:

A x B
365

where:

A = the Rent; and

B = the number of days from and including the Rent Commencement Date to and including 24 December 2021 provided that the Rent for the Rent Commencement Date shall be split 50:50 between the Buyer and the Seller.

Seller’s Conveyancer: Charles Russell Speechlys of 5 Fleet Place, London, EC4M 7RD (ref. SGE/220574.00005)

Title Indemnity Insurance Policy: the defective title indemnity insurance in the form annexed at Schedule 6.

TOGC Transfer: the transfer of a business as a going concern for the purposes of section 49 of VATA and Article 5 of the Value Added Tax (Special Provisions) Order 1995;

Transfer: the transfer of the Property in Form TR1 and made between the Seller (as Transferor) (1) and the Buyer (as Transferee) (2) in the form annexed at Schedule 5.

VAT: value added tax chargeable in the UK.

Written Replies: are written replies that the Seller’s Conveyancer has given prior to exchange of this agreement to any written enquiries raised by the Buyer’s Conveyancer which includes any written replies and enquiries by email and in replies to CPSEs;

1.1A person includes a natural person, corporate or unincorporated body (whether or not having separate legal personality).

1.2Unless otherwise specified, a reference to a statute or statutory provision is a reference to it as amended, extended or re-enacted from time to time and shall include all subordinate legislation made from time to time under that statute or statutory provision and all orders, notices, codes of practice and guidance made under it.

1.3A reference to laws in general is a reference to all local, national and directly applicable supra-national laws as amended, extended or re-enacted from time to time and shall include all subordinate laws made from time to time under them and all orders, notices, codes of practice and guidance made under them.

1.4A reference to writing or written excludes fax and email except where noted otherwise in this contract.

1.5Unless the context otherwise requires, references to clauses and Schedules are to the clauses and Schedules of this contract and references to paragraphs are to paragraphs of the relevant Schedule.

1.6Clause, Schedule and paragraph headings shall not affect the interpretation of this contract.

1.7The Schedules form part of this contract and shall have effect as if set out in full in the body of this contract. Any reference to this contract includes the Schedules.

1.8Unless the context otherwise requires, words in the singular shall include the plural and in the plural shall include the singular.

1.9Unless the context otherwise requires, a reference to one gender shall include a reference to the other genders.

1.10Any obligation on a party not to do something includes an obligation not to allow that thing to be done.

2.Sale and purchase

2.1In consideration of the obligations contained in clause 3.1, the Seller will sell and the Buyer will buy the Property for the Purchase Price on the terms of this contract.

2.2The Buyer cannot require the Seller to:

a.transfer the Property or any part of it to any person other than the Buyer; or

b.transfer the Property in more than one parcel or by more than one transfer; or

c.apportion the Purchase Price between different parts of the Property.

3.Grant of the lease

3.1Immediately upon completion of the sale of the Property:

(a)the Buyer will grant to the Seller and the Seller will accept from the Buyer the Lease on the terms set out in this contract; and

(b)the Seller shall deliver to the Buyer a duly executed and dated Guarantee in favour of the Buyer.

3.2No purchase price or deposit is payable for the grant of the Lease.

3.3The Seller cannot require the Buyer to grant the Lease to any person other than the

Seller.

3.4The Seller cannot assign, sublet, charge, or otherwise share or part with the benefit of this contract in relation to the grant of the Lease or otherwise.

3.5The Buyer will grant the Lease with full title guarantee.

3.6On the Actual Completion Date, the Seller will pay to the Buyer the Rent Payment.

3.7At least five (5) Business Days before the Completion Date, the Seller’s Conveyancer will prepare engrossments of the Lease and the Guarantee and the Buyer will promptly following receipt execute the counterpart Lease and Guarantee.

3.8The term of the Lease will be 15 years from and including the Actual Completion Date.

3.9The Rent will be payable from and including the Rent Commencement Date.

3.10All other sums payable under the Lease will be payable from and including the Actual Completion Date.

3.11The dates for rent review under the Lease will be the fifth and tenth anniversaries of the Actual Completion Date.

3.12The Seller will be deemed to accept the Lease with full knowledge of the Buyer’s title and will not raise any objection or requisition with regard to it.

4.Conditions

4.1The Part 1 Conditions are incorporated in this contract so far as they:

(a)apply to a sale of a freehold property by private treaty;

(b)apply to the grant of a lease;

(c)are not inconsistent with the other clauses in this contract; and

(d)have not been modified or excluded by any of the other clauses in this contract.

4.2The terms used in this contract have the same meaning when used in the Part 1 Conditions.

4.3The following Conditions are amended:

(a)Condition 1.1.1(d) is amended so that reference to the completion date in Condition 1.1.1(d) refers instead to the Completion Date as defined in this contract.

(b)Condition 1.1.1(e) is amended so that reference to the contract rate in Condition 1.1.1(e) refers instead to the Contract Rate as defined in this contract.

(c)Condition 1.1.1(o) is amended so that reference to VAT in Condition 1.1.1(o) refers instead to VAT as defined in this contract.

(d)Condition 7.6.3 is amended so that reference to “Condition 4.1.2” is reference to “Clause 9”.

4.4Condition 1.1.4(a) does not apply to this contract.

4.5The Part 2 Conditions are not incorporated into this contract.

5.Risk and insurance

5.1With effect from the Actual Completion Date, the Property is at the Buyer’s risk.

5.2No damage to or destruction of the Property nor any deterioration in its condition, however caused, will entitle the Buyer to refuse to complete or to delay completion.

5.3The Seller shall maintain its existing insurance until the Actual Completion Date (save to the extent that the insurance is or becomes void due to any reason other than an act or default of the Seller).

5.4The Seller will cancel the existing insurance promptly following completion and shall use reasonable endeavours to obtain a refund of the premium attributable to the remainder of the insurance period.

5.5Conditions 8.2.3 and 8.2.4(b) do not apply to this contract.

6.Deposit

6.1On the date of this contract, the Buyer will pay the Deposit to the Seller’s Conveyancer as stakeholder on terms that on completion the Deposit is paid to the Seller with accrued interest.

6.2The Deposit must be paid by Electronic Payment.

6.3Conditions 3.2.1, 3.2.2 and 9.8.3 do not apply to this contract.

7.Deducing title

7.1The Seller’s title to the Property has been deduced to the Buyer’s Conveyancer before the date of this contract.

7.2The Buyer is deemed to have full knowledge of the title and is not entitled to raise any objection, enquiry or requisition in relation to it except in relation to any matter registered against the title number WSX254730 that has not been previously disclosed to the Buyer in Written Replies or any matter reviewed as a result of the Buyer’s pre completion searches and requisitions.

7.3Conditions 7.1 and 7.3 do not apply to this contract.

8.Title guarantee

8.1The Seller will transfer the Property with full title guarantee.

8.2Condition 7.6.2 and 7.6.3 does not apply to this contract.

8.3At completion the Seller shall provide to the Buyer the documents listed at Schedule 1.

9.Matters affecting the Property

9.1The Seller will sell the Property free from incumbrances other than:

(a)any matters, other than the Charges, contained or referred to in the entries or records made in registers maintained by HM Land Registry as at 11:00:49 on 25 June 2021 under title number WSX254730;

(b)any matters contained or referred to in this contract;

(c)any matters discoverable by inspection of the Property before the date of this contract;

(d)any matters which the Seller does not and could not reasonably know about;

(e)any matters, other than the Charges, disclosed or which would have been disclosed by the searches and enquiries which a prudent buyer would have made before entering into this contract;

(f)public requirements;

(g)any matters which are unregistered interests which override registered dispositions under Schedule 3 to the Land Registration Act 2002;

(h)any matters disclosed in the documents listed in Schedule 1; and

(i)the Lease

9.2Conditions 4.1.1, 4.1.2 and 4.1.3 and 4.1.4 do not apply to this contract.

9.3The Seller confirms that it has disclosed in Written Replies to the Buyer all those matters referred to in clause 9.1 that it is aware of.

9.4Subject to clause 9.3, the Buyer is deemed to have full knowledge of the matters referred to in clause 9.1 and will not raise any enquiry, objection, requisition or claim in respect of any of them.

10.Transfer

10.1The transfer to the Buyer will be in the agreed form annexed to this contract.

10.2The Buyer and the Seller will execute the transfer in original and counterpart.

10.3Condition 7.6.5(b) does not apply to this contract.

11.Buyer’s title pending registration

The Buyer will:

(a)lodge or procure the lodging of the application for registration of the Transfer and all required documents at HM Land Registry within the priority period conferred by the Buyer’s OS1 search result;

(b)answer, or procure that all requisitions (if any) raised by HM Land Registry are answered as soon as reasonably practicable subject to the Seller and the Seller’s Conveyancer using reasonable endeavours to assist the Buyer with answering any requisitions received from the Land Registry and provide the Seller’s Conveyancer with copies of all correspondence from and to HM Land Registry as soon as possible after receiving or sending the same; and

(c)send, or procure that the Buyer’s Conveyancer sends, the title information document to the Seller’s Conveyancer as soon as reasonably practicable after completion of the registration of the transfer of the Property to the Buyer;

12.VAT

12.1The Seller warrants that it is registered for VAT under registration number 945 7829 70.

12.2The Buyer warrants that it is registered for VAT under registration number 884 2449 91.

12.3Each amount stated to be payable under or pursuant to this contract is exclusive of VAT (if any).

12.4If any VAT is chargeable on any supply under or pursuant to this contract, the Buyer will on the later of (i) on receipt of a valid VAT invoice and (ii) payment or provision of the consideration for the relevant supply pay to the supplier an amount equal to that VAT as additional consideration.

12.5The Seller and the Buyer each acknowledge and agree that the sale of the Property does not constitute a TOGC Transfer and that VAT is payable on the Purchase Price.

12.6Conditions 2.1 and 2.2 do not apply to this contract.

13.Completion

13.1Completion will take place on the Completion Date but time is not of the essence of the contract unless a notice to complete has been served.

13.2The Seller shall deliver to the Buyer on the Completion Date the following duly executed documents (executed electronically where applicable):

(a)the Transfer;

(b)the Lease;

(c)the Guarantee;

(d)the Opinion Letter;

(e)the joint election under section 198 of the CAA 2001;

(f)the Reliance Letter;

(g)the agreed form Land Registry Form UN4;

(h)the Land Registry certificate.

13.3The Buyer shall deliver to the Seller on the Completion Date the following duly executed documents (executed electronically where applicable):

(a)the Transfer;

(b)the Lease

(c)the Guarantee; and

(d)the joint election under section 198 of the CAA 2001.

13.4Condition 9.1.2 is varied by the deletion of 2.00 pm as the stipulated time and the substitution of 4.00 pm.

13.5Condition 9.1.3 does not apply to this contract.

13.6Condition 9.3.2 is amended to read: “the day from which the apportionment is to be made (“apportionment day”) is the date of actual completion”.

13.7Condition 9.4 is amended to add, “(d) any other sum which the parties agree under the terms of the contract should be paid or allowed on completion”.

13.8Condition 9.7 is amended to read: “The buyer is to pay the money due on completion by Electronic Payment and, if appropriate, by an unconditional release of a deposit held by a stakeholder”.

14.Capital allowances election

The Seller and the Buyer will, on Completion, make a joint election under section 198 of the CAA 2001 in accordance with the provisions of Schedule 2 of this agreement.

15. Buyer’s acknowledgement of condition

The Buyer acknowledges that before the date of this contract, the Seller has given the Buyer and others authorised by the Buyer, permission and the opportunity to inspect, survey and carry out investigations as to the condition of the Property. The Buyer has formed the Buyer’s own view as to the condition of the Property and the suitability of the Property for the Buyer’s purposes.

16. Opinion Letter

It is a condition of completion that the Seller will procure that, on the Completion Date, the duly executed Opinion Letter is delivered to the Buyer.

17. Discharge of Charges

17.1This clause 17.1 and 17.2 applies where the Charges over the Property are to be discharged on or before the Completion Date and the persons with the benefit of the Charges (the “Lenders”) are to execute a DS1 to discharge each of the Charges. The Seller shall use all reasonable but commercially prudent endeavours to prove that all restrictions and notices relating to the charges are removed from the title register for title WSX254730.

17.2Where the Lenders are represented by a conveyancer (which in this clause 17 has the meaning set out in Rule 217 Land Registration Rules 2003), the Seller is to procure that, on or before the Completion Date, the Seller’s Conveyancer provides the Buyer’s Conveyancer with written details of the name, address and reference of the conveyancer acting on behalf of the Lenders.

17.3The Seller and the Guarantor warrant that, save for the removal of the notices affecting title number WSX254730 relating to the Charges, the Charges no longer affect the Property.

17.4The Seller and the Buyer acknowledge that applications were made to the Land Registry by Goodwin Procter LLP to discharge the Charges on 12 July 2021 and 4 August 2021.

17.5Goodwin Procter LLP has agreed to provide the Buyer’s Conveyancer with all reasonable assistance to procure the release of the Charges on or before the Completion Date.

17.6The Seller has agreed to use all reasonable but commercially prudent endeavours to assist the Buyer in procuring the release of the Charges.

18.Contracts

The Seller will make all payments due under the Contracts after the Actual Completion Date (and any costs, fees or penalties payable by reason of any novation, assignment or release of any Contract) and will keep the Buyer indemnified from and against all proceedings, costs, claims, demands, expenses, losses and liability incurred as a result of any failure by the Seller to do so.

19. Lien and Overage

19.1The Seller warrants that:

(a)pursuant to the 2001 Transfer, the Seller paid the sum of […***…] to the Borough Council of Worthing;

(b)the Seller has not disposed of the Property (by way of conveyance, transfer or a lease for a term of more than fourteen years) since it acquired the Property pursuant to the 2001 Transfer and that the 2001 Overage has not been triggered;

(c)it has not entered into any agreement, contract or other arrangement whatsoever relating to the 2001 Transfer which contains an obligation on the part of the Seller to pay consideration to the Borough Council of Worthing.

19.2The Seller and the Buyer acknowledge that the Buyer intends to procure that the Buyer’s Conveyancer submits to HM Land Registry an application to remove the notice of the Lien from the Charges Register of title number WSX254730 (the “Lien Application”).

19.3The Seller shall use all reasonable but commercially prudent endeavours to assist and support the Buyer in connection with the Lien Application and the removal of the notice of the Lien from the Charges Register of title number WSX254730 and (without prejudice to the generality of the foregoing) the Seller shall on written request from the Buyer:

19.4provide documentary evidence to the Buyer confirming the warranty at clause 19.1(a);

(a)contact the Borough Council of Worthing to procure written confirmation from the Borough Council of Worthing that (a) there is no outstanding consideration relating to the 2001 Transfer and (b) the notice of the Lien can be removed from the Charges Register of title number WSX254730 and the Seller shall use all reasonable but commercially prudent endeavours to obtain the same from the Borough Council of Worthing.

19.5The Seller acknowledges that, due to works carried out at the Property, the Overage Covenants have been triggered and a payment may be due to the Borough Council of Worthing pursuant to the Transfer Covenants (the “Outstanding Overage”).

19.6The Seller consents to the Buyer notifying the Borough Council of Worthing that the Overage Covenants have been triggered in respect of the Property. The Buyer will keep the Seller informed of all discussions with the Borough Council of Worthing in relation to the Outstanding Overage and the Buyer agrees that the Seller may make representations to the Borough Council in this regard.

19.7The Seller shall use all reasonable endeavours to settle the Outstanding Overage due to the Borough Council of Worthing, but it is acknowledged and agreed that the Seller shall not be obliged (pursuant to this clause 19.4) to pay any more to the Borough Council of Worthing than is properly due pursuant to the Overage Covenants and/or the Transfer Covenants.

19.8Following agreement (or determination) of the Outstanding Overage with the Borough Council of Worthing:

(a)to the extent that the Outstanding Overage is […***…] or less, the Buyer covenants to pay the Outstanding Overage to the Borough Council of Worthing; and

(b)to the extent that the Outstanding Overage is more than […***…]:

(i)the Buyer covenants to pay to the Borough Council of Worthing the sum of […***…] and

(ii)the Seller covenants to pay to the Borough Council of Worthing the difference between the Outstanding Overage and […***…] limited to a maximum amount of […***…].

20.Title Covenants

20.1Until the earlier of 30 August 2036 and the date on which the Borough Council of Worthing notifies the Seller in writing that the Outstanding Overage has been settled and discharged (in full), the Seller shall indemnify the Buyer against all liabilities, costs and expenses (including the proper costs of professional advisors), damages and losses suffered or incurred by the Buyer arising out of or in connection with:

(a)any claim against the Buyer by either the County Council of West Sussex or the Borough Council of Worthing arising out of or in connection with any breach or non-performance of the Overage Covenants and the Transfer Covenants or any payment due to the County Council of West Sussex or the Borough Council of Worthing pursuant to the Overage Covenants, the Transfer Covenants and the 2001 Overage; and

(b)any breach by the Seller of clauses 19.6 and 19.7 of this contract.

20.2The Seller and the Buyer agree:

(a)to keep the terms of this clause 20 (Title Covenants) confidential;

(b)subject to clause 19.4, not to notify either the County Council of West Sussex or the Borough Council of Worthing of the existence of the obligations contained in this clause 20 (Title Covenants).

21.Title Indemnity Insurance Policy

21.1The Seller shall procure that the Title Indemnity Insurance Policy shall be on risk at the Seller’s cost on or prior to the Actual Completion Date.

21.2The Seller confirms that it has disclosed to First Title Insurance plc all material facts and not omitted and/or misrepresented any material facts in respect of the Title Indemnity Insurance Policy and that there are no material circumstances that have occurred that may have invalidated the Title Indemnity Insurance Policy.

22.Cancellation of notice

On completion, the Seller will deliver to the Buyer a duly completed and signed form UN4 in the form attached at Schedule 7 in respect of entry number C21 and C22 of the Charges Register of the title number WSX254730 together with a written undertaking from the Seller’s Conveyancer to the Buyer’s Conveyancer to use all reasonable endeavours to deal with any requisitions raised by the Land Registry in connection with that application.

23. Entire agreement

23.1This contract and the documents annexed to it constitute the whole agreement between the parties and supersede all previous discussions, correspondence, negotiations, arrangements, understandings and agreements between them relating to their subject matter.

23.2The Buyer acknowledges that in entering into this contract and any documents annexed to it the Buyer does not rely on, and shall have no remedies in respect of, any representation or warranty (whether made innocently or negligently) other than those:

(a)set out in this contract or the documents annexed to it; or

(b)contained in any Written Replies.

23.3Nothing in this clause shall limit or exclude any liability for fraud.

23.4Condition 10.1 is varied to read, “If any plan or statement in the contract, or in Written Replies is or was misleading or inaccurate due to an error or omission, the remedies available are as follows.”

24.Joint and several liability

24.1Where the Buyer comprises more than one person, those persons will be jointly and severally liable for the Buyer’s obligations and liabilities arising under this contract. The Seller may take action against, or release or compromise the liability of, or grant time or other indulgence to, any one of those persons without affecting the liability of any other of them.

24.2Where the Seller comprises more than one person, those persons will be jointly and severally liable for the Seller’s obligations and liabilities arising under this contract. The Buyer may take action against, or release or compromise the liability of, or grant time or other indulgence to, any one of those persons without affecting the liability of any other of them.

24.3Condition 1.2 does not apply to this contract.

25.Notices

25.1Any notice given under this contract must be in writing and signed by or on behalf of the party giving it.

25.2Any notice or document to be given or delivered under this contract must be:

(a)delivered by hand; or

(b)sent by pre-paid first class post or other next working day delivery service.

25.3Any notice or document to be given or delivered under this contract must be sent to the relevant party as follows:

(a)to the Seller at:

(i)B & W Group Limited, Dale Road, Worthing, BN11 2RX

(ii)marked for the attention of: Tim Hill

(iii)or at the Seller’s Conveyancer, quoting the reference 220574.00005/SGE;

(b)to the Buyer at:

(i)LondonMetric Property Plc, 1 Curzon Street, London W1J 5HD

(ii)marked for the attention of: Hugh Chivers

(iii)or at the Buyer’s Conveyancer, quoting the reference “B&W, Worthing”.

(c)to the Guarantor at:

(i)5541 Fermi Court, Carlsbad, CA 92008, United States of America

(d)or as otherwise specified by the relevant party by notice in writing to the other party.

25.4Any change of the details in clause 25.3 specified in accordance with that clause shall take effect for the party notified of the change at 9.00 am on the later of:

(a)the date, if any, specified in the notice as the effective date for the change; or

(b)the date five working days after deemed receipt of the notice.

25.5Giving or delivering a notice or a document to a party’s conveyancer has the same effect as giving or delivering it to that party.

25.6Any notice or document given or delivered in accordance with clause 25.1, clause 25.2 and clause 25.3 will be deemed to have been received:

(a)if delivered by hand, on signature of a delivery receipt that if delivery occurs before 9.00 am on a working day, the notice will be deemed to have been received at 9.00 am on that day, and if delivery occurs after 5.00 pm on a working day, or on a day which is not a working day, the notice will be deemed to have been received at 9.00 am on the next working day; or

(b)if sent by pre-paid first class post or other next working day delivery service, at 9.00 am on the second working day after posting; or

25.7In proving delivery of a notice or document, it will be sufficient to prove that:

(a)a delivery receipt was signed; or

(b)the envelope containing the notice or document was properly addressed and posted by pre-paid first class post or other next working day delivery service.

25.8A notice or document given or delivered under this contract shall not be validly given or delivered if sent by email.

25.9Condition 1.3 does not apply to this contract.

25.10This clause does not apply to the service of any proceedings or other documents in any legal action or, where applicable, any arbitration or other method of dispute resolution.

26.Third party rights

26.1A person who is not a party to this contract shall not have any rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this contract.

26.2Condition 1.5 does not apply to this contract.

27.Guarantee

27.1The Guarantor, as primary obligor, guarantees to the Buyer that the Seller will duly perform and observe all its obligations contained clause 20.1 of this contract (the “Guaranteed Obligations”) and, in the event of the Seller’s default, the Guarantor undertakes with the Buyer:

(a)to perform and observe such obligations instead of the Seller; and

(b)to indemnify the Buyer in respect of all losses, damages, costs and expenses properly incurred by the Buyer as a result of any breach by the Seller of the Guaranteed Obligations.

27.2The liability of the Guarantor under this clause 27 shall not be impaired, discharged or otherwise affected by:

(a)any indulgence, compromise or neglect by the Buyer in enforcing the Seller’s obligations under clause 20.1 of this contract;

(b)any legal limitation, immunity, incapacity, insolvency or the winding up of the Seller or by the fact that Seller otherwise ceases to exist;

(c)any other act or omission which, but for this provision, would have released the Guarantor from liability (except a release by deed given by the Buyer to the Guarantor);

(d)or any combination of such matters and the Guarantor’s obligations are not to be released by, but shall be construed so as to require compliance with, the terms of every variation or waiver of any of the Seller’s obligations under clause 20.1 of this contract.

28.Governing law

This contract and any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) shall be governed by and construed in accordance with the law of England and Wales.

29. Jurisdiction

Each party irrevocably agrees that the courts of England and Wales shall have exclusive jurisdiction to settle any dispute or claim arising out of or in connection with this contract or its subject matter or formation (including non-contractual disputes or claims).

This contract has been entered into on the date stated at the beginning of it.

Schedule 1 Documents of title referred to in clause 8

[…***…]

Schedule 2 Capital allowances election

[…***…]

Schedule 3 Lease

[…***…]

Document

Exhibit 10.7

LEASE CONTRACT OF THE HENGLI INDUSTRIAL PARK

Party A (Lessor): Zhuhai Free Trade Zone Minsheng Industrial Warehousing Co., Ltd.

Address: Zone A, 3rd Floor, warehousing plant 9#, Hengli Industrial Park, No. 5 land of Zhuhai Free Trade Zone

Party B (Lessee): Bowers & Wilkins Trading (Zhuhai) Co., Ltd.

Whereas:

1.Party A acknowledges that Party B is planning to change to a manufacturing company. After the said manufacturing company is set up, all rights and liabilities of Party B shall be enjoyed by the said manufacturing company.

2.Party A and Party B have concluded, through friendly consultation, the agreement on lease of the warehousing plant building in Hengli Industrial Park in Zhuhai Free Trade Zone (Guangdong Province Real Property Title Certificate No.: C6097305) from Party A to Party B.

The Parties hereby agree as follows:

Article 1 Lease of the subject matter

The subject matter Party B leases is warehousing plant 11# in Hengli Industrial Park in the No. 5 land of Zhuhai Free Trade Zone. The warehousing plant has two cargo elevators (load capacity for each is 3,000kg) and 2 staircases. The public facilities of the warehousing plant include: enclosure wall, gate, roads in the warehousing plant, greenery, public lighting, water supply and drainage systems, and the supporting facilities.

Article 2 Rates of rentals, management expenses and deposits

1.The lease area of Party B is 13599.55 square meters. The lease period is 10 years commencing from the date of this Contract, the free rental period for renovation in it is from the date of this Contract through to 30th June 2016 (inclusive). And the lease period for which rent is payable is from 1st July 2016.

2.The unit rental is […***…] for the first five years of the lease term, and the monthly rentals total […***…]. From the sixth year of the contract, in case Party B wants to continue the lease, both parties shall have negotiation on a new rate of unit rental on the basis of the market price. Party A shall issue VAT invoice to Party B.

3.Party B shall pay 2-month rental, in an amount of […***…], as the deposit. Within 1 month after the termination of the lease contract between both parties, Party A shall refund the deposit to Party B if all the payments have been made by Party B. The rental deposit cannot be used to settle outstanding monthly rentals and water & electricity charges. There will be no interests on the deposit.

4.During the lease period, Party A shall provide quality services in property management. Both Party B and the property management appointed by Party A shall sign a property management contract. The management expenses for the first 5 years of the lease term will be charged at […***…] per square meter per month in accordance to “Zhuhai Property Charge Standard Rule”. Thereafter the parties shall renegotiate the management expenses.

Article 3 Terms and dates of payment of rentals, management expenses, and deposits

1.The rentals tor that month shall be paid by Party B once a month, on or by the 5th day of every month. The deposits for lease and the rentals for the first month shall be paid within the same day after the signing of the lease contract. The rentals for the second month to be paid on or before 5th August 2016.

Article 4 Power supply, water supply, and firefighting facilities

1.There is a main power distribution box on the ground floor of each building. Party A shall provide this building’s electricity transformer bearing a capacity of 500 kVA.

2.Party A is responsible for extending the water supply and drainage pipes for daily life to each floor of the warehousing plant building, which has independent men’s and women’s restrooms of acceptable standard. If Party B needs to update the restrooms, the relevant expenses shall be paid by Party B. The water supply and drainage pipes for production may be reconstructed according to the actual needs of Party B, on Party B’s account.

3.Party A is responsible for applying for water and power supplies to the authorities concerned. Party B shall cover the expenses for the consumption of water and power (including those incurred during the period of decoration and fittings). Party B shall bear the cost of shared public consumption of water and power according to the standard. Party A shall collect the fees form Party B and pay to related departments.

4.The authorities concerned of electricity will not issue VAT invoices to enterprises, if Party B needs the VAT invoice, Party B must also pay 1% invoice cost. If Party B only requires standard invoice, then Party A shall not charge additional cost. Because the power supply department stipulates that Party A collects the fees from Party B and pays to related departments. Party B must pay the electricity be in 15 days of each month, overdue payment fines responsibility for all the consequences by Party B.

5.The warehousing plant and firefighting facilities provided by Party A meet and will continue to meet the standard specifications of the state authority on firefighting. If special fire fighting application and approval are required due to Party B’s particular need/s, then Party B shall be solely responsible for same in compliance with the fire safely requirements.

Article 5 Date of hand-over

When the deposits and the rentals for the first month for lease shall be paid, Party A shall hand over the subject matter of lease to Party B.

Article 6 Renovation and Maintenance of the houses and facilities

1.Party A shall, once and for all, hand over the warehousing plant, facilities and equipment to Party B for acceptance and use. Party B shall finish inspection of the leased house and notify Party A in written form any problem of the leased house within 7 days after handover of the house. Otherwise, the leased house shall be deemed accepted by Party B. Once inspected and accepted by Party B, it shall be deemed that the leased property handed over by Party A complies with the terms of this Agreement.

2.In case any quality problem is found in the warehousing plant and related facilities before the hand-over date agreed upon, Party A is responsible for repairing. Such warehousing plant and facilities shall be handed over after Party B’s acceptance.

3.Party A agrees that Party B shall install air-conditioning units outside the leased premises, provided that the bolts and stands of the subject air-conditioning units are made of stainless steel. Moreover, Party A agrees that Party B shall place a metal container of around 10 meter squared at the south-west corner of the leased premises for the generator.

4.Party A agrees that Party B shall build a link (with roof and sides) between the leased premises and Warehousing Plant #9 of the Hengli Industrial Park on both the first and second floors thereof. Party A shall assist Party B in making the relevant applications for the construction and approval of the said link (including signing the relevant documents and make application in its own capacity. The actual procedures could be completed by Party B). The relevant costs shall be borne by Party B. In the event that Party A does not cooperate with Party B in the

making the relevant applications for the construction and approval of the said link, Party B shall be entitle to terminate this Contract forthwith and Party A shall refund all deposit and rent paid to Party B.

5.Party B shall repair the facilities it has damaged (e.g. house, door and window, elevator, water and power equipment), and restore the warehousing plant to the original status (except the fire system) in the last month of the lease period and Party B shall be solely responsible for the removal of all construction / demolition wastes.

6.In case Party B fails to restore the warehousing plant, Party A is responsible for the restoration, but the expenses incurred therefrom shall be deducted from the Party B’s deposit. Upon the completion of the restoration, Party A shall refund the remaining deposit to Party B within 1 month. In case the deposit is not sufficient to cover the expenses of maintenance, Party B shall make payment as actually occurs; otherwise Party A will demand payment according to law.

7.During the period of the lease, Party A shall be responsible for the repair and daily maintenance in relation to the quality of the structural parts within the boundary line on the plan of the leased premises, the water penetration prevention and other important facilities. But Party B shall be responsible for the quality repairs and maintenance of other part. The parcel map of the leased premises is attached hereto as appendix.

Article 7 Transfer

If during the Lease Period, Party A’s ownership of the Premises is sold or mortgaged in whole or in part, Party A undertakes that the new owner, mortgagee or other third parties shall continue to comply with all the provisions of this Contract. Party B has the preemptive right to purchase the premises under the same conditions.

During the lease period, this lease contract can be transferred from Party B to Party B’s associated companies, who shall enjoy the same rights and responsibilities as Party B under this Contract. But the relevant rentals and management fees should be paid uniformly by Party B and/or the manufacturing company to be incorporated.

Article 8 Renewal of lease

In case Party B requires the renewal of lease at the end of the lease period, Party B shall give written notice to Party A six months prior to the expiry of the lease period. The parties shall enter into a new lease contract. The terms of the new lease contract shall be the same as those in this Contract, but the rent shall be further negotiated and agreed by the parties. Under the same conditions, Party B shall have the priority in renewal of lease.

Article 9 Early termination of lease

1.Party A gives Party B the right to, during the fourth year of this Lease, decide whether to continue performing this Contract after expiration of the fifth year of this Lease. Should Party B choose not to continue this Lease, then it shall give six months written notice to Party A. Party A shall not make a claim on Party B for breach of contract on the basis of the early termination.

2.Party B shall vacate the warehousing plant within 6 days after the termination of the lease contract, otherwise rentals shall be collected on the basis of the actual numbers of days. In case of early termination of the lease contract, the maintenance of the houses and the deposit shall be dealt with in accordance with Article 6 of this Contract.

3.Party A shall not terminate this Contract early during the first 5 years term, otherwise Party A shall make compensation to Party B regarding the design, install and construction costs of the fire system, and the design, construction and approval costs for the link between warehousing plants 9 and 11.

Article 10 Insurance and Taxation

During the Lease Period, each party shall have the right to decide for its own whether to purchase insurance for the lease property and the properties within the leased property, each party shall be liable for its own relevant costs

Article 11 Responsibilities and obligations of both parties

1.Responsibilities and obligations of Party A

i.Provides Party B with houses that can be put into normal operation at the contracted date.

ii.Inspects, maintains and repairs the equipment and facilities inside and outside of the houses, at regular intervals and on its own account.

iii.Is responsible for the annual inspection of the equipment and public facilities provided by Party A and the normal property management in the industrial park.

iv.Timely repairs the equipment and facilities provided by Party A in case of any problem. But Party A shall charge the cost of maintenance for the damages due to Party B’s fault or poor safekeeping.

v.During the lease period, Party A does not need to obtain the consent of Party B before transferring the ownership of the leased warehousing plant to a third party, but Party A shall notify Party B of the transfer of the ownership. Subject to Party B’s pre-emptive right in Article 7.

vi.Party A guarantees that the warehousing plant could be used for registration of the manufacturing company and shall provide all documents and information related to the warehousing plant for business registration applications.

2.Responsibilities and obligations of Party B

i.Pays the rentals and management expenses on time, and pays the deposit for lease according to the provisions of the contract.

ii.Party B shall not conduct any illegal activities in the leased houses.

iii.Properly uses and protects the leased houses and the related equipment and facilities. Party B is responsible for the maintenance and restoration of the warehousing plant, equipment and facilities in case of damages resulting from Party B’s improper use and poor safekeeping. For the damages to the warehousing plant, equipment and facilities resulting from force majeure or other causes beyond the control of Party B, Party B bears no responsibility.

iv.Party B shall observe and obey the relevant property management regulations of Party A.

v.Without Party A’s consent, Party B shall not alter the construction structure of the warehousing plant, water supply and discharge facilities, power supply facilities, firefighting facilities, etc or their functions. Other than as stipulated in Article 6 herein, in case Party B wants to conduct fitment (including installation of air-conditioner and anti-theft net), it shall give a prior notice in written to Party A, along with the proposal of fitment and reconstruction (the proposal shall be in conformity with fight fighting requirements). Party B may only conduct the construction upon the written approval of Party A. In case of any accident arising from the construction conducted by Party B without authorization and not in conformity with the standards of design, Party B shall bear all the economic loss and legal responsibility thereof.

vi.Party B shall use shared parts such as walls, roads, green belts and space outside the warehousing plant in accordance with the requirements of planning. The above-mentioned shared parts shall be mutually respected and properly used. Party B shall not conduct any construction around the warehousing plant or on the roof of the building.

vii.Party B shall not stop other people from using the shared transformer and distribution facilities.

viii.Party B shall give Party A cooperation and necessary assistance for the maintenance and repair by Party A.

ix.Party B is able to transfer the lease or sub lease the premises to the associated companies of Party B. If Party B leases or sub-leases to any other third party, but it shall obtain prior approval by Party A. Party A shall not unreasonably withhold consent. The relevant rentals and management fees should be paid uniformly by Party B and/or the manufacturing company to be incorporated.

x.Party B should remove their own property in 6 days when contract expires, overdue Party A is deemed that Party B gives up automatically.

Article 12 Supplementary provisions

1.Legal contents of this contract are subject to those written in Chinese language. Both parties shall be bound by this contract. In case either party commits a breach of this contract, the other party shall have the right to lodge a claim of loss or even cancel the contract.

2.This Lease Contract shall be governed by and construed in accordance with the laws of the People’s Republic of China. In case of any dispute resulting from the execution of this contract, both parties shall make the settlement through friendly negotiation. If the settlement cannot be reached between both parties, both sides agreed to submit to the People’s Court of Zhuhai.

3.Party B shall provide one copy of its business license issued by the commerce and industry authority as the appendix of this contract.

4.This contract shall come into force upon the signing and sealing of the authorized representatives of both parties. This contract is made in duplicate with each party holding one copy. Neither party shall alter the content of this contract without the written consent of both parties. The alteration of this contract and confirmation of the issues which are not listed in this contract shall be concluded in supplementary agreement. The supplementary agreement shall be an integral part of this contract and equally effective.

5.Any notice under this Contract shall be in writing and shall be delivered by hand to or sent by regular prepaid post to the relevant party at its address set out at the head of in this Contract. Any such notice shall be treated as received when delivered, if by hand, or two working days after posting, if sent by regular prepaid post.


Party A: Zhuhai Free Trade Zone Minsheng Industrial Warehousing Co., Ltd. Signature: /s/ Zhuhai Free Trade Zone Minsheng Industrial Warehousing Co., Ltd.			Party B: Bowers & Wilkins Trading (Zhuhai) Co., Ltd. Signature: /s/ Bowers & Wilkins Trading (Zhuhai) Co., Ltd.
Date of signing: April 1, 2016 Location of signing: Xiangzhou District, Zhuhai City

Document

Exhibit 10.8

LEASE CONTRACT OF THE HENGLI INDUSTRIAL PARK - WAREHOUSE

Party A (Lessor): Zhuhai Free Trade Zone Minsheng Industrial Warehousing Co., Ltd.

Address: Zone A, 3rd Floor, warehousing plant 9#, Hengli Industrial Park, No. 5 land of Zhuhai Free Trade Zone

Party B (Lessee): Bowers & Wilkins Trading (Zhuhai) Co., Ltd.

Address: Warehousing-plant 11#, Hengli Industrial Park, No. 5 land of Zhuhai Free Trade Zone

Party A and Party B have concluded, through friendly consultation, the agreement on lease of the warehousing-plant building in Hengli Industrial Park in Zhuhai Free Trade Zone (Guangdong Province Real Property Title Certificate No.: C6097362) from Party A to Party B, with the terms and conditions as follows:

Article 1 Lease of the subject matter

The subject matter Party B leases is warehousing-plant 9# in Hengli Industrial Park in the No. 5 land of Zhuhai Free Trade Zone. The warehousing-plant has two cargo elevators (load capacity for each is 2,000kg) and 2 staircases. The public facilities of the warehousing-plant include: enclosure wall, gate, roads in the warehousing-plant, greenery, public lighting, water supply and drainage systems and the supporting facilities.

Article 2 Rates of rentals, management expenses and deposits

1.The lease area of Party B is 13199.55 square meters. The lease period is commencing from the date of this Contract to 31st March 2026.

2.The unit rental is […***…] for the first five years of the lease term, and the monthly rentals total […***…] yuan/month. From the sixth year of the contract, in case Party B wants to continue the lease, both parties shall have negotiation on a new rate of unit rental on the basis of the market price.

Article 3 Terms and dates of payment of rentals, management expenses, and deposits

1.The rentals for that month shall be paid by Party B once a month, on or by the 5th day of every month. The deposits for lease and the rentals for the first month shall be paid within the same day after the signing of the lease contract. The rentals for the second month to be paid on or before 5th December 2016.

2.In case Party B fails to pay the rentals on time, Party A shall provide grace period of 10 days for Party B to pay overdue rentals. If Party B still fails to pay after the 10 days grace period, Party A then has the right to collect the normal rent and the daily arrearage in an amount equal to 5% of the rents due. If Party B needs the VAT invoice, Party B must also pay to Party A an additional 2% on the rental cost. If Party B only requires standard invoice, then Party A shall not charge additional cost.

Article 4 Power supply, water supply, and firefighting facilities

1.There is a main power distribution box on the ground floor of each building. Party A shall provide electricity transformer bearing a capacity of at least 100 kVA, 300 kVA available for future expansion and 380V industrial power to the main power distribution box. Provide according to the warehouse and office electricity needs of enterprises with the status quo.

2.Party A is responsible for extending the water supply and drainage pipes for daily life to each floor of the warehousing-plant building, which has independent men’s and women’s restrooms. The water supply and drainage pipes for production may be reconstructed according to the actual needs of Party B, on Party B's account.

5.The warehousing-plant and fire fighting facilities provided by Party A meet and will continue to meet the standard specifications of the state authority on fire fighting. If special fire fighting application and approval are required due to Party B’s particular need/s, then Party B shall be solely responsible for same in compliance with the fire safety requirements.

Article 5 Date of hand-over

Party A has already handed over the subject matter of lease to Party B.

Article 6 Renovation and Maintenance of the houses and facilities

1.Party A shall, once and for all, hand over the warehousing-plant, facilities and equipment to Party B for acceptance and use. Party B shall finish inspection of the leased house and notify Party A in written form any problem of the leased house within 7 days after handover of the house. Otherwise, the leased house shall be deemed accepted by Party B. Once inspected and accepted by Party B, it shall be deemed that the leased property handed over by Party A complies with the terms of this Agreement.

2.In case any quality problem is found in the warehousing-plant and related facilities before the hand-over date agreed upon, Party A is responsible for repairing. Such warehousing-plant and facilities shall be handed over after Party B's acceptance.

3.Party B shall repair the facilities it has damaged (e.g. house, door and window, elevator, water and power equipment), and restore the warehousing-plant to the original status in the last month of the lease period and Party B shall be solely responsible for the removal of all construction/demolition wastes.

4.In case Party B fails to restore the warehousing-plant, Party A is responsible for the restoration, but the expenses incurred therefrom shall be deducted from the Party B's deposit. Upon the completion of the restoration, Party A shall refund the remaining deposit to Party B within 1 month. In case the deposit is not sufficient to cover the expenses of maintenance, Party B shall make payment as actually occurs; otherwise Party A will demand payment according to law.

5.During the period of the lease, Party A shall be responsible for the repair and daily maintenance in relation to the quality of the structural parts within the boundary line on the plan of the leased premises, the water penetration prevention and other important facilities. But Party B shall be responsible for the quality repairs and maintenance of other part.

Article 7 Transfer

Article 8 Renewal of lease

Article 9 Early termination of lease

1.Party A gives Party B the right to, by 31st March 2020, decide whether to continue performing this Contract after 31st March 2021. Should Party B choose not to continue this Lease, then it shall give six months written notice to Party A. Party A shall not make a claim on Party B for breach of contract on the basis of the early termination.

Article 10 Insurance and Taxation

Article 11 Responsibilities and obligations of both parties

1.Responsibilities and obligations of Party A

i.Provides Party B with houses that can be put into normal operation at the contracted date.

ii.Inspects, maintains and repairs the equipment and facilities inside and outside of the houses, at regular intervals and on its own account.

iii.Is responsible for the annual inspection of the equipment and public facilities provided by Party A and the normal property management in the industrial park.

iv.Timely repairs the equipment and facilities provided by Party A in case of any problem. But Party A shall charge the cost of maintenance for the damages due to Party B's fault or poor safekeeping.

v.During the lease period, Party A does not need to obtain the consent of Party B before transferring the ownership of the leased warehousing-plant to a third party, but Party A shall notify Party B of the transfer of the ownership. Subject to Party B's pre-emptive right in Article 7.

2.Responsibilities and obligations of Party B

i.Pays the rentals and management expenses on time, and pays the deposit for lease according to the provisions of the contract.

ii.Party B shall not conduct any illegal activities in the leased houses.

iii.Properly uses and protects the leased houses and the related equipment and facilities. Party B is responsible for the maintenance and restoration of the warehousing-plant, equipment and facilities in case of damages resulting from Party B's improper use and poor safekeeping. For the damages to the warehousing-plant, equipment and facilities resulting from force majeure or other causes beyond the control of Party B, Party B bears no responsibility.

iv.Party B shall observe and obey the relevant property management regulations of Party A.

v.Party B shall not alter the construction structure of the warehousing-plant, water supply and discharge facilities, power supply facilities, fire-fighting facilities, etc or their functions. In case Party B wants to conduct fitment (including installation of air-conditioner and anti-theft net), it shall give a prior notice in written to Party A, along with the proposal of fitment and reconstruction (the proposal shall be in conformity with fight fighting requirements). Party B may only conduct the construction upon the written approval of Party A. In case of any accident arising from the construction conducted by Party B without authorization and not in conformity with the standards of design, Party B shall bear all the economic loss and legal responsibility thereof.

vi.Party B shall use shared parts such as wails, roads, green belts and space outside the warehousing-plant in accordance with the requirements of planning. The above-mentioned shared parts shall be mutually respected and properly used. Party B shall not conduct any construction around the warehousing-plant or on the roof of the building.

vii.Party B shall not stop other people from using the shared transformer and distribution facilities.

viii.Party B shall give Party A cooperation and necessary assistance for the maintenance and repair by Party A.

ix.Party B is able to transfer the lease or sub lease the premises to the associated companies of Party B. If Party B leases or sub-leases to any other third party, it shall obtain prior approval by Party A. Party A shall not unreasonably withhold consent. The relevant rentals and management fees should be paid uniformly by Party B and/or the manufacturing company to be incorporated.

x.Party B should remove their own property in 6 days when contract expires, overdue Party A is deemed that Party B gives up automatically.

Article 12 Supplementary provisions

3.Party B shall provide one copy of its business license issued by the commerce and industry authority as the appendix of this contract.


Party A: Zhuhai Free Trade Zone Minsheng Industrial Warehousing Co., Ltd. Signature: /s/ Zhuhai Free Trade Zone Minsheng Industrial Warehousing Co., Ltd			Party B: Bowers & Wilkins Trading (Zhuhai) Co., Ltd. Signature: /s/ Bowers & Wilkins Trading (Zhuhai) Co., Ltd.
Date of signing: November 1, 2016 Location of signing: Xiangzhou District, Zhuhai City

Document

Exhibit 10.9

***Certain identified information has been omitted from this exhibit because it is both (i) not material and (ii) would likely cause competitive harm to the Registrant if publicly disclosed. Such omitted information is indicated by brackets (“[...***...]”) in this exhibit. ***

PURCHASE AGREEMENT

Dated as of May 23, 2019

between

DEI SALES, INC., herein referred to as SOUND UNITED

and

ANAM Electronics Co., Ltd

This PURCHASE AGREEMENT (this “Agreement”), dated as of May 23, 2019 (the “Effective Date”), is made and entered into by and between DEI Sales, Inc., and its subsidiary Sound United, LLC, having a principal place of business 1 Viper Way, Vista, CA 92081 (“SOUND UNITED”), and ANAM Electronics Co. Ltd, a Korea corporation having its principal place of business at 27,digital-ro 27ga-gil, Guro-gu, Seoul, Korea (“Supplier”). SOUND UNITED and/or Supplier may hereafter be referred to individually as a “Party” and collectively as the “Parties”.

WHEREAS, SOUND UNITED is in the business of manufacturing and selling audio products under various trademarks (the “Trademark”);

WHEREAS, Supplier wishes to, and SOUND UNITED wishes Supplier to develop and manufacture for SOUND UNITED and supply to SOUND UNITED certain audio products under the Trademarks to be marketed and sold by SOUND UNITED.

NOW, THEREFORE, in consideration of the mutual covenants and premises herein contained, the Parties agree as follows:

1.GENERAL

1.1This Agreement specifies the basic terms and conditions under which Supplier will develop and manufacture the audio products specified by one or more award letters issued by SOUND UNITED from time to time (each, an “Award Letter”; the business being awarded by the Award Letter, the “Award”; and such products, the “Products”) and supply the Products to SOUND UNITED in accordance with the purchase orders (the “Purchase Orders”) issued by SOUND UNITED as set forth in this Agreement. This Agreement also specifies in Schedule I the basic terms and conditions under which Supplier will supply to SOUND UNITED spare parts of the Products for after-service purposes (the “Spare Parts”).

1.2The specifications (the “Specifications”), schedule (the “Schedule”) and other requirements specific to a Product (collectively, the “Requirements”) are set forth in the applicable Award Letter and the documents referenced in the Award Letter. Once an Award Letter is issued by SOUND UNITED, the Requirements shall be incorporated into and constitute a part of this Agreement. The Requirements may be modified from time to time by mutual agreement of the Parties in writing.

1.3In the event of any inconsistency between the Requirements and the terms of this Agreement, the Requirements shall control.

2.TEAM AND GOVERNANCE

Each Party shall designate team members responsible for each relevant function for the performance of its obligations hereunder. Each Party shall use its best efforts to maintain continuance of such team members and promptly inform the other Party in the event a change is necessitated. Each Party shall also establish an internal escalation path for resolution in the event any dispute arises between the Parties hereunder.

3.PRODUCT DESIGN AND DEVELOPMENT

3.1Supplier shall design and develop the Products in accordance with the Requirements and the milestone processes specified by SOUND UNITED as set forth in Schedule II, as well as other instructions provided by SOUND UNITED from time to time (such act of designing and developing, the “Development Work”). Supplier shall obtain SOUND UNITED’s written approvals at each milestone required in Schedule II.

3.2Upon SOUND UNITED’s request from time to time, Supplier shall produce a written report with respect to the progress of the Development Work, in the form separately designated by SOUND UNITED.

3.3In the event Supplier becomes aware of any factor which adversely affects or may reasonably adversely affect the progress of the Development Work, Supplier shall notify SOUND UNITED immediately and propose to SOUND UNITED possible alternative course(s) of action reasonably acceptable to SOUND UNITED. Any alternative course of action agreed by the Parties to be taken shall be reduced to writing by Supplier and approved by SOUND UNITED. Compliance with this Section or acceptance by SOUND UNITED of any alternative course of action shall not prejudice SOUND UNITED’s right to claim for damages, losses, demands, costs and expenses, including but not limited to reasonable attorneys’ fees and court costs (collectively, the “Damages”) under this Agreement.

3.4The Parties acknowledge and agree that performance of the Development Work in accordance with the Schedule is critical in the timely launch of a new Product or a model of a Product and that any delay in the Schedule may cause SOUND UNITED to incur Damages, which may include, without limitation, additional costs and expenses to speed up any processes or to take alternative courses of action relating to the Development Work to make up for the delay in the Schedule (e.g., sending of SOUND UNITED staff to Supplier’s facility to assist or give instructions to Supplier’s staff; expedited shipment of the Products (including samples); updating of software in the Products in warehouse; procurement of replacement goods and services from an alternate source; etc.). Accordingly, any delay in the Development Work caused by Supplier or a situation where departure from the Schedule is inevitable due to causes attributable to Supplier will entitle SOUND UNITED to (i) compensation by Supplier for such Damages incurred thereby; and (ii) at SOUND UNITED’s option, cancel the applicable Award and terminate this Agreement. Supplier’s compliance with Section 3.3 above will not prejudice SOUND UNITED’s right to claim for Damages under this Section or otherwise. Without limiting any other rights SOUND UNITED may have under this Agreement or otherwise, to the extent the Award Letter specifies any development fees to be payable by SOUND UNITED to Supplier for the Development Work, SOUND UNITED may, at its option, set-off such fees by the amount of Damages entitled to SOUND UNITED hereunder.

4.PRODUCTION PILOT RUN AND MASS PRODUCTION

4.1Supplier shall proceed with the production “pilot run” (a process under which production capability of Supplier is verified) and mass production of the Products in accordance with Schedule II and other instructions provided by SOUND UNITED from time to time. Supplier shall obtain SOUND UNITED’s written approvals at each milestone as required in Schedule II.

4.2Upon SOUND UNITED’s request from time to time, Supplier shall produce a written report with respect to the progress of the production pilot run and mass production of the Products, in the form separately designated by SOUND UNITED.

4.3In the event Supplier becomes aware of any factor which adversely affects or may reasonably adversely affect the progress of the production pilot run or mass production, Supplier shall notify SOUND UNITED immediately and propose to SOUND UNITED possible alternative course(s) of action reasonably acceptable to SOUND UNITED. Any alternative course of action agreed by the Parties to be taken shall be reduced to writing by Supplier and approved by SOUND UNITED. Compliance with this Section or acceptance by SOUND UNITED of any alternative course of action shall not prejudice SOUND UNITED’s right to claim for Damages under this Agreement.

5.QUALITY CONTROL

5.1Supplier shall provide and maintain a quality control system acceptable to SOUND UNITED, which, at minimum, satisfies the standards set forth in Schedule III. All manufactured Products may be subject to inspection or verification by SOUND UNITED during manufacture or otherwise prior to shipment, and final inspection and acceptance at destination, notwithstanding any prior payment, inspection or acceptance. Upon SOUND UNITED’s request, Supplier shall accommodate SOUND UNITED’s employees, representatives or agents at one or more of its manufacturing facilities for purposes of such inspection or verification.

5.2Supplier shall be responsible for setting up and maintaining controlled documentation of traceability by Product at appropriate levels during all stages of receipt, production and distribution. At minimum, all Products must be traced by lot/batch, and any change in engineering, process, component, subcontractor and anything else that has or may have any effect on the Product shall be documented and traced by lot/batch.

5.3Supplier shall maintain detailed quality control-related records of each Product for periods from the date of delivery described below,.

•records to be kept for three (3) years:

•Vietnam Factory Quality Inspection Documents (Vietnam Factory 品質検査成績書）

•IQC Inspection Documents (IQC 成績書)

•OQC Inspection Documents (OQC 成桢书)

•The others Related Quality Inspection Documents (その他の関連品質検査成績書)

•records to be kept for ten (10) years:

•Safety Standard related Certificates & Test Reports (安全规格朋速害颓）

•Safety Certificate & Test report

•EMC Certificate & Test report

•RF Certificate & Test report

•The others Certificates & Test Reports (その他の承認書)

Upon SOUND UNITED’s request, Supplier shall provide copies of such records to SOUND UNITED without delay.

6.RESPONSIBILITY FOR PROPERTY AND TOOLING

6.1Title to property and tooling furnished to Supplier for purposes of this Agreement by SOUND UNITED or paid for by SOUND UNITED either directly or indirectly as part of the unit price of the Products or otherwise (such property and tooling, “SOUND UNITED Property”) shall remain with SOUND UNITED. Supplier shall not alter or use SOUND UNITED Property for any purpose other than in performance under this Agreement without the express prior written consent of SOUND UNITED. Supplier agrees to store, protect, preserve, repair and maintain SOUND UNITED Property in accordance with sound commercial practice. Supplier shall be liable for any loss or destruction of, or damage to, any SOUND UNITED Property caused by the negligence or wrongful acts or omissions of Supplier or Supplier’s employees, representatives or agents.

6.2Intentionally omitted

6.3To the extent Supplier provides any of SOUND UNITED Property to any of its subsidiary or affiliate, or to any third party parts supplier, directly or through its subsidiary or affiliate, Supplier shall: (i) maintain written records of location and custody of each SOUND UNITED Property and provide to SOUND UNITED upon request; (ii) impose on such subsidiary, affiliate or third party obligations equivalent to those under this Section 6 with respect to SOUND UNITED Property and ensure compliance therewith; and (iii) Supplier shall remain responsible for such SOUND UNITED Property under this Agreement regardless of the actual custody thereof.

6.4Unless otherwise agreed by the Parties in writing, all tooling or other property required for the performance hereunder, other than SOUND UNITED Property, if any, shall be furnished by Supplier, maintained in good condition and replaced when necessary at Supplier’s expense.

7.CHANGES

7.1Each of SOUND UNITED and Supplier may, from time to time, propose to each other in the form of change request, changes in the Specifications. If any such proposed change may cause an increase or decrease in the costs of or the time required for Supplier’s performance, Supplier shall immediately notify SOUND UNITED and the Parties shall agree on an equitable adjustment in prices or other terms, which shall be set forth in in writing. No change will be binding on SOUND UNITED unless agreed to in writing by SOUND UNITED. Without limiting any of the foregoing and notwithstanding anything to the contrary that may be provided in this Agreement, in no event shall Supplier make any changes in the design, material or processes that affect the form, fit, function, interchangeability, quality or reliability of the Products without the prior written consent of SOUND UNITED. SOUND UNITED may choose to return the lot to Supplier at Supplier’s expense or hold the lot until appropriate testing and validation demonstrate that the Product meets or exceeds the original specification. Costs associated with re-testing and re-validation of products with unapproved or undisclosed changes will be the sole expense of Supplier.

7.2If Supplier learns or reasonably foresees that any part or component used for the manufacture of any Product will become or has become unavailable, Supplier shall immediately notify SOUND UNITED and, to the extent necessary, the Parties shall agree on: (i) the alternative part(s) / component(s); (ii) any adjustments in the Specifications and/or manufacturing processes; and (iii) anything else affected by such unavailability. It shall be Supplier’s sole responsibility to make the last buy in sufficient number of the part or component that will become unavailable and/or procure, at its cost, alternative parts and components in timely fashion and in sufficient number, so as to minimize any disruption to the manufacture or any adverse effect on the quality of the Product. SOUND UNITED reserves the right to recover from Supplier any Damages SOUND UNITED suffers from the unavailability of any part or component.

8.FORECAST, PURCHASE ORDER AND ACCEPTANCE

8.1Each month, SOUND UNITED will submit a two-month rolling, binding forecast of its requirements for the Products, to be renewed every month, covering the N+3 and N+4 months (e.g., the forecast submitted in December shall represent its potential requirements in the months of March and April).

Details of forecast and lead time shall be described as Exhibit D

8.2Each month, SOUND UNITED will submit a Purchase Order setting forth the Product(s), quantity and requested delivery date(s) for the N+2 month (e.g., the Purchase Order issued in December shall be for deliveries over the month of February).

8.3A Purchase Order shall be deemed accepted by Supplier without any modification upon acknowledgement or if Supplier does not provide any acknowledgment or indicate any objection to such Purchase Order within five (5) business days after issuance of such Purchase Order by SOUND UNITED. Supplier shall use its best efforts to accept Purchase Orders from SOUND UNITED without any modification, An accepted Purchase Order becomes the exclusive agreement and supersedes any and all prior or contemporaneous communications or agreements between the Parties pertaining to such Purchase Order, except to the extent inconsistent with subsequent written agreement signed by both Parties, if any.

9.PACKING, SHIPPING AND DELIVERY DOCUMENTS

Unless otherwise specified or agreed to by SOUND UNITED separately in writing:

9.1All packing and crating by Supplier shall be in compliance with carrier’s tariffs and in containers suitable in handling with a mechanical device for protection from exposure in shipment and storage.

9.2In case any Product requires anti-static proof to preserve its quality in every respect, Supplier shall apply anti-static processed packaging for transportation.

9.3Supplier will externally mark each container with necessary lifting, loading and shipping information, including the Purchase Order number, date of shipment, name and address of SOUND UNITED and Supplier, other packing slip information and, if required, bar coding.

9.4Each shipment must include a complete packing list specifying applicable Purchase Order number, Line item number, SOUND UNITED’s Part number, Revision number, Manufacturer’s Part number (if any), date of shipment, requester’s name, and quantity of Products shipped.

9.5All invoices and bills of lading must include SOUND UNITED’s Purchase Order number.

9.6The price(s) include all charges for Supplier’s packing and crating. All shipments made on the same day and via the same route shall be consolidated in order to obtain the lowest transportation rate. Supplier will bear the expense of any premium transportation charges.

9.7The delivery terms shall be FOB or otherwise as designated on the face of each Purchase Order. Title and risk of loss or damage shall not pass to SOUND UNITED until receipt by SOUND UNITED of the Products at the applicable delivery point. If applicable, Supplier will assign duty drawback rights to SOUND UNITED.

9.8Supplier will timely provide SOUND UNITED with material safety data sheets and other documentation reasonably necessary to enable SOUND UNITED to comply with applicable laws and regulations. Upon SOUND UNITED’s request, Supplier will promptly provide SOUND UNITED with a certificate of origin for all items and with applicable customs documentation for items wholly or partially manufactured outside of the country of import.

9.9Any losses accruing from deviation from SOUND UNITED’s routing instructions shall be charged to Supplier’s account. Supplier shall forward to SOUND UNITED, with the invoice, the express receipt or bill of lading, signed by the carrier, evidencing the fact that shipment was made.

10.PRICE AND PAYMENT

10.1Price(s) on a Purchase Order shall be fixed in accordance with the applicable Award Letter for the Product or with any other subsequent written agreement between the Parties.

10.2Supplier warrants that the prices specified in each Purchase Order do not exceed prices charged for like quantities of the same or substantially similar products to any other purchaser. If Supplier sells the same or substantially similar products to other customers at prices less than those set forth in the relevant Purchase Order, Supplier shall accordingly lower the price of any Products sold to SOUND UNITED and provide SOUND UNITED with a credit for any such Products sold to SOUND UNITED (for the difference between the price sold to SOUND UNITED and the lowest price of the same or substantially similar products sold to others) during the period in which Supplier was selling such same or substantially similar products at the lower price.

10.3All applicable national and local taxes, duties, tariffs and other governmental charges in effect on the date of a Purchase Order are included in the price(s) indicated on the Purchase Order, unless otherwise stated therein. All other taxes lawfully required to be collected by Supplier with respect to the Product provided by Supplier to SOUND UNITED shall be paid by Supplier. In the event of repeal of taxes or the reduction of rates, prices shall be adjusted accordingly.

10.4Unless otherwise agreed in writing by SOUND UNITED, invoices shall be sent no earlier than the date on which each delivery is made.

10.5Upon receipt of an undisputed invoice, SOUND UNITED shall pay Supplier by way of wire transfer into the bank account designated by Supplier within sixty (60) days.

10.6Subject to the approval of Korean Government, SOUND UNITED shall have the right at any time to set-off any amount owed by Supplier to SOUND UNITED against any amount due and owed to Supplier under any Purchase Order or otherwise. SOUND UNITED may apply a return credit issued by Supplier to SOUND UNITED to offset Supplier’s invoice on any Purchase Order. Exercising an offset for future Product orders is at the sole discretion of SOUND UNITED. If at any time SOUND UNITED determines not to use a credit to offset an invoice on a future Product order, then SOUND UNITED may bill Supplier net thirty (30) day terms for the full amount owed.

11.DELIVERIES, RESCHEDULES AND INSPECTIONS

11.1Supplier shall inspect all Products immediately before shipment, and upon SOUND UNITED’s request, deliver records of such inspection to SOUND UNITED without delay.

11.2SOUND UNITED’s sales schedules are based upon Supplier’s understanding and agreement that Products will be delivered to SOUND UNITED on the date specified on each Purchase Order, and, therefore, TIME IS OF THE ESSENCE with respect to Supplier’s delivery obligations pursuant to each Purchase Order. Supplier shall notify SOUND UNITED without delay if Supplier is unable, or has reasons to believe that it may be unable, to make any scheduled delivery and state the reason therefor. If any delivery of the Products is not made at the specified time, SOUND UNITED may choose to do any of the following, in any combination: (i) require Supplier to use expedited shipment method of SOUND UNITED’s choice for delivery of the Products at Supplier’s expense; (ii) cancel all or part of the Purchase Order; and/or (iii) hold Supplier accountable for the expenses incurred by SOUND UNITED due to such delay, which may include, without limitation, expedited shipment of Products to various locations after delivery by Supplier to SOUND UNITED.

11.3Any Products delivered in advance of the delivery schedule may, at SOUND UNITED’s option, either be returned to Supplier (collect) for proper delivery or be accepted by SOUND UNITED.

11.4If SOUND UNITED discovers that any delivered Products were defective or otherwise not in conformity with the requirements of a Purchase Order or this Agreement, SOUND UNITED may, at its option: (i) rescind the Purchase Order in whole or in part and require refund from Supplier, if already paid; (ii) accept such Products and rework the Products at the Supplier’s expense or require the Supplier to rework the Products; or (iii) reject such Products and require delivery of replacements. If SOUND UNITED chooses to rework the Products, Supplier shall provide full cooperation to SOUND UNITED in connection with such rework at its cost, including but not limited to supplying necessary information, data and parts and components and arranging and paying for any necessary services to be provided by third party contractors. If Products are rejected, Supplier will provide SOUND UNITED with a return material authorization (RMA) number upon notification of rejection, SOUND UNITED will return such Products at Supplier’s risk and expense, and Supplier will deliver replacements to SOUND UNITED at its risk and expense without delay. Rights granted to SOUND UNITED and obligations of Supplier under this Section survive any payment, inspection or acceptance by SOUND UNITED and are in addition to any other rights or remedies provided elsewhere hereunder or by law.

It is understood that this Sub-Section 11.4 shall not apply where Supplier clearly proved that SOUND UNITED is responsible for defective or non-conformity with the requirements.

11.5SOUND UNITED may inspect, at any time during business hours on any working day, with a reasonable advance notice not less than forty-eight (48) hours to Supplier, the manufacturing site of the Products for any purpose under this Agreement.

12.REQUIRED PARTS AND COMPONENTS

12.1Supplier shall, at all times, maintain in sufficient number in its stock all required parts and components to manufacture the Products based on the Purchase Orders accepted by Supplier pursuant to Section 8.2 (the “Required Parts and Components”).

12.2Supplier shall exercise its best business judgment based on various factors, including but not limited to its relevant knowledge and experience in its industry, most recently-available market information, the binding rolling forecast provided by SOUND UNITED pursuant to Section 8.1, to procure the Required Parts and Components so as to meet the requirement under Section 12.1 above but not in unreasonable excess of such requirement, at the best obtainable price under the particular circumstances at the time of procurement thereof. Specifically, Supplier shall always take into consideration such factors as the current number of Required Parts and Components left in its stock, the changing nature of SOUND UNITED’s binding rolling forecast and the minimum order quantity (the “MOQ”) which may be imposed by the suppliers of the Required Parts and Components from time to time, in determining the most appropriate quantity of the Required Parts and Components to procure at any given time.

12.3Notwithstanding Section 12.2 above but subject to Section 12.4 below, to the extent Supplier is left with unused Required Parts and Components after the last manufacture of the relevant Product (such Product, the “EOL Product”), SOUND UNITED and Supplier shall discuss in good faith regarding compensation by SOUND UNITED for the amounts paid by Supplier for such Required Parts and Components with respect to those Required Parts and Components procured on the basis of SOUND UNITED’s last submitted forecast for the N+3 month and the N+4 month. Supplier may choose to procure Required Parts and Components outside the scope above but shall do so entirely at its own risk and SOUND UNITED shall not be held liable for any unused portion of such Required Parts and Components. In addition, in no event shall SOUND UNITED be responsible for any Required Parts and Components purchased in excess of the applicable MOQ.

Details of forecast and lead time shall be described as Exhibit D

12.4Any compensation by SOUND UNITED under Section 12.3 above is subject to the requirement by Supplier to demonstrate, to SOUND UNITED’s reasonable satisfaction, that the relevant Required Parts and Components could not be reasonably used for any purpose other than the manufacturing of the relevant EOL Product, including but not limited to utilizing them in another product manufactured by Supplier for SOUND UNITED or any other customer or reselling to a third party.

13.OBLIGATION TO CONTINUE PRODUCTION; END OF LIFE BY SUPPLIER

13.1Supplier is obligated to continue production of a Product or a model of a Product at least for two (2) years after first production thereof, unless otherwise agreed between the Parties in writing.

13.2If, after expiration of the period referred to in Section 13.1, Supplier has justifiable reasons for ceasing to manufacture any Product, Supplier shall provide at least twelve (12) months’ written notice to SOUND UNITED prior to the envisaged last delivery thereof, and obtain SOUND UNITED’s written consent, which shall not be unreasonably withheld. Supplier shall then provide SOUND UNITED opportunities to place one or more Purchase Orders for the EOL Products in such quantity as SOUND UNITED may require before the envisaged final delivery date, and Supplier shall accept such Purchase Orders at the then prevailing price.

14.SPARE PARTS

The terms and conditions relating to spare parts of the Products to be supplied by Supplier to SOUND UNITED hereunder are set forth in Schedule I attached hereto.

15.CONFIDENTIALITY OF SOUND UNITED INFORMATION

15.1Supplier agrees to keep in confidence any and all information of SOUND UNITED as well as information of third parties held by SOUND UNITED that Supplier receives or otherwise acquires in connection with this Agreement or otherwise, including but not limited to the Requirements and demand and pricing information of the Products (“SOUND UNITED Information”) and that it will not directly or indirectly disclose or disseminate the same to any third party or use the same for any purpose other than in connection with the performance of its obligations and the exercise of its rights hereunder. The existence and the content of this Agreement shall also constitute SOUND UNITED Information.

15.2If Supplier is required to disclose any SOUND UNITED Information to Supplier’s suppliers or any other third party in furtherance of this Agreement or otherwise, Supplier shall obtain SOUND UNITED’s prior written consent for such disclosure as well as binding commitments from such suppliers or third parties to protect SOUND UNITED’s rights in, and to maintain the confidentiality of, such SOUND UNITED Information, in a manner consistent with this Agreement.

15.2Supplier shall promptly return or destroy, at its own cost and expense, any and all SOUND UNITED Information, including any copies thereof, when it is no longer required by Supplier, upon SOUND UNITED’s request or upon termination of this Agreement, and follow all instructions of SOUND UNITED in connection thereto. Upon SOUND UNITED’s request, Supplier shall provide a written certificate of any return or destruction hereunder.

16.TRADEMARK

16.1All Products manufactured by Supplier under this Agreement shall bear the Trademark in accordance with the Requirements. Relevant logos and other relevant materials necessary to bear Trademark on Products shall be provided by SOUND UNITED and shall not be used for any purpose other than the foregoing. Supplier shall have no right, title or interest in or to any of SOUND UNITED’s (or its affiliates or subsidiaries) names, trade names, or trademarks, registered or not, anywhere in the world. Supplier’s sole privilege under this Agreement is a non-exclusive, limited license to manufacture and sell Product to SOUND UNITED, some of which bear in whole or in part trademarks owned by SOUND UNITED or its affiliates or subsidiaries, as applicable. Upon termination or expiration of this Agreement, Supplier’s limited privilege to sell Products using such trademarks shall immediately cease. Any trademark used in the course of this Agreement must be reviewed and approved in advance, in writing, by SOUND UNITED.

16.2Supplier expressly recognizes and agrees that any and all proprietary rights to the Trademark belong solely to SOUND UNITED and it shall acquire no right, title or interest in or to the Trademark by the terms of this Agreement or by performance of its obligations hereunder. Supplier shall not use the Trademark for any purpose other than in furtherance of this Agreement, and Supplier shall not at any time claim any right or property therein or apply to register, register or cause to be registered in any part of the world any trademark, trade name, copyright or other intellectual property right or design similar to or a colorable imitation of any Trademark, trade name, copyright or other intellectual property right or design which is the property of SOUND UNITED.

16.3Trademark Use. Supplier shall affix the trademark on all Products manufactured pursuant to this Agreement, and packaging therefore, in a manner specified by SOUND UNITED. Supplier shall not use the trademarks in any manner inconsistent with the instructions of SOUND UNITED nor on any products except as manufactured pursuant to this Agreement. Upon the expiration or termination of this Agreement, Supplier shall immediately discontinue the use of the trademarks, and thereafter shall not use the trademarks, or any mark or any name confusingly similar thereto (including in the form of domain names), directly or indirectly in connection with its business or that of any SOUND UNITED subsidiary or affiliates or principals. During the term of this Agreement, Supplier will promptly notify SOUND UNITED in the event that it learns of any infringement or unauthorized use of a trademark by any person. All use of any trademarks shall inure to the benefit of SOUND UNITED.

16.4Validity and Title. Supplier acknowledges SOUND UNITED’s full right and title to the trademarks. Supplier shall not at any time do or permit to be done any act or thing which it knows or should know will in any way impair the rights of SOUND UNITED. Supplier agrees that it will not, while this Agreement is in effect, or thereafter attack the validity of SOUND UNITED’s exclusive rights to the trademarks.

16.5Proprietary Designs and Information. Supplier agrees that all documentation, proprietary design and other information related to the Product manufactured pursuant to this Agreement (herein “Documentation”), that are provided to Supplier by SOUND UNITED are the property of SOUND UNITED and shall only be used in the manufacturing of Product for SOUND UNITED exclusively. Supplier shall not use the documentation, proprietary designs or information for the benefit of any of Supplier’s other customers.

Supplier agrees to and does hereby sell, assign and transfer to SOUND UNITED the right, title and interest throughout the world to all works, inventions, discoveries, and improvements that are conceived or first actually reduced to practice in connection with the Product during the performance of this Agreement or the development of any Product. Supplier understands that its duties to SOUND UNITED include the preparation of materials, including hardware, software, written or graphic materials, schematics, layouts, tooling, and that any such materials conceived or written by Supplier shall be done as a “work made for hire” within the meaning of United States Copyright and other applicable laws. Supplier understands that since the work is a “work made for hire”, SOUND UNITED will retain ownership of all rights in said materials, including all patent, copyright and trademark rights so far as the work is paid in any manner (e.g. as NRE, Overhead etc.) by SOUND UNITED. If SOUND UNITED exercises its right to second source Product pursuant to this Agreement, SOUND UNITED shall have a worldwide, royalty-free non-exclusive license from Supplier to make, use and sell all intellectual property owned or licensed by Supplier and incorporated into the Product including but not limited to patent, proprietary design, trade secret, software code or proprietary process, however said license shall extend only to product produced for SOUND UNITED. If Supplier sells Product to SOUND UNITED that incorporates third party software or intellectual property, Supplier represents and warrants that it has a license or right to license or convey such software or intellectual property and Supplier agrees to notify SOUND UNITED in writing and in advance of incorporating it into the Product. The Supplier will indemnify SOUND UNITED from all legal matters related to the use of patented technologies or other intellectual properties in the Product.

Supplier may indicate that as to certain specific IP rights, such rights are out of scope of this Sub-Section 16.6 by clearly itemize each of such rights in the Requirements.

16.7Tooling and Moldings. Supplier agrees that all tooling and molding or modifications thereof which are made at the request of or on behalf of SOUND UNITED and related to Products manufactured pursuant to this Agreement (“Tooling”) shall only be used for the manufacturing of Product for SOUND UNITED exclusively. Supplier shall not use any Tooling for the benefit of any other of Supplier’s customers. SOUND UNITED shall at all times retain all rights, title, and interest in all Tooling paid for by SOUND UNITEED, and Supplier agrees to return to SOUND UNITED (or SOUND UNITED’s designated agent) such Tooling at any time upon request by SOUND UNITED. Supplier agrees to supply SOUND UNITED photographs of SOUND UNITED’s tools, which show that the Tooling has been clearly engraved to indicate that the Tooling is the property of SOUND UNITED. Supplier shall properly title and mark all Tooling belonging to SOUND UNITED.

16.8Ownership of Documentation. The Documentation shall remain the exclusive property of SOUND UNITED and shall be protected from disclosure in accordance with this Agreement. Upon expiration or termination of this Agreement, the Documentation shall be promptly returned to SOUND UNITED and Supplier shall erase copies from any digital media.

17.NON-INFRINGEMENT; IP RIGHTS; THIRD PARTY LICENSES

17.1Supplier warrants and represents to SOUND UNITED that the manufacture, sale, distribution or use of the Products furnished hereunder do not and will not infringe any patents, trademarks, trade names, copyrights, trade secrets or other intellectual property and proprietary rights of any third party in any jurisdiction (the “IP Rights”).

17.2In the event of any action or claim in which such infringement is alleged (an “IP Claim”), SOUND UNITED may, at its option, require Supplier to do one or more of the following at Supplier’s sole expense:

(A)settle the IP Claim;

(B)procure for SOUND UNITED the right to sell such Products without any restriction;

(C)replace or modify such Products to avoid infringement;

(D)defend SOUND UNITED against the JP Claim using attorneys that are reasonably acceptable to SOUND UNITED; and/or

(E)remove the affected Products from SOUND UNITED’s inventory and grant SOUND UNITED a credit or refund thereon at the prices paid by SOUND UNITED;

(F)cooperate and cause its counsel to cooperate with SOUND UNITED and its counsel, if SOUND UNITED chooses to retain its own counsel to participate in the defense of any IP Claim, which cooperation may include, without limitation, providing relevant documentation and information concerning such IP Claim.

17.3Supplier shall indemnify and hold SOUND UNITED, its parent, affiliate or subsidiary or related companies and each of their shareholders, officers, directors, employees, agents, representatives, successors and assigns and each of their customers (the “lndemnitees”) harmless from any Damages arising out or of relating to an infringement or alleged infringement of IP Rights with respect to any Product.

It is understood that this Sub-Section 17.3 shall not apply where Supplier clearly proved that SOUND UNITED is responsible for an infringement or alleged infringement of IP Rights.

17.4Supplier shall indemnify, defend and hold SOUND UNITED, its parent, affiliate or subsidiary or related companies and each of their shareholders, officers, directors, employees, agents, representatives, successors and assigns and each of their customers (the “lndemnitees”) harmless from and against any and all claims, allegations, suits, actions, proceedings, damages, judgments, decrees, orders and liabilities whatsoever, asserted by any person or entity resulting directly or indirectly from any claims or actions related to (i) any act, omission or commission, whether reckless or negligent of Supplier for negligence; or (ii) product liability of whatever specie, including, without limitation, claims or actions for strict liability, improper design, breach of warranty, express or implied, wherever such claims or actions may be asserted and regardless of where the events on which such claims or actions are based or occurred, or (iii) for any breach of representation or warranty stated herein. Supplier will also provide SOUND UNITED with written verification of conformance with any required royalty payments to third parties.

It is understood that this Sub-Section 17.4 shall not apply where Supplier clearly proved that SOUND UNITED is responsible for claims, allegations, suits, actions, proceedings, damages, judgments, decrees, orders and liabilities.

17.5Claim. In the event of a claim, Supplier shall not enter any settlement of a claim which adversely impacts or makes an admission of liability without SOUND UNITED’s written consent.

17.6Defense Costs. The indemnification set forth herein shall include, without limitation thereto, attorney’s fees, expert fees, costs related to defense, and other such fees. Supplier, at its sole expense, shall defend all such claims and actions against SOUND UNITED and/or SOUND UNITED’s customers, whether brought informally or thought court or administrative procedures, provided however that SOUND UNITED or the affected customer of SOUND UNITED shall have the right of approval of counsel in all situations and, further, that SOUND UNITED or the affected customer of SOUND UNITED shall be consulted regarding settlement of any such claim before a settlement agreement is finalized.

It is understood that this Sub-Section 17.6 shall not apply where Supplier clearly proved that SOUND UNITED is responsible for such claims and actions against SOUND UNITED and/or SOUND UNITED’s customers.

17.7Damages. Under no circumstances will SOUND UNITED, its parent, affiliates, subsidiaries, successors or assigns, be liable for any consequential, indirect, special, punitive, incidental damages or lost profits, whether foreseeable or unforeseeable, based on claims of Supplier or its affiliates, even if previously advised of the possibility of such damages, arising out of breach of contract, misrepresentation, negligence, strict liability, in tort or otherwise.

17.8Except as otherwise agreed between the Parties in the Requirements, Award Letter or another document signed by the Parties, Supplier shall obtain third party licenses necessary for the manufacture, sale, distribution or use of each Product that are set forth in the Requirements (the “Third Party Licenses”) and shall maintain such licenses in effect until they are no longer necessary. Supplier represents and warrants that, other than the Third Party Licenses set forth in the Requirements, no third party license is required to be procured by Supplier or SOUND UNITED in relation to any Product.

17.9SOUND UNITED shall have a non-exclusive, royalty-free license under Supplier’s IP Rights to use and resell the Products purchased hereunder, and to use and reproduce Supplier’s applicable literature, such as operating and maintenance manuals, technical publications, and other similar support documentation and sales literature. If any Purchase Order includes experimental development or research effort and such work is paid for in whole or in part by SOUND UNITED, Supplier agrees to disclose to SOUND UNITED all confidential processes, know how, trade secrets, inventions and other work product relating thereto, and Supplier agrees to assign, and hereby does irrevocably assign, to SOUND UNITED any and all IP Rights in and to such work product, so far as Supplier does not clearly itemize each of above-mentioned rights and indicate that such rights are out of scope of this Sub-Section 17.9 in the Requirements.

18.SUPPLIER’S REPRESENTATIONS AND WARRANTIES

18.1Supplier represents and warrants that:

(A)all Products furnished under this Agreement are and will:

(a)be free from defects in design, material and workmanship;

(b)comply with the applicable Requirements hereunder;

(c)comply with applicable national, federal, state, provincial and local governmental laws and regulations and industry standards;

(d)be new and not used or reconditioned;

(e)be merchantable; and

(f)be suitable for the particular purpose or use for which they are purchased by SOUND UNITED;

(g)not infringe any patent, copyright, trademark, trade secret or similar intellectual property or proprietary right.

(B)Supplier will, at all times, be in full compliance with: (a) SOUND UNITED’s Supplier Code of Conduct; and (b) Memorandum of Understanding in relation to Environmental Conservation, attached hereto as Exhibit A and Exhibit B, respectively, or as updated from time to time by SOUND UNITED upon written notice;

(C)Supplier acknowledges and supports SOUND UNITED’s Conflict Minerals Policy, attached hereto as Exhibit C or as updated from time to time by SOUND UNITED upon written notice, and agrees to meet SOUND UNITED’s expectations from suppliers as set forth therein;

(D)Supplier has obtained, at its expense, all standard government, environmental, consumer protection and safety approvals required by applicable laws with respect to the Products, including but not limited to those expressly set forth in the Requirements, and will provide, upon SOUND UNITED’s request, all relevant documentations relating thereto; and

(E)Supplier will be responsible for compliance with any and all applicable export laws and regulations in connection with exporting of the Products to the delivery locations designated in the applicable Purchase Order.

18.2SOUND UNITED’s approval of Supplier’s designs and/or selections with respect to any aspect of the Products shall not relieve Supplier of its obligations under this Agreement. All warranties of Supplier shall survive inspection, acceptance and payment and shall run to the lndemnitees.

18.3In the event of Supplier’s breach of any of the representations and warranties hereunder, SOUND UNITED may, at its option, require Supplier to retrieve the Products within a period specified by SOUND UNITED at Supplier’s cost and expense and: (i) provide replacements; (ii) repair the Products or (iii) provide SOUND UNITED full refund of the retrieved Products. In addition, Supplier shall indemnify and hold harmless the lndemnitees from and against any and all Damages incurred by the lndemnitees arising out of or relating to Supplier’s breach of its representations and/or warranties hereunder, including but not limited to any costs and expenses incurred by the lndemnitees in connection with retrieval and replacement of the Products under the custody of distributors, dealers, end-users or any other party or person, provided that this Sub-Section 18.3 shall not apply where Supplier clearly proved that SOUND UNITED is solely responsible for such Damages.

19.WARRANTY

19.1The Supplier warrants that the rate of defective products among the Products within the initial period which is prescribed at 19.3 from the first date that the Products are shipped out from the Supplier, shall not exceed the Warranty Level. If the rate of defective products exceeds the Warranty Level, the Supplier shall:

(A)suspend the shipment of the Products immediately, and follow Buyer’s directions regarding shipment; and

(B)indemnify the Buyer for all damages, costs, fees and expenses incurred by the Buyer.

19.2The Supplier shall be liable for any direct, indirect or consequential damages the Buyer suffers as the result of the Supplier’s breach of the warranty contained herein. The Buyer may determine with Supplier:

(A)the extent of damages suffered by the Buyer which the Supplier shall indemnify; and

(B)the handling of Products that breaches the warranty contained herein.

19.3Warranty Level (This is defined by the accumulated failure rate within the period described item (A),(B), and accumulated failure rate is defined as item (C).

(A)Failure rate within [...***...] months is [...***...] and within [...***...] months is [...***...]

This failure rate is applied for any single function products (which means any products with single function provided that AV receiver with Tuner shall be regarded as single function products); or

(B)Failure rate within [...***...] months is [...***...] and within 14 months is [...***...].

his failure rate is applied for multiple function products (which means any products with multiple functions such as DVD plus AV amp.)

(C)Accumulated failure rate = (Total defective units)/(Total shipped out units) Accumulate failure rate can be estimated by using certain local defective rate.

19.4For the avoidance of doubt, this Section 19 applies in case of WARRNTY in addition to Section 18.3, and application of this Section 19 does not prejudice in any way application of Section 18.3

20.PRODUCT LIABILITY

Supplier hereby agrees to defend, indemnify (including without limitation court costs and reasonable fees of attorneys and other professionals) and hold SOUND UNITED, other Indemnitees and their respective customers of the Products harmless against any third party claims, demands, actions or proceedings resulting from personal injury or property damage caused or alleged to have been caused by any defect in the Products sold to SOUND UNITED under this Agreement.

It is understood that this Section 20 shall not apply where Supplier clearly proved that SOUND UNITED is responsible for such third party claims, demands, actions or proceedings.

21.INDEMNIFICATION

21.1If Supplier, its employees, agents, subcontractors, or representatives enter premises occupied by or under the control of SOUND UNITED or third parties in the performance hereunder, Supplier shall indemnify and hold harmless the lndemnitees from any and all Damages by reason of property damage or personal injury to any person, including Supplier’s employees, of whatsoever nature or kind arising out of, as a result of, or in connection with such performance occasioned in whole or in part by the actions or omissions of Supplier, its employees, agents, subcontractors, or representatives. If requested by SOUND UNITED, Supplier shall also defend SOUND UNITED against any claims, suits or proceedings relating thereto.

21.2Supplier shall fully comply with all applicable foreign, national and local laws, regulations and ordinances in its manufacture and sale of the Products. Supplier shall indemnify and hold harmless the Indemnitees from any Damages arising out of or relating to Supplier’s non-compliance or any other negligence or wrongful acts or omissions by Supplier or those acting on Supplier’s behalf. lf requested by SOUND UNITED, Supplier shall also defend SOUND UNITED against any claims, suits or proceedings relating thereto.

It is understood that this Sub-Section 21.2 shall not apply where Supplier clearly proved that SOUND UNITED is responsible for Damages.

22.LIMITATION OF LIABILITY

SOUND UNITED’s liability hereunder shall be limited to the unpaid balance of amounts due under the Purchase Orders and additional 2 month Forecast from SU. Its amount of liability including additional 2 months order forecast shall be agreed upon with both Parties. IN NO EVENT SHALL SOUND UNITED BE LIABLE FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, EXEMPLARY OR SPECIAL DAMAGES.

23.TERM AND TERMINATION

23.1The term of this Agreement shall commence on the Effective Date and, unless sooner terminated pursuant to this Section 23, continue for three (3) years (the “Initial Term”), and thereafter the term of this Agreement shall be automatically renewed for periods of one (1) year each (the “Extended Term”), unless either Party notifies the other Party in writing at least twelve (12) months prior to the expiry of the Initial Term or any Extended Term, indicating its intention not to renew. Supplier hereby agrees not to unreasonably refuse to renew without an economically justifiable cause.

23.2Either Party may terminate this Agreement and/or any Award, and/or cancel any Purchase Order, upon written notice if the other Party is in material breach or default of any obligation under this Agreement or the relevant Purchase Order, which breach or default is not cured or cannot be cured within thirty (30) business days of written notice of such breach or default.

23.3Either Party may terminate this Agreement and/or any Award, and/or cancel any Purchase Order, upon written notice if:

(i)the other Party commences a judicial or administrative proceeding under a law relating to insolvency for the purpose of reorganizing or liquidating the debtor or restructuring its debt;

(ii)anyone commences any such proceeding against the other Party and either (A) the proceeding is not dismissed by midnight at the end of the sixtieth (60th) day after commencement or (B) any court before which the proceeding is pending issues an order approving the case;

(iii)a receiver, trustee, administrator, or liquidator (however each is referred to) is appointed or authorized, by law or under a contract, to take charge of property of the other Party for the purpose of enforcing a lien against that property, or for the purpose of general administration of that property for the benefit of the other Party’s creditors; and

(iv)the other Party makes a general assignment for the benefit of creditors.

23.4In the event of a sale of more than 50% of Supplier’s voting stock, a sale of all or substantially all of Supplier’s assets or a change in the majority of the board members of Supplier (such event, a “Change of Control”), SOUND UNITED may terminate this Agreement and any Award or to cancel any Purchase Order immediately by giving Supplier a written notice. If SOUND UNITED does not exercise the foregoing right to terminate or cancel, then Supplier shall use its best efforts to maintain, or have maintained, this Agreement, existing Awards, existing Purchase Orders and any future transactions under this Agreement in the ordinary course with no material change.

23.5When this Agreement is terminated for any reason, all outstanding Purchase Orders for which Products have not yet been delivered and all Awards shall also be canceled or terminated automatically, unless otherwise agreed by the Parties in writing. If the Parties agree to continue any of the Purchase Orders and Awards beyond the termination of this Agreement, then this Agreement shall survive with respect to such Purchase Order(s) and Award(s) until all deliveries and payments therefor are completed.

23.6Upon termination of this Agreement, Supplier shall promptly return to SOUND UNITED any and all tooling, SOUND UNITED Information or any other property of SOUND UNITED furnished by SOUND UNITED to Supplier for purposes of this Agreement in accordance with instructions provided by SOUND UNITED.

24.GENERAL

24.1Subcontracting. Supplier shall not subcontract any of its obligations hereunder without the prior written consent of SOUND UNITED. In the event Supplier subcontracts any of its obligations hereunder to a subcontractor with SOUND UNITED’s consent, Supplier shall be and remain responsible and liable for any failure by any subcontractor or subcontractor personnel to perform in accordance with this Agreement or to comply with any duties or obligations imposed on Supplier under this Agreement to the same extent as if such failure to perform or comply was committed by Supplier or its personnel. Without limiting the foregoing, Supplier warrants and covenants that in no event will any provision of this Agreement, or any right or benefit of SOUND UNITED provided for under this Agreement, be reduced, limited or otherwise adversely affected as a consequence of performance by or through subcontractors.

24.2Insurance.

Supplier shall maintain appropriate insurance for SOUND UNITED.

24.3Financial Information. Supplier shall provide SOUND UNITED with its financial statements for every business year during the term of this Agreement.

24.4Contractual Relationship. It is understood and agreed that, in performing its obligations under this Agreement, Supplier acts as an independent contractor and none of its employees shall be considered an employee of SOUND UNITED or any of its subsidiaries, affiliates, divisions or other related corporate entities for any purpose whatsoever. This Agreement shall not establish any fiduciary relationship or other relationship of partnership, joint venture, employment, franchise or agency between them. In addition, Supplier and its employees shall not have any authority to enter into any commitments on behalf of or otherwise bind SOUND UNITED or any of its subsidiaries, affiliates, divisions or other related corporate entities.

24.5Notices. Notices required to be given hereunder shall be in writing, cost prepaid, and addressed to the other Party at the address first set forth above, or to such other address as may be designated by a written notice given in accordance with this Section. Any such notices shall be deemed properly given when: (i) delivered personally; (ii) seven (7) business days have passed after having been sent by airmail; or (iii) three (3) business days have passed after deposit with express courier service.

24.6Publicity. Neither Party may identify the other Party, in any media releases, public announcement or disclosures, marketing materials or otherwise, without the prior written consent of the other Party.

24.7Amendments. This Agreement (including the attached Schedules but not including the Exhibits) may be altered, amended, modified or superseded only by a writing executed by duly authorized representatives of both Parties. Exhibits attached hereto may be altered, amended, modified or superseded by written notice from SOUND UNITED to Supplier.

24.8Assignment Supplier shall not delegate or subcontract any duties, nor assign any Purchase Order or this Agreement or any rights or claims under any Purchase Order or this Agreement, whether by operation or law or otherwise, without prior written consent of SOUND UNITED, and any such attempted delegation or assignment shall be null and void. This Agreement and the Purchase Orders shall be binding upon and inure to the benefit of each party and its successors and permitted assigns.

24.9No Waiver. No waiver of or failure to exercise any option, right or privilege under the terms of this Agreement by either of the Parties hereto on any occasion or occasions shall be construed to be a waiver of the same or of any other option, right or privilege on any other occasion.

24.10Entire Agreement. This Agreement embodies the entire understanding between the Parties with respect to the subject matter of this Agreement and supersedes any and all prior negotiations, correspondence, understandings and agreements between the Parties with respect to the subject matter of this Agreement.

24.11No Other Representations or Warranties. Supplier acknowledges that it has not been induced to enter into this Agreement by any representation or warranty other than those contained in this Agreement and, having negotiated and freely entered into this Agreement, agrees that it shall have no remedy in respect of any other such representation or warranty except in case of fraud.

24.12Severability. In the event that any provision of this Agreement is found by a court of competent jurisdiction to be unenforceable or invalid, such unenforceability or invalidity shall not render this Agreement unenforceable or invalid as a whole, and, in such event, such provision shall be changed and interpreted so as to best accomplish the objectives of such unenforceable or invalid provision within the limits of applicable law or court decisions.

24.13Survival. Sections 5, 6, 15, 16, 17, 18, 19, 20, 21, 22, 23.5, 23.6 and 24, and any other provision which shall reasonably be interpreted to survive, shall survive any termination of this Agreement, Award or any Purchase Order for any reason.

24.14

24.15Governing Law and Venue. This Agreement and each Purchase Order shall be governed by and interpreted in accordance with the laws of the State of California and shall be treated, in all respects, as a California contract,. The parties agree that the U.N. Convention for the International Sale of Goods shall not apply to this Agreement, and the provisions thereof are expressly excluded from the Agreement. Each party agrees (i) that any action or proceeding brought by the parties relating to this Agreement shall be brought in a court in San Diego county, California, and for that purpose now irrevocably and unconditionally attorns and submits to the jurisdiction of the courts located there; (ii) not to oppose any action or proceeding in (i) above on the basis of forum non conveniens or for any other reason; and (iii) not to oppose the enforcement against it in any other jurisdiction of any judgment or order duly obtained from a court as contemplated by this section.

24.16Non-solicitation. Supplier agrees that while this Agreement is in effect and for a period two years after termination of this Agreement, Supplier shall not directly or indirectly solicit for employment or hire any of the officer or employees of SOUND UNITED, provided that public advertising for employment opportunities shall not be restricted.

24.17Counterparts. The original of this Agreement may be executed in counterparts, each of which shall be an original as against any Party whose signature appears on such counterpart and each of which together shall constitute one and the same instrument.

[Signature page follows.]

IN WITNESS WHEREOF, the Parties have caused their respective duly authorized representatives to execute and deliver this Agreement.

SOUND UNITED HOLDINGS INC. (SOUND UNITED)

By:

/s/ Patrick Zaun
Print Name:   Patrick Zaun
Title:   VP. Procurement
Date: _____May 23, 2019______________________

ANAM Electronics Co., Ltd

By:

/s/ Tae Soo Kim
Print Name:   Tae Soo Kim
Title:               CEO
Date:              May 23, 2019

Schedule I

SPARE PARTS

Supplier agrees to the following terms and conditions regarding the supply of Spare Parts to SOUND UNITED:

A.SPARE PARTS ORDER & SUPPLY FLOW; PARTS LIST

A.1As for initial new parts, Supplier and SOUND UNITED agree that the flow of Spare Parts order and supply shall generally be as set forth in Annex 1 to this Schedule. Without limiting the generality of the foregoing, Supplier shall provide SOUND UNITED, and update as appropriate, the list of parts that comprise a Product (the “Parts List”) in accordance with the schedule set forth in Annex 1.

A.2As for all new parts for new model and all normal parts for other models, Supplier shall try to ship parts within amount of time specified below for each parts category after receipt of Purchase Order.

•Common Electronic parts; [...***...

•Semiconductors; [...***...]

•Cosmetic parts/Manual/Remote controls; [...***...]

•Packaging Materials; [...***...]

•Semi Assembled parts; [...***...]

In the event of violation by Supplier of contents of above contents, the Parties shall seek and cooperate in a satisfactory manner.

B.PRICES

B.1Together with the Parts List, or as soon as practicable after the Parts List is provided to SOUND UNITED, Supplier shall propose to SOUND UNITED the price list of the parts listed on the Parts List that may be purchased by SOUND UNITED as Spare Parts, and Supplier and SOUND UNITED shall negotiate in good faith and agree on the final prices in accordance with the following guidelines:

(i)The price of each Spare Part is the unit price to be purchased individually by SOUND UNITED.

(ii)The price of each Spare Part includes appropriate packing materials such as antistatic packages and cushioning materials and packing related labor costs which include necessary assembling, pairing and outgoing inspection costs of the Spare Parts so Supplier supplies the proper Spare Parts to SOUND UNITED without any damage.

(iii)The price of each Spare Part does not exceed prices charged for like quantities of the same or substantially similar part to any other purchaser.

(iv)the price of the Spare Parts whose cost is more than [...***...] USD shall not exceed [...***...] of the cost. The Spare Parts include the Assemblies such as PCB assembly in the assembled form.

B.2If:

(a)the price of each Spare Part proposed by Supplier requires Minimum Order Quantity (the “MOQ”), SOUND UNITED has the right to reject such price and Supplier shall use its best efforts to sell the Spare Parts individually.

(b)Supplier sells any Spare Part or substantially similar part to another customer at a price less than the price to SOUND UNITED, Supplier shall accordingly lower the price of such Spare Part sold to SOUND UNITED and provide SOUND UNITED with a credit for any such Spare Part sold to SOUND UNITED (for the difference between the price sold to SOUND UNITED and the lowest price the Spare Part or substantially similar part were sold to others) during the period in which Supplier was selling such Spare Part or substantially similar part at the lower price.

(c)the price of more than [...***...] USD cost Spare Parts exceeds [...***...] of the cost, SOUND UNITED has the right to reject such price and Supplier shall use its best efforts to modify the proposed price for such Spare Part so that it is within[...***...] of the cost of the Spare Part.

B.3Supplier shall supply Spare Parts to SOUND UNITED hereunder at prices no more than the prices on the final price list of Spare Parts as agreed pursuant to Section B.1 above (the “Spare Parts Price List”), and the Spare Parts Price List shall not be modified without the mutual written agreement of both Parties. In the event it becomes, in the view of Supplier, economically inevitable, reasonable and justifiable, to increase any price of Spare Parts, Supplier shall: (i) notify SOUND UNITED in writing regarding the potential increase as soon as practicable; (ii) provide evidence of the cause of increase that is economically inevitable, reasonable and justifiable; (iii) discuss with SOUND UNITED regarding the potential increase and possible ways to minimize the increase, if any; and (iv) obtain SOUND UNITED’s prior written consent to any increase.

B.4To the extent Supplier had accepted a Purchase Order for Spare Parts before the Spare Parts Price List had been finalized, the prices on the Spare Parts Price List shall apply to such Purchase Order retroactively. Notwithstanding anything to the contrary provided herein or otherwise, SOUND UNITED’s obligation of payment for such order shall arise only after there is a mutually-agreed Spare Parts Price List and the relevant Spare Parts have been delivered and accepted.

C.PURCHASE ORDERS

Unless otherwise agreed between the Parties, SOUND UNITED may submit a Purchase Order for Spare Parts to Supplier at any time. A Purchase Order for Spare Parts shall set forth the relevant Spare Parts, quantity, requested delivery date(s) and any other requests, and Section 8.3 of the Agreement shall apply with respect to such Purchase Orders.

D.PACKAGING, DELIVERY AND PAYMENT

Sections 9 through 11 of this Agreement shall apply with respect to the Spare Parts as if references to the Products referred to the Spare Parts, except as otherwise set forth in this Schedule II (which takes priority in interpretation) or agreed between the Parties in writing.

E.SERVICE PERIOD

Supplier shall make available the Spare Parts for purchase by SOUND UNITED in accordance with this Agreement through EOL of the relevant Product (the “Service Period”).

Supplier shall supply the Spare Parts to SOUND UNITED without MOQ during the Service Period. Supplier shall include the Spare Parts needs by SOUND UNITED with the last production run of the relevant Product so that Supplier supplies the Spare Parts to SOUND UNITED without MOQ. After the Service Period, if SOUND UNITED asks the availability of a Spare Part, Supplier shall cooperate as much as possible to make the Spare Part available.

F.LAST BUY AND REPLACEMENT AND SUBSTITUTE SPARE PARTS

a.If Supplier learns or reasonably foresees that any Spare Part will be or may become unavailable during the Service Period, Supplier shall notify SOUND UNITED as soon as practicable the last date on which Supplier can accept Purchase Orders from SOUND UNITED for such Spare Parts (such last purchase by SOUND UNITED, the “Last Buy”); provided, if no Purchase Order for Last Buy can be accepted, then Supplier shall use its best efforts to find a functionally equivalent replacement or substitute to the unavailable Spare Part that is reasonably acceptable to SOUND UNITED and obtain SOUND UNITED’s prior written approval with respect to the use of any replacement or substitute.

b.Notwithstanding any approval by SOUND UNITED with respect to a replacement or substitute for any Spare Part in accordance with the preceding paragraph, SOUND UNITED reserves the right to recover any Damages SOUND UNITED suffers from the unavailability of any Spare Part during the Service Period, which may include, without limitation, the price difference between the unavailable Spare Part and the replacement or substitute, and the price

of the Product from which the unavailable Spare Part was extracted for purposes of repair prior to a replacement or substitute becoming available.

G.WARRANTY AGAINST DEFECT

Supplier represents and warrants that all Spare Parts supplied to SOUND UNITED hereunder shall be free from defects in design, material and workmanship, and recognizing that defects in Spare Parts are often not found until they are actually used in service, Supplier agrees, without limiting any other rights SOUND UNITED may have under this Agreement, to replace or provide refund in full for any defective Spare Parts that are found any time after payment, inspection or acceptance of such Spare Parts by SOUND UNITED.

Document

Exhibit 10.10

***Certain identified information has been omitted from this exhibit because it is both (i) not material and (ii) information that the Registrant treats as private or confidential. Such omitted information is indicated by brackets (“[...***...]”) in this exhibit. ***

OEM/ODM Agreement

Between

D&M Holdings Inc
as D&M
and

Tymphany HK Ltd
as Supplier

relating to

Manufacture of Speaker Products

DATED: 2012/Feb/24th

CONTENTS


1	Definitions	2
2	Production and Sale	3
3	Design Phase	3
4	Order Procedures	5
5	Price	6
6	Delivery	7
7	Inspections	7
8	Intellectual Property	8
9	Warranties	9
10	Product Documentation.	10
11	Technical Support	10
12	Confidential Information	10
13	Term and Termination	11
14	Force Majeure.	12
15	Miscellaneous Provisions	12
Schedule 1	Preliminary Specifications	15
Schedule 2	Special Design Elements
Schedule 3	Third Party Intellectual Property Rights
Schedule 4	Time Schedule
Schedule 5	Purchase Order
Schedule 6	Prices
Schedule 7	Spare Parts
Schedule 8	Quality Requirements

THIS AGREEMENT (“Agreement”) is dated the 13th_day of Feb 2012 made

BETWEEN

D&M Holdings Inc. (“D&M”), a Japanese corporation having its principal place of business at 7-35-1 Sagamiono, Sagamihara, Kanagawa 228-8505; and

Tymphany HK Ltd (the “Supplier”), a Hong Kong corporation having its principal place of business at Room 1307 - 8 Dominion Centre, 43 - 59 Queen’s Road East, Wan Chai, Hong Kong

WHEREAS:

(A)D&M sells the Products (as defined in this Agreement) with own trademark, [Denon, Marantz, and Boston Acoustics] (“Trademarks”); and

(B)The Supplier wishes to develop and manufacture the Products to be sold by D&M under the Trademark.

(C)D&M and the Supplier (each of them referred to as the “Party” and collectively the “Parties”) have agreed that the Supplier will develop and manufacture the Products on behalf of D&M for the duration of this Agreement upon the following terms.

NOW IT IS HEREBY AGREED as follows:

1.DEFINITIONS

1.1“Confidential Information” shall mean confidential information as defined in Section 12 including, without limitation, the Preliminary Specifications, the Specifications, the Technical Documentations and any other information disclosed in confidence by one Party to the other Party in relation to the Product.

1.2“Design Phase” shall mean the approval procedures set out in Section 3.

1.3“Preliminary Specifications” shall mean the functional requirements, specifications and other requirements of the Product detailed in Schedule 1, updated in accordance with the procedures in this Agreement.

1.4“Product(s)” shall mean [Speaker product(s)] to be developed by the Supplier based on the Preliminary Specifications and after successful development through the Design Phase, produced by the Supplier based on the Specifications determined and agreed between the Parties.

1.5“Purchase Order” shall mean the purchase order for the Products and/or spare parts placed by D&M in accordance with Section 4 in the form set out in Schedule 5.

1.6“Quality Requirements” shall mean the quality requirements specified by D&M as set out in Schedule 8.

1.7“Specifications” shall mean the final functional requirements, specifications and other requirements of the Product to be agreed between the Parties during the Design Phase.

1.8“Special Design Elements” shall mean those elements of the design of the Product that are unique to the Product as identified in Schedule 2.

1.9“Technical Documentation” shall mean the technical documentation including, without limitation, electrical diagrams and parts lists, to be supplied by the Supplier during the Design Phase.

1.10“Third Party Intellectual Property Rights” shall mean the intellectual property rights owned by any third party which will be required to manufacture the Products in accordance with Preliminary Specifications and more specifically listed in Schedule 3.

1.11“Time Schedule” shall mean the time schedule attached hereto as Schedule 4.

2.PRODUCTION AND SALE

2.1General

The Supplier agrees to manufacture and sell the Products exclusively to D&M and D&M agrees to purchase the Products in accordance with the terms and conditions of this Agreement.

2.2Manufacturing Rights

The Supplier agrees not to manufacture or sell to persons not a party to this Agreement any Products or any other products having the Special Design Elements which are solely determined by D&M.

2.3Exclusive Right to Resale

D&M shall have the sole right to resell the Products. The Supplier shall not solicit or otherwise promote the sale of the Products for or on behalf of D&M.

2.4No Financial Interest

No provision of this Agreement shall be construed to entitle the Supplier to any financial interest in respect of resale of the Products by D&M.

3.DESIGN PHASE

3.1Production of the Prototypes

In accordance with the Time Schedule, the Supplier undertakes to manufacture and supply to D&M two (2) complete and fully operational prototypes of each agreed versions of the Product (the “Prototypes”) based on the Preliminary Specifications. Prototypes will be supplied by the Supplier at material cost

3.2Test of the Prototype

In accordance with the Time Schedule, D&M shall execute such tests as D&M reasonably requires in order to satisfy itself that the Prototypes conform to the requirements specified in the Preliminary Specifications and D&M shall keep the Supplier informed of the results of the tests. D&M shall give the Supplier a reasonable opportunity to be present at such tests at the Supplier’s costs and expenses.

(A)If, as a result of these tests, D&M is of the reasonable opinion to be confirmed in writing that certain additions, alterations or modifications in the Prototypes are required in order that they comply with the Preliminary Specifications and applicable requirements, the Supplier undertakes to modify and to make the same in the Prototypes and to supply free of charge to D&M the new Prototypes.

(B)If, as a result of these tests, D&M desires modifications or enhancements of the Prototypes in excess of the Preliminary Specifications and which were not earlier agreed upon, then, if the parties hereto so agree, the Supplier will provide a quotation and a revised Time Schedule for D&M’s approval.

3.3Agreed Specifications

Upon the finalization of the tests as per Section 3.2 hereof including tests of the Prototypes thus modified, and if D&M is satisfied that the Prototypes confirm to the Preliminary Specifications, the Parties will agree and establish the Specifications as evidenced by a written confirmation of that agreement.

3.4Pre-production Samples

After establishment of the Specifications and in accordance with the Time Schedule, the Supplier shall manufacture and supply to D&M two (2) production samples of each of agreed versions of the Product (“Pre-production Samples”) in accordance with the Specifications and shall supply to D&M such documentation and information necessary to finalize D&M’s acceptance tests of the Product. The Pre-production Samples shall, unless otherwise agreed in writing between the Parties, be made with components, materials, technologies and processes identical to those to be applied during series production of Products. These Pre-production Samples are destined for type-approval by D&M. Pre-production samples will be provided by the supplier at the agreed selling price of the product.

3.5Technical Documentation

Together with the Pre-production Samples, the Supplier shall provide D&M with the Technical Documentation and the necessary technical service information.

3.6Type-approval Tests

In accordance with the Time Schedule, D&M shall execute such type-approval tests as D&M reasonably requires to confirm that the Pre-production Samples conform to the requirements specified in the Specifications and D&M shall keep the Supplier informed of the results of the tests. D&M shall give the Supplier a reasonable opportunity to be present at such type-approval tests at the Supplier’s costs and expenses.

(A)If, as a result of these tests, D&M is of the reasonable opinion to be confirmed in writing that certain additions, alterations or modifications in the Pre-production Samples are required in order that they will comply with the Specifications or to eliminate faulty or substandard workmanship and /or material, the Supplier undertakes to modify and to make the same in the Pre-production Samples and to supply to D&M the changed Pre-production Samples. If samples are required because Supplier made an error then samples are at Supplier’s expense. If samples are required due to a design change by D&M then samples will be at D&M’s expense.

(B)If, as result of these tests, D&M desires modifications or enhancements of the Pre-production Samples in excess of the Specifications and which were not earlier agreed upon, then, if the Parties so agree, the Supplier will provide a quotation and a revised Time Schedule for D&M’s approval.

3.7Issue of Type-Approval Certificate

Upon completion of the tests pursuant to Section 3.6 hereof (including tests of the Pre-production Samples modified pursuant to Section 3.6(B) above), D&M shall, if it is satisfied that the Pre-production Samples conform to the Specifications, provide the Supplier with a Type-Approval Certificate signed by D&M.

3.8No modification

Once the Product is accepted by D&M as evidenced by a signed Type-Approval Certificate, the Supplier shall not make any changes or modifications in the Product without prior written consent of D&M. This requirement, however, does not preclude the Supplier from using equivalent components and parts that do not affect form, fit, function or interchangeability of spare parts. If the Supplier uses such equivalent components and/or parts, the Supplier shall immediately inform D&M and provide D&M with an updated version of the Technical Documentation as soon as possible and at the Supplier’s costs.

3.9Commercial Samples

D&M may request for any number of additional Pre-production Samples for commercial purposes (“Commercial Samples”) to be supplied at the same time as the delivery of the Pre-production Sample.

(A)The price to be paid by D&M for the Commercial Samples is specified in Schedule 4 and shall be paid by D&M within 30 days after the receipt of invoice from the Supplier following approval of the Pre-production Sample in accordance with Section 3.7 above.

(B)However, in case the Pre-production Samples and Commercial Samples do not comply with the Specifications and after modification fail to comply with the Specifications, D&M shall, without prejudice to any other rights accruing under this Agreement or in law, be entitled to return the Commercial Samples to the Supplier and D&M shall not be responsible for payment as set out in this Section 3.9(A) above and the Supplier shall reimburse D&M all payments for such Commercial Samples or other payments for the development of the Product actually received from D&M by the Supplier, if any, upon D&M’s first request.

3.10Expert suggestions

During the Design Phase, D&M’s technical, quality and service experts are entitled to make suggestions and proposals, but such suggestions and proposals shall not be binding on any of the Parties unless they are confirmed in writing signed by authorized representatives of the Parties.

3.11Successor models

Any successor model of the Product or any other unit model agreed upon between the Parties to be incorporated this Agreement shall be subject to the procedure set forth in this Design Phase.

3.12Manufacturing tools and moulds

(A)D&M shall bear the costs for D&M’s exclusive tools and moulds required to manufacture the Products (the “Tools”), as the same shall be agreed upon between the Parties and in writing.

(B)D&M will pay 50% of the costs of Tools at the start of the Design Phase, and 50% at the issue of the Type-Approval Certificate in accordance with Section 3.7 above.

(C)The property of the Tools shall remain with D&M once paid for in full and the Supplier shall sign a document evidencing D&M’s rights. Any of the Tools shall not be used by the Supplier other than for carrying out its obligations under the Purchase Orders placed by D&M and the Supplier shall not sell, lease or otherwise dispose of any of the Tools to any third party without D&M’s prior written approval.

(D)The Supplier shall insure the Tools at its expense against such hazards as the Supplier normally insures such as fire and theft.

(E)The Supplier shall keep the Tools separate from other goods and materials.

(F)The Supplier shall immediately inform D&M in the event of fire, theft, or third parties claiming rights on the Tools and in other exceptional cases.

(G)The Tools shall be replaced at D&M’s costs, if such replacement is required by normal wearing out of the Tools, as the same is characterized by a minimum number of one million shots per mould. Repair costs for any Tools due to misuse shall be for the account of the Supplier.

3.13Quality Control

D&M shall have the right to observe the Products in the process of manufacture and to inspect finished Products at any time during normal business hours, either at the manufacturing facilities or at the storage facilities of the Supplier. The Supplier shall, upon at its expense, provide adequate space and facilities necessary for D&M’s personnel to conduct such observation and/or inspection. Upon the Supplier’s request, D&M agrees to be bound by reasonable scheduling and non-disclosure obligations in connection with such observation and inspection.

3.14Spare Parts

The Supplier shall provide spare parts of the Products in accordance with the terms and conditions set forth in Schedule 7.

4.ORDER PROCEDURES

4.1Placing orders

D&M shall submit around 20th of every month a monthly Purchase Order which shall specify the quantity, items and requested delivery dates of the Products. Any change to a Purchase Order relating to quantity and shipping schedule shall be agreed between D&M and the Supplier, and be reflected in a revised Purchase Order form from D&M to the Supplier.

4.2Forecasts

As soon as feasible, D&M shall provide the Supplier with a two months rolling forecast of its needs for the Products to be renewed every month and issued to the Supplier around 20th of every month according to the following schedule:

(A)before 20th of each month D&M agrees to give firm commitment by means of a Purchase Order to cover the N + 3 month (e.g. by the 20th of December D&M shall issue a Purchase Order for deliveries over the month of March).

(B)a Purchase Order placed by D&M shall be acknowledged by the Supplier within one week of the date of the Purchase Order in writing the receipt, and confirmation. If no such written confirmation is received by D&M within one week, it is deemed that such a Purchase Order is accepted by the Supplier.

4.3Delay in delivery

(A)If the Supplier does not deliver the Products by or on the delivery date specified in the agreed Purchase Order, for any reason attributable to the Supplier, the Supplier shall indemnify D&M any damages that D&M suffered as a result of such delay without prejudice to any other rights accruing under this Agreement or in law, in particular D&M’s right to cancel this Agreement, without notice of default or recourse to any court. Should the agreement be cancelled by D&M under 4.3A then D&M will be responsible for any materials made obsolete by this action and will reimburse the Supplier for these materials at the Suppliers purchase price. If Supplier terminates the agreement, D&M is not liable for obsolete materials.

(B)Supplier is required to do best effort, including overtime production support if it is required, to meet schedule which is requested by D&M with reasonable lead time. In case of delay in shipment more than two weeks, D&M have the rights to request the Supplier to make air-shipment at the Supplier’s cost,

4.4Supplier’s obligation to manufacture

The Supplier hereby guarantees to produce and supply to D&M the Products during a period of at least 2 years starting as from the signing date of the Type-Approval-Certificate referred to in Section 3.7 above. If the Supplier wishes to stop production of the Products after such a guaranteed period, the Supplier shall inform D&M as early as possible in writing, but at least 12 months prior to the date of envisaged production stop and D&M shall then have an opportunity to place a Purchase Order for Products in such quantity as D&M may require and the Supplier shall accept such Purchase Orders at the then prevailing price.

4.5Lack of components/Spare Parts

Notwithstanding Section 4.4 above, if the Supplier is no longer able to or envisages that it shall not (at short notice) be able to supply the Products to D&M due to shortage or lack of components and/or Spare Parts,

(A)the Supplier shall immediately inform D&M the circumstances in details;

(B)the Supplier shall then be fully responsible for a proper re-design of the Product without affecting form, fit or function thereof, all at the Supplier’s costs; and

(C)The re-designed product shall be subject to the procedure in the Design Phase.

5.PRICE

5.1Agreed Price

The Supplier shall supply Products to D&M at prices which are specified in Schedule 6.

5.2Price review

Any of the Parties may initiate negotiations on price changes.

(A)In the event of unforeseen circumstances affecting any of the Parties or in the event the price/performance ratio of the Products deteriorates as compared to competitive products, the Parties will jointly review the situation and attempt to find a solution reasonably acceptable to the Parties.

(B)When price negotiations referred to in this Section 5 extend beyond the price-validity period the prices valid for the previous period will continue to remain in effect until such time as the Parties have reached mutual agreement on the new price.

5.3Supplier’s warranty on price

The Supplier shall do the best to grant D&M its best prices and discounts.

(A)The Supplier warrants that the prices charged for the Products purchased by D&M are equivalent to prices charged to other similarly situated customers for contemporaneous sales in the same country on similar terms and conditions for any products which are the same or substantially similar to the Products and have the same or substantially similar volume, manufacturing costs, quality requirements, and service requirements.

(B)The Supplier acknowledges that, due to the new and unique nature of Products, the market price may be volatile and subject to significant change during the term of this Agreement. The Supplier agrees to make best efforts to maintain D&M in a competitive position and to minimize D&M’s loss due to unforeseen market price erosion.

6.DELIVERY

6.1Delivery terms

Products shall be delivered to designated F.O.B. point.. Title in the Product shall pass to D&M upon completion of manufacture by the Supplier. Risk in the Product shall pass to D&M upon delivery.

6.2Packaging

The Products shall be supplied in suitable packing to withstand all normal methods of transport by rail, truck, airplane or ship, in a form to be approved by D&M and as specified in the Specifications. Changes in approved packing may be introduced only on D&M’s written request or after D&M’s prior written approval.

6.3Labeling

Packing and the Products shall be labeled by the Supplier in accordance with D&M’s instructions and as specified in the Specifications.

6.4Manufactured Products

The manufactured Products and any material supplied by D&M to the Supplier for the production of the Products including logo of the trademarks (“Production Materials”) shall at all times remain the property of D&M and for so long as this Agreement remains in force the Supplier undertakes:

(A)to keep all manufactured Product and the Production Materials in its own possession and under its own control;

(B)not to sell, offer for sale, assign, pledge, mortgage, charge or transfer any of the manufactured Product nor the Production Materials nor do or suffer anything to be done whereby the same may be seized, taken in execution, attached, destroyed or damaged; and

(C)not to use all (i) the manufactured Products, (ii) the Production Materials and (iii) intellectual properties and know-how included in (i) and (ii), for any purpose other than the purposes of this Agreement, and not to allow any other person or party to use the same, except with the prior written consent of D&M. For clarification and as an example, using D&M’s intellectual property of Hardware and/or Software or know-how of those to achieve aimed audio quality for the D&M product, for the purpose of the development or manufacturing of the product for third party is prohibited hereunder.

7.INSPECTIONS

7.1By the Supplier

The Supplier shall inspect all Products immediately before shipping of the Products, and shall deliver the written records of such inspections without delay.

7.2By D&M

D&M shall inspect all the Products within seven business days of the date when such Products are delivered to D&M’s warehouse after customs clearance (the “Receipt Date”). If that D&M believes there is a discrepancy between the quantity, type, or quality of the Product which has been invoiced to D&M by the Supplier and those shipped to and received by D&M from the Supplier pursuant to such invoice, D&M shall provide written notice of such discrepancy to the Supplier within fourteen business days of the Receipt Date.

7.3Right to inspect

D&M may inspect at any time (between 9:00 and 17:00) on any working day with a reasonable notice not less than 48 hours to the Supplier the manufacturing site of the Supplier or its affiliated company where the Products are manufactured for any purposes in accordance with this Agreement.

7.4Discrepancy, Quality Requirements and Defected Products

The Supplier shall be liable for the discrepancy in quantity and type of the Products supplied and any Products which fail to meet warranty under Section 9 below and the Quality Requirements. The Supplier shall replace such Products or refund the price subject to D&M’s option. If D&M selects a refund, D&M may not offset such credit with a future purchase of the Products under this Agreement.

7.5Delay in shipment

If shipment for resale of the Products by D&M is made by air due to delay in delivery to D&M for two weeks or more by the Supplier, the Supplier shall bear such additional costs incurred by D&M unless the reason for the delay it outside of the reasonable control of Supplier

8.INTELLECTUAL PROPERTY

8.1Trademark

All Products manufactured by the Supplier under this Agreement shall bear such Trademark(s). The logos of Trademark(s) and other relevant materials necessary to bear Trademark(s) on Products (“Logo”) shall be provided by D&M free of charge. The Supplier expressly recognizes and agrees that any and all proprietary rights to the Trademark(s) belong solely to D&M and it shall acquire no right, title or interest in or to the Trademark(s) by the terms of this Agreement or by performance of its obligations hereunder.

8.2Third party licenses

The Supplier warrants that it has obtained necessary license to use all Third Party Intellectual Property Rights as listed in Schedule 3 from such third party rights holder to manufacture any and all Products under this Agreement.

8.3No infringement of third party intellectual property rights

The Supplier warrants and covenants that in all respects, the Products shall not infringe upon nor violate any patent or any other proprietary right of any person not a party to this Agreement.

(A)If D&M or Brand Company receives any claim or notice of suit alleging such infringement, D&M and/or Brand Company shall promptly notify the Supplier and give the Supplier information, but D&M shall not give monetary assistance nor grant exclusive authority to defend and/or settle such claim.

(B)The Supplier shall then, at its sole expense and option

(i)settle such claim;

(ii)procure that D&M obtains the right to sell such Products;

(iii)replace or modify such Products to avoid infringement;

(iv)remove the affected Products from D&M’s inventory and grant D&M a credit or refund thereon; or

(v)defend D&M against such claim.

(C)The Supplier shall indemnify, defend, protect and hold harmless D&M from and against any damages and all costs, expenses, fees (including reasonable attorney’s fees) and liability arising from or in connection with such claim, actually proved.

8.4D&M’s warranty

D&M warrants that, in all respects, the Trademarks do not and shall not infringe upon nor violate any trademark or other proprietary right of any person not a party to this Agreement. In the event that the Supplier receives a claim or notice of suit alleging such infringement, the Supplier shall promptly notify D&M and give D&M information, no monetary assistance and exclusive authority to defend and/or settle such claim.

8.5General

All trade marks, trade names, copyrights, and other intellectual property rights and designs in relation to the Product, Logo and the Production Materials supplied by or on behalf of D&M shall be and remain the property of D&M. The Supplier shall not at any time claim any right or property therein or register or cause to be registered in any part of the world any trademark, trade name, copyright or design similar to or a colourable imitation of any trademark, trade name, copyright or design which is the property of D&M.

9.WARRANTIES

9.1Supplier’s Warranty on quality

The Supplier hereby warrants that the Products supplied to D&M shall conform to all the Quality Requirements specified in Schedule 8 and be free from defects in materials, workmanship and design.

9.2Breach of Warranty

If, within two (2) years from the delivery date in D&M’s purchase order, any of the Products is found not to conform to any of the Quality Requirement or to have any defect (“Defective Products”), D&M may choose, any of the following options:

(A)to require the Supplier to retrieve the Defective Products within the period specified by D&M, and, if the Supplier fails to retrieve the Defective Products within such period, D&M may, at the Supplier’s costs and expenses, return such Defective Products to the Supplier or dispose of such Defective Products; or

(B)to require the Supplier to supply replacements of the Defective Products in accordance with D&M’s instructions; or

(C)to require the Supplier to repair the Defective Products at the Supplier’s costs and expenses; or

(D)to repair or cause any third party to repair the Defective Products at the Supplier’s costs and expenses.

9.3Willful breach or gross negligence

Even if Defective Products are found after two (2) years from delivery, D&M shall be entitled to exercise any of the rights set forth in Section 9.2 above, if production or occurrence of such Defective Products is attributable to the Supplier’s willful act or gross negligence.

9.4Product Liability

For so long as the relevant laws or regulations relating to product liability are applicable to the Supplier, D&M or Products, the Supplier hereby agrees to defend, indemnify (including without limitation court costs and reasonable fees of attorneys and other professionals) and hold D&M and their respective customers of the Products, harmless against any third party claims, demands, actions or proceedings resulting from personal injury of property damage caused or alleged to have been caused by any defect in the manufacture or performance of the Products, sold to D&M under this Agreement.

9.5Regulatory approvals

The Supplier warrants that, for each Product, it has obtained (as indicated by a filing number) or agrees that it will obtain all standard government, environmental, consumer protection and safety approvals required by the applicable laws, if any, necessary to place the Products in possession of D&M. Supplier will provide all requested safety certifications if requested to by D&M. Safety certification costs will be paid by D&M.

9.6Export and Import regulations

The Parties shall promptly provide any information reasonably required by the other in order to lawfully import or export the Products.

(A)With respect to any Products manufactured outside Japan, the Supplier shall be responsible for compliance with any governmental export regulations applicable to the delivery of Products to D&M or to its designees, including obtaining any necessary government approvals.

(B)D&M shall be responsible for obtaining any necessary import licenses. If requested in writing by D&M, the Supplier shall provide a certificate of origin for the products.

10.PRODUCT DOCUMENTATION

The Supplier shall supply to D&M, without charge, and on a regularly updated basis, complete sets of documentation for each Product, including but not limited to the following: a Product model, applicable test or other safety and regulatory approval documents, operator and service manuals as may be distributed by the Supplier from time to time.

11.TECHNICAL SUPPORT

D&M shall provide technical support and information in relation to the Product to the Supplier, as further specified in Schedule 9.

12.CONFIDENTIAL INFORMATION

12.1Definition

The following information shall, as to the party receiving such information from the other, be deemed “Confidential Information”:

(A)Technical information contained in the Preliminary Specifications and Special Design Elements; and

(B)Sales, manufacturing and marketing information; and

(C)Information contained in documents marked “Confidential”.

12.2The receiving Party shall keep the Confidential Information of the disclosing Party confidential and secret and shall not use or disclose or make the Confidential Information available, directly or indirectly, to any person other than its officers and employees who need the Confidential Information to enable the receiving Party perform its obligations under this Agreement and provided that such officers and employees are also obliged to keep such Confidential Information confidential and secret.

12.3The obligations in the Section 12.2 above shall not apply to any information acquired by the receiving Party which:

(A)at the time of its acquisition was in the public domain; or

(B)at a later date comes into the public domain through no fault of the Supplier.

12.4The receiving hereby agrees and undertakes:

(A)that all Confidential Information shall be and shall remain at all times the sole and exclusive property of disclosing Party; and

(B)that its right to use Confidential Information shall wholly cease upon the termination of this Agreement.

12.5Effect of Termination

The receiving Party shall, upon termination of this Agreement, return all Confidential Information, and all reproductions and products thereof, to the party from whom it was received. Without limiting the foregoing, the parties agree not to use, and to cause persons who have received the Confidential Information through them not to use, the Confidential Information for any purpose following termination of this Agreement.

13.TERM AND TERMINATION

13.1Term

The term of this Agreement shall be one year from the date of its execution. This Agreement shall be automatically extended for periods of one year each, unless one party notifies the other parties otherwise six months prior to the expiry of this Agreement or any extension thereof.

13.2Termination by one party

(A)Default

This Agreement may be terminated by one party for failure by the other to cure a default in any material term or condition of this Agreement. Such termination shall be effective thirty (30) days following written notice of the default, unless the default is cured within such notice period.

(B)Financial Condition

This Agreement may be terminated by any party, effective immediately upon receipt, if:

(i)a receiver is appointed for the other party or its property,

(ii)any proceedings are commenced by or for the other party under any bankruptcy, insolvency or debtor’s relief law, or

(iii)one party liquidates or dissolves, or attempts to liquidate or dissolve, except by way of merger.

(C)Termination by Convenience

D&M may terminate this Agreement at any time with three (3) months prior written notice to the Supplier. The Supplier may terminate this Agreement at any time with one (1) year written notice to D&M.

(1)Under any of the above reasons for termination D&M and Supplier will work together in good faith to minimize the amount of obsolete materials. Any remaining obsolete materials shall be purchased by D&M from the Supplier at the Suppliers purchase price of the obsolete materials if D&M causes termination. In the event Supplier terminates the agreement the D&M is not liable for obsolete materials.

13.3Continuing Obligations

(A)Survival

The following provisions shall survive termination of this Agreement: provisions relating to Supplier Rights (Section 2.2), Intellectual Property (Section 8), Warranties (Section 9), and Confidential Information (Section 12). Such provisions shall continue in full force and effect in accordance with their terms, not withstanding termination of this Agreement.

(B)Purchase Orders

All Purchase Orders placed by D&M prior to effective termination shall be honored by the Supplier in accordance with the terms of manufacture, sale, delivery and support provided by this Agreement, unless the parties agree otherwise in writing. Provided that, if this Agreement is terminated by either party, in accordance with this Section 13, the terminating party may cancel all outstanding Purchase Orders not yet shipped. The cost of any obsolete materials resulting from termination will be the responsibility of the party causes termination. If the reason for termination is a shared responsibility both parties will negotiate the liability for obsolete parts in good faith.

14.FORCE MAJEURE

14.1Events of Force Majeure

Neither party shall be in breach of this Agreement or responsible for damages caused by delay or failure to perform in full or in part its obligations hereunder, provided that there is due diligence in attempted performance under the circumstances and that such delay or failure is due to one of the following events of force majeure: fire, earthquake, unusually severe weather, strikes, government sanctioned embargo, flood, act of God, war, act of any public authority or sovereign government, civil disorder, delay or destruction caused by public carrier, or any other circumstance substantially beyond the control of the party to be charged, and which cannot be reasonably forecast or prevented.

14.2Excuse of Performance

Each party agrees to notify the others promptly upon discovery of an event of force majeure, as set forth above, which may cause a failure or delay in performance hereunder. Notwithstanding the foregoing Section, a delay in performance due to an event of force majeure shall be excused only so long as the event continues or until a commercially reasonable alternative method of performance can be implemented. If performance by any party hereunder is delayed more than thirty (30) days due to an event of force majeure, then the others may terminate this Agreement upon five (5) days notice, if the event of force majeure has not ceased during such period. The cost of any obsolete materials arising from termination by D&M will be paid for by D&M. If Supplier terminates the agreement, D&M are not liable for obsolete materials.

15.MISCELLANEOUS PROVISIONS

15.1Insurance

Each party shall separately maintain, throughout the term of this Agreement, policies of general and products liability insurance reasonably acceptable to the others.

15.2Financial Information

The Supplier shall provide D&M with its financial statement for every business year during the term of this Agreement.

15.3Contractual Relationship

All the Parties represent and warrant that they have entered into no contracts, and are subject to no obligations, which prevent or adversely affect their performance under this Agreement. It is understood and agreed that D&M and the Supplier are, and at all times during the term of this Agreement shall remain, independent contractors. In no event shall any party at any time have authority to make any contracts, commitments or undertake any obligations on behalf of the other parties. Without limiting the foregoing, the Supplier agrees that it will not, during or after the term of this Agreement, represent to any person that it acts for or on behalf of D&M or make use of D&M’s name, or advertise its relationship with D&M, without D&M’s express written consent in each instance.

15.4NOTICES

(A)Address

Any notice required or permitted by this Agreement shall be in writing and in the English language and may be delivered personally or may be sent by telex, telecopy (facsimile), electronic mail, cable or prepaid registered or certified mail, addressed to the parties as follows:

If to D&M:

Facsimile: […***…]

ATTENTION: Masato Takahashi

Email: […***…]

If to the Supplier:

Facsimile: […***…]

ATTENTION: Stuart Croxford

Email: […***…]

(B)Receipt

Any notice shall be deemed to have been received as follows:

(i)Personal delivery: upon receipt

(ii)Telex, Telecopy (Facsimile) or Electronic Mail: twenty-four (24) hours after dispatch by the telex or facsimile operator, providing a copy is also sent by registered or certified mail return receipt requested within twenty-four (24) hours of dispatch.

(iii)Cable: twenty-four (24) hours after delivery to the cable company by the party serving the notice.

(iv)Registered or certified mail: seven (7) days after delivery to the postal authorities by the party serving the notice.

(C)Verbal Notices

Nothing contained herein shall justify or excuse failure to give verbal notice for the purpose of informing the other party thereof when prompt notification is appropriate, but such verbal notice shall not satisfy the requirement of written notice.

15.5Assignment

No party shall assign or otherwise transfer any rights nor obligations under this Agreement without the prior written consent of the other parties, except that any party may, upon reasonable written notice to the others, assign its rights and/or obligations under this Agreement to its controlling parent or a controlled subsidiary or affiliate, or to a party acquiring all or substantially all of a party’s assets, assuming no competitive harm to the other parties occurs.

15.6Set off

Neither Party shall be entitled to withhold payment of any sums after they become due by reason of any right of set-off or counterclaim which the Party may have or allege to have or for any other reason whatsoever.

15.7Illegality

In the event that one or more of the provisions in this Agreement shall, for any reason, beheld by a court of competent jurisdiction to be invalid, void or unenforceable in any respect, such holding shall not affect any other provisions of this Agreement.

15.8Waiver

The failure of either party to insist, in one or more instances, upon strict performance of the obligations of this Agreement, or to exercise any right contained herein shall not be construed as a waiver, or relinquishment for the future, of such obligation or right, which shall remain and continue in full force and effect.

15.9Entire Agreement

(A)This Agreement, together with Schedules and any documents referred to in it, constitutes the whole agreement between the parties relating to its subject matter and supersedes and extinguishes any prior drafts, agreements, undertakings, representations, warranties and arrangements of any nature, whether in writing or oral, relating to such subject matter.

(B)The Supplier acknowledges that it has not been induced to enter into this Agreement by any representation or warranty other than those contained in this Agreement and, having negotiated and freely entered into this Agreement, agrees that it shall have no remedy in respect of any other such representation or warranty except in the case of fraud.

(C)No variation of this Agreement shall be effective unless made in writing.

15.10Law and Jurisdiction

(A)This Agreement shall be governed, and construed in accordance with, Japanese Law.

(B)In relation to any legal action or proceedings to enforce this Agreement or arising out of or in connection with this Agreement (“proceedings”) each of the parties irrevocably submits to the exclusive jurisdiction of the Tokyo District Court of Japan and waives any objection to proceedings in such courts on the grounds of venue or on the grounds that the proceedings have been brought in an inconvenient forum

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives in duplicates as of the date first set forth above, each party retaining one copy thereof, respectively.

/s/ D&M Holdings, Inc.
Signed by Vice President, Procurement
for and on behalf of D&M Holdings Inc

/s/ Tymphany HK Ltd.
Signed by Managing Director Asian Operations
for and on behalf of Tymphany HK Ltd.

Schedule 1 Preliminary Specifications

[...***...]

Schedule 2 Special Design Elements

[...***...]

Schedule 3 Third Party Intellectual Property Rights

[...***...]

Schedule 4 Time Schedule

[...***...]

Schedule 5 Purchase Order

[...***...]

Schedule 6 Prices

[...***...]

Schedule 7 Spare Parts

[...***...]

Schedule 8 Quality Requirements

[...***...]

Schedule 9 Technical Support

[...***...]

Document

Exhibit 10.11

Quality Agreement

Between

D&M Holdings Inc

and

Tymphany HK Ltd.

relating to

OEM/ODM Agreement dated 24th,Feb,2012

This QUALITY AGREEMENT (“QA Agreement”) is entered and made effective on March 27th, 2013, by and among:

(1)D&M Holdings Inc (the “Buyer”), a Japanese corporation having its principal place of business at D&M Building, 2-1 Nisshin-cho, Kawasaki-ku, Kawasaki-shi, Kanagawa, Japan; and

(2)Tymphany HK Ltd. (the “Supplier”), a corporation incorporated in Hong Kong having its principal place of business at Room 1307 - 8 Dominion Centre, 43 - 59 Queen’s Road East, Wan Chai, Hong Kong.

Either Buyer or Supplier may herein referred to as a “Party” and collectively as “Parties”.

WHEREAS:

(A) The Parties have entered into OEM/ODM Agreement (“Agreement”) entered into between the Parties on February 24, 2012;

(B) The Parties now wish to agree to the quality requirements as contained and provided herein, and whereas the Parties further agree that this QA Agreement shall serve as Schedule 8 of the Agreement;

(D) The Supplier and the Buyer are aware of their corporate social responsibility and shall aim to strengthen the competitive power of both parties;

(E) The Supplier and the Buyer will exchange quality information and data for the purpose of continuous improvement of the quality level and shall aim for zero defect in any of the Products; and

(F) The Supplier and the Buyer agree that this QA Agreement sets forth the quality control process for, and quality level and conditions of, the Products that are manufactured by the Supplier and purchased by the Buyer.

NOW IT IS FURTHER HEREBY AGREED as follows:

1.DEFINITIONS

1.1 All capitalized terms not otherwise defined in this QA Agreement shall have the same meaning as in the Agreement.

1.2 “AQL” means acceptable quality level described in the Item 4 of the QA Schedule.

1.3 “Epidemic Failure” means a failure due to any single cause, including without limitation, the Supplier’s workmanship, manufacturing process or component material.

1.4 “Product Specifications” means Specifications as such term is defined and given specific meaning in the Agreement.

1.5 “QA Schedule” means the schedule outlining the specific quality requirement terms, and attached hereto as QA Schedule which shall be incorporated into this Agreement by this reference.

1.6 “QC Process Chart” means a process chart to show quality control procedure established by the Supplier under this QA Agreement.

1.7 “Tools” means Tools as such term is defined and given specific meaning in the Agreement.

1.8 “Warranty Level” means the warranty provided by the Supplier regarding rate of the defective Products as set forth in items 5 of the QA Schedule.

2.QUALITY CONTROL

2.1 System: The Supplier shall establish a system of quality control throughout its manufacturing process including the following types of quality control:

(A) Incoming control for parts sourcing from any third party;

(B) Manufacturing process control; and

The Supplier shall appoint its personnel responsible for quality control and draw up an implementation guideline for the quality control. The details of the appointed personnel shall be set forth in the attached QA Schedule.

2.2 Quality control records: The Supplier shall provide detailed records of the outgoing inspections for every batch of the Products delivered to the Buyer. The Supplier shall provide all quality control records to the Buyer within a reasonable time not less than 3 business days from the delivery date. The Supplier shall keep the quality control records available for the Buyer’s inspection and for a period of 10 years from the date of delivery.

2.3 Reliability: The Supplier shall set up a system for periodical testing of the Products’ reliability as described in the QA SCHEDULE and provide the Buyer with the result of such testing. The Supplier shall immediately notify to the Buyer if any failure is identified during any of the reliability tests.

2.4 QC Process Chart: The Supplier shall produce a QC Process Chart to ensure that the quality at the time of delivery and reliability of the Products are maintained. The Supplier shall provide the Buyer with a report or reports of such QC Process Chart upon request and use its best effort to improve quality control process during the term of this QA Agreement.

3.PRODUCT SPECIFICATIONS

3.1 The Product Specification shall contain, among other things, quality level and performance level of the Product. If the Product Specification does not have any such term or condition regarding the quality level and/or the performance level of the Product, such shall be separately agree to by the Parties.

4.AUDIT RIGHT AND INSPECTION BY THE BUYER

4.2 The Buyer may provide recommendations and/or guidance to improve the quality control system of the Supplier or its affiliated companies based on the findings through an inspection, audit and/or investigation.

4.3 Upon receipt by the Supplier of such recommendations and/or guidance from the Buyer, the Supplier shall devise a plan to improve its quality control system and provide such report to the Buyer for the Buyer’s approval.. Once a plan is approved by the Buyer, the Supplier shall immediately and diligently implement such plan, and periodically report the status of the implementation of such plan to the Buyer.

5.SUPPLIER’S DUTIES

5.1 Delivery: The Supplier shall only deliver those Products that successfully pass all quality and reliability tests required by the Buyer. The Supplier shall produce sufficient data and written evidence to prove that the delivered Products satisfy all quality and reliability tests. The result of outgoing inspection by the Supplier must satisfy the AQL set out in item 4 of the attached QA Schedule.

5.2 Safety Certification: The Supplier shall be responsible for obtaining any relevant safety certification at Buyers cost and comply with all safety regulations whether or not they are required in the Product Specifications.

5.3 Tools: The Supplier shall always maintain all of its Tools in a good condition in order to maintain the quality of the Products. The Supplier shall confirm and produce a report at the request of the Buyer that all Tools are maintained in a good condition.

5.4 Identification: The Supplier shall clearly mark all Products with Model name, Serial number and any other marking pursuant to the Product Specification to ensure product identification and traceability.

6.DEFECTIVE PRODUCTS

6.1 The Buyer may carry out incoming inspections of the Products and shall notify the Supplier with complaints, if any, within a reasonable period from the date of arrival of the Product at the destination.

6.2 In the event of the Buyer’s notification with complaints arising out of any defect or defects, the Buyer shall provide the Supplier with following information:

(A) description of defect or defects, and if available, with photographs of the Products, parts or portions affected by such defect.;

(B) details of inspection test conducted by the Buyer and resulting test data;

(D) serial numbers.

6.3 The Supplier shall give the Buyer a written acknowledgement of receipt of any complaints within 24 hours (1 business day).

6.4 If any defect or defects are found by the Buyer or the Supplier, the Supplier shall take following actions:

(A) immediately conduct a thorough investigation to determine the cause and factors of the defects;

(B) take remedial actions to prevent same or similar defects recurring;

(C) inform the Buyer regarding the remedial actions taken by the Supplier within 5 days of the defects found or reported; and

(D) if further investigations are required to determine the cause, the Supplier must inform the Buyer how long such investigation will take and report with the findings as soon as the investigation is completed.

6.5 If any defect above the AQL is found by the Buyer during its incoming inspection, the Buyer and Supplier will work together in good faith and take either one of the following actions:

(A) return the entire batch to the Supplier for repair (at the cost of the Supplier);

(B) repair the defective Products by the Buyer (at the cost of the Supplier); or

6.6 If any defect above the AQL is not found during the Buyer’s incoming inspection but is later found before the sales to the market while during the warranty period, the Buyer shall conduct an investigation to determine the cause of such defects and repair such defective Products at the cost of the Buyer, however, exempting following circumstances:

(A) the Buyer is not able to repair such defects;

(B) the Buyer is unable to determine the cause of such defects and requires further thorough investigation to determine the cause;

In those circumstances, the Buyer may return the Products to the Supplier for repair (at the cost of the Supplier).

6.7 If any defect is found after the sales by the Buyer to its customers, the Buyer shall act as the window for its customers and shall be the sole window to to correspond with such customers. If an Epidemic Failure occurs, the Buyer and the Supplier shall discuss the countermeasures and the strategies including, but not limited to, responding to the customers and the market and devising and implementing plans to take preventive measures against recurrence of such Epidemic Failure. The Supplier shall be responsible for the cost of taking such countermeasures.

6.8 If any fatal defect, as termed in item 4 of the attached QA Schedule, is found as a result of an investigation and an urgent action is required by the Buyer, the Supplier shall immediately take any necessary actions and measures at its own cost [prior to sales by the Buyer to the market],

6.9 Notwithstanding the foregoing, if in case any latent defect or defects are found due to the Supplier’s fault in design, material and/or manufacturing process, the Supplier shall supply any material, parts or the Products necessitated by the Buyer and for free of any charge including, including but not limited to, costs and fees.

7.WARRANTY

7.1 The Supplier warrants that the rate of defective products shall not exceed the failure rate as set forth in the Warranty Level prescribed in item 5 of the attached QA Schedule. If the failure rate exceeds such

Warranty Level, the Supplier shall suspend the shipment of the Products immediately, and follow Buyer’s directions regarding shipment.

The foregoing remedy of the Buyer shall be in addition to any other rights and remedies that may be available to the Buyer under the Agreement, this QA Agreement, law and/or in equity

8.PRODUCT LIABILITY

8.1 The Supplier hereby agrees to defend, indemnify (including, without limitation, court costs and reasonable fees of attorneys and other professionals) and hold harmless the Buyer, its associated companies and their respective customers of the Products, from and against any and all third party claims, demands, costs or expenses including, without limitation, reasonable attorney’s fees, judgements, liabilities or settlement amounts in connection with personal injury or property damage resulting from any defects of the Products.

8.2 Compliance with international and/or national products safety rules shall not relieve the Supplier of its liability under this Section.

8.3 If any third party claim is commenced against the Buyer or its associated companies, the Buyer agrees to give the Supplier a prompt notice in writing.

8.4 (Deleted)

9.MISCELLANEOUS PROVISIONS

9.1 Term: This QA Agreement shall commence on the date hereof and shall remain valid until whichever the later date of the effective period of the Agreement or the duration of the warranty to be provided by the Supplier to the Buyer as set forth herein.

9.2 Amendments: Each party to this QA Agreement may request amendments to this QA Agreement, but such amendments shall only be effective if agreed and made in writing, signed by all the Parties.

9.3 Regular discussion: The Parties hereby agree to meet regularly (not less than once a year) to discuss any improvement on quality control measures required for manufacturing the Product.

9.4 Good faith consultation: Any question or dispute arising out of, or in connection with, this QA Agreement or any matter not stipulated in this QA Agreement shall be settled upon consultation in good faith between the Parties.

9.5 Governing Law and Jurisdiction: This QA Agreement shall be governed by and construed in accordance with Japanese law. The Parties specifically consent to the sole and exclusive jurisdiction of the courts located in Tokyo, Japan for resolution of all disputes arising hereunder.

[Intentionally Left Blank, Signature Page to Follow]

IN WITNESS WHEREOF, the parties have caused this QA Agreement to be executed by their duly authorized representatives in duplicate as of the date first set forth above, each of the Party retaining one copy thereof, respectively.

By: /s/ Hirofumi Ichikawa
Name: Hirofumi Ichikawa
Title: President, CSBU Design Center
for and on behalf of
D&M Holdings Inc

By: /s/ Stuart Croxford
Name: Stuart Croxford
Title: Managing Director Asia Operations
for and on behalf of Tymphany HK Ltd.

QA SCHEDULE

1.Products

Description: Audio/Video System

2.Quality Control

2.1 Types of out-going inspections to be carried out by the Supplier:

(A) safety, contents and size inspections

(B) operation and outfit inspections

(D) performance inspections

Sampling


(A)Sampling Procedure	:	According to ANSI/ASQC Z1.4
(B)Sampling Plan	:	Single
(C)Inspection Level	:	Level II
(D)Defect Classification	:	To be separately defined in the Product Specification for each model of the Products

3.Reliability Test

Unless the Parties agree otherwise in respect of a specific model of the Product, the standard reliability test of the Buyer shall apply. The Party may agree for more details in separate inspection specifications.

4.AQL: Agreed level of conformity at ex factory


Fatal failure:			[…***…]
Major failure:			[…***…]
Minor failure:			[…***…]

5.Warranty Level This is defined by the accumulated failure rate within the period described item (A), and accumulated failure rate is defined as item (B). Rejects due to manufacturing defects of modules from assigned vendors are the responsibility of Supplier and are included in the accumulated failure rate calculation. Rejects due to design related defects of modules from assigned vendors are not the responsibility of Supplier and are not included in the accumulated failure rate calculation. In the case where a design related defect is identified, Supplier will cooperate in good faith in assisting Buyer to remedy the situation

(A)Failure rate within […***…] months is […***…] and within […***…] months is […***…]

a.This failure rate is applied for any single function products, or

(B)Accumulated failure rate = Total Defect units (showing a manufacturing defect for EMS product )/(Total shipped out units)

a.Accumulate failure rate can be estimated by using certain local defective rate.

(C)The Supplier shall have the opportunity to investigate any defect to confirm whether such defect or defects are the result of the manufacturing problem. If the Supplier through its investigation finds that the defect is not the result of the manufacturing problem, then the

Parties shall try to resolve such dispute pursuant to the terms and conditions of the then existing escalation agreements between the Parties.

6.Contact Persons

The Supplier: [Wintle Huang]

Tel:    […***…]

Fax:    […***…]

Email: […***…]

D&M Holdings Inc: [ Nobumasa Tamaoki / Mikio Nagata ]

Tel:    […***…]

Fax:    […***…]

Email:

[…***…]

[…***…]

Document

Exhibit 10.12

PURCHASE AGREEMENT

Dated as of April 3, 2019,

between

DEI SALES, INC. , herein referred to as SOUND UNITED

and

TONLY ELECTRONICS SALES LIMITED, herein referred to as Supplier

This PURCHASE AGREEMENT (this “Agreement), dated as of April 3, 2019 (the “Effective Date”), is made and entered into by and between DEI Sales, Inc., and its subsidiary Sound United, LLC, having a principal place of business 1 Viper Way, Vista, CA 92081 (“SOUND UNITED”), and Tonly Electronics Sales Limited, a Hongkong corporation having its principal place of business at 8th Floor, Вuilding 22E, 22 Science Park East Avenue, Hong Kong Science Park, Shatin, New Territories, Hong Kong (“Supplier”). SOUND UNITED and/or Supplier may hereafter be referred to individually as a “Party” and collectively-as the “Parties”.

WHEREAS, SOUND UNITED is in the business of manufacturing and selling audio products under the trademarks of [Polk Audio, Definitive Technology, Denon and/or marantz] [choose the brand(s) subject to this Agreement, as appropriate] (the “Trademark”);

NOW, THEREFORE, in consideration of the mutual covenants and premises herein contained, the Parties agree as follows:

1.GENERAL

1.2The specifications (the “Specifications”), schedule (the “Schedule”) and other requirements specific to a Product (collectedly, the “Requirements”) are set forth in the applicable Award Letter and the documents referenced in the Award Letter. Once an Award Letter is issued by SOUND UNITED and confirmed by both parties, the Requirements shall be incorporated into and constitute a part of this Agreement. The Requirements may be modified from time to time by mutual agreement of the Parties in writing.

1.3In the event of any inconsistency between the Requirements and the terms of this Agreement, the Requirements shall control.

2.TEAM AND GOVERNANCE

3.PRODUCT DESIGN AND DEVELOPMENT

3.1Supplier shall design and develop the Products in accordance with the Requirements as well as other instructions provided by SOUND UNITED from time to time (such act of designing and developing, the “Development Work”). Supplier shall obtain SOUND UNITED’s written approvals at each milestone required in Schedule II.

3.2Upon SOUND UNITED’s request from time to time, Supplier shall produce a written report with respect to the progress of the Development Work, in the form separately designated by SOUND UNITED.

3.3In the event Supplier becomes aware of any factor which adversely affects or may reasonably adverselу affect the progress of the Development Work, Supplier shall notify SOUND UNITED immediately and propose to SOUND UNITED possible alternative course(s) of action reasonably acceptable to SOUND UNITED. Any alternative course of action agreed by the Parties to be taken shall be reduced to writing by Supplier and approved by SOUND UNITED. Compliance with this Section or acceptance by SOUND UNITED of any alternative course of action shall not prejudice SOUND UNITED’s right to claim for damages, losses, demands, costs and expenses, including but not limited to reasonable attorneys’ fees and court costs (collectively, the “Damages”) under this Agreement.

3.4The Parties acknowledge and agree that performance of the Development Work in accordance with the Schedule is critical in the timely launch of a new Product or a model of a Product and that any delay in the Schedule may cause SOUND UNITED to incur Damages, which may include, without limitation, additional costs and expenses to speed up any processes or to take alternative courses of action relating to the Development Work to make up for the delay in the Schedule (e g, sending of SOUND UNITED staff to Supplier’s facility to assist or give instructions to Supplier’s staff; expedited shipment of the Products (including samples); updating of software in the Products in warehouse; procurement of replacement goods and services from an alternate source; etc.). Accordingly, any delay in the Development Work caused by Supplier or a situation where departure from the Schedule is inevitable due to causes attributable to Supplier will entitle SOUND UNITED to (i) compensation by Supplier for such Damages incurred thereby： and (ii) at SOUND UNITED’s option, cancel the applicable Award and terminate this Agreement Supplier’s compliance with Section 3.3 above will not prejudice SOUND UNITED’s right to claim for Damages under this Section or otherwise. Without limiting any other rights SOUND UNITED may have under this Agreement or otherwise, to the extent the Award Letter specifies any development fees to be payable by SOUND UNITED to Supplier for the Development Work, SOUND UNITED may, at its option set-off such fees by the amount of Damages entitled to SOUND UNITED hereunder.

4.PRODUCTION PILOT RUN AND MASS PRODUCTION

5.QUALITY CONTROL

5.2Supplier shall be responsive for setting up and maintaining controlled documentation of traceability by Product at appropriate levels during all stages of receipt, production and distribution. At minimum, all Products must be traced by lot/batch, and any change in engineering, process, component, subcontractor and anything else that has or may have any effect on the Product shall be documented and traced by lot/batch.

5.3Supplier shall maintain detailed quality control-related records of each Product for at least five (5) years from the date of delivery. Upon SOUND UNITED’s request, Supplier shall provide copies of such records to SOUND UNITED without delay.

6.RESPONSIBILITY FOR PROPERTY AND TOOLING

6.2Supplier shall insure SOUND UNITED’s interest in SOUND UNITED Property against loss or damage to an amount equal to the full replacement cost Supplier shall provide SOUND UNITED with Supplier’s Certificate of Insurance stipulating SOUND UNITED as an additional toss payee under Supplier’s insurance policy.

6.3To the extent Supplier provides any of SOUND UNITED Property to any of its subsidiary or affiliate, or to any third party parts supplier, directly or through its subsidiary or affiliate, Supplier shalI: (i) maintain written records of location and custody of each SOUND UNITED Property and provide to SOUND UNITED upon request; (ii) impose on such subsidiary, affiliate or third party obligations equivalent to those under this Section 6 with respect to SOUND UNITED Property and ensure compliance therewith; and (iii) Supplier shall remain responsible for such SOUND UNITED Property under this Agreement regardless of the actual custody thereof.

7.CHANGES

7.2If Supplier learns or reasonably foresees that any part or component used for the manufacture of any Product will become or has become unavailable, Supplier shall immediately notify SOUND UNITED and, to the extent necessary, the Parties shall agree on: (i) the alternative part(s) / component(s); (ii) any adjustments in the Specifications and/or manufacturing processes; and (iii) anything else affected by such unavailability. Supplier shall response to prepare sufficient number of full fill the accepted orders, and Supplier shall discuss with SOUND UNITED on the last time buy quantity and schedule details. It shall be Supplier’s responsibility once the Supplier discusses with Sound United, and agree on the last time buy quantity and schedule details by the both Parties. SOUND UNITED reserves the right to recover from Supplier any Damages SOUND UNITED suffers from the unavailability of any part or component for Supplier’s willful act or gross negligence.

8.FORECAST, PURCHASE ORDER AND ACCEPTANCE

8.1Each month, SOUND UNITED will submit a two-month rolling forecast of its requirements for the Products, to be renewed every month, covering the N+3 and N+4 months (e.g., the forecast submitted in December shall represent its potential requirements in the months of March and April). Once a forecast is confirmed by SOUND UNITED and Supplier, Supplier will purchase materials according to the respective forecast quantity in order to meet the lead time as stated in the forecast.

8.3A Purchase Order shall be deemed accepted by Supplier without any modification upon acknowledgement or if Supplier does not provide any acknowledgment or indicate any objection to such Purchase Order within five (5) business days after issuance of such Purchase Order by SOUND UNITED. Supplier shall use its best efforts to accept Purchase Orders from SOUND UNITED without any modification. Any Purchase Orders without Tonly’s confirmation explicitly will be invalid or unenforceable. An accepted Purchase Order becomes the exclusive agreement and supersedes any and all prior or contemporaneous communications or agreements between the Parties pertaining to such Purchase Order, except to the extent inconsistent with subsequent written agreement signed by both Parties, if any discrepancy is found between this Agreement and the Purchase Order, this Agreement shall prevail and the parties hereto shall amend the Purchase Order to make them to comply with this Agreement.

8.4SOUND UNITED may cancel a firm PO if the Supplier has not ordered raw materials (“Cancellation Period”). Cancellation by SOUND UNITED of a firm PO after the Cancellation Period will cause all the Raw Materials covered by the PO to become obsolete stock (hereinafter “OB”) and Sound United acknowledges that the OB will be owned by SOUND UNITED. Supplier will support SOUND UNITED by using Supplier’s best efforts to either use the OB for other customers or sell the OB on Sound United’s behalf to the distribution market. SOUND UNITED reserves the right to adjust the delivery due date of firm PO’s with the Supplier’s prior written acceptance. In case of any failure of fulfillment or in breach of this section, SOUND UNITED shall issue new Purchase Orders or make full payment to Supplier to buyback all the materials and components, including all specialized materials, which Supplier has prepared for the purpose of manufacturing related products. SOUND UNITED’s liability shall include the price of finished Product and Supplier’s actual incurred costs of work in progress, safety stock components and materials.

8.5SOUND UNITED is responsible for the material cost of the N+3 and N+4 forecast. SOUND UNITED does not have the right to cancel or alter any N+3 and N+4 forecasts without prior confirmation from the supplier in writing. Any cancellation beyond the Cancellation Period by SOUND UNITED regarding the N+3 and N+4 forecast will cause the Raw Materials covered by such forecasts to become OB and Sound United acknowledges that such OB will be owned by Sound United. Sound United will have the option to, within one month upon the such cancellation, issue additional firm POs in order to enable Supplier to manufacture finished goods utilizing all the OB caused by such a cancellation. Supplier will use its best efforts to support Sound United in minimizing the OB cost to SOUND UNITED by either using OB for other customers or selling OB to the distribution market. Supplier is not allowed to build the materials into finished goods unless the N+3 and N+4 forecast becomes a firm PO. In the event that the raw materials had manufactured into work-in-process (“WIP”) products by SOUND UNITED PO direction, SOUND UNITED also shall be liable for the actual costs borne by Supplier including but not limited labor cost and overhead cost. For the finished goods, SOUND UNITED shall be liable for the price stated in the POs.

9.PACKING, SHIPPING AND DELIVERY DOCUMENTS

Unless otherwise specified or agreed to by SOUND UNITED separately in writing:

9.2In case any Product requires anti-static proof to preserve its quality in every respect, Supplier shall apply anti-static processed packaging for transportation.

9.5All invoices and bills of lading must include SOUND UNITED’s Purchase Order number.

9.7The delivery terms shall be FOB or otherwise as designated on the face of each Purchase Order. Title and risk of loss or damage shall not pass to SOUND UNITED until receipt by SOUND UNITED of the Products at the applicable delivery point If applicable, Supplier will assign duty drawback rights to SOUND UNITED.

10.PRICE AND PAYMENT

10.1Price(s) on a Purchase Order shall be fixed in accordance with the applicable Award Letter for the Product or with any other subsequent written agreement between the Parties.

10.4Unless otherwise agreed in writing by SOUND UNITED, invoices shall be sent no earlier than the date on which each delivery is made.

10.5Upon receipt of an undisputed invoice, SOUND UNITED shall pay Supplier by way of wire transfer into the bank account designated by Supplier within ninety (90) days. Supplier shall have the right to suspend performance of its obligations forthwith if SOUND UNITED fails to adhere to its obligation of timely payment. Supplier shall be exempted from any liability caused by such suspension.

10.6SOUND UNITED shall have the right at any time to set-off any amount owed by Supplier to SOUND.UNITED against any amount due and owed to Supplier under any Purchase Order or otherwise. SOUND UNITED may apply a return credit issued by Supplier to SOUND UNITED to offset Supplier’s invoice on any Purchase Order. If at any time SOUND UNITED determines not to use a credit to offset an invoice on a future Product order, then SOUND UNITED may bill Supplier net thirty (30) day terms for the full amount owed.

11.DELIVERIES, RESCHEDULES AND INSPECTIONS

11.1Supplier shall inspect all Products immediately before shipment, and upon SOUND UNITED’s request, deliver records of such inspection to SOUND UNITED without delay.

11.2SOUND UNITED’s sales schedules are based upon Supplier’s understanding and agreement that Products will be delivered to SOUND UNITED on the date specified on each Purchase Order, and, therefore, TIME IS OF THE ESSENCE with respect to Supplier’s delivery obligations pursuant to each Purchase Order. Supplier shall notify SOUND UNITED without delay if Supplier is unable, or has reasons to believe that it may be unable, to make any scheduled delivery and state the reason therefor. If any delivery of the Products is not made at the specified time and such delay is caused by Supplier, SOUND UNITED may choose to do any of the following, in any combination: (i) require Supplier to use expedited shipment method of SOUND UNITED’s choice for delivery of the Products at Supplier’s expense; (ii) cancel all or part of the Purchase Order based on both party agreement; and/or (iii) hold Supplier accountable for the expenses incurred by SOUND UNITED due to such delay, which may include, without limitation, expedited shipment of Products to various locations after delivery by Supplier to SOUND UNITED.

11.3Any Products delivered in advance of the delivery schedule may, at SOUND UNITED’s option, either be returned to Supplier (collect) for proper delivery or be accepted by SOUND UNITED.

11.4If SOUND UNITED discovers with sufficient evidence that any delivered Products were defective or otherwise not in conformity with the requirements of a Purchase Order or this Agreement due to the causes attributable to Supplier, SOUND UNITED may, at its option: (i) rescind the Purchase Order in whole or in part based on both party agreement and require refund from Supplier, if already paid; (ii) accept such Products and rework the Products at the Supplier’s expense or require the Supplier to rework the Products; or (iii) reject such Products and require delivery of replacements. If SOUND UNITED chooses to rework the Products, Supplier shall provide full cooperation to SOUND UNITED in connection with such rework at its cost, including but not limited to supplying necessary information, data and parts and components and arranging and paying for any necessary services to be provided by third party contractors. If Products are rejected, Supplier will provide SOUND UNITED with a return material authorization (RMA) number upon notification of rejection, SOUND UNITED will return such Products at Supplier’s risk and expense, and Supplier will deliver replacements to SOUND UNITED at its risk and expense without delay. Rights granted to SOUND UNITED and obligations of Supplier under this Section survive any payment, inspection or acceptance by SOUND UNITED and are in addition to any other rights or remedies provided elsewhere hereunder or by law.

12.REQUIRED PARTS AND COMPONENTS

12.2Supplier shall exercise its best business judgment based on various factors, including but not limited to its relevant knowledge and experience in its industry, most recently-available market information, the rolling forecast provided by SOUND UNITED pursuant to Section 8.1, to procure the Required Parts and Components so as to meet the requirement under Section 12.1 above but not in unreasonable excess of such requirement, at the best obtainable price under the particular circumstances at the time of procurement thereof. Specifically, Supplier shall always take into consideration such factors as the current number of Required Parts and Components left in its stock, the changing nature of SOUND UNITED’s rolling forecast and the minimum order quantity (the “MOQ”) which may be imposed by the suppliers of the Required Parts and Components from time to time, in determining the most appropriate quantity of the Required Parts and Components to procure at any given time, in the event that the suppliers of the Required Parts and Components imposed MOQ condition on procurement of Raw Materials, the Purchase Order which provided by

SOUND UNITED less than MOQ may make some Raw Materials into obsolete stocks. It shall be SOUND UNITED’s responsibility to compensate all the loss borne by Supplier. Supplier provides best effort to minimize the obsolete stocks.

12.3Notwithstanding Section 12.2 above but subject to Section 12.4 below, to the extent Supplier is left with unused Required Parts and Components after the last manufacture of the relevant Product (such Product, the “EOL Product”), SOUND UNITED and Supplier shall discuss in good faith regarding compensation by SOUND UNITED for the amounts paid by Supplier for such Required Parts and Components, (A) with respect to those Required Parts and Components procured on the basis of SOUND UNITED’s last submitted forecast for the N+3 month and (B) with respect to those Required Parts and Components with lead-times of thirteen (13) weeks or longer only, procured on the basis of SOUND UNITED’s last submitted forecast for the N+4 month. Supplier may choose to procure Required Parts and Components outside the scope of (A) and (B) above but shall do so entirely at its own risk and SOUND UNITED shall be held liable for any unused portion of such Required Parts and Components purchased in the applicable component level MOQ.

13.OBLIGATION TO CONTINUE PRODUCTION; END OF LIFE BY SUPPLIER

13.2If, after expiration of the period referred to in Section 13.1, Supplier has justifiable reasons for ceasing to manufacture any Product, Supplier shall provide at least twelve (12) months’ written notice to SOUND UNITED prior to the envisaged last delivery thereof, and obtain SOUND UNITED’s written consent, which shall not be unreasonably withheld. Supplier shall then provide SOUND UNITED opportunities to place one or more Purchase. Orders for the EOL Products in such quantity as SOUND UNITED may require before the envisaged final delivery date, and Supplier shall accept such Purchase Orders at the then prevailing price.

14.SPARE PARTS

The terms and conditions relating to spare parts of the Products to be supplied by Supplier to SOUND UNITED hereunder are set forth in Schedule I attached hereto.

15.CONFIDENTIALITY OF SOUND UNITED INFORMATION

15.3Supplier shall promptly return or destroy, at its own cost and expense, any and all SOUND UNITED Information, including any copies thereof, when it is no longer required by Supplier, upon SOUND UNITED’s request or upon termination of this Agreement, and follow all instructions of SOUND UNITED in connection thereto. Upon SOUND UNITED’s request, Supplier shall provide a written certificate of any return or destruction hereunder.

16.TRADEMARK

16.1All Products manufactured by Supplier under this Agreement shall bear the Trademark in accordance with the Requirements. Relevant logos and other relevant materials necessary to bear Trademark on Products shall be provided by SOUND UNITED and shall not be used for any purpose other than the foregoing. Supplier shall have no right, title or interest in or to any of SOUND UNITED’s (or its affiliates or subsidiaries) names, trade names, or trademarks, registered or not, anywhere in the world. Supplier’s sole privilege under this Agreement is a non-exclusive, limited license to manufacture and sell Product to SOUND UNITED, some of which bear in whole or in part trademarks owned by SOUND UNITED or its affiliates or subsidiaries, as applicable. Upon termination or expiration of this Agreement, Supplier’s limited privilege to sell Products using such trademarks shall immediately cease. Any trademark used in the course this Agreement must be reviewed and approved in advance, in writing, by SOUND UNITED.

16.6SOUND UNITED’s ownership of Proprietary Rights. In connection with the Product, SOUND UNITED (and its subsidiaries and affiliates, as applicable) are the exclusive owners of all right, title and interest in and to the intellectual property and other proprietary rights associated with or arising from the Products and related software that it has provided to Supplier to develop, except for the pre-existing intellectual property owned by the Supplier, Seller agrees to and does hereby sell, assign and transfer to SOUND UNITED the right, title and interest throughout the world to all works, inventions, discoveries, and improvements that are conceived or first actually reduced to practice in connection with the Product during the performance of this Agreement or the development of any Product. Subject to the pre-existing and co-development intellectual property rights, Supplier understands that its duties to SOUND UNITED include the preparation of materials, including hardware, software, written or graphic materials, schematics, layouts, tooling, and that any such materials conceived or written by Supplier shall be done as a “work made for hire” within the meaning of United States Copyright and other applicable laws. Supplier understands that since the work is a “work made for hire”, SOUND UNITED will retain ownership of all rights in said materials, including all patent, copyright and trademark rights. If SOUND UNITED exercises its right to second source Product pursuant to this Agreement, SOUND UNITED shall have a worldwide, royalty-free non-exclusive license from Supplier to make, use and sell all intellectual property owned or licensed by Supplier and incorporated into the Product including but not limited to patent, proprietary design, trade secret, software code or proprietary process, however said license shall extend only to product produced for SOUND UNITED. If Supplier sells Product to SOUND UNITED that incorporates third party software or intellectual property, Supplier represents and warrants that it has a license or right to license or convey such software or intellectual property and Supplier agrees to notify SOUND UNITED in writing and in advance of incorporating it into the Product. The Supplier will indemnify SOUND UNITED from all legal matters related to the use of patented technologies or other intellectual properties in the Product.

Pre-existing intellectual property” means intellectual property rights owned by a party prior to services performed under this agreement including previous agreement before this agreement is agreed. Nothing in this Agreement transfers ownership of Pre-existing intellectual property to the other party and each party shall retain all right, title and interest in and to its Pre-existing intellectual property unless SOUND UNITED chooses to use or the Parties agree separately. If Supplier uses pre-existing intellectual property to other clients, Supplier must inform SOUND UNITED in writing.

“Co-development intellectual property rights” means any Intellectual Property (other than pre-existing intellectual property) jointly created or discovered by Supplier and SOUND UNITED during the performance of this Agreement. Both parties own and have the right to use the Go-development intellectual property rights.

16.7Tooling and Moldings. Supplier agrees that all tooling and molding or modifications thereof which are made at the request of or on behalf of SOUND UNITED and related to Products manufactured pursuant to this Agreement (“Tooling”) shall only be used for the manufacturing of Product for SOUND UNITED exclusively. Supplier shall not use any Tooling for the benefit of any other of Supplier’s customers. SOUND UNITED shall at all times retain all rights, title, and interest in all Tooling, and Supplier agrees to return to SOUND UNITED (or SOUND UNITED’s designated agent) any Tooling at any time upon request by SOUND UNITED. Supplier agrees to supply SOUND UNITED photographs of SOUND UNITED’s tools, which show that the Tooling has been clearly engraved to indicate that the Tooling is the property of SOUND UNITED. Supplier shall properly title and mark all Tooling belonging to SOUND UNITED.

16.8Ownership of Documentation. The Documentation of SOUND UNITED shall remain the exclusive property of SOUND UNITED and shall be protected from disclosure in accordance with this Agreement. Upon expiration or termination of this Agreement, the Documentation shall be promptly returned to SOUND UNITED and Supplier shall erase copies from any digital media.

17.NON-INFRINGEMENT; IP RIGHTS; THIRD PARTY LICENSES

(A)settle the IP Claim;

(B)procure for SOUND UNITED the right to sell such Products without any restriction;

(C)replace or modify such Products to avoid infringement;

(D)remove the affected Products from SOUND UNITED’s inventory and grant SOUND UNITED a credit or refund thereon at the prices paid by SOUND UNITED;

(E)defend SOUND UNITED against the IP Claim using attorneys that are reasonably acceptable to SOUND UNITED; and/or

(F)cooperate and cause Its counsel to cooperate with SOUND UNITED and its counsel, if SOUND UNITED chooses to retain its own counsel to participate in the defense of any IP Claim, which cooperation may include, without limitation, providing relevant documentation and information concerning such IP Claim.

17.3Supplier shall indemnify and hold SOUND UNITED, its parent, affiliate or subsidiary or related companies and each of their shareholders, officers, directors, employees, agents, representatives, successors and assigns and each of their customers (the “Indemnitees”) harmless from any Damages arising out or of relating to an infringement or alleged infringement of IP Rights with respect to any Product.

17.4Supplier shall indemnify, defend and hold SOUND UNITED, its parent, affiliate or subsidiary or related companies and each of their shareholders, officers, directors, employees, agents, representatives, successors and assigns and each of their customers (the “Indemnitees”) harmless from and against any and all claims, allegations, suits, actions, proceedings, damages, judgments, decrees, orders and liabilities whatsoever, asserted by any person or entity resulting directly or indirectly from any claims or actions related to (i) any act, omission or commission, whether reckless or negligent of Supplier for negligence; or (ii) product liability of whatever specie, including, without limitation, claims or actions for strict liability, improper design, breach of warranty, express or implied, wherever such claims or actions may be asserted and regardless of where the events on which such claims or actions are based or occurred, or (iii) for any breach of representation or warranty stated herein. Supplier will also provide SOUND UNITED with written verification of conformance with any required royalty payments to third parties.

17.5Claim. In the event of a claim, Supplier shall not enter any settlement of a claim which adversely impacts or makes an admission of liability without SOUND UNITED’s written consent.

17.7Damages. Under no circumstances will SOUND UNITED, its parent, affiliates, subsidiaries, successors or assigns, be liable for any consequential , indirect, special, punitive, incidental damages or lost profits, whether foreseeable or unforeseeable, based on claims of Supplier or its affiliates, even if previously advised of the possibility of such damages, arising out of breach of contract, misrepresentation, negligence, strict liability, in tort or otherwise.

17.9SOUND UNITED shall have a non-exclusive, royalty-free license under Supplier’s IP Rights to use and resell the Products purchased hereunder, and to use and reproduce Supplier’s applicable literature, such as operating and maintenance manuals, technical publications, and other similar support documentation and sales literature for the purpose of this Agreement. If any Purchase Order includes experimental development or research effort and such work is paid for in whole or in part by SOUND UNITED, Supplier agrees to disclose to SOUND UNITED all confidential processes, know how, trade secrets, inventions and other work product relating thereto, and Supplier agrees to assign, and hereby does irrevocably assign, to SOUND UNITED any and all IP Rights in and to such work product under the compliance of Non Disclosure Agreement between the Parties.

18.SUPPLIER’S REPRESENTATIONS AND WARRANTIES

18.1Supplier represents and warrants that:

(A)all Products furnished under this Agreement are and will:

(a)be free from defects in design, material and workmanship;

(b)comply with the applicable Requirements hereunder;

(c)comply with applicable national, federal, state, provincial and local governmental laws and regulations and industry standards;

(d)be new and not used or reconditioned;

(e)be merchantable; and

(f)be suitable for the particular purpose or use for which they are purchased by SOUND UNITED;

(g)not infringe any patent, copyright, trademark, trade secret or similar 14 intellectual property or proprietary right.

18.3In the event of Supplier’s breach of any of the representations and warranties hereunder, SOUND UNITED may, at its option, require Supplier to retrieve the Products within a period specified by SOUND UNITED at Supplier’s cost and expense and: (i) provide replacements; (ii) repair the Products or (iii) provide SOUND UNITED full refund of the retrieved Products. In addition, Supplier shall indemnify and hold harmless the Indemnitees from and against any and all Damages incurred by the Indemnitees arising out of or relating to Supplier’s breach of its representations and/or warranties hereunder, including but not limited to any costs and expenses incurred by the Indemnitees in connection with retrieval and replacement of the Products under the custody of distributors, dealers, end-users or any other party or person.

[…***…]

19.EPIDEMIC FAILURE

19.1“Epidemic Failure” shall mean the failure with same symptom, caused or reasonably, suspected to have been caused by the same common root cause derived from material, workmanship or design of the Products, with the failure rate that exceeds 1% of all Products that are delivered to SOUND UNITED during any one hundred eighty (180) day period.

19.2If an Epidemic Failure occurs, as reasonably determined by either SOUND UNITED or Supplier, then:

(A)within five (5) business days after receipt of a sample of returned Defective Products from SOUND UNITED, Supplier will provide SOUND UNITED with a written “root cause” failure analysis and a written corrective action plan. Supplier shall bear all risks and expenses associated with preparing such failure analysis and corrective action plan and in implementing the same, and with providing related technical support as SOUND UNITED may reasonably request;

(B)Supplier agrees, at its expense, to assist SOUND UNITED in the technical resolution of the Epidemic Failure and to be responsible for all Damages incurred by SOUND UNITED as a result of the Epidemic Failure, including but not limited to any costs and expenses incurred by the Indemnitees in connection with retrieval and replacement of the Products under the custody of distributors, dealers, end-users or any other party or person, and all costs associated with a recall;

(C)notwithstanding anything to the contrary that may be provided in this Agreement, SOUND UNITED may, at its sole option, return any inventory of Products then in possession of SOUND UNITED for replacement and any and all associated shipping and insurance charges upon receipt of a Return Material Authorization (RMA);

(D)SOUND UNITED, at its sole option, may immediately terminate this Agreement and/or any Award, and/or cancel any Purchase Order, upon written notice to Supplier.

19.3For the avoidance of doubt, this Section 19 applies in case of Epidemic Failure in addition to Section 18.3, and application of this Section 19 does not prejudice in any way application of Section 18.3

20.PRODUCT LIABILITY

21.INDEMNIFICATION

21.1If Supplier, its employees, agents, subcontractors, or representatives enter premises occupied by or under the control of SOUND UNITED or third parties in the performance hereunder, Supplier shall indemnify and hold harmless the Indemnitees from any and all Damages by reason of property damage or personal injury to any person, including Supplier’s employees, of whatsoever nature or kind arising out of, as a result of, or in connection with such performance occasioned in whole or in part by the actions or omissions of Supplier, its employees, agents, subcontractors, or representatives. If requested by SOUND UNITED, Supplier shall also defend SOUND UNITED against any claims, suits or proceedings relating thereto.

21.2Supplier shall fully comply with all applicable foreign, national and local laws, regulations and ordinances in its manufacture and sale of the Products. Supplier shall indemnify and hold harmless the Indemnitees from any Damages arising out of or relating to Supplier’s non-compliance or any other negligence or wrongful acts or omissions by Supplier or those acting on Supplier’s behalf. If requested by SOUND UNITED, Supplier shall also defend SOUND UNITED against any claims, suits or proceedings relating thereto.

22.LIMITATION OF LIABILITY

In the event that SOUND UNITED is in the breach of this Agreement, SOUND UNITED’s liability hereunder shall be the actual losses and costs suffered by Supplier limited to the unpaid balance of amounts due under the Purchase Orders. IN NO EVENT SHALL EACH PARTY SOUND UNITED BE LIABLE FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, EXEMPLARY OR SPECIAL DAMAGES.

23.TERM AND TERMINATION

23.3Either Party may terminate this Agreement and/or any Award, and/or cancel any Purchase Order, upon written notice if:

(i)the other Party commences a judicial or administrative proceeding under a law relating to insolvency for the purpose of reorganizing or liquidating the debtor or restructuring its debt;

(iv)the other Party makes a general assignment for the benefit of creditors.

24.GENERAL

24.2Insurance. Supplier shall maintain Workers Compensation, Commercial General Liability, in amounts consistent with good industry practice. All policies (with the exception of Professional Liability and Workers Compensation) are to be written on an occurrence basis, shall name SOUND UNITED as an additional insured as its interests may appear under this Agreement, and the insurer(s) shall agree to waive all rights of subrogation against SOUND UNITED. Certificates of Insurance evidencing coverage and conditions to this Agreement are to be furnished to SOUND UNITED prior to commencement of work and a minimum of thirty (30) calendar days prior to expiration of the insurance contract, when applicable. Notwithstanding the foregoing, such notification will be required annually during the term of this Agreement. Each insurance policy required by this Agreement shall be endorsed to state that coverage shall not be suspended, voided, or canceled by either party, reduced in coverage or in limits except with the prior written consent of SOUND UNITED.

24.3Financial Information. Supplier shall provide SOUND UNITED with its financial statements for every business year during the term of this Agreement.

24.5Notices. Notices required to be given hereunder shall be in writing, cost prepaid, and addressed to the other Party at the address first set forth above, or to such other address as may be designated by a written notice given in accordance with this Section. Any such notices shall be deemed properly given when: (I) delivered personally; (ii) seven (7) business days have passed after having been sent by airmail; or (iii) three (3) business days have passed after deposit with express courier service.

24.8Assignment. Supplier shall not delegate or subcontract any duties, nor assign any Purchase Order or this Agreement or any rights or claims under any Purchase Order or this Agreement, whether by operation or law or otherwise, without prior written consent of SOUND UNITED, and any such attempted delegation or assignment shall be null and void. This Agreement and the Purchase Orders shall be binding upon and Inure to the benefit of each party and its successors and permitted assigns.

24.13Survival. Sections 5, 6,15,16,17,18,19, 20, 21,22, 23.5, 23.6 and 24, and any other provision which shall reasonably be interpreted to survive, shall survive any termination of this Agreement, Award or any Purchase Order for any reason.

24.14

24.15Governing Law and Venue. This Agreement and each Purchase Order shall be governed by and interpreted in accordance with the laws of the Singapore The parties agree that the U.N. Convention for the International Sale of Goods shall not apply to this Agreement, and the provisions thereof are expressly excluded from the Agreement. Each party agrees (i) that any action or proceeding brought by the parties relating to this Agreement shall be brought in a court in San Diego county, California, and for that purpose now irrevocably and unconditionally attorns and submits to the jurisdiction of the courts located there; (ii) not to oppose any action or proceeding in (i) above on the basis of forum non conveniens or for any other reason; and (¡ii) not to oppose the enforcement against it in any other jurisdiction of any judgment or order duly obtained from a court as contemplated by this section.

[Signature page follows.]

IN WITNESS WHEREOF, the Parties have caused their respective duly authorized representatives to execute and deliver this Agreement.

DEI SALES, INC.

By:    /s/ Pat Zaun
Print Name: Pat Zaun
Title:    VP Procurement
Date:    4/18/2019

TONLY ELECTRONICS SALES LIMITED (Supplier)

By:     /s/ Luke Wang
Print Name: Luke Wang

Title: SVP of Sales
Date: 4/18/2019

………………………………………………
Authorized Signature(s)

Schedule I

SPARE PARTS

Supplier agrees to the following terms and conditions regarding the supply of Spare Parts to SOUND UNITED:

A.SPARE PARTS ORDER & SUPPLY FLOW; PARTS LIST

Supplier and SOUND UNITED agree that the flow of Spare Parts order and supply shall generally be as set forth in Annex 1 to this Schedule I Without limiting the generality of the foregoing, Supplier shall provide SOUND UNITED, and update as appropriate, the list of parts that comprise a Product (the “Parts List”) in accordance with the schedule set forth in Annex 1.

B.PRICES

(i)the price of PCB assembly does not exceed 60% of the price of the relevant Product;

(ii)the total of the prices of all Spare Parts comprising the relevant Product excluding the PCB assembly in the assembled form but including the individual parts comprising the PCB assembly (“All Spare Parts”) does not exceed 100% of the price of the relevant Product; and

(iii)the price of each Spare Part does not exceed prices charged for like quantities of the same or substantially similar part to any other purchaser.

B.2If:

(a)the price of PCB assembly proposed by Supplier exceeds 60% of the price of the relevant Product, SOUND UNITED has the right to reject such price and Supplier shall use its best efforts to modify the proposed price for such PCB assembly so that it is within 60% of the price of the relevant Product;

(b)the total of the prices of All Spare Parts exceeds 100% of the price of the relevant Product, SOUND UNITED has the right to reject such prices and Supplier shall use its best efforts to modify the proposed prices for All Spare Parts so that the total of such prices is within 100% of the price of the relevant Product; and

(c)Supplier sells any Spare Part or substantially similar part to another customer at a price less than the price to SOUND UNITED, Supplier shall accordingly lower the price of such Spare Part sold to SOUND UNITED and provide SOUND UNITED with a credit for any such Spare Part sold to SOUND UNITED (for the difference between the price sold to SOUND UNITED and the lowest price the Spare Part or substantially similar part were sold to others) during the period in which Supplier was selling such Spare Part or substantially similar part at the lower price.

C.PURCHASE ORDERS

Unless otherwise agreed between the Parties, SOUND UNITED may submit a Purchase Order for Spare Parts to Supplier at reasonable time confirmed by both parties during the Service Period. A Purchase Order for Spare Parts shall set forth the relevant Spare Parts, quantity, requested delivery date(s) and any other requests, and Section 8.3 & 8.4 of the Agreement shall apply with respect to such Purchase Orders. Delivery date(s) shall meet the reasonable purchase order lead time. SOUND UNITED makes the best effort to place spare parts order to combine with finish goods production order.

D.PACKAGING, DELIVERY AND PAYMENT

E.SERVICE PERIOD

Supplier shall make available the Spare Parts for purchase by SOUND UNITED in accordance with this Agreement through EOL of a Product plus additional periods after EOL, as set forth below (the “Service Period”):


Classification	Examples	Service Period (after EOL)
Performance Parts	Semiconductors, Electric and Electronic Components, AC Cord, Power Transformers	[…***…]
Cosmetic Parts, Assemblies, Modules (Appearance)	Front Panel, Front Panel Assembly, Side Panels, Knobs, Buttons, Top Covers, Foots, Doors	[…***…]
Other Mechanical Parts, Assemblies, Modules	Optical Disc Mechanism, Chassis, Brackets, Screws	[…***…]
Electronic Assemblies, Modules	PCB Assembly, Tuner Module, Wireless Module, ROM Assembly	[…***…]
Packaging Materials, Accessories	Carton Box, Cushion, Remote Controller, Antennas, Accessory Cables, Instruction Manuals	[…***…]

To the extent Supplier has any Spare Parts In its inventory after expiration of the applicable Service Period, SOUND UNITED shall be entitled to purchase, and Supplier shall supply to SOUND UNITED, such Spare Parts in accordance with this Agreement.

F.LAST BUY AND REPLACEMENT AND SUBSTITUTE SPARE PARTS

F.1If Supplier learns or reasonably foresees that any Spare Part will be or may become unavailable during the Service Period, Supplier shall notify SOUND UNITED as soon as practicable the last date on which Supplier can accept Purchase Orders from SOUND UNITED for such Spare Parts (such last purchase by SOUND UNITED, the “Last Buy’’); provided, if no Purchase Order for Last Buy can be accepted, then Supplier shall use its best efforts to find a functionally equivalent replacement or substitute to the unavailable Spare Part that is reasonably acceptable to SOUND UNITED and obtain SOUND UNITED’s prior written approval with respect to the use of any replacement or substitute. Supplier should use its commercial reasonable efforts to request any specified risk of component EOL within the

product life with estimated verification test cost, price difference against the original parts into quotation at new production RFQ process.

F.2Notwithstanding any approval by SOUND UNITED with respect to a replacement or substitute for any Spare Part in accordance with the preceding paragraph, SOUND UNITED reserves the right to recover any Damages SOUND UNITED suffers from the unavailability of any Spare Part for the Supplier’s willful act or gross negligence during the Service Period, which solely attributable to Supplier and may include, without limitation, the price difference between the unavailable Spare Part and the replacement or substitute, and the price of the Product from which the unavailable Spare Part was extracted for purposes of repair prior to a replacement or substitute becoming available.

G.WARRANTY AGAINST DEFECT

Document

Exhibit 10.13

LICENSE AGREEMENT

This License Agreement (this “Agreement”), dated October 1, 2014 is made between Harman International Industries, Incorporated, a Delaware corporation (together with its direct and indirect subsidiaries, “Harman”), and B&W Group Ltd., a corporation organized and existing under the laws of England and Wales (together with its direct and indirect subsidiaries, “Bowers”), and supercedes and replaces in its entirety the License Agreement dated April 21, 2008 between Harman and Bowers (the “Original Agreement”). Throughout this Agreement each of Bowers and Harman are sometimes referred to as a “Party” and collectively as the “Parties.”

BACKGROUND

A.Bowers designs, manufactures, markets, and sells loudspeakers for home theatre, hi-fi, and iPod® applications under the “Bowers & Wilkins” brand name, music and home theatre systems under the “Classé” brand name.

B.Bowers has extensive experience and expertise in designing, manufacturing, marketing, and selling high-quality audio equipment, including loudspeakers, power amplifiers, preamplifiers, integrated amplifiers, DVD players, CD players, home theater systems, receivers, tuners, surround sound processors, and related products.

C.Bowers has developed the innovative technologies listed in Schedule C, as such list may be supplemented from time to time by Bowers, by notice in writing to Harman (the “Bowers Technology”).

D.Bowers is the owner of the trademarks listed in Schedule A (the “Bowers Marks”), which are used in connection with its products.

E.Bowers wishes to expand its participation in the automotive original equipment manufacturer market (the “OEM Market”).

F.Harman has extensive experience and expertise in designing, manufacturing, marketing, and selling audio and infotainment systems in the OEM Market.

G.Bowers and Harman have determined that they can expand opportunities in the OEM Market for both companies through a licensing arrangement that combines the Bowers Technology and the Bowers Marks with Harman’s expertise and experience in the OEM Market.

H.Accordingly, Bowers and Harman have agreed that:

1.Bowers will license the Bowers Technology and the Bowers Marks to Harman for use in the OEM Market;

2.Harman will be responsible for designing, manufacturing, marketing and selling audio and infotainment systems bearing the Bowers Marks in the OEM Market; and

3.Bowers will provide technical assistance to Harman.

I.Pursuant to the terms of the Original Agreement, Harman has previously paid Bowers a sum total of […***…] in exchange for the rights granted to Harman under the Original Agreement (the “Lump Sum Payment”).

J.Bowers and Harman wish to enter into this Agreement to provide for the terms and conditions of their licensing arrangement for the OEM Market.

OPERATION SECTIONS

Article I

DEFINITIONS

1.1 For the purposes of this Agreement, the following terms have the following meanings.

“Agreement” is defined in the introductory paragraph.

“Approved OEMs” means […***…] and any other OEM brand or nameplate designated as an “Approved OEM” by the written agreement of Bowers and Harman.

“Bowers” is defined in the introductory paragraph.

“Bowers Contracts” is defined in Section 10.1(d)(iii).

“Bowers Improvements” is defined in Section.5.2.

“Bowers Marks” is defined in paragraph D of the BACKGROUND.

“Bowers Consumer Product” means any product (including personal headphones, home hi-fi systems and home theatre systems) which bears any of the Bowers Marks, and which is made by Bowers, or by a third party or parties under sub-license from Bowers, but which is not developed for the Field of Use, or which is sold outside the Field of Use.

“Bowers Product” means any product which includes any of the Bowers Technology and/or bears any of the Bowers Marks, and which is made by Harman pursuant to this Agreement, or by a third party to whom Harman has granted a sub-license in accordance with this Agreement, but, for the avoidance of doubt, excluding Bowers Consumer Products.

“Bowers Technology” is defined in paragraph C of the BACKGROUND.

“Change in Control” is defined in Section 11.1(c).

“Confidential Information” is defined in Section 8.1.

“Effective Date” means October 1, 2014.

“Field of Use” means the OEM Market

“Harman” is defined in the introductory paragraph.

“Harman Contracts” is defined in Section 10.5(d)(iii).

“Harman Improvements” is defined in Section 5.1.

“Harman Products” is defined in Section 2.3.

“Improvements” mean inventions, discoveries, know-how, confidential information, and data developed during the Term which embody and are derived from the Licensed IP.

“License” is defined in Section 3.1.

“Licensed IP” means the Trademark Rights and such of the following intellectual property rights held by Bowers relating to the Bowers Products as are required by Harman for the performance of its obligations under this Agreement: Patents, inventions, copyrightable material, trade secrets, software (in source code and object code form), software documentation, algorithms, know-how, confidential information, and other

technical information, including intellectual property as aforesaid held by Bowers under license, and including such intellectual property as aforesaid now in existence or developed by Bowers after the date of this Agreement.

“Net Sales” means (X) total sales of Units less (Y) the sum of (1) returns of Units and (2) sales of Units for which payment has not been received within twelve months of the date of invoice.

“Non-Transferable” means lacking the ability to he subsequently transferred by assignment or sublicense.

“OEM” means an automotive original equipment manufacturer.

“OEM Market” is defined in paragraph E of the BACKGROUND.

“Party” is defined in the introductory paragraph.

“Patents” means patents and patent applications, including divisional applications.

“Quarter” means a quarter-year, ending on September 30, December 31, March 31, and June 30 respectively in each Year.

“Royalties” is defined in Section 4.1.

“Selling Price” means the net selling price of a Unit shown on Harman’s invoice and does not include taxes, shipping charges, costs of packaging, or other similar charges.

“Trademark Rights” means the Bowers Marks; any applications filed and registrations issued with respect to the Bowers Marks in any US or foreign jurisdiction, and any rights as privileges provided with respect to the Bowers Marks under the laws of any US or foreign jurisdiction, including trademark and unfair competition laws.

“Transfer” is defined in Section 11.1.

“Unit” means any device, component, assembly, module, or system that incorporates the Licensed IP and/or the Bowers Technology, and/or that bears one or more of the Bowers Marks, All devices, components, assemblies, modules, or systems installed in a single vehicle will count as one Unit, so that no vehicle can contain more than one Unit.

“World-wide” means all countries of the world.

“Year” means each year from the Effective Date until the day before the following anniversary of the Effective Date.

1.2 Construction and Interpretation.

(a)The Parties have participated jointly in the negotiation and drafting of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the Parties and no presumption or burden of proof will arise favoring or disfavoring any Party because that Party drafted any of the provisions of this Agreement.

(b)Each definition in this Agreement includes the singular and the plural, and references to any gender include the other genders where appropriate,

(c)Any reference to any federal, slate, local or foreign statute or law also refers to all rules and regulations promulgated under such statute or law, unless the context requires otherwise. References to any statute or regulation mean the statute or regulation as amended at the time and include any successor legislation or regulation.

(d)The word “including” means “including but not limited to”. The word “or” is not exclusive. The headings to the Articles and Sections are for convenience of reference and may not be interpreted or construed to affect the meaning or interpretation of this Agreement.

(e)References to Articles, Sections, Exhibits and Schedules mean the Articles, Sections, Exhibits and Schedules of this Agreement. The Exhibits and Schedules are incorporated by reference into this Agreement and are a part of this Agreement.

(f)All references to dollar amounts in this Agreement are references to United States Dollars.

(g)In computing any time period provided for in this Agreement, the first day of the time period will not be counted but the last day of the time period will be counted. Any action required to be taken on a particular day must be taken before 5:00 pm, Eastern Time, on that day. For example, if an action were required to be taken within ten days after June 30, the first day to be counted would be July 1 and the action would be required to be taken before 5:00 pm, Eastern Daylight Time, on July 10. Any reference in this Agreement to “days” means calendar days, unless the provision in question specifically provides otherwise.

(h)The term “license” includes the term “sublicense,” so that any reference to a license in this Agreement will be read to mean either a license or a sublicense.

(i)The term “person” means any natural or artificial person and includes any corporation, partnership, limited partnership, limited liability company, association, unincorporated organization, or other business organization, the trustee of a trust, and any government or governmental unit, agency, or subdivision.

Article II

RIGHTS IN OEM MARKET

2.1 Rights to Bowers Technology and Marks.

(a)General. Bowers appoints Harman as its exclusive representative World-wide for the Bowers Products within the OEM Market. As described in this Agreement, Harman will have the exclusive right to use the Bowers Technology and the Licensed IP in conjunction with the Bowers Products in the OEM Market. Harman will be responsible for marketing, developing, designing, manufacturing, and selling Bowers Products in the OEM Market. Bowers will provide technical, commercial, and marketing assistance as reasonably requested by Harman. The first two sentences of this Section 2.1(a) are subject to the following PROVISO: Harman hereby acknowledges that this Section 2.1(a) shall not prevent Bowers from (i) using the Bowers Technology or the Licensed IP in any manner (including the manufacture and/or sale of products and the licensing or sub-licensing of the Bowers Technology or the Licensed IP) in respect of Bowers Consumer Products or otherwise outside the Field of Use; (ii) entering into direct trademark and co-marketing agreements with OEMs to enable them to market the Bowers Products; or (iii) communicating directly with such OEMs in connection with such agreements.

(b)Marketing.

i.As set forth in Section 2.1(a) above, and subject to the PROVISO contained therein, Harman will be responsible for all OEM marketing activities including, without limitation, all automotive dealer training, automotive dealer incentive programs, auto shows, and point-of-sale materials, subject to Section 2.1(d). Harman will also be responsible for all co-operative advertising programs with OEMs and OEM experiential programs. Harman’s marketing obligations under this Agreement will be exclusively focused on driving incremental sales of Bowers Products to OEMs.

ii.If Bowers agrees with any OEM to develop, design, manufacture, market and/or sell any Bowers Consumer Product which is co-branded with that OEM, then Bowers will be responsible for all

consumer marketing activities and the development, design, manufacture and sales of such co-branded Bowers Consumer Products; provided, however, all such co-branded Bowers Consumer Products may not otherwise compete with any Bowers Products. Bowers will bear all costs associated with marketing, developing, designing, manufacturing and/or selling any co-branded sponsorships, websites, social media platforms or merchandise.

(c)Communications. Harman will be responsible for all communications to OEMs, the public, and other parties regarding the Bowers Technology, the Bowers Marks, and the Bowers Products in the OEM Market, subject to the PROVISO in Section 2.1(a) and subject to Section 2.1(d). Neither Bowers nor any of its representatives will issue any press release or public statement or communicate with any party other than Harman regarding its participation in the OEM Market or its business relationship with Harman without Harman’s prior written consent.

(d)Harman will send to Bowers for its prior written approval the text and layout of all proposed advertisements, marketing and promotional material, press releases and public announcements regarding the Bowers Technology, the Bowers Marks, and the Bowers Products. In the event that Bowers disapproves of such material, it shall give written notice of such disapproval to Harman within 10 days of receipt by Bowers of the material. In the absence of a written notice of disapproval within 10 days of receipt of such materials, the materials shall be deemed to have been approved by Bowers. Harman will not use any material in the advertising, marketing or promotion of Bowers Products which has not been approved by Bowers.

2.2 Costs and Revenues. Harman will bear all costs of its obligations under Section 2.1. Bowers will bear all costs of its obligations under Sections 2.1.6.1, and 7.1. Harman will pay Bowers a royalty for each Unit sold, as described in Article IV. Except as described in this Agreement, Harman will have no obligation to make any payments to Bowers or to share any revenues derived front the sale of Bowers Products.

2.3 Harman Brands. Bowers acknowledges that Harman will continue to market, develop, design, manufacture, and sell audio and infotainment products which do not. incorporate the Licensed IP or the Bowers Technology, and do not bear one or more of the Bowers Marks (referred to herein as “Harman Products”). Such Harman Products shall be sold as unbranded products or under Harman’s own brands and trademarks, which currently include[…***…]. Harman will use commercially reasonable, good-faith efforts to market and sell Bowers Products consistent with the Harman Brand Placement Guidelines attached hereto as Schedule B, but will have no obligation to give any preference to Bowers Products over Harman Products. Bowers acknowledges that branding decisions for audio and infotainment products in the OEM Market are determined by the OEMs.

Article III

LICENSE FROM BOWERS TO HARMAN

3.1 Grant of License. Bowers grants to Harman a license to make, use, design, develop, test, manufacture, have manufactured, market and sell, directly or indirectly, offer for sale, and import Bowers Products using the Licensed IP in the Field of Use World-wide (the “License”). Subject to the termination provisions of Article IX, the License is irrevocable. The License includes any Patents or copyrights issued for the Licensed IP after the date of this Agreement. The License includes the right to copy and modify the Licensed IP and develop Harman Improvements as described in Article V. The License is Non-Transferable except for the right to grant sublicenses provided for in Section 3.2.

3.2 Right to Sublicense. Harman may grant sublicenses to third parties (each a “Sublicensee”) under the License as necessary to permit Harman to exercise its rights under this Agreement in connection with production of Units, provided that Harman (i) this Section 3.2 is subject to Section 3.11; that Harman may not sublicense or subcontract its rights under Section 2.1 and that Harman (ii) requires that each

Sublicensee complies with the terms and conditions of the License and this Agreement, including the terms specified in Article VIII.

3.3 Rights Retained. Bowers retains the exclusive rights to its information and intellectual property World-wide, including the Licensed IP, Bowers technology, Bowers Marks and Trademark Rights, except in the Field of Use as granted pursuant to this Agreement.

3.4 Limitation on Use by Bowers; Patents.

(a)Limitations in Field of Use. During the term of this Agreement, Bowers will not: (i) use the Licensed IP in the Field of Use; (ii) disclose the Licensed IP or Improvements to third parties for their use in the Field of Use; (iii) grant or promise to grant any additional licenses or rights to the Licensed IP in the Field of Use.

(b)Limitations outside Field of Use. If Bowers grants any license or right to any party to the Licensed IP outside the Field of Use, then Bowers must require the other party to agree in writing not to use the Licensed IP in the Field of Use.

(c)Transfer of Licensed IP. If Bowers transfers ownership of the Licensed IP to any other party, Bowers must require the transferee to agree in writing to all of the terms of this Agreement.

(d)Patents. Bowers will undertake commercially reasonable efforts to prosecute applications for Patents in the Field of Use, and will maintain issued Patents in the Field of Use for the Term. Bowers will not be required under any circumstances to prosecute patent applications other than applications under the Patent Cooperation Treaty, the European Patent Convention and in other countries determined by the agreement of Bowers and Harman.

(e)Third-Party Beneficiary. Any agreement of a licensee or transferee required by Section 3.2 or Section 3.4(c) must include an explicit agreement that Harman is a third-party beneficiary of that agreement and is entitled to enforce that agreement under applicable law.

3.5 Limitation on Use by Harman. Harman may not use the Licensed IP outside the Field of Use and may not transfer or disclose the Licensed IP to any other party, except as specifically permitted by this Agreement. Bowers Products may not be sold to any OEM other than an Approved OEM. Harman will regularly consult with Bowers regarding system performance quality of all Bowers Products.

3.6 Product Marking. Harman agrees to use commercially reasonable best efforts to: (i) mark all Bowers Products with the appropriate patent numbers as directed by Bowers where Bowers Products are covered by one or more Patents under this Agreement; (ii) include a copyright legend in the same form and location as the legend appearing in the copyrighted work (including documentation) provided by Bowers in each copy of a work copyrighted by Bowers, or any portion of such work, made by Harman; and (iii) ensure all Bowers Products will bear one or more of the Bowers Marks.

3.7 Protection of Exclusive Rights. In those instances in which a Party retains, or receives a grant of, exclusive rights in a market under this Agreement, no other Party will knowingly interfere with the exercise of such exclusive rights.

3.8 Enforcement of Rights to Licensed IP. Harman will notify Bowers in writing of any infringement of the Licensed IP of which it becomes aware. Bowers may, in its sole discretion, elect to pursue an action to police, defend or enforce the Licensed IP against infringement by another. If Bowers elects to assume the responsibility for the prosecution of such an action, then Harman will provide reasonable assistance to Bowers as may be requested by Bowers, and Bowers will indemnify Harman against all liabilities, costs, expenses, damages and losses suffered or incurred by Harman arising out of any action taken by Bowers in respect of such action and shall reimburse Harman for any r reasonable out-of-pocket expenses incurred by Harman in connection with such assistance, except for the time of Harman s employees. All proceeds

awarded to Bowers in connection with any such action will be retained exclusively by Bowers. If Bowers elects not to assume the responsibility for prosecuting such action, then Harman will have the right to pursue such action at its own expense and with counsel of its choice and Bowers agrees to join such action as a named party if legally required for Harman to bring or defend the action. In such event, Bowers will provide to Harman reasonable assistance as may be requested by Harman, and Harman will indemnify Bowers against all liabilities, costs, expenses, damages and losses suffered or incurred by Bowers arising out of any action taken by Harman in respect of such action and shall reimburse Bowers for any reasonable out-of-pocket expenses incurred by Bowers in connection with such assistance except for the time of Bowers’ employees. All proceeds awarded to Harman in connection with any such action will be retained exclusively by Harman.

3.9 Trademarks - Quality Control. The nature and quality of all services rendered and goods manufactured, marketed, distributed, or sold by Harman in connection with the Bowers Marks, and of all related advertising, promotional and other related uses of the Bowers Marks, shall be of the highest and uniform quality, free of defects in design, materials, and workmanship when shipped and must conform to standards set by Bowers. Harman will cooperate with Bowers in facilitating Bowers’ quality control rights under this Section, to permit reasonable inspection of Harman’s operations, and to supply Bowers with specimens of all uses of the Bowers Marks upon request. Harman may not use the Bowers Marks in any manner which would disparage or tarnish or dilute the distinctive quality of the Bowers Marks or the reputation and goodwill embodied in the Bowers Marks or which would reflect adversely on the Bowers Marks or Bowers, or any of Bowers’ products or services. Harman will comply with all applicable laws and regulations and obtain all appropriate government approvals pertaining to the sale, distribution, and advertising of the Bowers Products.

3.10 Licensed IP - Acknowledgment of Ownership. Harman recognizes and acknowledges the validity of Bowers’ rights in the Licensed IP and that Bowers is the owner of the Licensed IP. Harman agrees that it will do nothing inconsistent with such ownership, will not challenge the validity of or Bowers’ title to the Licensed IP, and will not oppose or petition to cancel any applications filed or registrations received with respect to the Licensed IP. All rights created by or arising from use of the Licensed IP by Harman, including all goodwill created by such use, will be the sole and exclusive property of Bowers, and Harman waives and renounces all claims to such rights. Except to register its use under this Agreement, Harman will not attempt to register or claim rights in the Licensed IP, alone or as part of its own marks, and agrees that nothing in this Agreement gives Harman any right, title, or interest in the Licensed IP other than the rights expressly granted under this Agreement.

3.11 Diamond Dome and other notified technologies. Where Bowers Products include Bowers’ Diamond Dome Technology, Harman will only use domes from suppliers licensed directly by Bowers. Also, where Bowers introduces any new technology, and notifies Harman in writing before the technology is incorporated into Bowers Products under this Agreement, Harman will only use materials based on that new technology from Bowers or (as applicable) suppliers licensed direct by Bowers.

3.12 Abandonment. If Bowers wishes to abandon any Patent application or Patent that is included in the Licensed IP (a “Licensed Patent”), it shall give Harman ninety (90) days prior written notice of the desired abandonment. Bowers shall not abandon any such Licensed Patent except upon the prior written consent of Harman. On Harman’s request, which may be provided at any time after the notice of desired abandonment, Bowers shall assign to Harman any such Licensed Patent Bowers wishes to abandon. Effective as of the effective date of the assignment, such Licensed Patent shall no longer be a Licensed Patent and Harman shall not have any further royalty or other payment obligation for such patent application and patent.

Article IV

ROYALTIES

4.1 Basis for Royalty. Royalties of […***…] of the Selling Price of a Unit will be payable for each Unit sold by Harman or by a third party under sublicense from Harman (“Royalties”). The minimum Royalty for each Unit is set forth on Schedule A (the “Minimum Royalty”). Accordingly, if […***…] of the Selling Price of a Unit is less than the Minimum Royalty, then the Royalty for that Unit will be the Minimum Royalty. If […***…] of the Selling Price of a Unit exceeds the Minimum Royalty, then the Royalty for that Unit will be […***…] of the Selling Price. The Selling Price of a Unit for a particular program and whether a Minimum Royalty is payable for that program will he determined when the first Unit for that program is sold and will only be re-determined if there is an increase or decrease in the Selling Price. Annual “price-downs” or price reductions will require a redetermination of the Selling Price and whether a Minimum Royalty is payable. If the Selling Price of a Unit is expressed in a currency other than United States Dollars, then the Selling Price will be converted into United States Dollars at the exchange rale reported in the Wall Street Journal on the business day preceding the date of determination. The Minimum Royalty will be payable in United States Dollars, regardless of the currency in which the Selling Price is expressed.

4.2 Manner of Payment. From the Effective Date, Harman will pay to Bowers in cash pursuant to Section 4.3 below the first […***…] in Royalties earned during each Year during the term of this Agreement. All Royalties earned in excess of […***…] during any Year will be credited against the Lump Sum Payment until the total aggregate amount so credited under this Agreement and the Original Agreement equals the amount of the Lump Sum Payment, and any excess Royalties over and above such amount will be paid in cash by Harman pursuant to Section 4.3 below.

4.3 Quarterly Royalty Payments. Royalty payments will be due and payable quarterly within 30 days after the end of each Quarter for Net Sales of Units during the Quarter. Simultaneously with the quarterly payment of Royalties, Harman will deliver to Bowers a sales report showing gross sales of Units for the Quarter and the calculation of Net Sales of Units for the Quarter. Upon written notice to Harman, Bowers will have the right, not more than once during each calendar year, during normal business hours, to audit such books and records as may be reasonably required to verify Net Sales. Any such audit will be conducted at Bowers’ expense and will not interfere with the normal business operations of Harman. Sates and the calculation of Net Sales will be reported in the currency in which Harman receives payment for Units sold. Royalties will be calculated and paid in currency in which Harman receives payment for Units sold.

4.4 No Double-Counting. Only one Royalty will be payable for each Unit. Accordingly, Harman will not be required to pay a Royalty for any Unit for which a Sublicensee of Harman has paid the Royalty.

Article V

IMPROVEMENTS

5.1 Harman Improvements. The Parties anticipate that Harman may independently develop Improvements. All Improvements independently developed by Harman (“Harman Improvements”) will be owned solely by Harman. Harman will notify Bowers of the existence and nature of each Harman Improvement. Harman may only use Harman Improvements within the Field of Use and in connection with Bowers Mark. Bowers will maintain all information regarding the Harman Improvements in strict confidence, unless otherwise provided in this Agreement, including by restricting disclosure of such information to those of its employees having a need to know such information. Harman grants a perpetual, royalty-free license to any Harman Improvements to Bowers. Such license may be transferred or sublicensed by Bowers to any third party to which any of the Licensed IP or Bowers Technology is transferred or sublicensed, in accordance

with this Agreement. Bowers may only use Harman Improvements pursuant to Section 2.1 (b) or outside the Field of Use.

5.2 Bowers Improvements. The License includes any Improvements developed by Bowers after the date of this Agreement. All Improvements independently developed by Bowers (“Bowers Improvements”) will be owned solely by Bowers. Bowers will notify Harman of the existence and nature of each Bowers Improvement, Harman will maintain all information regarding the Bowers Improvements in strict confidence, unless otherwise provided in this Agreement, including by restricting disclosure of such information to those of its employees having a need to know such information.

Article VI

TRANSFER OF TECHNOLOGY AND INFORMATION

6.1 Initial Disclosure. Within 30 days after the date of this Agreement, Bowers will make an initial disclosure to Harman of all Bowers Technology and Licensed IP which has not been disclosed prior to the date of this Agreement, including any disclosure made pursuant to the Original Agreement. This initial disclosure will be supplemented by additional disclosures upon the reasonable request of Harman. Bowers will promptly disclose any material Improvements developed by Bowers (“Bowers Improvements”) after the date of this Agreement; Bowers will disclose any other Improvements upon reasonable request by Harman. The initial disclosure and additional disclosures, including disclosures of Bowers Improvements, will be in sufficient detail to provide Harman with a fundamental understanding of the working principles of the Bowers Technology and the Licensed IP, including the Bowers Improvements. Bowers will provide to Harman all (i) manufacturing rights and (ii) manufacturing and engineering documentation necessary or useful to use, make, have made, sell, offer for sale, or import the Bowers Products. The initial disclosure will include such software and documentation as necessary to enable the code to be incorporated into Bowers Products.

6.2 Disclosure of Improvements by Harman. Harman will promptly disclose to Bowers all Harman Improvements. These disclosures will be in sufficient detail to provide Bowers with a fundamental understanding of the working principles of such Harman Improvements and will be supplemented upon reasonable request by Bowers. Harman will provide to Bowers all documentation necessary or useful to incorporate the Harman Improvements into Bowers products, whether or not in the Field of Use.

6.3 Written Disclosure. At the option of the receiving Party, any disclosures under this Article VI may be written or oral. No disclosure required by this Agreement will require disclosure of information which would constitute a breach of an existing obligation of confidentiality.

Article VII

TECHNICAL ASSISTANCE

7.1 Technical Assistance Provided. The Parties acknowledge that, to implement the Bowers Technology and the Licensed IP, it may be necessary for Bowers to provide technical assistance in addition to the disclosures required under Article VI of this Agreement. Bowers will provide reasonable technical assistance to Harman as required to implement and transfer the Bowers Technology and the Licensed IP effectively, including but not limited to visits by Bowers personnel to Harman facilities and facilities of Harman customers.

Article VIII

DUTIES OF CONFIDENTIALITY

8.1 “Confidential Information” Defined. As used in this Agreement, the term “Confidential Information” means all information (however recorded or preserved, including written or descriptive matter, including drawings, specifications, descriptions, or other papers, tapes, or any other media) disclosed by a party or its employees, officers, representatives or advisers whether before or after the date of this Agreement:

(a)concerning the existence and terms of this Agreement;

(b)that the receiving Party knew, or should have known, based on the circumstances, should be treated as confidential, or that would be regarded as confidential by a reasonable business person, in each case relating to:

(i) the business, affairs, customers, clients, suppliers, plans, intentions or market opportunities of the disclosing party (or of any member of the group of companies to which the disclosing party belongs); and

(ii) the operations, processes, product information, intellectual proper rights, know-how, designs, trade secrets or software of the disclosing party (or of any member of the group of companies to which the disclosing party belongs); or

(c)identified as confidential at the time of disclosure or subsequently confirmed in writing to be confidential; or

(d)developed by the disclosing party in the course of carrying out this Agreement.

8.2 Confidentiality Generally. The Parties recognize that, in the course of performing under this Agreement, each Party may have access to Confidential Information belonging to another Party. The use of Confidential Information belonging to another Party is limited to those uses contemplated by this Agreement. The Parties desire that any Confidential Information remain confidential. Each Party agrees (i) to keep the other party’s Confidential Information confidential (ii) not to use such Confidential Information except for the purpose of exercising or performing its rights and obligations under this Agreement (iii) not to disclose such Confidential Information in whole or in part to any third party, except as expressly permitted by this Section 8 and (iv) to use the same means it uses to protect its own Confidential Information of equal import, but in any event not less than reasonable means, to prevent the disclosure and to protect the confidentiality of the other Parties’ Confidential Information.

8.3 Exceptions to Confidentiality. Nothing in this Article VIII will prevent any Party from disclosing Confidential Information that:

(a)is already known by the receiving Party other than pursuant to this Agreement or the Original Agreement, if:

(i) the Confidential Information is not subject to a previous obligation of the receiving Party to keep such Confidential Information confidential; and

(ii) the Confidential Information was not received in violation of a previous confidentiality obligation of the receiving Party or a third party of which the receiving Party knew or had reason to know;

(b)is publicly known or becomes publicly known without any breach of a confidentiality obligation of the receiving Party;

(c)is received from a third party who is not under an obligation of confidentiality of which the receiving Party knew or had reason to know;

(d)is independently developed by the receiving Party without use of the disclosing Party’s Confidential Information;

(e)is disclosed by the disclosing Party to a third party without restrictions similar to those in this Agreement;

(f)is approved in writing by the disclosing Party for disclosure; or

(g)is required by law to be disclosed, provided that the receiving Party provides the disclosing Party as much notice as is practicable under the circumstances of such requirement prior to disclosure.

8.4 Return of Confidential Information. All Confidential Information must be returned to the disclosing Party or destroyed when this Agreement terminates. However, if the License survives after this Agreement terminates, any Confidential Information necessary to exercise Harman’s rights under the License may be retained after this Agreement terminates, but must be returned or destroyed when the License terminates.

8.5 Injunctive Relief. Because unauthorized use or disclosure of Confidential Information may result in immediate and irreparable injury to a disclosing Party for which monetary damages may not be adequate, the disclosing Party will be entitled to equitable relief, including temporary and permanent injunctive relief and specific performance to cease or prevent the receiving Party or any officer, director, employee, agent, or subcontractor of that receiving Party from disclosing or using the Confidential Information in violation of this Agreement. The disclosing Party will also be entitled to recover any pecuniary gain the receiving Party realizes from the unauthorized use or disclosure of the disclosing Party’s Confidential Information. The rights in this Article VIII are in addition to any other rights a Party may have under this Agreement or under applicable law.

8.6 Duration. The obligations in this Article VIII will survive for each item of Confidential Information until the earlier of (1) the date when the item ceases to be Confidential Information of the disclosing Party, provided that the receiving Party is not in breach of this Article VIII, or (2) the third anniversary of the termination of this Agreement.

Article IX

TERM AND TERMINATION

9.1 Term. The term of this Agreement will commence on the Effective Date and, unless it is terminated under Section 9.2 or Section 9.3, will expire on the twentieth anniversary of the Effective Date.

9.2 Mutual Termination. Except as provided in Section 9.3, this Agreement may be terminated only with the written consent of both Parties.

9.3 Unilateral Termination.

(a)By Harman. Harman may terminate this Agreement, effective on the seventh anniversary of the Effective Date or the fourteenth anniversary of the Effective Date. To exercise its right to terminate under this Section 9.3(a), Harman must deliver a written notice of termination to Bowers not less than 365 calendar days before the effective date of termination.

(b)By Bowers.

(i)Bowers may terminate this Agreement, effective on the seventh anniversary of the Effective Date; provided, however if the annual Royalties earned by Bowers during any twelve (12) month period during the first six (6) Years after the Effective Date arc greater than […***…], Bowers may not unilaterally

terminate this Agreement pursuant to this Section 9.3(b)(i). To exercise its right to terminate under this Section 9.3(b)(i), Bowers must deliver a written notice of termination to Harman not less than 365 calendar days before the effective date of termination.

(ii)Bowers may terminate this Agreement, effective on the fourteenth anniversary of the Effective Date; provided, however, if the annual Royalties earned by Bowers during any twelve (12) month period during the first six (6) Years after the seventh anniversary of the Effective Date are greater than […***…], Bowers may not unilaterally terminate this Agreement pursuant to this Section 9.3(b)(ii). To exercise its right to terminate under this Section 9.3(b)(ii), Bowers must deliver a written notice of termination to Harman not less than 365 calendar days before the effective date of termination.

9.4 Effect of Termination. If this Agreement is terminated or expires, Harman’s appointment as Bowers’ exclusive representative for the OEM Market will immediately terminate, but the License will continue for a period sufficient to permit Harman to meet its obligations to OEMs under programs in production at the time of termination. Harman’s obligations to pay Royalties will continue for as long as the License is in effect.

Article X

REPRESENTATIONS, WARRANTIES AND INDEMNITY

10.1 General Representations and Warranties by Bowers. Bowers represents and warrants to Harman as follows.

(a)Bowers has all requisite corporate power and authority to enter into this Agreement, and to consummate the transactions contemplated by this Agreement. This Agreement, the execution, delivery, and performance of this Agreement, and the consummation of the transactions contemplated by this Agreement have been validly authorized by all necessary corporate action.

(b)This Agreement has been validly executed and delivered by Bowers and constitutes a binding agreement of Bowers.

(c)Neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated by this Agreement requires Bowers to (A) make any filing with, (B) give any notice to, or (C) obtain any authorization, consent, approval, or older from any government or any unit or agency of any government, including any commission, court, or other authority.

(d)Neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated by this Agreement will:

(i) conflict with or result in any violation of any provision of Bowers’ organizational or governing documents;

(ii) conflict with or result in any violation of any applicable laws or other legal requirements; or

(iii) result in any breach or violation of any loan, credit agreement, guarantee of indebtedness, note, bond, mortgage, indenture, lease, agreement, contract, purchase order, sales order, instrument, permit, concession, franchise, right or license binding upon Bowers or any of its assets (collectively, “Bowers Contracts”); or

(iv) require the consent of any other party under any Bowers Contract.

10.2 Intellectual Properly. Bowers owns or holds licenses to the rights for the use of the Licensed IP in the Field of Use granted in this Agreement, including the right to grant licenses or sublicenses. Bowers has the right to grant the License to Harman, including the right to grant sublicenses under any Licensed IP held by Bowers under license from a third party. Bowers is not aware of any claims that the Licensed IP is owned by or infringes the rights of third parties and does not believe any such claims exist. Bowers is not aware of any infringement or threats of infringement by third parties of its intellectual property in the Field of Use. No other licenses o rights granted by Bowers exist regarding Licensed IP in the Field of Use. Bowers is not aware of any unauthorized use of the Licensed IP in the Field of Use.

10.3 Contacts with OEMs. Bowers has fully disclosed to Harman any license or other agreement it has entered into with any OEM, including any purchase order or similar document issued by any OEM. Bowers has fully disclosed to Harman any material communications between Bowers and any OEM since January 1, 2007. Bowers has fairly described to Harman any material communications between Bowers and any OEM between January 1, 2005 and December 31, 2006.

10.4 General Representations and Warranties by Harman. Harman represents and warrants to Bowers as follows.

(a)Harman has all requisite corporate power and authority to enter into this Agreement, and to consummate the transactions contemplated by this Agreement. This Agreement, the execution, delivery, and performance of this Agreement, and the consummation of the transactions contemplated by this Agreement have been validly authorized by all necessary corporate action.

(b)This Agreement has been validly executed and delivered by Harman and constitutes a binding agreement of Harman.

(c)Neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated by this Agreement requires Harman to (A) make any filing with, (B) give any notice to, or (C) obtain any authorization, consent, approval, or order from any government or any unit or agency of any government, including any commission, court, or other authority.

(d)Neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated by this Agreement will:

(i) conflict with or result in any violation of any provision of Harman’s organizational or governing documents;

(ii) conflict with or result in any violation of any applicable laws or other legal requirements; or

(iii) result in any breach or violation of any loan, credit agreement, guarantee of indebtedness, note, bond, mortgage, indenture, lease, agreement, contract, purchase order, sales order, instrument, permit, concession, franchise, right or license binding upon Harman or any of its assets (collectively, “Harman Contracts”); or

(iv) require the consent of any other party under any Harman Contract.

10.5 Survival. The representations and warranties contained in this Article X will survive the execution and delivery of this Agreement indefinitely.

10.6 Indemnification.

(a)Bowers will indemnify, defend, and hold Harman harmless against any claim, damage, loss, cost, or expense arising out of or related to any breach of the representations and warranties contained in Section 10.1 and 10.2.

(b)Harman will indemnify, defend, and hold Bowers harmless against any claim, damage, loss, cost, or expense arising out of or related to any breach of the representations and warranties contained in Section 10.4.

(c)Harman will indemnify, defend, and hold Bowers harmless against any claim, damage, loss, cost, expense or liability resulting from (i) any third-party product liability claim asserted against Bowers arising out of the sale of Bowers Products or (ii) any claim asserted against Bowers by an unrelated third party arising out of or related to workmanship, manufacturing or the fitness of Bowers Products.

(d)If the Licensed IP is held, or is reasonably likely to be held, to be infringing upon the intellectual property rights of a third party, then Bowers will have the following options.

(i) Bowers may procure for Harman the right to continue using the Licensed IP as licensed under this Agreement.

(ii) Bowers may replace or modify the Licensed IP with equivalent non-infringing technology.

Article XI

TRANSFERABILITY

11.1 Transferability. Subject to Section II.2, this Agreement and the separate rights granted in this Agreement may not be Transferred without the prior written consent of all Parties except as otherwise provided in this Agreement. As used in this Agreement, the term “Transfer” (as a verb) means to assign, license, or transfer in any manner, directly or indirectly, or to engage in any transaction or series of transactions that has the effect of a transfer or assignment. Corresponding versions of the term “Transfer” have corresponding meanings. Without limiting the generality of the definition of the term “Transfer,” any of the following types of transactions will constitute a “Transfer” under this Agreement:

(a)any direct or indirect assignment; sale, or transfer;

(b)any contribution to the capital of another person;

(c)any transaction which constitutes a change in control, whether by sale of stock, merger, share exchange, recapitalization, or other similar transaction (a “Change in Control”) of a Party; and

(d)any Change in Control of a subsidiary or affiliate of a Party if that subsidiary or affiliate has any rights or obligations under this Agreement.

11.2 Permitted Transfers. A Transfer of this Agreement and the separate rights granted in this Agreement by a Party (the “Transferring Party”) shall not require the prior written consent of the other Party in the following circumstances:

(a)a sale by the Transferring Party of substantially all of its business and assets;

(b)any contribution to the capital of another person;

(c)any transaction which constitutes a change in control, whether by sale of stock, merger, share exchange, recapitalization, or other similar transaction (a “Change in Control”) of a Party; and

(d)any Change in Control of a subsidiary or affiliate of a Party if that subsidiary or affiliate has any rights or obligations under this Agreement.

11.3 Sublicensing by Harman. Nothing in this Article XI will limit Harman’s rights to grant sublicenses as described in Section 3.2 PROVIDED THAT, for the avoidance of doubt, Section 3.11 shall apply at all times.

11.4 Confirmation of Agreement. If either Party proposes to Transfer this Agreement, it must obtain the written agreement of the proposed Transferee to be bound by all of the terms and conditions of this Agreement, including Article XIV.

Article XII

NOTICES

12.1 Form of Notice; Address for Notice. All notices required to be given under this Agreement will be given in writing and will be sent by recognized overnight express mail service, by facsimile transmission (with a confirming copy sent by regular mail or overnight delivery), or by email (with a confirming copy sent by overnight delivery) to the Parties at the addresses below.

If to Bowers to:

Joseph V. Atkins

B&W Group Ltd.

54 Concord St. North Reading, MA 01864

Tel: […***…]

Fax: […***…]

email: […***…]

With a copy to:

Peter Coats

Radeliffes LeBrasseur Solicitors

55 Great College Street

Westminster

London SW1P 3SJ

Tel: […***…]

Fax: […***…]

email: […***…]

If to Harman:

Phil Eyler

Senior Vice President & General Manager

Harman Becker Automotive Systems, Inc.

28845 Cabot Drive

Novi, Michigan USA 48377

phone: […***…]

fax: […***…]

email: […***…]

With a copy to:

Harman International Industries, Incorporated

Attn: General Counsel

400 Atlantic Street, 15th Floor

Stamford, Connecticut USA 06901

Any Party may change its address for notice by delivery of a notice to the other Party which complies with this Section 12.1.

12.2 Date of Notice. The effective date of any notice sent pursuant to Section 12.1 will be: (i) the date given if delivered by hand, by facsimile transmission, or by email (with a confirming copy by first class mail) before 5:00 p.m., local time at the recipient’s address; (ii) the day after delivery, if delivered by hand, by facsimile transmission, or by email (with a confirming copy by first class mail) after 5:00 p.m., local time at

the recipient’s address; (iii) the day after delivery by the sender to an internationally recognized overnight delivery service.

Article XIII

FILING AND PROSECUTION OF APPLICATIONS

13.1 Copyright and Trademark Applications. Upon written request from Harman, and at Harman’s expense, Bowers will use its best efforts to secure and maintain registrations for any trademarks or copyrights licensed under this Agreement under the federal laws of the United States, the laws of any state or under the laws of any foreign jurisdiction. Bowers will consult with Harman in connection with any such registration. Harman will provide Bowers with such reasonable assistance as Bowers may require in connection with any such registration.

13.2 Patent Applications Harman will have the right to file, prosecute and maintain any patents covering the Licensed IP and Improvements and further applications, at Harman’s expense, in Bowers’ name and in any jurisdiction in which Bowers has not already obtained such protection. Upon written request from Harman, Bowers will provide Harman with such reasonable assistance as Harman may require in connection with any such filing, including but not limited to expert technical consultation, without charge to Harman. Within thirty days after receipt of such written request, Bowers will disclose to Harman all information in its possession pertaining to the invention for which a patent application is to be filed which may be necessary or useful for the preparation and filing of patent applications for the protection of such invention.

Article XIV

GENERAL

14.1 Business Review Meetings. Designated representatives of each of the Parties will meet not less than two (2) times per Year on a mutually acceptable date and time and at a mutually acceptable location in order to conduct a business review of the Parties obligations under this Agreement. The agenda for each meeting will be prepared by Bowers and distributed to Harman for comment not less than 10 days before of any scheduled meeting.

14.2 Governing Law; Jurisdiction; Venue. This Agreement will be governed by, and interpreted and construed in accordance with, the internal laws of the state of New York in all respects, without regard to its conflict of laws provisions. Any action regarding any dispute arising out of this Agreement must be commenced in the New York State courts sitting in New York County or in the United States District Court for the Southern District of New York. Each of the Parties submits to the jurisdiction of, and consents to venue in, such courts.

14.2 Severability. The invalidity of any provision of this Agreement will not affect the validity of any other provision of this Agreement.

14.3 Complete Agreement. This Agreement constitutes the entire agreement of the Parties regarding this subject matter and supersedes any and all prior or contemporaneous oral or written agreements, understandings, negotiations or discussions among the Parties regarding this subject matter.

14.5 Amendment and Waiver. Any amendments or other modifications to this Agreement must be made in writing and must be duly executed by an authorized representative or agent of each Party. No waiver of any provision of this Agreement will be enforceable unless in writing and signed by the Party against whom it is sought to be enforced.

14.6 Counterparts. This Agreement may be executed in multiple counterparts, each of which will be deemed to be an original, and all such counterparts will constitute but one instrument.

14.7 Remedies. In any litigation or other action to enforce any provision of this Agreement, in addition to any other rights it may have under this Agreement, each Party will be entitled to seek temporary and permanent equitable remedies in court as appropriate to enjoin any patent, copyright, trade secret and know-how infringement or enjoin any unauthorized use or dissemination of the other Party’s patents, copyrights, trade secrets, know-how or Confidential Information.

SIGNATURES ON NEXT PAGE

The Parties have each caused their authorized representatives to sign this Agreement as of the Effective Date.


Harman Harman International Industries, Incorporated			Bowers
By: /s/ Michael Mauser (Signature) Michael Mauser (Printed name) Its: Executive Vice President, President Lifestyle Division (Title)			By: /s/ Joe Atkins (Signature) Joe Atkins (Printed name) Its: Chairman (Title)

SIGNATURE PAGE

TECHNOOGY LICENSE AGREEMENT

BETWEEN HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED

AND B&W GROUP LTD.

Document

Exhibit 10.14

Amendment No. 1 to License Agreement

This Amendment No. 1 (“Amendment”) to the License Agreement (“License Agreement”) by and between Harman International Industries, Incorporated (“Harman”) and B&W Group Ltd. (“Bowers”), made effective as of October 1, 2014, is entered into and made effective as of October 13, 2020 (“Amendment Effective Date”). All capitalized terms used herein that are not specifically defined shall have the meaning prescribed in the License Agreement. As used herein, references to “Party” or “Parties” shall mean Harman and/or Bowers, as the context requires.

RECITALS

WHEREAS, Harman and Bowers are parties to the License Agreement; and

WHEREAS, the Parties acknowledge that certain circumstances have changed, and that it is in their mutual interest to amend the License Agreement in accordance with the provisions of this Amendment.

NOW, THEREFORE, in consideration of the mutual covenants and promises set forth in the Agreement and this Amendment, the Parties hereby agree as follows:

1.AMENDMENTS.

a.Background

i.Section E of the Background is hereby deleted and replaced with the following:

1.Bowers wishes to expand its participation in the automotive branded audio system original equipment manufacturer market (the “OEM Market”).

b.Definitions: The following definition in Section 1.1 is hereby deleted and replaced with the following:

i.“Approved OEMs’’ means […***…] and any other OEM brand or nameplate designated as an “Approved OEM” by the written agreement of Bowers and Harman. For the avoidance of doubt, Harman may offer, market and/or sell Bowers Products to any and all of the Approved OEMs without any other approval from Bowers, without prejudice to Section 2.1(d).

c.Marketing

Section 2.1(a)(ii) and (iii) are hereby deleted. The following clause is hereby added to Section 2.1(a) as a new paragraph:

Notwithstanding anything in this Agreement to the contrary, to the maximum extent permitted by applicable law, Bowers shall use commercially reasonable efforts to promptly to direct OEM inquiries and communications that it receives, and that involve automotive matters, to Harman, provided that Bowers’ failure to so direct such inquiries and communications shall not be deemed a breach of this Agreement . For clarity, the preceding sentence does not place restrictions on Bowers’ discussions with OEMs to the extent they do not involve automotive matters.

d.Royalties

i.The following paragraphs are hereby added to the end of Section 4.1:

Notwithstanding anything in this Agreement (or any amendment to this Agreement) to the contrary, the per Unit royalties charged by Bowers to Harman, in relation to Units manufactured under the BMW ALEV-3 (Audio Level 3) program, as designated by BMW (the “BMW ALEV-3 Program”) pursuant to and in accordance with this Agreement, shall be a flat fee of […***…] per Unit (the “BMW ALEV-3 Royalties”). For clarity:

a.the aforementioned BMW ALEV-3 Royalties replace all amounts that would otherwise be payable under this Section 4.1 and this Agreement generally (including any amendments thereto) in relation to Units manufactured under the BMW ALEV-3 Program pursuant to and in accordance with this Agreement only, including without limitation, the Minimum Royalty; and

b.nothing in this Agreement shall amend any amounts that would otherwise be payable under this Section 4.1 and this Agreement generally (including any amendments thereto) in relation to any Units sold by Harman pursuant to this Agreement other than Units manufactured under the BMW ALEV-3 Program, including without limitation, the Minimum Royalty.

ii.Section 4.2 is hereby deleted and replaced with the following:

Minimum Royalty Amount Harman agrees that, should it fail to pay an amount totaling at least […***…] in cumulative Royalties and BMW ALEV-3 Royalties, (the “Minimum Royalty Amount”) to Bowers over the period commencing on the Amendment Effective Date and ending on September 30, 2028 (the “Minimum Royalty Term”) taking into consideration all payments made by Harman to Bowers and set-offs against the Total Royalty Credit (as defined below) in accordance with the quarterly royalty payment provisions set out in Section 4.4 then, within thirty (30) days after the end of the Minimum Royalty Term:

(i)Harman may deduct from the remaining amount, if any, of the Total Royalty Credit (as defined below) any shortfall between the Minimum Royalty Amount and the amount actually paid by Harman (including those amounts set-off against the Total Royalty Credit) within the Minimum Royalty Term, (the “Shortfall”); or

(ii)if no amount is remaining in respect of the Total Royalty Credit, or if the remaining amount of Total Royalty Credit is less than the Shortfall, Harman may pay the Shortfall (or any remaining amount of the Shortfall after any deduction of the Shortfall from the outstanding Total Royalty Credit pursuant to Section 4.2(i) above) to Bowers in cash to such account as Bowers may direct (from time to time).

If the Shortfall is not set-off and/or paid by Harman within the thirty (30) day period set forth above and in accordance with Section 4.2(i) and/or (ii) above, Bowers, for a period of ninety (90) days thereafter, will be entitled to terminate the Agreement by serving written notice of termination to Harman not less than twelve (12) calendar months before the effective date of termination provided always that upon termination by Bowers in these circumstances Bowers shall only be obliged to pay to Harman any amount

remaining outstanding as at the date of termination in respect of the Total Royalty Credit.

iii.A new Section 4.3 is hereby added as follows and original Sections 4.3 (Quarterly Royalty Payments) and 4.4 (No Double-Counting) are hereby re-numbered as Sections 4.4 and 4.5, respectively:

Royalty Prepayment. Following the Amendment Effective Date, subject to the delivery of the Guarantee to Harman in accordance with Section 15 below, and pursuant to Section 4.4 below, Bowers will invoice Harman, and Harman will pay to Bowers in cash, a prepayment in respect of Royalties and BMW ALEV-3 Royalties of […***…] (“Royalty Prepayment”). The Royalty Prepayment will be paid as follows:

•[…***…] within five (5) business days after Bowers delivers an invoice to Harman requesting payment of such amount, (the “First Royalty Prepayment”); and

•[…***…] on October 22, 2020, or such later date as is agreed between the Parties in writing, (the “Second Royalty Prepayment”), subject to receipt by Harman of an invoice from Bowers in respect of such amount prior to October 15, 2020 or such later date as is agreed between the Parties in writing.

The First Royalty Prepayment and the Second Royalty Prepayment shall be paid in United States dollars and made by way of wire transfer in accordance with the following wire instructions:


Account Name:	[…***…]
Bank Account No	Sort Code	SWIFT	IBAN
[…***…]	[…***…]	[…***…]	[…***…]
Bank Name and Address: […*…] […*...]

Bowers shall email its invoices for the First Royalty Prepayment and the Second Royalty Prepayment to all off the following Harman email addresses:

[…***…]; […***…]; and […***…]

As additional consideration for Harman agreeing to prepay royalties through the Royalty Prepayment, Bowers agrees that Harman will receive […***…] of prepaid royalty credit (“Prepaid Royalty Credit”), provided that both the First Royalty Prepayment and Second Royalty Prepayment are made by Harman to Bowers as set out above. The Prepaid Royalty Credit shall be automatically credited to Harman on receipt by Bowers of the Second Royalty Prepayment, bringing the total prepaid royalty credit value for Harman’s benefit to […***…], (“Total Royalty Credit”).

For the avoidance of doubt, Harman shall not be entitled to the Prepaid Royalty Credit in or during any of the following circumstances: (i) before the First Royalty Prepayment is received by Bowers; and (ii) during the period between receipt by Bowers of the First Royalty Prepayment and receipt by Bowers of the Second Royalty Prepayment; and (iii) if Harman fails to make the Second Royalty Prepayment. During (i) above, the Total Royalty Credit shall equal […***…], and during (ii) or in the case of either (iii) above, the Total Royalty Credit shall equal […***…].

Ongoing Royalties and BMW ALEV-3 Royalties will be credited against the Total Royalty Credit after the Amendment Effective Date in the manner described in Section 4.4 below.

In the event that the Total Royalty Credit is not repaid by Bowers to Harman through credits against ongoing Royalties and BMW ALEV-3 Royalties during the term of this Agreement, any remaining amount of the Total Royalty Credit (except for the Disputed Credits, if any) will be paid in cash by Bowers to Harman within one hundred and twenty (120) days of the expiry of the term of this Agreement in accordance with Section 9.1 of this Agreement below, or the termination of this Agreement pursuant to Section 9.2 or Section 9.3(a) (the “Original Termination Date”). In the event any remaining amount of the Total Royalty Credit is not repaid to Harman (except for the Disputed Credits, if any), the term of this Agreement (including but not limited to Harman’s exclusive license rights as described in this Agreement) shall automatically extend for such period of time until:

(i)any undisputed portion of the remaining amount of the Total Royalty Credit is repaid; and

(ii)where there are any Disputed Credits that are remedied to Bowers’ satisfaction (acting reasonably) within 60 days of the Disputed Credit Notice Date, until such Disputed Credits are repaid. In relation to item (ii) immediately above, the term of this Agreement shall not be extended in relation to Disputed Credits and Bowers will not be under any obligation to pay Disputed Credits that have not been remedied to Bowers’ satisfaction (acting reasonably) within 60 days of the Disputed Credit Notice Date.

For purposes of this Section 4.3 (as amended): (a) the term “Disputed Credits” shall mean all or any portion of the Total Royalty Credit that is in dispute between the Parties due to any act, omission or breach of this Agreement by Harman that occurred not more than four (4) full Quarters prior to the Original Termination Date (except for any act, omission or breach committed by Harman by fraud or with willful concealment, in which event there is no time limit for when Bowers may base its dispute on such act, omission or breach), and which act, omission or breach has not been remedied by Harman to Bowers’ satisfaction (acting reasonably) within sixty (60) days of the Disputed Credit Notice Date; and (b) the term “Disputed Credit Notice Date” shall mean the notice provided by Bowers to Harman describing the nature and circumstances of the act, omission or breach of this Agreement by Harman that is the basis for Bowers disputing the amount of the Total Royalty Credit, which notice should be provided to Harman within thirty (30) days after the Original Termination Date. Furthermore, Bowers shall state the amount of the Total Royalty Credit that it disputes based on Harman’s act, omission or beach of this Agreement. Any Disputed Credit that is remedied by Harman to Bowers’ satisfaction (acting reasonably) within the period prescribed above shall be paid by Bowers within one hundred eighty (180) days after the Disputed Credit Notice Date.

iv.The following sentences are hereby added immediately after the second sentence of original Section 4.3 (Quarterly Royalty Payments), which is hereby renumbered as Section 4.4:

However, from the Amendment Effective Date and until September 30, 2028, the Total Royalty Credit will be applied to discharge fifty percent (50%) of the full amount of the Royalties and BMW ALEV-3 Royalties due each Quarter after the Amendment Effective Date, and from and after October 1, 2028, any remaining Total Royalty Credit will be applied to discharge seventy-five percent (75%) of the full amount of the Royalties and the BMW ALEV-3 Royalties due each Quarter until the Total Royalty Credit is repaid (after which the full amount of any Royalties and BMW ALEV-3 Royalties due shall be payable each Quarter). For the avoidance of any doubt, the terms of this License and, in particular, the application of the First Royalty Prepayment, the Second Royalty Prepayment and the Total Royalty Credit (as appropriate) shall be effective and binding on any successor in interest and/or title to the Bowers Technology and the Bowers Marks, including without limitation any receiver, insolvency administrator, trustee or similar.

e.Unilateral Termination

i.Section 9.3(a) is hereby deleted and replaced with the following:

a.By Harman. Harman may terminate this Agreement, effective on the fourteenth anniversary of the Effective Date. To exercise its right to terminate under this Section 9.3(a), Harman must deliver a written notice of termination to Bowers not less than 365 calendar days before the effective date of termination

ii.Sections 9.3(b)(i) and 9.3(b)(ii) are hereby deleted in their entirety. Bowers hereby waives its right to terminate the Agreement under Section 9.3(b)(i) of the Agreement (prior to its deletion as aforementioned) that may have existed on or before the Amendment Effective Date.

f.Effect of Termination

i.Section 9.4 is hereby deleted and replaced with the following:

If this Agreement is terminated or expires, Harman’s appointment as Bowers’ exclusive representative for the OEM Market will immediately terminate, but the License will continue for a period sufficient to permit Harman to meet its obligations to OEMs under all programs that are either (i) in production; or (ii) that have been awarded and which are in pre-production, in each case at the time of termination. Harman’s obligations to pay the Royalties and the BMW ALEV-3 Royalties will continue for as long as the License is in effect.

g.Initial Disclosure

i.The third sentence of Section 6.1 is hereby deleted and replaced with the following:

(i)Bowers will promptly disclose any material Improvements specifically related to the Bowers Products developed by Bowers (“Bowers Improvements”) after the date of this Agreement upon reasonable request by Harman.

h.Assistance and Collaboration

i.The following Section 7.2 is hereby added to Article VII:

(i)General Collaboration. Bowers will use reasonable endeavours to reasonably collaborate with Harman to secure additional distribution with Approved OEMs in the OEM Market, including undertaking reasonable marketing and brand-building activities requested by Harman and subject to reimbursement from Harman of the costs (pre-approved by Harman) of such requested activities. For the purpose of promoting the Bowers Products, upon Harman’s request and free-of-charge to Harman, Bowers agrees to provide Harman with access to and use of existing Bowers marketing assets (such as marketing videos, brochures, etc.) to the extent that these are relevant to the Bowers Products only and to make Bowers technicians and other appropriate employees available to Harman for brand immersion events, training events or the like, in each case as agreed between the Parties in writing. Bowers agrees that Harman and/or the Approved OEMs may purchase Bowers Consumer Products, for marketing or promotion of the Bowers Products, from time to time at such discounted prices as are consistent with pricing offered by Bowers to Harman prior to the Amendment Effective Date. The Parties agree to negotiate in good faith regarding any reasonable amendments to Section IV (Royalties) if such amendments are necessary to secure such additional distribution with Approved OEMs.

i.Transfers

i.A new Section 11.3 shall be added which reads as follows (and the current Section 11.3 (Sublicensing by Harman) is renumbered as Section 11.4, and the current Section 11.4 (Confirmation of Agreement) is renumbered as 11.5):

Sale to Competitor. Where a transfer comprises the direct sale of the entire issued share capital of Bowers, or the sale of all or substantially all of the assets and business of Bowers to a Competitor (as defined below) of Harman (a “Competitor Transfer”), then Harman shall have the right (but not the obligation) to elect to be repaid:

(a)such amount (if any) of the First Prepayment Amount and/or Second Prepayment Amount; and

(b)assuming that both the First Royalty Prepayment and Second Royalty Prepayment have been made by Harman to Bowers pursuant to Section 4.3 above, if such Transfer occurs

(i)on or after October 1, 2028, such amount (if any) of the Prepaid Royalty Credit; or

(ii)on or prior to September 30, 2028, a pro-rata amount of the Prepaid Royalty Credit apportioned to such period from the Amendment Effective Date until the month in which the date of the Transfer occurs, with such apportionment being made on the basis that such Prepaid Royalty Credit is applied equally on a monthly basis over the period from the Amendment Effective Date until September 30, 2028, (for the avoidance of doubt, the longer the duration between the Amendment Effective Date and the month in which the Competitor Transfer occurs, the greater the pro-rata amount of the Prepaid Royalty Credit),

in each case, that remains outstanding (taking into account all payments made by Harman to Bowers and set-offs made against the Total Royalty Credit (as defined above) in accordance with the quarterly royalty payment provisions set out in Section 4.4 on the date such Competitor Transfer occurs.

In the event that such option is exercised by Harman, Bowers will pay the amounts owing to Harman pursuant to this option in cash to such account as Harman may direct (from time to time) within sixty (60) days of the day on which such Competitor Transfer is completed. For the avoidance of doubt, any outstanding Total Royalty Credit shall be extinguished to the extent repaid by Bowers in accordance with this Section 11.3. For purposes of this Section 11.3, the term “Competitor” shall mean any of:

(1)any entity that is a tier-1 automotive supplier, such as but not limited to, […***…];

(2)any entity that is a trademark licensor (in respect of audio-related trademarks such as […***…]), to an OEM or a tier-1 automotive supplier; or

(3)any entity that manufactures, distributes, sells and markets consumer audio products, such as but not limited to […***…].

ii.Current Section 11.4 (Confirmation of Agreement) that is renumbered as 11.5 is hereby deleted and replaced with the following:

Confirmation of Agreement. If either Party proposes to assign this Agreement to any third party, it must obtain the written agreement of the proposed assignee to be bound by all of the terms and conditions of this Agreement, including Article XIV.

j.NOTICES. Under Section 12.1, the address involving Mr. Phil Eyler is hereby revised to the following:

Frank Moffa

SVP & GM, Car Audio SBU,

General Management Harman Becker Automotive Systems, Inc.

30001 Cabot Drive Novi, Michigan 48377

Email: […***…]

With a mandatory copy to: […***…]

k.Guarantee

A new Section 15 ‘GUARANTEE’ shall be added and shall read as follows:

Bowers shall procure that the form of guarantee as agreed between the Parties and a copy of which is appended to this Agreement (the “Guarantee”), be entered into by Sound United, LLC (the “Guarantor”) and delivered to Harman on the Amendment Effective Date.

If any claim is made against the Guarantor under the terms of the Guarantee for payment by the Guarantor of any Guaranteed Amount (as defined therein), each of the Parties agrees to provide the Guarantor with such information that the Guarantor may reasonably request so as to enable the determination of the outstanding balance of the Total Royalty Credit (if any) that represents the Guaranteed Amount at the relevant date (such date as set out in the Guarantee).

2. MISCELLANEOUS.

The Parties agree that the Agreement, as amended by this Amendment, is the complete and exclusive statement of the agreement between the Parties, superseding all proposals or prior agreements, oral or written, and all other communications between the Parties relating to the subject matter hereof.

This Amendment and the Agreement will be governed by, and interpreted and construed in accordance with, the internal laws of the state of New York in all respects, without regard to its conflict of laws provisions. Any action regarding any dispute arising out of this Amendment and/or the Agreement must be commenced in the New York State courts sitting in New York County or in the United States District Court for the Southern District of New York. Each of the Parties submits to the jurisdiction of, and consents to venue in, such courts.

Except as amended by this Amendment, the Agreement continues in full force and effect. In the event of any conflicts between this Amendment and the Agreement, the terms of this Amendment shall prevail.

[Signatures Appear on the Following Page]

IN WITNESS WHEREOF, the Parties have duly executed this Amendment as of the Amendment Effective Date.


B&W Group Ltd. /s/ Scott St. Clair Name: Scott St. Clair Title: Director Date: October 13, 2020			Harman International Industries, Incorporated /s/ Rajus Augustine Name: RAJUS AUGUSTINE Title: Sr. Director, Product Strategy & Planning

Document

Exhibit 10.15

GUARANTEE

THIS GUARANTEE, dated as of October 11, 2020 (the “Guarantee”) is made by Sound United, LLC (the “Guarantor”) in favor of Harman International Industries, Incorporated (“Harman”).

WITNESSETH:

WHEREAS, Harman and B&W Group Ltd. (“B&W”) entered into that certain License Agreement, dated as of October 1, 2014, pursuant to which B&W licenses certain of its intellectual property to Harman (as amended from time to time, the “License Agreement”);

WHEREAS, the Guarantor has (indirectly) acquired B&W, including, without limitation, all the B&W business and assets (the “Transaction”), which assets include all of B&W’s continuing rights and obligations under the License Agreement;

WHEREAS, B&W and Harman have entered into the Amendment No 1 to License Agreement dated as of the date hereof (“Amendment No 1”);

WHEREAS, as an inducement to Harman entering into Amendment No 1, the Guarantor has agreed to make this Guarantee;

WHEREAS, pursuant to the terms of the License Agreement (as amended by Amendment No 1), B&W has certain contingent obligations to repay the amount of the Total Royalty Credit (as defined in Amendment No 1) that remains outstanding at such time (having taken into account all amounts set-off against the Total Royalty Credit pursuant to the License Agreement) as is provided for in clauses 4.2 and 11.3 of the License Agreement (as amended by Amendment No 1) (the “Obligation”).

NOW THEREFORE, in consideration for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Guarantor hereby agrees as follows:

1.Capitalized terms used bat not defined herein shall have the meaning set forth in Amendment No 1.

2.If B&W becomes subject to an Insolvency Event (as defined below), the Guarantor hereby unconditionally and irrevocably guarantees the full payment in cash due and payable to Harman by B&W of the Obligation, if and only to the extent that (and only up to a maximum of) any Total Royalty Credit amount remains outstanding (having taken into account all amounts set-off against the Total Royalty Credit pursuant to the License Agreement (as amended by Amendment No 1) and any repayments of the Total Royalty Credit by B&W) at the date the Insolvency Event is initiated (the “Guaranteed Amount”).

3.For the purposes of this Guarantee, Insolvency Event shall mean; (i) B&W ceases carrying on business or otherwise enters into voluntary liquidation; (ii) B&W enters into administration under Schedule B1 of the Insolvency Act 1986 (United Kingdom); (iii) Bowers enters into any arrangement or composition with or for the benefit of its creditors (including any company voluntary arrangement under Part 1 Insolvency Act 1986 (United Kingdom)); (iv) a winding up petition is presented (unless such petition is subsequently dismissed) or a meeting is convened to pass a resolution for the winding up of B&W; (v) B&W enters into an arrangement and reconstruction pursuant to Part 26A of the Companies Act 2006 (a restructuring plan); (vi) an application is made to strike off or dissolve B&W under Part 31 Companies Act 2006; (vii) or any event analogous to any of (i) to (vii) herein occurs in any jurisdiction, including, but not limited to, a case or proceeding under Title 11 Chapter 11 of Title 11, United States Code, U.S.C.§ 101 et seq. or any other bankruptcy, insolvency, reorganization or other similar law of the United States, provided that where any such event detailed in (i) to (vii) herein is initiated by a person other than B&W, the Guarantor or any member of their group, it shall only be deemed an Insolvency Event to the extent it has not been dismissed within or is otherwise continuing 45 days following it being so initiated.

4.When (i) B&W has become subject to an Insolvency Event; and (ii) any portion or the entire then outstanding balance of the Obligation becomes due and payable and B&W fails to fully and punctually pay and perform the Obligation, Harman may make demand upon the Guarantor for the payment or

performance of the Guaranteed Amount and the Guarantor binds and obliges itself to make such payment or performance forthwith to Harman upon such demand, subject to Harman providing the Guarantor with such information that the Guarantor may request so as to enable the Guarantor to determine the outstanding balance of the Total Royalty Credit (if any) that represents the Guaranteed Amount at the relevant date. The Guarantor shall pay the Guaranteed Amount by check or by wire transfer of immediately available funds. Solely for purposes of clarity, Harman has no obligation to first pursue recovery of any portion of the Obligation against B&W, including but not limited to, through a claims process or similar process applicable to an Insolvency Event proceeding prior to demanding and receiving payment from the Guarantor.

5.In the event that, after a demand for payment has been made to the Guarantor hereunder, the Guarantor fails to pay the Guaranteed Amount in full, the Guarantor shall be liable for the reasonable costs and expenses (including, without limitation, reasonable legal fees and expenses) incurred by Harman, as applicable, in any proceeding brought to enforce this Guarantee against the Guarantor.

6.This Guarantee is an absolute, unconditional, continuing guarantee of payment and performance and is in no way conditioned or contingent upon any attempt to collect from Harman, enforce performance by Harman or on any other condition or contingency. Except as set forth herein, the obligations and agreements of the Guarantor under this Guarantee shall be performed and observed without requiring any notice of acceptance hereof, non-payment, non-performance, protest or non-observance by B&W or any proof thereof or demand therefor, all of which the Guarantor expressly waives to the fullest extent legally permitted to do so.

7.The failure (by waiver, delay, consent, or otherwise) of any beneficiary of this Guarantee to assert any claim or demand or to enforce any remedy under this Guarantee will not in any manner vary or reduce the obligations of the Guarantor hereunder. No amendment or waiver of any provision hereof will be effective against Harman unless such amendment or waiver is consented to in writing by Harman. Any payments made to Harman of the relevant Obligation or Guaranteed Amount, as applicable, shall relieve B&W and the Guarantor of the relevant Obligation and Guaranteed Amount, as applicable, solely to the extent of such payments.

8.The Guarantor hereby represents and warrants as of the date hereof to Harman that: (a) this Guarantee has been duly executed and delivered by the Guarantor and constitutes the legal, valid and biding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms, subject to the effects of applicable bankruptcy, fraudulent conveyance, moratorium and other similar laws relating to or affecting creditors’ rights generally and general equitable principles, and (b) the Guarantor’s execution, delivery and performance of this Guarantee (i) do not and will not violate any provisions of any law, rule regulation, order, judgment or decree applicable to or binding on the Guarantor or the property of the Guarantor, (ii) do not contravene or result in any breach of, or constitute any default under, any agreement or instrument to which the Guarantor is a party or by which the Guarantor or the properties of the Guarantor may be bound or affected and (iii) do not and will not require the consent of any person or entity under any existing law or agreement which consent has not already been obtained.

9.This Guarantee shall remain in full force and effect until the earlier of such time as any of the following occurs and upon the occurrence of which t is Guarantee shall terminate and the Guarantor shall no longer be bound by its obligation and covenants under this Guarantee:

(i)the Obligation has been satisfied and/or the Guaranteed Amount is paid; and/or

(ii)the outstanding balance of the Total Royalty Credit under Amendment No 1 has reduced to […***…]

10.Upon any direct or indirect sale or transfer of either the entire issued share capital of B&W and/or all or substantially all of the business and assets of B&W (other than when such sale or transfer is to another entity within the Guarantor’s group and under the common control of the Guarantor) if Harman is provided with a guarantee of a new parent company of B&W, which provides Harman (in its determination, acting reasonably and in consultation with the Guarantor) with no worse protection than this Guarantee, Harman shall accept that new guarantee and agree to this Guarantee’s termination. For the avoidance of doubt, the obligations and covenants of the Guarantor under this Guarantee shall be performed and observed notwithstanding a sale or transfer of either the entire issued share capital of B&W and/or all or substantially all of the business and assets of B&W when such sale or transfer is to another entity within the Guarantor’s group and under the common control of the Guarantor.

11.This Guarantee shall be governed by, and construed in accordance with, the internal laws of the State of New York. This Guarantee is entered into for the sole and exclusive benefit of Harman, and their successors and assigns permitted under the License Agreement, and no other persons or entities shall have any rights with respect thereto.

12.All notices, requests, demands and other communications provided for by this Guarantee shall be made pursuant to the Contingency Agreement.

[Remainder of Page Left Intentionally Blank; Signature Page Follows]

IN WITNESS WHEREOF, the undersigned has executed this Guarantee as of the day and year first above written.

GUARANTOR

SOUND UNITED, LLC

By: /s/ Scott St. Clair Name: Scott St. Clair

Title: Director

Acknowledged and Agreed:

HARMAN:

HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED

By: /s/ Rajus Augustine

Name: RAJUS AUGUSTINE

Title: Sr. Director, Product Strategy & Planning

Date: 11 October 2020

Document

Exhibit 21.1


Subsidiaries of the Registrant - 2022
The following are wholly-owned subsidiaries of the registrant, Masimo Corporation, a Delaware corporation:

Name of Subsidiary			State or Jurisdiction of Incorporation or Organization
Masimo Americas, Inc.			Delaware
Masimo de Mexico Holdings I LLC			Delaware
Masimo de Mexico Holdings II LLC			Delaware
Masimo Holdings LLC			Delaware
SpO2.com, Inc.			Delaware
SEDLine, Inc.			Delaware
Masimo Australia Pty Ltd			Australia
Masimo Öesterreich GmbH			Austria
Masimo Importacao e Distribuicao de Produtos Medicos Ltda			Brazil
Masimo Holdings LP			Cayman
Masimo (China) Medical Technology Co., Ltd.			China
Masimo Europe Ltd.			England and Wales
Masimo Hong Kong Limited			Hong Kong
Masimo Medical Technologies India Private Limited			India
Masimo Japan Kabushiki Kaisha			Japan
Masimo Mexico, S. de R.L. de C.V.			Mexico
Masimo Canada ULC			Nova Scotia
Masimo Peru Srl			Peru
Masimo Asia Pacific PTE. Ltd.			Singapore
Masimo International SARL			Switzerland
Masimo International Technologies SARL			Switzerland
Masimo Medikal Ürünler Ticaret Limited Şirketi			Turkey
Masimo Semiconductor, Inc.			Delaware
Masimo Sweden AB			Sweden
52 Discovery, LLC			California
Masimo 25 Sagamore, LLC			New Hampshire
Masimo Korea, LLC			South Korea
Masimo Polska sp. Z.o.o.			Poland
Masimo 17, LLC			California
Masimo (Shanghai) Industrial Co., Ltd.			China
Patient Doctor Technologies, Inc.			Delaware

-1-


Name of Subsidiary			State or Jurisdiction of Incorporation or Organization
Alton Office Property, LLC			Delaware
Alton Office Holdings, LLC			Delaware
OC Property Ventures LLC			Delaware
OC Property Shelter LLC			Delaware
Masimo Saudi Arabia for Trading, LLC			Saudi Arabia
VCCB Holdings, Inc.			Delaware
TNI medical AG			Germany
Masimo Technology Café LLC			California
Masimo LHC, Limited			United Kingdom
LiDCO Group Limited, Plc			United Kingdom
LiDCO Limited			United Kingdom
Cassette Analytical Systems Limited			United Kingdom
LiDCO Netherlands B.V.			Netherlands
Masimo Medikal Ürünler Ticaret Limited Şirketi İstanbul Şubesi			Turkey
Masimo Deutschland GmbH			Germany
Masimo Gulf, LLC			Qatar
Masimo Medical Technologies (Malaysia) Sdn Bhd.			Malaysia
Sonic Boom Acquisition Corp.			Delaware
Viper Holdings Corporation			Delaware
DEI Holdings, Inc.			Florida
DEI Sales, Inc.			Florida
D&M Holdings U.S. Inc.			Delaware
Sound United, LLC			Delaware
Sound United Hong Kong Limited			Hong Kong
DEI China Holding, Limited			Hong Kong
Equity International LLC			Massachusetts
D&M Holding Inc.			Japan
D&M Sales and Marketing Korea Ltd.			Korea
D&M Sales and Marketing Taiwan Ltd.			Taiwan
D&M Digital Audio Trading (Shanghai) Ltd.			China
D&M Shanghai Electronics, Ltd.			China
D&M Sales & Marketing (H.K.) Limited			Hong Kong

-2-


Name of Subsidiary			State or Jurisdiction of Incorporation or Organization
D&M Europe B.V.			Netherlands
D&M Holdings U.S. Inc.			Delaware
D&M Manufacturing (HK) Co. Limited			Hong Kong
D&M Audiovisual Ltd			United Kingdom
D&M France SAS			France
D&M Germany GmbH			Germany
D&M (Zhong Shan) Co. Ltd.			China
D & M Sales & Marketing Americas LLC			Delaware
D&M Direct, Inc.			Delaware
D&M Premium Sound Solutions, LLC			Delaware
Sound United Sales & Marketing Australia (Pty) Limited			Australia
Sound United Canada Inc.			Canada
Sound United Australia Pty Ltd			Australia
Sound Electronics (Shenzhen) Co Ltd			China
Polk Audio, LLC			Delaware
Definitive Technology, LLC			Delaware
Digital Networks North America Inc.			Delaware
The Speaker Company			Delaware
Denon Electronics (USA), LLC			Delaware
Boston Acoustics, Inc.			Delaware
B&W Group Asia Limited			Hong Kong
B&W Group Ltd.			United Kingdom
B&W Group Asia Limited			Hong Kong
B&W Group China Limited			China
B&W Group Germany GmbH			Germany
B&W Loudspeakers Group Espana S.A.			Spain
B&W Group France SARL			France
B&W Loudspeakers Nederland B.V.			Netherlands
B&W Group (Schweiz) GmbH			Switzerland
B&W Group Belgium NV			Belgium
B&W Group Finland Oy			Finland
B & W Group (Logistics) Ltd			United Kingdom

-3-


Name of Subsidiary			State or Jurisdiction of Incorporation or Organization
Bowers & Wilkins Trading Zhuhai Company Ltd			China
B & W Loudspeakers Ltd			United Kingdom
Bowers & Wilkins Korea Inc.			South Korea
Bowers & Wilkins Japan Ltd			Japan
Marantz Shanghai Trading Ltd.			China
Marantz America LLC			Delaware
Marantz Italy Srl			Italy

-4-

Document

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Joe Kiani, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Masimo Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (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 the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


			/s/ JOE KIANI
Date: August 9, 2022			Joe Kiani
			Chairman of the Board and Chief Executive Officer
			(Principal Executive Officer)

Document

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Micah Young, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Masimo Corporation;

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.


			/s/ MICAH YOUNG
Date: August 9, 2022			Micah Young
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)

Document

Exhibit 32.1

CERTIFICATIONS OF

CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Joe Kiani, Chief Executive Officer of Masimo Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to my knowledge:

1. The Quarterly Report on Form 10-Q of the Company for the period ended July 2, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


			/s/ JOE KIANI
Date: August 9, 2022			Joe Kiani
			Chairman of the Board and Chief Executive Officer
			(Principal Executive Officer)

I, Micah Young, Executive Vice President and Chief Financial Officer of Masimo Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to my knowledge:

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


			/s/ MICAH YOUNG
Date: August 9, 2022			Micah Young
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)

A signed original of these certifications has been provided to Masimo Corporation and will be retained by Masimo Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

These certifications are being furnished solely to accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of Masimo Corporation, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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