Masimo Annual Report 2018

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549________________________________________________FORM 10-K________________________________________________________________________(Mark One)þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 29, 2018or¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934Commission 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: Name of each exchange on which registered:Common Stock, par value $0.001 The Nasdaq Global Select MarketSecurities registered pursuant to Section 12(g) of the Act: None_________________________________________________________Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þIndicate 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 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þIndicate 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. Seethe 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 þ 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 financialaccounting 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 ¨ No þThe aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the common stock on June 30, 2018, the last business dayof the registrant’s most recently completed second fiscal quarter, as reported on the Nasdaq Global Select Market, was approximately $4.3 billion. Shares of stock held by officers,directors and 5 percent or more stockholders have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily aconclusive determination for other purposes. At January 25, 2019, the registrant had 53,172,028 shares of common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEItems 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K incorporate information by reference from the registrant’s proxy statement for the registrant’s 2019Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this annual report on Form 10-K. Table of ContentsMASIMO CORPORATIONFISCAL YEAR 2018 FORM 10-K ANNUAL REPORTTABLE OF CONTENTS PagePART I Item 1Business1 Item 1ARisk Factors33 Item 1BUnresolved Staff Comments53 Item 2Properties54 Item 3Legal Proceedings54 Item 4Mine Safety Disclosures54 PART II Item 5Market for Registrant’s Common Equity, Related Stockholder Matters andIssuer Purchases of Equity Securities55 Item 6Selected Financial Data57 Item 7Management’s Discussion and Analysis of Financial Condition and Results of Operations59 Item 7AQuantitative and Qualitative Disclosures about Market Risk74 Item 8Financial Statements and Supplementary Data75 Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure75 Item 9AControls and Procedures75 Item 9BOther Information75 PART III Item 10Directors, Executive Officers and Corporate Governance76 Item 11Executive Compensation76 Item 12Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters76 Item 13Certain Relationships and Related Transactions and Director Independence76 Item 14Principal Accounting Fees and Services76 PART IV Item 15Exhibits and Financial Statement Schedules77 Item 16Form 10-K Summary81 Signatures82Table of ContentsFORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they nevermaterialize or prove incorrect, could cause our results to differ materially and adversely from those expressed or implied by such forward-lookingstatements. The forward-looking statements are contained principally in Item 1—“Business,” Item 1A—“Risk Factors” and Item 7—“Management’sDiscussion and Analysis of Financial Condition and Results of Operations” but appear throughout this Annual Report on Form 10-K. Examples of forward-looking statements include, but are not limited to, any projection or expectation of earnings, revenue or other financial items; the plans, strategies andobjectives of management for future operations; factors that may affect our operating results, including accounting and tax estimates; our success inpending litigation; new products or services; the demand for our products; our ability to consummate acquisitions and successfully integrate them into ouroperations; future capital expenditures; effects of current or future economic conditions or performance; industry trends and other matters that do notrelate strictly to historical facts or statements of assumptions underlying any of the foregoing. These statements are often identified by the use of words suchas “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “opportunity,” “plan,” “potential,” “predicts,”“seek,” “should,” “will,” or “would,” and similar expressions and variations or negatives of these words. These forward-looking statements are based onthe expectations, estimates, projections, beliefs and assumptions of our management based on information currently available to management, all of whichis subject to change. Such forward-looking statements are subject to risks, uncertainties and other factors that are difficult to predict and could cause ouractual results and the timing of certain events to differ materially and adversely from future results expressed or implied by such forward-lookingstatements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed underItem 1A—“Risk Factors” in this Annual Report on Form 10-K. Furthermore, such forward-looking statements speak only as of the date of this Annual Reporton Form 10-K. We undertake no obligation to update or revise publicly any forward-looking statements to reflect events or circumstances after the date ofsuch statements for any reason, except as otherwise required by law.PART IITEM 1.BUSINESSOverviewWe are a global medical technology company that develops, manufactures and markets a variety of noninvasive monitoring technologies. We provide ourproducts directly and through distributors and original equipment manufacturers (OEM) partners to hospitals, emergency medical service (EMS) providers,long-term care facilities, physician offices, veterinarians and consumers. Our mission is to improve patient outcomes and reduce the cost of care. We wereincorporated in California in May 1989 and reincorporated in Delaware in May 1996.Our core business is Measure-through Motion and Low Perfusion® pulse oximetry monitoring, known as Masimo Signal Extraction Technology® (SET®)pulse oximetry. Our product offerings have expanded significantly over the years to also include noninvasive monitoring of blood constituents with anoptical signature, optical organ oximetry monitoring, electrical brain function monitoring, acoustic respiration monitoring and exhaled gas monitoring. Inaddition, we have developed the Root™ patient monitoring and connectivity platform, the Radical-7® and Rad-97™ bedside and portable patient monitors andthe Radius-7® wearable wireless patient monitor. We have also developed the Masimo Patient SafetyNet1 supplemental remote patient surveillance andmonitoring system, which currently allows up to 200 patients to be monitored and viewed simultaneously and remotely through a PC-based monitor or bycare providers through their pagers, voice-over-IP phones or smartphones. As part of our hospital automation product suite, we recently launched UniView™,an integrated display of real-time data and alarms from multiple Masimo and third-party devices, designed to reduce clinician cognitive overload, improvepatient safety and promote data sharing and team coordination among multiple clinicians.Our solutions and related products are based upon our proprietary Masimo SET® and rainbow® algorithms. These technologies are incorporated into a varietyof product platforms designed to meet our customers’ needs. In addition, we provide our technologies to OEMs in a form factor that is easy to integrate intotheir patient monitors, defibrillators, infant incubators and other devices.Our technology is supported by a substantial intellectual property portfolio that we have built through internal development and, to a lesser extent,acquisitions and license agreements. We have also exclusively licensed from Cercacor Laboratories, Inc. (Cercacor) the right to certain OEM rainbow®technologies and to incorporate certain rainbow® technology into our products intended to be used by professional caregivers, including, but not limited to,hospital caregivers and alternate care facility caregivers.___________________________ 1 The use of the trademark Patient SafetyNet is under license from the University HealthSystem Consortium.1Table of ContentsConventional Pulse OximetryPulse oximetry enables the noninvasive measurement of the oxygen saturation level of arterial blood (SpO2), which delivers oxygen to the body’s tissues.Pulse oximetry also measures pulse rate (PR), which, when measured by electrocardiogram (ECG), is called heart rate. Pulse oximeters use sensors attached toan extremity, typically the fingertip or certain core body sites. These sensors contain two light-emitting diodes that transmit red and infrared light from oneside of the extremity through the tissue to a photodetector on the other side of the extremity. The photodetector in the sensor measures the amount of red andinfrared light absorbed by the tissue. A microprocessor then analyzes the changes in light absorption to provide a continuous, real-time measurement of theamount of oxygen in the patient’s arterial blood. Pulse oximeters typically give audio and visual alerts, or alarms, when the patient’s arterial blood oxygensaturation level or pulse rate falls outside of a user-designated range. As a result, clinicians have the opportunity to assess patients who may need immediatetreatment to prevent the serious clinical consequences of hypoxemia, or low arterial blood oxygen saturation levels, and hyperoxemia, or high arterial bloodoxygen levels.As one of the most common technologies used in and out of hospitals around the world, pulse oximetry has gained widespread clinical acceptance as astandard patient vital sign measurement because it can give clinicians a warning of possible hypoxemia or hyperoxemia. SpO2 monitoring of oxygensaturation is critical because hypoxemia can lead to a lack of oxygen in the body’s tissues, which can be toxic and result in organ damage or death. Pulseoximeters are used in a variety of critical care settings, including surgery, recovery rooms, intensive care units (ICUs), emergency departments and generalcare floors, as well as alternative care settings, such as long-term care facilities, physician offices and the home monitoring of patients with chronicconditions.Clinicians also use pulse oximeters to monitor oxygen saturation in premature babies to ensure that appropriate oxygen saturation levels are maintained. Inpremature babies, oxygen saturation levels above clinically acceptable limits may lead to a condition known as retinopathy of prematurity (ROP), which, ifleft untreated, can lead to permanent eye damage or blindness. By ensuring that oxygen saturation levels in babies remain within clinically acceptable limits,clinicians believe they can lower the incidence of ROP.Conventional pulse oximetry has limitations that can reduce its effectiveness and the quality of patient care. In particular, when using conventional pulseoximetry, oxygen saturation measurements can be distorted by motion artifact, or patient movement, and low perfusion, or low arterial blood flow at themeasurement site. Motion artifact can cause conventional pulse oximeters to inaccurately measure the arterial blood oxygen saturation level, due mainly tothe effect of movement-induced pulsations of venous blood, which is at a lower oxygen saturation than arterial blood. Low perfusion can also causeconventional pulse oximeters to report inaccurate measurements or, in some cases, no measurement at all. In addition, conventional pulse oximeters cannotdistinguish oxygenated hemoglobin from dyshemoglobin, including the most prevalent forms of dyshemoglobins, carboxyhemoglobin and methemoglobin.As a result, conventional pulse oximeters may report falsely high oxygen levels when these dyshemoglobins are present in the blood. Furthermore,conventional pulse oximetry readings can also be impacted by bright light and electrical interference caused by the presence of electrical surgical equipment.Independent research has shown that over 70% of oxygen saturation alarms outside the operating room are false when conventional pulse oximetry is used. Inthe operating room, conventional pulse oximeters can fail to give accurate measurements due to weak physiological signals or low perfusion. Manufacturersof pulse oximeters have attempted to address some of these limitations with varying degrees of success. Some competing devices have attempted to minimizethe observed effects of motion artifact by repeating/freezing the last measurement before motion artifact was detected until a new, clean signal is detected anda new measurement can be displayed. Other competing devices increase the averaging time during motion, known as long averaging, in an attempt to reducethe observed effect of motion on their measurements. Still other competing devices extend the audible alarm notification delay, which reduces awareness ofinaccurate measurements. These competing “motion tolerant” or “alarm management” techniques mask the limitations of conventional pulse oximetry.Several published studies have demonstrated that these also contribute to increased occurrences of undetected true alarms, or events where hypoxemia occursbut is not detected by the pulse oximeter.Lastly, because conventional pulse oximetry cannot consistently measure SpO2 and pulse rate in the presence of motion artifact or low perfusion, its use islimited in lower acuity settings in the hospital, such as in general care areas, where a hospital’s staff-to-patient ratio is significantly lower and the staff haveless tolerance for false alarms. In addition, two-wavelength pulse oximeters cannot distinguish oxygenated hemoglobin from dyshemoglobin, including themost prevalent forms of carboxyhemoglobin and methemoglobin. As a result of these dyshemoglobins, pulse oximeters will report falsely high oxygen levelswhen they are present in the blood.2Table of ContentsMasimo SET® Pulse OximetryMasimo SET® was designed to overcome the primary limitations of conventional pulse oximetry by maintaining accuracy in the presence of motion artifact,low perfusion and weak signal-to-noise situations. Our Masimo SET® platform, which became available to U.S. hospitals in 1998, is the basis of our pulseoximetry products, and we believe represented the first significant technological advancement in pulse oximetry since its introduction in the early 1980s.Masimo SET® utilizes five signal processing algorithms, four of which are proprietary, in parallel to deliver high sensitivity and specificity in themeasurement of arterial blood oxygen saturation levels. Sensitivity is the ability to detect true alarms and specificity is the ability to avoid false alarms. Oneof our proprietary processing algorithms, Discrete Saturation Transform®, separates the signal from noise in real time through the use of adaptive filtering andan iterative sampling technique that tests each possible saturation value for validity. Masimo SET® signal processing can therefore identify the venous bloodand other “noise”, isolate them and extract the arterial signal.The performance of Masimo SET® pulse oximetry has been evaluated in more than 100 independent studies and thousands of clinical evaluations. Webelieve that Masimo SET® is trusted by clinicians to safely monitor in excess of approximately 100 million patients each year and has been chosen as theprimary pulse oximeter technology used by nine of the top ten hospitals listed on the 2018-2019 U.S. News & World Report Best Hospitals Honor Roll.Compared to conventional pulse oximeters, during patient motion and low perfusion, Masimo SET® provides measurements when other pulse oximeterscannot, significantly reduces false alarms (improved specificity), and accurately detects true alarms (improved sensitivity). Clinical studies have shown thatthe use of Masimo SET® pulse oximetry, in conjunction with modified clinical protocols, has helped clinicians reduce ROP in neonates and improvescreening for newborns with critical congenital heart disease (CCHD). Clinical studies have also shown a reduction in rapid response activations and ICUtransfers when Masimo SET® is used to continuously monitor patients on general wards. Additionally, researchers have found that the use of Masimo SET® isassociated with reduced ventilator weaning time and arterial blood gas measurements in the ICU.Our pulse oximetry technology is contained on a circuit board which can be placed inside a standalone pulse oximetry monitor, placed inside OEMmultiparameter monitors, or included as part of an external “Board-in-Cable” solution that is plugged into a port on an OEM or other device. All of thesesolutions use our proprietary single-patient-use or reusable sensors and cables. We sell our products to end users through our direct sales force and throughcertain distributors, as well as to our OEM partners, for incorporation into their products. In 2013, we also began selling our pulse oximetry products in theconsumer market.To complement our Masimo SET® platform, we have developed a wide range of proprietary single-patient-use (disposable) and multi-patient-use (reusable)sensors, cables and other accessories designed specifically to work with Masimo SET® software and hardware. Our single-patient-use sensors offer severaladvantages over reusable sensors, including improved performance, cleanliness, increased comfort and greater reliability. In addition, our neonatal adhesivesensors have been designed to exhibit greater durability compared to competitive sensors. Although our technology platforms operate solely with ourproprietary sensor lines, our sensors have the capability to work with certain competitive pulse oximetry monitors through the use of adapter cables.Adhesive sensors are single-patient-use items, but the U.S. Food and Drug Administration (FDA) allows third parties to reprocess pulse oximetry sensors. Inresponse to some hospitals’ requests to implement environmentally friendly or “green” products, we offer sensor reprocessing as well as sensor recyclingprograms.Masimo rainbow SET™ PlatformSince introducing Masimo SET®, we have continued to innovate by introducing noninvasive measurements that go beyond arterial blood oxygen saturationand pulse rate. In 2005, we introduced the Masimo rainbow SET™ platform, leveraging our Masimo SET® technology and incorporating licensed rainbow®technology to enable real-time monitoring of additional noninvasive measurements. Our rainbow SET™ platform includes our rainbow SET™ Pulse CO-Oximetry products, which we believe are the first devices cleared by the FDA to noninvasively and continuously monitor additional hemoglobin species thatwere previously only measurable using intermittent invasive procedures using multiple wavelengths of light. In addition to SpO2, PR, perfusion index (Pi),Pleth Variability Index (PVi®) and respiration rate from the pleth (RRp®), rainbow® Pulse CO-Oximetry has the unique ability to measure and distinguishoxygenated hemoglobins from the dyshemoglobins that are incapable of transporting oxygen, carboxyhemoglobin (SpCO®) and methemoglobin (SpMet®).Besides the ability to measure SpCO® and SpMet®, the Masimo rainbow SET™ platform also allows for the noninvasive and continuous monitoring of totalhemoglobin concentration (SpHb®) as well as the monitoring of arterial oxygen saturation, in the presence of carboxyhemoglobin and methemoglobin,known as fractional arterial oxygen saturation (SpfO2™). Additionally, the rainbow SET™ platform also allows for the calculation of Oxygen Content (SpOC™)and Oxygen Reserve Index™ (ORi™). RRp®, SpfO2™ and ORi™ have received CE Marking, but are not currently available for sale in the U.S.3Table of ContentsWe believe that Masimo rainbow® Pulse CO-Oximetry products will become widely adopted for the noninvasive monitoring of these measurements. We alsobelieve that the addition of acoustic respiration rate (RRa®), using our rainbow Acoustic Monitoring® technology, will strengthen the clinical demand fornoninvasive and continuous monitoring using our rainbow® platform, especially in the growing general floor market.Products with our MX circuit board contain our Masimo SET® pulse oximetry technology as well as circuitry to support rainbow® measurements. At the timeof purchase, or at any time in the future, our customers and our OEMs’ customers have the option of purchasing additional rainbow® software measurements,which allow the customer to incrementally expand their patient monitoring systems with a cost-effective solution. To date, over thirty-four companies havereleased rainbow SET™ equipped products or announced rainbow® integration plans.MeasurementsSpHb® Hemoglobin is the oxygen-carrying component of red blood cells (RBCs). Hemoglobin measurement is one of the most frequent invasive laboratorymeasurements in the world, and is often measured as part of a complete blood count (CBC), which measures multiple other blood components. A lowhemoglobin status is a condition called anemia. As a chronic disorder, anemia can be treated by iron supplements, diet changes or drugs that increase theproduction of RBCs. As an acute disorder resulting from bleeding, anemia requires either stoppage of the bleeding or a blood transfusion in order to sustainorgan function and life.SpHb® is available as a continuous or a spot-check measurement. Continuous SpHb® monitoring provides real-time visibility into hemoglobin levels and thechanges, or lack of changes, in hemoglobin levels, which can otherwise only be measured through intermittent, invasive blood testing. SpHb® monitoring isnot intended to be used as the sole basis for making diagnosis or treatment decisions, but continuous SpHb® monitoring may help clinicians to trendhemoglobin in real time between invasive blood samples.SpOC™ The oxygen content of blood is a function of both oxygen saturation and hemoglobin levels. SpOC™ provides a more complete picture of a patient’soxygenation status by combining noninvasive and continuous measurements of both hemoglobin and oxygen saturation levels into a single calculation.SpCO® Carbon monoxide (CO) is a colorless, odorless and tasteless gas that is undetectable by humans and is often unknowingly inhaled from combustion fumes, orduring fires by victims and first responders. CO poisoning is the leading cause of accidental poisoning death in the U.S. and is responsible for up to 50,000emergency department visits and 500 unintentional deaths annually. CO, when bound to hemoglobin cells, prevents those cells from carrying oxygen.Elevated CO levels may cause severe neurological damage, permanent heart damage or death. Screening for elevated CO levels in the emergency departmentis critical, as symptoms of CO poisoning in patients may be misdiagnosed because such symptoms are similar to the flu.CO levels in the blood can be measured using a laboratory CO-Oximeter, which requires a patient or a patient’s blood sample to be transported to a hospitalwith laboratory CO-Oximetry capability. Additional delays occur if a patient needs hyperbaric oxygen therapy, which often requires transfer to yet anothermedical center with hyperbaric capability. Outside the hospital, laboratory measurements of carboxyhemoglobin are not considered feasible. Historically,this meant that CO levels in the blood could not be assessed in environments in which such assessment would be very useful, such as in the home or as part ofthe medical evaluation of first responders potentially exposed to CO at the scene of a fire.We believe that the greatest opportunity for SpCO® monitoring is in the EMS, fire and hospital emergency department settings, since elevated SpCO® levelsmay help indicate a need for invasive testing in patients with headaches or other non-specific symptoms of CO poisoning. While SpCO® is not intended toreplace invasive carboxyhemoglobin tests, when used with other clinical variables, SpCO® may help clinicians identify elevated CO levels and helpdetermine additional test and treatment options. Over the past few years, multiple leading emergency first responder associations, including the NationalAssociation of Emergency Medical Technicians, the National Association of EMS Educators, the International Association of Fire Fighters and theInternational Association of Fire Chiefs, have educated their members on the benefits of noninvasive CO measurement when exposure is suspected or whenan individual presents symptoms that could indicate elevated CO levels. In 2015, the National Fire Protection Association (NFPA), one of the world’sauthoritative sources on fire prevention and public safety, released updated Fire Rehabilitation Standard 1584, Standard on the Rehabilitation Process forMembers During Emergency Operations and Training Exercises, requiring firefighters exposed to smoke at incident scenes and during training to be assessedfor elevated CO levels.4Table of ContentsSpMet® Methemoglobin in the blood leads to a dangerous condition known as methemoglobinemia, which occurs as a reaction to some common drugs used inhospitals and outpatient procedures. Methemoglobinemia reduces the amount of oxygen bound to hemoglobin for delivery to tissues and forces normalhemoglobin to bind more tightly to oxygen, releasing less oxygen to the tissues. Methemoglobinemia may go unrecognized or be subject to delayeddiagnosis, increasing risk to the patient. Commonly prescribed drugs can introduce methemoglobin into the blood and cause methemoglobinemia. Some ofthe 30 drugs that are known to cause methemoglobinemia include benzocaine, a local anesthetic routinely used in procedures ranging from endoscopy tosurgery; inhaled nitric oxide, routinely used in the Neonatal Intensive Care Unit; nitroglycerin, used to treat cardiac patients, and dapsone, used to treatinfections for immune-deficient patients such as Human Immunodeficiency Virus (HIV) patients. Warnings, cautions and alerts regarding the clinicalsignificance and prevalence of methemoglobinemia have been generated by the FDA, the Veterans Administration, the Institute for Safe Medication Practicesand the National Academy of Clinical Biochemistry. The American Academy of Pediatrics recommends monitoring methemoglobin levels in infants whoreceive nitric oxide therapy. While SpMet® is not intended to replace invasive methemoglobin tests, when used with other clinical variables, SpMet® mayhelp clinicians identify elevated methemoglobin levels and help determine additional test and treatment options.PVi® PVi® is a measure of the dynamic changes in the Pi that occur during the respiratory cycle. The calculation is accomplished by measuring changes in Pi over atime interval where one or more complete respiratory cycles have occurred. PVi® is displayed as a percentage. The lower the number, the less variability thereis in Pi over a respiratory cycle. PVi® may show changes that reflect physiologic factors such as vascular tone, circulating blood volume and intrathoracicpressure excursions. When used with other clinical variables, PVi® may help clinicians assess fluid responsiveness in surgical and intensive care patients whoare mechanically ventilated, and help determine other treatment options.RPVi™ Rainbow® Pleth Variability Index (RPVi™) is a multi-wavelength version of PVi® that is designed to provide enhanced specificity to changes in fluid volumecompared to PVi®. Similar to PVi®, RPVi™ is displayed as a percentage and is calculated by measuring changes in Pi over a time interval where one or morecomplete respiratory cycles have occurred. The lower the number, the less variability there is in Pi over a respiratory cycle, which indicates more fluid in thebody. RPVi™ has received the CE Mark, but is not currently available for sale in the U.S.RRp® Respiration rate is defined as the number of breaths per minute. Changes in respiration rate provide an early warning sign of deterioration in patientcondition. A low respiration rate is indicative of respiratory depression and high respiration rate is indicative of patient distress. Current methods ofmonitoring respiration rate include end tidal carbon dioxide (EtCO2) monitoring, which requires a nasal cannula be inserted in the patient’s nose or a mask tobe worn, and therefore has low patient compliance; and impedance monitoring, which is considered unreliable and requires the placement of ECG electrodeson the chest. RRp® allows clinicians to noninvasively and continuously measure and monitor respiration rate using a standard Masimo SET® pulse oximetrysensor or rainbow® Pulse CO-Oximetry sensor. RRp® is determined by the variations in the plethysmograph waveform due to respiration, although themeasurement is not possible in all patients or conditions and may not immediately indicate changes in respiration rate. RRp® has received the CE Mark, aswell as FDA 510(k) clearance when used in healthcare settings with the MightySat® Rx fingertip SET® pulse oximeter. RRp® is also available in the U.S. foruse by consumers for general health and wellness purposes as part of our MightySat® fingertip pulse oximeter.RRa® Our sound-based monitoring technology, rainbow Acoustic Monitoring® (RAM®), enables RRa® and provides continuous and noninvasive monitoring ofrespiration rate. For patients requiring accurate and sensitive respiration rate monitoring, we believe that RRa® better detects pauses in breathing thanrespiration rate measurements from other technologies such as EtCO2 monitoring and RRp®. RRa® also provides an important visual indication of breathingthrough a displayed acoustic waveform. Multiple clinical studies have shown that the noninvasive measurement of acoustic respiration rate provides as goodor better respiration rate monitoring accuracy as EtCO2 monitoring, and can reliably detect episodes of respiratory pause, defined as the cessation of breathingfor 30 seconds or more. When used with other clinical variables, RRa® may help clinicians assess respiratory depression and respiratory distress earlier andmore often to help determine treatment options and potentially enable earlier interventions.5Table of ContentsSpfO2™ Prior to our debut of SpfO2™, pulse oximeters could only measure and display functional SpO2 oxygen saturation. Therefore, when patients had elevatedcarboxyhemoglobin and/or elevated methemoglobin, the displayed functional SpO2 oxygen saturation overestimated the actual oxygen saturation value.SpfO2™, or fractional oxygen saturation, allows more precise arterial oxygenation assessment in patients with elevated dyshemoglobins, common throughoutthe hospital and pre-hospital setting, compared to functional oxygen saturation, and may also allow earlier interventions and more timely therapeuticdecisions. SpfO2™ has received CE Mark, but is not currently available for sale in the U.S.ORi™ ORi™ provides real-time visibility to oxygenation status in moderate hyperoxic range, which we define as a patient’s oxygen “reserve”. ORi™ can be trendedand has optional alarms to notify clinicians of changes in a patient’s oxygen reserve. When this technology is used with SpO2 monitoring, ORi™ may extendthe continuous and noninvasive visibility of a patient’s oxygen status into ranges previously unmonitored in this fashion. ORi™ may also be of value inpatients receiving supplemental oxygen, such as those in surgery, under conscious sedation or in the ICU, as ORi™ is represented as an “index” parameterwith a unit-less scale between 0.00 and 1.00. Furthermore, ORi™ may provide an advance warning of an impending hypoxic state, or an indication of anunintended hyperoxic state, when evaluated in conjunction with the partial pressure of oxygen (PaO2). In this way, ORi™ may assist in determining the needfor proactive interventions to avoid hypoxia or unintended hyperoxia. ORi™ has received the CE Mark, but is not currently available for sale in the U.S.Other Noninvasive Measurements and TechnologiesFollowing the introduction of our rainbow SET™ platform, we have continued to expand our technology offerings by introducing additional noninvasivemeasurements and technologies to create new market opportunities in both hospital and non-hospital care settings.SedLine® Brain Function MonitoringBrain function monitoring is most commonly used during surgery to help clinicians avoid over-titration and under-titration of anesthesia and sedation.SedLine® brain function monitoring technology measures the brain’s electrical activity by detecting EEG signals. In contrast to whole-scalp EEG monitoring,which is used for diagnostic purposes, this form of EEG monitoring is often referred to as processed EEG monitoring or brain function monitoring. Brainfunction monitors display the patient’s EEG waveforms, but these may be difficult for clinicians to interpret. With SedLine® technology, EEG signals areprocessed and displayed as a single number called the Patient State Index (PSi), which gives a continuous quantitative indication of the patient’s depth ofanesthesia and sedation. SedLine® brain function monitoring technology also displays raw EEG waveforms, the PSi trend and a Density Spectral Array view,which allows clinicians to compare EEG power in both sides of the brain over time to facilitate the detection of asymmetrical activity and agent-specificeffects on the EEG signal.SedLine® brain function monitoring technology is available on Root™ through the use of a Masimo Open Connect® (MOC-9®) connectivity port. The Root™patient monitoring and connectivity platform integrates rainbow® and SET® measurements with measurement technologies, such as SedLine®.NomoLine® Capnography and Gas MonitoringWe offer a portfolio of capnography and gas monitoring products ranging from external “plug-in-and-measure” capnography and gas analyzers, integratedmodules, handheld capnograph and capnometer devices, and capnography sampling lines. These products have the ability to measure multiple expired gases,such as carbon dioxide (CO2), nitrous oxide (N2O), oxygen (O2) and other anesthetic agents. In addition, respiration rate is calculated from the CO2 waveform.These measurements are possible through either mainstream monitoring, which samples gases from a ventilated patient’s breathing circuit, or sidestreammonitoring, which samples gases from a breathing circuit in mechanically ventilated patients or through a cannula or mask in spontaneously breathingpatients. These capnography and gas measurements are standard-of-care in many hospital environments, such as operating rooms and ICUs, during proceduralsedation.In November 2017, we released the full family of NomoLine® capnography sampling lines to the U.S. market. NomoLine® sampling lines are available inmore than 40 configurations of airway adapter sets and cannulas for use in a variety of clinical scenarios on both intubated and non-intubated adult,pediatric, infant and neonatal patients, in both low and high humidity configurations. NomoLine® capnography sampling lines are compatible with bothMasimo and many third-party OEM monitors facilitating easy to use sidestream capnography and gas monitoring. NomoLine® capnography sampling lineshave received FDA 510(k) clearance.6Table of ContentsO3® Regional OximetryO3® regional oximetry, also known as tissue or cerebral oximetry, uses near-infrared spectroscopy (NIRS) to provide continuous measurement of tissueoxygen saturation (rSO2) to help detect regional hypoxemia, or oxygen deficits in specific tissues such as the brain, that pulse oximetry alone cannot detectunder certain conditions. In addition, O3® sensors, in conjunction with our Root™ monitor, can automate the differential analysis of regional to centraloxygen saturation derived from SET® pulse oximeters. O3® monitoring involves applying O3® regional oximetry sensors to the forehead and connecting theO3® MOC-9® module to a Root™ monitor through one of its three MOC-9® ports. O3® regional oximetry has received CE Mark and FDA 510(k) clearance foruse in adult and pediatric patients.Patient SafetyNetPatient SafetyNet, our patient surveillance, remote monitoring and clinician notification solution, works in concert with our bedside and ambulatorymonitoring devices to facilitate the supplemental monitoring of the oxygen saturation, pulse rate, perfusion index, hemoglobin, methemoglobin, andrespiration rate of up to 200 patients simultaneously from a single server. Patient SafetyNet offers an intuitive and powerful user interface with trending, real-time waveform capability at a central station, as well as remote clinician notification via pager, Voice-over-IP phone or smart-phones. Patient SafetyNet alsofeatures an Adaptive Connectivity Engine™ (ACE) that enables two-way, HL-7 based connectivity to clinical/hospital information systems. The ACEsignificantly reduces the time and complexity to integrate and validate custom HL-7 implementations, and demonstrates our commitment to innovation thatautomates patient care with open, scalable, and standards-based connectivity architecture.Patient SafetyNet Series 5000™, along with Iris® Connectivity, Iris Gateway®, Kite®, UniView™ and MyView® through the Root™ patient monitoring andconnectivity platform, offers a new level of interoperability designed to enhance clinician workflows and reduce the cost of care in a variety of hospitalsettings, including operating rooms and the general care floors. Patient SafetyNet Series 5000™ with Iris® enables Root™ to assimilate data from all devicesconnected to the patient, thereby acting as a comprehensive in-room patient monitor and connectivity hub. Alarms and alerts for all devices are seamlesslyforwarded to the patient’s clinician and device data can be transferred to the patient’s electronic medical record (EMR). The patient-centric user interface ofthe Patient SafetyNet Series 5000™ displays near real-time data from all devices with Kite®, providing a single unified dashboard of patient information. Tosimplify documentation of patient data, Root™ enables clinicians to easily verify and send patient vitals and Early Warning Scores (EWS), as well as allconnected medical device information data, to the EMR directly from Root™. An interface between the Patient SafetyNet Series 5000™ and the hospitaladmission, discharge and transfer (ADT) system allows clinicians to receive ADT information on Root™ for positive patient identification at the bedside.Clinicians can also manually enter additional data on the Root™ device, including temperature, blood pressure, level of consciousness, pain score and urineoutput.In an article published in 2010 by Dartmouth-Hitchcock Medical Center, clinicians using Masimo SET® and Patient SafetyNet identified patient distressearlier, which decreased rapid response team activations, ICU transfers and ICU days. Hospitals and other care centers may determine that they can reducetheir costs by moving less critically ill patients from the ICU to the general care floors where they can be continuously and accurately monitored in a morecost-effective manner. We believe that the advanced performance of the Masimo SET® platform coupled with reliable, cost-effective and easy-to-use wirelessremote monitoring will allow hospitals to create continuous surveillance solutions on general care floors where patients are at risk of avoidable adverseevents and where direct patient observation by skilled clinicians is considered cost prohibitive.MyView® MyView® is a wireless, presence-detection system that enables the display of customized clinical profiles on Masimo devices, such as Root™, Radical-7® andthe Patient SafetyNet View Station. When a clinician approaches the device, a clinician-worn MyView® badge signals the device to display a preselected setof parameters and waveforms tailored to the individual clinician’s preferences. MyView® gives clinicians the ability to receive and review medical deviceinformation in a manner that is most conducive to optimizing their workflow, while the presence mapping data collected by all the Masimo devices canprovide insight into how clinicians spend time with patients. This provides nursing leadership and management the opportunity to examine analytical dataon patient-clinician interactions and optimize workflows across the unit, hospital and hospital system.Patient SafetyNet SurveillancePatient SafetyNet Surveillance is a software option that provides real-time video images of a patient’s room, including the patient and connected monitoringdevices, adding existing communication technology to central monitoring. Two-way audio is available to allow the caregiver to listen to and communicatewith the patient. The system utilizes the existing hospital information technology network, precluding the installation of additional infrastructure.7Table of ContentsTrace™ Trace™ is a patient data visualization and reporting software designed for Masimo Root™ and Radical-7® monitors. Trace™ is the first data visualization andreporting software compatible with the full capabilities of the Masimo Root™ Patient Monitoring and Connectivity Platform, including Radical-7® andRadius-7® Pulse CO-Oximeters®, Root™ with integrated noninvasive blood pressure and temperature, and connected MOC-9® modules such as SedLine® brainfunction monitoring, NomoLine® capnography and O3® regional oximetry.Third-Party Device ConnectivityDespite medical technology advances, the lack of device communication and integration creates risks to patient safety in hospitals around the world.Without device interoperability, critical patient information can go unnoticed, leaving clinicians unaware and patients at risk. Existing approaches for deviceinteroperability require separate hardware, software and/or network infrastructure, which can clutter the patient room, increase complexity, burden ITmanagement and increase costs. To address these challenges, we introduced Iris® connectivity in our Root™ patient monitoring and connectivity platform.Iris® connectivity enables multiple standalone third-party devices such as intravenous pumps (IV), ventilators, hospital beds and other patient monitors toconnect through Root™, enabling display, notification and documentation to the EMR through Masimo Patient SafetyNet.The addition of Iris® connectivity to Root™ and Patient SafetyNet provides multiple advantages to hospitals, such as allowing standalone device informationto be remotely viewed at a Patient SafetyNet view station, transmitted through notification systems to clinicians regardless of location or sent to electronichealth record systems. This may enhance patient assessment, clinical workflows and decision support. In addition, bringing data from disparate devicestogether facilitates more integrated patient care, and provides a flexible and cost-effective platform, avoiding installation of separate costly systems andpotentially reducing costs by leveraging existing network infrastructure.Our StrategyOur mission is to develop technologies that improve patient outcomes and reduce the cost of patient care. We intend to continue to grow our business andimprove our market position by pursuing the following strategies:•Continue to Expand our Market Share in Pulse Oximetry. We grew our product revenue to $829.9 million in 2018 from $599.3 million in 2015,representing a three-year compound annual growth rate of 11.5%. This growth can be attributed to continued expansion of our core SET® pulse oximetercustomer base, higher revenues from rainbow® Pulse CO-Oximetry, NomoLine® capnography and other new technologies, and our expanding list of OEMpartners. We supplement our direct sales to hospitals and other low-acuity healthcare facilities through various U.S. and international distributors.Combined sales through our direct and distributor sales channels increased to $718.6 million, or 86.6% of product revenue in 2018, from $508.2 million,or 84.8% of product revenue, in 2015. As the healthcare industry shifts toward hospitals, physicians and providers being rewarded by payers based on thequality and value of the services (as opposed to the volume of fee-for-service transactions), we expect to see more hospitals gravitate towardstechnologies like Masimo SET® that have a proven track record of improving patient care.•Expand the Pulse Oximetry Market to Other Patient Care Settings. Many patients die due to unintended opioid overdoses after surgery while on generalcare floors. We believe the ability to continuously and accurately monitor patients outside of critical care settings, including the general, medical andsurgical floors of the hospital, is currently an unmet medical need that has the potential to significantly improve patient care and increase the size of thepulse oximetry market. In addition, we believe the ability of Masimo SET® to accurately monitor and address the limitations of conventional pulseoximetry has enabled us, and will continue to enable us, to expand into non-critical care settings, and therefore, significantly expand the market for ourproducts. To further support our expansion into the general care areas, we market Patient SafetyNet, which enables continuous monitoring of up to 200patients’ oxygen saturation, pulse rate and with rainbow SET™, noninvasive hemoglobin and respiration rate. We believe that Patient SafetyNet, whencombined with Masimo SET® pulse oximetry and RAM® or capnography, offers a clinically proven and cost-effective approach to continuous post-operative monitoring. Outside of the hospital setting, patients could die due to unintentional opioid overdose, even when opioids are being taken forshort duration, such as after surgery, and as prescribed by a physician. We believe that in the home setting, accurate monitoring with Masimo SET® mayhelp reduce the risk of opioid overdose by alerting family members and others when opioids have slowed a patient’s breathing and caused a significantdrop in oxygen saturation.•Expand the Use of rainbow® Technology in Hospital Settings. We believe the noninvasive measurement of rainbow® Pulse CO-Oximetry (SpHb®, SpCO®,SpMet®, PVi®, SpfO2™, SPOC™ and ORi™), rainbow Acoustic Monitoring® (RRa®), and the Halo Index™, as well as future measurements, provide anexcellent opportunity to help our customers improve patient care while reducing their overall cost of care.8Table of Contents•Expand the Use of rainbow® Technology in Non-Hospital Settings. We believe the noninvasive measurement of hemoglobin, SpHb®, creates a significantopportunity in markets such as the physician office, emergency departments and blood donation centers; and the noninvasive measurement ofcarboxyhemoglobin, SpCO®, creates a significant opportunity in the fire/alternate care market.•Expand the Use of Root™ in Hospital Settings. We believe Root™ represents a powerful new paradigm in patient monitoring because it enhances ourrainbow® and SET® measurements with multiple specialty parameters, including SedLine® brain function monitoring, O3® regional oximetry, andNomoLine® capnography and gas monitoring, and enables open-architecture connectivity in an integrated, clinician-centric hub. Our Iris® integrationplatform for Root™ provides a conduit to the patient’s EMR for a range of clinical devices that may otherwise remain disconnected, and therefore, unableto communicate their information. Iris® offers clinical utility and flexibility by collecting device information from multiple sources and making itavailable to clinicians in one networked place, akin to an airplane cockpit. Complementary innovations like the Radius-7® wearable, wireless monitorfoster an environment of safety without sacrificing patient mobility or comfort. Radius-7® provides patients in medical-surgical units with mobility,allowing them to visit common areas and labs, all while being continuously monitored around the clock. Root™ is acuity-adaptable, meaning it can beconfigured for any care area, and is competitively priced.•Utilize our Customer Base and OEM Relationships to Market Masimo rainbow SET™, O3®, SedLine® and Capnography Products Incorporating Licensedrainbow® Technology. We currently sell rainbow SET™ products through our direct sales force and distributors. We include our MX circuit boards in ourpulse oximeters and also sell them to our OEM partners. Our MX circuit boards are equipped with circuitry to support rainbow® Pulse CO-Oximetrymeasurements that can be activated at time of sale or through a subsequent software upgrade. We believe that, over time, the clinical need for thesemeasurements, along with our installed customer base, will help drive the adoption of our rainbow® Pulse CO-Oximetry products.•Continue to Innovate and Maintain Our Technology Leadership Position. We invented and pioneered the first pulse oximeter to accurately measurearterial blood oxygen saturation level and pulse rate in the presence of motion artifact and low perfusion. In addition, we launched our rainbow SET™platform that enabled what we believe is the first noninvasive monitoring of carboxyhemoglobin, methemoglobin and hemoglobin, as well as PVi®, all ofwhich were previously only available with invasive and/or complicated testing. Furthermore, we believe that our introduction of RRa® with rainbowAcoustic Monitoring® technology represented the first platform to enable noninvasive and continuous respiration monitoring through an easy-to-usesingle-patient adhesive acoustic sensor. Finally, we believe that our recent introduction of ORi™ may provide advance warning of an impending hypoxicstate, or an indication of an unintended hyperoxic state.We plan to continue to innovate and develop new technologies and products, internally and through our collaboration with Cercacor, from whom wecurrently license certain rainbow® technologies.Our future growth strategy is also closely tied to our focus on international expansion opportunities. Since 2007, we have continued to expand our sales andmarketing presence in Europe, Asia, Asia Pacific, Middle East, Canada and Latin America. We have accomplished this by both additional staffing and addingor expanding sales offices in many of these territories. By centralizing a portion of our international operations, including sales management, marketing,customer support, planning, logistics and administrative functions, in Neuchâtel, Switzerland, we believe we have developed a more efficient and scalableinternational organization that is capable of being even more responsive to the business needs of our international customers under this centralizedmanagement structure.Our Products and MarketsWe develop, manufacture and market patient monitoring technologies that incorporate a monitor or circuit board and sensors, including proprietary single-patient-use and reusable sensors and patient cables. In addition, we offer remote alarm/monitoring solutions, software and connectivity solutions.9Table of ContentsThe following chart summarizes our principal product components and principal markets and methods of distribution:Patient Monitoring Solutions: Description:Use: Distribution Channel:Circuit Boards and Modules(e.g., MX-3 (shown below), MX-5(shown below), MS-2011, MS-2013, MS-2040, uSpO2®,SedLine®, ISA™ and IRMA™) • Signal processing apparatusfor all Masimotechnology platforms• Mainstream and sidestreamcapnography and gasmonitoring • Incorporated and sold toOEM partners whoincorporate our circuitboards into their patientmonitoring systems Monitors and Devices(e.g., Radical-7®, Rad-97™ (both shown below), Rad-67™, Rad-87®, Rad-57®, Pronto-7®,Root™, Rad-8®, Rad-5® and Radius-7®) • Bedside, handheld andwireless monitoringdevices that incorporateMasimo SET® with andwithout licensed MasimorainbowSET™ technology,noninvasive bloodpressure andcapnography. • Sold directly to end-usersand through distributorsand in some cases to ourOEM partners who sellto end-users 10Table of ContentsDescription: Use: Distribution Channel:Patient Monitoring and Connectivity Platform(e.g., Root™, Radius-7® and Root™ with NIBP (shown below)) • Displays measurements fromMasimo’s Radical-7® (connected or handcarried) or Radius-7® (patient-worn)• Provides additionalspecialty measurementsfrom Masimo or third-party-developedapplications throughMasimo OpenConnect® (MOC-9®)• Integrates noninvasiveblood pressure (NIBP)and temperature• Connects third-party devicessuch as IV pumps,ventilators, beds andother patient monitors toautomate data transfer tothe EMR • Sold directly to end-usersand through distributors Sensors(e.g., SET®, rainbow® Pulse CO-Oximetry, rainbow Acoustic Monitoring® Sensors, RDSedLine®, TFA-1®, RD rainbow SET™ O3® Pediatric, RD rainbow Lite SET®,rainbow® DCI®-Mini (last four shown below)) • Extensive line of bothsingle-patient, reusableand rainbow® sensors• Patient cables, as well asadapter cables that enablethe use of our sensors oncertain competitors’monitors • Sold directly to end-usersand through distributorsand to OEM partnerswho sell to end-users 11Table of ContentsDescription: Use: Distribution Channel:Line Filters and Mainstream Adapters for Capnography and Gas Monitoring.(e.g., NomoLine® Cannula with EMMA® Capnograph with disposable adapter (shown below)) • Line of disposables tomeasure gas parametersusing mainstream andsidestream capnography • Sold directly to end-users and throughdistributors and toOEM partners whosell to end-users Remote Alarm and Supplemental Monitoring Solutions(e.g., Patient SafetyNet) • Network-linked, wired orwireless, multiple patientfloor monitoringsolutions• Standalone wireless alarmnotification solutions • Sold directly to end-users Proprietary Measurements(e.g., SpHb®, SpCO®, SpMet®, PVi®, RRa®, ORi™, 3D Alarms® and Adaptive ThresholdAlarm) • rainbow® measurements andother proprietary features • Sold directly to end-users and throughOEM partners whosell to new andexisting end-users 12Table of ContentsDescription: Use: Distribution Channel:Connectivity (e.g., Iris® Connectivity, Connectivity Solutions and UniViewtm (Shown below)) • Software and hardwareenabling third-partydevices to connectthrough Patient SafetyNetand to document data inthe EMR • Sold directly to end-users13Table of ContentsConsumer Monitoring Solutions: Devices(e.g. iSpO2®, MightySat® with PVi® and RRp®(shown below)) • Fingertip pulse oximeter, orpulse oximeter cable andsensor for use with aniPhone, iPad, iPod touchand select Android smartphones • Sold directly to consumersand through consumerretailersCircuit BoardsMasimo SET® MS Circuit Boards. Our Masimo SET® MS circuit boards perform all signal processing and other pulse oximetry functions incorporating theMasimo SET® platform. Our MS circuit boards are included in our proprietary monitors or sold to our OEM partners for incorporation into their monitors.Once incorporated into a pulse oximeter, the MS circuit boards perform all data acquisition processing and report the pulse oximetry measurements to thehost monitor. The circuit boards and related software interface directly with our proprietary sensors to calculate SpO2, PR and Pi. Our latest generation boardsinclude the MS-2003, MS-2011, MS-2013 and MS-2040, with a typical power consumption of less than 45 milliwatts.Masimo rainbow SET™ MX Circuit Boards. Our next-generation circuit board is the foundation for our Masimo rainbow® Pulse CO-Oximetry and rainbowAcoustic Monitoring® platform, utilizing certain technology that is licensed from Cercacor. The MX circuit boards offer full the functionality of ourrainbow® technology, which includes noninvasive measurements for SpHb®, SpOC™, SpCO®, SpMet®, PVi® and RRa®, in addition to providing Measure-through Motion and Low Perfusion® SET® pulse oximetry measurements SpO2, PR and Pi measurement capabilities of Masimo SET® pulse oximetry.Customers can choose to purchase additional measurements beyond SpO2, PR and Pi at the time of sale or at any time in the future through a field-installedsoftware upgrade.Our MX-5 OEM circuit board deploys a technology platform that utilizes approximately half the power of previously available rainbow® circuit boards todeliver rainbow® Pulse CO-Oximetry noninvasive measurement performance. In addition to its lower power demands, the MX-5 adds dynamic powerutilization to scale the MX-5’s power draw based upon the combination of parameters being monitored to permit even longer battery run-times.uSpO2® Cable/Board. Our SET® technology-in-a-cable contains the low power (MS-2040) technology in a reduced size, allowing it to be embedded intopatient cables as part of the sensor connector. This allows the uSpO2® cable/board to interface with monitoring devices externally via an existingcommunications port in instances where internal integration of a traditional Masimo SET® technology board is not feasible. The uSpO2® cable/board providesthe same Masimo SET® Measure-through Motion and Low Perfusion® pulse oximetry found in our other products, with a typical power consumption of lessthan 45 milliwatts.14Table of ContentsMonitors / DevicesRoot™. Root™ is a powerful patient monitoring and connectivity platform that integrates our rainbow® and SET® measurements with multiple additionalspecialty measurements through MOC-9® open architecture technology in an integrated, clinician-centric platform. The first MOC-9® technologies developedby Masimo were SedLine® brain function monitoring, NomoLine® capnography and gas monitoring and O3® regional oximetry. Root™ with NomoLine®capnography, SedLine® brain function monitoring, wireless communication and Iris® connectivity for third-party medical devices has received FDA 510(k)clearance. O3® regional oximetry has received CE Mark and FDA 510(k) clearance.EWS for Root™ aggregates information from multiple vital signs and clinical observations to generate a score that represents the potential degree of patientdeterioration. There are several EWS protocols, such as the Pediatric Early Warning Score (PEWS), Modified Early Warning Score (MEWS) and NationalEarly Warning Score (NEWS). These various scores require vital signs contributors such as oxygen saturation, pulse rate, respiration rate, body temperatureand systolic blood pressure along with contributors input by clinicians, such as level of consciousness, use of supplemental oxygen and urine output. Theweighting and number of contributors differ depending upon which EWS protocol is used. Root™ can be customized for various predefined EWS protocols, orhospitals can configure their own set of required contributors, and their relative weights, to create an EWS unique to their care environment.Our MOC-9® partnerships enable third parties to utilize Root™’s open architecture and built-in connectivity to independently develop, obtain regulatoryapprovals, and commercialize their own external MOC-9® module. Alternatively, third parties can develop Masimo Open Connect Control (MOC-C™)applications for Root™ using the MOC-9® software development kit (SDK). While we support the development efforts of our MOC® partners as needed, andhelp increase awareness of the availability of non-Masimo MOC-9® modules and MOC-C™ applications, our MOC-9® partners use their existing distributionchannels to sell their MOC-9® modules or MOC-C™ applications to customers.In July 2018, we announced the Vital Signs Check application for Root™. Vital Signs Check is an integrated patient data collection and workflow applicationthat augments Root’s™ versatility by helping to streamline hospital vital signs testing and optimize patient data management through automated patientassociation, centralized data collection, and immediate electronic charting at the bedside.Radical-7®. The Radical-7® Pulse CO-Oximeter® is a wireless touchscreen device that incorporates our MX circuit board to allow upgradable rainbow SET™measurements and offers three-in-one capability. The Radical-7® can be used as:•a standalone device for bedside monitoring;•a detachable, battery-operated handheld unit for easy portable monitoring;•an integrated device as part of the Root™ patient monitoring and connectivity platform; and•a monitor interface via SatShare®, a proprietary technology allowing our products to work with certain competitor products, to upgrade existingconventional multiparameter patient monitors to Masimo SET® while displaying rainbow® measurements on the Radical-7® itself.With its wide-ranging flexibility, Radical-7® can continuously monitor a patient from the ambulance, to the emergency room, to the operating room, to thegeneral floor and beyond, until the patient is discharged. Radical-7® delivers the accuracy and reliability of Masimo rainbow SET™ with multi-functionality,ease of use and the availability of measurement upgrades for existing monitors.Radius-7®. Radius-7® for the Root™ patient monitoring and connectivity platform is the first and only wearable, wireless monitor with rainbow SET™technology, enabling continuous monitoring and early identification of clinical deterioration while still allowing patients the freedom of movement. WithBluetooth® and Wi-Fi wireless connectivity, Radius-7® with Root™ can alert clinicians at the bedside or remotely, through Masimo Patient SafetyNet, ofcritical changes in a patient’s SpO2 and PR, even during states of motion and low perfusion, as well as RRa® and additional rainbow SET™ measurements.Radius-7® with Root™ has received both CE Mark and FDA 510(k) clearance.Rad-97™. Rad-97™ is a versatile standalone Pulse CO-Oximeter® that features a 1080p HD color display with user-friendly multi-touch navigation andMeasure-through Motion and Low Perfusion® SET® that can be used to measure SpO2, PR, PVi® and Pi. rainbow SET™ measurements such as SpHb®, SpOC™,SpCO®, SpMet® and RRa® can also be enabled. Rad-97™ is the smallest Masimo bedside device currently capable of monitoring the full rainbow SET™platform. Rad-97™ has received CE Mark. In September 2017, we announced FDA 510(k) clearance and full market release of Rad-97™, including anadditional Rad-97™ configuration with integrated NomoLine® capnography. Rad-97™ has also received FDA 501(k) clearance for home use, bringinghospital-grade technology to the home in a single integrated device that is a monitoring, connectivity and telecommunications hub.15Table of ContentsAn optional integrated camera allows remote clinicians to interact with patients at home over live audio and video. With its built-in enterprise Wi-Ficapability, Rad-97™ has the ability to connect wirelessly from the home to supplemental patient monitoring systems, including Patient SafetyNet, facilitatingautomatic data transfer to hospital EMR systems.Rad-97™ NIBP. Rad-97™ NIBP includes an integrated port that allows clinicians to connect a blood pressure cuff inflation hose directly to the device.Designed for reliability and patient comfort, Rad-97™ NIBP is compatible with both disposable and reusable cuffs for a variety of patient types. Rad-97™ NIBPenables clinicians to measure arterial blood pressure for adult, pediatric and neonatal patients, with three measurement modes: spot-check, automatic interval(which measures blood pressure routinely, at a desired interval) and stat interval (which continually measures blood pressure for a desired duration). In March2017, we announced the CE Mark of the Rad-97™ NIBP. In September 2017, we announced FDA 510(k) clearance and full market release of Rad-97™ NIBP.Rad-67™. Rad-67™, our handheld Pulse CO-Oximeter®, is a compact, portable spot-check device that offers Measure-through Motion and Low Perfusion®SET® pulse oximetry and upgradeable rainbow® noninvasive monitoring technology. With the universal reusable rainbow® DCI®-mini sensor, Rad-67™features Next Generation SpHb® technology. In June 2017, we announced the limited market release of the Rad-67™. The Rad-67™ with next generationSpHb® technology has received the CE Mark, but is not currently available for sale in the U.S.Rad-57®. Rad-57® is a fully featured handheld Pulse CO-Oximeter® that provides continuous, noninvasive measurement of SpO2, PR, PVi® and Pi with theability to upgrade to SpHb®, SpCO®, SpMet® and SpOC. Its rugged and lightweight design makes it applicable for use in hospital and field settings,specifically for fire departments and emergency medical service units.Rad-8®. Rad-8® is a bedside pulse oximeter featuring Masimo SET® (without the ability to update to rainbow® technology) in a low cost design and with astreamlined feature set.Rad-5®/Rad-5v®. Rad-5® and Rad-5v® were Masimo’s first dedicated lightweight, user-configurable, handheld pulse oximeters to provide Masimo SET® SpO2,PR and Pi measurement (without the ability to upgrade to rainbow® technology).Rad-G™. Rad-G™ is a low-cost, rugged, handheld pulse oximetry device with a rechargeable battery and LCD display. It uses Measure-through Motion andLow Perfusion® SET® pulse oximetry technology to measure SpO2, PR, Pi and RRp®. Rad-G™ was designed primarily for use in pneumonia screening and spot-checking of SpO2 in low-resource settings. Rad-G™ is not currently available for sale in the U.S.Pronto®. Pronto® is a handheld noninvasive multiparameter testing device that uses Masimo rainbow SET™ technology to provide spot-check measurement ofSpO2, PR, Pi and SpHb® in both hospitals (i.e., emergency departments) and remote settings such as physician offices.SatShare®. Our SatShare® technology enables a conventional monitor to receive continuous measurement updates using Masimo SET® through a simplecable connection from the back of Radical-7® to the sensor input port on the conventional monitor. No software upgrades or new modules are necessary forthe upgrade, which can be completed in minutes. SatShare® allows hospitals to standardize the technology and sensors used throughout the hospital whileallowing them to gain the more accurate monitoring capabilities using Masimo SET®, as well as other additional functionality, in a cost-effective manner.SatShare® technology has facilitated many hospital-wide conversions of previously installed competitor monitors to Masimo SET®. In addition, Masimorainbow SET™ measurements such as SpHb® are available to clinicians on the Radical-7® itself while the device is being used in SatShare® mode.MightySat® Rx. MightySat® Rx is a fingertip pulse oximeter that incorporates Masimo Measure-through Motion and Low Perfusion® SET® technology, whichmeasures and displays SpO2, PR and Pi with the option to add PVi® and RRp®. The MightySat® Rx (without RRp®) has received CE Mark and FDA 510(k)clearance. In February 2017, we announced the CE Mark of the RRp® measurement on the MightySat® Rx fingertip pulse oximeter.iSpO2 Rx™. The iSpO2 Rx™ pulse oximeter combines a fingertip sensor, cable and pulse oximeter in a lightweight, portable device that connects directly to asmart device for displaying measurements. iSpO2 Rx™ uses Measure-through Motion and Low Perfusion® SET® technology to measure SpO2, PR and Pi. TheMasimo Professional Health app, available for both iOS® and Android devices, allows clinicians to track, trend and download patient data. iSpO2 Rx™ hasreceived the CE Mark, but is not currently available for sale in the U.S.SedLine® MOC-9® Module. Our SedLine® MOC-9® module for Root™ is an EEG-based continuous brain function monitor that provides information about apatient’s response to anesthesia. Our Next Generation SedLine® enhances PSi to make it less susceptible to EMG interference and to improve performance inlow-power EEG cases.16Table of ContentsO3® MOC-9® Module. Our O3® MOC-9® module for Root™ uses NIRS to detect regional hypoxemia by continuously measuring tissue oxygen saturation(rSO2), automating the differential analysis of regional to central oxygen saturation.NomoLine® Capnography and Gas Monitoring. Our gas analyzers, IRMA™ and ISA™, are available through Root™ MOC-9® modules via OEM integration orthrough an emergency capnometer (EMMA®). These analyzers enable our customers to benefit from CO2, N2O, O2 and anesthetic agent monitoring in manyhospital environments.uSpO2® Cable/Board. Our SET® technology-in-a-cable contains our low power (MS-2040) technology in a reduced size, allowing it to be embedded intopatient cables as part of the sensor connector.SensorsSensors and Cables. We have developed one of the broadest lines of single-patient-use (disposable), reusable and rainbow® sensors and cables. In total, wehave over 100 different types of sensors designed to meet virtually every clinical need. Masimo SET® sensors are uniquely designed to reduce interferencefrom physiological and non-physiological noise. Our proprietary technology platforms operate only with our proprietary sensor lines. However, through theuse of adapter cables, our sensors can be connected to certain competitor pulse oximetry monitors. We sell our sensors and cables to end-users directly orthrough our distributors and OEM partners.Our single-patient-use sensors offer several advantages over reusable sensors, including improved performance, cleanliness, increased comfort and greaterreliability. Our reusable sensors are primarily used for short-term, spot-check monitoring.RD SET™, RD rainbow SET™, and RD rainbow Lite SET®. Our RD family of sensors is designed to maximize patient comfort, optimize clinician workflow andreduce material waste. RD sensors are lightweight with no moving parts and a flat, soft cable with smooth edges. RD sensors are available in fold-over andwrap-around styles for a variety of patient types and clinical scenarios.SofTouch™ Sensors. SofTouch™ sensors are designed with less or no adhesive for patients with compromised skin conditions. SofTouch™ sensors are availableas single-patient sensors for newborns and multi-site reusable sensors for pediatrics and adults.Trauma and Newborn Sensors. We have developed two specialty sensor lines, for trauma and resuscitation situations, as well as for newborns. These sensorscontain an identifier that automatically sets the pulse oximeter to its maximum sensitivity and fastest settings, and allow for quick application, even in wetand slippery environments. Additionally, we introduced low-profile sensors LNCS® and M-LNCS® Neo, NeoPt and Inf sensors to monitor oxygen saturation innewborns. These sensors are smaller and thinner, making them significantly more comfortable for patients and easier for clinicians to apply.Blue® Sensors. We believe our Blue® Sensors are the first FDA-cleared sensors to accurately monitor arterial blood oxygen saturation levels in cyanoticinfants and children with abnormally low oxygen saturation levels.E1® Ear Sensor. We believe that our E1® Ear Sensor is the first single-patient-use ear sensor that can be placed securely in the ear conchae, allowing cliniciansto combine Masimo SET® performance and central monitoring to provide quick access and responsive assessment of oxygenation. The E1® Ear Sensor isdesigned for field emergency medical services utilization.TFA-1® Adhesive Forehead Sensor. We designed our TFA-1® forehead sensor for hospitals desiring forehead monitoring using a disposable sensor. TFA-1®combines Masimo SET® performance with quick access and responsive oxygenation assessment, and has received FDA 510(k) clearance.rainbow® Sensors. We developed these proprietary, multi-wavelength sensors for use with our rainbow® Pulse CO-Oximetry products. In contrast totraditional sensors that only have the capability to monitor SpO2, and PR, our rainbow® sensors can also monitor SpCO®, SpMet® and SpHb®. Our licensedrainbow SET™ sensors are the only sensors that are compatible with our licensed rainbow SET™ products. Rainbow® sensors are available in single-patient-use, and reusable spot-check sensor types.The rainbow® DCI®-mini is the first noninvasive hemoglobin spot-check sensor for infants and small children (weight 3 to 30 kg). Paired with our handheldPronto® or Rad-67™ devices, the rainbow® DCI®-mini sensors are designed to help clinicians quickly and easily spot-check hemoglobin levels in infants andsmall children, which may facilitate the identification of anemia. When paired with Rad-67™, the rainbow® DCI®-mini enables Next Generation SpHb®measurements. The rainbow® DCI®-mini has received CE Mark in Japan and Europe, but is not currently available for sale in the U.S. The rainbow® SuperDCI®-mini sensor allows for the ability to measure SpHb®, SpCO®, SpMet® and SpO2 on the same noninvasive reusable sensor. The rainbow® Super DCI®-minihas received CE Mark in Japan and Europe, but is not currently available for sale in the U.S.17Table of Contentsrainbow Acoustic® Sensors. We believe we were the first to market a continuous respiration rate monitoring technology based on an acoustic sensor placedon the patient’s neck. Our rainbow Acoustic® sensors detect the sounds associated with breathing and convert the sounds into continuous respiration rateusing proprietary signal processing that is based on Masimo SET®. RAS-45, our single-use acoustic respiration sensor for RAM®, is designed to facilitateplacement on and improve attachment to the neck. RAS-45 operates with Masimo MX circuit boards to measure RRa® and display an acoustic respirationwave form. Like the RAS-125c sensor, RAS-45 operates with Masimo MX technology boards to measure RRa®, display the acoustic respiration wave formand optionally allow clinicians to listen to the sound of breathing. Both the RAS-45 and RAS-125c are available in CE marked countries and the U.S. foradult and pediatric patients who weigh more than 10 kg. In September 2018, we received FDA 510(k) clearance for the RAS-45 for infant and neonatalpatients. With this new clearance, acoustic respiration rate measurement is now available for all patients, including neonates, in the U.S. The RAS-45 forinfant and neonatal patients has not received CE mark.SedLine® Sensor. Used with the SedLine® MOC-9® module for the Root™ patient monitoring and connectivity platform, the SedLine® sensor is a disposablesensor that collects EEG data for our SedLine® monitor. In 2017, we introduced RD SedLine® sensors, which feature a repositioned, color-coded sensor-cableconnection that lies comfortably on the patient’s head and soft foam pads to reduce discomfort upon application to the patient.O3® Sensors. Used with the O3® MOC-9® module for the Root™ patient monitor, each O3® sensor contains four light-emitting diodes and two detectors tocontinuously measure rSO2. In May 2017, we announced FDA 510(k) clearance for our pediatric application of O3® regional oximetry with the O3® pediatricsensor, making O3® regional oximetry monitoring available in the U.S. for both adult patients and pediatric patients weighing more than 5 kg (11 lbs) andless than 40 kg (88 lbs).Reprocessed Sensors. We offer customers the option of using Masimo reprocessed sensors, the only sensor reprocessing solution that maintains new Masimosensor performance specifications.Remote Alarm and Monitoring SolutionsMasimo Patient SafetyNet. Patient SafetyNet is a supplemental remote monitoring and clinician notification system that routes bedside-generated alarmsthrough a server to a qualified clinician’s handheld paging device in real-time. Each system can support up to 200 bedside monitors and can either beintegrated into a hospital’s existing IT infrastructure or operate as a stand-alone wireless network. In March 2018, we announced Replica™, an application forsmart phones and tablets that works in conjunction with Patient SafetyNet™. Replica™ allows clinicians to view continuous monitoring data for multiplepatients, as well as view and respond to alarms and alerts, all from their smart phones, regardless of location.Proprietary Measurements and FeaturesAll of our monitors shipped since January 2006, including Radical-7® and certain future OEM products, that incorporate the MX circuit board will allowpurchases of software for rainbow® measurements, as well as other future measurements. Our current rainbow® measurements include SpHb®, SpCO®, SpMet®,SpOC™ ORi™, Pi, PR, PVi®, RPVi™, RRp® and SpfO2™, as well as rainbow Acoustic Monitoring®, RRa®.Halo Index™. Currently, clinicians monitor multiple clinical parameters on each patient and interpret each measurement independently. Halo Index™ is adynamic indicator that facilitates continuous global trending and assessment of multiple physiological measurements within a single index to quantifychanges in patient status that can be displayed on the Patient SafetyNet view stations. Halo Index™ has received CE Mark, but is not currently available forsale in the U.S. In the future, subject to receipt of regulatory clearance, we expect Halo Index™ will also be available as part of our standalone devices andOEM boards. As more clinical evidence is collected on Halo Index™, its clinical utility in a variety of care areas and patient types will become more specific.Eve™, our newborn screening software application for our Radical-7® Pulse CO-Oximeter®, is designed to help clinicians more effectively and efficientlyscreen newborns for CCHD. In the Radical-7® Pulse CO-Oximeter®, Eve™ automates the screening steps with animated instruction, including sensorapplication, measurement selection and screening result determination. Eve™ is intended to provide consistent application of the screening protocol toreduce method-and operator-induced variability and improve efficiency by automating the data capture and comparison between readings. Eve™ has receivedCE Mark, but is currently not available for sale in the U.S.18Table of ContentsX-Cal® Sensor and cable failures can prevent pulse oximeters from providing the patient safety advantages that continuous pulse oximetry monitoring is intended toprovide. Our X-Cal® technology enhances patient safety and improves clinician efficiency by preserving system quality, performance and reliability andreducing the chances of bad or inferior sensors and cables being used on patients. X-Cal® technology enhances the benefits of Masimo’s pulse oximetry byincorporating the means to track the expected monitoring life of our sensors and cables and provides appropriate user messaging on the host monitor.X-Cal® addresses three common problems experienced by clinicians using an integrated Masimo system, including:•Patient safety may be compromised by using imitation Masimo sensors and cables because they are not produced with comparable components, do notprovide proper shielding from ambient interferences, create electrostatic noise caused by motion, do not have our quality and performance controls, andare not tested or warranted to work within a Masimo system;•We design our sensors and cables to last well beyond their warranty period and customer feedback indicates our sensors and cables last significantlylonger than competing products, but cable and sensor reliability may still be compromised when used beyond their intended life, affecting patient careand causing clinicians and biomedical engineers to spend time troubleshooting intermittent cable and sensor issues; and•We believe that third-party reprocessed pulse oximetry sensors introduce challenges in the clinical environment due to potential quality issues. In fact,we believe that most third-party reprocessed sensors do not indicate that they are capable of performing in the same conditions as Masimo Measure-through Motion and Low Perfusion® sensors or in neonatal applications, key performance requirements available with Masimo SET® sensors. To the bestof our knowledge, no third-party company has attempted to reprocess rainbow SET™ sensors.ConnectivityIris® connectivity on Root™ allows third-party devices, such as intravenous pumps and ventilators, to connect to Root™ enabling display of measurements andnotification on the Root™ monitor, with the ability to document results in the EMR through Masimo Patient SafetyNet.Iris Gateway® bridges the gap between device data generated at the patient bedside and documentation in patient data management systems by automaticallytransferring data from medical devices to EMRs, improving productivity and reducing the likelihood of transcription errors.Kite® provides a supplemental display of data from a Masimo device on a compatible smart television and allows clinicians to configure the displaydifferently than that of the connected Masimo device. Kite® integrates into existing hospital infrastructures where a supplementary display may be beneficial,such as the operating room.UniView™ provides a supplemental, integrated display of real-time data and alarms from multiple Masimo and third-party devices. UniView™ is designed toreduce clinician cognitive overload and promote data sharing among multiple clinicians, helping them to spot trends and coordinate care.Data Analysis & ReportingTrace™ is the first data visualization and reporting software compatible with the full capabilities of the Root™ patient monitoring and connectivity platform,including Radical-7® and Radius-7® Pulse CO-Oximeters®, Root™ with integrated noninvasive blood pressure and temperature, and connected MOC-9®modules such as SedLine® brain function monitoring, ISA™ and ISA™ OR+ capnography, and O3® regional oximetry. Trace™ can create insightful, easy-to-readpatient reports that include parameter trends, histograms, event annotations, and key statistics. Trace™ can communicate with Masimo devices via high-speedwired or wireless connections, with the ability to transfer up to 96 hours of patient data.Consumer ProductsMightySat®, our fingertip pulse oximeter for personal use provides SpO2, PR and Pi measurements for health and wellness applications. MightySat®, which isalso available with RRp® and PVi®, provides measurements in a compact, battery-powered design with a large color screen that can be rotated for real-timedisplay of the measurements. Bluetooth® wireless functionality enables measurement display via a free, downloadable Masimo Personal Health applicationon iOS® and Android mobile devices, as well as the ability to trend and communicate measurements, including the Apple Health Kit. MightySat® is availablethrough consumer retailers and directly from Masimo, and is intended for general health and wellness use only. MightySat® is not intended for medical use.19Table of ContentsiSpO2® is a personal use pulse oximeter that combines a fingertip sensor, cable and pulse oximeter in a lightweight, portable device that connects directly to asmart device for displaying measurements. iSpO2® uses Measure-through Motion and Low Perfusion® SET® technology to measure SpO2, PR and Pi. TheMasimo Personal Health app, available for both iOS® and Android devices, allows users to track, trend and download their data, as well as share it with theApple Health app. iSpO2® is available through consumer retailers and directly from Masimo and is intended for general health and wellness use only. iSpO2®is not intended for medical use.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, is also the Chairmanand Chief Executive Officer 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.The following table outlines our rights under the Cross-Licensing Agreement relating to specific end user markets and the related technology applications ofspecific measurements. End User MarketsMeasurements Professional Caregiver andAlternate Care Market Patient and PharmacistVital Signs(1) Masimo(owns) Cercacor(non-exclusive license)Non-Vital Signs(2) Masimo(exclusive license) Cercacor(owns or exclusive license)______________(1) Vital Signs measurements include, but are not limited to, SpO2, peripheral venous oxygen saturation, mixed venous oxygen saturation, fetal oximetry, sudden infant deathsyndrome, ECG, blood pressure (noninvasive blood pressure, invasive blood pressure and continuous noninvasive blood pressure), temperature, respiration rate, CO2,pulse rate, cardiac output, EEG, perfusion index, depth of anesthesia, cerebral oximetry, tissue oximetry and/or EMG, and associated features derived from thesemeasurements, such as 3D alarm®, PVi® and other features.(2) Non-Vital Signs measurements include the body fluid constituents other than vital signs measurements and include, but are not limited to, carbon monoxide,methemoglobin, blood glucose, hemoglobin and bilirubin.Our License to Cercacor. We granted Cercacor an exclusive, perpetual and worldwide license, with sublicense rights, to use our Masimo SET® technology,including all improvements, for the monitoring of non-vital signs measurements and to develop and sell devices incorporating Masimo SET® for monitoringnon-vital signs measurements in the “Cercacor Market”. The Cercacor Market consists of any product market in which a product is intended to be used by apatient or pharmacist rather than a professional medical caregiver regardless of the particular location of the sale, including sales to doctors, hospitals,alternate care market professionals or otherwise, provided the product is intended to be recommended, or resold, for use by the patient or pharmacist. We alsogranted Cercacor a non-exclusive, perpetual and worldwide license, with sublicense rights, to use Masimo SET® for the measurement of vital signs in theCercacor Market. In exchange, Cercacor pays us a 10% royalty on the amount of vital signs sensors and accessories sold by Cercacor.Cercacor’s License to us. We exclusively license from Cercacor the right to make and distribute products in the “Masimo Market” that utilize rainbow®technology for the measurement of carbon monoxide, methemoglobin, fractional arterial oxygen saturation, and hemoglobin, which includes hematocrit. TheMasimo Market consists of any product market where the product is intended to be used by a professional medical caregiver, including hospital caregivers,surgicenter caregivers, paramedic vehicle caregivers, doctors’ offices caregivers, alternate care facility caregivers and vehicles where alternative care servicesare provided. We also have the option to obtain exclusive licenses to make and distribute products in the Masimo Market that utilize rainbow® technologyfor the monitoring of other non-vital signs measurements, including blood glucose. We have 180 days after proof of feasibility to exercise the above-referenced option to obtain a license for the measurement of blood glucose for an additional $2.5 million and licenses for other non-vital signs measurementsfor an additional $0.5 million each. The licenses are exclusive until the later of 20 years from the grant of the applicable license or the expiration of the lastpatent included in the rainbow® technology related to the applicable measurements. To date, we have developed and commercially released devices thatmeasure carbon monoxide, methemoglobin and hemoglobin using licensed rainbow® technology. We also make and distribute products that monitorrespiration rate via rainbow Acoustic Monitoring®, which is a Masimo-developed rainbow® technology and, therefore, is not required to be licensed fromCercacor.20Table of ContentsOur license to use rainbow® technology for these measurements in these markets is exclusive on the condition that we continue to pay Cercacor royalties onour products incorporating rainbow® technology, subject to certain minimum aggregate royalty thresholds, and that we use commercially reasonable effortsto develop or market products incorporating the licensed rainbow® technology. The royalty is up to 10% of the rainbow® royalty base, which includeshandhelds, tabletop and multiparameter devices. Handheld products incorporating rainbow® technology carry a 10% royalty rate. For other products, only theproportional amount attributable to that portion of our devices used to monitor non-vital signs measurements, rather than to monitor vital signsmeasurements, and sensors and accessories for measuring only non-vital sign parameters are included in the 10% rainbow® royalty base. For multiparameterdevices, the rainbow® royalty base includes the percentage of the revenue based on the number of rainbow®-enabled measurements. For hospital contractswhere we place equipment and enter into a sensor contract, we pay a royalty to Cercacor on the total sensor contract revenue based on the ratio of rainbow®-enabled devices to total devices. During the year ended December 29, 2018 and going forward, we are subject to certain specific annual minimum aggregateroyalty payment obligations of $5.0 million per year.Change in Control. The Cross-Licensing Agreement provides that, upon a change in control:•if the surviving or acquiring entity ceases to use “Masimo” as a company name and trademark, all rights to the “Masimo” trademark will be assigned toCercacor;•the option to license technology developed by Cercacor for use in blood glucose monitoring will be deemed automatically exercised and a $2.5 millionlicense fee for this technology will become immediately payable to Cercacor; and•the minimum aggregate annual royalties payable to Cercacor for carbon monoxide, methemoglobin, fractional arterial oxygen saturation, hemoglobinand/or glucose will increase to $15.0 million per year until the exclusivity period of the agreement ends, plus up to $2.0 million for each additionalmeasurement with no maximum ceiling for non-vital sign measurements.For purposes of the Cross-Licensing Agreement, a change in control includes any of the following with respect to us or Cercacor:•the sale of all or substantially all of either company’s assets to a non-affiliated third-party;•the acquisition by a non-affiliated third-party of 50% or more of the voting power of either company;•Joe Kiani, our Chief Executive Officer and the Chief Executive Officer of Cercacor, resigns or is terminated from his position with either company; or•the merger or consolidation of either company with a non-affiliated third-party.Ownership of Improvements. Any improvements to Masimo SET® or rainbow® technology made by Cercacor, by us, or jointly by Cercacor with us or with anythird-party that relates to non-vital signs monitoring, and any new technology acquired by Cercacor, is and will be owned by Cercacor. Any improvements tothe Masimo SET® platform or rainbow® technology made by Cercacor, by us, or jointly by Cercacor with us or with any third-party that relates to vital signsmonitoring, and any new technology acquired by us, is and will be owned by us. However, for both non-vital signs and vital signs monitoring, anyimprovements to the technology, excluding acquired technology, will be assigned to the other party and will be subject to the terms of the licenses grantedunder the Cross-Licensing Agreement. Any new non-vital signs monitoring technology utilizing Masimo SET® that we develop will be owned by Cercacorand will be subject to the same license and option fees as if it had been developed by Cercacor. Also, we will not be reimbursed by Cercacor for our expensesrelating to the development of any such technology.Other Agreements with Cercacor. We have also entered into various other agreements with Cercacor, including an Administrative Services Agreement, aConsulting Services Agreement and a Sublease Agreement. See Note 3 to our accompanying consolidated financial statements included in Part IV, Item 15(a)of this Annual Report on Form 10-K for additional information on these agreements and other transactions with Cercacor.As a result of changes in the capital structure of Cercacor, as well as certain of its contractual relationships with us, we completed a re-evaluation of theauthoritative consolidation guidance during the year ended December 31, 2016 and determined that, although Cercacor remains a variable interest entity, weare no longer its primary beneficiary. Based on such determination, we discontinued consolidating Cercacor within our consolidated financial statementseffective as of January 3, 2016. See Note 3 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report onForm 10-K for additional information.21Table of ContentsGovernment RegulationAs a global medical technology company, we are subject to significant government regulation, compliance requirements, fees and costs, both in the U.S. andabroad. These regulatory requirements subject our products and our business to numerous risks that are specifically discussed within “Risks Related to OurRegulatory Environment” under Part I, Item 1A—“Risk Factors” within this Annual Report on Form 10-K. A summary of certain critical aspects of ourregulatory environment is included below.U.S. Food and Drug Administration (FDA) Premarket Clearance and Approval RequirementsThe FDA and other federal, state and local authorities regulate our products and product-related activities. Pursuant to the Federal Food, Drug, and CosmeticAct (FDCA) and the regulations promulgated under that Act, the FDA regulates the design, development, clinical trials, testing, manufacture, packaging,labeling, storage, distribution and promotion of medical devices. We endeavor to ensure that our products and procedures remain in compliance with allapplicable FDA regulations, but the regulations regarding the manufacture and sale of our products are subject to change. We cannot predict the effect, if any,that these changes might have on our business, financial condition and results of operations. Unless an exemption applies, each medical device that we wishto market in the U.S. must first receive from the FDA either clearance of a 510(k) premarket notification, or approval of a premarket application (PMA).Alternatively, the device may be cleared by the FDA through the de novo classification process.The FDA’s 510(k) clearance process usually takes from four to nine months, but it can take longer. The process of obtaining PMA approval or de novoclassification is much more costly, lengthy and uncertain than the process of obtaining 510(k) clearance. We cannot be sure that 510(k) clearance, PMAapproval or de novo classification will be obtained for any product we propose to market on a timely basis or at all. In addition, if the FDA discovers that anapplicant has submitted false or misleading information, the FDA may refuse to review submissions until certain requirements are met pursuant to itsApplication Integrity Policy.Although an applicant may initially choose whether to submit a 510(k) notification for clearance, a PMA for approval or a de novo classification request, theFDA decides which pathway is appropriate based upon the classification of the device. Class I devices are those for which safety and effectiveness can bereasonably assured by adherence to the FDA’s general regulatory controls (General Controls) for medical devices, which include compliance with theapplicable portions of the FDA’s Quality System Regulation (QSR), facility registration and product listing, reporting of adverse medical events andmalfunctions, reporting of corrections and removals, and appropriate, truthful and non-misleading labeling, advertising and promotional materials. Onlyspecified Class I devices, including devices with software, are subject to the design controls requirements of the QSR; other Class I devices are exempt fromdesign control requirements. Some Class I devices are also exempt from many of the good manufacturing practice requirements of the QSR by regulation.While most Class I devices are exempt from the 510(k) premarket notification process, some Class I devices also require 510(k) clearance by the FDA.Class II devices are subject to the FDA’s General Controls, including the Design Control requirements of the QSR, and other special controls deemednecessary by the FDA to provide reasonable assurance of the safety and effectiveness of the device. Premarket review and clearance by the FDA for Class IIdevices is accomplished through the 510(k) premarket notification procedure, although some Class II devices are exempt from the premarket notificationrequirement. The majority of our current regulated devices are classified as Class II devices, while only a few are classified as Class I devices.To obtain 510(k) clearance, a company must submit a premarket notification demonstrating substantial equivalence between the proposed device and alegally marketed “predicate” device. A “predicate device” is a legally marketed device that (i) was legally marketed prior to May 28, 1976, for which theFDA has not yet called for submission of a PMA application; (ii) has been reclassified by the FDA from Class III to Class II or Class I; (iii) has been clearedthrough the 510(k) premarket notification process; or (iv) previously has been determined to be exempt from the 510(k) process. The proposed device issubstantially equivalent to the predicate device if the proposed device has the same intended use and the same technological characteristics as the predicatedevice, or, if the proposed device has different technological characteristics, the proposed device is as safe and effective as the predicate device and does notraise different questions of safety and effectiveness. After a device receives 510(k) clearance, any modification that could significantly affect its safety oreffectiveness, or that would constitute a major change or modification in its intended use, requires a new 510(k) clearance or, if the modified device is notsubstantially equivalent to the unmodified device, could require a PMA approval or de novo classification. The FDA requires each manufacturer to make thisdetermination in the first instance, but the FDA can review this decision. If the FDA disagrees with a manufacturer’s decision not to seek a new 510(k)clearance, PMA approval or de novo classification, the agency may retroactively require the manufacturer to seek 510(k) clearance, PMA approval or de novoclassification. The FDA can also require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance, PMA approval or denovo classification is obtained.22Table of ContentsClass III devices are those deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or those devicesdeemed not substantially equivalent to a legally marketed predicate device. Due to the risk level associated with Class III devices, the FDA has determinedthat general and special controls alone are insufficient to assure the safety and effectiveness of the device. These Class III devices must be approved throughthe PMA approval process during which the manufacturer must provide reasonable assurance of safety and effectiveness for the intended use(s) of the deviceto the FDA’s satisfaction. A PMA application must be supported by valid scientific evidence, including extensive preclinical (including bench tests andlaboratory and animal studies) and clinical studies as well as information about the device and its components regarding, among other things, device design,manufacturing and labeling. Also during the review period, an advisory panel of experts from outside the FDA may be convened to review and evaluate theapplication and provide recommendations to the FDA as to the approvability of the device. As part of the PMA application review, the FDA will conduct apreapproval inspection of the manufacturing facility to ensure compliance with the FDA’s QSRs. If the FDA approves the PMA, it may place restrictions onthe device or the labeling or require additional clinical studies, monitoring or other post-market requirements. If the FDA’s evaluation of the PMAapplication or the manufacturing facility is not favorable, the FDA may deny approval of the PMA application or issue a “not approvable” letter. The FDAmay also require additional clinical trials, which can delay the PMA approval process by several years or otherwise make obtaining PMA approval infeasible.None of our products are currently approved under a PMA.A clinical trial may be required in support of a 510(k) submission and generally is required for a PMA application or de novo classification request. Clinicaltrials involving a “significant risk” device require FDA approval of an Investigational Device Exemption (IDE) application, unless the proposed study isdeemed to be exempt from the IDE requirements. The IDE application must be supported by appropriate data, such as animal and laboratory testing results,protocols for the proposed clinical trials and other information demonstrating that the device is appropriate for use with humans in a clinical study. Clinicaltrials may begin if the IDE application is approved by the FDA and the appropriate institutional review boards (IRBs) at the clinical trial sites. Submission ofan IDE application does not give assurance that the FDA will issue the IDE. If the IDE application is approved, there can be no assurance the FDA willdetermine that the data derived from the trials support the safety and effectiveness of the device or warrant the continuation of clinical trials. An IDEsupplement must be submitted to and approved by the FDA before a sponsor or investigator may make a change to the investigational plan that may affect itsscientific soundness, study indication or the rights, safety or welfare of human subjects. If the study meets the requirements for a non-significant risk study, itmay be eligible for compliance with “abbreviated” IDE requirements, which include a subset of the requirements applicable to significant risk medicaldevices studies. Sponsors of non-significant risk studies must obtain IRB approval but are not required to obtain FDA approval of an IDE application.Sponsors of both significant risk and non-significant risk trials must comply with the FDA’s regulations, including the requirement that informed consent beobtained from each subject, and with clinical trial reporting regulations that require submission of information about certain clinical trials to a publicdatabase maintained by the National Institutes of Health. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safetyand efficacy of the device or may otherwise not be sufficient to obtain FDA clearance, approval or classification of the device.We believe that our OEM partners may be required to obtain 510(k) clearance from the FDA for certain of their products that incorporate Masimo SET®technology, Masimo rainbow SET™ technology, Masimo Board-in-Cable technology or Masimo sensors. In order to facilitate receipt of 510(k) clearance byour OEM partners for their products that incorporate Masimo SET® or Masimo rainbow SET™ boards and sensors, we grant our OEM partners a right to cross-reference the 510(k) submission files from our cleared Masimo SET® circuit boards, sensors, cables and notification systems.We market our iSpO2® pulse oximeter and MightySat® fingertip pulse oximeter for general health and wellness use. We are marketing these products inaccordance with the FDA’s current policy and enforcement discretion which indicates that pulse oximeters that are not intended for medical purposes can bemarketed directly to consumers without first obtaining 510(k) clearance. We cannot assure you that the FDA will not change its policy regarding theregulation of these products. If the FDA changes its policy, we may be required to seek 510(k) clearance to market these pulse oximeters. We also may berequired to cease marketing and/or recall the products until we obtain new 510(k) clearances.The regulatory regime is subject to change by Congress or the FDA. For example, in December 2016, Congress enacted the 21st Century Cures Act (CuresAct), which contained several provisions related to the review and approval of new medical technologies. Along with other changes, the Cures Actestablished a statutory program for “breakthrough” devices, defined as devices intended to treat or diagnose a life-threatening or irreversibly debilitatingdisease that represents a breakthrough technology, devices that have no approved/cleared alternatives, devices that offer significant advantages overapproved/cleared alternatives, or devices where the availability of such device is in the best interest of patients. The FDA will apply additional resources tohelp speed the approval or clearance of devices that are designated as breakthrough devices. The Cures Act also included provisions related to the “leastburdensome” principle and expanded the number of patients that could be treated using a device approved under a Humanitarian Device Exemption, amongother provisions. Furthermore, in August 2017, Congress enacted the FDA Reauthorization Act of 2017 (FDARA).23Table of ContentsAlthough FDARA principally reauthorized the FDA user fee programs, it also included, among other things, provisions that establish processes for the initialclassification and reclassification of accessory devices, i.e., devices used with a parent device.User FeesUnless a specific exemption or waiver applies, 510(k) submissions, de novo classification requests, and PMA applications are subject to user fees. The PMAand de novo classification user fees are significantly higher than the user fees for 510(k) notifications. The FDA was reauthorized to assess medical deviceuser fees through fiscal year 2022 pursuant to FDARA.Pervasive and Continuing FDA RegulationAfter a device is placed on the market, it continues to be subject to the FDA’s regulatory authority. The FDA regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;•unique device identification (UDI) registration, which identifies medical devices through their distribution and use;•QSRs and current good manufacturing practices (GMPs), which require manufacturers, including third-party manufacturers, to follow stringent designcontrol, testing, change control, documentation and other quality assurance procedures during all aspects of the development and manufacturingprocess, including requirements for packaging, labeling and record keeping, complaint handling, corrective and preventive actions and internalauditing;•labeling control and advertising regulations, including FDA prohibitions against the promotion of products for uncleared, unapproved or off-label usesor indications;•for 510(k)-cleared devices, clearance of product modifications that could significantly affect safety or efficacy or that would constitute a major change ormodification in intended use of one of our cleared devices;•for any future PMA approved products, approval of product modifications that affect the safety or effectiveness of the device;•medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death orserious injury, or if their device has malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction of thedevice or a similar device were to recur;•for any future PMA approved products, post-approval restrictions or conditions, including post-approval study commitments;•post-market surveillance requirements, which apply when necessary to protect the public health or to provide additional safety and effectiveness data forthe device;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is inviolation of its conditions of approval, governing laws and/or regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.We must register with the FDA as a medical device manufacturer, list all products placed in commercial distribution and obtain all necessary state permits,licenses or other authorizations to operate our business. As a manufacturer, we are subject to announced and unannounced inspections by the FDA todetermine our compliance with the FDA’s QSR and other regulations. Our OEM partners also are subject to inspection and market surveillance by the FDA todetermine compliance with regulatory requirements.If the FDA finds that we or one of our OEM partners have failed to comply with the FDA’s QSR, the agency can institute a wide variety of enforcement andother regulatory actions, including:•an FDA Form 483, which is issued by the FDA at the conclusion of an inspection when an investigator has observed any conditions that may constitutepotential violations of the FDCA and related Acts;•a public warning letter that notifies a company of potential violations of the FDCA;•fines and monetary civil penalties against us and/or OEM partners;•delays in clearing or approving, or refusal to clear or approve, our products;•withdrawal or suspension of clearances and/or approvals of our products or those of our third-party suppliers by the FDA or other regulatory bodies;•product recall;24Table of Contents•product detention or seizure;•interruption of production;•refusal to provide Certificates to Foreign Governments (CFGs), which may be necessary to permit the export of devices from the U.S. to other countries;•operating restrictions;•injunctions (including those agreed to in a consent decree); and•criminal prosecution.The FDA also has the authority to require repair, replacement or refund of the cost of any medical device manufactured or distributed by us.Advertising and PromotionAdvertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the Federal Trade Commission (FTC) and byfederal and state regulatory and enforcement authorities, including the Department of Justice, the Office of Inspector General of the Department of Health andHuman Services, and various state attorneys general. Although physicians are permitted to use their medical judgment to use medical devices for indicationsother than those cleared or approved by the FDA, we may not promote our products for such “off-label” uses and can only market our products for cleared orapproved uses.Other companies’ promotional activities for their FDA-regulated products have been the subject of FTC enforcement actions brought under healthcarereimbursement laws and consumer protection statutes. FTC enforcement actions often result in consent decrees that constrain future actions. In addition,under the federal Lanham Act and similar state laws, competitors and others can initiate litigation relating to advertising claims.Import and Export RequirementsTo import a device, the importer must file an entry notice and bond with the United States Bureau of Customs and Border Protection (CBP). All devices aresubject to FDA examination before release from CBP. Any article that appears to be in violation of the FDCA may be refused admission and a notice ofdetention and hearing may be issued. If the FDA ultimately refuses admission, the CBP may issue a notice for redelivery and, if a company fails to redeliverthe goods or otherwise satisfy CBP and the FDA with respect to their disposition, may assess liquidated damages for up to three times the value of the lot. TheCBP also imposes its own regulatory requirements on the import of our products, including inspection and possible sanctions for noncompliance.Products exported from the United States are subject to foreign countries’ import requirements and the exporting requirements of the FDA or Europeanregulating bodies, as applicable. In particular, international sales of medical devices manufactured in the United States that are not approved or cleared by theFDA for use in the United States, or are banned or deviate from lawful performance standards, are subject to FDA export requirements.Foreign countries often require, among other things, a CFG for export. To obtain a CFG, the device manufacturer must apply to the FDA. The FDA certifiesthat the product has been granted clearance or approval in the United States and that the manufacturing facilities were in compliance with the FDA’s QSRregulations at the time of the last FDA inspection.Foreign Regulation Regarding Clearance and ApprovalMany foreign countries in which we market or may market our products have regulatory bodies and restrictions similar to those of the FDA. Internationalsales are subject to foreign government regulation, the requirements of which vary substantially from country to country. The time required to obtainapproval by a foreign country may be longer or shorter than that required for FDA clearance and the requirements may differ.In particular, marketing of medical devices in the European Union (EU) is subject to compliance with the Medical Devices Directive 93/92/EEC (MDD). Amedical device may be placed on the market within the EU only if it conforms to certain “essential requirements” and bears the CE Mark. The mostfundamental and essential requirement is that a medical device must be designed and manufactured in such a way that it will not compromise the clinicalcondition or safety of patients, or the safety and health of users and others. In addition, the device must achieve the essential performance(s) intended by themanufacturer and be designed, manufactured and packaged in a suitable manner.25Table of ContentsManufacturers must demonstrate that their devices conform to the relevant essential requirements through a conformity assessment procedure. The nature ofthe assessment depends upon the classification of the device. The classification rules are mainly based on three criteria: the length of time the device is incontact with the body, the degree of invasiveness and the extent to which the device affects the anatomy. Conformity assessment procedures for all but thelowest risk classification of device involve a notified body. Notified bodies are often private entities and are authorized or licensed to perform suchassessments by government authorities. Manufacturers usually have some flexibility to select a notified body for the conformity assessment procedures for aparticular class of device and to reflect their circumstances, e.g., the likelihood that the manufacturer will make frequent modifications to its products.Conformity assessment procedures require an assessment of available clinical evidence, literature data for the product and post-market experience in respectof similar products already marketed. Notified bodies also may review the manufacturer’s quality systems. If satisfied that the product conforms to therelevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration ofconformity and application of the CE Mark. Application of the CE Mark allows the general commercializing of a product in the EU. The product can also besubjected to local registration requirements depending on the country. We maintain CE Marking on all of our products that require such markings as well aslocal registrations as required.In May 2017, the EU adopted a new Medical Devices Regulation (EU) 2017/745 (MDR), which will repeal and replace the MDD with effect from May 26,2020. The MDR clearly envisages, among other things, stricter controls of medical devices, including strengthening of the conformity assessment procedures,increased expectations with respect to clinical data for devices and pre-market regulatory review of high-risk devices. The MDR also envisages greatercontrol over notified bodies and their standards, increased transparency, more robust device vigilance requirements and clarification of the rules for clinicalinvestigations. Under transitional provisions, medical devices with notified body certificates issued under the MDD prior to May 26, 2020 may continue tobe placed on the market for the remaining validity of the certificate, until May 27, 2024 at the latest. After the expiry of any applicable transitional period,only devices that have been CE marked under the MDR may be placed on the market in the EU.Medical Device TaxThe Affordable Care Act (ACA) also imposed a significant new tax on medical device makers in the form of a 2.3% excise tax on U.S. medical device sales,with certain exemptions (MDET). For the year ended January 2, 2016, we recorded $6.9 million in medical device taxes that were included in selling, generaland administrative expenses. The MDET is currently suspended through December 31, 2019. The tax may be reimposed on medical device makers beginningon January 1, 2020 if the suspension is not re-extended or the medical device tax is not permanently repealed.Conflict Minerals and Supply ChainWe are subject to certain SEC rules adopted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act concerning “conflict minerals”(generally tin, tantalum, tungsten and gold) and similar rules are under consideration by the EU. Certain of these conflict minerals are used in the manufactureof our products. Although the rules are being challenged in court, in their present form they require us to investigate the source of any conflict mineralsnecessary to the production or functionality of our products. If any such conflict minerals originated in the Democratic Republic of the Congo or adjoiningcountries (the DRC region), we must undertake comprehensive due diligence to determine whether such minerals financed or benefited armed groups in theDRC region. Since our supply chain is complex, our ongoing compliance with these rules could affect the pricing, sourcing and availability of conflictminerals used in the manufacture of our products.We are also subject to disclosure requirements regarding abusive labor practices in portions of our supply chain under the California Transparency in SupplyChains Act.EnvironmentalOur manufacturing processes involve the use, generation and disposal of solid wastes, hazardous materials and hazardous wastes, including siliconeadhesives, solder and solder paste, sealants, epoxies and various solvents such as methyl ethyl ketone, acetone and isopropyl alcohol. As such, we are subjectto stringent federal, state and local laws relating to the protection of the environment, including those governing the use, handling and disposal of hazardousmaterials and wastes. Products that we sell in Europe are subject to regulation in EU markets under the Restriction of Hazardous Substances Directive (RoHS).RoHS prohibits companies from selling products which contain certain hazardous materials, including lead, mercury, cadmium, chromium, polybrominatedbiphenyls and polybrominated diphenyl ethers, in EU member states. In addition, the EU’s Regulation-Registration, Evaluation, Authorization, andRestriction of Chemicals Directive also restricts substances of very high concern in products.26Table of ContentsFuture environmental laws may require us to alter our manufacturing processes, thereby increasing our manufacturing costs. We believe that our products andmanufacturing processes at our facilities comply in all material respects with applicable environmental laws and worker health and safety laws; however, therisk of environmental liabilities cannot be completely eliminated.Health Care Fraud and AbuseIn the U.S., there are federal and state anti-kickback laws that generally prohibit the payment or receipt of kickbacks, bribes or other remuneration inexchange for the referral of patients or other health-related business. For example, the Federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)) prohibitsanyone from, among other things, knowingly and willfully offering, paying, soliciting or receiving any bribe, kickback or other remuneration intended toinduce the referral of patients for, or the purchase, order or recommendation of, health care products and services reimbursed by a federal health care program,including Medicare and Medicaid. Recognizing that the federal anti-kickback law is broad and potentially applicable to many commonplace arrangements,Congress and the Office of Inspector General (OIG) within the Department of Health and Human Services have created statutory “exceptions” and regulatory“safe harbors”. Exceptions and safe harbors exist for a number of arrangements relevant to our business, including, among other things, payments to bona fideemployees, certain discount and rebate arrangements, and certain payment arrangements involving Group Purchasing Organizations (GPOs). Although anarrangement that fits into one or more of these exceptions or safe harbors is immune from prosecution, arrangements that do not fit squarely within anexception or safe harbor do not necessarily violate the law, but the OIG or other government enforcement authorities may examine the practice to determinewhether it involves the sorts of abuses that the statute was designed to combat. Violations of this federal law can result in significant penalties, includingimprisonment, monetary fines and assessments, and exclusion from Medicare, Medicaid and other federal health care programs. Exclusion of a manufacturer,like us, would preclude any federal health care program from paying for its products. In addition to the federal anti-kickback law, many states have their ownlaws that are analogous to the federal anti-kickback law, but may apply regardless of whether any federal or state health care program business is involved.Federal and state anti-kickback laws may affect our sales, marketing and promotional activities, educational programs, pricing and discount practices andpolicies, and relationships with health care providers by limiting the kinds of arrangements we may have with hospitals, alternate care market providers,GPOs, physicians, payers and others in a position to purchase or recommend our products.Federal and state false claims laws prohibit anyone from presenting, or causing to be presented, claims for payment to third-party payers that are false orfraudulent. For example, the Federal Civil False Claims Act (31 U.S.C. § 3729 et seq.) imposes liability on any person or entity who, among other things,knowingly and willfully presents, or causes to be presented, a false or fraudulent claim for payment by a federal health care program, including Medicaid andMedicare. Some suits filed under the False Claims Act, known as “qui tam” actions, can be brought by a “whistleblower” or “relator” on behalf of thegovernment and such individuals may share in any amounts paid by the entity to the government in fines or settlement. Manufacturers, like us, can be heldliable under false claims laws, even if they do not submit claims to the government, where they are found to have caused submission of false claims by,among other things, providing incorrect coding or billing advice about their products to customers that file claims, or by engaging in kickback arrangementsor off-label promotion with customers that file claims. A number of states also have false claims laws, and some of these laws may apply to claims for items orservices reimbursed under Medicaid and/or commercial insurance. Sanctions under these federal and state fraud and abuse laws may include civil monetarypenalties and criminal fines, exclusion from government health care programs and imprisonment.The Health Insurance Portability and Accountability Act of 1996 (HIPAA) created new federal crimes, including health care fraud and false statements relatedto health care matters. The health care fraud statute prohibits, among other things, knowingly and willfully executing a scheme to defraud any health carebenefit program, including those offered by private payers. The false statements statute prohibits, among other things, knowingly and willfully falsifying,concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment forhealth care benefits, items or services. A violation of either statute is a felony and may result in fines, imprisonment and other significant penalties.The Physician Payment Sunshine Act (Sunshine Act), which was enacted by Congress as part of the ACA, requires medical device companies to track andpublicly report, with limited exceptions, all payments and transfers of value to physicians and teaching hospitals in the U.S. Companies are required to trackpayments made and to report such payments to the government by March 31 of each year. Several states have similar requirements.The Foreign Corrupt Practices Act of 1977 and similar worldwide anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and theirintermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business.27Table of ContentsDue to the breadth of some of these laws, it is possible that some of our current or future practices might be challenged under one or more of these laws. Inaddition, there can be no assurance that we would not be required to alter one or more of our practices to be in compliance with these laws. Evolvinginterpretations of current laws or the adoption of new federal or state laws or regulations could adversely affect many of the arrangements we have withcustomers and physicians. Therefore, our risk of being found in violation of these laws is increased by the fact that some of these laws are broad and open tointerpretation.Privacy and Security of Health and Other Personal InformationNumerous federal, state and international laws and regulations, including HIPAA and General Data Protection Regulation (GDPR), govern the collection, useand disclosure of patient-identifiable, protected health information (PHI) and other personal information. In the U.S., HIPAA applies to covered entities,which include most healthcare facilities that purchase and use our products, and their business associates. The HIPAA Privacy Rule restricts the use anddisclosure of PHI, and requires covered entities and their business associates to safeguard that information and to provide certain rights to individuals withrespect to that information. The HIPAA Security Rule establishes detailed requirements for safeguarding PHI transmitted or stored electronically. Althoughwe are not a covered entity, we are sometimes deemed to be a business associate of covered entities due to activities that we perform for or on behalf ofcovered entities, such as training customers on the use of our products or investigating product performance. As business associates, we are subject to many ofthe requirements of HIPAA and could be directly subject to HIPAA civil and criminal enforcement and the associated penalties for violation of the Privacy,Security and Breach Notification Rules.The HIPAA standards also apply to the use and disclosure of PHI for research and generally require the covered entity performing the research to obtain thewritten authorization of the research subject (or an appropriate waiver) before providing that subject’s PHI to sponsors like us for purposes related to theresearch. These covered entities also typically impose contractual limitations on our use and disclosure of the PHI they disclose to us. We may be required tomake costly system modifications to comply with the privacy and security requirements that will be imposed on us and our failure to comply may result inliability and adversely affect our business.Numerous other federal and state laws protect the confidentiality of PHI, including state medical privacy laws and federal and state consumer protection laws.These various laws in many cases are not preempted by the HIPAA rules and may be subject to varying interpretations by the courts and governmentagencies, creating complex compliance issues for us and our customers and potentially exposing us to additional expense, adverse publicity and liability.Other countries also have, or are developing, laws governing the collection, use and transmission of health information, and these laws could create liabilityfor us or increase our cost of doing business.Third-Party ReimbursementHealth care providers, including hospitals, that purchase our products generally rely on third-party payers, including the Medicare and Medicaid programsand private payers, including indemnity insurers and managed care plans, to cover and reimburse all or part of the cost of the products and the procedures inwhich they are used. As a result, demand for our products is dependent in part on the coverage and reimbursement policies of these payers. No uniformcoverage or reimbursement policy for medical technology exists among all third-party payers, and coverage and reimbursement can differ significantly frompayer to payer.The Centers for Medicare & Medicaid Services (CMS) is the federal agency responsible for administering the Medicare program. Along with its contractors,CMS establishes the coverage and reimbursement policies for the Medicare program. Because a large percentage of our products are used in the treatment ofelderly or disabled individuals who are Medicare beneficiaries, Medicare’s coverage and reimbursement policies are particularly significant to our business.In addition, private payers often follow the coverage and reimbursement policies of Medicare.In general, Medicare will cover a medical product or procedure when the product or procedure is reasonable and necessary for the diagnosis or treatment of anillness or injury, or to improve the functioning of a malformed body part. Even if the medical product or procedure is considered medically necessary andcoverage is available, Medicare may place restrictions on the circumstances where it provides coverage. For example, several Medicare local contractors haveissued policies that restrict coverage for pulse oximetry in hospital inpatient and outpatient settings to a limited number of conditions, including limitingcoverage to patients who (i) exhibit signs of acute respiratory dysfunction, (ii) have chronic lung disease, severe cardiopulmonary disease or neuromusculardisease involving the muscles of respiration, (iii) are under treatment with a medication with known pulmonary toxicity, or (iv) have sustained multipletrauma or complaints of acute chest pain.28Table of ContentsReimbursement for our products may vary not only by the type of payer involved but also based upon the setting in which the product is furnished andutilized. For example, Medicare payment may be made, in appropriate cases, for patient stays in the hospital inpatient and outpatient settings involving theuse of our products. Medicare generally reimburses hospitals based upon prospectively determined amounts. For hospital inpatient stays, the prospectivepayment generally is determined by the patient’s condition and other patient data and procedures performed during the inpatient stay, using a classificationsystem known as Medicare Severity Diagnosis-Related Groups (MS-DRGs). Prospective rates are adjusted for, among other things, regional differences, co-morbidity and complications. Hospitals generally do not receive separate Medicare reimbursement for the specific costs of purchasing our products for use inthe inpatient setting. Rather, Medicare reimbursement for these costs is deemed to be included within the prospective payments made to hospitals for theinpatient services in which the products are utilized.In contrast, some differences may be seen in the reimbursement for use of our products in hospital outpatient departments. In this setting, Medicare paymentsalso are generally made under a prospective payment system based on the ambulatory payment classifications (APCs) under which individual items andprocedures are categorized. Hospitals receive the applicable APC payment rate for the procedure regardless of the actual cost for such treatment. Someoutpatient services such as oximetry services do not receive separate reimbursement. Rather, their reimbursement is deemed packaged into the APC for anassociated procedure and the payment for that APC does not vary whether or not the packaged procedure is performed. Some procedures also are paid throughcomposite APCs, which are APCs that establish a payment rate that applies when a specific combination of services is provided. Reimbursement for certainpulse oximetry monitoring services, including those using our products, may be separately payable when they are the only service provided to the patient onthat day, packaged if provided with certain critical care services, or reimbursed through a composite APC when provided in connection with certain otherservices.Because payments through the Prospective Payment System in both the hospital inpatient and outpatient settings are based on predetermined rates and maybe less than a hospital’s actual costs in furnishing care, hospitals have incentives to lower their operating costs by utilizing products that will reduce thelength of inpatient stays, decrease labor or otherwise lower their costs. If hospitals cannot obtain adequate coverage and reimbursement for our products, orthe procedures in which they are used, we cannot be certain that they will purchase our products, despite the clinical benefits and opportunity for cost savingsthat we believe can be derived from their use.Our success with rainbow SET™ technologies in U.S. settings of care with reimbursable monitoring procedures, such as hospital emergency departments,hospital procedure labs, and the physician office may largely depend on the ability of providers to receive reimbursement for such procedures. While privateinsurance payers often follow Medicare coverage and payment, we cannot be certain of this and, in many cases, cannot control the coverage or payment ratesthat private insurance payers put in place. In addition, the potential amendment, repeal or judicial invalidation of the ACA, and/or the enactment of otherlegislation or regulations, could affect future payment for services involving the use of our products.Our success in non-U.S. markets depends largely upon the availability of coverage and reimbursement from the third-party payers through which health careproviders are paid in those markets. Health care payment systems in non-U.S. markets vary significantly by country, and include single-payer governmentmanaged systems, as well as systems in which private payers and government managed systems exist side-by-side. Our ability to achieve market acceptanceor significant sales volume in international markets we enter will be dependent in large part on the availability of reimbursement for procedures performedusing our products under health care payment systems in such markets.Other U.S. and Foreign RegulationWe and our OEM partners also must comply with numerous federal, state and local laws, as well as laws in other jurisdictions, relating to matters such as safeworking conditions, manufacturing practices, environmental protection, fire hazard control and hazardous substance disposal. We cannot be sure that we willnot be required to incur significant costs to comply with these laws and regulations in the future or that these laws or regulations will not hurt our business,financial condition and results of operations. Unanticipated changes in existing regulatory requirements or adoption of new requirements could hurt ourbusiness, financial condition and results of operations.CompetitionThe medical device industry is highly competitive and many of our competitors have substantially greater financial, technical, marketing and other resourcesthan we do. While we regard any company that sells pulse oximeters as a potential customer, we also recognize that the companies selling pulse oximeters onan OEM basis and/or pulse oximetry sensors are also potential competitors. Our primary competitor, Medtronic plc (Medtronic, formerly Covidien Ltd.),currently holds a substantial share of the pulse oximetry market.29Table of ContentsMedtronic sells its own brand of Nellcor pulse oximeters to end-users, sells pulse oximetry modules to other monitoring companies on an OEM basis, andlicenses to certain OEMs the right to make their pulse oximetry platforms compatible with their sensors. We also face substantial competition from largermedical device companies, including companies that develop products that compete with our proprietary Masimo SET® and our OEM partners. We believethat a number of companies have announced products that claim to offer motion-tolerant accuracy. Pursuant to the terms of the Third Amendment toSettlement Agreement and Release of Claims effective September 2016, Medtronic discontinued paying royalties to us for its sales after October 6, 2018. Inaddition, some of our patents have expired and other will expire over time in accordance with the laws of the jurisdiction in which they were issued.We believe that the principal competitive factors in the market for pulse oximetry products include:•accurate monitoring during both patient motion and low perfusion;•ability to introduce other clinically beneficial measurements related to oxygenation and respiration, such as noninvasive and continuous oxygen reserveindex and hemoglobin;•competitive pricing, including bundling practices;•brand recognition and perception of innovation abilities;•sales and marketing capability;•access to hospitals which are members of GPOs;•access to integrated delivery networks;•access to OEM partners; and•patent protection.Sales and MarketingWe have sales and marketing employees in the U.S. and abroad. We expect to moderately increase our worldwide sales and sales support organizations as wecontinue to expand our presence throughout both the U.S. and the world, including Europe, the Middle East, Asia, Latin America, Canada and Australia. Wecurrently sell all of our medical products both directly to hospitals and the alternate care market via our sales force and certain distributors. We sell our non-medical/consumer products through e-commerce Internet sites such as www.masimopersonalhealth.com and www.amazon.com.The primary focus of our sales representatives is to facilitate the conversion of competitor accounts to our Masimo SET® pulse oximetry and rainbow SET™Pulse CO-Oximetry® products, to expand the use of Masimo SET® and Patient SafetyNet on the general floor and to create and expand the use of rainbow®measurements in both critical care and non-critical care areas. In addition to sales representatives, we employ clinical specialists to work with our salesrepresentatives to educate end-users on the benefits of Masimo SET® and assist with the introduction and implementation of our technology and products totheir sites. Our sales and marketing strategy for pulse oximetry has been and will continue to be focused on building end-user awareness of the clinical andcost-saving benefits of our Masimo SET® platform. More recently, we have expanded this communication and educational role to include our Masimorainbow® Pulse CO-Oximetry and rainbow Acoustic Monitoring® products, including hemoglobin, carboxyhemoglobin, methemoglobin, PVi®, acousticrespiration rate and Halo Index™.For the year ended December 29, 2018, two just-in-time distributors, Owens & Minor and Cardinal Health, represented approximately 10.0% and 12.5%,respectively, of our total revenue. These were the only two customers that represented 10% or more of our revenue for the year ended December 29, 2018.Importantly, these two distributors take and fulfill orders from our direct customers, many of which have signed long-term sensor purchase agreements withus. As a result, in the event a specific just-in-time distributor is unable to fulfill these orders, the orders would be redirected to other distributors or fulfilleddirectly by us.Additionally, we sell certain of our products through our OEM partners who both incorporate our boards into their monitors and resell our sensors to theircustomers’ installed base of Masimo SET® products. Our OEM agreements allow us to expand the availability of Masimo SET® through the sales anddistribution channels of each OEM partner. To facilitate clinician awareness of Masimo SET® installations, all of our OEM partners have agreed to place theMasimo SET® logo prominently on their instruments.In order to facilitate our U.S. direct sales to hospitals, we have signed contracts with what we believe to be the five largest national GPOs in the U.S., based onthe total volume of negotiated purchases. In return for the GPOs putting our products on contract, we have agreed to pay the GPOs a percentage of ourrevenue from their member hospitals. In 2018 and 2017, revenue from the sale of our pulse oximetry products to hospitals that are associated with GPOsamounted to $470.5 million and $417.0 million, respectively.30Table of ContentsOur marketing efforts are designed to build end-user awareness through digital and print advertising, direct mail and trade shows. In addition, we distributepublished clinical studies, provide product education for doctors, nurses, biomedical engineers and respiratory therapists and assist with product evaluations.Intellectual PropertyWe believe that in order to maintain a competitive advantage in the marketplace, we must develop and maintain protection of the proprietary aspects of ourtechnology. We rely on a combination of patent, trademark, trade secret, copyright and other intellectual property rights and measures to protect ourintellectual property.We have developed a patent portfolio internally, and, to a lesser extent, through acquisitions and licensing, that covers many aspects of our product offerings.As of December 29, 2018, we had 644 issued patents and 353 pending applications in the U.S., Europe, Japan, Australia, Canada and other countriesthroughout the world. Our patents expire in accordance with the laws of the particular jurisdiction in which they were issued, which sometimes change.Additionally, as of December 29, 2018, we owned 81 U.S. registered trademarks and 248 foreign registered trademarks, as well as trade names that we use inconjunction with the sale of our products. Our trademarks are perpetually renewable.Under the Cross-Licensing Agreement, we and Cercacor have agreed to allocate proprietary ownership of technology developed based on the functionality ofthe technology. We will have proprietary ownership, including ownership of all patents, copyrights and trade secrets, of all technology related to thenoninvasive monitoring of vital signs measurements, and Cercacor will have proprietary ownership of all technology related to the noninvasive monitoringof non-vital signs measurements. We also rely upon trade secrets, continuing technological innovations and licensing opportunities to develop and maintainour competitive position. We seek to protect our trade secrets and proprietary know-how, in part, with confidentiality agreements with consultants, vendorsand employees, although we cannot be certain that the agreements will not be breached or that we will have adequate remedies for any breach.There are risks related to our intellectual property rights. For further detail on these risks, see “Risks Related to Our Intellectual Property” underItem 1A—“Risk Factors” in this Annual Report on Form 10-K.Research and Product DevelopmentWe believe that ongoing research and development efforts are essential to our success. Our research and development efforts focus primarily on continuing toenhance our technical expertise in pulse oximetry, expanding our noninvasive monitoring of other measurements and developing remote alarm andmonitoring solutions.Although we and Cercacor each have separate research and development projects, we collaborate with Cercacor on multiple research and developmentactivities related to rainbow® technology and other technologies. Under the Cross-Licensing Agreement, the parties have agreed to allocate proprietaryownership of technology developed by either party based on the functionality of the technology. We will have proprietary rights to all technology related tothe noninvasive measurement of vital signs measurements, and Cercacor will have proprietary ownership of all technology related to the noninvasivemonitoring of non-vital signs measurements.ManufacturingOur strategy is to manufacture products in-house when it is efficient and cost-effective for us to do so. We currently manufacture our bedside and handheldpulse oximeters, our full line of disposable and reusable sensors and most of our patient cables in-house or through captive contract maquiladora operations.We maintain an approximate 70,700 square foot manufacturing facility in Irvine, California, and two separate manufacturing facilities in Mexicali and SanLuis Rio Colorado, Mexico that have combined square footage of approximately 216,900 square feet, all three of which are International Organization forStandardization (ISO) 13485:2016 certified. We also maintain an approximate 86,500 square foot facility in Hudson, New Hampshire, a portion of which isused to manufacture advanced light emitting diodes and other advanced component-level technologies. In addition, we maintain an ISO 13485:2016certified facility approximating 16,400 square feet in Danderyd, Sweden, a portion of which is used to manufacture ultra-compact mainstream and sidestreamcapnography and gas monitoring technologies. We will continue to utilize third-party contract manufacturers for products and subassemblies that can bemore efficiently manufactured by these parties, such as our circuit boards. We monitor our third-party manufacturers and perform inspections and producttests at various steps in the manufacturing cycle to ensure compliance with our specifications. We also do full functional testing of our circuit boards.31Table of ContentsFor raw materials, we and our contract manufacturers rely on sole source suppliers for some components, including digital signal processor chips and analog-to-digital converter chips. We and our contract manufacturers have taken steps to minimize the impact of a shortage or stoppage of shipments of digital signalprocessor chips or analog to digital converter chips, including maintaining a safety stock of inventory and designing software that may be easily ported toanother digital signal processor chip. We believe that our sources of supply for components and raw materials are adequate. In the event of a delay ordisruption in the supply of sole source components, we believe that we and our contract manufacturers will be able to locate additional sources of these solesource components on commercially reasonable terms and without experiencing material disruption in our business or operations.We have agreements with certain major suppliers and each agreement provides for varying terms with respect to contract expiration, termination and pricing.Most of these agreements allow for termination upon specified notice, ranging from four to twelve months, to the non-terminating party. Certain of theseagreements with our major suppliers allow for pricing adjustments, each agreement provides for annual pricing negotiation, and one agreement alsoguarantees us the most favorable pricing offered by the supplier to any of its other customers.EmployeesAs of December 29, 2018, we had approximately 1,500 full-time employees and approximately 3,000 dedicated contract personnel worldwide.AddressOur principal executive offices are located at 52 Discovery, Irvine, California 92618, and our telephone number at that address is (949) 297-7000. Ourwebsite address is www.masimo.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on Form 8-K andamendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free ofcharge at www.masimo.com as soon as reasonably practicable after electronically filing such reports with the SEC. Any information contained on, or that canbe accessed through, our website is not incorporated by reference into, nor is it in any way a part of, this Annual Report on Form 10-K.32Table of ContentsITEM 1A.RISK FACTORSThe following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertaintiesdescribed below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant mayalso impair our business operations. If any of the following risks come to fruition, our business, financial condition, results of operations and future growthprospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you could loseall or part of your investment.Risks Related to Our RevenuesWe currently derive the majority of our revenue from our Masimo SET® platform, Masimo rainbow SET™ platform and related products. If thesetechnologies and related products do not continue to achieve market acceptance, our business, financial condition and results of operations would beadversely affected.We are highly dependent upon the continued success and market acceptance of our proprietary Masimo SET® technology that serves as the basis of ourprimary product offerings. Continued market acceptance of products incorporating Masimo SET® will depend upon us continuing to provide evidence to themedical community that our products are cost-effective and offer significantly improved performance compared to conventional pulse oximeters. Health careproviders that currently have significant investments in competitive pulse oximetry products may be reluctant to purchase our products. If hospitals and otherhealth care providers do not believe our Masimo SET® platform is cost-effective, safe or more accurate or reliable than competitive pulse oximetry products,they may not buy our products in sufficient quantities to enable us to generate revenue growth from the sale of these products. In addition, allegationsregarding 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 limitour 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 acceptablefor 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. Ifwe are successful in these endeavors, we expect these technologies will become more useful in more environments and will become more widely adopted. Weare continuing to invest in sales and marketing resources to achieve market acceptance of these products, but are unable to guarantee that our technologieswill achieve general market acceptance.The degree of market acceptance of these products will depend on a number of factors, including:•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 health care programs for using some of our products; and•introduction and acceptance of competing products or technologies.If our products do not gain market acceptance or if our customers prefer our competitors’ products, our potential revenue growth would be limited, whichwould 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 growthand 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 grantedCercacor:•an exclusive, perpetual and worldwide license, with sublicense rights, to use all Masimo SET® technology owned by us, including all improvements tothis technology, for the monitoring of non-vital signs parameters and to develop and sell devices incorporating Masimo SET® for monitoring non-vitalsigns parameters in any product market in which a product is intended to be used by a patient or pharmacist rather than by a professional medicalcaregiver, which we refer to as the Cercacor Market; and33Table of Contents•a non-exclusive, perpetual and worldwide license, with sublicense rights, to use all Masimo SET® technology owned by us for measurement of vital signsin 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 MasimoSET® for the monitoring of non-vital signs parameters in markets where the product is intended to be used by a professional medical caregiver, including, butnot 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 utilizerainbow® 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 andcommercialize enhanced or new products that remain competitive with products or alternative technologies developed by others, we could lose revenueopportunities and customers, and our ability to grow our business would be impaired, adversely affecting our financial condition and results ofoperations.The medical device industry is intensely competitive and is significantly affected by new product introductions and other market activities of industryparticipants. A number of our competitors have substantially greater capital resources, larger product portfolios, larger customer bases, larger sales forces andgreater geographic presence, have established stronger reputations with specific customers, and have built relationships with Group Purchasing Organizationsand other hospital purchasing groups (collectively, GPOs) that may be more effective than ours. Our Masimo SET® platform faces additional competitionfrom companies developing products for use with third-party monitoring systems, as well as from companies that currently market their own pulse oximetrymonitors. In addition, competitors with larger product portfolios than ours are engaging in bundling practices, whereby they offer increased discounts tohospitals that purchase their requirements for a variety of different products from the competitor, including products that we do not offer.Rapid product development and technological advances within the medical device industry place our products at risk of obsolescence. Our long-term successdepends upon the development and successful commercialization of new products, new or improved technologies and additional applications for ourexisting technologies. The research and development process is time-consuming and costly and may not result in products or applications that we cansuccessfully commercialize. In particular, we may not be able to successfully commercialize our products for applications other than arterial blood oxygensaturation and pulse rate monitoring, such as for respiration rate, hemoglobin, carboxyhemoglobin and methemoglobin monitoring.If we do not successfully adapt our products and applications both within and outside these measurements, we could lose revenue opportunities andcustomers. Furthermore, one or more of our competitors may develop products that are substantially equivalent to our U.S. Food and Drug Administration(FDA) cleared products, or those of our original equipment manufacturer (OEM) partners, in which case a competitor of ours may use our products or those ofour OEM partners as predicate devices to more quickly obtain FDA clearance of their competing products. Competition could result in pressure from ourcustomers to reduce the price of our products and place fewer orders for our products, which could, in turn, cause a reduction in our revenues and productgross 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 Apple, Alphabet,Samsung and others, have developed or may develop products and technologies that may compete with our current or future products and technologies.These companies have substantially greater capital, research and development, and sales resources than we have. If we are unable to successfully competeagainst them, our financial performance could decline.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 ofproducts 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, sellingand 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 arelatively small percentage of business for some of our OEM partners, they may have less incentive to promote these products over other products that do notincorporate these technologies.34Table of ContentsIn addition, some of our OEM partners offer products that compete with ours and also may be involved in intellectual property disputes with us. Therefore, wecannot guarantee that our OEM partners, or any company that may acquire any of our OEM partners, will vigorously promote products incorporating ourtechnologies. The failure of our OEM partners to successfully market, sell or distribute products incorporating our technologies, the termination of OEMagreements, 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 products would decline.Our ability to sell our products to hospitals depends, in part, on our relationships with GPOs. Many existing and potential customers for our products aremembers of GPOs. GPOs negotiate pricing arrangements and contracts with medical supply manufacturers and distributors that may include provisions forsole sourcing and bundling, which generally reduce product purchasing decisions available to the hospitals.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 likelyor unlikely to purchase our products. If a GPO has negotiated a strict sole source, market share compliance or bundling contract for another manufacturer’sproducts, we may be prohibited from making sales to members of such GPO for the duration of such contractual arrangement. Shipments of our pulseoximetry products to customers that are members of GPOs represented more than 80% of our U.S. product sales for the year ended December 29, 2018. Ourfailure to renew our contracts with GPOs may cause us to lose market share and could have a material adverse effect on our business, financial condition andresults of operations. In addition, if we are unable to develop new relationships with GPOs, our competitive position would likely suffer and our opportunitiesto grow our revenues and business would be harmed.Inadequate levels of coverage or reimbursement from governmental or other third-party payers for our products, or for procedures using ourproducts, may cause our revenue to decline.Sales of our products depend in part on the reimbursement and coverage policies of governmental and private health care payers. The lack of adequatecoverage and reimbursement for our products or the procedures in which our products are used may deter customers from purchasing our products.We cannot guarantee that governmental or third-party payers will reimburse a customer for the cost of our products or the procedures in which our productsare used. For example, some insurance carriers have issued policies denying coverage for transcutaneous hemoglobin measurement on the grounds that thetechnology is investigational in the outpatient setting. Other payers are continuing to investigate our products to determine if they will providereimbursement to our customers. These trends could lead to pressure to reduce prices for our current and future products, cause a decrease in the size of themarket 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 toexplore cost-containment strategies (e.g., comparative and cost-effectiveness analyses, so-called “pay-for-performance” programs implemented by variouspublic government health care programs and private third-party payers, and expansion of payment bundling initiatives, and other such methods that shiftmedical 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 health care costs and controlhealth care 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 productsoutside 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 some suppliers from certain of our 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-partypayers to curb these costs have resulted in a consolidation trend in the healthcare industry to aggregate purchasing power. As the healthcare industryconsolidates, competition to provide products and services to industry participants has become and will continue to become more intense. This has resultedin, and will likely continue to result in, greater pricing pressures and the exclusion of certain suppliers from important market segments as GPOs, independentdelivery networks and large single accounts continue to use their market power to consolidate purchasing decisions for hospitals.35Table of ContentsWe expect that market demand, government regulation, third-party coverage and reimbursement policies and societal pressures will continue to impact theworldwide healthcare industry, resulting in further business consolidations and alliances among our customers, which may reduce competition, exert furtherdownward pressure on the prices of our products and adversely impact our business, financial condition and results of operations.Our customers may reduce, delay or cancel purchases due to a variety of factors, such as lower hospital census levels or third-party guidelines, whichcould adversely affect our business, financial condition and results of operations.Our customers are facing growing levels of uncertainties, including variations in overall hospital census for paying patients and the impact of such censusvariations on hospital budgets. As a result, many hospitals are reevaluating their entire cost structure, including the amount of capital they allocate tomedical device technologies and products. Such developments could have a significant negative impact on our OEM customers who, due to theirtraditionally larger capital equipment sales model, could see declines in purchases from their hospital customers. This, in turn, could reduce our board sales toour OEM customers.In addition, certain of our products, including our rainbow® measurements such as carbon monoxide, methemoglobin and hemoglobin, that are sold withupfront license fees and more complex and expensive sensors, could also be impacted by hospital budget reductions.States and other local regulatory authorities may issue guidelines regarding the appropriate scope and use of our products from time to time. 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 ofpractice procedures. A lack of inclusion into scope of practice procedures may limit adoption.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 andharm our operating results.We have a concentration of OEM, distribution and direct customers. For example, sales to two just-in-time distributors each represented more than 10% of ourproduct sales for the year ended December 29, 2018. We cannot provide any assurance that we will retain our current customers, groups of customers ordistributors, 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 specificgroup or class of customers, or through a distributor, we could experience a significant reduction in revenue, which would adversely impact our operatingresults.Our sales could also be negatively affected by any rebates, discounts or fees that are required by, or offered to, GPOs and customers, including wholesalers ordistributors. Additionally, some of our just-in-time distributors have been demanding higher fees, which we may be forced to pay in order to continue to offerproducts to our customers or which may force us to distribute our products directly to our customers. The loss of any large customer or distributor, or anincrease in distributor fees, could have a material adverse effect on our business, financial condition and results of operations.Our royalty and other revenue has historically consisted primarily of royalties received from Medtronic plc (Medtronic, formerly Covidien Ltd.) related to itsU.S. sales, and more recently, revenue from non-recurring engineering (NRE) services for a certain OEM customer. However, Medtronic is not required to payroyalties to us on any sales occurring after October 6, 2018. In addition, we have completed the majority of our contracted NRE services and expect tocomplete the remaining NRE services next year. We currently do not expect to replace this royalty and NRE services revenue with revenue from othersources, and such loss of revenue will have an adverse effect on our future results of operations.Imitation Masimo sensors and third-party medical device reprocessors that reprocess our single-patient-use sensors may harm our reputation. Also,these imitation and third-party reprocessed sensors, as well as genuine Masimo reprocessed sensors, are sold at lower prices than new Masimo sensorsand could cause our revenue to decline, which may adversely affect our business, financial condition and results of operations.We believe that other organizations are manufacturing and selling imitation Masimo sensors. In addition, certain medical device reprocessors have beencollecting our used single-patient-use sensors from hospitals and then reprocessing, repackaging and reselling those sensors to hospitals. These imitation andthird-party reprocessed sensors are sold at lower prices than new Masimo sensors. Our experience with both these imitation sensors and third-partyreprocessed 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 imitationmanufacturers and third-party reprocessors in an effort to reduce their sensor costs.These imitation and reprocessed sensors have led and may continue to lead to confusion with our genuine Masimo products; have reduced and may continueto reduce our revenue; and, in some cases, have harmed and may continue to harm our reputation if customers conclude incorrectly that these imitation orreprocessed sensors are original Masimo sensors.36Table of ContentsIn addition, we have expended a significant amount of time and expense investigating issues caused by imitation and reprocessed sensors, troubleshootingproblems stemming from such sensors, educating customers about why imitation and reprocessed sensors do not perform to their expectations, enforcing ourproprietary rights against the imitation manufacturers and reprocessors, and enforcing our contractual rights under our customer contracts.In response to these imitation sensors and third-party reprocessors, we have incorporated X-Cal® technology into certain products to ensure our customers getthe performance they expect by using genuine Masimo sensors and that such sensors do not continue to be used beyond their useful life. However, somecustomers 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, increasedsales of our own Masimo reprocessed sensors may result in lower revenues, which could negatively impact our business, financial condition and results ofoperations.Risks Related to Our Intellectual PropertyIf the patents we own or license, or our other intellectual property rights, do not adequately protect our technologies, we may lose market share to ourcompetitors 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, tradesecrets and a combination of copyright and trademark laws, as well as nondisclosure, confidentiality and other contractual arrangements, to protect ourintellectual property afford us only limited protection and may not adequately protect our rights or permit us to gain or maintain any competitive advantage.Our patents related to Masimo SET® algorithm technology began to expire in 2011. Certain other patents related to our ProCal sensor technology began toexpire in 2015. Additionally, upon the expiration of other issued or licensed patents, we may 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 onseveral patent cases and several laws have been enacted that, in certain situations, potentially narrows the scope of patent protection available and weakensthe rights of patent owners. There can be no assurance that we will be successful in securing additional patents on commercially desirable improvements, thatsuch additional patents will adequately protect our innovations or offset the effect of expiring patents, or that competitors will not be able to design aroundour patents.In addition, third parties may challenge our issued patents through procedures such as Inter-Partes Review (IPR). In many IPR challenges, the U.S. Patent andTrademark Office (PTO) cancels or significantly narrows issued patent claims. IPR challenges could increase the uncertainties and costs associated with themaintenance, enforcement and defense of our issued and future patents and could have a material adverse effect on our business, financial condition andresults of operations.We also utilize unpatented proprietary technology and know-how and often rely on confidentiality agreements and intellectual property assignmentagreements 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 useor disclosure or other breaches of the agreements, or in the event that our competitors discover or independently develop similar or identical designs or otherproprietary information.We rely on the use of registered and common law trademarks with respect to the brand names of some of our products. Common law trademarks provide lessprotection than registered trademarks. Loss of rights in our trademarks could adversely affect our business, financial condition and results of operations.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 inforeign countries, or if we cannot adequately protect our intellectual property rights in these foreign countries, our competitors may be able to compete moreeffectively against us, which could adversely affect our competitive position, as well as our business, financial condition and results of operations.37Table of ContentsIf third parties claim that we infringe their intellectual property rights, we may incur liabilities and costs and may have to redesign or discontinueselling certain products.Searching for existing intellectual property rights may not reveal important intellectual property and our competitors may also have filed for patentprotection, which may not be publicly-available information, or claimed trademark rights that have not been revealed through our searches. In addition, someof our employees were previously employed at other medical device companies. We may be subject to claims that our employees have disclosed, or that wehave 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 withoutmerit, 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 infringementclaims;•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 claimsare 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 ourcompetitors 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 litigationto protect and enforce our intellectual property rights, which may result in substantial expense and may divert management’s attention fromimplementing 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 andpreserving our trade secrets. We were previously involved in significant litigation to protect our patent positions related to some of our pulse oximetry signalprocessing patents that resulted in various settlements, most recently in 2016, and in view of some of the new market entrants, may be required to engage inadditional litigation to protect our intellectual property in the future. In addition, we believe that an individual, who previously held a high level technicalposition with us, misappropriated our intellectual property for the benefit of himself and other companies. Our ongoing and future litigation could result insignificant additional costs and further divert the attention of our management and key personnel from our business operations and the implementation of ourbusiness strategy and may not be successful or adequate to protect our intellectual property rights.Risks Related to Our Regulatory EnvironmentOur failure to obtain and maintain FDA clearances or approvals on a timely basis, or at all, would prevent us from commercializing our current orupgraded products in the U.S., which could severely harm our business.Unless an exemption applies, each medical device that we wish to 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 review process, or obtainingapproval of a premarket approval (PMA) application. Even if regulatory clearance or approval of a product is granted, the FDA may clear or approve ourproducts 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 uses thatwe propose for Masimo SET® or licensed rainbow® technology.The traditional FDA 510(k) clearance process for our products has generally taken between three to six months. However, our more recent experience andinteractions with the FDA, along with information we have received from other medical device manufacturers, suggests that, in some cases, the FDA isrequiring applicants to provide additional or different information and data for 510(k) clearance than it had previously required, and that the FDA may notrely on approaches that it had previously accepted to support 510(k) clearance. As a result, we have experienced lengthier FDA 510(k) review periods overthe past few years, which have delayed the 510(k) clearance process for our products.38Table of ContentsTo support our product applications to the FDA, we frequently are required to conduct clinical testing of our products. Such clinical testing must beconducted in compliance with FDA requirements pertaining to human research. Among other requirements, we must obtain informed consent from humansubjects 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 ofHealth. In addition, depending on the risk posed by a study, we may be required to obtain the FDA’s approval of the study under an Investigational DeviceExemption (IDE). Compliance with these requirements can require significant time and resources. If the FDA determines that we have not complied with suchrequirements, 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 pulse oximeters incorporating Masimo SET®and licensed rainbow® technology, patient monitor devices, sensors, cables and other products, we may need to initiate a recall of such devices. 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 denovo review processes. The process of obtaining a de novo classification or PMA approval is much more costly, lengthy and uncertain than the process forobtaining 510(k) clearance. De novo classification generally takes six months to one year from the time of submission of the de novo request, although it cantake longer. Approval of a PMA generally takes one to three years 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 mayalso be exempted from the 510(k) process and/or other regulatory requirements in accordance with specific FDA guidance and policies, such as the FDAguidance related to mobile medical applications. In addition, some of our products or product features may not be subject to device regulation pursuant toSection 520(o) of the FDCA, which excludes certain software functions from the statutory definition of a device. If the FDA changes its policy or concludesthat our marketing of these products is not in accordance with its current policy and/or Section 520(o) of the FDCA, we may be required to seek clearance orapproval of these devices through the 510(k), de novo or PMA processes.The failure of our OEM partners to obtain required FDA clearances or approvals for products that incorporate our technologies could have a negativeimpact on our revenue.Our OEM partners are required to obtain their own FDA clearances in the U.S. for most products incorporating Masimo technologies. The FDA clearances wehave obtained may not make it easier for our OEM partners to obtain clearances of products incorporating these technologies, or the FDA may not grantclearances on a timely basis, if at all, for any future products incorporating Masimo 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, theseproducts could be subject to restrictions or withdrawal from the market.Our products, along with the manufacturing processes, labeling and promotional activities for our products, are subject to continual review and periodicinspections by the FDA and other regulatory bodies. Among other requirements, we and our suppliers are required to comply with the FDA’s Quality SystemRegulation (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 products. The FDA enforces the QSR through announced and unannouncedinspections. 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, andother 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 adequatelyrespond to any FDA Form 483 observations, any Food and Drug Branch notices of violation or any similar reports could result in, among other things, any ofthe 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;39Table of Contents•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.If any of these items were to occur, 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 a product only if we receivea marketing authorization and, in some cases, pricing approval, from the appropriate regulatory authorities. The regulatory registration/licensing processvaries among international jurisdictions and may require additional or different product testing than required to obtain FDA clearance. FDA clearance doesnot ensure new product registration/licensing by foreign regulatory authorities, and we may be unable to obtain foreign regulatory registration/licensing on atimely 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 toreceive necessary approvals to commercialize our products in foreign jurisdictions on a timely basis, or at all, our business, financial condition and results ofoperations could be adversely affected.Modifications to our marketed devices may require new regulatory clearances or premarket approvals, or may require us to cease marketing or torecall the modified devices until clearances or approvals are obtained.We have made modifications to our devices in the past and we may make additional modifications in the future. Any modifications to an FDA-cleared devicethat could significantly affect its safety or effectiveness or that could constitute a major change in its intended use would require a new 510(k) clearance orpossibly a de novo review or PMA. We may not be able to obtain such clearances or approvals in a timely fashion, or at all. Delays in obtaining futureclearances would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would have an adverse effect on ourbusiness, financial condition and results of operations. For device modifications that we conclude do not require a new 510(k), we may be required to recalland to stop marketing the modified devices if the FDA disagrees with our conclusion and requires new clearances or approvals for the modifications, whichcould have an adverse effect on our business, financial condition and results of operations.Federal regulatory reforms may impact our ability to develop and commercialize our products and technologies.From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the clearance orapproval, 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 amendmentsto the device provisions of the FDCA. Among other changes, FDARA required that the FDA update and revise its processes for scheduling inspections ofdevice 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 servicers, and creates a new process for device sponsors torequest 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, the FDA regulations and guidance are often revised or reinterpreted by the FDA 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.If our 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 seriousinjury, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions,including recall of our products.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 orcontributed to a death or serious injury or in which a product of ours malfunctioned and, if the malfunction were to recur, would likely cause or contribute todeath or serious injury. In addition, all manufacturers placing medical devices in the European Union (EU) are legally required to report any serious orpotentially serious incidents involving devices produced or sold by the manufacturer to the relevant authority in those jurisdictions where any such incidentoccurred.40Table of ContentsThe FDA and similar foreign regulatory authorities have the authority to require the recall of our commercialized products in the event of materialdeficiencies or defects in, for example, design, labeling or manufacture. The FDA must find that there is a reasonable probability that the device would causeserious adverse health consequences or death in order to require a recall. The standard for recalling deficient products may be different in foreignjurisdictions. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found or they become aware of a safetyissue involving a marketed product. A government-mandated or voluntary recall by us or by one of our distributors could occur as a result of componentfailures, manufacturing errors, design or labeling defects or other deficiencies and issues.We may initiate certain field actions, such as a correction or removal of our products in the future. Any correction or removal initiated by us to reduce ahealth risk posed by our device, or to remedy a violation of the FDCA caused by the device that may present a risk to health, must be reported to the FDA. Ifthe 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 besubject to enforcement actions.Any recalls of our products or enforcement actions would divert managerial and financial resources and could have an adverse effect on our financialcondition and results of operations. In addition, given our dependence upon patient and physician perceptions, any negative publicity associated with anyrecalls could materially and adversely affect our business, financial condition, results of operations and growth prospects.Promotion of our 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 isknown 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 thepractice of medicine. While we may request additional cleared indications for our current products, the FDA may deny those requests, require additionalexpensive clinical data to support any additional indications or impose limitations on the intended use of any cleared product as a condition of clearance. Ifthe FDA determines that our products were promoted for off-label use or that false, misleading or inadequately substantiated promotional claims have beenmade by us or our OEM partners, it could request that we or our OEM partners modify those promotional materials or take regulatory or enforcement actions,including the issuance of an untitled letter, warning letter, injunction, seizure, civil fine and criminal penalties. It is also possible that other federal, state orforeign enforcement authorities may take action if they consider our communications, including promotional or training materials, to constitute promotion ofan uncleared or unapproved use. If not successfully defended, enforcement actions related to off-label promotion could result in significant fines or penaltiesunder other statutory authorities, such as laws prohibiting false claims for reimbursement. In any such event, our reputation could be damaged, adoption ofour products could be impaired and we could be subject to extensive fines and penalties.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 ordeceptive, our products could be considered misbranded under the FDCA or in violation of the Federal Trade Commission Act. We could also face lawsuitsfrom our competitors under the Lanham Act alleging that our marketing materials are false or misleading.The regulatory environment governing information, cybersecurity and privacy laws is increasingly demanding and continues to evolve.Personal privacy and data security have become significant issues in the U.S. Europe and in many other jurisdictions where we offer our products. Theregulatory framework for privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future.Certain U.S. laws govern the transmission, security and privacy of individually identifiable information that we may obtain or have access to in connectionwith the operation of our business, including the conduct of clinical research trials or other research studies that may provide us with access to sensitivehealth and other personal information. We may be required to make costly system modifications to comply with these data privacy and security requirements.In addition, if we do not properly comply with applicable laws and regulations related to the protection of this information, we could be subject to criminal orcivil sanctions. Internationally, the General Data Protection Regulation (GDPR) has recently taken effect in the European Economic Area (EEA) and manyEEA jurisdictions have also adopted their own data privacy and protection laws in addition to the GDPR. Furthermore, other international jurisdictions,including South Korea, China and Australia, have also implemented laws relating to data privacy and protection. Although we believe that we are complyingwith the GDPR and similar laws, these laws are still relatively new. Therefore, as international data privacy and protection laws continue to evolve, and asnew regulations, interpretive guidance and enforcement information becomes available, we may incur incremental costs to modify our business practices tocomply with these requirements. In addition, our internal control policies and procedures may not always protect us from reckless or criminal acts committedby our employees or agents.41Table of ContentsViolations of these laws, or allegations of such violations, could subject us to cash and non-cash penalties for noncompliance, disrupt our operations, involvesignificant management distraction and result in a material adverse effect on our business, financial condition and results of operations.We may be subject to or otherwise affected by federal and state health care laws, including fraud and abuse laws, and could face substantial penalties ifwe are unable to fully comply with these laws.Health care 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 health careprogram (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;•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 reimbursedby governmental programs and non-governmental third-party payers, including commercial insurers; and•the Physician Payments Sunshine Act (Sunshine Act), which requires medical device companies to track and publicly report, with limited exceptions, allpayments and transfers of value to physicians and teaching hospitals in the U.S. If we fail to comply with the data collection and reporting obligationsimposed by the Sunshine Act, we may be subject to substantial civil monetary penalties.If we are found to have violated any such laws or other similar governmental regulations, including their foreign counterparts, that are directly or indirectlyapplicable to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion of our products from reimbursement underMedicare, Medicaid and other federal health care programs, and the curtailment or restructuring of our operations. Any penalties could adversely affect ourability 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 health care 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 health care reform legislation in the U.S. or inour key international markets.Changes in the health care 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 newregulations on health plans, created insurance-pooling mechanisms and reduced Medicare spending on services provided by hospitals and other providers.The ACA also imposed significant new taxes on medical device makers in the form of a 2.3% excise tax on U.S. medical device sales, as well as relatedcompliance and reporting obligations. This medical device excise tax (MDET) has been temporarily suspended by Congress on a number of occasions, andmost recently through December 31, 2019. The MDET may be reimposed on medical device makers beginning on January 1, 2020 if such suspension is notre-extended or the MDET is not permanently repealed.Additionally, 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, on December 22, 2017, the Tax Cuts and Jobs Act of2017 (the 2017 Tax Act) was signed into law. The 2017 Tax Act, among other things, eliminated the individual mandate requiring most Americans (otherthan those who qualify for a hardship exemption) to carry a minimum level of health coverage effective January 1, 2019. Although we cannot predict theultimate content or timing of any healthcare reform legislation, potential changes resulting from any amendment, repeal or replacement of these programs,including any reduction in the future availability of healthcare insurance benefits, decrease the number of people who are insured, which could adverselyaffect 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 ofJustice, the Office of Inspector General of the Department of Health and Human Services, and the Department of Defense have issued subpoenas and otherrequests for information to medical device manufacturers, primarily related to financial arrangements with health care providers, regulatory compliance andmarketing and product promotional practices. Furthermore, certain state governments have enacted legislation to limit and/or increase transparency ofinteractions with health care providers, pursuant to which we are required by law to disclose payments and other transfers of value to health care providerslicensed by certain states.42Table of ContentsWe anticipate that the government will continue to scrutinize our industry closely, and any new regulations or statutory provisions could result in delays orincreased costs during the periods of product development, clinical trials and regulatory review and approval, as well as increased costs to assure compliance.Risks Related to Our Business and OperationsWe 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 anumber of our stockholders, including certain of our directors and executive officers, continue to own shares of Cercacor stock. Joe Kiani, our Chairman andChief Executive Officer (CEO), is also the Chairman and CEO of Cercacor.Due to the interrelated nature of Cercacor with us, conflicts of interest may arise with respect to transactions involving business dealings between us andCercacor, potential acquisitions of businesses or products, the development and ownership of technologies and products, the sale of products, markets andother matters in which our best interests and the best interests of our stockholders may conflict with the best interests of the stockholders of Cercacor. Inaddition, we and Cercacor may disagree regarding the interpretation of certain terms in the Cross-Licensing Agreement. We cannot guarantee that anyconflict 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 ifsuch 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 themonitoring 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 toCercacor and then license the technology back from Cercacor in consideration for upfront payments and royalty obligations to Cercacor. Therefore, theseproducts and technologies would be deemed to have been developed or improved exclusively by Cercacor. In addition, we will not be reimbursed byCercacor for our expenses relating to the development or improvement of any such products or technologies, which expenses may be significant. As a resultof these terms, we may not generate any revenue from the further development of certain products and technologies for the monitoring of non-vital signparameters, 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, ourbusiness 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 inthe 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. Inaddition, Cercacor has the right to terminate the Cross-Licensing Agreement or grant licenses covering rainbow® technology to third parties if we breachcertain terms of the agreement, including any failure to meet our minimum royalty payment obligations or failure to use commercially reasonable efforts todevelop or market products incorporating licensed rainbow® technology. If we lose our exclusive license to rainbow® technology, we would lose the abilityto prevent others from making, using, selling or importing products using rainbow® technology in our market. As a result, we would likely be subject toincreased competition within our market, and Cercacor or competitors who obtain a license to rainbow® technology from Cercacor would be able to offerrelated 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® technologythan products that do not include licensed rainbow® technology.We cannot assure you that we will be able to sell products incorporating licensed rainbow® technology at a price the market is willing to accept. If we cannotcommercialize our products incorporating licensed rainbow® technology successfully, we may not be able to generate sufficient product revenue from theseproducts to be profitable, which could adversely affect our business, financial condition and results of operations.43Table of ContentsRights 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 orCercacor. 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 theacquisition 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 arerequired 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 per product royalties payable to Cercacor will become subject to specified minimums, and the minimum aggregate annual royalties forlicensed rainbow® measurements payable to Cercacor related to carbon monoxide, methemoglobin, fractional arterial oxygen saturation, hemoglobin andblood glucose will increase to $15.0 million, plus up to $2.0 million for other rainbow® measurements. Also, 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 mightotherwise receive a premium for their shares over our then-current trading price. In addition, our requirement to assign all future improvements for non-vitalsigns to Cercacor could impede a change in control of our company.We may experience significant fluctuations in our quarterly and annual 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. andseveral 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 strength and growth in the U.S. economy has raised the probability of inflationary pressures and future interest rate hikes that havenot been experienced in the U.S. for more than a decade. 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 themarketplace due to legislation or other economic conditions, which may potentially impair our ability to access the capital markets on terms acceptable to usor at all; and the effects of government initiatives to manage economic conditions.In addition, we cannot predict how future economic conditions will affect our critical customers, suppliers and distributors and any negative impact on ourcritical 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 wasbelow our expectations, we would not be able to proportionately reduce our operating expenses for that period. Any revenue shortfall would have adisproportionately negative effect on our operating results for the period.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 tomeet 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, andmay 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. For example, inrecent years, the Financial Accounting Standards Board (FASB) issued new accounting standards that impact our reporting of revenue and expenses,including Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606) and ASC Topic 842, Leases (ASC 842).Changes made by these new accounting standards not only apply prospectively, but depending on the method of adoption, may also recast previouslyreported results. In addition, the 2017 Tax Act, which took effect on January 1, 2018, included a number of changes to existing tax law impacting businessesincluding, among other things, a permanent reduction in the corporate income tax rate from 35% to 21%, a one-time transition tax on the “deemedrepatriation” of cumulative undistributed foreign earnings as of December 31, 2017 and changes in the prospective taxation of the foreign operations of U.S.multinational companies. Moreover, Congressional leaders have recognized that the process of adopting extensive tax legislation in a short amount of timewithout hearings and substantial time for review is likely to have led to drafting errors, issues needing clarification and unintended consequences that willhave to be reviewed in subsequent tax legislation or addressed in future tax regulations. We continue to evaluate the impact of ASC 606, ASC 842 and the2017 Tax Act on our business, financial condition and results of operations. For additional information related to the impact of new accountingpronouncements and the 2017 Tax Act, please see Notes 2 and 18, respectively, to our accompanying consolidated financial statements included in Part IV,Item 15(a) of this Annual Report on Form 10-K.44Table of ContentsOur results of operations could vary as a result of the methods, estimates and judgments that we use in applying our accounting policies.The methods, estimates and judgments that we use in applying our accounting policies are, by their nature, subject to substantial risks, uncertainties andassumptions. Factors may arise over time that lead us to change our methods, estimates and judgments, the impact of which could significantly affect ourresults of operations. See “Critical Accounting Estimates” contained in Part II, Item 7 of this Annual Report on Form 10-K for additional information aboutthese methods, estimates and judgments.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 operationsor 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 engineersand field sales team, including sales representatives and clinical specialists. The loss of the services of members of our key personnel or the inability to attractand retain qualified personnel in the future could prevent the implementation and completion of our objectives, including the development and introductionof our products. In general, our key personnel may terminate their employment at any time and for any reason without notice, unless the individual is aparticipant in our 2007 Severance Protection Plan, in which case the individual has agreed to provide us with six months’ notice if such individual decides tovoluntarily resign.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 andother legal or regulatory proceedings can be expensive and time consuming to bring or defend against, requiring us to expend significant resources anddivert the efforts and attention of our management and other personnel from our business operations. These potential claims may include but are not limitedto personal injury and class action lawsuits, intellectual property claims and regulatory investigations relating to the advertising and promotional claimsabout our products and employee claims against us based on, among other things, discrimination, harassment or wrongful termination. Any one of theseclaims, even those without merit, may divert our financial and management resources that would otherwise be used to benefit the future performance of ouroperations. Any adverse determination against us in these proceedings, or even the allegations contained in the claims, regardless of whether they areultimately 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 ourcost 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 ouremployees are working under Masimo-sponsored temporary work visas, including H1-B visas. Statutory law limits the number of new H1-B temporary workpermit petitions that may be approved in a fiscal year. Furthermore, there is a possibility that the current U.S. immigration visa program may be significantlyoverhauled. Any resulting changes to this visa program could impact our ability to recruit, hire and retain qualified skilled personnel. If we are unable toobtain work visas in sufficient quantities or at a sufficient rate for a significant period of time, our business, operating results and financial condition could beadversely 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 30% of our net sales from international operations. In addition, we purchase a portion of our raw materials andcomponents from international sources. The sale and shipment of our products across international borders, as well as the purchase of materials andcomponents from international sources, subject us to extensive U.S. and foreign governmental trade regulations, including those related to conflict minerals.Compliance with such regulations is costly and we could be exposed to potentially significant penalties if we are found not to be in compliance with suchregulations. 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 ofshipments, restrictions on certain business activities, and exclusion or debarment from government contracting. Also, the failure to comply with applicablelegal and regulatory obligations could result in the disruption of our shipping, manufacturing and sales activities. Any material decrease in our internationalsales would adversely affect our business, financial condition and results of operations.45Table of ContentsIn June 2016, the United Kingdom (UK) held a referendum pursuant to which voters elected to leave the EU, commonly referred to as Brexit. Although thelong-term effects of Brexit will depend on any agreements the UK makes to retain access to the EU markets, Brexit has created additional uncertainties thatmay ultimately result in new regulatory costs and challenges for medical device companies and increased restrictions on imports and exports throughoutEurope, which could adversely affect our ability to conduct and expand our operations in Europe and which may have an adverse effect on our business,financial condition and results of operations. Additionally, Brexit may increase the possibility that other countries may decide to leave the EU in the future.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;•the loss of any key personnel that 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;•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 has recently initiated substantial changes in U.S. trade policy and U.S. trade agreements, including the initiation of tariffs on certainforeign goods. In response to these tariffs, certain foreign governments, including China, have instituted or are considering imposing tariffs on certain U.S.goods. In addition, the U.S. is negotiating or has entered into new trade agreements that could affect adversely us, including the United States-Mexico-Canada Agreement, which if adopted, would replace the North American Free Trade Agreement. A trade war, trade barriers or other governmental actionsrelated to tariffs, international trade agreements, import or export restrictions or other trade policies could adversely impact demand for our products, ourcosts, customers, suppliers and/or the U.S. economy or certain sectors thereof and, therefore, adversely affect our business, financial condition and results ofoperations.The U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and theirintermediaries from promising or making improper payments to non-U.S. officials for the purpose of obtaining an advantage to secure or retain business.Because of the predominance of government-sponsored health care systems around the world, many of our customer relationships outside of the U.S. are withgovernmental entities and are therefore subject to such anti-bribery laws. We have adopted policies and practices that help us ensure compliance with theseanti-bribery laws. However, such policies and practice may require us to invest in additional monitoring resources or forgo certain business opportunities inorder to ensure global compliance with these laws.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 globaleconomic uncertainty could significantly affect our results of operations in the form of gains and losses on foreign currency transactions and potentialdevaluation of the local currencies of our customers relative to the U.S. Dollar.46Table of ContentsWhile 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 thanthe U.S. Dollar. These foreign currency revenues, when converted into U.S. Dollars, can vary depending on average exchange rates 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 in Mexico are denominated in Mexican Pesos. As a result, expenses of these foreignsubsidiaries and certain production costs, when converted into U.S. Dollars, can vary depending on average monthly exchange rates during a respectiveperiod.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. Inaddition, certain intercompany transactions may give rise to realized and unrealized foreign currency gains or losses based on the currency underlying suchintercompany 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 thebalance sheet date and the statements of operations and cash flows are translated into U.S. Dollars using the average monthly exchange rate 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 ourbusiness, financial condition and results of operations. For additional information related to our foreign currency exchange rate risk, please see Quantitativeand Qualitative Disclosures about Market Risk in Part II, Item 7(a) of this Annual Report on Form 10-K.We currently manufacture our products at several locations and any disruption to, expansion of, or changes in trade programs related to ourmanufacturing operations could adversely affect our business, financial condition and results of operations.We rely on manufacturing facilities in California, New Hampshire, Mexico and Sweden that may be affected by natural or man-made disasters. Earthquakesare 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 andthe manufacturing equipment we use to produce our products would be difficult to replace and could require substantial time to repair if significant damagewere 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 notshift production to our other manufacturing facilities. Furthermore, our insurance for damage to our property and the disruption of our business fromcasualties 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 forany 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 voluntarilyexpand one or more of our manufacturing operations to new locations, we may incur additional transition costs and experience a disruption in the supply ofour products until the new facilities are available and operating. Additionally, we have occasionally experienced seasonality among our manufacturingworkforce, and if we continue to experience such seasonality or other workforce shortages or otherwise have issues retaining employees at our manufacturingfacilities, we may not be able to meet our customers’ demands.Our manufacturing facilities in Mexico are authorized to operate under the Mexican Maquiladora, or IMMEX program. The IMMEX program allows us toimport 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 IMMEXprogram and other local regulations. Failure to comply with the IMMEX program regulations, including any changes thereto, could increase ourmanufacturing 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 conditionand 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 ourrevenue and gross profit margin. Conversely, if product demand decreases, we may be unable to timely adjust our manufacturing cost structure, resulting inexcess capacity, which would lower gross product margins. Similarly, if we are unable to forecast demand accurately, we could be required to record chargesrelated to excess or obsolete inventory, which would also lower our gross margin.47Table of ContentsIf we are unable to obtain key materials and components from sole or limited source suppliers, we will not be able to deliver our noninvasive patientmonitoring solutions to customers.We depend on certain sole or limited source suppliers for key materials and components, including digital signal processor chips and analog-to-digitalconverter chips, for our noninvasive patient monitoring solutions. Manufacturing problems may occur related to these and other outside sources if thesesuppliers fail to develop and ship products and components to us on a timely basis, or provide us with products and components that do not meet our qualitystandards and required quantities. In addition, from time to time there have been industry-wide shortages of certain components that we use in ournoninvasive blood constituent patient monitoring solutions. We may also experience price increases for materials or components, with no guarantee thatsuch 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 tous, which could harm our ability to manufacture our own products and components profitably or on time.If we fail to comply with the reporting obligations of the Securities Exchange Act of 1934 and Section 404 of the Sarbanes-Oxley Act of 2002, or if wefail to maintain adequate internal control over financial reporting, our business, results of operations and financial condition and investors’ confidencein us could be adversely affected.We are required to prepare and disclose certain information under the Securities Exchange Act of 1934 in a timely manner and meet our reporting obligationsin 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, exposeus 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 internalcontrol over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, any failure to maintain compliance with the requirements ofSection 404 of the Sarbanes-Oxley Act or any material weakness in our internal control environment could result in the loss of investor confidence in thereliability 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 andoperating results.Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act, the Dodd-Frank WallStreet Reform and Consumer Protection Act (Dodd-Frank Act), the California Transparency in Supply Chains Act, the UK Modern Slavery Act and newregulations issued by the SEC and The Nasdaq Stock Market LLC, have and will create additional compliance requirements for us. To maintain highstandards of corporate governance and public disclosure, we have invested in, and intend to continue to invest in, reasonably necessary resources to complywith evolving standards.For example, the Dodd-Frank Act includes provisions regarding “conflict minerals” (generally tin, tantalum, tungsten and gold) that are mined in theDemocratic Republic of Congo and adjoining countries (the DRC region), and in June 2016, the EU adopted its own regulation on conflict minerals thatcovers the sourcing of conflict minerals from anywhere in the world. The provisions of the Dodd-Frank Act require us to undertake comprehensive duediligence to determine whether conflict minerals used in our products, including any portion of our products manufactured by third parties, financed orbenefited armed groups in the DRC region. The rules also require us to file conflict mineral reports with the SEC annually. We have incurred, and expect tocontinue to incur, additional costs to comply with these rules, including costs related to determining the source of origin of conflict minerals used in ourproducts. Given the complexity of our supply chain, we may face difficulties if our suppliers are unwilling or unable to verify the origin of all conflictminerals used in our products.In addition, stockholder litigation surrounding executive compensation and disclosure of executive compensation has increased with the passage of theDodd-Frank Act. Furthermore, our stockholders may not continue to approve our advisory vote on named executive officer compensation that is required tobe 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 othermatters not covered by our directors’ and officers’ liability insurance, we may incur significant expenses in defending against such lawsuits, or be subject tosignificant fines or required to take significant remedial actions, each of which could adversely affect our business, financial condition and results ofoperations.48Table of ContentsIf product liability claims are brought against us, we could face substantial liability and costs.Our products are predominantly used in patient care and expose us to product liability claims and product recalls, including, but not limited to, those thatmay arise from unauthorized off-label use, malfunctions, design flaws or manufacturing defects related to our products or the use of our products withincompatible components or systems. We cannot be certain that our product liability insurance will be sufficient to cover any or all damages for productliability 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 ratesor 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 andfederal levels and through new interpretations of existing legislation. For example, in February 2017, the Washington Supreme Court determined that, underthe Washington Product Liability Act, medical device manufacturers have a duty to warn hospitals of any potential risks posed by their products. As the legaland 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 andmarketability of our technology and products, together with the corresponding diversion of the attention of our key employees, may subject us to significantdamages and could adversely affect our business, financial condition and results of operations.Future acquisitions of businesses could negatively affect our business, financial condition and results of operations if we fail to integrate the acquiredbusinesses successfully into our existing operations or if we discover previously undisclosed liabilities.We have acquired several businesses since our inception and we may acquire additional businesses in the future. Future acquisitions may require debt orequity financing, which could be dilutive to our existing stockholders or reduce our earnings per share. Even if we complete acquisitions, there are manyfactors that could affect whether such acquisition 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 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;•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 or collaborators;•litigation or other claims in connection with the acquisition; and•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 depends on our ability to successfully conduct due diligence, negotiate acceptable acquisition terms,evaluate prospective acquisitions and bring acquired technologies and/or products to market at acceptable margins and operating expense levels. Our failurein any of these tasks could result in unforeseen liabilities associated with an acquired company, acquiring a company on unfavorable terms or selecting andeventually acquiring a suboptimal acquisition target. We may also discover deficiencies in internal controls, data adequacy and integrity, product quality,regulatory compliance and product liabilities that we did not uncover prior to our acquisition of such businesses, which could result in us becoming subjectto penalties or other liabilities. If we do not achieve the anticipated benefits of an acquisition as rapidly as expected, or at all, investors or analysts may notperceive the same benefits of the acquisition as we do.49Table of ContentsIf these risks materialize, our stock price could be materially adversely affected. Any difficulties in the integration of acquired businesses or unexpectedpenalties or liabilities in connection with such businesses could have a material adverse effect on 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, includingsilicone adhesives, solder and solder paste, sealants, epoxies and various solvents such as methyl ethyl ketone, acetone and isopropyl alcohol. As a result, weare 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 ourmanufacturing processes. For example, products that we sell in Europe are subject to regulation in the EU markets under the Restriction of the Use ofHazardous Substances Directive (RoHS). RoHS prohibits companies from selling products that contain certain hazardous materials in EU member states. Inaddition, 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 may increase our manufacturing costs, detrimentallyimpact 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 heldliable for any resulting damages, the related liability for which could exceed our reserves. We do not specifically insure against environmental liabilities. Ifan 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 onterms favorable to us.We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including anycybersecurity 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 ofMasimo’s and our customers’, partners’, suppliers’ and third-party service providers’ products, systems and networks, including the confidentiality,availability and integrity of any underlying information and data. Our ability to effectively manage and maintain our internal business information, and toship products to customers and invoice them on a timely basis, depends significantly on our enterprise resource planning system and other informationsystems. Portions of our information technology systems may experience interruptions, delays or cessations of service or produce errors in connection withongoing systems implementation work. In addition, interfaces between our products and our customers’ computer networks could provide additionalopportunities for cybersecurity attacks on us and our customers. The techniques used to attack computer systems are sophisticated, change frequently andmay 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, ransom ware, 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 measureswill 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 theunderlying information technology system and data integrity, including from cyber-attacks, intrusions or other breaches or unauthorized access of thesesystems, or any failure by us to remediate any such attacks or breaches, may also result in damage to our reputation or competitiveness, delays in productfulfillment and reduced efficiency of our operations, and could require significant capital investments to remediate any such failure, problem or breach, all ofwhich could adversely affect our business, financial condition and results of operations.From time to time, we may carry out strategic initiatives that could negatively impact our business, financial condition and results of operations.We expect to continue to carry out strategic initiatives and investments that we believe are necessary to grow our revenues and expand our business, both inthe U.S. and abroad. For example, we have continued to invest in international expansion programs designed to increase our worldwide presence and takeadvantage of market expansion opportunities around the world. Although we believe these initiatives and investments continue to be in the long-term bestinterests of Masimo and our stockholders, there are no assurances that such initiatives and investments will yield favorable results for us.50Table of ContentsAccordingly, if these initiatives and investments are not successful, our business, financial condition and results of operations could be adversely affected.Our Credit Agreement contains certain covenants and restrictions that may limit our flexibility in operating our business.Our Credit Agreement dated December 17, 2018 (Credit Facility) with JPMorgan Chase Bank, N.A., as Administrative Agent and a Lender, and Bank of theWest, a Lender, contains various affirmative covenants and restrictions that limit our ability to engage in specified types of transactions, including:•incurring specified types of additional indebtedness (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 specifiedexceptions;•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 affirmative covenants. Our ability to meetthose financial ratios and affirmative covenants could be affected by events beyond our control and, therefore, we cannot be assured that we will be able tocontinue 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 ofan event of default, the Lenders could elect to declare all amounts outstanding under the Credit Facility immediately due and payable, terminate allcommitments to extend further credit and pursue legal remedies for recovery, all of which could adversely affect our business and financial condition. As ofDecember 29, 2018, we had no amounts outstanding under the Credit Facility and were in compliance with all applicable covenants. See Note 13 to ouraccompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information on our CreditFacility.We may experience conflicts of interest with respect our CEO’s role in the Patient Safety Movement Foundation.Joe Kiani, our Chairman and CEO, founded the Patient Safety Movement Foundation in 2012 with the aim of eliminating preventable deaths caused bymedical errors. Conflicts of interest issues may arise between our business and customers and the objectives of the Patient Safety Movement Foundation.Recommendations and other actions encouraged by the Patient Safety Movement Foundation may not favor our products. Additionally, some hospitals andother healthcare providers may disagree with the Patient Safety Movement Foundation’s actions or recommendations and disfavor Masimo products becauseof Mr. Kiani’s role in the Patient Safety Movement Foundation, which could adversely affect our business, financial condition and results of operations. Mr.Kiani’s role in the Patient Safety Movement Foundation and our support of it may also result in the actions of the Patient Safety Movement Foundation beingdeemed actions of ours. This could result in Masimo being held liable for any acts of the Patient Safety Movement Foundation that would not be incompliance with applicable law if performed by Masimo, which could subject us to fines and other penalties.Risks Related to Our StockOur 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 stockprice ranged from $82.06 to $125.32 per share from January 2, 2018 to December 29, 2018. Factors contributing to our stock price volatility may include ourfinancial performance, as well as broader economic, political and market factors. In addition to the other risk factors previously discussed in this AnnualReport on Form 10-K, 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, 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;51Table of Contents•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;•changes in financial markets or general economic conditions, including the effects of recession or slow economic growth in the U.S. and abroad;•sales of stock by us or members of our management team, our Board of Directors (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.Concentration of ownership among our existing directors, executive officers and principal stockholders may prevent new investors from influencingsignificant corporate decisions.As of December 29, 2018, our current directors and executive officers and their affiliates, in the aggregate, beneficially owned approximately 11.3% of ouroutstanding stock. Subject to any fiduciary duties owed to our other stockholders under Delaware law, these stockholders may be able to exercise significantinfluence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, and will havesome control over our management and policies. Some of these persons or entities may have interests that are different from yours. For example, thesestockholders may support proposals and actions with which you may disagree or which are not in your best interests. The concentration of ownership coulddelay 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 theprice 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 othermanagement and Board proposals that are subject to stockholder approval, such as amendments to our employee stock plans and approvals of significantfinancing transactions.Our investors could experience substantial dilution of their investments as a result of subsequent exercises of our outstanding options, vesting ofoutstanding restricted stock units (RSUs) and performance stock units (PSUs), or the grant of future equity awards by us.As of December 29, 2018, approximately 11.9 million shares of our common stock were reserved for issuance under our equity incentive plans, of whichapproximately 5.7 million shares were subject to options outstanding at such date at a weighted-average exercise price of $43.61 per share, approximately 2.7million shares were subject to outstanding RSUs, approximately 0.3 million shares were subject to outstanding PSUs and approximately 3.2 million shareswere available for future awards under our 2017 Equity Incentive Plan. Over the past 24 months, we have experienced higher rates of stock option exercisescompared to many earlier periods, and this trend may continue. To the extent outstanding options are exercised or outstanding RSUs or PSUs vest, ourexisting stockholders may incur dilution. We rely on equity awards to motivate current employees and to attract new employees. The grant of future equityawards 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 asubstantial number of such shares, announcements of any proposed resale of substantial amounts of our stock or the perception that substantial resales may bemade, could significantly reduce the market price of our stock. Some of our directors and executive officers have entered into Rule 10b5-1 trading planspursuant 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 orpotential 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 theinsider has lost confidence in our stock and reduce the market price of our stock.52Table of ContentsWe have registered and expect to continue to register shares reserved under our equity plans pursuant to Registration Statements on Form S-8. All sharesissued 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 underRule 144. If a large number of these shares are sold in the public market, the sales could reduce the trading price of our stock.Our corporate documents and Delaware law contain provisions that could discourage, delay or prevent a change in control of our company, preventattempts to replace or remove current management and reduce the market price of our stock.Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a merger oracquisition involving us that our stockholders may consider favorable. For example, our amended and restated certificate of incorporation authorizes ourBoard to issue up to 5.0 million shares of “blank check” preferred stock. As a result, without further stockholder approval, our Board has the authority toattach special rights, including voting and dividend rights, to this preferred stock, including pursuant to a stockholder rights plan. With these rights, preferredstockholders could make it more difficult for a third-party to acquire us. In addition, our amended and restated certificate of incorporation provides for astaggered board of directors, whereby directors serve for three year terms, with one-third of the directors coming up for reelection each year. A staggeredBoard 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 ofus 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 athird-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 votingstock during the past three years, subject to certain exceptions as described in the General Corporation Law of the State of Delaware.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 makeany 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 anyfuture 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 providedby 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.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, capitalrequirements, financial condition, business prospects, contractual restrictions and other factors deemed relevant by our Board. In the event our Board declaresany dividends, there is no assurance with respect to the amount, timing or frequency of any such dividends.In July 2018, our Board approved a stock repurchase program, authorizing us to purchase up to 5.0 million additional shares of our common stock over aperiod of up to three years (2018 Repurchase Program). Any repurchase of our common stock under the 2018 Repurchase Program will be at the discretion ofa committee comprised of our CEO and Chief Financial Officer, and will depend on several factors, including, but not limited to, results of operations, capitalrequirements, financial conditions, available capital from operations or other sources and the market price of our common stock. Therefore, there is noassurance 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 ofour business, rather than repurchasing additional outstanding shares. For additional information related to our 2018 Repurchase Program, please see Note 15,to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K.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 throughacquisitions, investments or increased capital spending, or to fund our operations, may be limited. In addition, any repurchases we may make in the futuremay not prove to be at optimal prices. Our Board may modify or amend the 2018 Repurchase Program, or adopt a new stock repurchase program, at any timeat its discretion without stockholder approval.ITEM 1B.UNRESOLVED STAFF COMMENTSNone.53Table of ContentsITEM 2. PROPERTIESWe own approximately 213,400 square feet of property in Irvine, California that houses our corporate headquarters, manufacturing and U.S. research anddevelopment activities. We also own approximately 86,500 square feet of property in Hudson, New Hampshire, which is used to manufacture advanced lightemitting diodes and other advanced component-level technologies, as well as warehousing and administrative operations.We continue to lease and occupy various buildings in Irvine, California approximating a total of 176,000 square feet for product manufacturing,warehousing, distribution and sales support operations. These leases expire from November 2019 through November 2026. We also operate two separatefacilities in Mexicali and San Luis Rio Colorado, Mexico with combined square footage of approximately 216,900 square feet, which are used tomanufacture our products under a shelter labor agreement with Industrial Vallera de Mexicali, S.A. de C.V. (IVEMSA). IVEMSA leases these manufacturingfacilities directly from the owners of the properties under separate agreements. These leases expire in June 2021.Our international headquarters are located in approximately 13,500 square feet of leased office space in Neuchâtel, Switzerland. This office space is focusedon operations that include sales, marketing, customer service and other administrative functions. In addition, we currently lease approximately 19,800 squarefeet of space in Canada, which we use primarily for research, development, sales and marketing activities. We also lease approximately 16,400 square feet inDanderyd, Sweden, primarily for manufacturing, research, development and administrative functions related to our capnography and gas monitoringproducts. Our operations in various cities within Japan are located in approximately 14,600 square feet of leased space that we use for sales, marketing,customer service, administrative and warehousing operations. We also maintain a number of small sales offices throughout Europe, Asia, India, the MiddleEast, Australia and Latin America. We believe that our existing facilities are adequate to meet our needs and that existing needs and future growth can beaccommodated by leasing alternative or additional space.ITEM 3.LEGAL PROCEEDINGSThe information set forth in Note 19 to our accompanying consolidated financial statements under the caption “Litigation” included in Part IV, Item 15(a) ofthis Annual Report on Form 10-K is incorporated herein by reference.ITEM 4.MINE SAFETY DISCLOSURESNot applicable.54Table of ContentsPART IIITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESMarket InformationOur stock is traded on the Nasdaq Global Select Market under the symbol “MASI”. As of February 12, 2019, the closing price of our stock was $129.74 pershare, and the number of stockholders of record was 20. We believe that the number of beneficial owners is substantially greater than the number of recordholders because a large portion of our stock is held of record through brokerage firms in “street name.”Stock Performance GraphThe following stock performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall suchinformation be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent that we specifically incorporateit by reference into such filing.The following stock performance graph compares total stockholder returns for Masimo Corporation from December 29, 2012 through December 29, 2018against the Nasdaq Market Composite Index and Nasdaq Medical Equipment Index, assuming a $100 investment made on December 28, 2013. Each of thetwo comparative measures of cumulative total return assumes reinvestment of dividends. The stock performance shown on the graph below is not necessarilyindicative of future price performance.55Table of ContentsCOMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among Masimo Corporation, the Nasdaq Market Composite Index, andthe Nasdaq Medical Equipment Index*$100 invested on 12/28/13 in stock or 01/01/11 in index, including reinvestment of dividends. Indexes calculated on month-end basis.Repurchases and Withholdings of Issuer SecuritiesIn September 2015, our Board of Directors (Board) authorized a stock repurchase program, whereby we could purchase up to 5.0 million shares of ourcommon stock over a period of up to three years (2015 Repurchase Program). A total of 3.1 million shares were purchased by us pursuant to the 2015Repurchase Program prior to its expiration in September 2018.In July 2018, the Board approved a new stock repurchase program, authorizing us to purchase up to 5.0 million additional shares of its common stock over aperiod of up to three years (2018 Repurchase Program). The 2018 Repurchase Program became effective in September 2018 upon the expiration of the 2015Repurchase Program. We expect to fund the 2018 Repurchase Program through its available cash, cash expected to be generated from future operations andother potential sources of capital. The 2018 Repurchase Program can be carried out at the discretion of a committee comprised of our Chief Executive Officer(CEO) and Chief Financial Officer (CFO) through open market purchases, one or more Rule 10b5-1 trading plans, block trades and privately negotiatedtransactions. Any repurchases under the 2018 Repurchase Plan are subject to the availability of stock, general market conditions, the trading price of thestock, available capital, alternative uses for capital and our financial performance. There were no repurchases of stock under the 2018 Repurchase Programduring the three months ended December 29, 2018.56Table of ContentsITEM 6.SELECTED FINANCIAL DATAThe following tables reflect selected financial data derived from our consolidated financial statements for each of the last five years. The consolidatedstatement of operations data for the years ended December 29, 2018, December 30, 2017 and December 31, 2016 and the consolidated balance sheet data asof December 29, 2018 and December 30, 2017 were derived from our audited consolidated financial statements included in this Annual Report on Form 10-K. The consolidated statement of operations data for the years ended January 2, 2016 and January 3, 2015, and the consolidated balance sheet data as ofDecember 31, 2016, January 2, 2016 and January 3, 2015 were derived from our audited consolidated financial statements that are not included in thisAnnual Report on Form 10-K. Historical results are not necessarily indicative of future results.Certain information presented as of and for the periods ended December 30, 2017 and December 31, 2016 have been restated to reflect the full retrospectiveapplication of the new revenue accounting standard, Accounting Standards Update (ASU) No. 2014-09, Revenue (Topic 606): Revenue from Contracts withCustomers (ASU 2014-09). Information presented as of and for the periods ended January 2, 2016 and January 3, 2015 have not been restated and continue toreflect the prior revenue recognition guidance pursuant to ASC Topic 605, Revenue Recognition. See Note 2 to our accompanying consolidated financialstatements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information related to our adoption of this new accountingstandard.The selected financial data set forth below should be read in conjunction with our consolidated financial statements, the related notes and Item 7 -“Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K.57Table of Contents Year endedDecember 29,2018 Year endedDecember 30,2017As Adjusted Year endedDecember 31,2016As Adjusted Year endedJanuary 2,2016 Year endedJanuary 3,2015 (in thousands, except per share amounts)Statement of Operations(1): Revenue: Product$829,874 $738,242 $673,962 $599,334 $556,764Royalty and other revenue28,415 52,006 38,936 30,777 29,879Total revenue858,289 790,248 712,898 630,111 586,643Cost of goods sold283,397 268,216 234,560 220,128 195,864Gross profit574,892 522,032 478,338 409,983 390,779Operating expenses: Selling, general and administrative289,456 276,292 254,707 252,725 241,016Research and development76,967 61,953 57,686 56,617 56,581Litigation settlement, award and/or defense costs425 — (270,000) (19,609) (10,331)Total operating expenses366,848 338,245 42,393 289,733 287,266Operating income208,044 183,787 435,945 120,250 103,513Non-operating (income) expense(5,732) (2,013) 2,429 3,905 1,472Income before provision for income taxes213,776 185,800 433,516 116,345 102,041Provision for income taxes20,233 61,011 122,419 34,845 27,678Net income including noncontrolling interests193,543 124,789 311,097 81,500 74,363Net income (loss) attributable to noncontrolling interests— — — (1,800) 1,845Net income attributable to Masimo Corporation stockholders$193,543 $124,789 $311,097 $83,300 $72,518 Net income per common share attributable to MasimoCorporation stockholders(2): Basic$3.70 $2.42 $6.28 $1.62 $1.33Diluted$3.45 $2.23 $5.85 $1.55 $1.30Weighted-average number of common shares: Basic52,296 51,516 49,530 51,311 54,708Diluted56,039 55,874 53,195 53,707 55,571______________(1) Cercacor was consolidated as a variable interest entity within our financial statements for all periods prior to January 3, 2016. Accordingly, all intercompany royalties, optionand licensing fees, and other charges between us and Cercacor for such periods have been eliminated in the consolidation. For additional discussion of Cercacor, see Note 3to our accompanying consolidated financial statements in Part IV, Item 15(a) of this Annual Report on Form 10-K.(2) See Note 2 to our accompanying consolidated financial statements in Part IV, Item 15(a) of this Annual Report on Form 10-K for a description of the method used tocompute basic and diluted net income per common share. December 29, 2018 December 30, 2017As Adjusted December 31, 2016As Adjusted January 2, 2016 January 3, 2015 (in thousands)Balance Sheet Data: Cash, cash equivalents and short-term investments$552,490 $315,302 $305,970 $132,317 $134,453Working capital637,490 430,041 289,830 166,509 173,182Total assets1,154,818 905,436 814,352 601,735 565,006Total debt— — 71 185,145 125,224Total equity969,065 724,025 584,177 275,712 307,74158Table of ContentsITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSYou should read this discussion together with the financial statements, related notes and other financial information included in this Annual Report onForm 10-K. The following discussion may contain predictions, estimates and other forward-looking statements that involve a number of risks anduncertainties, including those discussed under Item 1A—“Risk Factors” and elsewhere in this Annual Report on Form 10-K. These risks could cause ouractual results to differ materially from any future performance suggested below.Executive OverviewWe are a global medical technology company that develops, manufactures and markets a variety of noninvasive monitoring technologies. Our mission is toimprove patient outcomes and reduce the cost of care. We invented Masimo SET®, which provides the capabilities of Measure-through Motion and LowPerfusion® pulse oximetry to address the primary limitations of conventional pulse oximetry. Pulse oximetry is the noninvasive measurement of the oxygensaturation level of arterial blood, or the blood that delivers oxygen to the body’s tissues, and pulse rate. Pulse oximetry is one of the most commonmeasurements made in and out of hospitals around the world. Masimo SET® has been validated in over 100 independent clinical studies and is the only pulseoximetry technology we are aware of that has been proven to help clinicians detect critical congenital heart disease in newborns, reduce retinopathy ofprematurity in neonates, and decrease intensive care unit transfers and rapid response activations on the general floor.After introducing Masimo SET®, we have continued to innovate by introducing noninvasive measurements beyond arterial blood oxygen saturation level(SpO2) and pulse rate (PR), creating new market opportunities in both the hospital and non-hospital care settings. We believe our Masimo rainbow SET™platform, which utilizes Masimo SET® and both licensed and proprietary rainbow® technologies, includes the first devices cleared by the U.S. Food and DrugAdministration (FDA) to noninvasively and continuously monitor multiple measurements that previously required invasive or complicated procedures.Following the introduction of our rainbow SET™ platform, we introduced additional noninvasive measurements and technologies including SedLine® brainfunction monitoring, NomoLine® capnography and gas monitoring, and O3® regional oximetry. Our current technology offerings also include PatientSafetyNet, Patient SafetyNet Surveillance, MyView®, Replica™ and Trace™. Please see Part I, Item 1 of this Annual Report on Form 10-K for additionalinformation related to our business, products and technologies.Adoption of New Revenue Accounting StandardEffective December 31, 2017, we adopted Financial Accounting Standards Board Accounting Standards Update (ASU) No. 2014-09, Revenue (Topic 606):Revenue from Contracts with Customers (ASU 2014-09). Our adoption of ASU 2014-09 generally resulted in (a) the acceleration of when we recognizecertain revenue, and (b) the deferral of certain incremental costs associated with obtaining a customer contract. As indicated by the notation “as adjusted”,prior period amounts and disclosures set forth in this Annual Report on Form 10-K have been updated to comply with the full retrospective application ofAccounting Standards Codification (ASC) Topic 606 (ASC 606). See Note 2 to our accompanying consolidated financial statements included in Part IV, Item15(a) of this Annual Report on Form 10-K for additional information related to our adoption of this new accounting standard.Tax Cuts and Jobs Act of 2017 (2017 Tax Act)On December 22, 2017, the 2017 Tax Act was signed into law, and became effective January 1, 2018. The 2017 Tax Act included a number of changes toexisting U.S. federal tax law impacting businesses including, among other things, a permanent reduction in the corporate income tax rate from 35% to 21%, aone-time transition tax on the “deemed repatriation” of cumulative undistributed foreign earnings as of December 31, 2017 and changes in the prospectivetaxation of the foreign operations of U.S. multinational companies. Given the complexity of the 2017 Tax Act, we made certain estimates and assumptions inconnection with the calculation of our provision for income taxes for the year ended December 30, 2017 and recorded a discrete tax charge of approximately$37.0 million. In addition, as a result of this change in U.S. tax policy, we recorded a related discrete tax charge of $6.5 million as a result of our decision torepatriate up to $180.0 million of accumulated undistributed earnings from our foreign subsidiaries. During the year ended December 29, 2018, we recordedan adjustment of approximately $0.9 million in our tax provision to reduce our previous estimated accrual as the result of additional information andguidance that became available with respect to the application of certain provisions of the 2017 Tax Act. See Note 18 to our accompanying consolidatedfinancial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information related to the impact of the 2017 Tax Acton our tax provision and tax rate.59Table of ContentsSettlement Agreement with Koninklijke Philips N.V. (Philips N.V.)In November 2016, we entered into a settlement agreement with Philips N.V. (the Philips Settlement Agreement), pursuant to which Philips N.V. agreed topay us $300 million, and Philips N.V. and its affiliates (collectively, the Philips Group) and us (collectively, the Parties) agreed to dismiss, with prejudice, allpending legal and contractual disputes between the Parties and agreed not to sue each other for patent infringement for certain of each other’s products. Inaddition, the Parties agreed to work together to integrate our technologies into additional Philips Group products, and to jointly develop certain otherproducts. Each of the Parties has additional obligations to the other in the event that such party does not meet certain objectives under the settlementagreement. The Philips Settlement Agreement also contains rainbow® parameter pricing and related terms. The Parties further agreed to undertake a jointmarketing program to promote rainbow® adoption with Philips Group products.Stock Repurchase ProgramsIn July 2018, our Board approved a stock repurchase program authorizing us to purchase up to 5.0 million shares of our common stock over a period of up tothree years (2018 Repurchase Program). The 2018 Repurchase Program may be carried out at the discretion of a committee comprised of our CEO and CFOthrough open market purchases, one or more Rule 10b5-1 trading plans, block trades and in privately negotiated transactions. For additional informationregarding our current and prior stock repurchase programs, see Part II, Item 5 and Note 15 to our accompanying consolidated financial statements included inPart IV, Item 15(a) of this Annual Report on Form 10-K.CercacorCercacor is an independent entity spun off from Masimo to our stockholders in 1998. We are a party to a cross-licensing agreement with Cercacor, which wasamended and restated effective January 1, 2007 (the Cross-Licensing Agreement), that governs each party’s rights to certain intellectual property held by thetwo companies. Joe Kiani, our Chairman and Chief Executive Officer, is also the Chairman and Chief Executive Officer of Cercacor. We have also enteredinto various other agreements with Cercacor, including an Administrative Services Agreement, a Consulting Services Agreement and a Sublease Agreement.For periods prior to January 3, 2016, Cercacor was consolidated as a variable interest entity within our financial statements. See Note 3 to our accompanyingconsolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information related to Cercacor.60Table of ContentsResults of Operations(1) 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. Year endedDecember 29,2018 Year endedDecember 30,2017As Adjusted Year endedDecember 31,2016As Adjusted Amount % ofRevenue Amount % ofRevenue Amount % ofRevenue (dollars in thousands)Revenue: Product$829,874 96.7 % $738,242 93.4 % $673,962 94.5 %Royalty and other revenue28,415 3.3 52,006 6.6 38,936 5.5Total revenue858,289 100.0 790,248 100.0 712,898 100.0Cost of goods sold283,397 33.0 268,216 33.9 234,560 32.9Gross profit574,892 67.0 522,032 66.1 478,338 67.1Operating expenses: Selling, general and administrative289,456 33.7 276,292 35.0 254,707 35.7Research and development76,967 9.0 61,953 7.8 57,686 8.1Litigation settlement, award and/or defense costs425 — — — (270,000) (37.9)Total operating expenses366,848 42.7 338,245 42.8 42,393 5.9Operating income208,044 24.2 183,787 23.3 435,945 61.2Non-operating (income) expense(5,732) (0.7) (2,013) (0.3) 2,429 0.3Income before provision for income taxes213,776 24.9 185,800 23.5 433,516 60.8Provision for income taxes20,233 2.4 61,011 7.7 122,419 17.2Net income$193,543 22.5 % $124,789 15.8 % $311,097 43.6 %Comparison of the Year ended December 29, 2018 to the Year ended December 30, 2017(1) Revenue. Total revenue increased $68.0 million, or 8.6%, to $858.3 million for the year ended December 29, 2018, from $790.2 million for the year endedDecember 30, 2017. The following table details our total product revenues by the geographic area to which the products were shipped for fiscal years 2018and 2017 (dollars in thousands): Year endedDecember 29,2018 Year endedDecember 30,2017As Adjusted Increase/(Decrease) PercentageChangeUnited States$566,816 68.3% $502,983 68.1% $63,833 12.7 %Europe, Middle East and Africa160,910 19.4 138,689 18.8 22,221 16.0Asia and Australia75,534 9.1 72,434 9.8 3,100 4.3North and South America (excluding United States)26,614 3.2 24,136 3.3 2,478 10.3Total product revenue$829,874 100.0% $738,242 100.0% $91,632 12.4 %Royalty and other revenue28,415 52,006 (23,591) (45.4)%Total revenue$858,289 $790,248 $68,041 ______________(1) Certain information presented for the periods ended December 30, 2017 and December 31, 2016 has been restated to reflect the full retrospective application of ASU 2014-09.See Note 2 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information related to ouradoption of this new accounting standard.61Table of ContentsProduct revenues increased $91.6 million, or 12.4%, to $829.9 million for the year ended December 29, 2018 from $738.2 million for the year endedDecember 30, 2017. This increase was primarily due to higher sales of our sensor products resulting from an increase in our installed base of circuit boardsand monitors, an increase in sales of parameter licenses as well as higher sales of circuit boards, monitoring equipment and parameter licenses. Included in ourproduct revenue growth was approximately $4.0 million of favorable foreign exchange rate movements from the prior year period that increased the U.S.Dollar translation of foreign sales that were denominated in various foreign currencies. During the year ended December 29, 2018, we shipped approximately231,700 noninvasive technology boards and monitors, an increase of approximately 28,700 units, or 14.1%, from approximately 203,000 units shippedduring the year ended December 30, 2017.Product revenue generated through our direct and distribution sales channels increased $73.9 million, or 11.5%, to $718.6 million for the year endedDecember 29, 2018, compared to $644.7 million for the year ended December 30, 2017. Revenues from our OEM channel increased $17.7 million, or 18.9%,to $111.3 million for the year ended December 29, 2018 as compared to $93.6 million for the year ended December 30, 2017.Royalty and other revenue consists primarily of royalties received from Medtronic plc (Medtronic, formerly Covidien Ltd.) related to its U.S. sales pursuantto the terms of settlement agreement, and revenue from non-recurring engineering (NRE) services for a certain OEM customer. For the year endedDecember 29, 2018, royalty and other revenue decreased $23.6 million, or 45.4%, to $28.4 million from $52.0 million for the year ended December 30, 2017,primarily due to the completion of the majority of our contracted NRE services in the prior year. In addition, Medtronic was no longer required to payroyalties to us after October 6, 2018. We currently do not expect to replace this royalty and NRE services revenue with similar revenue from other sources.Gross Profit. Gross profit consists of total revenue less cost of goods sold. Our gross profit for fiscal years 2018 and 2017 was as follows (dollars inthousands): Gross Profit Year endedDecember 29,2018 Percentage ofNet Revenues Year endedDecember 30,2017As Adjusted Percentage ofNet Revenues Increase/(Decrease) PercentageChangeProduct gross profit$547,188 65.9% $473,647 64.2% $73,541 15.5 %Royalty and other revenue gross profit27,704 97.5 48,385 93.0 (20,681) (42.7)Total gross profit$574,892 67.0% $522,032 66.1% $52,860 10.1 %Cost of goods sold includes labor, material, overhead and other similar costs related to the production, supply, distribution and support of our products andthe rendering of NRE services. Cost of goods sold increased $15.2 million to $283.4 million for the year ended December 29, 2018, from $268.2 million forthe year ended December 30, 2017, primarily due to increased product revenue that was partially offset by improved manufacturing efficiencies and productcost reductions. Product gross margins increased to 65.9% for the year ended December 29, 2018 from 64.2% for the year ended December 30, 2017. Thisincrease in product gross margin was primarily due to improved manufacturing efficiencies and product cost reductions. Royalty and other revenue grossprofit decreased by $20.7 million for the year ended December 29, 2018 compared to the year ended December 30, 2017, primarily due to lower NRE servicerevenue in the current year.Selling, General and Administrative. Selling, general and administrative expenses consist primarily of salaries and related expenses for sales, marketing andadministrative personnel, sales commissions, advertising and promotion costs, professional fees related to legal, accounting and other outside services, publiccompany costs and other corporate expenses. Selling, general and administrative expenses for fiscal years 2018 and 2017 were as follows (dollars inthousands):Selling, General and AdministrativeYear endedDecember 29,2018Percentage ofNet RevenuesYear endedDecember 30,2017As AdjustedPercentage ofNet RevenuesIncrease/(Decrease)PercentageChange$289,45633.7%$276,29235.0%$13,1644.8%62Table of ContentsSelling, general and administrative expenses increased $13.2 million, or 4.8%, to $289.5 million for the year ended December 29, 2018 from $276.3 millionfor the year ended December 30, 2017. This net increase was primarily attributable to higher payroll-related costs of approximately $24.8 million, higherGPO fees and third-party commission expenses of approximately $2.8 million and higher charitable donations of approximately $2.6 million. Theseincreased expenses were partially offset by lower legal expenses of approximately $2.7 million and the non-recurrence of a net charge of approximately $10.5million recorded during the year ended December 30, 2017 related to an arbitration proceeding that we initiated against a former appointed foreign agent, aswell as a $2.0 million partial recovery against such charge during the year ended December 29, 2018. See Note 19 to our accompanying consolidatedfinancial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information on the status of this arbitrationproceeding.Approximately $21.4 million and $13.3 million of stock-based compensation expense was included in selling, general and administrative expenses for theyears ended December 29, 2018 and December 30, 2017, respectively. The increase in stock-based compensation expense during the year endedDecember 29, 2018 was due to both the composition of the equity awards granted and a significant increase in the fair market value of our stock from theprior year that increased the value of the equity awards granted during the year. See Note 16 to our accompanying consolidated financial statements includedin Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information on our stock-based compensation programs.Research and Development. Research and development expenses consist primarily of salaries and related expenses for engineers and other personnel engagedin the design and development of our products. These expenses also include third-party fees paid to consultants, prototype and engineering supply expensesand the costs of clinical trials. Research and development expenses for fiscal years 2018 and 2017 were as follows (dollars in thousands):Research and DevelopmentYear endedDecember 29,2018Percentage ofNet RevenuesYear endedDecember 30,2017Percentage ofNet RevenuesIncrease/(Decrease)PercentageChange$76,9679.0%$61,9537.8%$15,01424.2%Research and development expenses increased $15.0 million, or 24.2%, to $77.0 million for the year ended December 29, 2018 from $62.0 million for theyear ended December 30, 2017. This net increase was due primarily to increases in payroll-related costs of approximately $9.5 million, engineering projectcosts of approximately $0.8 million and occupancy-related costs of approximately $0.8 million, as well as $2.9 million less in allocations to cost of goodssold due to lower NRE service revenue.Included in research and development expenses was approximately $5.7 million and $3.6 million of stock-based compensation expense for the years endedDecember 29, 2018 and December 30, 2017, respectively. The increase in stock-based compensation expense during the year ended December 29, 2018 wasprimarily due to the increase in the fair market value of our stock from the prior year that increased the value of the equity awards granted during the year. SeeNote 16 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additionalinformation on our stock-based compensation programs.Non-operating (Income) Expense. Non-operating (income) expense consists primarily of interest income, interest expense and foreign exchange losses. Non-operating income for fiscal years 2018 and 2017 was as follows (dollars in thousands):Non-operating (income)Year endedDecember 29,2018Percentage ofNet RevenuesYear endedDecember 30,2017Percentage ofNet Revenues(Increase)/DecreasePercentageChange$(5,732)(0.7)%$(2,013)(0.3)%$(3,719)184.7%Non-operating income was $5.7 million for the year ended December 29, 2018, as compared to $2.0 million of non-operating income for the year endedDecember 30, 2017. This net increase of approximately $3.7 million was primarily due to approximately $5.2 million in higher interest income. In addition,we recognized approximately $2.0 million of net realized and unrealized losses on foreign currency denominated transactions during the year endedDecember 29, 2018, as compared to $0.3 million of net realized and unrealized losses on foreign currency denominated transactions during the year endedDecember 30, 2017.63Table of ContentsProvision for Income Taxes. Our provision for income taxes for fiscal years 2018 and 2017 was as follows (dollars in thousands):Provision for Income TaxesYear endedDecember 29,2018Percentage ofNet RevenuesYear endedDecember 30,2017As AdjustedPercentage ofNet RevenuesIncrease/(Decrease)PercentageChange$20,2332.4%$61,0117.7%$(40,778)(66.8)%Our provision for income taxes was $20.2 million for the year ended December 29, 2018 compared to $61.0 million for the year ended December 30, 2017.Our effective tax rate was 9.5% for the year ended December 29, 2018 compared to 32.8% for the year ended December 30, 2017. This decrease in oureffective tax rate was primarily due to discrete charges of $43.5 million during the year ended December 30, 2017 for the estimated impact of the 2017 TaxAct and our related decision to repatriate up to $180.0 million of accumulated undistributed foreign earnings. During the year ended December 29, 2018, werecorded a tax benefit of approximately $5.0 million related to the derecognition of uncertain tax positions due to the expiration of the statutes of limitations.Partially offsetting these decreases to our effective tax rate were lower tax benefits for stock-based compensation of approximately $22.0 million for the yearended December 29, 2018 as compared to $39.2 million for the year ended December 30, 2017. See Note 18 to our accompanying consolidated financialstatements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information related to the impact of the 2017 Tax Act on our taxprovision and tax rate for the years ended December 29, 2018 and December 30, 2017.We have made no provision for U.S. income taxes or foreign withholding taxes on approximately $44.8 million in accumulated earnings from our foreignsubsidiaries as we expect that such amounts will continue to be indefinitely reinvested in operations outside the U.S. Our effective tax rate was lower than theU.S. federal statutory rate primarily due to a portion of our earnings being generated from countries other than the U.S., where such earnings are generallysubject to lower tax rates than the U.S., excess tax benefits from U.S. stock-based compensation and research and development tax credits. While we expectour worldwide consolidated effective tax rate will continue to be lower than the U.S. federal statutory rate, our actual future effective income tax rate willdepend on various factors, including the geographic composition of our pre-tax income, the amount of excess tax benefits realized from U.S. stock-basedcompensation, the amount of our research and development tax credits, the deductibility of executive compensation, changes in tax laws, changes in deferredtax asset valuation allowances and the recognition and derecognition of tax benefits associated with uncertain tax positions.Comparison of the Year ended December 30, 2017 to the Year ended December 31, 2016(2) Revenue. Total revenue increased $77.4 million, or 10.9%, to $790.2 million for the year ended December 30, 2017, from $712.9 million for the year endedDecember 31, 2016.The following table details our total product revenues by the geographic area to which the products were shipped for fiscal years 2017 and 2016 (dollars inthousands): Year endedDecember 30,2017As Adjusted Year endedDecember 31,2016As Adjusted Increase/(Decrease) PercentageChangeUnited States$502,983 68.1% $475,068 70.5% $27,915 5.9%Europe, Middle East and Africa138,689 18.8 113,015 16.8 25,674 22.7Asia and Australia72,434 9.8 66,136 9.8 6,298 9.5North and South America (excluding UnitedStates)24,136 3.3 19,743 2.9 4,393 22.3Total product revenue$738,242 100.0% $673,962 100.0% $64,280 9.5%Royalty and other revenue52,006 38,936 13,070 Total revenue$790,248 $712,898 $77,350 _____________(2) Certain information presented for the periods ended December 30, 2017 and December 31, 2016 has been restated to reflect the full retrospective application of ASU 2014-09.See Note 2 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information related to ouradoption of this new accounting standard.64Table of ContentsProduct revenues increased $64.3 million, or 9.5%, to $738.2 million for the year ended December 30, 2017 from $674.0 million for the year endedDecember 31, 2016. This increase was primarily due to higher sales of our sensor products resulting from an increase in our installed base of circuit boardsand pulse oximeters, as well as higher sales of monitoring equipment. During the year ended December 30, 2017, the movement in foreign exchange ratesfrom the prior year period on the U.S. Dollar translation of foreign sales that were denominated in various foreign currencies did not have a significant impacton product revenue. During the year ended December 30, 2017, we shipped approximately 203,000 noninvasive technology boards and monitors, an increaseof approximately 17,100 units, or 9.2%, from approximately 185,900 units shipped during the year ended December 31, 2016.Product revenue generated through our direct and distribution sales channels increased $62.5 million, or 10.7%, to $644.7 million for the year endedDecember 30, 2017, compared to $582.1 million for the year ended December 31, 2016. Revenues from our OEM channel increased $1.7 million, or 1.9%, to$93.6 million for the year ended December 30, 2017 as compared to $91.8 million for the year ended December 31, 2016.Royalty and other revenue consists primarily of royalties received from Medtronic plc (Medtronic, formerly Covidien Ltd.) related to its U.S. sales pursuantto the terms of settlement agreement, and revenue from non-recurring engineering (NRE) services for a certain OEM customer. For the year endedDecember 30, 2017, royalty and other revenue increased 33.6%, or $13.1 million to $52.0 million from $38.9 million for the year ended December 31, 2016,primarily due to higher revenue from NRE services.Gross Profit. Gross profit consists of total revenue less cost of goods sold. Our gross profit for fiscal years 2017 and 2016 was as follows (dollars inthousands): Gross Profit Year endedDecember 30,2017As Adjusted Percentage ofNet Revenues Year endedDecember 31,2016As Adjusted Percentage ofNet Revenues Increase/(Decrease) PercentageChangeProduct gross profit$473,647 64.2% $441,078 65.4% $32,569 7.4%Royalty and other revenue gross profit48,385 93.0 37,260 95.7 11,125 29.9Total gross profit$522,032 66.1% $478,338 67.1% $43,694 9.1%Cost of goods sold includes labor, material, overhead and other similar costs related to the production, supply, distribution and support of our products andthe rendering of NRE services. Cost of goods sold increased $33.7 million to $268.2 million for the year ended December 30, 2017, from $234.6 million forthe year ended December 31, 2016, primarily due to increased product revenue, higher production costs associated with the expansion of our manufacturingcapacity and increased inventory valuation reserves associated with certain product transitions. Product gross margins decreased to 64.2% for the year endedDecember 30, 2017 from 65.4% for the year ended December 31, 2016. This decrease in product gross margin was primarily due to differences in customerand product mix, unfavorable production variances associated with the expansion of our manufacturing capacity and increased inventory valuation reservesassociated with certain product transitions. Royalty and other revenue gross profit increased by $13.1 million for the year ended December 30, 2017compared to the year ended December 31, 2016, primarily due to higher NRE service revenue.Selling, General and Administrative. Selling, general and administrative expenses for fiscal years 2017 and 2016 were as follows (dollars in thousands):Selling, General and AdministrativeYear endedDecember 30,2017As AdjustedPercentage of Net RevenuesYear endedDecember 31,2016As AdjustedPercentage of Net RevenuesIncrease/(Decrease)PercentageChange$276,29235.0%$254,70735.7%$21,5858.5%65Table of ContentsSelling, general and administrative expenses increased $21.6 million, or 8.5%, to $276.3 million for the year ended December 30, 2017 from $254.7 millionfor the year ended December 31, 2016. This net increase was primarily attributable to higher payroll-related expenses of approximately $11.9 million, highersales and marketing related expenses of approximately $5.3 million and higher occupancy costs of approximately $3.1 million. In addition, we also recordeda net charge of approximately $10.5 million related to arbitration proceedings that we initiated during the year ended December 30, 2017 against a formerappointed foreign agent seeking to collect amounts that were paid by a foreign government customer to such agent in connection with a foreign governmenttender. See Note 19 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additionalinformation on this arbitration proceeding. These increases were partially offset by a decrease in donations of approximately $5.3 million and lower legal andprofessional fees of approximately $4.7 million.Approximately $13.3 million and $9.4 million of stock-based compensation expense was included in selling, general and administrative expenses for theyears ended December 29, 2018 and December 30, 2017, respectively. The increase in stock-based compensation expense during the year endedDecember 29, 2018 was due to both the composition of the equity awards granted and a significant increase in the fair market value of our stock from theprior year that increased the value of the equity awards granted during the year. See Note 16 to our accompanying consolidated financial statements includedin Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information on our stock-based compensation programs.Research and Development. Research and development expenses for fiscal years 2017 and 2016 were as follows (dollars in thousands):Research and DevelopmentYear endedDecember 30,2017Percentage of Net RevenuesYear endedDecember 31,2016As AdjustedPercentage of Net RevenuesIncrease/(Decrease)PercentageChange$61,9537.8%$57,6868.1%$4,2677.4%Research and development expenses increased $4.3 million, or 7.4%, to $62.0 million for the year ended December 30, 2017 from $57.7 million for the yearended December 31, 2016. This net increase was due primarily to increases in payroll-related costs of approximately $4.9 million, which were offset byapproximately $1.9 million of higher allocations of costs related to NRE services that were reclassified to cost of goods sold.Included in research and development expenses was approximately $3.6 million and $2.7 million of stock-based compensation expense for the years endedDecember 30, 2017 and December 31, 2016, respectively.Litigation Settlement, Award and/or Defense Costs. Litigation settlement, award and/or defense costs for fiscal years 2017 and 2016 were as follows (dollarsin thousands):Litigation Settlement, Award and/or Defense CostsYear endedDecember 30,2017Percentage of Net RevenuesYear endedDecember 31,2016Percentage of Net Revenues(Increase)/DecreasePercentageChange$——%$(270,000)(37.9)%$270,000(100.0)%On November 5, 2016, we entered into a settlement agreement (the Philips Settlement Agreement) with Philips N.V., which among other things, settled all ofthe claims, legal proceedings and contractual disputes between us, Philips and its affiliates. Pursuant to the Philips Settlement Agreement, Philips N.V. paidus $300 million, $30 million of which related to certain future performance obligations by us and, therefore, was deferred to future periods. See “SettlementAgreement with Koninklijke Philips N.V. (Philips N.V.)” previously discussed within Part II, Item 7 of this Annual Report on Form 10-K for additionalinformation on the Philips Settlement Agreement.Non-operating (Income) Expense. Non-operating (income) expense consists primarily of interest income, interest expense and foreign exchange losses. Non-operating (income) expense for fiscal years 2017 and 2016 was as follows (dollars in thousands):Non-operating (income) expenseYear endedDecember 30,2017Percentage of Net RevenuesYear endedDecember 31,2016Percentage of Net Revenues(Increase)/DecreasePercentageChange$(2,013)(0.3)%$2,4290.3%$(4,442)(182.9)%66Table of ContentsNon-operating income was $2.0 million for the year ended December 30, 2017, as compared to $2.4 million of non-operating expense for the year endedDecember 31, 2016. This net increase of approximately $4.4 million was primarily due to increased interest income of $2.5 million and lower interestexpense of approximately $2.6 million, both of which resulted primarily from the cash received pursuant to the Philips Settlement Agreement in the fourthquarter of 2016. In addition, we recognized approximately $0.3 million of net realized and unrealized losses on foreign currency denominated transactionsduring the year ended December 30, 2017, as compared to $0.1 million of net realized and unrealized gains on foreign currency denominated transactionsduring the year ended December 31, 2016.Provision for Income Taxes. Our provision for income taxes for fiscal years 2017 and 2016 was as follows (dollars in thousands):Provision for Income TaxesYear endedDecember 30,2017As AdjustedPercentage of Net RevenuesYear endedDecember 31,2016As AdjustedPercentage of Net RevenuesIncrease/(Decrease)PercentageChange$61,0117.7%$122,41917.2%$(61,408)(50.2)%Our provision for income taxes was $61.0 million for the year ended December 30, 2017 compared to $122.4 million for the year ended December 31, 2016.Our effective tax rate was 32.8% for the year ended December 30, 2017 compared to 28.2% for the year ended December 31, 2016. This increase in oureffective tax rate was primarily due to discrete charges during the year ended December 30, 2017of approximately $43.5 million, including $37.0 millionrelated to the direct impact of the 2017 Tax Act and $6.5 million resulting from our decision to repatriate up to $180.0 million of accumulated undistributedearnings from our foreign subsidiaries as a result of the changes in U.S. tax policy under the 2017 Tax Act. An unfavorable mix in the geographiccomposition of our pre-tax earnings between higher tax and lower tax jurisdictions also contributed to the increase in our effective tax rate. These increases toour effective tax rate were partially offset by incremental excess tax benefits realized for stock-based compensation of approximately $39.2 million for theyear ended December 30, 2017 as compared to $13.0 million for the year ended December 31, 2016. See Note 18 to our accompanying consolidated financialstatements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information related to the impact of the 2017 Tax Act on our taxprovision and tax rate for the year ended December 30, 2017.LiquidityOur principal sources of liquidity consist of our existing cash and cash equivalent balances and funds expected to be generated from operations. As ofDecember 29, 2018, we had approximately $637.5 million in working capital and approximately $552.5 million in cash and cash equivalents as compared toapproximately $430.0 million in working capital and approximately $315.3 million in cash and cash equivalents at December 30, 2017. We carry cashequivalents at cost that approximates fair value. We currently do not maintain a significant investment portfolio but have the ability to invest in varioussecurity holdings, types and maturities that meet credit quality standards in accordance with our investment guidelines.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 December 29, 2018, wehad cash totaling $78.7 million held outside of the U.S., all of which was accessible without additional tax cost. We currently have sufficient domestic fundson-hand and cash held outside the U.S. that is available without additional tax cost to fund our domestic operations. In the event funds that are treated aspermanently reinvested are repatriated, we may be required to accrue and pay additional U.S. taxes to repatriate these funds.During fiscal years 2018, 2017 and 2016, we received $33.3 million, $32.9 million, and $30.5 million, respectively, in cash from Medtronic for royaltiesrelated to their U.S. sales pursuant to the terms of our amended settlement agreement. Pursuant to the terms of the Third Amendment to Settlement Agreementand Release of Claims, Medtronic is no longer required to pay royalties to us on their sales after October 6, 2018. We currently do not expect to replace thisroyalty income stream.67Table of ContentsCash Flows(3) The following table summarizes our cash flows (in thousands): Year Ended December 29, 2018 December 30, 2017As AdjustedNet cash provided by (used in): Operating activities$239,527 $56,062Investing activities(26,152) (47,908)Financing activities25,780 (4,138)Effect of foreign currency exchange rates on cash(1,997) 3,269Increase in cash and cash equivalents, and restricted cash$237,158 $7,285Operating Activities. Cash provided by operating activities for the year ended December 29, 2018 was $239.5 million and was driven primarily by netincome of $193.5 million. Non-cash activity included stock based compensation of $27.4 million, depreciation and amortization of $21.1 million and adeferred income tax benefit of $8.3 million. Additional sources of cash related to changes in operating assets and liabilities included a decrease in accountsreceivable of $10.8 million, primarily due to the timing of collections, and increases in accrued compensation, accounts payable and other current liabilitiesof $10.2 million, $5.2 million and $3.9 million, respectively, primarily due to the timing of payments. These sources of cash were partially offset by otherchanges in operating assets and liabilities related to an increase in deferred cost of goods of $17.9 million, primarily due to the growth in our business, and adecrease in other liabilities of $7.6 million, primarily due to the derecognition of uncertain tax positions as a result of the expiration of certain statutes oflimitations.Cash provided by operating activities for the year ended December 30, 2017 was $56.1 million and was driven primarily by net income of $124.8 million andnon-cash adjustments for depreciation and amortization, deferred income taxes, stock-based compensation and a provision related to a former appointedforeign agent of $20.1 million, $17.3 million, $17.2 million and $10.5 million, respectively. In addition, during the year ended December 30, 2017, otherliabilities increased by $28.0 million, primarily due to income taxes payable after 2018 under the 2017 Tax Act. These sources of cash were partially offsetby other changes in operating assets and liabilities related to increases in inventories, deferred cost of goods sold and other assets of $24.0 million, $14.1million and $10.8 million, respectively, primarily due to the growth in our business; an increase in accounts receivable of $19.8 million, primarily due to thetiming of collections; and decreases in income taxes payable and deferred revenue of $72.1 million and $13.3 million, respectively, primarily due to thetiming of payments.Investing Activities. Cash used in investing activities for the fiscal year ended December 29, 2018 was $26.2 million, consisting primarily of $17.1 million forpurchases of property and equipment, $5.6 million for intangible assets related to capitalized patent and trademark costs and $3.9 million related to theacquisition of a private patient monitoring software company.Cash used in investing activities for the fiscal year ended December 30, 2017 was $47.9 million, consisting primarily of $43.7 million for purchases ofproperty and equipment and $3.1 million for intangible assets related to capitalized patent and trademark costs.Financing Activities. Cash provided by financing activities for the fiscal year ended December 29, 2018 was $25.8 million, resulting primarily proceeds fromthe issuance of common stock (upon exercise of options) of $44.7 million, which were partially offset by cash paid for common stock repurchase transactionsthat settled during the year of $18.5 million.Cash used in financing activities for the fiscal year ended December 30, 2017 was $4.1 million, resulting primarily from common stock repurchasetransactions that settled during the year totaling $66.3 million, which were offset by proceeds from the issuance of common stock (upon exercise of options)totaling $62.2 million.______________(3) Certain information presented for periods ending prior to December 31, 2017 has been restated to reflect the full retrospective application of the new revenue accountingstandard, ASU 2014-09. See Note 2 to the condensed consolidated financial statements included in Part IV, Item 16 of this Annual Report on Form 10-K68Table of ContentsCapital Resources and Prospective Capital RequirementsOn December 17, 2018, we entered into a Credit Agreement (Credit Facility) with JPMorgan Chase Bank, N.A., as Administrative Agent and a Lender, andBank of the West, as a Lender (collectively, the Initial Lenders). The Credit Facility provides for up to $150.0 million of unsecured borrowings, with anoption, subject to certain conditions, for us to increase the aggregate borrowing capacity to up to $550.0 million in the future with the Initial Lenders andadditional Lenders, as required. The Credit Facility also provides 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. All unpaid principal under the Credit Facility will become due and payable on December 17,2023. Proceeds from the Credit Facility are expected to be used for general corporate, capital investment and working capital needs. For additionalinformation regarding the Credit Facility, see Note 13 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this AnnualReport on Form 10-K.In July 2018, our Board approved the 2018 Repurchase Program, authorizing us to purchase up to 5.0 million additional shares of its common stock over aperiod of up to three years. The 2018 Repurchase Program became effective in September 2018 upon the expiration of our previous repurchase program. Foradditional information regarding our stock repurchase programs, see Note 15 to our accompanying consolidated financial statements included in Part IV,Item 15(a) of this Annual Report on Form 10-K.We expect to fund our future operating, investing and financing activities through our available cash, future cash from operations, our Credit Facility andother potential sources of capital. In addition to funding our working capital requirements, we anticipate additional capital expenditures during fiscal year2019 of approximately $80.0 million, primarily related to investments in infrastructure growth. Possible additional uses of cash may include the acquisitionof technologies or technology companies, as well as repurchases of stock under our authorized stock repurchase program. However, any repurchases of stockwill be subject to numerous factors, including the availability of our stock, general market conditions, the trading price of our stock, available capital,alternative uses for capital and our financial performance. In addition, the amount and timing of our actual investing activities will vary significantlydepending on numerous factors, including the timing and amount of capital expenditures, costs of product development efforts, our timetable forinternational sales operations and manufacturing expansion, stock repurchase activity and costs related to our domestic and international regulatoryrequirements. Despite these investment requirements, we anticipate that our existing cash and cash equivalents and amounts available under our new CreditFacility will be sufficient to meet our working capital requirements, capital expenditures and other operational funding needs for at least the next 12 months.Off-Balance Sheet ArrangementsWe do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities referred to asstructured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for othercontractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As a result, we are notmaterially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.Contractual Obligations and Commercial CommitmentsThe following table summarizes our outstanding contractual obligations and commercial commitments as of December 29, 2018 and the effect thoseobligations are expected to have on our cash liquidity and cash flow in future periods (in thousands). The estimated payments reflected in this table are basedon management’s estimates and assumptions about these obligations. As a result, the actual cash outflows in future periods will vary, possibly materially,from those reflected in this table. Payments Due By Period Less than1 year Between1-3 years Between 3-5 years More than5 years TotalOperating leases(1)$6,926 $6,806 $3,269 $9,921(3) $26,922Purchase commitments(2)90,400 — — — 90,400Total contractual obligations$97,326 $6,806 $3,269 $9,921 $117,322______________(1) Facility, equipment and automobile leases.(2) Certain inventory items under non-cancellable purchase orders.(3) Includes optional renewal periods for certain leases.Other obligations: As of December 29, 2018, our estimated liabilities related to uncertain tax positions, including interest, were $11.7 million. Due to thehigh degree of uncertainty regarding the timing of potential cash flows associated with these liabilities, we are unable to make a reasonably reliable estimateof the amounts and periods in which these liabilities might be made.69Table of ContentsIn addition to these contractual obligations, we had the following annual minimum royalty commitments to Cercacor, as of December 29, 2018 (inthousands): Payments Due By Period Less than1 year Between1-3 years Between3-5 years More than5 yearsMinimum royalty commitment to Cercacor(1)$5,000 $10,000 $10,000 (1) ______________(1) Subsequent to 2022, the royalty arrangement requires a $5.0 million minimum annual royalty payment unless the agreement is amended, restated or terminated.See Note 3 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additionalinformation related to Cercacor.Critical Accounting EstimatesOur financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation ofthese financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses for each reporting period. Theseestimates and assumptions are based on historical experience and on various other factors that are believed to be reasonable under the circumstances, andform 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 ofmatters that are inherently uncertain. Although we regularly evaluate these estimates and assumptions, changes in judgments and uncertainties relating tothese estimates could potentially result in materially different results under different assumptions and conditions. If these estimates differ significantly fromactual results, the impact to the consolidated financial statements may be material.We believe that the critical accounting policies that are the most significant for purposes of fully understanding and evaluating our reported financial resultsinclude the following:Revenue Recognition, Deferred Revenue and Other Contract LiabilitiesEffective December 31, 2017, we adopted ASC 606. ASC 606 provides a single, principles-based five-step model to be applied to all contracts with customersand generally provides for the recognition of revenue in an amount that reflects the consideration to which we expect to be entitled when control over thepromised goods or services are transferred to the customer, net of allowances for estimated returns, discounts or sales incentives, as well as taxes collectedfrom customers that are remitted to government authorities.We derive the majority of our product revenue from four primary sources: (i) direct sales under deferred equipment agreements with end-user hospitals wherewe provide up-front monitoring equipment at no up-front charge in exchange for a multi-year sensor purchase commitment, (ii) other direct sales ofnoninvasive monitoring solutions to end-user hospitals, emergency medical response organizations and other direct customers; (iii) sales of noninvasivemonitoring 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 OEM customers who incorporate our 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 thegeography within which the specific customer is located.We enter into agreements to sell our monitoring solutions and services, sometimes as part of arrangements with multiple performance obligations that includevarious combinations of products and services. In the case of contracts with multiple performance obligations, the authoritative guidance provides that thetotal consideration be allocated to each performance obligation on the basis of relative standalone selling prices. When a standalone selling price is notreadily observable, we estimate the standalone selling price by considering multiple factors including, but not limited to, features and functionality of theproduct, geographies, type of customer, contractual prices pursuant to Group Purchasing Organization (GPO) contracts, our pricing and discount practices,and other market conditions.70Table of ContentsWhile the majority of our sales transactions contain standard business terms and conditions, there are some transactions that contain non-standard businessterms and conditions. As a result, contract interpretation and analysis is required to determine the appropriate accounting, including: (i) the amount of thetotal consideration, including variable consideration, (ii) how the arrangement consideration should be allocated to each performance obligation whenmultiple performance obligations exist, including the determination of standalone selling price, (iii) when to recognize revenue on the performanceobligations, and (iv) whether uncompleted performance obligations are essential to the functionality of the completed performance obligations. Changes injudgments on these assumptions and estimates could materially impact the timing of revenue recognition.Sales under deferred equipment agreements are generally structured such that we agree to provide at no up-front charge certain monitoring-related equipment,software, installation, training and/or warranty support in exchange for the hospital’s agreement to purchase sensors over the term of the agreement, whichgenerally ranges from three to six years. We generally recognize revenue for performance obligations related to licensed software parameters and monitoringequipment that is sold under deferred equipment agreements with fixed annual commitments at the time such software or monitoring equipment is providedto the customer. Revenue allocable to performance obligations related to sensor sales and monitoring-related equipment leased under deferred equipmentagreements is generally recognized as the sensors are provided to the customer over the life of the contract.Revenue from direct sales of our products to end-user hospitals, emergency medical response organizations and other direct customers, as well as todistributors, is generally recognized either at the time of delivery or at shipment, based upon the terms of the contract or underlying purchase order.Sales of integrated circuit boards and other products to our OEMs are generally recognized as revenue at the time of shipment. Revenue related to OEMrainbow® parameter software licenses is generally recognized upon shipment of the OEM’s product to its customers, as reported to us by the OEM.We provide certain customers with various sales incentives that may take the form of discounts or rebates. We estimate and provide allowances for theseprograms 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, we allow returns undercertain circumstances. At the end of each period, we estimate and accrue for these returns as a reduction to revenue. We estimate the revenue constraintsrelated to these forms of variable consideration based on various factors, including expected purchasing volumes, prior sales and returns history, and specificcontractual terms and limitations.The majority of our royalty revenue arises from one agreement and is due and payable quarterly in arrears. An estimate of these royalty revenues is recordedquarterly in the period earned based on historical results, adjusted for any new information or trends known to management at the time of estimation. Thisestimated revenue is adjusted prospectively when we receive the royalty report, approximately sixty days after the end of the previous quarter. We alsorecognize revenue from time-to-time related to NRE services provided to a certain OEM customer. NRE revenue is generally recognized on a proportionatebasis as the costs of performing such services are incurred by us.Inventory/Reserves for Excess or Obsolete InventoryInventories are stated at the lower of cost or net realizable value. Cost is determined using a standard cost method, which approximates FIFO (first-in, first-out). Inventory valuation reserves are recorded for materials that have become obsolete or are no longer used in current production and for inventory that hasa net realizable value less than the carrying value in inventory. We generally purchase raw materials in quantities that we anticipate will be fully used withinone year. However, changes in operating strategy and customer demand, and frequent unpredictable fluctuations in market values for such materials, can limitour ability to effectively utilize all of the raw materials purchased and sold through resulting finished goods to customers for a profit. We regularly monitorpotential inventory excess, obsolescence and lower market values compared to standard costs and, when necessary, reduce the carrying amount of ourinventory to its market value.We develop our inventory reserve based on an evaluation of the expected future use of our inventory on an item by item basis. We apply historicalobsolescence rates to estimate the loss on inventory expected to have a recovery value below cost. Our historical obsolescence rates are developed from ourcompany specific experience for major categories of inventory, which are then applied to excess inventory on an item by item basis. We also develop otherspecific inventory reserves when we become aware of other unique events that result in a known recovery value below cost. For inventory items that havebeen written down, either due to the inventory reserve analysis or due to a specific event, the reduced value becomes the new cost basis. If our estimates forpotential inventory losses prove to be too low, our future earnings will be affected when any related additional inventory losses are recorded.71Table of ContentsAllowance for Doubtful AccountsWe maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. This allowance isused to state trade receivables at a net estimated realizable value. We rely on prior experience to estimate the amount that we expect to collect on the grossreceivables outstanding, which cannot be known with exact certainty as of the time of issuance of this report. We maintain a specific allowance for customeraccounts that we know may not be collectible due to customer liquidity issues. We also maintain a general allowance for future collection losses that arisefrom customer accounts that do not indicate an inability, but may be unable to pay. Although such losses have historically been within our expectations andthe allowances we have established, we cannot guarantee that we will continue to experience the same loss rates that we have in the past. Therefore, asignificant change in the liquidity or financial condition of our customers could cause unfavorable trends in our receivable collections and additionalallowances may be required.Stock-Based CompensationOur stock-based compensation awards are currently comprised of stock options, restricted stock units (RSUs) and performance share units (PSUs), all of whichare equity-classified awards. For equity-classified awards granted on or after January 1, 2006, we estimate the fair value of the award on the date of grant andexpense stock-based compensation over the requisite service period. In the case of PSUs, the amount of expense recognized is also dependent upon theexpected achievement level for the specified performance criteria. The fair value of RSU and PSU awards is the closing price of our common stock on thegrant date. To calculate the fair value of stock option awards, we use the Black-Scholes option pricing model, which, in addition to the closing price of ourstock on the grant date and the option strike price, requires the input of subjective assumptions. These assumptions include the estimated length of timeemployees will retain their stock options before exercising them (the expected term), the estimated volatility of our stock price over the expected term andthe dividend yield on our common stock. We estimate expected term based on both our specific historical option exercise experience, as well as expectedterm information available from a peer group of companies with similar vesting schedules. The estimated volatility is based on both the historical andimplied volatilities of our share price.We also apply an estimate of the number of stock-based awards that will be forfeited due to employee turnover. Adjustments in the estimated forfeiture ratescan have a significant effect on our reported stock-based compensation, as we recognize the cumulative effect of the rate adjustments for all expenseamortization in the period the estimated forfeiture rates were adjusted. We estimate and adjust forfeiture rates based on a periodic review of recent forfeitureactivity and expected future employee turnover. Adjustments in the estimated forfeiture rates could also cause changes in the amount of expense that werecognize in future periods.Changes in the types and quantity of equity awards, as well as the fair market value of our stock may impact the cost of future stock option grants. In general,to the extent that the fair market value of our stock increases, the overall cost of granting these options will also increase. For further details regarding ourstock-based compensation see Note 16 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form10-K.Intangible and Other Long-Lived AssetsIntangible assets from acquisitions or licensing agreements, as well as intangible assets related to the costs of registering and maintaining our patents andtrademarks, are carried at cost less accumulated amortization and impairment charges, if any. For assets with determinable useful lives, amortization iscomputed using the straight-line method over the estimated economic lives of the respective intangible assets, ranging from one to seventeen years. Acquiredin-process research and development (IPR&D) is recorded at fair value as an indefinite-lived intangible asset at the acquisition date until the completion orabandonment of the associated research and development efforts or impairment. IPR&D projects relate to in-process projects that have not reachedtechnological feasibility as of the acquisition date and have no alternative future use. Upon completion of development, acquired in-process research anddevelopment assets are transferred to finite-lived intangible assets and amortized over their useful lives.We assess whether our intangible assets and other long-lived assets should be tested for recoverability whenever events or circumstances indicate that theircarrying value may not be recoverable. The amount of impairment, if any, is measured based on fair value, which is determined using projected discountedfuture operating cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value less selling costs.GoodwillGoodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible andintangible assets. Goodwill is not amortized but instead is tested at least annually for impairment, or more frequently when events or changes incircumstances indicate that goodwill might be impaired. Our annual impairment test is performed during the fourth fiscal quarter.72Table of ContentsIn assessing goodwill impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads toa determination that the fair value of such reporting unit is less than its carrying amount. Our qualitative assessment of the recoverability of goodwillconsiders various macro-economic, industry-specific and company-specific factors. These factors include: (i) severe adverse industry or economic trends;(ii) significant company-specific actions, including exiting an activity in conjunction with restructuring of operations; (iii) current, historical or projecteddeterioration of our financial performance; or (iv) a sustained decrease in our market capitalization below its net book value. If, after assessing the totality ofevents or circumstances, we determine it is unlikely that the fair value of such reporting unit is less than its carrying amount, then a quantitative analysis isunnecessary. However, if we conclude otherwise, or if we elect to bypass the qualitative analysis, then we are required to perform a quantitative analysis thatcompares 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 areporting unit exceeds its fair value; or (b) the amount of the goodwill allocated to that reporting unit.Accounting for Income TaxesWe account for income taxes using the asset and liability method, under which we recognize deferred tax assets and liabilities for the future tax consequencesattributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and fornet operating loss and tax credit carryforwards. A tax position that meets a more-likely-than-not recognition threshold is recognized in the first reportingperiod that it becomes more-likely-than-not such tax position will be sustained upon examination. A tax position that meets this more-likely-than-notrecognition 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. Differencesbetween actual results and our assumptions, or changes in our assumptions in future periods, are recorded in the period they become known. We recordpotential accrued interest and penalties related to unrecognized tax benefits in income tax expense.As a multinational corporation, we are subject to complex tax laws and regulations in various jurisdictions. The application of tax laws and regulations issubject 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. We have concluded all U.S. federal income tax matters for years through 2014 and allmaterial state, local and foreign income tax matters for years through 2011. Given the foregoing, our actual liability for U.S. or foreign taxes may bematerially different from our estimates, which could result in the need to record additional liabilities or potentially to reverse previously recorded taxliabilities.Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differencesare 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 theenactment 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 orpart of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, we consider all positive and negative evidence, includingrecent financial performance, scheduled reversals of temporary differences, projected future taxable income, availability of taxable income in carrybackperiods and tax planning strategies.Litigation Costs and ContingenciesWe record a charge equal to at least the minimum estimated liability for a loss contingency or litigation settlement when both of the following conditions aremet: (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 thefinancial statements and (ii) the range of loss can be reasonably estimated. The determination of whether a loss contingency or litigation settlement isprobable or reasonably possible involves a significant amount of management judgment, as does the estimation of the range of loss given the nature ofcontingencies. Liabilities related to litigation settlements with multiple elements are recorded based on the fair value of each element. Legal and otherlitigation related expenses are recognized as the services are provided. We record insurance and other indemnity recoveries for litigation expenses when bothof the following conditions are met: (i) the recovery is probable and (ii) collectability is reasonably assured. The insurance recoveries recorded are only to theextent the litigation costs have been incurred and recognized in the financial statements; however, it is reasonably possible that the actual recovery may besignificantly different from our estimates. There are many uncertainties associated with any litigation, and we cannot provide assurance that any actions orother third party claims against us will be resolved without costly litigation or substantial settlement charges. If any of those events were to occur, ourbusiness, financial condition and results of operations could be materially and adversely affected.73Table of ContentsRecent Accounting PronouncementsFor details regarding any recently adopted and recently issued accounting standards, see Note 2 to our accompanying consolidated financial statementsincluded in Part IV, Item 15(a) of this Annual Report on Form 10-K.ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe are exposed to various market risks that may arise from adverse changes in market rates and prices, such as interest rates, foreign exchange fluctuationsand inflation. We do not enter into derivatives or other financial instruments for trading or speculative purposes.Interest Rate RiskOur 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 cashequivalents and on the increase or decrease in the amount of interest expense we must pay with respect to our various outstanding debt instruments. We donot believe our cash equivalents are subject to significant interest rate risk due to their short terms to maturity. As of December 29, 2018, the carrying value ofour cash equivalents approximated fair value. We currently do not have any significant risks associated with interest rates fluctuations related to interestexpense. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. Therefore, declines ininterest rates over time will reduce our interest income while increases in interest rates will increase our interest income. A hypothetical 100 basis pointchange in interest rates along the entire interest rate yield curve would increase or decrease our interest rate yields on our investments and interest incomeapproximately $0.1 million for each $10.0 million in interest-bearing investments.Foreign Currency Exchange Rate RiskA 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 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 sales support subsidiaries transact intheir 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 currencydenominated cash balances and certain intercompany transactions. Realized and unrealized foreign currency gains or losses on these transactions areincluded in our statements of operations as incurred. Furthermore, other transactions between us or our subsidiaries and a third-party, denominated in acurrency 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, and are convertedto U.S. Dollars at average exchange rates for a respective period.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 thebalance sheet date, and the statements of operations and cash flows are translated into U.S. Dollars using the average monthly exchange rate during theperiod. 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 (loss).Our primary foreign currency exchange rate exposures are with the Canadian dollar, Euro, Japanese Yen, Swedish Krona, the British Pound, Mexico Peso andAustralian Dollar. Foreign currency exchange rates may experience significant volatility from one period to the next. Specifically, during the fiscal yearended December 29, 2018, we estimate that fluctuations in the exchange rates between the U.S. Dollar and other foreign currencies, including the JapaneseYen, the Swedish Krona, and the Australian Dollar, adversely impacted our revenues by $4.0 million. We currently do not enter into forward exchangecontracts to hedge exposures denominated in foreign currencies and do not use derivative financial instruments for trading or speculative purposes. Theeffect of additional changes in foreign currency exchange rates could have a material effect on our future operating results or cash flows, depending on whichforeign currency exchange rates change and depending on the directional change (either a strengthening or weakening against the U.S. Dollar). We estimatethat the potential impact of a hypothetical 10% adverse change in all applicable foreign currency exchange rates from the rates in effect as of December 29,2018 would have resulted in an estimated reduction of $21.6 million in reported pre-tax income for the year ended December 29, 2018. As our foreignoperations continue to grow, our exposure to foreign currency exchange rate risk may become more significant.74Table of ContentsInflation RiskWe do not believe that inflation has had a material effect on our business, financial condition or results of operations during the periods presented. If ourcosts were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability orfailure to do so could have a material adverse effect on our business, financial condition and results of operations.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAOur consolidated financial statements and supplementary data required by this item are set forth at the pages indicated in Part IV, Item 15(a)(1) and 15(a)(2),respectively, of this Annual Report on Form 10-K.ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A.CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresUnder the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conductedan evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Exchange Act, as of the end of theperiod covered by this Annual Report on Form 10-K. We recognize that any controls and procedures, no matter how well designed and operated, can provideonly reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures.Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effectiveas of the end of the period covered by this Annual Report on Form 10-K.Management’s Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f)promulgated by the SEC under the Exchange Act. All internal control systems, no matter how well designed, have inherent limitations and may not preventor detect all misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financialstatement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may becomeinadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conductedan evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the 2013 Internal Control-IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded thatour internal control over financial reporting was effective as of December 29, 2018.Grant Thornton LLP, an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as ofDecember 29, 2018. Their attestation report, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as ofDecember 29, 2018, is included in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K.Changes in Internal Control Over Financial ReportingThere were no changes to our internal controls over financial reporting during the quarter ended December 29, 2018 that materially affected, or arereasonably likely to materially affect, our internal controls over financial reporting. We expect that our existing internal controls will continue to be modifiedand augmented, as necessary, to consider the new lease accounting standard and related disclosure requirements related to our adoption of ASC Topic 842,Leases, effective as of December 30, 2018, but we do not expect that such changes will materially affect our existing internal controls over financialreporting.ITEM 9B.OTHER INFORMATIONNot applicable.75Table of ContentsPART IIIITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by this item is incorporated by reference from the information contained in our Definitive Proxy Statement to be filed with the SECin connection with the Annual Meeting of Stockholders to be held in 2019 (2019 Proxy Statement) under the headings “Executive Officers”, “Board ofDirectors”, “Corporate Governance and Board Matters” and “Section 16(a) Beneficial Ownership Reporting Compliance”.ITEM 11.EXECUTIVE COMPENSATIONThe information required by this item is incorporated by reference from the information contained in the 2019 Proxy Statement under the heading “ExecutiveCompensation”.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe information required by this item is incorporated by reference from the information contained in the 2019 Proxy Statement under the heading “SecurityOwnership of Certain Beneficial Owners and Management”.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEThe information required by this item is incorporated by reference from the information contained in the 2019 Proxy Statement under the headings“Corporate Governance and Board Matters” and “Transactions with Related Persons, Promoters and Certain Control Persons”.ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICESThe information required by this item is incorporated by reference from the information contained in the 2019 Proxy Statement under the heading “AuditRelated Matters-Principal Accountant Fees and Services”.76Table of ContentsPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES(a)(1) Financial StatementsThe Consolidated Financial Statements of Masimo Corporation and Report of Grant Thornton LLP, Independent Registered Public Accounting Firm, areincluded in a separate section of this Annual Report on Form 10-K beginning on page F-1.(a)(2) Financial Statement SchedulesThe financial statement schedule is included in a separate section of this Annual Report on Form 10-K beginning on page F-1.(a)(3) ExhibitsExhibitNumber Description of Document 3.1(1) Amended and Restated Certificate of Incorporation (Exhibit 3.2) 3.2(2) Amended and Restated Bylaws (Exhibit 3.2) 4.1(1) Form of Common Stock Certificate (Exhibit 4.1) 4.2(1) Fifth Amended and Restated Registration Rights Agreement made and entered into as of September 14, 1999 between the Registrant andcertain of its stockholders (Exhibit 4.2) 4.3(4)# Masimo Retirement Savings Plan (Exhibit 4.7) 10.1(1)# Form of Indemnity Agreement between the Registrant and its officers and directors (Exhibit 10.1) 10.2(5)# Amended and Restated Employment Agreement, dated November 4, 2015, between Joe Kiani and the Registrant (Exhibit 10.1) 10.3(17) First Amendment to November 4, 2015 Amended and Restated Employment Agreement, dated July 27, 2017, by and between MasimoCorporation and Joe Kiani (Exhibit 10.1) 10.4(1)# Offer Letter, dated February 15, 1996, between Yongsam Lee and the Registrant (Exhibit 10.7) 10.5(1)# Offer Letter, dated March 30, 2007, between Anand Sampath and the Registrant (Exhibit 10.8) 10.6(6)# Offer Letter, dated July 23, 2008, between Jon Coleman and the Registrant (Exhibit 10.9) 10.7#* Offer Letter, dated March 31, 2011 between Tom McClenahan and the Registrant 10.8(18)# Offer Letter, dated September 22, 2017, between the Company and Micah Young (Exhibit 10.1) 10.9(5)# Restricted Share Unit Award Agreement, dated November 4, 2015, by and between Joe Kiani and the Registrant (Exhibit 10.2) 10.10(5)# Equity-Holder Non-Competition and Confidentiality Agreement, dated November 4, 2015, by and between Joe Kiani and the Registrant(Exhibit 10.3) 10.11(7)# Amended and Restated 2007 Severance Protection Plan and Summary Plan Description, effective December 31, 2008 (Exhibit 10.11) 10.12(12)# 2007 Severance Protection Plan Participation Agreement, dated January 11, 2008, by and between the Registrant and Yongsam Lee(Exhibit 10.3) 10.13#* Amended and Restated 2007 Severance Protection Plan Agreement, dated November 12, 2013, by and between the Registrant and JonColeman (Exhibit 10.17) 10.14#* Amended and Restated 2007 Severance Protection Plan Agreement, dated December 9, 2013, by and between the Registrant and AnandSampath 10.15(3)# Amended and Restated 2007 Severance Protection Plan Agreement, dated November 3, 2014, by and between the Registrant and TomMcClenahan (Exhibit 10.21) 10.16(21)#* Amended and Restated 2007 Severance Protection Plan, Limited Participation Agreement, dated December 12, 2017, by and between theRegistrant and Micah Young (Exhibit 10.16) 77Table of ContentsExhibitNumber Description of Document 10.17(1)# 2007 Stock Incentive Plan of the Registrant, and forms of agreements related thereto (Exhibit 10.33) 10.18(19)# Masimo Corporation 2017 Equity Incentive Plan 10.19(20)# Masimo Corporation Executive Bonus Incentive Plan 10.20(6)+ Manufacturing and Purchase Agreement, dated October 2, 2008, by and between Analog Devices, Inc.and the Registrant (Exhibit10.21) 10.21(1)+ Purchase Agreement, dated July 26, 2001, between Jabil Circuit, Inc. and the Registrant (Exhibit 10.15) 10.22(1)+ Shelter Labor Services Agreement, dated December 27, 2000, between Industrial Vallera de Mexicali, S.A. de C.V. and the Registrant(Exhibit 10.11) 10.23(8)+ Lease Agreement effective as of September 1, 2007, by and among Industrias Asociadas Maquiladoras, S.A. de C.V., IndustrialVallera de Mexicali, S.A. de C.V. and the Registrant, as guarantor (Exhibit 10.1) 10.24(10)+ First Amendment, Lease Agreement effective as of December 17, 2013, by and among Industrias Asociadas Maquiladoras, S.A. deC.V., Industrial Vallera de Mexicali, S.A. de C.V. and the Registrant, as guarantor (Exhibit 10.26) 10.25(1) Settlement Agreement and Release of Claims, dated January 17, 2006, between Cercacor Laboratories, Inc., Nellcor Puritan Bennett,Inc., Mallinckrodt, Inc., Tyco Healthcare Group LP, Tyco International Ltd., Tyco International (US) Inc. and the Registrant (Exhibit10.30) 10.26(9) Second Amendment to the January 17, 2006 Settlement Agreement and Release of Claims, as amended pursuant to the January 24,2006 Amendment to Settlement Agreement and Release of Claims, dated January 28, 2011, by and among Masimo Corporation,Masimo Laboratories, Inc., Nellcor Puritan Bennett LLC, Mallinckrodt Inc., Tyco Healthcare Group LP and Covidien Inc. (Exhibit10.1) 10.27(1) Amended and Restated Cross-Licensing Agreement, effective January 1, 2007, between Cercacor Laboratories, Inc. and theRegistrant (Exhibit 10.34) 10.28(1) Services Agreement, effective January 1, 2007, between Cercacor Laboratories, Inc. and the Registrant (Exhibit 10.35) 10.29(11) Agreement of Purchase and Sale and Escrow Instructions, dated as of November 1, 2013, by and between the Company and Nikken,Inc. (Exhibit 10.1) 10.30(11) First Amendment to Purchase and Sale Agreement, made and entered into effective as of January 8, 2014, by and between theCompany and Nikken, Inc. (Exhibit 10.2) 10.31(11) Second Amendment to Purchase and Sale Agreement, made and entered into effective as of January 10, 2014, by and between theCompany and Nikken, Inc. (Exhibit 10.3) 10.32(11) Third Amendment to Purchase and Sale Agreement, made and entered into effective as of March 10, 2014, by and between theCompany and Nikken, Inc. (Exhibit 10.4) 10.33(11) Fourth Amendment to Purchase and Sale Agreement, made and entered into effective as of March 12, 2014, by and between theCompany and Nikken, Inc. (Exhibit 10.5) 10.34(13)+ Settlement and Covenant Not to Sue Agreement, entered into as of the Effective Date of November 16, 2015, between MasimoCorporation, Masimo Technologies SARL, and Masimo International SARL and Mindray Medical International, Limited, ShenzhenMindray Biomedical Electronics Co., Ltd and Mindray DS USA, Inc. (Exhibit 10.44) 10.35(13) Lease Agreement, dated July 15, 2012, related to the premises at 9600 Jeronimo, between the Registrant and The Irvine Company,LLC (Exhibit 10.45) 10.36(13) First Amendment to June 22, 2012 Lease Agreement, relating to the premises at 9600 Jeronimo, between the Registrant and IrvineCompany, LLC (Exhibit 10.46) 10.37(3) Second Amendment to June 22, 2012 Lease Agreement, relating to the premises at 9600 Jeronimo, between the Registrant and IrvineCompany, LLC (Exhibit 10.34) 78Table of ContentsExhibitNumber Description of Document 10.38(13) Third Amendment to June 22, 2012 Lease Agreement, relating to the premises at 9600 Jeronimo, between the Registrant and IrvineCompany, LLC (Exhibit 10.48) 10.39(14) Single-Tenant Lease, relating to the premises at 9600 Jeronimo, dated as of July 13, 2016, by and between Masimo Corporation andThe Irvine Company LLC (Exhibit 10.1) 10.40(15) Third Amendment to Settlement Agreement and Release of Claims, dated as of September 1, 2016, by and among MasimoCorporation and Cercacor Laboratories, Inc., and Medtronic Plc., Covidien LP, Nellcor Puritan Bennett LLC and Covidien HoldingsInc. (Exhibit 10.1) 10.41(16)+ Settlement Agreement, dated November 5, 2016, by and between Masimo Corporation, Masimo International Technologies SARLand Masimo International SARL and Koninklijke Philips N.V. (Exhibit 10.1) 10.42* Credit Agreement dated as of December 17, 2018, among Masimo Corporation, the Lenders party thereto and JPMorgan Chase Bank,N.A. as Administrative Agent 10.43(22)# Offer Letter, dated April 17, 2002, between the Company and Bilal Muhsin (Exhibit 10.1) 10.44(22)# Offer Letter, dated December 15, 2017, between the Company and Tao Levy (Exhibit 10.2) 10.45(22)# 2007 Severance Protection Plan Participation Agreement, dated March 26, 2018, by and between the Company and Bilal Muhsin(Exhibit 10.3) 10.46(22)# 2007 Severance Protection Plan Participation Agreement, dated March 16, 2018, by and between the Company and Tao Levy(Exhibit 10.4) 21.1* List of Registrant’s Subsidiaries 23.1* Consent of Independent Registered Public Accounting Firm 31.1* Certification of Joe Kiani, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Micah Young, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification of Joe Kiani, Chief Executive Officer, and Micah Young, Chief Financial Officer, pursuant to Section 906 of theSarbanes-Oxley Act of 2002. 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema Document 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* XBRL Taxonomy Extension Label Linkbase Document 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document___________Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheetsas of December 29, 2018 and December 30, 2017, (ii) Consolidated Statements of Operations for the years ended December 29, 2018, December 30,2017 and December 31, 2016, (iii) Consolidated Statements of Comprehensive Income for the years ended December 29, 2018, December 30, 2017 andDecember 31, 2016, (iv) Consolidated Statements of Equity for the years ended December 29, 2018, December 30, 2017 and December 31, 2016,(v) Consolidated Statements of Cash Flows for the years ended December 29, 2018, December 30, 2017 and December 31, 2016, and (vi) Notes toConsolidated Financial Statements.___________(1)Incorporated by reference to the exhibits to the Registrant’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 Registrant’s Current Report on Form 8-K, filed on October 26, 2011. The number given inparentheses indicates the corresponding exhibit number in such Form 8-K.79Table of Contents(3)Incorporated by reference to the exhibit to the Registrant’s Annual Report on Form 10-K, filed on February 17, 2015. The number given inparentheses indicates the corresponding exhibit number in such Form 10-K.(4)Incorporated by reference to the exhibit to the Registrant’s Registration Statement on Form S-8, filed on February 11, 2008. The number given inparentheses indicates the corresponding exhibit number in such Form S-8.(5)Incorporated by reference to the exhibit to the Registrant’s Current Report on Form 8-K, filed on November 5, 2015 at 4:45 p.m. Eastern Time. Thenumber given in parentheses indicates the corresponding exhibit number in such Form 8-K.(6)Incorporated by reference to the exhibit to the Registrant’s Annual Report on Form 10-K, filed on March 4, 2009. The number given in parenthesesindicates the corresponding exhibit number in such Form 10-K.(7)Incorporated by reference to the exhibit to the Registrant’s Annual Report on Form 10-K, filed on February 15, 2013. The number given inparentheses indicates the corresponding exhibit number in such Form 10-K.(8)Incorporated by reference to the exhibit to the Registrant’s Current Report on Form 8-K, filed on June 5, 2008. The number given in parenthesesindicates the corresponding exhibit number in such Form 8-K.(9)Incorporated by reference to the exhibit to the Registrant’s Current Report on Form 8-K, filed on January 31, 2011. The number given inparentheses indicates the corresponding exhibit number in such Form 8-K.(10)Incorporated by reference to the exhibit to the Registrant’s Annual Report on Form 10-K filed February 14, 2014. The number given in parenthesesindicates the corresponding exhibit number in such Form 10-K.(11)Incorporated by reference to the exhibit to the Registrant’s Quarterly Report on Form 10-Q, filed on May 1, 2014. The number given in parenthesesindicates the corresponding exhibit number in such Form 10-Q.(12)Incorporated by reference to the exhibit to the Registrant’s Current Report on Form 8-K, filed on January 17, 2008. The number given inparentheses indicates the corresponding exhibit number in such Form 8-K.(13)Incorporated by reference to the exhibit to the Registrant’s Annual Report on Form 10-K, filed on February 24, 2016. The number given inparentheses indicates the corresponding exhibit number in such Form 8-K.(14)Incorporated by reference to the exhibit to the Registrant’s Quarterly Report on Form 10-Q, filed on August 3, 2016. The number given inparentheses indicates the corresponding exhibit number in such Form 8-K.(15)Incorporated by reference to the exhibit to the Registrant’s Quarterly Report on Form 8-K, filed on September 2, 2016. The number given inparentheses indicates the corresponding exhibit number in such Form 8-K.(16)Incorporated by reference to the exhibit to the Registrant’s Current Report on Form 8-K, filed on November 7, 2016. The number given inparentheses indicates the corresponding exhibit number in such Form 8-K.(17)Incorporated by reference to the exhibit to the Registrant’s Current Report on Form 8-K filed on August 2, 2017. The number given in parenthesesindicates the corresponding exhibit number in such Form 8-K.(18)Incorporated by reference to the exhibit to the Registrant’s Current Report on Form 8-K filed on September 25, 2017. The number given inparentheses indicates the corresponding exhibit number in such Form 8-K.(19)Incorporated by reference to Appendix B to the Registrant’s Definitive Proxy Statement on Schedule 14A (File No. 001-33642) filed on April 12,2017.(20)Incorporated by reference to Appendix C to the Registrant’s Definitive Proxy Statement on Schedule 14A (File No. 001-33642) filed on April 12,2017.(21)Incorporated by reference to the exhibit to the Registrant’s Annual Report on Form 10-K filed February 28, 2018. The number given in parenthesesindicates the corresponding exhibit number in such Form 10-K.(22)Incorporated by reference to the exhibit to the Registrant’s Quarterly Report on Form 10-Q filed May 7, 2018. The number given in parenthesesindicates the corresponding exhibit number in such Form 10-Q.*Filed herewith.#Indicates management contract or compensatory plan.+The SEC has granted confidential treatment with respect to certain portions of this exhibit. Omitted portions have been filed separately with theSEC.(b) ExhibitsSee Item 15(a)(3) above.(c) Financial Statement SchedulesSee Item 15(a)(2) above.80Table of ContentsITEM 16.FORM 10-K SUMMARYNone.81Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. Date:February 26, 2019 By:/s/ JOE KIANI Joe KianiChairman of the Board & Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated. SIGNATURE TITLE(S) DATE /s/ JOE KIANI Chairman of the Board & Chief Executive Officer(Principal Executive Officer) February 26, 2019Joe Kiani /s/ MICAH YOUNG Executive Vice President, Finance & Chief Financial Officer(Principal Financial Officer) February 26, 2019Micah Young /s/ DAVID J. VAN RAMSHORST Senior Vice President, Chief Accounting Officer(Principal Accounting Officer) February 26, 2019David J. Van Ramshorst /s/ STEVEN J. BARKER, M.D. PH.D. Director February 26, 2019Steven J. Barker, M.D., Ph.D. /s/ H MICHAEL COHEN Director February 26, 2019H Michael Cohen /s/ SANFORD FITCH Director February 26, 2019Sanford Fitch /s/ THOMAS HARKIN Director February 26, 2019Thomas Harkin /s/ ADAM MIKKELSON Director February 26, 2019Adam Mikkelson /s/ CRAIG REYNOLDS Director February 26, 2019Craig Reynolds /s/ JULIE A. SHIMER, PH.D Director February 26, 2019Julie A. Shimer, Ph.D. 82Table of ContentsINDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULEMASIMO CORPORATION Consolidated Financial Statements Reports of Independent Registered Public Accounting FirmF-2Consolidated Balance Sheets as of December 29, 2018 and December 30, 2017F-4Consolidated Statements of Operations for the years ended December 29, 2018, December 30, 2017 and December 31, 2016F-5Consolidated Statements of Comprehensive Income for the years ended December 29, 2018, December 30, 2017 and December 31, 2016F-6Consolidated Statements of Equity for the years ended December 29, 2018, December 30, 2017 and December 31, 2016F-7Consolidated Statements of Cash Flows for the years ended December 29, 2018, December 30, 2017 and December 31, 2016F-8Notes to Consolidated Financial StatementsF-9Schedule Schedule II - Valuation and Qualifying AccountsF-42F-1Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and StockholdersMasimo CorporationOpinion on the financial statementsWe have audited the accompanying consolidated balance sheets of Masimo Corporation (a Delaware corporation) and subsidiaries (the “Company”) as ofDecember 29, 2018 and December 30, 2017, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of thethree years in the period ended December 29, 2018, and the related notes and financial statement schedule included under Item 15(a)(2) (collectively referredto as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as ofDecember 29, 2018 and December 30, 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 29,2018, in conformity with accounting principles generally accepted in the United States of America.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’sinternal control over financial reporting as of December 29, 2018, based on criteria established in the 2013 Internal Control-Integrated Framework issued bythe Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 26, 2019 expressed an unqualifiedopinion.Change of accounting principleAs discussed in Note 2 to the financial statements, the Company has changed its method of accounting for revenue from contracts with customers in fiscalyear 2018 due to the adoption of the new revenue standard. The Company adopted the new revenue standard using the full retrospective approach.Basis for opinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ GRANT THORNTON LLPWe have served as the Company’s auditor since 2006.Newport Beach, CaliforniaFebruary 26, 2019F-2Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and StockholdersMasimo CorporationOpinion on internal controls over financial reportingWe have audited the internal control over financial reporting of Masimo Corporation (a Delaware corporation) and subsidiaries (the “Company”) as ofDecember 29, 2018, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control overfinancial reporting as of December 29, 2018, based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidatedfinancial statements of the Company as of and for the year ended December 29, 2018, and our report dated February 26, 2019 expressed an unqualifiedopinion on those financial statements.Basis for opinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. Webelieve that our audit provides a reasonable basis for our opinion.Definition and limitations of internal control over financial reportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/ GRANT THORNTON LLPNewport Beach, CaliforniaFebruary 26, 2019F-3Table of ContentsMASIMO CORPORATIONCONSOLIDATED BALANCE SHEETS(in thousands, except par value) December 29, 2018 December 30, 2017As AdjustedASSETS Current assets Cash and cash equivalents$552,490 $315,302Trade accounts receivable, net of allowance for doubtful accounts of $1,535 and $2,116 at December 29,2018 and December 30, 2017, respectively109,629 118,532Inventories93,751 92,259Other current assets29,227 33,602Total current assets785,097 559,695Deferred costs and other contract assets127,086 109,256Property and equipment, net165,972 164,096Intangible assets, net27,924 27,123Goodwill23,297 20,617Deferred tax assets21,210 19,981Other assets4,232 4,668Total assets$1,154,818 $905,436LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable$40,388 $33,780Accrued compensation49,486 39,515Deferred revenue and other contract liabilities, current33,106 32,105Other current liabilities24,627 24,254Total current liabilities147,607 129,654Other liabilities38,146 51,757Total liabilities185,753 181,411Commitments and contingencies (Note 19) Stockholders’ Equity Preferred stock, $0.001 par value; 5,000 shares authorized at December 29, 2018 and December 30, 2017;0 shares issued and outstanding at December 29, 2018 and December 30, 2017— —Common stock, $0.001 par value, 100,000 shares authorized at December 29, 2018 and December 30,2017; 53,085 and 51,636 shares issued and outstanding at December 29, 2018 and December 30, 2017,respectively53 52Treasury stock, 15,255 and 15,059 shares at December 29, 2018 and December 30, 2017, respectively(489,026) (472,536)Additional paid-in capital533,164 461,494Accumulated other comprehensive loss(6,199) (2,941)Retained earnings931,073 737,956Total stockholders’ equity969,065 724,025Total liabilities and stockholders’ equity$1,154,818 $905,436The accompanying notes are an integral part of these consolidated financial statements.F-4Table of ContentsMASIMO CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share information) Year endedDecember 29,2018 Year endedDecember 30,2017As Adjusted Year endedDecember 31,2016As AdjustedRevenue: Product$829,874 $738,242 $673,962Royalty and other revenue28,415 52,006 38,936Total revenue858,289 790,248 712,898Cost of goods sold283,397 268,216 234,560Gross profit574,892 522,032 478,338Operating expenses: Selling, general and administrative289,456 276,292 254,707Research and development76,967 61,953 57,686Litigation settlement, award and/or defense costs425 — (270,000)Total operating expenses366,848 338,245 42,393Operating income208,044 183,787 435,945Non-operating (income) expense(5,732) (2,013) 2,429Income before provision for income taxes213,776 185,800 433,516Provision for income taxes20,233 61,011 122,419Net income$193,543 $124,789 $311,097 Net income per share: Basic$3.70 $2.42 $6.28Diluted$3.45 $2.23 $5.85 Weighted-average shares used in per share calculations: Basic52,296 51,516 49,530Diluted56,039 55,874 53,195The accompanying notes are an integral part of these consolidated financial statements.F-5Table of ContentsMASIMO CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands) Year endedDecember 29,2018 Year endedDecember 30,2017As Adjusted Year endedDecember 31,2016As AdjustedNet income$193,543 $124,789 $311,097Other comprehensive gain (loss), net of tax: Foreign currency translation gains (losses)(3,258) 4,201 (2,288)Unrealized loss on marketable securities— (115) —Total comprehensive income$190,285 $128,875 $308,809The accompanying notes are an integral part of these consolidated financial statements.F-6Table of ContentsMASIMO CORPORATIONCONSOLIDATED STATEMENTS OF EQUITY(in thousands) Masimo Corporation Stockholders Common Stock Treasury Stock AdditionalPaid-InCapital AccumulatedOtherComprehensiveIncome RetainedEarnings NoncontrollingInterest TotalEquityShares Amount Shares Amount Balance at January 2, 201649,881 $50 12,759 $(340,873) $332,417 $(4,739) $288,560 $297 $275,712Adoption of ASU 2014-09— — — — — — 13,510 — 13,510Balance at January 2, 2016, asadjusted49,881 50 12,759 (340,873) 332,417 (4,739) 302,070 297 289,222Stock options exercised1,799 — — — 37,342 — — — 37,342Restricted/Performance stock unitsvested4 — — — — — — — —Stock-based compensation— — — — 12,503 — — — 12,503Repurchases of common stock(1,496) — 1,496 (63,403) 1 — — — (63,402)Gain on deconsolidation of variableinterest entity— — — — — — — (297) (297)Net income, as adjusted— — — — — — 311,097 — 311,097Foreign currency translation adjustment— — — — — (2,288) — — (2,288)Balance at December 31, 2016, asadjusted50,188 50 14,255 (404,276) 382,263 (7,027) 613,167 — 584,177Stock options exercised2,246 2 — — 62,044 — — — 62,046Restricted/Performance stock unitsvested6 — — — — — — — —Stock-based compensation— — — — 17,187 — — — 17,187Repurchases of common stock(804) — 804 (68,260) — — — — (68,260)Net income, as adjusted— — — — — — 124,789 — 124,789Foreign currency translation adjustment— — — — — 4,201 — — 4,201Unrealized loss on marketable securities— — — — — (115) — — (115)Balance at December 30, 2017, asadjusted51,636 52 15,059 (472,536) 461,494 (2,941) 737,956 — 724,025Stock options exercised1,608 1 — — 44,421 — — — 44,422Restricted/Performance stock unitsvested39 — — — — — — — —Shares paid for tax withholding(2) — — — (168) — — — (168)Stock-based compensation— — — — 27,417 — — — 27,417Repurchases of common stock(196) — 196 (16,490) — — — — (16,490)Net income— — — — — — 193,543 — 193,543Adoption of ASU 2016-16— — — — — — (426) — (426)Foreign currency translation adjustment— — — — — (3,258) — — (3,258)Balance at December 29, 201853,085 $53 15,255 $(489,026) $533,164 $(6,199) $931,073 $— $969,065The accompanying notes are an integral part of these consolidated financial statements.F-7Table of ContentsMASIMO CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year endedDecember 29,2018 Year endedDecember 30,2017As Adjusted Year endedDecember 31,2016As AdjustedCash flows from operating activities: Net income$193,543 $124,789 $311,097Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization21,127 20,061 16,817Stock-based compensation27,417 17,187 12,503Loss on disposal of equipment, intangibles and other assets949 522 658Provision for doubtful accounts(439) 251 259Provision for amount due from former foreign agent(2,016) 10,477 —Gain on deconsolidation of variable interest entity— — (273)(Benefit) provision from deferred income taxes(8,274) 17,276 10,149Changes in operating assets and liabilities: Decrease (increase) in trade accounts receivable10,826 (19,772) (21,244)Increase in inventories(1,885) (24,014) (8,955)Decrease (increase) in other current assets3,843 (2,908) (4,816)Increase in deferred cost of goods sold(17,935) (14,102) (7,661)(Increase) decrease in prepaid income taxes— (2,498) 1,355Decrease (increase) in other assets407 (10,771) 455Increase (decrease) in accounts payable5,211 (4,057) 11,048Increase (decrease) in accrued compensation10,195 (4,292) 5,675Increase (decrease) in deferred revenue and other contract liabilities1,420 (13,295) 27,945(Decrease) increase in income taxes payable(1,208) (72,087) 73,755Increase (decrease) in other current liabilities3,923 5,282 (16,207)(Decrease) increase in other liabilities(7,577) 28,013 6,565Net cash provided by operating activities239,527 56,062 419,125Cash flows from investing activities: Purchases of property and equipment(17,126) (43,684) (19,707)Increase in intangible assets(5,557) (3,079) (4,644)Business combination, net of cash acquired(3,922) — —Acquisitions of equity investments— (1,145) (200)Other453 — (763)Net cash used in investing activities(26,152) (47,908) (25,314)Cash flows from financing activities: Borrowings under revolving line of credit— — 45,000Repayments under revolving line of credit— — (230,000)Proceeds from issuance of common stock44,748 62,205 37,290Repurchases of common stock(18,478) (66,272) (68,218)Other(490) (71) (696)Net cash provided by (used in) financing activities25,780 (4,138) (216,624)Effect of foreign currency exchange rates on cash(1,997) 3,269 (1,451)Net increase in cash, cash equivalents and restricted cash237,158 7,285 175,736Cash, cash equivalents and restricted cash at beginning of period315,483 308,198 132,462Cash, cash equivalents and restricted cash at end of period$552,641 $315,483 $308,198The accompanying notes are an integral part of these consolidated financial statements.F-8Table of ContentsMASIMO CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Description of the CompanyMasimo Corporation (the Company), is a global medical technology company that develops, manufactures and markets a variety of noninvasive patientmonitoring technologies. The Company’s mission is to improve patient outcomes and reduce the cost of care. The Company’s patient monitoring solutionsgenerally incorporate a monitor or circuit board, proprietary single-patient use or reusable sensors, software and/or cables. The Company primarily sells itsproducts to hospitals, emergency medical service providers, home care providers, physician offices, veterinarians, long term care facilities and consumersthrough its direct sales force, distributors and original equipment manufacturer (OEM) partners.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. Over the years, the Company’s product offerings have expandedsignificantly to also include rainbow® Pulse CO-Oximetry, with its ability to measure and monitor carboxyhemoglobin (SpCO®), methemoglobin (SpMet®),total hemoglobin concentration (SpHb®), fractional arterial oxygen saturation (SpfO2™), Oxygen Content (SpOC™), Pleth Variability Index (PVi®), rainbow®Pleth Variability Index (RPVi™), respiration rate from the pleth (RRp® and Oxygen Reserve Index (ORi™); as well as acoustic respiration monitoring (RRa®),SedLine® brain function monitoring, NomoLine® capnography and gas monitoring and O3® regional oximetry. The Company’s current technology offeringsalso include Masimo Patient SafetyNet1, Masimo Patient SafetyNet Surveillance1, MyView®, Replica™ and Trace™. These solutions and related products arebased upon Masimo SET®, rainbow® and other proprietary algorithms. These software-based technologies are incorporated into a variety of product platformsdepending on customers’ specifications. This technology is supported by a substantial intellectual property portfolio that the Company has built throughinternal development and, to a lesser extent, acquisitions and license agreements.2. Summary of Significant Accounting PoliciesBasis of PresentationThe consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America(GAAP), and include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have beeneliminated in consolidation.As further discussed below in this Note 2 to these consolidated financial statements, the Company adopted Financial Accounting Standards Board (FASB)Accounting Standards Update (ASU) No. 2014-09, Revenue (Topic 606): Revenue from Contracts with Customers (ASU 2014-09) and ASU No. 2016-16,Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory (ASU 2016-16) effective December 31, 2017. All prior period amounts anddisclosures set forth in this Annual Report on Form 10-K have been updated to comply with the applicable method of adoption, as indicated by the “asadjusted” notation.Fiscal PeriodsThe 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 13fiscal weeks while a 53 week fiscal year includes three 13 fiscal week quarters and one 14 fiscal week quarter. The Company’s last 53 week fiscal year wasfiscal year 2014. Fiscal year 2018 is a 52 week fiscal year. All references to years in these notes to consolidated financial statements are fiscal years unlessotherwise noted.Use of EstimatesThe Company prepares its financial statements in conformity with GAAP, which requires the Company to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amountsof revenues and expenses during the reporting periods. Significant estimates include the determination of accounts receivable allowances, inventory reserves,warranty reserves, rebate accruals, valuation of the Company’s equity awards, goodwill valuation, deferred taxes and any associated valuation allowances,royalty revenues, deferred revenue, deferred costs, uncertain income tax positions, and litigation costs and related accruals. In addition, for the year endedDecember 30, 2017, certain estimates were made in calculating the provision for income taxes related to the impact of the Tax Cuts and Jobs Act of 2017(2017 Tax Act). Actual results could differ from such estimates.___________________________ 1 The use of the trademark Patient SafetyNet is under license from the University HealthSystem Consortium.F-9Table of ContentsReclassificationsCertain amounts in the consolidated financial statements for prior periods have been reclassified to conform to the current period presentation.Fair Value MeasurementsAuthoritative guidance describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the lastunobservable, 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, quotedprices 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 orliabilities.•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 forspecified financial assets and liabilities on a contract-by-contract basis. The Company did not elect to apply the fair value option under this guidance tospecific assets or liabilities on a contract-by contract basis. There were no transfers between Level 1, Level 2 and Level 3 inputs during the years endedDecember 29, 2018 or December 30, 2017. The Company carries cash and cash equivalents at cost which approximates fair value. As of December 29, 2018and December 30, 2017, the Company had an insignificant amount of other financial assets that were required to be measured under the fair value hierarchy,the measurement of which were based on Level 1 and Level 2 inputs.Cash and Cash EquivalentsThe Company considers all highly liquid investments with an original maturity from date of purchase of three months or less, or highly liquid investmentsthat are readily convertible into known amounts of cash, to be cash equivalents.Accounts Receivable and Allowance for Doubtful AccountsAccounts receivable consist of trade receivables recorded upon recognition of product revenues, 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 financialcondition. Collateral is generally not required. The allowance for doubtful accounts is determined based on historical write-off experience, current customerinformation and other relevant factors, including specific identification of past due accounts, based on the age of the receivable in excess of the contemplatedor contractual due date. Accounts are charged off against the allowance when the Company believes they are uncollectible.InventoriesInventories 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 outmethod, and includes material, labor and overhead costs. Inventory reserves are recorded for inventory items that have become excess or obsolete or are nolonger used in current production and for inventory items that have a market price less than carrying value in inventory.F-10Table of ContentsProperty and EquipmentProperty and equipment are stated at cost. Depreciation is calculated using the straight-line method over estimated useful lives as follows: Useful LivesAircraft and components10 to 20 yearsBuildings39 yearsBuilding improvements7 to 15 yearsComputer equipment2 to 6 yearsDemonstration units3 yearsFurniture and office equipment2 to 6 yearsLeasehold improvementsLesser of useful life or term of leaseMachinery and equipment5 to 10 yearsTooling3 yearsVehicles5 yearsLand 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 usefullives of the related assets. Upon sale or retirement of depreciable assets, the related cost and accumulated depreciation or amortization are removed from theaccounts and any gain or loss on the sale or retirement is recognized in income.For the years ended December 29, 2018, December 30, 2017 and December 31, 2016, depreciation and amortization expense of property and equipment was$16.3 million, $15.2 million and $13.0 million, respectively.Intangible AssetsIntangible assets consist primarily of patents, trademarks, software development costs, customer relationships and acquired technology. Costs related topatents 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 of10 years or the patent’s remaining legal life, which assumes renewals, and trademark costs are amortized over 17 years, and their associated amortization costis included in selling, general and administrative expense in the accompanying consolidated statements of operations. For intangibles purchased in an assetacquisition or business combination, which mainly include patents, trademarks, customer relationships and acquired technology, the useful life is determinedin the same manner as noted above.The Company’s policy is to renew its patents and trademarks. Costs to renew intangibles are capitalized and amortized over the remaining useful life of theintangible. The Company continually evaluates the amortization period and carrying basis of patents and trademarks to determine whether any events orcircumstances warrant a revised estimated useful life or reduction in value. Capitalized application costs are charged to operations when it is determined thatthe patent or trademark will not be obtained or is abandoned.For the years ended December 29, 2018, December 30, 2017 and December 31, 2016, amortization of intangible assets was $4.8 million, $4.9 million and$3.8 million, respectively. As of December 29, 2018 and December 30, 2017, the total costs of patents not yet amortizing was $5.3 million and $4.3 million,respectively. As of December 29, 2018 and December 30, 2017, the total costs of trademarks not yet amortizing was $0.5 million and $0.6 million,respectively. For the years ended December 29, 2018 and December 30, 2017, total renewal costs capitalized for patents and trademarks was $0.5 million and$0.6 million, respectively. As of December 29, 2018, the weighted-average number of years until the next renewal was one year for patents and five years fortrademarks.Costs related to the research and development of new software products and enhancements to existing software products are expensed as incurred untiltechnological feasibility of the product has been established, at which time such costs are capitalized, subject to expected recoverability. For the years endedDecember 29, 2018 and December 30, 2017, the Company capitalized $0.7 million and $0.2 million of software development costs, respectively. For the yearended December 31, 2016, the Company did not capitalize any software development costs.F-11Table of ContentsThe capitalized costs are amortized over the estimated life of the products, which is generally seven years. For the years ended December 29, 2018,December 30, 2017 and December 31, 2016, the Company amortized $2.0 million, $1.9 million and $1.8 million of capitalized costs, respectively. TheCompany had unamortized software development costs of $1.4 million and $0.8 million at December 29, 2018 and December 30, 2017, respectively, whichis included within intangible assets, net, on the consolidated balance sheets.Impairment of Goodwill, Intangible Assets and Other Long-Lived AssetsGoodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible andintangible assets. Goodwill is not amortized, but instead is tested annually for impairment, or more frequently when events or changes in circumstancesindicate that goodwill might be impaired. In assessing goodwill impairment for each of its reporting units, the Company has the option to first assess thequalitative 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 areporting 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 capitalizationbelow its net book value. If, after assessing the totality of events or circumstances, the Company determines it is unlikely that the fair value of a reporting unitis less than its carrying amount, then a quantitative analysis is unnecessary. However, if the Company concludes otherwise, or if the Company elects tobypass the qualitative analysis, then the Company must perform a quantitative analysis that compares the fair value of the reporting unit with its carryingamount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered impaired; otherwise, a goodwillimpairment loss is recognized for the lesser of: (a) the amount that the carrying amount of a reporting unit exceeds its fair value; or (b) the amount of thegoodwill allocated to that reporting unit. The annual impairment test is performed during the fourth fiscal quarter.The Company reviews long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carryingamount 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 thefuture undiscounted operating cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized ismeasured 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 ofcarrying amount or fair value less costs to sell.Income TaxesThe Company accounts for income taxes using the asset and liability method, under which the Company recognizes deferred tax assets and liabilities for thefuture tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and theirrespective tax bases and for net operating loss and tax credit carryforwards. Tax positions that meet a more-likely-than-not recognition threshold arerecognized in the first reporting period that it becomes more-likely-than-not such tax position will be sustained upon examination. A tax position that meetsthis 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 uponultimate settlement. Previously recognized income tax positions that fail to meet the recognition threshold in a subsequent period are derecognized in thatperiod. Differences between actual results and the Company’s assumptions, or changes in the Company’s assumptions in future periods, are recorded in theperiod 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 andregulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscalpolicy, changes in legislation, evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially differentfrom 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 differencesare 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 theenactment 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 orpart 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 incarryback periods and tax planning strategies.F-12Table of ContentsThe 2017 Tax Act introduced certain international provisions effective for the Company beginning in the year ended December 29, 2018. As part of theseprovisions, an accounting policy election is available to either (1) treat taxes due on certain inclusions in U.S. taxable income as a current-period expensewhen incurred (“period cost method”) or (2) factor such amounts into the measurement of its deferred taxes (“deferred method”). The Company has elected touse the period cost method. See Note 18 - Income Taxes for additional information related to the impact of the 2017 Tax Act on the Company’s tax provision,taxes payable and deferred taxes for the periods presented in these consolidated financial statements.Revenue Recognition, Deferred Revenue and Other Contract LiabilitiesEffective December 31, 2017, the Company adopted ASU No. 2014-09, Revenue (Topic 606): Revenue from Contracts with Customers (ASU 2014-09). Accounting Standards Codification (ASC) Topic 606 (ASC 606) provides a single, principles-based five-step model to be applied to all contracts withcustomers and generally provides for the recognition of revenue in an amount that reflects the consideration to which the Company expects to be entitled, netof allowances for estimated returns, discounts or sales incentives, as well as taxes collected from customers that are remitted to government authorities, whencontrol over the promised goods or services are transferred to the customer.The Company derives the majority of its product revenue from four primary sources: (i) direct sales under deferred equipment agreements with end-userhospitals 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) salesof noninvasive monitoring solutions to distributors who then typically resell to end-user hospitals, emergency medical response organizations and othercustomers; and (iv) sales of integrated circuit boards to OEM customers who incorporate the Company’s embedded software technology into theirmultiparameter monitoring devices. Subject to customer credit considerations, the majority of such sales are made on open account using industry standardpayment 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 obligationsthat include various combinations of product sales, equipment leases and services. In the case of contracts with multiple performance obligations, theauthoritative 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, butnot 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.While the majority of the Company’s revenue contracts and transactions contain standard business terms and conditions, there are some transactions thatcontain non-standard business terms and conditions. As a result, contract interpretation, judgment and analysis is required to determine the appropriateaccounting, including: (i) the amount of the total consideration, including variable consideration, (ii) how the arrangement consideration should be allocatedto each performance obligation when multiple performance obligations exist, including the determination of standalone selling price, (iii) when to recognizerevenue on the performance obligations, and (iv) whether uncompleted performance obligations are essential to the functionality of the completedperformance obligations. Changes in judgments on these assumptions and estimates could materially impact the timing of revenue recognition.Sales under deferred equipment agreements are generally structured such that the Company agrees to provide at no up-front charge certain monitoring-relatedequipment, software, installation, training and/or warranty support in exchange for the hospital’s agreement to purchase sensors over the term of theagreement, which generally ranges from three to six years. The Company generally recognizes revenue for performance obligations related to licensedsoftware parameters and monitoring equipment that are sold under deferred equipment agreements with fixed annual commitments at the time such softwareor monitoring equipment is provided to the customer. Revenue allocable to performance obligations related to sensor sales and monitoring-relatedequipment leased under deferred equipment agreements is generally recognized as the sensors are provided to the customer over the life of the contract.Revenue from direct sales of products to the Company’s end-user hospitals, emergency medical response organizations and other direct customers, as well asto its distributors, is generally recognized upon shipment or delivery to the customer based on the terms of the contract or underlying purchase order.The Company also earns revenue from the sale of integrated circuit boards and other products, as well as from software parameter licenses, to OEMs undervarious agreements. Revenue from the sale of products to the OEMs is generally recognized at the time of shipment. Revenue related to software licenses toOEMs is generally recognized upon shipment of the OEM’s product to its customers, as represented to the Company by the OEM.F-13Table of ContentsThe Company provides certain customers with various sales incentives that may take the form of discounts or rebates. The Company estimates and providesallowances for 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 torevenue. The Company estimates the revenue constraints related to these forms of variable consideration based on various factors, including expectedpurchasing volumes, prior sales and returns history, and specific contractual terms and limitations.The majority of the Company’s royalty revenue arises from one agreement and is due and payable quarterly in arrears. An estimate of these royalty revenuesis recorded quarterly in the period earned based on historical results, adjusted for any new information or trends known to management at the time ofestimation. This estimated revenue is adjusted prospectively when the Company receives the royalty report, approximately sixty days after the end of theprevious quarter. The Company also recognizes revenue from time-to-time related to NRE services provided to a certain OEM customer. NRE service revenueis generally recognized on a proportionate basis as the costs of performing such services are incurred by the Company. See “Concentrations of Risk” underNote 19 - Commitments and Contingencies for additional information related to these agreements.Taxes Collected From Customers and Remitted to Governmental AuthoritiesThe Company’s policy is to present revenue net of taxes collected from customers and remitted to governmental authorities.Shipping and Handling Costs and FeesAll shipping and handling costs are expensed as incurred and are recorded as a component of cost of goods sold in the accompanying consolidatedstatements of operations. Charges for shipping and handling billed to customers are included as a component of product revenue.Deferred Costs and Other Contract AssetsThe costs of monitoring-related equipment leased to hospitals under deferred equipment agreements are generally deferred and amortized to cost of goodssold over the life of the underlying contracts. Some of the Company’s deferred equipment agreements also contain provisions for certain payments to bemade directly to the end-user hospital customer at the inception of the arrangement. These contractual incentive payments are generally deferred andamortized on a straight-line basis as contra-revenue over the life of the underlying agreement.The Company records an unbilled contract receivable related to software licenses and monitoring equipment sold under deferred equipment agreements withfixed annual commitments until such amounts are billed to the customer, which generally occurs at the time the sensors are provided over the term of theagreement.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 lifeof the contract and the contract term is greater than one year. Such deferred costs generally relate to certain incentive sales commissions earned by theCompany’s internal sales team in connection with the execution of deferred equipment agreements and are amortized to expense over the expected term ofthe underlying contract.Product WarrantyThe Company generally provides a warranty against defects in material and workmanship for a period that generally ranges from six 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 estimatedwarranty costs at the time of revenue recognition, with a corresponding provision to cost of sales. Customers may also purchase extended warranty coverageseparately or as part of a deferred equipment agreement. Revenue related to extended warranty coverage is recognized over the extended life of the contract,which is reasonably expected to be the period over which such services will be provided. The related extended warranty costs are expensed as incurred.F-14Table of ContentsChanges in the product warranty accrual were as follows (in thousands): Year Ended December 29, 2018 December 30, 2017 December 31, 2016Warranty accrual, beginning of period$1,149 $910 $1,222Accrual for warranties issued (including specific accrual)1,549 1,061 871Changes in pre-existing warranties (including changes in estimates)551 332 110Settlements made(1,339) (1,154) (1,293)Warranty accrual, end of period$1,910 $1,149 $910Advertising CostsAdvertising costs are expensed as incurred. These costs are included in selling, general and administrative expense in the accompanying consolidatedstatements of operations. Advertising costs for the years ended December 29, 2018, December 30, 2017 and December 31, 2016 were $17.9 million, $17.8million and $14.3 million, respectively.Research and DevelopmentCosts related to research and development activities are expensed as incurred. These costs include personnel costs, materials, depreciation and amortizationon associated tangible and intangible assets and an allocation of facility costs, all of which are directly related to research and development activities.Litigation Costs and ContingenciesThe Company records a charge equal to at least the minimum estimated liability for a loss contingency or litigation settlement when both of the followingconditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at thedate of the financial statements, and (ii) the range of loss can be reasonably estimated. The determination of whether a loss contingency or litigationsettlement is probable or reasonably possible involves a significant amount of management judgment, as does the estimation of the range of loss given thenature of contingencies. Liabilities related to litigation settlements with multiple elements are recorded based on the fair value of each element. Legal andother litigation related expenses are recognized as the services are provided. The Company records insurance and other indemnity recoveries for litigationexpenses when both of the following conditions are met: (a) the recovery is probable, and (b) collectability is reasonably assured. Insurance recoveries areonly recorded to the extent the litigation costs to which they relate have been incurred and recognized in the financial statements.On November 5, 2016, the Company entered into a settlement agreement (Philips Settlement Agreement) with Koninklijke Philips N.V. (Philips N.V.), which,among other things, settled all of the claims, legal proceedings and contractual disputes between the Company, Philips N.V. and its affiliates. Pursuant to thePhilips Settlement Agreement, Philips N.V. paid us $300 million, $30 million of which related to certain future performance obligations by the Companyand, therefore, was deferred to future periods.Foreign Currency TranslationThe Company’s international headquarters is in Switzerland, and its functional currency is the U.S. Dollar. The Company has many other foreign subsidiaries,the largest of which are located in Japan and Europe. The functional currencies of these subsidiaries are the Japanese Yen and Euro, respectively.The Company records certain revenues and expenses in foreign currencies. These revenues and expenses are translated into U.S. Dollars based on the averageexchange rate for the reporting period. Assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the exchange rate in effect asof the balance sheet date. Translation gains and losses related to foreign currency assets and liabilities of a subsidiary that are denominated in the functionalcurrency of such subsidiary are included as a component of accumulated other comprehensive income (loss) within the accompanying consolidated balancesheets. Realized and unrealized foreign currency gains and losses related to foreign currency assets and liabilities of the Company or a subsidiary that are notdenominated in the underlying functional currency are included as a component of non-operating (income) expense within the accompanying consolidatedstatements of operations.F-15Table of ContentsComprehensive IncomeComprehensive income includes foreign currency translation adjustments and any related tax benefits that have been excluded from net income and reflectedin stockholders’ equity.Net Income Per ShareBasic net income per share is computed by dividing net income by the weighted-average number of shares outstanding during the period. Net income perdiluted share is computed by dividing the net income by the weighted-average number of shares and potential shares outstanding during the period, if theeffect of potential shares is dilutive. Potential shares include incremental shares of stock issuable upon the exercise of stock options and the vesting of bothRestricted Stock Units (RSUs) and Performance Stock Units (PSUs). For the years ended December 29, 2018, December 30, 2017 and December 31, 2016,weighted options to purchase 1.1 million, 0.4 million and 0.2 million shares of common stock, respectively, were outstanding, but were not included in thecomputation of diluted net income per share because the effect of including such shares would have been antidilutive in the applicable period. For the yearended December 29, 2018, certain RSUs are considered contingently issuable shares as their vesting is contingent upon the occurrence of certain futureevents. Since such events had not occurred and were not considered probable of occurring as of December 29, 2018, 2.7 million of weighted average sharesrelated to such RSUs have been excluded from the calculation of potential shares. For additional information with respect to these RSUs, please see“Employment and Severance Agreements” in Note 19 to these consolidated financial statements.The computation of basic and diluted net income per share is as follows (in thousands, except per share data): Year ended December 29, 2018 December 30, 2017As Adjusted December 31, 2016As AdjustedNet Income$193,543 $124,789 $311,097Basic net income per share: Weighted-average shares outstanding - basic52,296 51,516 49,530Net income per basic share$3.70 $2.42 $6.28Diluted net income per share: Weighted-average shares outstanding - basic52,296 51,516 49,530Diluted share equivalents: stock options and RSUs3,743 4,358 3,665Weighted-average shares outstanding - diluted56,039 55,874 53,195Net income per diluted share$3.45 $2.23 $5.85Supplemental Cash Flow InformationSupplemental cash flow information includes the following (in thousands): Year ended December 29, 2018 December 30, 2017 December 31, 2016Cash paid during the year for: Interest (net of amounts capitalized)$193 $551 $4,052Income taxes36,589 91,061 31,230Noncash investing and financing activities: Unpaid purchases of property, plant and equipment$2,391 $1,559 $2,009 Unsettled common stock proceeds from option exercises4 161 165 Unsettled common stock repurchases— 1,988 —Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents$552,490 $315,302 $305,970Restricted cash151 181 2,228Total cash, cash equivalents and restricted cash shown in the statement of cashflows$552,641 $315,483 $308,198F-16Table of ContentsSegment InformationThe Company uses the “management approach” in determining reportable business segments. The management approach designates the internalorganization used by management for making operating decisions and assessing performance as the source for determining the Company’s reportablesegments. Based on this assessment, management has determined it operates in one reportable business segment, which is comprised of patient monitoringand related products.Recently Adopted Accounting PronouncementsIn June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Shares-Based PaymentAccounting (ASU 2018-07). The new standard aligns the measurement and classification guidance for share-based payments to nonemployees with theguidance for share-based payments to employees. Under this guidance, the measurement of the equity-classified nonemployee awards will be fixed at thegrant date and the term used for measurement can be the expected term or the contractual term. ASU 2018-07 is effective for annual and interim fiscalreporting periods beginning after December 15, 2018. The Company early adopted this standard during the year ended December 29, 2018 and suchadoption did not have a material impact on its consolidated financial statements.In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740) Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting BulletinNo. 118 (ASU 2018-05). ASU 2018-05 amends certain material in ASC Topic 740 for the income tax accounting implications of the recently issued Tax Cutsand Jobs Act of 2017. The Company early adopted this standard when it was issued.In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory (ASU 2016-16). Thenew standard eliminates the exception that allowed the income tax consequences of an intra-entity transfer of assets other than inventory to be deferred untilthe transferred asset was sold to a third party or otherwise recovered through use, and now requires recognition of such income tax consequences at the timethe non-inventory asset is transferred. ASU 2016-16 is effective for annual and interim fiscal reporting periods beginning after December 15, 2017. Thestandard required companies to apply a modified retrospective approach with a cumulative catch-up adjustment to opening retained earnings in the period ofadoption. Accordingly, the Company recorded a $0.4 million decrease to retained earnings and a corresponding increase to deferred tax assets of $0.1million, and a decrease to prepaid taxes of $0.5 million as of December 31, 2017.Effective December 31, 2017, the Company adopted ASU 2014-09, which introduced ASC 606. ASC 606 provides a single, principles-based five-step modelto be applied to all contracts with customers, and generally provides for the recognition of revenue in an amount that reflects the considerations to which theCompany expects to be entitled when control over the promised goods or services are transferred to the customer. ASC 606 also enhances disclosures aboutrevenue, provides additional guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-elementarrangements. In addition, ASC 606 includes Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, which requires the deferral ofincremental costs of obtaining a contract with a customer.The Company adopted ASC 606 utilizing the full retrospective method of transition, which requires the Company to restate certain previously reportedresults, including the impact on the provision for income taxes. Adoption of the new standard resulted in changes to the Company’s accounting policies forrevenue recognition and related cost of goods sold, as well as the capitalization and deferral of certain commission expenses, and a cumulative increase toretained earnings of approximately $23.9 million and $17.1 million as of December 31, 2016 and December 30, 2017, respectively. The areas impacted byASC 606 include: (i) the acceleration of certain revenue from product sales to distributors that was previously deferred under the “sell-through” method; (ii)the acceleration of revenue related to certain software/parameter sales; (iii) the aggregation of all contract modifications occurring prior to the beginning ofthe earliest period presented; (iv) the acceleration of costs related to equipment for which control transfers up-front under certain contracts, the futureconsideration for which will now be treated as an optional purchase; (v) the capitalization and amortization of certain contract-related costs that werepreviously expensed when incurred; and (vi) the corresponding income tax effects related to these adjustments.The Company applied the new standard using certain practical expedients, including: (i) excluding disclosures of transaction prices allocated to remainingperformance obligations when the Company expects to recognize such revenue for all periods prior to the date of initial application of ASC 606; (ii) notadjusting the promised amount of consideration for the effects of a significant financing component when the Company expects, at contract inception, thatthe period between the Company’s transfer of a promised product or service to a customer and when the customer pays for that product or service will be oneyear or less; (iii) expensing costs as incurred for costs to obtain a contract when the amortization period would have been one year or less; (iv) not recastingrevenue for contracts that begin and end in the same fiscal year; and (v) not assessing whether promised goods or services are performance obligations if theyare immaterial in the context of the contract with the customer.F-17Table of ContentsPursuant to the full retrospective method of adoption under ASC 606, the Company has adjusted certain amounts previously reported in its consolidatedfinancial statements.The reconciliations below reflect the adoption of ASC 606, the adoption of ASU 2016-16 and certain other immaterial reclassifications (in thousands, exceptper share amounts):Consolidated Balance Sheet:December 30, 2017 As Previously Reported Adjustments As AdjustedTrade accounts receivable$121,309 $(2,777) $118,532Inventories95,944 (3,685) 92,259Other current assets31,564 2,038 33,602Deferred costs and other contract assets99,600 9,656 109,256Deferred tax assets23,898 (3,917) 19,981Other assets10,782 (6,114) 4,668Accrued and other liabilities42,344 (18,090) 24,254Deferred revenue and other contract liabilities, current35,929 (3,824) 32,105Retained earnings720,842 17,114 737,956Consolidated Statement of Operations:Year ended December 30, 2017 As PreviouslyReported Adjustments As AdjustedProduct revenue$741,324 $(3,082) $738,242Royalty and other revenue56,784 (4,778) 52,006Cost of goods sold263,008 5,208 268,216Selling, general and administrative275,786 506 276,292Provision for income taxes67,758 (6,747) 61,011Net income131,616 (6,827) 124,789 Net income per share: Basic$2.55 $(0.13) $2.42 Diluted$2.36 $(0.13) $2.23F-18Table of ContentsConsolidated Statement of Operations:Year ended December 31, 2016 As PreviouslyReported Adjustments As AdjustedProduct revenue$663,846 $10,116 $673,962Royalty and other revenue30,779 8,157 38,936Cost of goods sold230,826 3,734 234,560Selling, general and administrative253,667 1,040 254,707Research and development59,362 (1,676) 57,686Provision for income taxes117,675 4,744 122,419Net income300,666 10,431 311,097 Net income per share: Basic$6.07 $0.21 $6.28 Diluted$5.65 $0.20 $5.85Consolidated Statement of Cash Flows:Year endedDecember 30, 2017 As PreviouslyReported Adjustments As AdjustedCash flows from operating activities: Net income$131,616 $(6,827) $124,789Provision for deferred income taxes24,023 (6,747) 17,276Adjustments to reconcile net income to net cash provided by operating activities: Increase in inventories(22,923) (1,091) (24,014) Increase in other current assets(3,855) 947 (2,908) Increase in deferred cost of goods sold(19,438) 5,336 (14,102) Increase in other assets(10,952) 181 (10,771) Increase in other current liabilities11,156 (5,874) 5,282 Decrease in deferred revenue and other contract liabilities(27,370) 14,075 (13,295)Consolidated Statement of Cash Flows:Year endedDecember 31, 2016 As PreviouslyReported Adjustments As AdjustedCash flows from operating activities: Net income$300,666 $10,431 $311,097Provision for deferred income taxes5,405 4,744 10,149Adjustments to reconcile net income to net cash provided by operating activities: Increase in inventories(10,831) 1,876 (8,955) Increase in other current assets(3,422) (1,394) (4,816) Increase in deferred cost of goods sold(8,251) 590 (7,661) (Increase) decrease in other assets(1,609) 2,064 455 Decrease in other current liabilities(11,929) (4,278) (16,207) Increase in deferred revenue and other contract liabilities41,977 (14,032) 27,945F-19Table of ContentsIn January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assetsand Financial Liabilities, (ASU 2016-01). The new standard requires that (i) all equity investments, other than equity-method investments, in unconsolidatedentities generally be measured at fair value, and (ii) changes in fair value due to instrument-specific credit risk be recognized separately in othercomprehensive income when the fair value option has been elected for financial liabilities. ASU 2016-01 is effective for annual and interim fiscal reportingperiods beginning after December 15, 2017. The Company adopted this standard during the year ended December 29, 2018 and such adoption did not have amaterial impact on the Company’s consolidated financial statements.Recently Issued Accounting PronouncementsIn August 2018, the FASB issued ASU 2018-15, Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting forImplementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15). The new standard aligns the requirements forcapitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costsincurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective forannual periods, and interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted, including adoption in aninterim period. The Company is currently evaluating the expected impact of this standard, but does not expect it to have a material impact on itsconsolidated financial statements upon adoption.In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements (ASU 2018-09). This new standard amends, clarifies, corrects errors in andmakes minor improvements to the ASC. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of theamendments of ASU 2018-09 do not require transition guidance and will be effective upon issuance. However, many of the amendments of ASU 2018-09 thatcontain transition guidance are effective for the Company for annual periods beginning after December 15, 2018. The Company is currently evaluating theexpected impact of this standard, but does not expect it to have a material impact on its consolidated financial statements upon adoption.In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain TaxEffects from Accumulated Other Comprehensive Income (ASU 2018-02). The new standard allows a reclassification from accumulated other comprehensiveincome to retained earnings for the tax effects resulting from “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolutionon the Budget for Fiscal Year 2018” (the Reconciliation Act) that are stranded in accumulated other comprehensive income. The new standard also requirescertain disclosures about stranded tax effects. The new standard, however, does not change the underlying guidance that requires that the effect of a change intax laws or rates be included in income from continuing operations. ASU 2018-02 is effective for annual and interim periods beginning after December 15,2018, with early adoption permitted. ASU 2018-02 must be applied either in the period of adoption or retrospectively to each period in which the effect ofthe change in the U.S. federal corporate income tax rate in the Reconciliation Act is recognized. The Company is currently evaluating the expected impact ofthis standard, but does not expect it to have a material impact on its consolidated financial statements upon adoption.In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments(ASU 2016-13). The new standard requires entities to use a current expected credit loss model, which is a new impairment model based on expected lossesrather than incurred losses. Under this model, an entity would recognize an impairment allowance equal to its current estimate of all contractual cash flowsthat the entity does not expect to collect. The entity’s estimate would consider relevant information about past events, current conditions, and reasonable andsupportable forecasts. ASU 2016-13 is effective for annual and interim fiscal reporting periods beginning after December 15, 2019, with early adoptionpermitted for annual reporting periods beginning after December 15, 2018. In November 2018, the FASB issued ASU No. 2018-19, CodificationImprovements to Topic 326, Financial Instruments-Credit Losses, (ASU 2018-19). The new standard clarifies that receivables arising from operating leases areaccounted for using lease guidance and not as financial instruments. This standard should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. ASU 2018-19 is effective for annual periods beginning after December 15, 2019, and interim periodstherein. Early adoption is permitted for annual periods beginning after December 15, 2018 and interim periods therein. The Company is currently evaluatingthe expected impact of this standard, but does not expect it to have a material impact on its consolidated financial statements upon adoption.In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 replaces the existing lease guidance under ASC 840with ASC 842, which among other things, requires lessees to recognize most leases on their balance sheets but continue to recognize lease expenses in theirstatement of operations in a manner similar to current practice. ASU 2016-02 states that a lessee will recognize a lease liability for the obligation to makelease payments and a right-of-use asset for the right to use the underlying asset for the lease term. F-20Table of ContentsExpense related to leases determined to be operating leases will be recognized on a straight-line basis, while those determined to be financing leases will berecognized following a front-loaded expense profile in which interest and amortization are presented separately in the statement of operations. ASU 2016-02is effective for annual and interim fiscal reporting periods beginning after December 15, 2018, and early application is permitted.In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases (ASU 2018-10). ASU 2018-10 provides clarification onthe rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term andpurchase options, variable payments that depend on an index or rate and certain transition adjustments. ASU 2018-10 is effective when ASU 2016-02 isadopted. The FASB also issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (ASU 2018-11) in July 2018. ASU 2018-11 provides atransition option and a practical expedient for lessors to aid in cost reductions and complexity of implementing the new standard. Entities that elect thistransition option still adopt the new leases standard using the modified retrospective transition method required by the standard, but they recognize acumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. The optionalpractical expedient allows lessors to elect, by class of underlying asset, to not separate non-lease components from the associated lease components if thenon-lease components otherwise would be accounted for in accordance with ASC 606 and both of the following criteria are met: (1) the lease component andthe associated non-lease components have the same timing and pattern of transfer and(2) the lease component, if accounted for separately, would be classifiedas an operating lease. ASU 2018-11 is also effective is effective when ASU 2016-02 is adopted.In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842): Narrow- Scope Improvements for Lessors (ASU 2018-20). The new standard is anamendment to help lessors apply the lease standard ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). It allows lessors to make an accounting policyelection to exclude the sales taxes and other similar taxes on a specific lease from the measurement of lease revenue and associated expenses. ASU 2018-20 iseffective when ASU 2016-02 is adopted.The Company is continuing to evaluate the expected impact of ASC 842 on its consolidated financial statements, but anticipates that, among other things,the required recognition by a lessee of a lease liability and related right-of-use asset for operating leases will increase both the assets and liabilitiesrecognized and reported on its balance sheet as of the adoption date. In addition, ASC 842 will also change the classification of certain leases for which theCompany is the lessor, resulting in the acceleration of revenue under certain contracts, as well as the immediate expensing of certain costs that are currentlydeferred and expensed over the life of the lease. The Company is also continuing to evaluate the available practical expedients and its adoption method forthis new standard. The Company anticipates that its internal control framework will not materially change upon adoption of ASC 842, but certain existinginternal controls will be modified and augmented, as necessary, effective as of December 30, 2018. As the Company implements this new standard, it will alsocontinue to develop additional internal controls, as required, to ensure that it adequately evaluates its contracts under the new lease standard and accuratelyreports its current and any required prior-period operating results, as well as all required disclosures. When adopted, the Company expects to recognize alease asset and incremental lease liability related to the lessee provisions under ASC 842 between $19.0 million to $24.0 million and a cumulative decreaseto retained earnings related to the lessor provisions under ASC 842 of between $16.0 million to $26.0 million as of December 29, 2018.3. Related Party TransactionsCercacor Laboratories, Inc. (Cercacor) is an independent entity that was spun off from the Company to its stockholders in 1998. Joe Kiani, the Company’sChairman and Chief Executive Officer (CEO), is also the Chairman and CEO of Cercacor. Effective as of January 3, 2016, in connection with changes in thecapital structure of Cercacor, the Company determined that Cercacor was no longer required to be consolidated. Although the Company believes thatCercacor continues to be considered a variable interest entity, the Company has determined that it is no longer the primary beneficiary of Cercacor as it doesnot have the power to direct the activities of Cercacor that most significantly impact Cercacor’s economic performance and has no obligation to absorbCercacor’s losses.The Company is a party to the following agreements with Cercacor:•Cross-Licensing Agreement - The Company and Cercacor are parties to the Cross-Licensing Agreement, which governs each party’s rights to certainintellectual property held by the two companies. The Company is subject to certain annual minimum aggregate royalty obligations for use of therainbow® licensed technology. The current annual minimum royalty obligation is $5.0 million. Aggregate liabilities payable to Cercacor arising underthe Cross-Licensing Agreement were $10.9 million, $8.0 million and $6.4 million for the years ended December 29, 2018, December 30, 2017 andF-21Table of ContentsDecember 31, 2016, respectively. The Company had less than $0.1 million in sales to Cercacor for each of the years ended December 29, 2018,December 30, 2017 and December 31, 2016. •Administrative Services Agreement - The Company is a party to an administrative services agreement with Cercacor (G&A Services Agreement), whichgoverns certain general and administrative services that the Company provides to Cercacor. Amounts charged by the Company pursuant to the G&AServices Agreement were $0.2 million for each of the years ended December 29, 2018, December 30, 2017 and December 31, 2016.•Patent Transfer and Licensing Agreement. The Company entered into a patent transfer and licensing agreement with Cercacor (the Patent Agreement)effective July 2015, pursuant to which, among other things, it purchased certain patents from Cercacor (the Purchased Patents) for an aggregate purchaseprice of $2.4 million. Pursuant to the Patent Agreement, the Company granted Cercacor an irrevocable, non-exclusive, worldwide license with respect tothe products and services covered by the Purchased Patents.•Sublease Agreement - In March 2016, the Company entered into a sublease agreement with Cercacor for approximately 16,830 square feet of excessoffice and laboratory space located at 40 Parker, Irvine, California (Cercacor Sublease). The Cercacor Sublease began on May 1, 2016 and expires onNovember 30, 2019. The Company recognized $0.4 million, $0.4 million and $0.3 million of sublease income for the years ended December 29, 2018,December 30, 2017, and December 31, 2016, respectively.Net amounts due to Cercacor were approximately $2.9 million and $1.5 million as of December 29, 2018 and December 30, 2017, respectively. TheCompany’s CEO is also the Chairman of the Masimo Foundation for Ethics, Innovation and Competition in Healthcare (Masimo Foundation), a non-profitorganization that was founded in 2010 to provide a platform for encouraging ethics, innovation and competition in healthcare. In addition, the Company’sExecutive Vice President (EVP), General Counsel is a Director and also serves as the Secretary of the Masimo Foundation and the Company’s EVP, ChiefFinancial Officer (CFO) serves as the Treasurer of the Masimo Foundation. For the fiscal year ended December 29, 2018, the Company contributedapproximately $2.0 million, a portion of which was, in turn, contributed by the Masimo Foundation to the Patient Safety Movement Foundation. For thefiscal year ended December 30, 2017, the Company did not make any contributions to the Masimo Foundation. For the fiscal year ended December 31, 2016,the Company contributed approximately $5.0 million to the Masimo Foundation.The Company’s CEO is also the Chairman of the Patient Safety Movement Foundation (PSMF), a non-profit organization which was founded in 2013 to workwith hospitals, medical technology companies and patient advocates to unite the healthcare ecosystem and eliminate the more than 200,000 U.S. preventablehospital deaths that occur every year by 2020. The Company’s EVP and General Counsel and the Company’s EVP, Chief Financial Officer serve as theSecretary and the Treasurer, respectively, of PSMF. During the fiscal years ended December 29, 2018, December 30, 2017 and December 31, 2016, theCompany contributed approximately $207,530, $1,300 and $200,271, respectively to PSMF.The Company’s CEO is also the Chairman of the Patient Safety Movement Coalition (PSMC), a not-for-profit social welfare organization which was foundedin 2013 to promote patient safety legislation. The Company’s EVP and General Counsel and the Company’s EVP, Chief Financial Officer serve as theSecretary and the Treasurer, respectively, of the PSMC. During the fiscal years ended December 29, 2018 and December 30, 2017, the Company did not makeany contributions to PSMC. During the fiscal year ended December 31, 2016, the Company contributed approximately $20,000 to PSMC.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 theCompany’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.During the fiscal years ended December 29, 2018 and December 30, 2017, the Company charged the Company’s CEO $0.2 million and less than $0.1million, respectively, related to such reimbursements.F-22Table of Contents4. InventoriesInventories consist of the following (in thousands): December 29, 2018 December 30, 2017As AdjustedRaw materials$38,955 $31,200Work-in-process9,036 8,619Finished goods45,760 52,440Total$93,751 $92,2595. Other Current AssetsOther current assets consist of the following (in thousands): December 29, 2018 December 30, 2017As AdjustedPrepaid expenses$10,582 $10,517Indirect taxes receivable6,516 6,556Customer notes receivable3,780 2,777Prepaid income taxes3,071 3,494Royalties receivable500 7,400Other4,778 2,858Total other current assets$29,227 $33,6026. Deferred Costs and Other Contract AssetsDeferred costs and other contract assets consist of the following (in thousands): December 29, 2018 December 30, 2017As AdjustedDeferred cost of goods sold$109,398 $93,261Prepaid contract incentives7,036 6,115Unbilled contract receivables5,567 4,267Deferred commissions5,085 5,613 Deferred costs and other contract assets$127,086 $109,256For the years ended December 29, 2018 and December 30, 2017, $30.0 million and $27.5 million, respectively, of deferred cost of goods sold was amortizedto cost of goods sold.For the years ended December 29, 2018 and December 30, 2017, $1.7 million and $2.0 million, respectively, of prepaid contract incentives was amortized asa reduction to revenue.For the years ended December 29, 2018 and December 30, 2017, $2.2 million and $2.5 million, respectively, of deferred commissions was amortized toselling, general and administrative expenses.F-23Table of Contents7. Property and EquipmentProperty and equipment, net consists of the following (in thousands): December 29, 2018 December 30, 2017Building and building improvements$88,449 $87,999Machinery and equipment54,525 47,556Aircraft and vehicles25,555 25,329Land23,762 23,762Computer equipment16,582 15,789Leasehold improvements16,428 15,326Tooling14,212 13,754Furniture and office equipment10,459 9,967Demonstration units470 486Construction-in-progress (CIP)13,320 6,365Total property and equipment263,762 246,333Accumulated depreciation and amortization(97,790) (82,237)Total property and equipment, net$165,972 $164,096The balance in CIP at December 29, 2018 relates primarily to capitalized costs related to the implementation of a new enterprise resource planning (ERP)software system, capital improvements to various facilities and manufacturing equipment, the underlying assets for which have not been completed or placedinto service. The balance in CIP at December 30, 2017 related primarily to capitalized costs related to leasehold improvements, furniture and equipment for anew manufacturing facility in Irvine, California, as well as other manufacturing equipment, the majority of which was placed into service during the yearended December 29, 2018.F-24Table of Contents8. Intangible AssetsIntangible assets, net consist of the following (in thousands): December 29, 2018 December 30, 2017Cost Patents$21,323 $20,623Customer relationships7,669 7,669Licenses-related party7,500 7,500Acquired technology5,580 5,580Trademarks4,190 4,036Capitalized software development costs3,430 2,699Other5,466 3,691Total cost55,158 51,798Accumulated amortization Patents(8,868) (8,473)Customer relationships(4,921) (4,154)Licenses-related party(5,252) (4,831)Acquired technology(3,624) (3,066)Trademarks(1,889) (1,611)Capitalized software development costs(1,983) (1,864)Other(697) (676)Total accumulated amortization(27,234) (24,675)Net carrying amount$27,924 $27,123Estimated amortization expense for each of the next fiscal years is as follows (in thousands):Fiscal yearAmount2019$4,21820203,74820213,64720222,94120231,737Thereafter11,633Total$27,9249. GoodwillChanges in goodwill were as follows (in thousands): December 29, 2018 December 30, 2017Goodwill, beginning of period$20,617 $19,780Goodwill as a result of acquisitions3,402 —Foreign currency translation adjustment(722) 837Goodwill, end of period$23,297 $20,617F-25Table of ContentsOn September 21, 2018, the Company acquired all of the outstanding shares of a private patient monitoring software company for approximately $4.0million. Based on the Company’s preliminary purchase price allocation, approximately $3.4 million of the purchase price has been assigned to goodwill. Allof the assets and liabilities of the acquired company and its operating results as of December 29, 2018 are included in these condensed consolidated financialstatements.10. Other Assets, Long-TermOther assets, long-term consist of the following (in thousands): December 29, 2018 December 30, 2017As AdjustedPrepaid deposits$2,881 $3,286Long term investments1,200 1,234Restricted cash151 148Total other assets, long-term$4,232 $4,66811. Deferred Revenue and Other Contract LiabilitiesDeferred revenue and other contract liabilities consist of the following (in thousands): December 29, 2018 December 30, 2017As AdjustedAccrued customer reimbursements$16,194 $16,896Deferred revenue10,883 11,589Accrued rebates and incentives6,282 3,598Other432 259 Total deferred revenue and other contract liabilities33,791 32,342Less: Non-current portion of deferred revenue(685) (237) Deferred revenue and other contract liabilities - current$33,106 $32,105Deferred revenue relates to contracted amounts that have been invoiced to customers for which remaining performance obligations must be completed beforethe Company can recognize the revenue. These amounts primarily relate to undelivered equipment, sensors and services under deferred equipmentagreements, extended warranty agreements and NRE service agreements.Changes in deferred revenue for the year ended December 29, 2018 were as follows: December 29, 2018Deferred revenue, beginning of the period$11,589 Revenue deferred during the period11,356 Recognition of revenue deferred in prior periods(12,062) Deferred revenue, end of the period$10,883Expected revenue from remaining contractual performance obligations (Unrecognized Contract Revenue) includes deferred revenue, as well as other amountsthat will be invoiced and recognized as revenue in future periods, when the Company completes its performance obligations. While Unrecognized ContractRevenue is similar in concept to backlog, Unrecognized Contract Revenue excludes revenue allocable to monitoring-related equipment that is effectivelyleased to hospitals under deferred equipment agreements and other contractual obligations for which neither party has performed.F-26Table of ContentsThe following table summarizes the Company’s estimated Unrecognized Contract Revenue as of December 29, 2018 and the future periods within which theCompany expects to recognize such revenue. Expected Future Revenue By Period(in thousands) Less than1 year Between1-3 years Between 3-5 years More than5 years TotalUnrecognized Contract Revenue$194,151 $271,477 $128,116 $36,688 $630,432The estimated timing of this revenue is based, in part, on management’s estimates and assumptions about when its performance obligations will becompleted. As a result, the actual timing of this revenue in future periods may vary, possibly materially, from those reflected in this table.12. Other Current LiabilitiesOther current liabilities consist of the following (in thousands): December 29, 2018 December 30, 2017As AdjustedAccrued indirect taxes payable$6,465 $6,711Related party payables4,000 1,528Income tax payable3,071 4,292Accrued expenses2,875 2,924Accrued customer rebates, fees and reimbursements2,163 2,351Accrued warranty1,910 1,149Accrued legal fees1,481 975Accrued stock repurchases— 1,988Other2,662 2,336Total other current liabilities$24,627 $24,25413. Credit FacilitiesOn December 17, 2018, the Company entered into a new Credit Agreement (“2018 Credit Facility”) with JPMorgan Chase Bank, N.A., as AdministrativeAgent and a Lender, and Bank of the West, a Lender (collectively, the “Lenders”). The 2018 Credit Facility provides for up to $150.0 million of unsecuredborrowings in multiple currencies, with an option, subject to certain conditions, for the Company to increase the aggregate borrowing capacity up to $550.0million in the future with the Initial Lenders and additional Lenders, as required. The 2018 Credit Facility also provides for a sublimit of up to $25.0 millionfor the issuance of letters of credit and a sublimit of $75.0 million for borrowings in specified foreign currencies. All unpaid principal under the 2018 CreditFacility will become due and payable on December 17, 2023. Proceeds from the 2018 Credit Facility are expected to be used for general corporate, capitalinvestment and working capital needs.Borrowings under the 2018 Credit Facility will be deemed, at the Company’s election, either: (a) an Alternate Base Rate (ABR) Loan, which bears interest atthe ABR, plus a spread of 0.125% to 1.000% based upon a Company leverage ratio, or (b) a Eurocurrency Loan, which bears interest at the Adjusted LIBORate (as defined below), plus a spread of 1.125% to 2.000% based upon a Company net leverage ratio. Subject to certain conditions, the Company may alsorequest swingline loans from time to time that bear interest similar to an ABR Loan. Pursuant to the terms of the 2018 Credit Facility, the ABR is equal to thegreatest of (i) the prime rate, (ii) the Federal Reserve Bank of New York effective rate plus 0.50%, and (iii) the one-month Adjusted LIBO Rate plus 1.0%. TheAdjusted LIBO Rate is equal to the Eurocurrency Rate (as defined within the 2018 Credit Facility) for the applicable interest period multiplied by thestatutory reserve rate for such period, rounded upward, if necessary, to the next 1/16 of 1%. The Company is also obligated under the 2018 Credit Facility topay an unused fee ranging from 0.150% to 0.275% per annum, based upon a Company leverage ratio, with respect to any unutilized portion of the 2018Credit Facility.F-27Table of ContentsPursuant to the terms of the 2018 Credit Facility, the Company is subject to certain covenants, including financial covenants related to a net leverage ratioand an interest charge coverage ratio, and other customary negative covenants. The 2018 Credit Facility also includes customary events of default which,upon the occurrence of any such event of default, provide the Lenders with the right to take either or both of the following actions: (a) immediately terminatethe commitments, and (b) declare the loans then outstanding immediately due and payable in full. As of December 29, 2018, the 2018 Credit Facility had nooutstanding draws or letters of credit. The Company was in compliance with all covenants under the 2018 Credit Facility as of December 29, 2018.In January 2016, the Company entered into an Amended and Restated Credit Agreement (Restated Credit Facility) with JPMorgan Chase Bank, N.A., asAdministrative Agent and a Lender, Bank of America, as Syndication Agent and a Lender, Citibank, N.A., as Documentation Agent and a Lender, and variousother Lenders (collectively, the Lenders). The Restated Credit Facility provided for borrowings up to $250.0 million in multiple currencies, with an option,subject to certain conditions, for the Company to increase the aggregate borrowing capacity to up to $350.0 million. The Company terminated the RestatedCredit Facility on February 15, 2018.The Company incurred total combined interest expense of $0.6 million, $0.7 million and $3.5 million for the years ended December 29, 2018, December 30,2017 and December 31, 2016, respectively, under the 2018 Credit Facility and Restated Credit Facility.14. Other Non-Current LiabilitiesOther long-term liabilities consist of the following (in thousands): December 29, 2018 December 30, 2017As AdjustedIncome tax payable, long-term$21,522 $25,734Unrecognized tax benefits11,717 14,348Deferred tax liabilities2,956 9,880Deferred rent, long-term1,236 1,266Deferred revenue, long-term685 237Other30 292Total other non-current liabilities$38,146 $51,757Unrecognized tax benefit relates to the Company’s long-term portion of tax liability associated with uncertain tax positions. Authoritative guidanceprescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected tobe taken in a tax return. See Note 18 to these consolidated financial statements for further details.15. Stock Repurchase ProgramIn September 2015, the Company’s Board of Directors (Board) authorized a stock repurchase program, whereby the Company could purchase up to 5.0million shares of its common stock over a period of up to three years (2015 Repurchase Program). A total of 3.1 million shares were purchased by theCompany pursuant to the 2015 Repurchase Program prior to its expiration in September 2018.In July 2018, the Board approved a new stock repurchase program, authorizing the Company to purchase up to 5.0 million additional shares of its commonstock over a period of up to three years (2018 Repurchase Program). The 2018 Repurchase Program became effective in September 2018 upon the expirationof the 2015 Repurchase Program. The Company expects to fund the 2018 Repurchase Program through its available cash, cash expected to be generated fromfuture operations, the Credit Facility and other potential sources of capital. The 2018 Repurchase Program can be carried out at the discretion of a committeecomprised of the Company’s CEO and CFO through open market purchases, one or more Rule 10b5-1 trading plans, block trades and privately negotiatedtransactions.F-28Table of ContentsThe following table provides a summary of the Company’s stock repurchase activities during the years ended December 29, 2018, December 30, 2017 andDecember 31, 2016 (in thousands, except per share amounts): Years Ended December 29, 2018 December 30, 2017 December 31, 2016Shares repurchased196(1) 804(1) 1,496Average cost per share$84.12 $84.90 $42.39Value of shares repurchased$16,490 $68,260 $63,403______________(1)Excludes shares withheld from the shares of its common stock actually issued in connection the vesting of PSU awards to satisfy certain U.S. federal and state tax withholdingobligations.16. Stock-Based CompensationTotal stock-based compensation expense for the years ended December 29, 2018, December 30, 2017 and December 31, 2016 was $27.4 million, $17.2million and $12.5 million, respectively. As of December 29, 2018, an aggregate of 11.9 million shares of common stock were reserved for future issuanceunder the Company’s equity plans, of which 3.2 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-basedawards is included below.Equity Incentive Plans2017 Equity Incentive PlanOn June 1, 2017, the Company’s stockholders ratified and approved the 2017 Equity Plan. The 2017 Equity Plan permits the grant of stock options, restrictedstock, RSUs, stock appreciation rights, PSUs, performance shares, performance bonus awards and other stock or cash awards to employees, directors andconsultants of the Company and employees and consultants of any parent or subsidiary of the Company. The aggregate number of shares that may beawarded under the 2017 Equity Plan is 5.0 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 yearfollowing the date of grant and generally expire within ten years from date of grant. The exercise price per share of each option granted under the 2017Equity 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 closingprice of the Company’s common stock on the Nasdaq Global Select Market on the grant date.2007 Stock Incentive PlanEffective 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 ofthe 2017 Equity Plan, an aggregate of 5.0 million shares of the Company’s common stock registered under prior registration statements for issuance pursuantto the 2007 Equity Plan were deregistered and concurrently registered under the 2017 Equity Plan.F-29Table of ContentsStock-Based Award ActivityStock OptionsThe number and weighted-average exercise price of options issued and outstanding under all of the Company’s equity plans are as follows (in thousands,except for exercise prices): Year endedDecember 29,2018 Year endedDecember 30,2017 Year endedDecember 31,2016 Shares AverageExercisePrice Shares AverageExercisePrice Shares AverageExercisePriceOptions outstanding, beginning of period6,953 $36.26 8,521 $28.56 9,202 $25.46Granted564 98.47 928 86.69 1,290 39.94Canceled/Forfeited(233) 67.45 (250) 38.59 (172) 29.13Exercised(1,608) 27.62 (2,246) 27.63 (1,799) 20.76Options outstanding, end of period5,676 $43.61 6,953 $36.26 8,521 $28.56Options exercisable, end of period3,273 $29.63 3,812 $26.28 4,988 $26.33Total stock option expense for the years ended December 29, 2018, December 30, 2017 and December 31, 2016 was $13.8 million, $12.0 million, and $12.2million, respectively. As of December 29, 2018 and December 30, 2017, the Company had $38.9 million and $39.7 million of unrecognized compensationcost related to outstanding options expected to be recognized over a weighted-average period of approximately 3.5 years and 3.7 years, respectively.The number and weighted-average exercise price of outstanding and exercisable stock options segregated by exercise price ranges (in thousands, exceptrange of exercise prices and remaining contractual life) were as follows: Year endedDecember 29,2018 Year endedDecember 30,2017 Options Outstanding OptionsExercisable Options Outstanding OptionsExercisableRange of Exercise PricesNumber ofOptions AverageRemainingContractualLife Number ofOptions Number ofOptions AverageRemainingContractualLife Number ofOptions$15.00 to $35.002,956 4.24 2,560 4,442 4.47 3,418$35.01 to $55.001,341 6.97 548 1,536 7.86 379$55.01 to $75.0072 7.75 20 101 8.82 15$75.01 to $95.001,076 8.75 141 855 9.59 —$95.01 to $115.00160 9.54 4 19 9.40 —$115.01 to $125.0071 9.73 — — 0.00 — Total5,676 6.01 3,273 6,953 5.92 3,812As of December 29, 2018 and December 30, 2017, the weighted-average remaining contractual term of options outstanding was 6.0 years and 5.9 years,respectively. As of December 29, 2018 and December 30, 2017, the weighted-average remaining contractual term of options exercisable with an exerciseprice less than the closing price of the Company’s common stock was 4.7 years and 4.3 years, respectively.F-30Table of ContentsRSUsThe number of RSUs issued and outstanding under all of the Company’s equity plans are as follows (in thousands, except for weighted average grant date fairvalue amounts): Year endedDecember 29, 2018 Year endedDecember 30, 2017 Year endedDecember 31, 2016 Units Weighted AverageGrant DateFair Value Units Weighted AverageGrant DateFair Value Units Weighted AverageGrant Date Fair ValueRSUs outstanding, beginning of period2,708 $95.51 2,706 $95.40 2,703 $41.45Granted7 99.05 33 86.42 6 43.09Canceled/Forfeited— — (25) 85.79 — —Vested(8) 88.40 (6) 43.09 (3) 41.45RSUs outstanding, end of period2,707 $95.54 2,708 $95.51 2,706 $41.45Total RSU expense for the years ended December 29, 2018, December 30, 2017 and December 31, 2016 was $0.7 million, $0.5 million and $0.3 million,respectively. As of each of December 29, 2018 and December 30, 2017, the Company had $0.3 million of unrecognized compensation cost related to non-vested RSU awards expected to be recognized and vest over a weighted-average period of approximately 0.4 years, excluding any contingent compensationexpense related to certain RSUs that were granted to the Company’s Chairman and CEO in connection with the amendment and restatement of hisemployment agreement. See “Employment and Severance Agreements” in Note 19 to these condensed consolidated financial statements for further details onthe CEO’s employment agreement.PSUsThe number of PSUs outstanding under all of the Company’s equity plans are as follows (in thousands, except for weighted average grant date fair valueamounts): Year endedDecember 29, 2018 Year endedDecember 30, 2017 Year endedDecember 31, 2016 Units Weighted AverageGrant DateFair Value Units Weighted AverageGrant DateFair Value Units Weighted AverageGrant Date Fair ValuePSUs outstanding, beginning of period233 $90.70 — $— — $—Granted197 86.95 248 90.71 — —Canceled/Forfeited(86) 90.71 (15) 90.87 — Vested(31) 90.70 — — — —PSUs outstanding, end of period313 $88.34 233 $90.70 — $—During the year ended December 30, 2017, the Company awarded 248,000 PSUs that will vest in part over time based on the achievement of certain 2017performance criteria approved by the Compensation Committee of the Board (Compensation Committee). If earned, 20% of the PSUs granted will vest uponachievement of the performance criteria and the remaining award will vest in four equal installments at the beginning of each of the following four years afterthe year in which the performance achievement level has been determined. In March 2018, the Compensation Committee determined that 165,000 shares hadbeen earned based on the 2017 performance criteria.During the year ended December 29, 2018, the Company awarded 197,000 PSUs that will vest three years from the award date based on the achievement ofcertain 2020 performance criteria approved by the Compensation Committee. If earned, the PSUs granted will vest at the time the achievement level of theperformance criteria is determined by the Compensation Committee. The number of shares that may be earned can range from 0% to 200% of the targetamount; therefore, the maximum number of shares that can be issued under these awards is twice the original award of 197,000 PSUs or 394,000 shares.F-31Table of ContentsThe total PSU expense for the years ended December 29, 2018, December 30, 2017 and December 31, 2016 was $12.9 million, $4.7 million and $0.0 million,respectively. As of December 29, 2018 and December 30, 2017, the Company had $27.4 million and $9.3 million, respectively, of unrecognizedcompensation cost related to non-vested PSU awards expected to be recognized and vest over a weighted-average period of approximately 2.1 years and 2.5years, respectively.Valuation of Stock-Based Award ActivityThe fair value of each RSU award is determined based on the closing price of the Company’s common stock on the grant date.The Black-Scholes option pricing model is used to estimate the fair value of stock options granted under the Company’s stock-based compensation plans.The range of assumptions used and the resulting weighted-average fair value of stock options granted at the date of grant were as follows: Year endedDecember 29,2018 Year endedDecember 30,2017 Year endedDecember 31,2016Risk-free interest rate2.3% to 3.1% 1.7% to 2.2% 1.0% to 2.1%Expected term5.2 years to 5.6 years 5.5 years to 5.6 years 5.5 years to 5.7 yearsEstimated volatility26.8% to 32.0% 29.7% to 32.1% 29.8% to 35.7%Expected dividends0% 0% 0%Weighted-average fair value of options granted$31.85 per share $27.81 per share $13.64 per shareRisk-free interest rate. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with a remaining termapproximately equal to the expected term of the Company’s stock options.Expected term. The expected term represents the average period that the Company’s stock options are expected to be outstanding. The expected term is basedon both the Company’s specific historical option exercise experience, as well as expected term information available from a peer group of companies with asimilar vesting schedule.Estimated volatility. The estimated volatility is the amount by which the Company’s share price is expected to fluctuate during a period. The Company’sestimated volatilities for 2018, 2017 and 2016 are based on historical and implied volatilities of the Company’s share price over the expected term of theoption.Expected dividends. The Board may from time to time declare, and the Company may pay, dividends on its outstanding shares in the manner and upon theterms and conditions provided by law. Any determination to declare and pay dividends will be made by the Board and will depend upon the Company’sresults of operations, earnings, capital requirements, financial condition, business prospects, contractual restrictions and other factors deemed relevant by theBoard. In the event a dividend is declared, there is no assurance with respect to the amount, timing or frequency of any such dividends. The dividenddeclared in 2012 was deemed to be a special dividend and there is no assurance that special dividends will be declared again during the expected term. Basedon this uncertainty and unknown frequency, for the years ended December 29, 2018, December 30, 2017 and December 31, 2016, no dividend rate was usedin the assumptions to calculate the stock-based compensation expense.Estimated forfeiture rate. The Company is required to develop an estimate of the number of stock options and RSUs that will be forfeited due to employeeturnover. Adjustments in the estimated forfeiture rates can have a significant effect on the Company’s reported stock-based compensation, as it recognizes thecumulative effect of the rate adjustments for all expense amortization in the period the estimated forfeiture rates were adjusted. The Company estimates andadjusts forfeiture rates based on a periodic review of recent forfeiture activity and expected future employee turnover. Adjustments in the estimated forfeiturerates could also cause changes in the amount of expense that it recognizes in future periods.The Company has elected to recognize stock-based compensation expense on a straight-line basis over the requisite service period for the entire award. Thetotal fair value of all options that vested during fiscal years 2018, 2017 and 2016 was $13.7 million, $10.5 million and $10.6 million, respectively.The aggregate intrinsic value is calculated as the difference between the market value of the Company’s common stock on the date of exercise or therespective period end, as appropriate, and the exercise price of the options. The aggregate intrinsic value of options outstanding, with an exercise price lessthan the closing price of the Company’s common stock, as of December 29, 2018 was $353.1 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 December 29, 2018 was $248.5 million.F-32Table of ContentsThe aggregate intrinsic value of options exercised during the years ended December 29, 2018, December 30, 2017 and December 31, 2016 was $127.1million, $140.3 million and $57.0 million, respectively.The total income tax benefit recognized in the consolidated statements of operations for stock-based compensation expense was $22.0 million, $39.2 millionand $16.2 million for the years ended December 29, 2018, December 30, 2017 and December 31, 2016, respectively.The following table presents the total stock-based compensation expense that is included in each functional line item of the consolidated statements ofoperations (in thousands): Year endedDecember 29,2018 Year endedDecember 30,2017 Year endedDecember 31,2016Cost of goods sold$334 $351 $355Selling, general and administrative21,391 13,272 9,443Research and development5,692 3,564 2,705Total$27,417 $17,187 $12,503The increase in total stock-based compensation expense during the year ended December 29, 2018 was due to both the composition of the equity awardsgranted and a significant increase in the fair market value of the Company’s stock from the prior year, which increased the value of the equity awards grantedduring such year.17. Non-operating (income) expenseNon-operating (income) expense consists of the following (in thousands): December 29, 2018 December 30, 2017 December 31, 2016Interest income$(8,178) $(2,974) $(464)Realized and unrealized foreign currency (gain) loss2,027 270 (103)Interest expense706 678 3,260Other(287) 13 (264)Total$(5,732) $(2,013) $2,42918. Income TaxesThe components of income before provision for income taxes are as follows (in thousands): Year endedDecember 29,2018 Year endedDecember 30,2017As Adjusted Year endedDecember 31,2016As AdjustedUnited States$173,848 $159,245 $333,054Foreign39,928 26,555 100,462Total$213,776 $185,800 $433,516F-33Table of ContentsThe following table presents the current and deferred provision (benefit) for income taxes (in thousands): Year endedDecember 29,2018 Year endedDecember 30,2017As Adjusted Year endedDecember 31,2016As AdjustedCurrent: Federal$20,418 $38,777 $99,533State3,075 1,940 6,922Foreign5,014 3,018 5,815 28,507 43,735 112,270Deferred: Federal(6,678) 20,735 7,169State(1,258) (3,420) 2,751Foreign(338) (39) 229 (8,274) 17,276 10,149Total$20,233 $61,011 $122,419Included in the fiscal year 2018, 2017 and 2016 tax provisions are (decrease)/increases of $(1.6) million, $1.6 million and $6.1 million, respectively, for taxand accrued interest related to uncertain tax positions for each fiscal year.The reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate is as follows: Year endedDecember 29,2018 Year endedDecember 30,2017As Adjusted Year endedDecember 31,2016As AdjustedStatutory regular federal income tax rate21.0 % 35.0 % 35.0 %State provision, net of federal benefit0.7 (0.6) 1.4Nondeductible executive compensation1.9 1.3 0.6Research and development tax credits(1.4) (2.2) (0.5)Foreign income taxed at different rates(2.0) (3.4) (5.6)U.S. tax on foreign income, net0.7 — —Impact of 2017 Tax Act0.1 18.8 —Withholding taxes on undistributed foreign earnings, net(0.6) 3.5 —Excess stock based compensation(9.4) (20.3) (2.9)Derecognition of uncertain tax position(1.5) — —Other— 0.7 0.2Total9.5 % 32.8 % 28.2 %The 2017 Tax Act included a number of changes to existing U.S. federal tax law impacting businesses including, among other things, a permanent reductionin the corporate income tax rate from 35% to 21%, a one-time transition tax on the “deemed repatriation” of cumulative undistributed foreign earnings as ofDecember 31, 2017 and changes in the prospective taxation of the foreign operations of U.S. multinational companies. The SEC issued Staff AccountingBulletin No. 118 (SAB 118) to address the application of GAAP in situations when a registrant did not have the necessary information available, prepared oranalyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act and provided for ameasurement period of one year from the enactment date to finalize the accounting for effects of the 2017 Tax Act. Given the complexity and lack ofspecificity related to certain provisions of the 2017 Tax Act, the Company made certain estimates and assumptions in connection with the calculation of itsprovision for income taxes for the year ended December 30, 2017 and recorded a discrete tax charge of approximately $37.0 million. In addition, as a result ofthis change in U.S. tax policy, the Company recorded a related discrete tax charge of $6.5 million as a result of its decision to repatriate certain accumulatedundistributed earnings from the Company’s foreign subsidiaries.F-34Table of ContentsDuring the year ended December 29, 2018, the Company completed its analysis of the income tax effects of the 2017 Tax Act and, pursuant to SAB 118,recorded an adjustment of approximately $0.9 million to reduce its previously estimated accrual based on additional information and guidance that becameavailable with respect to the application of certain provisions of the 2017 Tax Act. The U.S. Treasury Department, the Internal Revenue Service, and otherstandard-setting bodies will continue to interpret or issue guidance on how provisions of the 2017 Tax Act will be applied or otherwise administered. Asfuture guidance is issued, the Company may make adjustments to amounts that it has previously recorded that may materially impact its provision for incometaxes in the period in which such adjustments are made.As of December 29, 2018, the Company has accumulated undistributed earnings generated by its foreign subsidiaries of approximately $131.3 million.Because such earnings have previously been subject to U.S. tax, any additional taxes due with respect to such earnings or the excess of the amount forfinancial reporting over the tax basis of its foreign investments would generally be limited to foreign withholding and state taxes. With respect to totalundistributed earnings of $131.3 million, the Company considers $86.5 million as no longer permanently reinvested and has accrued foreign withholdingand state taxes, net of estimated foreign tax credits, of $1.6 million. The Company intends, however, to indefinitely reinvest the remaining $44.8 million ofearnings. If the Company decides to distribute such permanently reinvested earnings, the Company would accrue estimated additional income tax expense ofup to approximately $2.1 million.The components of the deferred tax assets are as follows (in thousands): December 29, 2018 December 30, 2017As AdjustedDeferred tax assets: Tax credits$5,672 $6,414Deferred revenue331 665Accrued liabilities12,645 8,167Stock-based compensation6,615 8,601Total25,263 23,847Valuation allowance— —Total deferred tax assets25,263 23,847 Deferred tax liabilities: Property and equipment(2,504) (1,651)State taxes and other(857) (1,990)Withholding taxes on undistributed foreign earnings(2,803) (9,500)Other(845) (605)Total deferred tax liabilities(7,009) (13,746)Net deferred tax assets$18,254 $10,101As of December 29, 2018, the Company has $2.4 million of net operating losses from various states, which will begin to expire in 2023. The Company alsohas state research and development tax credits of $8.6 million that will carry forward indefinitely and $0.3 million of Canadian investment tax credits onresearch and development expenditures that will begin to expire in 2032. The Company believes that it is more likely than not that the deferred tax assetsrelated to these carryforwards will be realized. In making this determination, the Company considered all available positive and negative evidence, includingscheduled reversals of liabilities, projected future taxable income, tax planning strategies and recent financial performance.As a result of certain business and employment actions undertaken by the Company, income earned in a certain European country is subject to a reduced taxrate through 2018 as the Company has met certain employment thresholds. For the years ended December 29, 2018, December 30, 2017 and December 31,2016, the estimated income tax benefit related to such business arrangement was $1.7 million, $1.0 million and $4.6 million, respectively, and favorablyimpacted net income per diluted share by $0.03, $0.02 and $0.09, respectively. These estimated benefit amounts exclude any incremental U.S. taxes imposedas a result of various provisions of the 2017 Tax Act.F-35Table of ContentsThe following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands): Year endedDecember 29,2018 Year endedDecember 30,2017Unrecognized tax benefits (gross), beginning of period$16,157 $14,494Increase from tax positions in prior period701 498Increase from tax positions in current period2,633 2,142Settlements(33) —Lapse of statute of limitations(4,046) (977)Unrecognized tax benefits (gross), end of period$15,412 $16,157The amount of unrecognized benefits which, if ultimately recognized, could favorably affect the tax rate in a future period was $14.2 million and $14.5million as of December 29, 2018 and December 30, 2017, respectively. It is reasonably possible that the amount of unrecognized tax benefits in variousjurisdictions may change in the next 12 months due to the expiration of statutes of limitation and audit settlements. However, due to the uncertaintysurrounding the timing of these events, an estimate of the change within the next 12 months cannot be made at this time.For the years ended December 29, 2018, December 30, 2017 and December 31, 2016, the Company recorded a (benefit)/expense of $(0.8) million, $0.3million and $0.1 million, respectively, for interest and penalties related to unrecognized tax benefits as part of income tax expense. Total accrued interest andpenalties related to unrecognized tax benefits as of December 29, 2018 and December 30, 2017 were $0.8 million and $1.6 million, respectively.The Company conducts business in multiple jurisdictions, and as a result, one or more of the Company’s subsidiaries files income tax returns in the U.S.federal, various state, local and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters for years through 2014. All materialstate, local and foreign income tax matters have been concluded for years through 2011. The Company does not believe that the results of any tax authorityexamination would have a significant impact on its financial statements.19. Commitments and ContingenciesLeasesThe Company leases certain facilities throughout the world under operating lease agreements expiring at various dates through December 2026. Certainfacility leases contain predetermined price escalations and in some cases renewal options. The Company recognizes the lease costs using a straight-linemethod based on total lease payments. The Company has received leasehold improvement incentives in connection with some of these leased facilities.These leasehold improvement incentives have been deferred and are being amortized as a reduction to rent expense on a straight-line basis over the life of thelease. As of December 29, 2018 and December 30, 2017, rent expense accrued in excess of the amount paid aggregated $1.4 million and $1.5 million,respectively, and is classified in accrued and other liabilities in the accompanying consolidated balance sheets. In addition, the Company also leasesautomobiles in the U.S., Europe and Japan that are classified as operating leases and expire at various dates through April 2022. The majority of these leasesare non-cancellable.F-36Table of ContentsFuture minimum lease payments, including interest, under operating leases for each of the following fiscal years ending on or about December 31 are (inthousands):Fiscal yearTotalOperatingLeases2019$6,92620204,42220212,38420221,70120231,568Thereafter(1)9,921Total$26,922______________(1)Includes optional renewal period for certain leases.Rental expense related to operating leases for the years ended December 29, 2018, December 30, 2017 and December 31, 2016 was $6.9 million, $6.7 millionand $5.9 million, respectively.Employee Retirement Savings PlanThe Company sponsors a qualified defined contribution plan or 401(k) plan, the Masimo Retirement Savings Plan (MSRP), covering all of the Company’sfull-time U.S. employees who meet certain eligibility requirements. In general, the Company matches an employee’s contribution up to 3% of the employee’scompensation, subject to a maximum amount. The Company may also contribute to the MSRP on a discretionary basis. The Company contributed $2.3million, $2.2 million and $1.9 million to the Plan for the years ended December 29, 2018, December 30, 2017 and December 31, 2016, respectively, all in theform of matching contributions.In addition, the Company also sponsors various defined contribution plans in certain locations outside of the United States (Subsidiary Plans). For each of theyears ended December 29, 2018, December 30, 2017 and December 31, 2016, the Company contributed $0.4 million, $0.3 million and $0.3 million,respectively, to the Subsidiary Plans.Employment and Severance AgreementsIn July 2017, the Company entered into the First Amendment to the certain Amended and Restated Employment Agreement entered into between theCompany and Mr. Kiani on November 4, 2015 (as amended, the Amended Employment Agreement). Pursuant to the terms of the Amended EmploymentAgreement, upon a “Qualifying Termination” (as defined in the Amended Employment Agreement), Mr. Kiani will be entitled to receive a cash severancebenefit 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 threeyears, the full amount of the Award Shares and the full amount of the Cash Payment. In addition, in the event of a “Change in Control” (as defined in theAmended Employment Agreement) prior to a Qualifying Termination, on each of the first year and second year 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 inControl 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 eventlater 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’scontinuous employment through each such anniversary date. As of December 29, 2018, the expense related to the Award Shares and the Cash Payment thatwould be recognized in the Company’s consolidated financial statements upon the occurrence of a Qualifying Termination under the Restated EmploymentAgreement was approximately $292.9 million.As of December 29, 2018, the Company had severance plan participation agreements with eight of its executive officers. The participation agreements(Participation Agreements) are governed by the terms and conditions of the Company’s 2007 Severance Protection Plan, which became effective on July 19,2007 and was amended effective December 31, 2008.F-37Table of ContentsUnder the Participation Agreements, each executive officer may be entitled to receive certain salary, equity, medical and life insurance benefits if he isterminated by the Company without cause or terminates his employment for good reason under certain circumstances. The executive officers are also requiredto provide the Company with six months advance notice of their resignation under certain circumstances.Cercacor Cross-Licensing Agreement ProvisionsThe Company’s 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-LicensingAgreement) of the Company or Cercacor: (i) all rights to the “Masimo” trademark will be assigned to Cercacor if the surviving or acquiring entity ceases touse “Masimo” as a company name and trademark; (ii) the option to license technology developed by Cercacor for use in blood glucose monitoring will bedeemed automatically exercised and a $2.5 million license fee for this technology will become immediately payable to Cercacor; and (iii) the minimumaggregate annual royalties payable to Cercacor for carbon monoxide, methemoglobin, fractional arterial oxygen saturation, hemoglobin and/or glucosemeasurements 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 signmeasurement with no maximum ceiling for non-vital sign measurements.Purchase CommitmentsPursuant to contractual obligations with vendors, the Company had $90.4 million of purchase commitments as of December 29, 2018, which are expected tobe purchased within one year. These purchase commitments have been made for certain inventory items in order to secure sufficient levels of those items andto achieve better pricing and to ensure the Company will have raw materials when necessary.Other Contractual CommitmentsIn the normal course of business, the Company may provide bank guarantees to support government hospital tenders in certain foreign jurisdictions. As ofDecember 29, 2018, the Company had approximately $1.0 million in outstanding unsecured bank guarantees.In certain circumstances, the Company also provides limited indemnification within its various customer contracts whereby the Company indemnifies theparties to whom it sells its products with respect to potential infringement of intellectual property, and against bodily injury caused by a defective Companyproduct. It is not possible to predict the maximum potential amount of future payments under these or similar agreements, due to the conditional nature of theCompany’s obligations and the unique facts and circumstances involved. As of December 29, 2018, the Company had not incurred any significant costsrelated to contractual indemnification of its customers.Concentrations of RiskThe Company is exposed to credit loss for the amount of cash deposits with financial institutions in excess of federally insured limits. As of December 29,2018, the Company had approximately $552.5 million of cash and cash equivalents, of which $3.3 million was covered by either the U.S. Federal DepositInsurance Corporation limit or foreign countries’ deposit insurance organizations. The Company invests its excess cash in time deposit accounts with majorfinancial institutions.While the Company and its contract manufacturers rely on sole source suppliers for certain components, steps have been taken to minimize the impact of ashortage or stoppage of shipments, such as maintaining a safety stock of inventory and designing products that could be modified to use differentcomponents. However, there can be no assurance that a shortage or stoppage of shipments of the materials or components that the Company purchases willnot result in a delay in production or adversely affect the Company’s business.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 theCompany’s products become members of GPOs. GPOs negotiate pricing arrangements and contracts, sometimes exclusively, with medical supplymanufacturers and distributors, and these negotiated prices are made available to a GPO’s affiliated hospitals and other members. For the years endedDecember 29, 2018, December 30, 2017 and December 31, 2016, revenue from the sale of the Company’s pulse oximetry products to customers affiliatedwith GPOs amounted to $470.5 million, $417.0 million and $375.0 million, respectively.F-38Table of ContentsFor the years ended December 29, 2018, December 30, 2017 and December 31, 2016, the Company had sales through two just-in-time distributors, which intotal represented approximately 12.5% and 10.0%, 12.7% and 11.2%, and 14.0% and 12.8% of total revenue, respectively. As of December 29, 2018, thesetwo just-in-time distributors represented 6.7% and 3.2% of the accounts receivable balance. As of December 30, 2017, the same two just-in-time distributorsrepresented 6.5% and 4.7% of the accounts receivable balance.The majority of the Company’s royalty revenue arises from one agreement with Medtronic plc (Medtronic, formerly Covidien Ltd.) and is due and payablequarterly based on U.S. sales of certain Medtronic products. For the years ended December 29, 2018, December 30, 2017 and December 31, 2016, theCompany recognized royalty revenue pursuant to this agreement of $26.4 million, $32.8 million and $30.8 million, respectively. Medtronic is not obligatedto pay royalties to the Company for its sales occurring after October 6, 2018.The majority of the Company’s NRE service revenue arises from one agreement with Philips N.V. For the years ended December 29, 2018, December 30, 2017and December 31, 2016, the Company recognized NRE service revenue pursuant to this agreement of approximately $2.0 million, $19.2 million and $8.2million, respectively. As of December 29, 2018, the Company had completed the majority of the contracted NRE services for Philips N.V.LitigationDuring the third quarter of fiscal year 2017, the Company became aware that certain amounts had been paid by a foreign government customer to theCompany’s former appointed foreign agent in connection with a foreign government tender, but had not been remitted by such agent to the Company inaccordance with the agency agreement. On December 28, 2017, the Company initiated arbitration proceedings against this foreign agent after unsuccessfulattempts to recover such remittances. As a result, the Company recorded a net charge of approximately $10.5 million during the fourth quarter of fiscal year2017 in connection with this dispute, of which $2.0 million was recovered during the year ended December 29, 2018. An arbitration hearing was held onFebruary 11, 2019. The parties are awaiting the arbitration decision. Although the Company intends to vigorously pursue collection of the remainingamounts owed by the foreign agent, there is no guarantee that the Company will be successful in these efforts.On January 24, 2018, the Company was notified that its former insurance carrier was seeking reimbursement of certain defense costs previously advanced bysuch insurance carrier in connection with an employment-related arbitration. Effective January 8, 2019, the Company and its former insurance carrier enteredinto a settlement agreement that included, among other things, a mutual release of claims and the Company’s payment of $0.4 million.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 byPhysicians Healthsource, Inc. (PHI). The complaint alleges that the Company sent unsolicited facsimile advertisements in violation of the Junk FaxProtection Act of 2005 and related regulations. The complaint seeks $500 for each alleged violation, treble damages if the District Court finds the allegedviolations to be knowing, plus interest, costs and injunctive relief. On April 14, 2014, the Company filed a motion to stay the case pending a decision on arelated petition filed by the Company with the Federal Communications Commission (FCC). On May 22, 2014, the District Court granted the motion andstayed the case pending a ruling by the FCC on the petition. On October 30, 2014, the FCC granted some of the relief and denied some of the relief requestedin the Company’s petition. Both parties appealed the FCC’s decision on the petition. On November 25, 2014, the District Court granted the parties’ jointrequest that the stay remain in place pending a decision on the appeal. On March 31, 2017, the D.C. Circuit Court of Appeals vacated and remanded theFCC’s decision, holding that the applicable FCC rule was unlawful to the extent it requires opt-out notices on solicited faxes. On April 28, 2017, PHI filed apetition seeking rehearing by the D.C. Circuit Court of Appeals. The D.C. Circuit Court of Appeals denied the requested rehearing on June 6, 2017. Theplaintiff filed a petition for a writ of certiorari with the United States Supreme Court on September 5, 2017 seeking review of the D.C. Circuit Court ofAppeals’ decision. The Company and the FCC filed oppositions to this petition on January 16, 2018. On February 20, 2018, the Supreme Court deniedcertiorari. The District Court lifted the stay on April 9, 2018 and set a trial date of November 5, 2019. On January 22, 2019, the District Court extended thedeadline for PHI to file its motion for class certification to April 8, 2019. The Company believes it has good and substantial defenses to the claims in theDistrict Court litigation, but there is no guarantee that the Company will prevail. The Company is unable to determine whether any loss will ultimately occuror to estimate the range of such loss; therefore, no amount of loss has been accrued by the Company in the accompanying condensed consolidated financialstatements.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 thenormal 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.F-39Table of Contents20. Segment Information and Enterprise ReportingThe Company’s chief operating decision maker, the CEO, reviews financial information presented on a consolidated basis, accompanied by disaggregatedinformation about revenues by geographic region for purposes of making operating decisions and assessing financial performance. Accordingly, theCompany considers itself to be in a single reporting segment, specifically noninvasive patient monitoring solutions and related products. The Company doesnot assess the performance of its geographic regions on other measures of income or expense, such as depreciation and amortization, operating income or netincome. In addition, the Company’s assets are primarily located in the U.S. The Company does not produce reports for, or measure the performance of, itsgeographic regions on any asset-based metrics. Therefore, geographic information is presented only for revenues and long-lived assets.The following schedule presents an analysis of the Company’s product revenues based upon the geographic area to which the product was shipped (inthousands, except percentages): Year endedDecember 29,2018 Year endedDecember 30,2017As Adjusted Year endedDecember 31,2016As AdjustedGeographic area by destination United States$566,816 68.3% $502,983 68.1% $475,068 70.5%Europe, Middle East and Africa160,910 19.4 138,689 18.8 113,015 16.8Asia and Australia75,534 9.1 72,434 9.8 66,136 9.8North and South America (excludingUnited States)26,614 3.2 24,136 3.3 19,743 2.9 Total Product Revenue$829,874 100.0% $738,242 100.0% $673,962 100.0%The Company’s consolidated long-lived assets (total non-current assets excluding deferred taxes, goodwill and intangible assets) by geographic area are (inthousands, except percentages): Year endedDecember 29,2018 Year endedDecember 30,2017As Adjusted Year endedDecember 31,2016As AdjustedLong-lived assets by geographic area United States$280,215 94.3% $265,678 95.6% $224,540 95.8%International17,075 5.7 12,342 4.4 9,893 4.2 Total$297,290 100.0% $278,020 100.0% $234,433 100.0%The Company possesses licenses from the U.S. Treasury Department’s Office of Foreign Assets Control for conducting business with certain countriesidentified by the State Department as state sponsors of terrorism. The Company does not have any subsidiaries, affiliates, offices, investments or employees inany country identified as a state sponsor of terrorism. In addition, the Company did not have any sales to customers in Sudan or Syria during the years endedDecember 29, 2018, December 30, 2017 and December 31, 2016. However, the Company did have immaterial product sales related to certain customers inIran during the years ended December 29, 2018, December 30, 2017 and December 31, 2016, but does not believe that such sales activities were material toits business, financial condition or results of operations.F-40Table of Contents21. Quarterly Financial Data (unaudited)The following tables contain selected unaudited consolidated statements of operations data for each quarter of 2018 and 2017 (in thousands, except per sharedata): Quarters EndedFiscal 2018March 31, 2018 June 30, 2018 September 29, 2018 December 29, 2018Total revenue$212,953 $211,621 $210,583 $223,132Gross profit143,661 142,147 140,753 148,331Operating income53,885 51,612 48,641 53,906Net income45,630 43,853 57,126 46,934Net income per share Basic(1)$0.88 $0.84 $1.09 $0.88Diluted(1)$0.82 $0.79 $1.02 $0.83 Quarters EndedFiscal 2017April 1, 2017As Adjusted July 1, 2017As Adjusted September 30, 2017As Adjusted December 30, 2017As AdjustedTotal revenue$196,643 $192,306 $193,360 $207,939Gross profit132,414 126,901 124,065 138,652Operating income52,151 43,849 43,061 44,726Net income51,533 45,138 35,853 (7,735)Net income per share Basic(1)$1.02 $0.87 $0.69 $(0.15)Diluted(1)$0.93 $0.80 $0.64 $(0.15) ______________(1) The sum of the basic and diluted earnings per share numbers for each quarter may not equal the basic and diluted earnings per share number for the entire year due to quarterlyrounding.F-41Table of ContentsSchedule IIMASIMO CORPORATIONVALUATION AND QUALIFYING ACCOUNTSYears ended December 29, 2018, December 30, 2017 and December 31, 2016(in thousands)DescriptionBalance atbeginning of period Additions charged to expense and otheraccounts Amounts charged against reserve Balance atend of periodYear ended December 29, 2018 Allowance for doubtful accounts$2,116 $(486) $(95) $1,535 Sales returns, allowance and reserves371 1,416 (1,408) 379 Valuation allowance on deferred tax asset— — — —Year ended December 30, 2017 Allowance for doubtful accounts1,698 251 167 2,116 Sales returns, allowance and reserves605 1,593 (1,827) 371 Valuation allowance on deferred tax asset— — — —Year ended December 31, 2016 Allowance for doubtful accounts1,967 259 (528) 1,698 Sales returns, allowance and reserves710 2,320 (2,425) 605 Valuation allowance on deferred tax asset4,196 — (4,196) —F-42March 31, 2010Mr. Thomas S. McClenahan40 ParkerIrvine, CA 92618Dear Tom:It is with great pleasure that we extend this formal offer to you to join Masimo as Vice President and Assistant General Counsel, reporting to me initially,until Masimo has hired a General Counsel. A detailed job description will be provided during your New Hire Orientation.Terms and condition of this offer include the following:Starting Date:No later than April 29, 2011.Annual Salary:You will be paid a bi-weekly salary of $8,517.31, which for illustrative purposes only, equates to $221,450 annually.Annual Bonus:You will be eligible to participate in Masimo’s Bonus Plan for up to 30% of your salary based on Company and individualobjectives being met.Benefits:Benefits including health/dental and other insurance, 401(k), vacation, holiday, and sick leave will be per Company policy.Insurance coverage will begin the first of the month following employment.Relocation:You agree to relocate your residence to Orange County within 90 days of your start date. The Company will reimburse you for up to$50,000 toward relocation costs in accordance with our Company relocations guidelines.As a member of our Team, you will be eligible to receive options under Masimo’s Stock Option Plan as determined by the Board of Directors. It will berecommended to the Board to issue you an option to purchase 10,000 shares of Common Stock, vesting 20% per year over five years and exercisable at fairmarket value at the time the option is granted.This offer is contingent upon your signing an Employee Confidentiality Agreement and Arbitration Agreement at the start of your employment, satisfactoryverification of your references, background check and drug screening, and confirmation that you are not under any contractual or legal restrictions with aprevious employer that may impair your ability to perform your duties for Masimo. On your first day of employment, you must provide proof of eligibility towork in the United States.Employment with Masimo is “at-will” and not for a specific term. This means that either you or the Company is free to terminate your employmentrelationship at anytime with or without reason or advanced notice. You will receive a copy of Masimo Employee Handbook during your new hire orientation.It is your responsibility to familiarize yourself with the contents of the Handbook as well as Company policies and procedures.This letter sets forth all the terms of our offer and it supersedes all prior offers, agreements and discussions, whether written or oral. The terms of this offercannot be modified or amended by any supervisor or by any action of Masimo except a written agreement signed by an officer of the Company.Please acknowledge your acceptance of this offer by signing below and returning the original. If we have not received your signed acceptance by April 7,2011, this offer will be withdrawn,If there are any questions relative to this offer or any aspects of the Company, please feel free to contact me. We look forward to you joining our Team, and weare confident your employment will be a mutually rewarding experience.Sincerely,/s/ JOE KIANI /s/ APRIL 1, 2011 Joe E. Kiani Date Chairman and CEO Offer Acceptance:/s/ THOMAS S. MCCLENAHAN /s/ APRIL 3, 2011 Thomas S. McClenahan Date MASIMO CORPORATIONAMENDED AND RESTATED2007 SEVERANCE PROTECTION PLANParticipation Agreement for Jon ColemanPage 1 of 5 November 12, 2013Personal & ConfidentialJon Coleman16 Pegasus DriveCoto de Caza, CA 92679Re: Masimo Corporation Amended and Restated 2007 Severance Protection Plan - Participation AgreementDear Jon:This letter relates to the Amended and Restated 2007 Severance Protection Plan (the “Plan”) that we, Masimo Corporation (the“Company”), have adopted.Through this letter, you are being offered the opportunity to become a Participant (a term defined in the Plan) in the Plan and, thereby,to be eligible to receive the basic, change in control and voluntary severance benefits described below. A copy of the Plan is attachedto this letter and incorporated herein by reference. You should read the Plan carefully and become comfortable with its terms andconditions, and those set forth below.If you choose to sign below, you will be establishing a Participation Agreement, within the meaning of the Plan, and as limited by theterms of this Participation Agreement; and, you will thereby be acknowledging and agreeing to the following provisions: (a) that you have received and reviewed a copy of the Plan;(b) that terms not defined in this Participation Agreement, but beginning with initial capital letters, shall have the meaningsassigned to them in the Plan;(c) that your participation in the Plan requires that you agree irrevocably and voluntarily to the terms of the Plan and the terms setforth below; and(d) that you have had the opportunity to carefully evaluate this opportunity, and desire to participate in the Plan according to theterms and conditions set forth herein.Subject to the foregoing, we invite you to become a Participant in the Plan. Your participation in the Plan will be effective upon yoursigning the Participation Agreement and returning it to the Company within thirty (30) days of your receipt of the ParticipationAgreement. The Participation Agreement will amend and restate that certain Limited Participation Agreement, dated July 25, 2013,between you and the Company, under the Plan, in its entirety.Page 2 of 5NOW, THEREFORE, you and the Company (hereinafter referred to as the “parties”) hereby AGREE as follows:1. If while the Plan and this Participation Agreement are in effect, you become entitled to a Basic Severance Benefit inaccordance with Sections 2 and 4 of the Plan, then:a)your Basic Severance Benefit shall equal your annual salary (“Base Salary”) determined at the highest rate in effectduring the one-year period before the date of your Covered Termination.b)You and your COBRA qualifying beneficiaries will be entitled to COBRA continuation coverage at the Company’sexpense for a period of twelve (12) months after your Covered Termination. Thereafter, you will be entitled tocontinuation coverage at your own expense and only to the extent it is legally required under applicable federal or statelaw, notably COBRA. In addition, the Company shall make life insurance coverage over the first twelve monthsfollowing your covered termination available for purchase by you.c)Notwithstanding the foregoing, if you commence new employment during the time that you are receiving any BasicSeverance Benefit, any income or benefits that you receive from such new subsequent employment will offset andreduce (on a dollar for dollar basis) your Basic Severance Benefits payable from the date such new employmentcommences.2. If while the Plan and this Participation Agreement are in effect, you become entitled to a Change in Control SeveranceBenefit in accordance with Sections 3 and 4 of the Plan, then you will receive whichever of the following is applicable, but not both ofthem.a) If your employment terminates on the date of a Change in Control specifically because your current job (taking intoaccount your division level) was not offered to you on the date of such Change in Control, your Change in ControlSeverance Benefit shall equal the sum of (i) your Base Salary, and (ii) one times the average annual bonus over the lastthree years (“Average Bonus”). In addition, you will receive the welfare benefits described under Section 1.b) above.b)If you experience a Covered Termination on or after a Change in Control for a reason other than as set forth inpreceding paragraph 2.a), then your Change in Control Severance Benefit shall equal the sum of (i) two times yourBase Salary, and (ii) one times your Average Bonus.Page 3 of 5c)You and your COBRA qualifying beneficiaries will be entitled to COBRA continuation coverage at the Company’sexpense for a period of 12 months following the date of your Covered Termination. Thereafter, you will be entitled tocontinuation coverage at your own expense and only to the extent it is legally required under applicable federal or statelaw, notably COBRA. In addition, the Company shall provide you with Company paid life insurance for the first 12months following your Covered Termination.2. As a condition of receiving any Severance Benefits pursuant to the Plan and this Participation Agreement, you must sign all relevantdocuments listed in Section 4 of the Plan.3. In consideration of becoming eligible to receive the Severance Benefits provided under the terms and conditions of the Plan and thisParticipation Agreement, you agree to waive any and all rights, benefits, and privileges to severance benefits that you might otherwisebe entitled to receive under any other oral or written plan, employment agreement or arrangement.4. You understand that the waiver set forth in Section 3 above is irrevocable, and that this Participation Agreement and the Plan setforth the entire agreement between us with respect to any subject matter covered herein.5. Subject to Section 12(b) of the Plan, this Participation Agreement shall terminate, and your status as a “Participant” in the Plan shallend, on the first to occur of:a)your termination of employment other than pursuant to a “Covered Termination” as defined in Section 2(d)(i)of the Plan; orb)the Sponsor’s termination of the Plan before you become entitled to Severance Benefits as the result of atermination of your employment, including a Covered Termination.6. If while the Plan and this Participation Agreement are in effect, you acknowledge that if you decide to voluntarily resign, you willgive the Company six (6) months notice.7. As a condition for receiving benefits under the Plan and this Participation Agreement, you agree that the Committee may reduceyour Plan benefits to avoid triggering any “excess parachute payments” under Section 280G of the Code.8. If any provision of the Plan, or of this Participation Agreement, is determined to be unlawful, invalid or unenforceable, suchprovision shall be deemed severed from the Plan or this Participation Agreement, respectively, but every other provision of the Plan orof this Participation Agreement shall remain in full force and effect. In substitution for any provision of the Plan or this ParticipationAgreement being held unlawful, invalid or unenforceable, there shall be substituted a provision of similar import reflecting the originalintent of the parties hereto to the fullest extent permissible under law. Page 4 of 59. You recognize and agree that your execution of this Participation Agreement results in your enrollment and participation in the Plan,that you agree to be bound by the terms and conditions of the Plan and this Participation Agreement, and that you understand that thisParticipation Agreement may not be amended or modified except pursuant to Section 12 of the Plan.10. This Participation Agreement amend and restates in its entirety the terms and provisions of that certain Limited ParticipationAgreement, dated July 25, 2013, between you and the Company, and supersedes and replaces the terms thereof in their entirety.Dated: July 25, 2013 MASIMO CORPORATION:By : /s/ Joe KianiJoe KianiIts: CEO & Chairman of the Board ACCEPTED AND AGREED TO this 12th day of November, 2013.Jon Coleman/s/ Jon ColemanSignaturePage 5 of 5MASIMO CORPORATIONAMENDED AND RESTATED2007 SEVERANCE PROTECTION PLANParticipation Agreement for Anand Sampath November 12, 2013Personal & ConfidentialAnand Sampath3360 Clearing LaneCorona, CA 92882Re: Masimo Corporation Amended and Restated 2007 Severance Protection Plan - Participation AgreementDear Anand:This letter relates to the Amended and Restated 2007 Severance Protection Plan (the “Plan”) that we, Masimo Corporation (the“Company”), have adopted.Through this letter, you are being offered the opportunity to become a Participant (a term defined in the Plan) in the Plan and, thereby,to be eligible to receive the basic, change in control and voluntary severance benefits described below. A copy of the Plan is attachedto this letter and incorporated herein by reference. You should read the Plan carefully and become comfortable with its terms andconditions, and those set forth below.If you choose to sign below, you will be establishing a Participation Agreement, within the meaning of the Plan, and as limited by theterms of this Participation Agreement; and, you will thereby be acknowledging and agreeing to the following provisions: (a) that you have received and reviewed a copy of the Plan;(b) that terms not defined in this Participation Agreement, but beginning with initial capital letters, shall have the meaningsassigned to them in the Plan;(c) that your participation in the Plan requires that you agree irrevocably and voluntarily to the terms of the Plan and the terms setforth below; and(d) that you have had the opportunity to carefully evaluate this opportunity, and desire to participate in the Plan according to theterms and conditions set forth herein.Subject to the foregoing, we invite you to become a Participant in the Plan. Your participation in the Plan will be effective upon yoursigning the Participation Agreement and returning it to the Company within thirty (30) days of your receipt of the ParticipationAgreement. The Participation Agreement will amend and restate that certain Limited Participation Agreement, dated July 25, 2013,between you and the Company, under the Plan, in its entirety.NOW, THEREFORE, you and the Company (hereinafter referred to as the “parties”) hereby AGREE as follows:1. If while the Plan and this Participation Agreement are in effect, you become entitled to a Basic Severance Benefit inaccordance with Sections 2 and 4 of the Plan, then:a)your Basic Severance Benefit shall equal your annual salary (“Base Salary”) determined at the highest rate in effectduring the one-year period before the date of your Covered Termination.b)You and your COBRA qualifying beneficiaries will be entitled to COBRA continuation coverage at the Company’sexpense for a period of twelve (12) months after your Covered Termination. Thereafter, you will be entitled tocontinuation coverage at your own expense and only to the extent it is legally required under applicable federal or statelaw, notably COBRA. In addition, the Company shall make life insurance coverage over the first twelve monthsfollowing your covered termination available for purchase by you.c)Notwithstanding the foregoing, if you commence new employment during the time that you are receiving any BasicSeverance Benefit, any income or benefits that you receive from such new subsequent employment will offset andreduce (on a dollar for dollar basis) your Basic Severance Benefits payable from the date such new employmentcommences.2. If while the Plan and this Participation Agreement are in effect, you become entitled to a Change in Control SeveranceBenefit in accordance with Sections 3 and 4 of the Plan, then you will receive whichever of the following is applicable, but not both ofthem.a)If your employment terminates on the date of a Change in Control specifically because your current job (taking intoaccount your division level) was not offered to you on the date of such Change in Control, your Change in ControlSeverance Benefit shall equal the sum of (i) your Base Salary, and (ii) one times the average annual bonus over the lastthree years (“Average Bonus”). In addition, you will receive the welfare benefits described under Section 1.b) above.b)If you experience a Covered Termination on or after a Change in Control for a reason other than as set forth inpreceding paragraph 2.a), then your Change in Control Severance Benefit shall equal the sum of (i) two times yourBase Salary, and (ii) one times your Average Bonus.c)You and your COBRA qualifying beneficiaries will be entitled to COBRA continuation coverage at the Company’sexpense for a period of 12 months following the date of your Covered Termination. Thereafter, you will be entitled tocontinuation coverage at your own expense and only to the extent it is legally required under applicable federal or statelaw, notably COBRA. In addition, the Company shall provide you with Company paid life insurance for the first 12months following your Covered Termination.2. As a condition of receiving any Severance Benefits pursuant to the Plan and this Participation Agreement, you must sign all relevantdocuments listed in Section 4 of the Plan.3. In consideration of becoming eligible to receive the Severance Benefits provided under the terms and conditions of the Plan and thisParticipation Agreement, you agree to waive any and all rights, benefits, and privileges to severance benefits that you might otherwisebe entitled to receive under any other oral or written plan, employment agreement or arrangement.4. You understand that the waiver set forth in Section 3 above is irrevocable, and that this Participation Agreement and the Plan setforth the entire agreement between us with respect to any subject matter covered herein.5. Subject to Section 12(b) of the Plan, this Participation Agreement shall terminate, and your status as a “Participant” in the Plan shallend, on the first to occur of:a)your termination of employment other than pursuant to a “Covered Termination” as defined in Section 2(d)(i)of the Plan; orb)the Sponsor’s termination of the Plan before you become entitled to Severance Benefits as the result of atermination of your employment, including a Covered Termination.6. If while the Plan and this Participation Agreement are in effect, you acknowledge that if you decide to voluntarily resign, you willgive the Company six (6) months notice.7. As a condition for receiving benefits under the Plan and this Participation Agreement, you agree that the Committee may reduceyour Plan benefits to avoid triggering any “excess parachute payments” under Section 280G of the Code.8. If any provision of the Plan, or of this Participation Agreement, is determined to be unlawful, invalid or unenforceable, suchprovision shall be deemed severed from the Plan or this Participation Agreement, respectively, but every other provision of the Plan orof this Participation Agreement shall remain in full force and effect. In substitution for any provision of the Plan or this ParticipationAgreement being held unlawful, invalid or unenforceable, there shall be substituted a provision of similar import reflecting the originalintent of the parties hereto to the fullest extent permissible under law. 9. You recognize and agree that your execution of this Participation Agreement results in your enrollment and participation in the Plan,that you agree to be bound by the terms and conditions of the Plan and this Participation Agreement, and that you understand that thisParticipation Agreement may not be amended or modified except pursuant to Section 12 of the Plan.10. This Participation Agreement amend and restates in its entirety the terms and provisions of that certain Limited ParticipationAgreement, dated July 25, 2013, between you and the Company, and supersedes and replaces the terms thereof in their entirety.Dated: July 25, 2013 MASIMO CORPORATION:By : /s/ Joe KianiJoe KianiIts: CEO & Chairman of the Board ACCEPTED AND AGREED TO this 12th day of November, 2013.Anand Sampath/s/ Anand SampathSignatureExhibit 10.42Execution VersionCREDIT AGREEMENTdated as ofDecember 17, 2018amongMASIMO CORPORATION,The Lenders Party HeretoandJPMORGAN CHASE BANK, N.A. as Administrative Agent___________________________J.P. MORGAN CHASE BANK, N.A., as Sole Bookrunner and Sole Lead Arranger 1 TABLE OF CONTENTS Page ARTICLE IDefinitions1 SECTION 1.01. Defined Terms1 SECTION 1.02. Classification of Loans and Borrowings25 SECTION 1.03. Terms Generally25 SECTION 1.04. Accounting Terms; GAAP25 SECTION 1.05. Currency Translation26 SECTION 1.06. Pro Forma Adjustments for Acquisitions and Dispositions26 SECTION 1.07. Interest Rates: LIBOR Notification26 ARTICLE IIThe Credits28 SECTION 2.01. Commitments28 SECTION 2.02. Loans and Borrowings28 SECTION 2.03. Requests for Revolving Borrowings28 SECTION 2.04. Swingline Loans29 SECTION 2.05. Letters of Credit31 SECTION 2.06. Funding of Borrowings35 SECTION 2.07. Interest Elections36 SECTION 2.08. Termination and Reduction of Commitments37 SECTION 2.09. Repayment of Loans; Evidence of Debt37 SECTION 2.10. Prepayment of Loans38 SECTION 2.11. Fees39 SECTION 2.12. Interest39 SECTION 2.13. Alternate Rate of Interest40 SECTION 2.14. Increased Costs41 SECTION 2.15. Break Funding Payments43 SECTION 2.16. Withholding of Taxes; Gross-Up43 SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Set-offs47 SECTION 2.18. Mitigation Obligations; Replacement of Lenders49 SECTION 2.19. Defaulting Lenders50 SECTION 2.20. Banking Services and Swap Agreements52 SECTION 2.21. Increase in Commitments52 ARTICLE IIIRepresentations and Warranties55 SECTION 3.01. Organization; Powers55 SECTION 3.02. Authorization; Enforceability55 SECTION 3.03. Governmental Approvals; No Conflicts55 SECTION 3.04. Financial Condition; No Material Adverse Change55 SECTION 3.05. Properties55 SECTION 3.06. Litigation and Environmental Matters56 SECTION 3.07. Compliance with Laws and Agreements56 SECTION 3.08. Investment Company Status56 SECTION 3.09. Taxes56 -i- TABLE OF CONTENTS(continued) Page SECTION 3.10. ERISA56 SECTION 3.11. Disclosure57 SECTION 3.12. Anti-Corruption Laws and Sanctions57 SECTION 3.13. EEA Financial Institutions57 SECTION 3.14. Plan Assets; Prohibited Transactions57 SECTION 3.15. Margin Regulations57 SECTION 3.16. Solvency57 ARTICLE IVConditions58 SECTION 4.01. Effective Date58 SECTION 4.02. Each Credit Event59 ARTICLE VAffirmative Covenants60 SECTION 5.01. Financial Statements; Ratings Change and Other Information60 SECTION 5.02. Notices of Material Events61 SECTION 5.03. Existence; Conduct of Business62 SECTION 5.04. Payment of Obligations62 SECTION 5.05. Maintenance of Properties; Insurance62 SECTION 5.06. Books and Records; Inspection Rights62 SECTION 5.07. Compliance with Laws63 SECTION 5.08. Use of Proceeds and Letters of Credit63 SECTION 5.09. Additional Guarantors63 ARTICLE VINegative Covenants64 SECTION 6.01. Indebtedness64 SECTION 6.02. Liens66 SECTION 6.03. Fundamental Changes66 SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions67 SECTION 6.05. Swap Agreements69 SECTION 6.06. Restricted Payments70 SECTION 6.07. Transactions with Affiliates70 SECTION 6.08. Restrictive Agreements70 SECTION 6.09. Financial Covenants71 ARTICLE VIIEvents of Default72 SECTION 7.01. Events of Default72 ARTICLE VIIIThe Administrative Agent75 SECTION 8.01. Authorization and Action75 SECTION 8.02. Administrative Agent’s Reliance, Indemnification, Etc.77 SECTION 8.03. Posting of Communications78 SECTION 8.04. The Administrative Agent Individually79 SECTION 8.05. Successor Administrative Agent79 SECTION 8.06. Acknowledgements of Lenders and Issuing Bank80 -i- TABLE OF CONTENTS(continued) SECTION 8.07. Certain ERISA Matters80 ARTICLE IXMiscellaneous83 SECTION 9.01. Notices83 SECTION 9.02. Waivers; Amendments84 SECTION 9.03. Expenses; Indemnity; Damage Waiver85 SECTION 9.04. Successors and Assigns87 SECTION 9.05. Survival90 SECTION 9.06. Counterparts; Integration; Effectiveness; Electronic Execution91 SECTION 9.07. Severability91 SECTION 9.08. Right of Setoff91 SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process92 SECTION 9.10. WAIVER OF JURY TRIAL93 SECTION 9.11. Headings93 SECTION 9.12. Confidentiality93 SECTION 9.13. Material Non-Public Information94 SECTION 9.14. Interest Rate Limitation94 SECTION 9.15. USA Patriot Act94 SECTION 9.16. California Judicial Reference94 SECTION 9.17. Judgment Currency95 SECTION 9.18. Acknowledgement and Consent to Bail-In of EEA Financial Institutions95 SECTION 9.19. No Fiduciary Duty, Etc.96 -i- EXHIBITS:Exhibit A --Form of Assignment and AssumptionExhibit B --ReservedExhibit C-1 --U.S. Tax Certificate (For Non-U.S. Lenders that are not Partnerships for U.S. Federal Income Tax PurposesExhibit C-2 --U.S. Tax Certificate (For Non-U.S. Lenders that are Partnerships for U.S. Federal Income Tax PurposesExhibit C-3 --U.S. Tax Certificate (For Non-U.S. Participants that are not Partnerships for U.S. Federal Income Tax PurposesExhibit C-4 --U.S. Tax Certificate (For Non-U.S. Participants that are Partnerships for U.S. Federal Income Tax Purposes1CREDIT AGREEMENT dated as of December 17, 2018, among MASIMO CORPORATION, the LENDERS party hereto, andJPMORGAN CHASE BANK, N.A., as Administrative Agent.The parties hereto agree as follows:ARTICLE IDefinitionsSECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below:“ABR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising suchBorrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.“Acquisition” means any transaction, or any series of related transactions, consummated on or after the date of this Agreement,by which the Borrower or any of its Subsidiaries (a) acquires any ongoing business or all or substantially all of the assets of any Person,or division thereof, whether through purchase of assets, merger or otherwise or (b) directly or indirectly acquires (in one transaction oras the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation whichhave ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of acontingency) or a majority (by percentage of voting power) of the outstanding ownership interests of a partnership or limited liabilitycompany.“Adjusted LIBO Rate” means, with respect to any Eurocurrency Borrowing for any Interest Period, an interest rate per annum(rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the Eurocurrency Rate for such Interest Period multiplied by (b) theStatutory Reserve Rate for such Interest Period.“Administrative Agent” means JPMorgan Chase Bank, N.A. in its capacity as administrative agent for the Lenders hereunder.“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or moreintermediaries, Controls or is Controlled by or is under common Control with the Person specified.“Agent Indemnitee” has the meaning assigned to it in Section 9.03(c).“Alternate Base Rate” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day,(b) the NYFRB Rate in effect on such day plus ½ of 1% and (c) the Adjusted LIBO Rate for a one month Interest Period on such day(or if such day is not a Business Day, the immediately preceding Business Day) plus 1%, provided that for the purpose of thisdefinition, the Adjusted LIBO Rate for any day shall be based on the LIBO Screen Rate (or if the LIBO Screen Rate is not available forsuch one month Interest Period, the Interpolated Rate) at approximately 11:00 a.m. London time on such day. Any change in theAlternate Base Rate due to a change in the Prime Rate, the2NYFRB Rate or the Adjusted LIBO Rate shall be effective from and including the effective date of such change in the Prime Rate, theNYFRB Rate or the Adjusted LIBO Rate, respectively. If the Alternate Base Rate is being used as an alternate rate of interest pursuant toSection 2.13 hereof, then the Alternate Base Rate shall be the greater of clauses (a) and (b) above and shall be determined withoutreference to clause (c) above. For the avoidance of doubt, if the Alternate Base Rate as so determined would be less than zero, such rateshall be deemed to be zero for purposes of this Agreement.“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or any of itsSubsidiaries from time to time concerning or relating to bribery or corruption.“Applicable Party” has the meaning assigned to it in Section 8.03(c).“Applicable Percentage” means, with respect to any Lender, the percentage of the total Commitments represented by suchLender’s Commitment; provided that, in the case of Section 2.19 when a Defaulting Lender shall exist, “Applicable Percentage” shallmean the percentage of the total Commitments (disregarding any Defaulting Lender’s Commitment) represented by such Lender’sCommitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon theCommitments most recently in effect, giving effect to any assignments and to any Lender’s status as a Defaulting Lender at the time ofdetermination.“Applicable Rate” means, for any day, with respect to any ABR Loan or Eurocurrency Revolving Loan, or with respect to theUnused Fees payable hereunder, as the case may be, (i) from the Effective Date to the date on which the Administrative Agent receivesa certificate pursuant to Section 5.01(c) for the fiscal quarter ending December 29, 2018, 0.125% per annum for any ABR Loan,1.125% per annum for Eurocurrency Revolving Loans and 0.150% for the Unused Fee and (ii) thereafter, the applicable rate per annumset forth below under the caption “ABR Spread”, “Eurocurrency Spread” or “Unused Fee”, as the case may be, based upon the TotalNet Leverage Ratio as set forth in the most recent certificate received by the Administrative Agent pursuant to Section 5.01(c):APPLICABLE RATELevelTotal Net Leverage RatioEurocurrency SpreadABR SpreadUnused FeeLevel ILess than 1.00 to 1.001.125%0.125%0.150%Level IIGreater than or equal to 1.00 to 1.00 but less than1.50 to 1.001.250%0.250%0.175%Level IIIGreater than or equal to 1.50 to 1.00 but less than2.00 to 1.001.375%0.375%0.200%Level IVGreater than or equal to 2.00 to 1.00 but less than2.50 to 1.001.500%0.500%0.225%Level VGreater than or equal to 2.50 to 1.00 but less than3.00 to 1.001.750%0.750%0.250%Level VIGreater than or equal to 3.00 to 1.002.000%1.000%0.275%Any increase or decrease in the Applicable Rate resulting from a change in the Total Net Leverage Ratio shall become effective as ofthe first Business Day immediately following the date a compliance certificate is delivered pursuant to Section 5.01(c); provided,however, that if a compliance certificate is not delivered when due in accordance with such Section, then Level VI shall apply as of thefirst Business Day after the date on which such compliance certificate was required to have been delivered until the date3such compliance certificate is delivered. Notwithstanding anything to the contrary contained in this definition, the determination of theApplicable Rate for any period shall be subject to the provisions of Section 2.12(f).“Approved Currency” means Euros, Sterling, Yen and any other currency (other than dollars) approved by the AdministrativeAgent and each Lender.“Approved Currency Sublimit” means an amount equal to the lesser of the total Commitments and $75,000,000. The ApprovedCurrency Sublimit is part of, and not in addition to, the total Commitments.“Approved Electronic Platform” has the meaning assigned to it in Section 8.03(a).“Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investingin bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender,(b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.“Arranger” means JPMorgan Chase Bank, N.A. in its capacity as sole bookrunner and sole lead arranger hereunder.“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with theconsent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in substantially the sameform of Exhibit A or any other form (including electronic records generated by the use of an electronic platform) approved by theAdministrative Agent.“Availability Period” means the period from and including the Effective Date to but excluding the earlier of the Maturity Dateand the date of termination of the Commitments in accordance with the provisions of this Agreement.“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority inrespect of any liability of an EEA Financial Institution.“Bail-In Legislation” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of theEuropean Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time totime which is described in the EU Bail-In Legislation Schedule.“Banking Services” means each and any of the following bank services provided to any Loan Party by any Lender or any of itsAffiliates: (a) credit cards for commercial customers (including, without limitation, “commercial credit cards” and purchasing cards), (b)stored value cards, (c) merchant processing services, and (d) treasury management services (including, without limitation, controlleddisbursement, automated clearinghouse transactions, return items, overdrafts and interstate depository network services).“Banking Services Obligations” of the Loan Parties means any and all obligations of the Loan Parties, whether absolute orcontingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions andmodifications thereof and substitutions therefor) in connection with Banking Services.4“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy”, as now and hereafter in effect, or anysuccessor statute.“Bankruptcy Event” means, with respect to any Person, such Person becomes the subject of a bankruptcy or insolvencyproceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors or similar Personcharged with the reorganization or liquidation of its business appointed for it, or, in the good faith determination of the AdministrativeAgent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding orappointment, provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of anyownership interest, in such Person by a Governmental Authority or instrumentality thereof, provided, further, that such ownershipinterest does not result in or provide such Person with immunity from the jurisdiction of courts within the United States or from theenforcement of judgments or writs of attachment on its assets or permit such Person (or such Governmental Authority orinstrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.“Beneficial Ownership Certification” means a certification regarding beneficial ownership as required by the BeneficialOwnership Regulation.“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in Section 3(3) of ERISA) that is subject to Title I ofERISA, (b) a “plan” as defined in Section 4975 of the Code to which Section 4975 of the Code applies, and (c) any Person whose assetsinclude (for purposes of the Plan Asset Regulations or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) theassets of any such “employee benefit plan” or “plan”.“Borrower” means Masimo Corporation, a Delaware corporation.“Borrowing” means (a) Revolving Loans of the same Type, made, converted or continued on the same date and, in the case ofEurocurrency Loans, as to which a single Interest Period is in effect, or (b) a Swingline Loan.“Borrowing Request” means a request by the Borrower for a Revolving Borrowing in accordance with Section 2.03, which shallbe in a form approved by the Administrative Agent (and for which such form approval shall not be unreasonably withheld).“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City areauthorized or required by law to remain closed; provided that, when used in connection with a Eurocurrency Loan, the term “BusinessDay” shall also exclude (a) any day on which banks are not open for dealings in dollar deposits in the London interbank market and (b)with respect to any Eurocurrency Loan denominated in an Approved Currency, any day on which banks are not open in the principalfinancial center of the Approved Currency.“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any leaseof (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are requiredto be classified and accounted for as capital leases or financing leases on a balance sheet of such Person under GAAP, and the amountof such obligations shall be the capitalized amount thereof determined in accordance with GAAP.5“Cash Collateralize” means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of one or more ofthe Issuing Bank or Swingline Lender (as applicable) and the Lenders, as collateral for LC Exposure, Obligations in respect ofSwingline Loans, or obligations of Lenders to fund participations in respect of either thereof (as the context may require), cash ordeposit account balances or, if the Administrative Agent, the Issuing Bank or Swingline Lender shall agree in their sole discretion, othercredit support, in each case pursuant to documentation in form and substance satisfactory to (a) the Administrative Agent and (b) theIssuing Bank or Swingline Lender (as applicable). “Cash Collateral” shall have a meaning correlative to the foregoing and shall includethe proceeds of such cash collateral and other credit support.“CFC” shall mean any Person that is a “controlled foreign corporation” within the meaning of Section 957 of the Code.“CFC Holding Company” means any Subsidiary substantially all of the assets of which consist of equity or debt of one or moreCFCs.“Change in Control” means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person orgroup (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof),of Equity Interests representing more than 40% of the aggregate ordinary voting power represented by the issued and outstandingEquity Interests of the Borrower; or (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of theBorrower by Persons who were neither (i) directors of the Borrower on the date of this Agreement nor (ii) nominated or appointed bythe board of directors of the Borrower.“Change in Law” means the occurrence after the date of this Agreement or, with respect to any Lender, such later date on whichsuch Lender becomes a party to this Agreement) of (a) the adoption of or taking effect of any law, rule, regulation or treaty, (b) anychange in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by anyGovernmental Authority or (c) compliance by any Lender or Issuing Bank (or, for purposes of Section 2.14(b), by any lending office ofsuch Lender or by such Lender’s or Issuing Bank’s holding company, if any) with any request, guideline or directive (whether or nothaving the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided that, notwithstandinganything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelinesor directives thereunder or issued in connection therewith or in the implementation thereof and (y) all requests, rules, guidelines ordirectives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor orsimilar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall, in each case, be deemedto be a “Change in Law,” regardless of the date enacted, adopted, issued or implemented.“Charges” has the meaning assigned to it in Section 9.14.“Class” when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising suchBorrowing, are Revolving Loans or Swingline Loans.“Code” means the Internal Revenue Code of 1986, as amended.“Commitment” with respect to each Lender, the commitment of such Lender to make Revolving Loans and to acquireparticipations in Letters of Credit and Swingline Loans hereunder, expressed as an amount representing the maximum aggregateamount of such Lender’s Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant toSection 2.08, (b)6increased from time to time pursuant to Section 2.21 and (c) reduced or increased from time to time pursuant to assignments by or tosuch Lender pursuant to Section 9.04. Effective as of the Effective Date, the amount of each Lender’s Commitment is set forth onSchedule 2.01 or in the Assignment and Assumption or other documentation or record (as such term is defined in Section 9-102(a)(70)of the New York Uniform Commercial Code) as provided in Section 9.04(b)(ii)(C), pursuant to which such Lender shall have assumedits Commitment, as applicable. The initial aggregate amount of the Lenders’ Commitments is $150,000,000.“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, andany successor statute.“Communications” has the meaning assigned to it in Section 8.03(c).“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (howeverdenominated) or that are franchise Taxes or branch profits Taxes.“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management orpolicies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled”have meanings correlative thereto.“Credit Party” means the Administrative Agent, the Issuing Bank, the Swingline Lender or any other Lender.“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or bothwould, unless cured or waived, become an Event of Default.“Defaulting Lender” means any Lender that (a) has failed, within two Business Days of the date required to be funded or paid,to (i) fund any portion of its Loans, (ii) fund any portion of its participations in Letters of Credit or Swingline Loans or (iii) pay over toany Credit Party any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies theAdministrative Agent in writing that such failure is the result of such Lender’s good faith determination that a condition precedent tofunding (specifically identified and including the particular default, if any) has not been satisfied, (b) has notified the Borrower or anyCredit Party in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its fundingobligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender’s goodfaith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a loan underthis Agreement cannot be satisfied) or generally under other agreements in which it commits to extend credit, (c) has failed, within threeBusiness Days after request by a Credit Party, acting in good faith, to provide a certification in writing from an authorized officer ofsuch Lender that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Loans andparticipations in then outstanding Letters of Credit and Swingline Loans under this Agreement, provided that such Lender shall cease tobe a Defaulting Lender pursuant to this clause (c) upon such Credit Party’s receipt of such certification in form and substancesatisfactory to it and the Administrative Agent, or (d) has or has a Lender Parent that has become the subject of (A) a Bankruptcy Eventor (B) a Bail-In Action.“Denomination Date” means (a) with respect to any Loan denominated in any Approved Currency, each of the following: (i)the date of the Borrowing of such Loan and (ii) each date of a conversion into or continuation of such Loan pursuant to the terms of thisAgreement; (b) with respect to any Letter of Credit denominated in an Approved Currency, each of the following: (i) the date on which7such Letter of Credit is issued, (ii) the first Business Day of each calendar month and (iii) the date of any amendment of such Letter ofCredit that has the effect of increasing the face amount thereof; and (c) any additional date as the Administrative Agent may determineat any time when an Event of Default exists.“Discovery Property” means the land and a 213,400 square foot building located at 52 Discovery, Irvine, California 92618.“Dividing Person” has the meaning assigned to it in the definition of “Division”.“Division” means the division of the assets, liabilities and/or obligations of a Person (the “Dividing Person”) among two or morePersons (whether pursuant to a “plan of division” or similar arrangement), which may or may not include the Dividing Person andpursuant to which the Dividing Person may or may not survive.“Division Successor” means any Person that, upon the consummation of a Division of a Dividing Person, holds all or anyportion of the assets, liabilities and/or obligations previously held by such Dividing Person immediately prior to the consummation ofsuch Division. A Dividing Person which retains any of its assets, liabilities and/or obligations after a Division shall be deemed aDivision Successor upon the occurrence of such Division.“dollars” or “$” refers to lawful money of the United States of America.“EBITDA” means, for any period, for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP, anamount equal to Net Income for such period plus (a) the following to the extent deducted in calculating such Net Income, withoutduplication: (i) Interest Expense (excluding the portion of rent expense of the Borrower and its Subsidiaries with respect to such periodunder Capital Lease Obligations or in connection with the deferred purchase price of assets that is treated as Interest Expense inaccordance with GAAP), amortization or writeoff of debt discount and debt issuance costs and debt issuance commissions, (ii) allfederal, state, local and foreign taxes on or measured by income of the Borrower and its Subsidiaries during such period, (iii)depreciation and amortization expense for such period (including without limitation, amortization of intangibles in accordance withGAAP and amortization recorded in connection with the application of Financial Accounting Standards Board Accounting StandardsCodification 350 (Intangibles - Goodwill and Other)), (iv) the amount of noncash stock-based compensation expense for such period,(v) other extraordinary, unusual or non-recurring expenses or losses (including without limitation non-cash losses on sales of assetsoutside of the ordinary course, including abandoned or discontinued operations, after tax effect of income (loss) from the earlyextinguishment of Indebtedness or Swap Agreements, impairment charges and effects of changes in accounting principles) of theBorrower and its Subsidiaries reducing such Net Income for such period which do not represent a cash item in such period, (vi) anynon-cash charges resulting from any write-offs or write-downs of inventory during such period directly or indirectly attributable to anyAcquisitions permitted hereunder, (vii) legal fees and litigation costs and expenses; provided, however, that the amount of such fees,costs and expenses included in the calculation for such period and all preceding periods following the Effective Date under this clause(vii) may not exceed $30,000,000, (viii) to the extent not already included in Net Income, (A) proceeds of business interruptioninsurance to the extent paid in cash during such period and (B) expenses with respect to liability or casualty events to the extentcovered by insurance and actually reimbursed, or, so long such amount is not denied by the applicable carrier in writing and in factreimbursed within 365 days of the date of evidence (with a deduction for any amount so added back to the extent not so reimbursedwithin such 365 days), (ix) all non-recurring costs and expenses incurred in connection with or as a result of the consummation of theTransactions, any8Acquisition, investment, asset acquisition or disposition, issuance of Equity Interests or amendment or modification of any agreement orinstrument relating to Indebtedness, and (x) losses resulting solely from fluctuations in foreign currency (including currencyremeasurements of Indebtedness) and any net loss resulting from hedge agreements for currency exchange risk associated with theabove (and those resulting from intercompany indebtedness), and minus (b) to the extent included in calculating such Net Income,without duplication, (i) all noncash items increasing Net Income for such period, (ii) all EBITDA of any Person other than the Borroweror a wholly-owned Subsidiary of the Borrower for such period, except (A) to the extent of any amounts distributed to the Borrower orany of its wholly-owned Subsidiaries in cash and (B) that EBITDA of a Subsidiary of the Borrower that is not wholly owned, directly orindirectly, by the Borrower shall not be subtracted pursuant to this clause (ii) if such Subsidiary is not restricted, pursuant to itsorganizational documents, any contract or agreement to which it is a party or otherwise, from paying dividends and making otherdistributions to the Borrower or to the Subsidiary that owns the Equity Interests of such Subsidiary, (iii) any cash payments made duringsuch period in respect of items described in clause (a)(v) above subsequent to the fiscal quarter in which the relevant non-cash expenseor loss were reflected as a charge in the statement of Net Income, all as determined on a consolidated basis, and (iv) gains resultingsolely from fluctuations in foreign currency (including currency remeasurements of Indebtedness) and any net gain resulting fromhedge agreements for currency exchange risk associated with the above (and those resulting from intercompany indebtedness).“ECP” means an “eligible contract participant” as defined in Section 1(a)(18) of the Commodity Exchange Act or anyregulations promulgated thereunder and the applicable rules issued by the Commodity Futures Trading Commission and/or the SEC.“EEA Financial Institution” means (a) any institution established in any EEA Member Country which is subject to thesupervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institutiondescribed in clause (a) of this definition, or (c) any institution established in an EEA Member Country which is a subsidiary of aninstitution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.“EEA Resolution Authority” means any public administrative authority or any Person entrusted with public administrativeauthority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA FinancialInstitution.“Effective Date” means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance withSection 9.02).“Electronic Signature” means an electronic sound, symbol, or process attached to, or associated with, a contract or other recordand adopted by a person with the intent to sign, authenticate or accept such contract or record.“Environmental Laws” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices orbinding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment,preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to healthand safety matters.9“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs ofenvironmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from orbased upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal ofany Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials intothe environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed withrespect to any of the foregoing.“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company,beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holderthereof to purchase or acquire any such equity interest, but excluding any debt securities convertible into any of the foregoing.“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules andregulations promulgated thereunder.“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as asingle employer under Section 414(b) or (c) of the Code or Section 4001(14) of ERISA or, solely for purposes of Section 302 of ERISAand Section 412 of the Code, is treated as a single employer under Section 414 of the Code.“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunderwith respect to a Plan (other than an event for which the 30 day notice period is waived); (b) the failure to satisfy the “minimum fundingstandard” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant toSection 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect toany Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to thetermination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any noticerelating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borroweror any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal of the Company or any of its ERISAAffiliates from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receiptby any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition upon the Company orany of its ERISA Affiliates of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or inreorganization, within the meaning of Title IV of ERISA.“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (orany successor Person), as in effect from time to time.“Euro” means the single currency of the Participating Member States.“EURIBOR Screen Rate” means the euro interbank offered rate administered by the European Money Markets Institute (or anyother person which takes over the administration of that rate) for the relevant period displayed (before any correction, recalculation orrepublication by the administrator) on page EURIBOR01 of the Thomson Reuters screen (or any replacement Thomson Reuters pagewhich displays that rate) or on the appropriate page of such other information service which publishes that rate from time to time inplace of Thomson Reuters as of 11:00 a.m. Brussels time two TARGET days prior to the commencement of such Interest Period. If suchpage or service ceases to be available, the Administrative Agent may specify another page or service displaying the relevant rate afterconsultation10with the Company. If the EURIBOR Screen Rate shall be less than zero, the EURIBOR Screen Rate shall be deemed to be zero forpurposes of this Agreement.“Eurocurrency”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising suchBorrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.“Eurocurrency Rate” means,(a) with respect to any Eurocurrency Borrowing for dollars or any Approved Currency (other than Euros), the LIBOScreen Rate; and(b) with respect to any Eurocurrency Borrowing denominated in Euros and for any Interest Period, the EURIBORScreen Rate;provided that if the LIBO Screen Rate or the EURIBOR Screen Rate shall not be available at such time for such Interest Period (an“Impacted Interest Period”) with respect to the applicable currency, then the LIBO Screen Rate or the EURIBOR Screen Rate, asapplicable, shall be the Interpolated Rate; provided that if any Interpolated Rate shall be less than zero, such rate shall be deemed to bezero for purposes of this Agreement.“Event of Default” has the meaning assigned to such term in Section 7.01.“Exchange Rate” means on any day, for purposes of determining the U.S. Dollar Equivalent of any other currency, theequivalent of such amount in dollars determined by using the rate of exchange for the purchase of dollars with such currency in theLondon foreign exchange market at or about 11:00 a.m. London time (or New York time, as applicable) on a particular day asdisplayed by ICE Data Services as the “ask price”, or as displayed on such other information service which publishes that rate ofexchange from time to time in place of ICE Data Services (or if such service ceases to be available, the equivalent of such amount indollars as determined by the Administrative Agent using any reasonable method of determination it deems appropriate) and (c) if suchamount is denominated in any other currency, the equivalent of such amount in dollars as determined by the Administrative Agentusing any reasonable method of determination it deems appropriate.“Excluded Swap Obligation” means, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or aportion of the Guarantee of such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Swap Obligation (orany Guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the CommodityFutures Trading Commission (or the application or official interpretation of any thereof) (a) by virtue of such Guarantor’s failure for anyreason to constitute an ECP at the time the Guarantee of such Guarantor or the grant of such security interest becomes or would becomeeffective with respect to such Swap Obligation or (b) in the case of a Swap Obligation subject to a clearing requirement pursuant toSection 2(h) of the Commodity Exchange Act (or any successor provision thereto), because such Guarantor is a “financial entity,” asdefined in Section 2(h)(7)(C)(i) of the Commodity Exchange Act (or any successor provision thereto), at the time the Guarantee of suchGuarantor becomes or would become effective with respect to such related Swap Obligation. If a Swap Obligation arises under a masteragreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable toswaps for which such Guarantee or security interest is or becomes illegal.“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld ordeducted from a payment to a Recipient, (a) Taxes imposed on or measured by11net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipientbeing organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in,the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of aLender, U.S. Federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicableinterest in a Loan, Letter of Credit or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires suchinterest in the Loan, Letter of Credit or Commitment (other than pursuant to an assignment request by the Borrower under Section2.18(b) or Section 9.02(d)) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section2.16, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender acquired theapplicable interest in a Loan, Letter of Credit or Commitment or to such Lender immediately before it changed its lending office, (c)Taxes attributable to such Recipient’s failure to comply with Section 2.16(f) and (d) any withholding Taxes imposed under FATCA.“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successorversion that is substantively comparable and not materially more onerous to comply with), any current or future regulations or officialinterpretations thereof and any agreement entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatorylegislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among GovernmentalAuthorities and implementing such Sections of the Code.“Federal Funds Effective Rate” means, for any day, the rate calculated by the NYFRB Rate based on such day’s federal fundstransactions by depository institutions, as determined in such manner as the NYFRB Rate shall set forth on its public website from timeto time, and published on the next succeeding Business Day by the NYFRB Rate as the effective federal funds rate, provided that if theFederal Funds Effective Rate as so determined would be less than zero, such rate shall be deemed to zero for the purposes of thisAgreement.“Federal Reserve Board” means the Board of Governors of the Federal Reserve System of the United States of America.“Fee Letter” means that certain fee letter, dated as of the date hereof, among the Borrower, the Issuing Bank and theAdministrative Agent.“Financial Officer” means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower.“Foreign Currency” means each Approved Currency, other than dollars.“Foreign Lender” means (a) if the Borrower is a U.S. Person, a Lender that is not a U.S. Person, and (b) if the Borrower is not aU.S. Person, a Lender that is resident or organized under the laws of a jurisdiction other than that in which the Borrower is resident fortax purposes.“FRBNY” means the Federal Reserve Bank of New York.“FRBNY Rate” means, for any day, the greater of (a) the Federal Funds Effective Rate in effect on such day and (b) theOvernight Bank Funding Rate in effect on such day; provided that if both such rates are not so published for any day that is a BusinessDay, the term “FRBNY Rate” means the rate quoted for such day for a federal funds transaction at 11:00 a.m. on such day received bythe Administrative Agent from a Federal funds broker of recognized standing selected by it; provided, further,12that if any of the aforesaid rates shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.“GAAP” means generally accepted accounting principles in the United States of America.“Governmental Authority” means the government of the United States of America, any other nation or any political subdivisionthereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercisingexecutive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.“Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantorguaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primaryobligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchaseor pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advanceor supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for thepurpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equitycapital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay suchIndebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support suchIndebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinarycourse of business.“Guaranteed Obligations” means all Obligations, together with all (i) Banking Services Obligations owing to one or moreLenders or their respective Affiliates and (ii) Swap Agreement Obligations owing to one or more Lenders or their respective Affiliates;provided, however, that the definition of “Guaranteed Obligations” shall not create any guarantee by any Guarantor of (or grant ofsecurity interest by any Guarantor to support, as applicable) any Excluded Swap Obligations of such Guarantor for purposes ofdetermining any obligations of any Guarantor.“Guarantors” means, collectively, Masimo Americas, Inc., a Delaware corporation, and any other Material Subsidiary thatexecutes a joinder to the Guaranty pursuant to Section 5.09.“Guaranty” means the Guaranty, dated as of the date hereof, made by the Guarantors in favor of the Administrative Agent andthe Lenders.“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes orother pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls,radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.“IBA” has the meaning assigned to such term in Section 1.07.“Immaterial Subsidiary” means any Subsidiary (a) that has total assets less than 5% of the consolidated total assets of theBorrower and its Subsidiaries and (b) whose results for the period of four fiscal quarters most recently ended constituted less than 5% ofEBITDA; provided, that at no time shall all Immaterial Subsidiaries (i) have total assets in excess of 10% in the aggregate of theconsolidated total assets of the Borrower and its Subsidiaries or (ii) have results for the period of four fiscal quarters most recentlyended constituting in excess of 10% of EBITDA. In connection with any designation or re-designation of Subsidiaries as MaterialSubsidiaries and Immaterial Subsidiaries at any time that entities13that would otherwise be Immaterial Subsidiaries either (x) have total assets in excess of 10% in the aggregate of the consolidated totalassets of the Borrower and its Subsidiaries or (y) have results for the period of four fiscal quarters most recently ended constituting inexcess of 10% of EBITDA, the Borrower shall designate which Subsidiaries that would otherwise be Immaterial Subsidiaries shall beMaterial Subsidiaries, so long as in connection with such designation any such Subsidiary that is a U.S. Person and not a CFC HoldingCompany or an SPE shall be designated as a Material Subsidiary prior to the designation of any such Subsidiary that is a CFC, CFCHolding Company or SPE as a Material Subsidiary.“Impacted Interest Period” has the meaning assigned to it in the definition of “Eurocurrency Rate.”“Increase Effective Date” has the meaning assigned to it in Section 2.21(c).“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respectto deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments,(c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditionalsale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of thedeferred purchase price of property or services (excluding trade accounts payable incurred in the ordinary course of business), (f) allIndebtedness of others secured by any Lien on property owned or acquired by such Person, whether or not the Indebtedness securedthereby has been assumed; provided that if such Person has not assumed such Indebtedness, such indebtedness shall be deemed to bein an amount equal to the fair market value of the property subject to such Lien, (g) all Guarantees by such Person of Indebtedness ofothers, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account partyin respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers’acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in whichsuch Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or otherrelationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or onaccount of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in (a), OtherTaxes.“Indemnitee” has the meaning assigned to it in Section 9.03(b).“Ineligible Institution” has the meaning assigned to it in Section 9.04(b).“Interest Coverage Ratio” means, as of the last day of any fiscal quarter, the ratio of (a) EBITDA for the four fiscal quarterperiod ending on such date to (b) Interest Expense (excluding the portion of rent expense of the Borrower and its Subsidiaries withrespect to such period under Capital Lease Obligations or in connection with the deferred purchase price of assets that is treated asInterest Expense in accordance with GAAP) paid in cash during such four fiscal quarter period.“Interest Election Request” means a request by the Borrower to convert or continue a Revolving Borrowing in accordance withSection 2.07, which shall be in a form approved by the Administrative Agent (and for which such form approval shall not beunreasonably withheld).14“Interest Expense” means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, the sum of all interest,premium payments, debt discount, fees, charges and related expenses of the Borrower and its Subsidiaries in connection with borrowedmoney or in connection with the deferred purchase price of assets, in each case to the extent treated as interest expense in accordancewith GAAP.“Interest Payment Date” means (a) with respect to any ABR Loan (other than a Swingline Loan), the last day of each March,June, September and December and the Maturity Date, (b) with respect to any Eurocurrency Loan, the last day of each Interest Periodapplicable to the Borrowing of which such Loan is a part and, in the case of a Eurocurrency Borrowing with an Interest Period of morethan three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration afterthe first day of such Interest Period and the Maturity Date, and (c) with respect to any Swingline Loan, the day that such Loan isrequired to be repaid.“Interest Period” means with respect to any Eurocurrency Borrowing, the period commencing on the date of such Borrowingand ending on the numerically corresponding day in the calendar month that is one, two, three or six months or, solely in the case ofany Eurocurrency Borrowing made on the Effective Date, 14 days thereafter, as the Borrower may elect; provided, that (i) if anyInterest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding BusinessDay unless, in the case of a Eurocurrency Borrowing only, such next succeeding Business Day would fall in the next calendar month,in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to aEurocurrency Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numericallycorresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month ofsuch Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, inthe case of a Revolving Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of suchBorrowing.“Interpolated Rate” means with respect to the LIBO Screen Rate or the EURIBOR Screen Rate, as applicable, at any time, forany Interest Period, the rate per annum (rounded to the same number of decimal places as the LIBO Screen Rate or the EURIBORScreen Rate, as applicable) determined by the Administrative Agent (which determination shall be conclusive and binding absentmanifest error) to be equal to the rate that results from interpolating on a linear basis between: (a) the LIBO Screen Rate or theEURIBOR Screen Rate, as applicable, for the longest period (for which such rate is available for the applicable currency) that is shorterthan the Impacted Interest Period; and (b) the LIBO Screen Rate or the EURIBOR Screen Rate, as applicable,for the shortest period (forwhich such rate is available for the applicable currency) that exceeds the Impacted Interest Period, in each case, at such time.“IRS” means the United States Internal Revenue Service.“Issuing Bank” means JPMorgan Chase Bank, N.A., in its capacity as the issuer of Letters of Credit hereunder, and itssuccessors in such capacity as provided in Section 2.05(i). The Issuing Bank may, in its discretion, arrange for one or more Letters ofCredit to be issued by Affiliates of the Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate with respectto Letters of Credit issued by such Affiliate. Each reference herein to the “Issuing Bank” in connection with a Letter of Credit or othermatter shall be deemed to be a reference to the relevant Issuing Bank with respect thereto.“JPMCB” means JPMorgan Chase Bank, N.A.“LC Disbursement” means a payment made by the Issuing Bank pursuant to a Letter of Credit.15“LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at suchtime plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower orconverted to a Revolving Loan at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the LCExposure at such time.“Lender Parent” means, with respect to any Lender, any Person as to which such Lender is, directly or indirectly, a subsidiary.“Lenders” means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to anAssignment and Assumption or pursuant to Section 2.21(b), other than any such Person that ceases to be a party hereto pursuant to anAssignment and Assumption. Unless the context otherwise requires, the term “Lenders” includes the Swingline Lenders and the IssuingBank.“Letter of Credit” means any letter of credit issued pursuant to this Agreement. Letters of Credit may be issued in dollars or inan Approved Currency.“Letter of Credit Agreement” has the meaning assigned to it in Section 2.05(b).“LIBO Screen Rate” means, for any day and time, with respect to any Eurocurrency Borrowing for any applicable currency(other than Euros) and for any Interest Period, the London interbank offered rate as administered by ICE Benchmark Administration (orany other Person that takes over the administration of such rate for the relevant currency for a period equal in length to such InterestPeriod as displayed on such day and time on pages LIBOR01 or LIBOR02 of the Reuters screen that displays such rate (or, in the eventsuch rate does not appear on a Reuters page or screen, on any successor or substitute page on such screen that displays such rate, or onthe appropriate page of such other information service that publishes such rate from time to time as selected by the AdministrativeAgent in its reasonable discretion); provided that if the LIBO Screen Rate as so determined would be less than zero, such rate shall bedeemed to zero for the purposes of this Agreement.“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge orsecurity interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or titleretention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to suchasset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.“Loan Documents” means this Agreement, including schedules and exhibits hereto, and any agreements entered into inconnection herewith by the Borrower or any Loan Party with or in favor of the Administrative Agent and/or the Lenders, including anyamendments, modifications or supplements thereto or waivers thereof, letter of credit applications and any agreements between theBorrower and the Issuing Bank regarding the issuance by the Issuing Bank of Letters of Credit hereunder and/or the respective rightsand obligations between the Borrower and the Issuing Bank in connection thereunder.“Loan Parties” means the Borrower and each Guarantor.“Loans” means the loans made by the Lenders to the Borrower pursuant to this Agreement.“Margin Stock” means margin stock within the meaning of Regulations T, U and X, as applicable.16“Material Adverse Effect” means a material adverse effect on (a) the business, assets, operations or financial condition of theBorrower and the Subsidiaries taken as a whole, (b) the ability of the Borrower to perform any of its material Obligations or (c) thematerial rights of or benefits available to the Lenders under this Agreement or any other Loan Document (other than due to the inactionof the Administrative Agent or any Lender).“Material Indebtedness” means Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one ormore Swap Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding$40,000,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borrower or anySubsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any nettingagreements) that the Borrower or such Subsidiary would be required to pay if such Swap Agreement were terminated at such time.“Material Subsidiary” means each Subsidiary that is not an Immaterial Subsidiary or an SPE.“Maturity Date” means December 17, 2023.“Maximum Rate” has the meaning assigned to it in Section 9.14.“Moody’s” means Moody’s Investors Service, Inc.“Multiemployer Plan” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.“Net Income” means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, the net income of theBorrower and its Subsidiaries (in accordance with GAAP) for that period.“Non-Consenting Lender” has the meaning set forth in Section 9.02(d).“NYFRB” means the Federal Reserve Bank of New York.“NYFRB Rate” means, for any day, the greater of (a) the Federal Funds Effective Rate in effect on such day and (b) theOvernight Bank Funding Rate in effect on such day (or for any day that is not a Business Day, for the immediately preceding BusinessDay); provided that if none of such rates are published for any day that is a Business Day, the term “NYFRB Rate” means the rate for afederal funds transaction quoted at 11:00 a.m. on such day received by the Administrative Agent from a federal funds broker ofrecognized standing selected by it; provided, further, that if any of the aforesaid rates as so determined be less than zero, such rate shallbe deemed to be zero for purposes of this Agreement.“Obligations” means all advances to, and debts, liabilities and obligations of any Loan Party arising under any Loan Documentor otherwise with respect to any Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absoluteor contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after thecommencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming suchPerson as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding. Withoutlimiting the foregoing, the Obligations include (a) the obligation to pay principal, interest, Letter of Credit commissions, charges,expenses, fees, indemnities and other amounts payable by the Borrower under any Loan Document and (b) the obligation of theBorrower to reimburse any amount in respect of any of the foregoing that the Administrative Agent or any Lender, in each case in itssole discretion, may elect to pay or advance on behalf of the Borrower.17“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connectionbetween such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed,delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under,engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan, Letter ofCredit or Loan Document).“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arisefrom any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfectionof a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxesimposed with respect to an assignment (other than an assignment made pursuant to Section 2.18 or Section 9.02(d)).“Overnight Bank Funding Rate” means, for any day, the rate comprised of both overnight federal funds and overnightEurocurrency borrowings by U.S. managed banking offices of depository institutions, as such composite rate shall be determined by theNYFRB Rate as set forth on its public website from time to time, and published on the next succeeding Business Day by the NYFRBRate as an overnight bank funding rate.“Participant” has the meaning assigned to such term in Section 9.04(c).“Participant Register” has the meaning assigned to such term in Section 9.04(c).“Participating Member State” means any member state of the European Union that has the Euro as its lawful currency inaccordance with legislation of the European Union relating to Economic and Monetary Union.“Parties” means the Borrower or any of its affiliates.“Patriot Act” has the meaning assigned to it in Section 9.15.“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entityperforming similar functions.“Permitted Acquisition” has the meaning assigned to such term in Section 6.04(e).“Permitted Encumbrances” means:(a) Liens imposed by law for Taxes that are not yet due or are being contested in compliance with Section 5.04;(b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other Liens imposed by law, arising in the ordinarycourse of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance withSection 5.04;(c) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemploymentinsurance and other social security laws or regulations;18(d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds,performance bonds and other obligations of a like nature, in each case in the ordinary course of business;(e) judgment liens in respect of judgments that do not constitute an Event of Default under clause (k) of Article VII;(f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in theordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affectedproperty or interfere with the ordinary conduct of business of the Borrower or any Subsidiary;(g) Liens arising under any agreements relating to any Equity Interests of any joint venture or other Person (other than aSubsidiary of the Borrower) owned by the Borrower or any of its Subsidiaries;(h) Liens created by or existing from any litigation or legal proceeding that are currently being contested in good faith byappropriate proceedings diligently conducted, with respect to which adequate reserves are being maintained in accordance with GAAPand which could not reasonably be expected to result in a Material Adverse Effect;(i) customary rights of set-off, revocation, refund or chargeback under deposit agreements or under the Uniform CommercialCode or common law of banks or other financial institutions where any Borrower or any of their Subsidiaries maintains deposits (otherthan deposits intended as cash collateral) in the ordinary course of business;(j) leases, licenses, subleases or sublicenses granted in the ordinary course of business to others not interfering in any materialrespect with the business of the Loan Parties, taken as a whole, and any interest or title of a lessor under any lease not in violation ofthis Agreement;(k) statutory Liens arising from the rights of lessors under leases (including any precautionary financing statements regardingproperty subject to a lease) not in violation of the requirements of this Agreement; provided that such Liens are only in respect of theproperty subject to, and secure only, the respective lease;(l) rights of consignors of goods, whether or not perfected by the filing of a financing statement or other registration, recordingor filing;(m) Liens on specific items of inventory or other goods and proceeds of any Person securing such Person’s obligations inrespect of bankers’ acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of suchinventory or other goods;(n) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties inconnection with the importation of goods in the ordinary course of business;(o) Liens (a) of a collection bank arising under Section 4-210 of the Uniform Commercial Code or any comparable orsuccessor provision on items in the course of collection, (b) attaching to commodity trading accounts or other commodity brokerageaccounts incurred in the ordinary course of business and (c) in favor of banking institutions arising as a matter of law encumberingdeposits (including the right of set-off) and which are within the general parameters customary in the banking industry;19(p) Liens solely on any cash earnest money deposits made by the Borrower or any of its Subsidiaries in connection with anyinvestment or acquisition permitted hereunder;(q) restrictive covenants affecting the use to which real property may be put in each case that do not secure Indebtedness anddo not involve, either individually or in the aggregate, (1) a substantial and prolonged interruption or disruption of the businessactivities of the Borrower and its Subsidiaries, taken as a whole, or (2) a Material Adverse Effect;(r) Liens arising out of conditional sale, title retention, consignment or other arrangements for sale of goods entered into by theBorrower or any of its Subsidiaries in the ordinary course of business;(s) Liens that are contractual rights of set-off (i) relating to pooled deposit or sweep accounts of the Borrower or any of otherLoan Party to permit satisfaction of overdraft or similar obligations of the Loan Parties incurred in the ordinary course of business of theBorrower and any other Loan Party, (ii) relating to pooled deposit or sweep accounts of the Foreign Subsidiaries that are not LoanParties to permit satisfaction of overdraft or similar obligations of such Foreign Subsidiaries incurred in the ordinary course of businessof such Foreign Subsidiaries or (iii) relating to purchase orders and other agreements entered into with customers of the Borrower orany of its Subsidiaries in the ordinary course of business;(t) Liens granted in favor of a Loan Party from a Subsidiary that is not a Loan Party; and(u) Liens on cash and cash equivalents deposited to discharge, redeem or defease Indebtedness permitted to be discharged,redeemed or defeased pursuant to the terms hereof and so long as (except in the case of any Liens securing Indebtedness permittedpursuant to Section 6.01(p) which by its terms is non-recourse to the Borrower and its Subsidiaries) such cash or cash equivalents areactually used to discharge, redeem or defease such Indebtedness (or the related Liens are released) within 90 days of the imposition ofsuch Lien.“Permitted Investments” means:(a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, theUnited States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of theUnited States of America);(b) investments in commercial paper maturing within 12 months from the date of acquisition thereof and having, at such dateof acquisition, the highest credit rating obtainable from S&P or from Moody’s;(c) investments in certificates of deposit, banker’s acceptances and time deposits maturing within 12 months from the date ofacquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domesticoffice of any commercial bank organized under the laws of the United States of America or any State thereof which has a combinedcapital and surplus and undivided profits of not less than $500,000,000;(d) fully collateralized repurchase agreements with a term of not more than 90 days for securities described in clause (a) aboveand entered into with a financial institution satisfying the criteria described in clause (c) above;20(e) money market funds that have portfolio assets of at least $1,000,000,000 or money market accounts maintained in mutualfunds investing solely in any one or more of the Permitted Investments described in clauses (a) through (d) above;(f) investments in investment grade debt obligations issued by corporations that are U.S. Persons if the following conditions aremet: (i) the maturity of such obligations is no greater than 12 months at the time of purchase and (ii) has a minimum “Aa” long termdebt rating by Moody’s or a minimum “AA” long term debt rating by S&P at the time of purchase; and(g) any investment that is expressly permitted pursuant to Section 6.04(f).“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company,partnership, Governmental Authority or other entity.“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV ofERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if suchplan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.“Plan Asset Regulations” means 29 CFR § 2510.3-101 et seq., as modified by Section 3(42) of ERISA, as amended from timeto time.“Platform” means Debt Domain, Intralinks, Syndtrak or a substantially similar electronic transmission system.“Prime Rate” means the per annum rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. or, ifThe Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Federal Reserve Board in FederalReserve Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime loan” rate or, if such rate is no longer quoted therein,any similar rate quoted therein (as determined by the Administrative Agent) or any similar release by the Federal Reserve Board (asdetermined by the Administrative Agent). Each change in the Prime Rate shall be effective from and including the date such change ispublicly announced or quoted as being effective.“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may beamended from time to time.“Public-Sider” means a Lender whose representatives may trade in securities of the Borrower or its Controlling person or any ofits Subsidiaries while in possession of the financial statements provided by the Borrower under the terms of this Agreement.“Qualified ECP Guarantor” means, in respect of any Swap Obligation, each Loan Party that has total assets exceeding$10,000,000 at the time the relevant Loan Guaranty or grant of the relevant security interest becomes or would become effective withrespect to such Swap Obligation or such other person as constitutes an “eligible contract participant” under the Commodity ExchangeAct or any regulations promulgated thereunder and can cause another person to qualify as an “eligible contract participant” at such timeby entering into a keepwell under Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.“Rating Agency” means each of S&P and Moody’s.“Recipient” means (a) the Administrative Agent, (b) any Lender and (c) any Issuing Bank, as applicable.21“Register” has the meaning assigned to such term in Section 9.04(b).“Regulation D” means Regulation D of the Federal Reserve Board, as in effect from time to time and all official rulings andinterpretations thereunder or thereof.“Regulation T” means Regulation T of the Federal Reserve Board, as in effect from time to time and all official rulings andinterpretations thereunder or thereof.“Regulation U” means Regulation U of the Federal Reserve Board, as in effect from time to time and all official rulings andinterpretations thereunder or thereof.“Regulation X” means Regulation X of the Federal Reserve Board, as in effect from time to time and all official rulings andinterpretations thereunder or thereof.“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers,employees, agents, advisors, partners, trustees, administrators, managers and representatives of such Person and such Person’sAffiliates.“Required Lenders” means (a) at any time that there are fewer than three Lenders, all Lenders, (b) at any time that there areexactly three Lenders, two or more Lenders having Revolving Credit Exposures and unused Commitments representing at least 50.1%of the sum of the total Revolving Credit Exposures and unused Commitments at such time and (c) at any time that there are four ormore Lenders, three or more Lenders having Revolving Credit Exposures and unused Commitments representing at least 50.1% of thesum of the total Revolving Credit Exposures and unused Commitments at such time; provided that solely for purposes of the foregoing,in the event that any Lender is an Affiliate of any other Lender, any such affiliated Lenders shall be deemed to be a single Lender;provided further that for the purpose of determining the Required Lenders needed for any waiver, amendment, modification or consent,any Lender that is the Borrower or any Affiliate of the Borrower shall be disregarded.“Responsible Officer” means the Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer or other executiveofficer of the Borrower.“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect toany Equity Interests in the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including anysinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any suchEquity Interests or any option, warrant or other right to acquire any such Equity Interests.“Revolving Credit Exposure” means, with respect to any Lender at any time, the sum of the outstanding principal amount ofsuch Lender’s Revolving Loans, its LC Exposure and its Swingline Exposure at such time.“Revolving Loan” means a Loan made pursuant to Section 2.03.“S&P” means Standard & Poor’s Rating Services, a Standard & Poor’s Financial Services LLC business.“Sanctioned Country” means, at any time, a country, region or territory which is itself the subject or target of any Sanctions (atthe time of this Agreement, Crimea, Cuba, Iran, North Korea, Sudan and Syria).22“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained bythe Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State, or by the United NationsSecurity Council, the European Union or any European Union member state, (b) any Person operating, organized or resident in aSanctioned Country, (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b) or(d) any Person otherwise the subject of any Sanctions.“Sanctions” means all economic or financial sanctions or trade embargoes imposed, administered or enforced from time to timeby (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of theTreasury or the U.S. Department of State, or (b) the United Nations Security Council, the European Union, any European Unionmember state or Her Majesty’s Treasury of the United Kingdom.“SEC” means the Securities and Exchange Commission of the United State of America.“Solvent” means, as to any Person as of any date of determination, that on such date (a) the fair value of the property of suchPerson is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair saleable value ofsuch Person is not less than the amount that will be required to pay the probable liability of such Person on its debts, includingcontingent debts, as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debtsor liabilities, including contingent debts and liabilities, beyond such Person’s ability to pay such debts and liabilities as they mature and(d) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which suchPerson’s property would constitute an unreasonably small capital. The amount of any contingent liability at any time shall be computedas the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably beexpected to become an actual or matured liability.“SPE” means any Person that is a direct or indirect subsidiary of the Borrower that engages in no activities other than thosereasonably related to or in connection with the ownership of the Discovery Property and the incurrence of Indebtedness permittedpursuant to Section 6.01(r) not securing any real property other than the Discovery Property; provided that no portion of theIndebtedness of such Person shall be recourse to the Borrower or any other Subsidiary of the Borrower (other than customary limitedrecourse guarantees entered into in connection with the Indebtedness permitted pursuant to Section 6.01(r)).“Specified Currency” has the meaning assigned to such term in Section 9.17.“Specified Material Investment” means an investment, loan, advance or Acquisition having an aggregate consideration of atleast $75,000,000.“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and thedenominator of which is the number one minus the aggregate of the maximum reserve percentage (including any marginal, special,emergency or supplemental reserves) expressed as a decimal established by the Federal Reserve Board to which the AdministrativeAgent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency liabilities” inRegulation D). Such reserve percentage shall include those imposed pursuant to Regulation D. Eurocurrency Loans shall be deemed toconstitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions oroffsets that may be available from time to time to any Lender under Regulation D or any comparable regulation. The23Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.“Sterling” means the lawful currency of the United Kingdom.“subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company,partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity ormore than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, asof such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled by the parent and/or one or moresubsidiaries of the parent.“Subsidiary” means any subsidiary of the Borrower.“Swap Agreement” means any agreement with respect to any swap, forward, future or derivative transaction or option or similaragreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, oreconomic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or anycombination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of servicesprovided by current or former directors, officers, employees or consultants of the Borrower or the Subsidiaries shall be a SwapAgreement.“Swap Agreement Obligations” of a Loan Party means any and all obligations of such Loan Party, whether absolute orcontingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions andmodifications thereof and substitutions therefor), under (a) any and all Swap Agreements permitted hereunder with a Lender or anAffiliate of a Lender, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any such Swap Agreementtransaction.“Swap Obligation” means, with respect to any Guarantor, any obligation to pay or perform under any agreement, contract ortransaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act or any rules or regulationspromulgated thereunder.“Swingline Exposure” means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. TheSwingline Exposure of any Lender at any time shall be the sum of (a) its Applicable Percentage of the total Swingline Exposure at suchtime, other than with respect to any Swingline Loans made by such Lender in its capacity as a Swingline Lender, and (b) the aggregateprincipal amount of all Swingline Loans made by such Lender as a Swingline Lender outstanding at such time (less the amount ofparticipations funded by the other Lenders in such Swingline Loans).“Swingline Lender” means JPMorgan Chase Bank, in its capacity as lender of Swingline Loans hereunder.“Swingline Loan” means a Loan made pursuant to Section 2.04.“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding),value added taxes, or any other goods and services, use or sales taxes, assessments, fees or other charges imposed by anyGovernmental Authority, including any interest, additions to tax or penalties applicable thereto.“Total Assets” means, at any time, the total assets of the Borrower and its Subsidiaries determined on a consolidated basis inaccordance with GAAP.24“Total Net Leverage Ratio” means, as of the last day of any fiscal quarter, the ratio of (a) total Indebtedness of the Borrowerand its Subsidiaries on a consolidated basis as of such measurement date (other than (i) Indebtedness described in clauses (d) and (e) ofthe definition of Indebtedness and (ii) Indebtedness permitted pursuant to Section 6.01(p) which by its terms is non-recourse to theBorrower and its Subsidiaries (other than the SPE), except in the case of misappropriation of funds and other willful misconduct, solong as the Borrower and its Subsidiaries have not then become obligated to make any payment in connection therewith or otherwisetaken any action that would cause such Indebtedness to become recourse to the Borrower or such Subsidiary) minus the aggregateamount of unrestricted cash of the Loan Parties held in the United States in excess of $25,000,000 on such date to (b) EBITDA for thefour fiscal quarter period ending on such measurement date.“Transactions” means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans, theuse of the proceeds thereof and the issuance of Letters of Credit hereunder.“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loanscomprising such Borrowing, is determined by reference to the Adjusted LIBO Rate, the Alternate Base Rate.“Unused Fee” means the fee payable by the Borrower pursuant to Section 2.11(a).“U.S. Dollar Equivalent” means, for any amount, at the time of determination thereof, (a) if such amount is expressed in dollars,such amount, (b) if such amount is expressed in an Approved Currency, the equivalent of such amount in dollars determined by usingthe rate of exchange for the purchase of dollars with the Approved Currency last provided (either by publication or otherwise providedto the Administrative Agent) by the applicable Thompson Reuters Corp. (“Reuters”) source on the Business Day (New York City time)immediately preceding the date of determination or if such service ceases to be available or ceases to provide a rate of exchange for thepurchase of dollars with the Approved Currency, as provided by such other publicly available information service which provides thatrate of exchange at such time in place of Reuters chosen by the Administrative Agent in its sole discretion (or if such service ceases tobe available or ceases to provide such rate of exchange, the equivalent of such amount in dollars as determined by the AdministrativeAgent using any method of determination it deems appropriate in its sole discretion) and (c) if such amount is denominated in any othercurrency, the equivalent of such amount in dollars as determined by the Administrative Agent using any method of determination itdeems appropriate in its sole discretion.“U.S. Person” means a “United States person” within the meaning of Section 7701(a)(30) of the Code.“U.S. Tax Compliance Certificate” has the meaning assigned to such term in Section 2.17(f)(ii)(B)(3).“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from suchMultiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.“Write-Down and Conversion Powers” means, with respect to any EEA Resolution Authority, the write-down and conversionpowers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country,which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.25SECTION 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified andreferred to by Class (e.g., a “Revolving Loan”) or by Type (e.g., a “Eurocurrency Loan”) or by Class and Type (e.g., a “EurocurrencyRevolving Loan”). Borrowings also may be classified and referred to by Class (e.g., a “Revolving Borrowing”) or by Type (e.g., a“Eurocurrency Borrowing”) or by Class and Type (e.g., a “Eurocurrency Revolving Borrowing”).SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of theterms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will”shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a) any definition ofor reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument orother document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments,supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’ssuccessors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer tothis Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits andSchedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (e) any reference toany law, rule or regulation herein shall, unless otherwise specified, refer to such law, rule or regulation as amended, modified orsupplemented from time to time and (f) the words “asset” and “property” shall be construed to have the same meaning and effect and torefer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.SECTION 1.04. Accounting Terms; GAAP. (a) Except as otherwise expressly provided herein, all terms of an accounting orfinancial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies theAdministrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurringafter the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifiesthe Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether anysuch notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on thebasis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have beenwithdrawn or such provision amended in accordance herewith and the Administrative Agent, the Lenders and the Borrower shallnegotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP(subject to the approval of the Required Lenders). Notwithstanding any other provision contained herein, all terms of an accounting orfinancial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, withoutgiving effect to (i) any election under Financial Accounting Standards Board Accounting Standards Codification 825 (or any otherFinancial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of the Borrower or anySubsidiary at “fair value”, as defined therein and (ii) any treatment of Indebtedness in respect of convertible debt instruments underAccounting Standards Codification 470-20 (or any other Accounting Standards Codification or Financial Accounting Standard having asimilar result or effect) to value any such Indebtedness in a reduced or bifurcated manner as described therein, and such Indebtednessshall at all times be valued at the full stated principal amount thereof.(b) Notwithstanding anything to the contrary contained in Section 1.04(a) or in the definition of “Capital Lease Obligations,” inthe event of an accounting change requiring all leases to be capitalized,26only those leases (assuming for purposes hereof that such leases were in existence on the date hereof) that would constitute capitalleases in conformity with GAAP on the date hereof shall be considered capital leases, and all calculations and deliverables under thisAgreement or any other Loan Document shall be made or delivered, as applicable, in accordance therewith.SECTION 1.05. Currency Translation. The Administrative Agent shall determine the U.S. Dollar Equivalent of any Loan,Letter of Credit or LC Disbursement denominated in any Approved Currency using the Exchange Rate for such currency in relation todollars in effect on each Denomination Date therefor, and each such amount shall be the U.S. Dollar Equivalent of such Loan, Letter ofCredit or LC Disbursement until the next required calculation thereof pursuant to this sentence. Unless otherwise specified herein, theamount of a Loan or Letter of Credit at any time shall be deemed to be the U.S. Dollar Equivalent of the stated amount of such Loan orLetter of Credit in effect at such time.SECTION 1.06. Pro Forma Adjustments for Acquisitions and Dispositions. To the extent the Borrower or any Subsidiarymakes any Acquisition permitted pursuant to Section 6.04 or disposition of material assets outside the ordinary course of business notprohibited by Section 6.03 during the period of four fiscal quarters of the Borrower most recently ended, if the Borrower is required tomake pro forma disclosures relating to such Acquisition or disposition pursuant to Article 11 of Regulation S-X of the Securities Act of1933, as amended, then the Total Net Leverage Ratio shall be calculated after giving pro forma effect thereto (including pro formaadjustments arising out of events which are directly attributable to the acquisition or the disposition of assets, are factually supportableand are expected to have a continuing impact, in each case as determined on a basis consistent with Article 11 of Regulation S-X of theSecurities Act of 1933, as amended, as interpreted by the SEC, and as certified by a Financial Officer of the Borrower), as if suchacquisition or such disposition (and any related incurrence, repayment or assumption of Indebtedness) had occurred in the first day ofsuch four-quarter period.SECTION 1.07. Interest Rates; LIBOR Notification. The interest rate on Eurocurrency Loans is determined by reference to theEurocurrency Rate, which is derived from the London interbank offered rate. The London interbank offered rate is intended to representthe rate at which contributing banks may obtain short-term borrowings from each other in the London interbank market. In July 2017,the U.K. Financial Conduct Authority announced that, after the end of 2021,it would no longer persuade or compel contributing banksto make rate submissions to the ICE Benchmark Administration (together with any successor to the ICE Benchmark Administrator, the“IBA”) for purposes of the IBA setting the London interbank offered rate. As a result, it is possible that commencing in 2022, theLondon interbank offered rate may no longer be available or may no longer be deemed an appropriate reference rate upon which todetermine the interest rate on Eurocurrency Loans. In light of this eventuality, public and private sector industry initiatives are currentlyunderway to identify new or alternative reference rates to be used in place of the London interbank offered rate. In the event that theLondon interbank offered rate is no longer available or in certain other circumstances as set forth in Section 2.13(c) of this Agreement,such Section 2.13(c) provides a mechanism for determining an alternative rate of interest. The Administrative Agent will notify theBorrower, pursuant to Section 2.13, in advance of any change to the reference rate upon which the interest rate on Eurocurrency Loansis based. However, the Administrative Agent does not warrant or accept any responsibility for, and shall not have any liability withrespect to, the administration, submission or any other matter related to the London interbank offered rate or other rates in the definitionof “Eurocurrency Rate” or with respect to any alternative or successor rate thereto, or replacement rate thereof, including withoutlimitation, whether the composition or characteristics of any such alternative, successor or replacement reference rate, as it may or maynot be adjusted pursuant to Section 2.13(c), will be similar to, or produce the same value or economic equivalence of, the27Eurocurrency Rate or have the same volume or liquidity as did the London interbank offered rate prior to its discontinuance orunavailability.28ARTICLE IIThe CreditsSECTION 2.01. Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make RevolvingLoans to the Borrower in dollars or one or more Approved Currencies from time to time during the Availability Period in an aggregateprincipal amount that will not result (after giving effect to any application of proceeds of such Borrowing pursuant to Section 2.09) in(a) such Lender’s Revolving Credit Exposure exceeding such Lender’s Commitment, (b) the total Revolving Credit Exposuresexceeding the total Commitments or (iii) the Revolving Credit Exposures denominated in Approved Currencies exceeding theApproved Currency Sublimit. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower mayborrow, prepay and reborrow Revolving Loans.SECTION 2.02. Loans and Borrowings. (a) Each Revolving Loan shall be made as part of a Borrowing consisting ofRevolving Loans made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make anyLoan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of theLenders are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required.(b) Subject to Section 2.13, each Revolving Borrowing shall be comprised entirely of ABR Loans or Eurocurrency Loans asthe Borrower may request in accordance herewith. Each Swingline Loan shall be an ABR Loan. All ABR Loans shall be denominatedin dollars. Each Lender at its option may make any Eurocurrency Loan by causing any domestic or foreign branch or Affiliate of suchLender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loanin accordance with the terms of this Agreement.(c) At the commencement of each Interest Period for any Eurocurrency Revolving Borrowing, such Borrowing shall be in anaggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR RevolvingBorrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $100,000 and not less than$500,000; provided that an ABR Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of thetotal Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.05(e).Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be morethan a total of 10 Eurocurrency Revolving Borrowings outstanding.(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convertor continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.SECTION 2.03. Requests for Revolving Borrowings. To request a Revolving Borrowing, the Borrower shall notify theAdministrative Agent of such request by submitting a Borrowing Request (a) in the case of a Eurocurrency Borrowing denominated indollars, not later than 1:00 p.m., New York City time, three Business Days before the date of the proposed Borrowing, (b) in the case ofa Eurocurrency Borrowing denominated in an Approved Currency, not later than 11:00 a.m., London time, three Business Days beforethe date of the proposed Borrowing, or (c) in the case of an ABR Borrowing, not later than 1:00 p.m., New York City time, oneBusiness Day before the date of the proposed Borrowing; provided that any such notice of an ABR Revolving Borrowing to finance thereimbursement of an LC Disbursement as contemplated by Section 2.05(e) may be given not later than 1:00 p.m., New York City29time, on the date of the proposed Borrowing. Each such Borrowing Request shall be irrevocable and shall be signed by a ResponsibleOfficer of the Borrower. Each such Borrowing Request shall specify the following information in compliance with Section 2.02:(i) the aggregate amount of the requested Borrowing;(ii) the date of such Borrowing, which shall be a Business Day;(iii) whether such Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing;(iv) in the case of a Eurocurrency Borrowing, the initial Interest Period to be applicable thereto, which shall be aperiod contemplated by the definition of the term “Interest Period”;(v) in the case of a Eurocurrency Borrowing, the currency in which such Borrowing shall be made (which shall bedollars or an Approved Currency); and(vi) the location and number of the Borrower’s account to which funds are to be disbursed, which shall comply withthe requirements of Section 2.06.If no election as to the Type of Revolving Borrowing is specified, then the requested Revolving Borrowing shall be an ABR Borrowing.If no Interest Period is specified with respect to any requested Eurocurrency Revolving Borrowing, then the Borrower shall be deemedto have selected an Interest Period of one month’s duration, and if no currency is specified with respect to any requested EurocurrencyRevolving Borrowing, then the Borrower shall be deemed to select a Borrowing of dollars. Promptly following receipt of a BorrowingRequest in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount ofsuch Lender’s Loan to be made as part of the requested Borrowing.SECTION 2.04. Swingline Loans. (a) Subject to the terms and conditions set forth herein, the Swingline Lender agrees tomake Swingline Loans to the Borrower from time to time during the Availability Period, in an aggregate principal amount at any timeoutstanding that will not result in (i) the aggregate principal amount of outstanding Swingline Loans exceeding $10,000,000, (ii) theSwingline Lender’s Revolving Credit Exposure exceeding its Commitment or (iii) the Revolving Credit Exposures exceeding the totalCommitments; provided that the Swingline Lender shall not make a Swingline Loan to refinance an outstanding Swingline Loan. Withinthe foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow SwinglineLoans.(b) To request a Swingline Loan, the Borrower shall submit a written notice to the Administrative Agent by telecopy orelectronic mail not later than 1:00 p.m., New York City time, on the day of a proposed Swingline Loan. Each such notice shall be in aform approved by the Administrative Agent (for which such form approval shall not be unreasonably withheld), shall be irrevocableand shall specify the requested date (which shall be a Business Day) and amount of the requested Swingline Loan. The AdministrativeAgent will promptly advise the Swingline Lender of any such notice received from the Borrower. Unless the Swing Line Lender hasreceived notice (by telephone or in writing) from the Administrative Agent (including at the request of any Lender) prior to 3:00 p.m. ,New York City time, on the date of the proposed borrowing (i) directing the Swingline Lender not to make such Swingline Loan as aresult of the limitations set forth in the first sentence of Section 2.04(a), or (ii) that one or more of the applicable conditions specified inArticle IV is not then satisfied, the Swingline Lender shall make each30Swingline Loan available to the Borrower by means of a credit to an account of the Borrower with the Administrative Agent designatedfor such purpose (or, in the case of a Swingline Loan made to finance the reimbursement of an LC Disbursement as provided inSection 2.05(e), by remittance to the Issuing Bank) by 3:00 p.m., New York City time, on the requested date of such Swingline Loan.(c) The Swingline Lender may by written notice given to the Administrative Agent require the Lenders to acquire participationsin all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in whichLenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Lender,specifying in such notice such Lender’s Applicable Percentage of such Swingline Loans. Each Lender hereby absolutely andunconditionally agrees, promptly upon receipt of such notice from the Administrative Agent (and in any event, if such notice isreceived by 12:00 noon, New York City time, on a Business Day no later than 5:00 p.m. New York City time on such Business Dayand if received after 12:00 noon, New York City time, on a Business Day shall mean no later than 10:00 a.m. New York City time onthe immediately succeeding Business Day), to pay to the Administrative Agent, for the account of the Swingline Lender, such Lender’sApplicable Percentage of such Swingline Loan or Loans. Each Lender acknowledges and agrees that its obligation to acquireparticipations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by anycircumstance whatsoever, including the occurrence and continuance of a Default or reduction or termination of the Commitments, andthat each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Lender shall complywith its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.06with respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis mutandis, to the payment obligations of the Lenders),and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Lenders. TheAdministrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph, andthereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Anyamounts received by the Swingline Lender from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loanafter receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the AdministrativeAgent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Lendersthat shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear; provided thatany such payment so remitted shall be repaid to the Swingline Lender or to the Administrative Agent, as applicable, if and to the extentsuch payment is required to be refunded to the Borrower for any reason. The purchase of participations in a Swingline Loan pursuant tothis paragraph shall not relieve the Borrower of any default in the payment thereof.(d) The Swingline Lender may be replaced at any time by written agreement among the Borrower, the Administrative Agentand the successor Swingline Lender. The Administrative Agent shall notify the Lenders of any such replacement of the SwinglineLender. At the time any such replacement shall become effective, the Borrower shall pay all unpaid interest accrued for the account ofthe replaced Swingline Lender pursuant to Section 2.12(a). From and after the effective date of any such replacement, (x) the successorSwingline Lender shall have all the rights and obligations of the replaced Swingline Lender under this Agreement with respect toSwingline Loans made thereafter and (y) references herein to the term “Swingline Lender” shall be deemed to refer to such successor orto any previous Swingline Lender, or to such successor and all previous Swingline Lenders, as the context shall require. After thereplacement of the Swingline Lender hereunder, the replaced Swingline Lender shall remain a party hereto and shall continue to haveall the rights and obligations of a Swingline Lender under this31Agreement with respect to Swingline Loans made by it prior to its replacement, but shall not be required to make additional SwinglineLoans.(e)Subject to the appointment and acceptance of a successor Swingline Lender, the Swingline Lender may resign as aSwingline Lender at any time upon thirty days’ prior written notice to the Administrative Agent, the Borrower and the Lenders, in whichcase, the Swingline Lender shall be replaced in accordance with Section 2.04(d) above.SECTION 2.05. Letters of Credit. (a) General. Subject to the terms and conditions set forth herein, the Borrower may request theissuance of Letters of Credit as the applicant thereof for the support of its or its Subsidiaries’ obligations denominated in dollars or, tothe extent the Issuing Bank then issues letters of credit in any Approved Currency, in such Approved Currency, in a form reasonablyacceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time during the Availability Period. In theevent of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any Letter of CreditAgreement, the terms and conditions of this Agreement shall control. Notwithstanding anything herein to the contrary, the Issuing Bankshall have no obligation hereunder to issue, and shall not issue, any Letter of Credit the proceeds of which would be made available toany Person (i) to fund any activity or business of or with any Sanctioned Person, or in any country or territory that, at the time of suchfunding, is the subject of any Sanctions, (ii) in any manner that would result in a violation of any Sanctions by any party to thisAgreement or (iii) in any manner that would result in a violation of one or more policies of the Issuing Bank applicable to letters ofcredit generally.(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of Credit (orthe amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit byelectronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and theAdministrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension, but in any event noless than three Business Days in the case of a Letter of Credit denominated in dollars and no less than four Business Days in the case ofa Letter of Credit denominated in an Approved Currency) a notice requesting the issuance of a Letter of Credit, or identifying the Letterof Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be aBusiness Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amountof such Letter of Credit, whether such Letter of Credit is to be denominated in dollars or in an Approved Currency, the name andaddress of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter ofCredit. In addition, as a condition to any such Letter of Credit issuance, the Borrower shall submit a letter of credit application asrequired by the Issuing Bank and using such bank’s standard form (each, a “Letter of Credit Agreement”). A Letter of Credit shall beissued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit theBorrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) theLC Exposure shall not exceed $25,000,000, (ii) the Revolving Credit Exposures shall not exceed the total Commitments and (iii) theRevolving Credit Exposures denominated in Approved Currencies shall not exceed the Approved Currency Sublimit.(c) Expiration Date. Each Letter of Credit shall expire (or be subject to termination by notice from the Issuing Bank to thebeneficiary thereof) at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letterof Credit (or, in the case of any renewal32or extension thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Maturity Date.(d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof)and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Lender, and eachLender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender’s Applicable Percentage ofthe aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, eachLender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, suchLender’s Applicable Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the datedue as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for anyreason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect ofLetters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment,renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of theCommitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.(e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shallreimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 2:00p.m., New York City time, on the Business Day following the date that such LC Disbursement is made, if the Borrower shall havereceived notice of such LC Disbursement prior to 10:00 a.m., New York City time, on the Business Day following the date of payment,or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 2:00 p.m., New York Citytime, on the Business Day immediately following the day that the Borrower receives such notice, if such notice is not received prior tosuch time on the day of receipt, provided that the Borrower may, subject to the conditions to borrowing set forth herein, request inaccordance with Section 2.03 or 2.04 that such payment be financed with an ABR Revolving Borrowing or Swingline Loan in anequivalent amount and, to the extent so financed, the Borrower’s obligation to make such payment shall be discharged and replaced bythe resulting ABR Revolving Borrowing or Swingline Loan. In the case of a Letter of Credit denominated in any Approved Currency,the Borrower shall reimburse the Issuing Bank in such currency, unless (A) the Issuing Bank (at its option) shall have specified in thenotice of such LC Disbursement that it will require reimbursement in dollars, (B) in the absence of any such requirement forreimbursement in dollars, the Borrower shall have notified the Issuing Bank promptly following receipt of the notice of drawing that theBorrower will reimburse the Issuing Bank in dollars or (C) the Borrower shall have requested that such payment be financed with anABR Revolving Borrowing or Swingline Loan. In the case of any such reimbursement in dollars of a drawing under a Letter of Creditdenominated in any Approved Currency, the Issuing Bank shall notify the Borrower of the U.S. Dollar Equivalent of the amount of thedrawing promptly following the determination thereof. If the Borrower fails to make such payment when due, the Administrative Agentshall notify each Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof (which in thecase of any payment in any Approved Currency shall be the U.S. Dollar Equivalent thereof), and such Lender’s Applicable Percentagethereof. Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of thepayment then due from the Borrower (which in the case of any payment in any Approved Currency shall be the U.S. Dollar Equivalentthereof), in the same manner as provided in Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall apply,mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank theamounts so received33by it from the Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to thisparagraph, the Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that Lenders have madepayments pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing Bank as their interests mayappear. Any payment made by a Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement (other thanthe funding of ABR Revolving Loans or a Swingline Loan as contemplated above) shall not constitute a Loan and shall not relieve theBorrower of its obligation to reimburse such LC Disbursement. In the event that (A) a drawing denominated in any Approved Currencyis to be reimbursed in dollars and (B) the dollar amount paid by the Borrower, including pursuant to an ABR Revolving Borrowing orSwingline Loan, shall not be adequate on the date of that payment to purchase in accordance with normal banking procedures a sumdenominated in such Approved Currency equal to the drawing, the Borrower agrees, as a separate and independent obligation, toindemnify the Issuing Bank for the loss resulting from its inability on that date to purchase such Approved Currency in the full amountof the drawing.(f) Obligations Absolute. The Borrower’s obligation to reimburse LC Disbursements as provided in paragraph (e) of thisSection shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreementunder any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit, anyLetter of Credit Agreement or this Agreement, or any term or provision therein, (ii) any draft or other document presented under aLetter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in anyrespect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does notcomply with the terms of such Letter of Credit, (iv) any adverse change in the relevant exchange rates or in the availability of anyApproved Currency to the Borrower or in the relevant currency markets generally or (v) any other event or circumstance whatsoever,whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable dischargeof, or provide a right of setoff against, the Borrower’s obligations hereunder. Neither the Administrative Agent, the Lenders nor theIssuing Bank, nor any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuanceor transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstancesreferred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, noticeor other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), anyerror in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided thatthe foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (asopposed to special, indirect, consequential or punitive damages, claims in respect of which are hereby waived by the Borrower to theextent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank’s failure to exercise care whendetermining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties heretoexpressly agree that, in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined bya court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtheranceof the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear ontheir face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either acceptand make payment upon such documents without responsibility for further investigation, regardless of any notice or information to thecontrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms ofsuch Letter of Credit.34(g) Disbursement Procedures. The Issuing Bank shall, promptly following its receipt thereof, examine all documentspurporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the AdministrativeAgent and the Borrower by telephone (confirmed by telecopy or electronic mail) of such demand for payment and whether the IssuingBank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall notrelieve the Borrower of its obligation to reimburse the Issuing Bank and the Lenders with respect to any such LC Disbursement.(h) Interim Interest. If the Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LCDisbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from andincluding the date such LC Disbursement is made to but excluding the date that the reimbursement is due and payable at the rate perannum then applicable to ABR Revolving Loans and such interest shall be due and payable on the date when such reimbursement ispayable; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section,then Section 2.12(d) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except thatinterest accrued on and after the date of payment by any Lender pursuant to paragraph (e) of this Section to reimburse the Issuing Bankshall be for the account of such Lender to the extent of such payment.(i) Replacement and Resignation of the Issuing Bank. The Issuing Bank may be replaced at any time by written agreementamong the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agentshall notify the Lenders of any such replacement of the Issuing Bank.(i)At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued forthe account of the replaced Issuing Bank pursuant to Section 2.11(b). From and after the effective date of any such replacement,(i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect toLetters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed to refer to suchsuccessor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require.After the replacement of the Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue tohave all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior tosuch replacement, but shall not be required to issue additional Letters of Credit.(ii)Subject to the appointment and acceptance of a successor Issuing Bank, the Issuing Bank may resign asIssuing Bank at any time upon thirty days’ prior written notice to the Administrative Agent, the Borrower and the Lenders, inwhich case, such resigning Issuing Bank shall be replaced in accordance with Section 2.05(i) above.(j) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that the Borrowerreceives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Lenderswith LC Exposure representing greater than 50.1% of the total LC Exposure) demanding the deposit of cash collateral pursuant to thisparagraph, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for thebenefit of the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon;provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall becomeimmediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect tothe35Borrower described in Section 7.01(h) or (i). Such deposit shall be held by the Administrative Agent as collateral for the payment andperformance of the Guaranteed Obligations. The Administrative Agent shall have exclusive dominion and control, including theexclusive right of withdrawal, over any such deposit account. Other than any interest earned on any Permitted Investment of suchdeposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower’s risk andexpense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneysin such account shall be applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it has notbeen reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower forthe LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with LCExposure representing greater than 50.1% of the total LC Exposure), be applied to satisfy other Obligations. If the Borrower is requiredto provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent notapplied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured orwaived.(k) Letters of Credit Issued for Account of Subsidiaries. Notwithstanding that a Letter of Credit issued or outstandinghereunder supports any obligations of, or is for the account of, a Subsidiary, or states that a Subsidiary is the “account party,”“applicant,” “customer,” “instructing party,” or the like of or for such Letter of Credit, and without derogating from any rights of theapplicable Issuing Bank (whether arising by contract, at law, in equity or otherwise) against such Subsidiary in respect of such Letter ofCredit, the Borrower (i) shall reimburse, indemnify and compensate the applicable Issuing Bank hereunder for such Letter of Credit(including to reimburse any and all drawings thereunder) as if such Letter of Credit had been issued solely for the account of theBorrower and (ii) irrevocably waives any and all defenses that might otherwise be available to it as a guarantor or surety of any or all ofthe obligations of such Subsidiary in respect of such Letter of Credit. The Borrower hereby acknowledges that the issuance of suchLetters of Credit for its Subsidiaries inures to the benefit of the Borrower, and that the Borrower’s business derives substantial benefitsfrom the businesses of such SubsidiariesSECTION 2.06. Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposeddate thereof solely by wire transfer of immediately available funds in the applicable currency by 12:00 noon, New York City time, tothe account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders; provided thatSwingline Loans shall be made as provided in Section 2.04. Except in respect of the provisions of this Agreement covering thereimbursement of Letters of Credit, the Administrative Agent will make such Loans available to the Borrower by promptly crediting thefunds so received in the aforesaid account of the Administrative Agent to an account of the Borrower maintained with theAdministrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request; provided thatABR Revolving Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.05(e) shall be remitted bythe Administrative Agent to the Issuing Bank.(b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing thatsuch Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent mayassume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, inreliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in factmade its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrowerseverally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each dayfrom and including the date36such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case ofsuch Lender, the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industryrules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays suchamount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing.SECTION 2.07. Interest Elections. (a) Each Revolving Borrowing initially shall be of the Type specified in the applicableBorrowing Request and, in the case of a Eurocurrency Revolving Borrowing, shall have an initial Interest Period as specified in suchBorrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowingand, in the case of a Eurocurrency Revolving Borrowing, may elect Interest Periods therefor, all as provided in this Section. TheBorrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shallbe allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portionshall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings, which may not be converted orcontinued.(b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by thetime that a Borrowing Request would be required under Section 2.02 if the Borrower were requesting a Revolving Borrowing of theType resulting from such election to be made on the effective date of such election. Each such Interest Election Request shall beirrevocable and shall be signed by a Responsible Officer of the Borrower.(c) Each Interest Election Request shall specify the following information in compliance with Section 2.02:(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected withrespect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case theinformation to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing;(iv) in the case of a Eurocurrency Borrowing, whether such Borrowing shall be made in dollars or in an ApprovedCurrency; and(v) if the resulting Borrowing is a Eurocurrency Borrowing, the Interest Period to be applicable thereto after givingeffect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.If any such Interest Election Request requests a Eurocurrency Borrowing but does not specify (x) an Interest Period, then the Borrowershall be deemed to have selected an Interest Period of one month’s duration and (y) the currency, then the Borrower shall be deemed tohave selected the same currency as the Borrowing being converted or continued.(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the detailsthereof and of such Lender’s portion of each resulting Borrowing.37(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurocurrency Revolving Borrowing priorto the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such InterestPeriod such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Defaulthas occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, solong as an Event of Default is continuing (i) no outstanding Revolving Borrowing may be converted to or continued as a EurocurrencyBorrowing and (ii) unless repaid, each Eurocurrency Revolving Borrowing shall be converted to an ABR Borrowing at the end of theInterest Period applicable thereto.SECTION 2.08. Termination and Reduction of Commitments. (a) Unless previously terminated, the Commitments shallterminate on the Maturity Date.(b) The Borrower may at any time terminate, or from time to time reduce, the Commitments; provided that (i) each reduction ofthe Commitments shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000 and (ii) the Borrowershall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance withSection 2.10, the Revolving Credit Exposures would exceed the total Commitments.(c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments underparagraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying suchelection and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders ofthe contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice oftermination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of othercredit facilities, in which case such notice may be revoked or extended by the Borrower (by notice to the Administrative Agent on orprior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall bepermanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respectiveCommitments.SECTION 2.09. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay (i) to theAdministrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Maturity Date,and (ii) to the Administrative Agent for the account of the Swingline Lender the then unpaid principal amount of each Swingline Loanon the earlier of the Maturity Date and the first date after such Swingline Loan is made that is the 15th or last day of a calendar month;provided that on each date that a Revolving Borrowing is made, the Borrower shall repay all Swingline Loans then outstanding and theproceeds of any such Borrowing shall be applied by the Administrative Agent to repay any Swingline Loans outstanding.(b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of theBorrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable andpaid to such Lender from time to time hereunder.(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, theClass and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or tobecome due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the AdministrativeAgent hereunder for the account of the Lenders and each Lender’s share thereof.38(d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidenceof the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent tomaintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans inaccordance with the terms of this Agreement. Copies of the accounts maintained pursuant to paragraphs (b) and (c) of this Section willbe made available to the Borrower upon the Borrower’s request.(e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shallexecute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to suchLender and its registered assigns) and in a form approved by the Administrative Agent (for which such form approval shall not beunreasonably withheld). Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including afterassignment pursuant to Section 9.04) be represented by one or more promissory notes in such form.SECTION 2.10. Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay anyBorrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section.(b) The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the SwinglineLender) by telephone (confirmed by telecopy or electronic mail) of any prepayment hereunder (i) in the case of prepayment of aEurocurrency Revolving Borrowing, not later than 1:00 p.m., New York City time, three Business Days before the date of prepayment,(ii) in the case of prepayment of an ABR Revolving Borrowing, not later than 1:00 p.m., New York City time, one Business Day beforethe date of prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 1:00 p.m. New York City time, on the dateof prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of eachBorrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice oftermination of the Commitments as contemplated by Section 2.08, then such notice of prepayment may be revoked or extended if suchnotice of termination is revoked or extended in accordance with Section 2.08. Promptly following receipt of any such notice relating toa Revolving Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of anyRevolving Borrowing shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the sameType as provided in Section 2.02. Each prepayment of a Revolving Borrowing shall be applied ratably to the Loans included in theprepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.12 and any breakfunding payments required by Section 2.15.(c) If the Administrative Agent notifies the Borrower at any time that the sum of the total Revolving Credit Exposures exceedsan amount equal to 105% of the total Commitments then in effect, then, within two Business Days after receipt of such notice, theBorrower shall prepay Loans and/or Cash Collateralize the LC Exposure in an aggregate amount sufficient to cause the total RevolvingCredit Exposures to be less than or equal to the total Commitments then in effect. The Administrative Agent shall provide such notice tothe Borrower upon the request of any Lender if at such time the sum of the total Revolving Credit Exposures exceeds an amount equalto 105% of the total Commitments then in effect. The Administrative Agent may, at any time and from time to time after the initialdeposit of such Cash Collateral, request that additional Cash Collateral be provided in order to protect against the results of exchangerate fluctuations.(d) If the Administrative Agent notifies the Borrower at any time that the LC Exposure exceeds an amount equal to 105% ofthe LC Sublimit, then, within two Business Days after receipt of such notice, the Borrower shall Cash Collateralize the LC Exposure inan aggregate amount sufficient to39cause the LC Exposure to be less than or equal to the LC Sublimit. The Administrative Agent may, at any time and from time to timeafter the initial deposit of such Cash Collateral, request that additional Cash Collateral be provided in order to protect against the resultsof exchange rate fluctuations.SECTION 2.11. Fees. (a) Subject to Section 2.19(c), the Borrower agrees to pay to the Administrative Agent for the account ofeach Lender an Unused Fee, which shall accrue at the Applicable Rate per annum on the daily unused amount of the Commitment ofsuch Lender during the period from and including the Effective Date to but excluding the date on which such Commitment terminates.For purposes of determining the unused amount of any Lender’s Commitment, the amount of such Lender’s Swingline Exposure shallbe deemed to be unused. Accrued Unused Fees shall be payable in arrears on the last day of March, June, September and December ofeach year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof. AllUnused Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed(including the first day but excluding the last day).(b) The Borrower agrees to pay (i) to the Administrative Agent for the account of each Lender a participation fee with respectto its participations in Letters of Credit, which shall accrue at the same Applicable Rate used to determine the interest rate applicable toEurocurrency Revolving Loans on the average daily amount of such Lender’s LC Exposure (excluding any portion thereof attributableto unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date onwhich such Lender’s Commitment terminates and the date on which such Lender ceases to have any LC Exposure, and (ii) at suchtimes as there shall be more than one Lender, to the Issuing Bank a fronting fee, which shall accrue at the rate of 0.125% per annum onthe average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) duringthe period from and including the Effective Date to but excluding the later of the date of termination of the Commitments and the dateon which there ceases to be any LC Exposure, as well as the Issuing Bank’s standard fees with respect to the issuance, amendment,renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued throughand including the last day of March, June, September and December of each year shall be payable on the third Business Day followingsuch last day, commencing on the first such date to occur after the Effective Date; provided that all such fees shall be payable on thedate on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall bepayable on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within 10 Business Daysafter demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for theactual number of days elapsed (including the first day but excluding the last day).(c) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the timesset forth in the Fee Letter or otherwise separately agreed upon in writing between the Borrower and the Administrative Agent.(d) All fees payable hereunder shall be paid on the dates due, in dollars, in immediately available funds, to the AdministrativeAgent (or to the Issuing Bank, in the case of fees payable to it) for distribution, in the case of facility fees and participation fees, to theLenders. Fees paid shall not be refundable under any circumstances.SECTION 2.12. Interest. (a) The Loans comprising each ABR Borrowing (including each Swingline Loan) shall bear interestat the Alternate Base Rate plus the Applicable Rate.40(b) The Loans comprising each Eurocurrency Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period ineffect for such Borrowing plus the Applicable Rate.(c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by theBorrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bearinterest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rateotherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2%plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section.(d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case ofRevolving Loans, upon termination of the Commitments; provided that (i) interest accrued pursuant to paragraph (c) of thisSection shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of anABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall bepayable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurocurrency Revolving Loanprior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of suchconversion.(e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference tothe Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first daybut excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or Eurocurrency Rate shall be determined by theAdministrative Agent, and such determination shall be conclusive absent manifest error.(f) If, as a result of any restatement of or other adjustment to the financial statements of the Borrower or for any other reason,the Borrower, the Administrative Agent or the Required Lenders determine that (i) the Total Net Leverage Ratio as calculated by theBorrower as of any applicable date was inaccurate and (ii) a proper calculation of the Total Net Leverage Ratio would have resulted inhigher pricing for any resulting period, the Borrower shall immediately and retroactively be obligated to pay to the AdministrativeAgent for the account of the Lenders, promptly on demand by the Administrative Agent (or, after the occurrence of an actual ordeemed entry of an order for relief with respect to such Borrower under the Bankruptcy Code of the United States, automatically andwithout further action by the Administrative Agent or any Lender), an amount equal to the excess of the amount of interest and fees thatshould have been paid by the Borrower for such period over the amount of interest and fees actually paid for such period by theBorrower.SECTION 2.13. Alternate Rate of Interest. (a) If prior to the commencement of any Interest Period for a EurocurrencyBorrowing:(i)the Administrative Agent determines (which determination shall be conclusive absent manifest error) thatadequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the Eurocurrency Rate, as applicable,(including because the LIBO Screen Rate or the EURIBOR Rate, as applicable, is not available or published on a current basis),for the applicable currency and such Interest Period; or(ii)the Administrative Agent is advised in writing by the Required Lenders that the Adjusted LIBO Rate or theEurocurrency Rate, as applicable, for the applicable currency and41such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loansincluded in such Borrowing for the applicable currency and such Interest Period;then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone, telecopy or electronic mail aspromptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstancesgiving rise to such notice no longer exist, (A) any Interest Election Request that requests the conversion of any Revolving Borrowingto, or continuation of any Revolving Borrowing as, a Eurocurrency Borrowing shall be ineffective and (B) if any Borrowing Requestrequests a Eurocurrency Revolving Borrowing, such Borrowing shall be made as an ABR Borrowing; provided that if the circumstancesgiving rise to such notice affect only one Type of Borrowings, then the other Type of Borrowings shall be permitted.(b) If at any time the Administrative Agent determines (which determination shall be conclusive absent manifest error) that,solely with respect to the LIBO Screen Rate for dollars, (i) the circumstances set forth in clause (a)(i) have arisen and suchcircumstances are unlikely to be temporary or (ii) the circumstances set forth in clause (a)(i) have not arisen but either (w) thesupervisor for the administrator of the LIBO Screen Rate for dollars has made a public statement that the administrator of such LIBOScreen Rate is insolvent (and there is no successor administrator that will continue publication of such LIBO Screen Rate), (x) theadministrator of the LIBO Screen Rate for dollars has made a public statement identifying a specific date after which such LIBO ScreenRate will permanently or indefinitely cease to be published by it (and there is no successor administrator that will continue publicationof the LIBO Screen Rate for dollars), (y) the supervisor for the administrator of the LIBO Screen Rate for dollars has made a publicstatement identifying a specific date after which such LIBO Screen Rate will permanently or indefinitely cease to be published or (z) thesupervisor for the administrator of the LIBO Screen Rate for dollars or a Governmental Authority having jurisdiction over theAdministrative Agent has made a public statement identifying a specific date after which the LIBO Screen Rate for dollars may nolonger be used for determining interest rates for loans, then the Administrative Agent and the Borrower shall endeavor to establish analternate rate of interest to the Eurocurrency Rate for dollars that gives due consideration to the then prevailing market convention fordetermining a rate of interest for syndicated loans denominated in dollars in the United States at such time, and shall enter into anamendment to this Agreement to reflect such alternate rate of interest and such other related changes to this Agreement as may beapplicable (but for the avoidance of doubt, such related changes shall not include a reduction of the Applicable Rate); provided that, ifsuch alternate rate of interest as so determined would be less than zero, such rate shall be deemed to be zero for the purposes of thisAgreement. Notwithstanding anything to the contrary in Section 9.02, such amendment shall become effective without any furtheraction or consent of any other party to this Agreement so long as the Administrative Agent shall not have received, within five BusinessDays of the date notice of such alternate rate of interest is provided to the Lenders, a written notice from the Required Lenders statingthat such Required Lenders object to such amendment. Until an alternate rate of interest shall be determined in accordance with thisclause (b) (but, in the case of the circumstances described in clause (ii)(w), (ii)(x) or (ii)(y) of the first sentence of this Section 2.13(b),only to the extent the LIBO Screen Rate for the applicable currency and such Interest Period is not available or published at such timeon a current basis), (x) any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation ofany Revolving Borrowing as, a Eurocurrency Borrowing shall be ineffective and (y) if any Borrowing Request requests a EurocurrencyRevolving Borrowing, such Borrowing shall be made as an ABR Borrowing.SECTION 2.14. Increased Costs. (a) If any Change in Law shall:42(i) impose, modify or deem applicable any reserve, special deposit, liquidity or similar requirement (including anycompulsory loan requirement, insurance charge or other assessment) against assets of, deposits with or for the account of, orcredit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing Bank;(ii) impose on any Lender or the Issuing Bank or the London interbank market any other condition, cost or expense(other than Taxes) affecting this Agreement or Loans made by such Lender or any Letter of Credit or participation therein; or(iii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b)through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit,commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto;and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, continuing,converting or maintaining any Eurocurrency Loan (or of maintaining its obligation to make any such Loan) or to increase the cost tosuch Lender, the Issuing Bank or such other Recipient of participating in, issuing or maintaining any Letter of Credit or to reduce theamount of any sum received or receivable by such Lender, the Issuing Bank or such other Recipient hereunder (whether of principal,interest or otherwise), then the Borrower will pay to such Lender, the Issuing Bank or such other Recipient, as the case may be, suchadditional amount or amounts as will compensate such Lender, the Issuing Bank or such other Recipient, as the case may be, for suchadditional costs incurred or reduction suffered.(b) If any Lender or the Issuing Bank determines that any Change in Law regarding capital or liquidity requirements has orwould have the effect of reducing the rate of return on such Lender’s or the Issuing Bank’s capital or on the capital of such Lender’s orthe Issuing Bank’s holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters ofCredit held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level below that which such Lender or the IssuingBank or such Lender’s or the Issuing Bank’s holding company could have achieved but for such Change in Law (taking intoconsideration such Lender’s or the Issuing Bank’s policies and the policies of such Lender’s or the Issuing Bank’s holding companywith respect to capital adequacy and liquidity), then from time to time the Borrower will pay to such Lender or the Issuing Bank, as thecase may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender’s or the IssuingBank’s holding company for any such reduction suffered.(c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender orthe Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to theBorrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the case may be,the amount shown as due on any such certificate within 10 Business Days after receipt thereof.(d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section shall notconstitute a waiver of such Lender’s or the Issuing Bank’s right to demand such compensation; provided that the Borrower shall not berequired to compensate a Lender or the Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than270 days prior to the date that such Lender or the Issuing Bank, as the case may be, notifies the Borrower of the Change in Law givingrise to such increased costs or reductions and of such Lender’s or the Issuing Bank’s intention to claim compensation therefor; providedfurther that, if the Change in Law giving rise43to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period ofretroactive effect thereof.SECTION 2.15. Break Funding Payments. In the event of (a) the payment of any principal of any Eurocurrency Loan otherthan on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of anyEurocurrency Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue orprepay any Eurocurrency Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may berevoked under Section 2.10(b) and is revoked in accordance therewith (other than solely by reason of a Lender being a DefaultingLender or any revocation pursuant to Section 2.13)), or (d) the assignment of any Eurocurrency Loan other than on the last day of theInterest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.18 or Section 9.02(d), then, in any suchevent (excluding any loss of the Applicable Rate on the relevant Revolving Loan), the Borrower shall compensate each Lender for theloss, cost and expense attributable to such event. In the case of a Eurocurrency Loan, such loss, cost or expense to any Lender shall bedeemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would haveaccrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicableto such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of afailure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount ofinterest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, atthe commencement of such period, for dollar deposits of a comparable amount and period from other banks in the Eurocurrencymarket. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to thisSection shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender theamount shown as due on any such certificate within 10 Business Days after receipt thereof.SECTION 2.16. Withholding of Taxes; Gross-Up. (a) Payments Free of Taxes. Any and all payments by or on account of anyobligation of any Loan Party under any Loan Document shall be made without deduction or withholding for any Taxes, except asrequired by applicable law. If any applicable law (as determined in the good faith discretion of an applicable withholding agent)requires the deduction or withholding of any Tax from any such payment by a withholding agent, then the applicable withholding agentshall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevantGovernmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by theapplicable Loan Party shall be increased as necessary so that after such deduction or withholding has been made (including suchdeductions and withholdings applicable to additional sums payable under this Section 2.16) the applicable Recipient receives anamount equal to the sum it would have received had no such deduction or withholding been made.(b) Payment of Other Taxes by the Borrower. The Loan Parties shall timely pay to the relevant Governmental Authority inaccordance with applicable law, or at the option of the Administrative Agent timely reimburse it for, Other Taxes.(c) Evidence of Payments. As soon as practicable after any payment of Taxes by any Loan Party to a Governmental Authoritypursuant to this Section 2.16, such Loan Party shall deliver to the Administrative Agent the original or a certified copy of a receiptissued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence ofsuch payment reasonably satisfactory to the Administrative Agent.44(d) Indemnification by the Borrower. The Loan Parties shall jointly and severally indemnify each Recipient, within 10 daysafter demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on orattributable to amounts payable under this Section) payable or paid by such Recipient or required to be withheld or deducted from apayment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such IndemnifiedTaxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of suchpayment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agenton its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.(e) Indemnification by the Lenders. Each Lender shall severally indemnify the Administrative Agent, within 10 days afterdemand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that any Loan Party has not alreadyindemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Loan Parties to do so), (ii)any Taxes attributable to such Lender’s failure to comply with the provisions of Section 9.04(c) relating to the maintenance of aParticipant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by theAdministrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto,whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to theamount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error.Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lenderunder any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amountdue to the Administrative Agent under this paragraph (e).(f) Status of Lenders. (i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect topayments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonablyrequested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested bythe Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate ofwithholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such otherdocumentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable theBorrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or informationreporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution andsubmission of such documentation (other than such documentation set forth in Section 2.16(f)(ii)(A), (ii)(B) and (ii)(D) below) shall notbe required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to anymaterial unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.(ii) Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Person,(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior tothe date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon thereasonable request of the Borrower or the Administrative Agent), an executed copy of IRS Form W-9 certifying thatsuch Lender is exempt from U.S. federal backup withholding tax;45(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and theAdministrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on whichsuch Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonablerequest of the Borrower or the Administrative Agent), whichever of the following is applicable:(1) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the UnitedStates is a party (x) with respect to payments of interest under any Loan Document, an executed copy of IRSForm W-8BEN-E or IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federalwithholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicablepayments under any Loan Document, IRS Form W-8BEN-E or IRS Form W-8BEN establishing an exemptionfrom, or reduction of, U.S. Federal withholding Tax pursuant to the “business profits” or “other income” articleof such tax treaty;(2) in the case of a Foreign Lender claiming that its extension of credit will generate U.S. effectivelyconnected income, an executed copy of IRS Form W-8ECI;(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest underSection 881(c) of the Code, (x) a certificate substantially in the form of Exhibit C-1 to the effect that suchForeign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percentshareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreigncorporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) anexecuted copy of IRS Form W-8BEN-E or IRS Form W-8BEN; or(4) to the extent a Foreign Lender is not the beneficial owner, an executed copy of IRS Form W-8IMY,accompanied by IRS Form W-8ECI, IRS Form W-8BEN-E, IRS Form W-8BEN, a U.S. Tax ComplianceCertificate substantially in the form of Exhibit C-2 or Exhibit C-3, IRS Form W-9, and/or other certificationdocuments from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership andone or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, suchForeign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit C-4 onbehalf of each such direct and indirect partner;(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and theAdministrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on whichsuch Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonablerequest of the Borrower or the Administrative Agent), executed copies of any other form prescribed by applicable law asa basis for claiming exemption from or a reduction in U.S. Federal withholding Tax, duly completed, together with suchsupplementary documentation as may be prescribed by applicable law to permit the46Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholdingTax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA(including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to theBorrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonablyrequested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including asprescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by theBorrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to complywith their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligationsunder FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause(D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in anyrespect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legalinability to do so.(g) Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has received arefund of any Taxes as to which it has been indemnified pursuant to this Section 2.16 (including by the payment of additional amountspursuant to this Section 2.16), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnitypayments made under this Section 2.16 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses(including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authoritywith respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnifiedparty the amount paid over pursuant to this paragraph (g) (plus any penalties, interest or other charges imposed by the relevantGovernmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority.Notwithstanding anything to the contrary in this paragraph (g), in no event will the indemnified party be required to pay any amount toan indemnifying party pursuant to this paragraph (g) the payment of which would place the indemnified party in a less favorable netafter-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refundhad not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to suchTax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (orany other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.(h) Survival. Each party’s obligations under this Section 2.16 shall survive the resignation or replacement of the AdministrativeAgent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment,satisfaction or discharge of all obligations under any Loan Document.(i) FATCA. For purposes of determining withholding Taxes imposed under FATCA, from and after the Effective Date theBorrower and the Administrative Agent shall treat (and the Lenders hereby authorize the Administrative Agent to treat) this Agreementas not qualifying as a “grandfathered obligation” within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i).47(j) Defined Terms. For purposes of this Section 2.16, the term “Lender” includes any Issuing Bank and the term “applicablelaw” includes FATCA.SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Borrower shall make each paymentrequired to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payableunder Section 2.14, 2.15 or 2.16, or otherwise) prior to 1:00 p.m., New York City time, on the date when due, in immediately availablefunds and in the appropriate currency, without set-off, recoupment or counterclaim. Any amounts received after such time on any datemay, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposesof calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, NewYork, New York, except payments to be made directly to the Issuing Bank or Swingline Lender as expressly provided herein andexcept that payments pursuant to Sections 2.14, 2.15, 2.16 and 9.03 shall be made directly to the Persons entitled thereto. TheAdministrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipientpromptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for paymentshall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall bepayable for the period of such extension. All payments hereunder shall be made in dollars.(b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts ofprincipal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be first, to pay any fees, indemnities,or expense reimbursements including amounts then due to the Administrative Agent and the Issuing Bank from the Loan Parties (otherthan in connection with Banking Services Obligations or Swap Agreement Obligations), second, to pay any fees, indemnities orexpense reimbursements then due to the Lenders from the Loan Parties (other than in connection with Banking Services Obligations orSwap Agreement Obligations), third, to pay interest then due and payable on the Loans ratably, fourth, to prepay principal on the Loansand unreimbursed LC Disbursements and to pay any amounts owing with respect to Swap Agreement Obligations and BankingServices Obligations up to and including the respective amounts most recently provided to the Administrative Agent pursuant to Section2.20, ratably, fifth, to pay an amount to the Administrative Agent equal to one hundred five percent (105%) of the aggregate LCExposure, to be held as cash collateral for such Obligations, and sixth, to the payment of any other Guaranteed Obligation due to theAdministrative Agent or any Lender by any Loan Party. Notwithstanding the foregoing, amounts received from any Loan Party shallnot be applied to any Excluded Swap Obligation of such Loan Party. Notwithstanding anything to the contrary contained in thisAgreement, unless so directed by the Borrower, or unless an Event of Default is in existence, neither the Administrative Agent nor anyLender shall apply any payment which it receives to any Eurocurrency Loan, except (a) on the expiration date of the Interest Periodapplicable thereto or (b) in the event, and only to the extent, that there are no outstanding ABR Loans and, in any such event, theBorrower shall pay the break funding payment required in accordance with Section 2.15.(c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of anyprincipal of or interest on any of its Revolving Loans or participations in LC Disbursements or Swingline Loans resulting in suchLender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and participations in LCDisbursements and Swingline Loans and accrued interest thereon than the proportion received by any other Lender, then the Lenderreceiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans and participations in LCDisbursements and Swingline Loans of other Lenders to the extent48necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount ofprincipal of and accrued interest on their respective Revolving Loans and participations in LC Disbursements and Swingline Loans;provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, suchparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisionsof this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the expressterms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any ofits Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliatethereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent itmay effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements mayexercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were adirect creditor of the Borrower in the amount of such participation.(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment isdue to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that the Borrower will not make suchpayment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith andmay, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount due. In suchevent, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severallyagrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interestthereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to theAdministrative Agent, at the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with bankingindustry rules on interbank compensation.(e) Notwithstanding anything herein to the contrary, any amount paid by any Loan Party for the account of a DefaultingLender under this Agreement (whether on account of principal, interest, fees, reimbursement of LC Disbursements, indemnity paymentsor other amounts) will be applied by the Administrative Agent at such time or times as may be determined by the Administrative Agentas follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent under this Agreement;second, to the payment of any amounts owing by such Defaulting Lender to the Issuing Bank and the Swingline Lender under thisAgreement; third, to Cash Collateralize the Issuing Bank’s LC Exposure with respect to such Defaulting Lender in accordance withSection 2.19; fourth, as the Borrower may request (so long as no Default or Event of Default exists) to the funding of any Loan inrespect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by theAdministrative Agent; fifth, if so reasonably determined by the Administrative Agent and the Borrower, to be held in a deposit accountand released pro rata in order to (x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans underthis Agreement and (y) Cash Collateralize the Issuing Bank’s future LC Exposure with respect to such Defaulting Lender with respect tofuture Letters of Credit issued under this Agreement, in accordance with Section 2.19; sixth, to the payment of any amounts owing tothe Lenders, the Issuing Bank or Swingline Lender as a result of any judgment of a court of competent jurisdiction obtained by anyLender, the Issuing Bank or Swingline Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of itsobligations under this Agreement; seventh, so long as no Default or Event of Default exists, to the payment of any amounts owing tothe Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lenderas a result of such Defaulting Lender’s breach of its obligations under this Agreement; and eighth, to such Defaulting Lender or asotherwise directed by a49court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Loans or unreimbursedLC Disbursements in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Loans were madeor the related Letters of Credit were issued at a time when the conditions set forth in Section 4.2 were satisfied or waived, such paymentshall be applied solely to pay the Loans of, or payments in respect of unreimbursed LC Disbursements owed to, such Defaulting Lenderuntil such time as all Loans and funded and unfunded participations in LC Disbursements and Swingline Loans are held by the Lenderspro rata in accordance with the Commitments without giving effect to Section 2.19(a). Any payments, prepayments or other amountspaid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateralpursuant to this Section 2.17(e) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocablyconsents hereto.SECTION 2.18. Mitigation Obligations; Replacement of Lenders. (a) If any Lender’s obligation to make Eurocurrency Loans,or to continue or convert outstanding Loans as or into Eurocurrency Loans, is suspended pursuant to Section 2.13, if any Lenderrequests compensation under Section 2.14, or if the Borrower is required to pay any Indemnified Taxes or additional amounts to anyLender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, then such Lender shall use reasonableefforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligationshereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) wouldreinstate such Lender’s obligations to make, continue or convert Eurocurrency Borrowings, or eliminate or reduce amounts payablepursuant to Sections 2.14 or 2.16, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost orexpense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable out-of-pocketcosts and expenses actually incurred by any Lender in connection with any such designation or assignment so long as the Borrowerreceived prior notice of the making of such designation or assignment and the Administrative Agent, the Issuing Bank and theSwingline Lender did not previously reject a request by the Borrower to replace such Lender pursuant to this Section 2.18.(b) If any Lender’s obligation to make Eurocurrency Loans, or to continue or convert outstanding Loans as or intoEurocurrency Loans, is suspended pursuant to Section 2.13, if any Lender requests compensation under Section 2.14, or if theBorrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the accountof any Lender pursuant to Section 2.16, or if any Lender becomes a Defaulting Lender, then the Borrower may, at its sole expense andeffort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (inaccordance with and subject to the restrictions contained in Section 9.04), all its interests, rights (other than its existing rights topayments pursuant to Sections 2.14 or 2.16) and obligations under this Agreement and the other Loan Documents to an assignee thatshall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) theBorrower shall have received the prior written consent of the Administrative Agent (and if a Commitment is being assigned, the IssuingBank and the Swingline Lender), which consent shall not unreasonably be withheld, delayed or conditioned, (ii) such Lender shall havereceived payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements and SwinglineLoans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of suchoutstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any suchassignment resulting from a claim for compensation under Section 2.14 or payments required to be made pursuant to Section 2.16, suchassignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignmentand delegation if, prior thereto, as a result of a waiver by such50Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. Each partyhereto agrees that (x) an assignment required pursuant to this paragraph may be effected pursuant to an Assignment and Assumptionexecuted by the Borrower, the Administrative Agent and the assignee (or, to the extent applicable, an agreement incorporating anAssignment and Assumption by reference pursuant to an Approved Electronic Platform as to which the Administrative Agent and suchparties are participants), and (y) the Lender required to make such assignment need not be a party thereto in order for such assignmentto be effective and shall be deemed to have consented to an be bound by the terms thereof; provided that, following the effectiveness ofany such assignment, the other parties to such assignment agree to execute and deliver such documents necessary to evidence suchassignment as reasonably requested by the applicable Lender, provided that any such documents shall be without recourse to orwarranty by the parties thereto.SECTION 2.19. Defaulting Lenders. Notwithstanding any provision of this Agreement to the contrary, if any Lender becomesa Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:(a) fees shall cease to accrue on the unfunded portion of the Commitment of such Defaulting Lender pursuant to Section2.11(a);(b) any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of suchDefaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Section 7.02 or otherwise) or received by theAdministrative Agent from a Defaulting Lender pursuant to Section 9.08 shall be applied at such time or times as may be determined bythe Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agenthereunder; second, to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to the Issuing Bank orSwingline Lender hereunder; third, to Cash Collateralize the Issuing Bank’s LC Exposure with respect to such Defaulting Lender inaccordance with this Section; fourth, as the Borrower may request (so long as no Default or Event of Default exists), to the funding ofany Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determinedby the Administrative Agent; fifth, if so determined by the Administrative Agent and the Borrower, to be held in a deposit account andreleased pro rata in order to (x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under thisAgreement and (y) Cash Collateralize the Issuing Bank’s future LC Exposure with respect to such Defaulting Lender with respect tofuture Letters of Credit issued under this Agreement, in accordance with this Section; sixth, to the payment of any amounts owing to theLenders, the Issuing Bank or Swingline Lender as a result of any judgment of a court of competent jurisdiction obtained by any Lender,the Issuing Bank or Swingline Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligationsunder this Agreement or under any other Loan Document; seventh, so long as no Default or Event of Default exists, to the payment ofany amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower againstsuch Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement or under any other LoanDocument; and eighth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (x) suchpayment is a payment of the principal amount of any Loans or LC Disbursements in respect of which such Defaulting Lender has notfully funded its appropriate share, and (y) such Loans were made or the related Letters of Credit were issued at a time when theconditions set forth in Section 4.02 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and LCDisbursements owed to, all non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or LCDisbursements owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations in the Borrower’sobligations corresponding to such51Defaulting Lender’s LC Exposure and Swingline Loans are held by the Lenders pro rata in accordance with the Commitments withoutgiving effect to clause (d) below. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied(or held) to pay amounts owed by a Defaulting Lender or to post cash collateral pursuant to this Section shall be deemed paid to andredirected by such Defaulting Lender, and each Lender irrevocably consents hereto;(c) the Commitment and Revolving Credit Exposure of such Defaulting Lender shall not be included in determining whetherthe Required Lenders have taken or may take any action hereunder (including any consent to any amendment, waiver or othermodification pursuant to Section 9.02); provided, that this clause (c) shall not apply to the vote of a Defaulting Lender in the case of anamendment, waiver or other modification requiring the consent of such Lender or each Lender affected thereby pursuant to Section9.02(b);(d) if any Swingline Exposure or LC Exposure exists at the time such Lender becomes a Defaulting Lender then:(i) all or any part of the Swingline Exposure and LC Exposure of such Defaulting Lender (other than the portion ofsuch Swingline Exposure referred to in clause (b) of the definition of such term) shall be reallocated among the non-DefaultingLenders in accordance with their respective Applicable Percentages but only to the extent that such reallocation does not, as toany non-Defaulting Lender, cause such Defaulting Lender’s Revolving Credit Exposure to exceed its Commitment;(ii) if the reallocation described in clause (i) above cannot, or can only partially, be effected, the Borrower shallwithin three Business Days following notice by the Administrative Agent (x) first, prepay such Swingline Exposure and (y)second, Cash Collateralize for the benefit of the Issuing Bank only the Borrower’s obligations corresponding to such DefaultingLender’s LC Exposure (after giving effect to any partial reallocation pursuant to clause (i) above) in accordance with theprocedures set forth in Section 2.05(j) for so long as such LC Exposure is outstanding;(iii) if the Borrower Cash Collateralizes any portion of such Defaulting Lender’s LC Exposure pursuant to clause (ii)above, the Borrower shall not be required to pay any fees to such Defaulting Lender pursuant to Section 2.11(b) with respect tosuch Defaulting Lender’s LC Exposure during the period such Defaulting Lender’s LC Exposure is Cash Collateralized;(iv) if the LC Exposure of the non-Defaulting Lenders is reallocated pursuant to clause (i) above, then the feespayable to the Lenders pursuant to Section 2.11(a) and Section 2.11(b) shall be adjusted in accordance with such non-Defaulting Lenders’ Applicable Percentages; and(v) if all or any portion of such Defaulting Lender’s LC Exposure is neither reallocated nor Cash Collateralizedpursuant to clause (i) or (ii) above, then, without prejudice to any rights or remedies of the Issuing Bank or any other Lenderhereunder, all Unused fees that otherwise would have been payable to such Defaulting Lender and letter of credit fees payableunder Section 2.11(b) with respect to such Defaulting Lender’s LC Exposure shall be payable to the Issuing Bank until and tothe extent that such LC Exposure is reallocated and/or Cash Collateralized; and52(e) so long as such Lender is a Defaulting Lender, the Swingline Lender shall not be required to fund any Swingline Loan andthe Issuing Bank shall not be required to issue, amend or increase any Letter of Credit, unless it is satisfied that the related exposure andthe Defaulting Lender’s then outstanding LC Exposure will be 100% covered by the Commitments of the non-Defaulting Lendersand/or cash collateral will be provided by the Borrower in accordance with Section 2.19(c), and participating interests in any newlymade Swingline Loan or any newly issued or increased Letter of Credit shall be allocated among non-Defaulting Lenders in a mannerconsistent with Section 2.19(c)(i) (and such Defaulting Lender shall not participate therein).If a Bankruptcy Event with respect to a Lender Parent shall occur following the date hereof and for so long as such event shallcontinue, the Swingline Lender shall not be required to fund any Swingline Loan and the Issuing Bank shall not be required to issue,amend or increase any Letter of Credit, unless the Swingline Lender or the Issuing Bank, as the case may be, shall have entered intoarrangements with the Borrower or such Lender, satisfactory to the Swingline Lender or the Issuing Bank, as the case may be, todefease any risk to it in respect of such Lender hereunder.In the event that the Administrative Agent, the Borrower, the Swingline Lender and the Issuing Bank each agrees that aDefaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the Swingline Exposureand LC Exposure of the Lenders shall be readjusted to reflect the inclusion of such Lender’s Commitment and on such date suchLender shall purchase at par such of the Loans of the other Lenders (other than Swingline Loans) as the Administrative Agent shalldetermine may be necessary in order for such Lender to hold such Loans in accordance with its Applicable Percentage.SECTION 2.20. Banking Services and Swap Agreements. Each Lender or Affiliate thereof providing Banking Services for, orhaving Swap Agreements with, any Loan Party or any Subsidiary of a Loan Party shall deliver to the Administrative Agent (with a copyto the Borrower), promptly after entering into such Banking Services or Swap Agreements, written notice setting forth the aggregateamount of all Banking Services Obligations and Swap Agreement Obligations of such Loan Party or Subsidiary thereof to such Lenderor Affiliate (whether matured or unmatured, absolute or contingent). In addition, each such Lender or Affiliate thereof shall deliver tothe Administrative Agent (with a copy to the Borrower) from time to time after a significant change therein or upon a request therefor, asummary of the amounts due or to become due in respect of such Banking Services Obligations and Swap Agreement Obligations. Themost recent information provided to the Administrative Agent shall be used in determining the amounts to be applied in respect of suchBanking Services Obligations and/or Swap Agreement Obligations pursuant to Section 2.17(b) and which tier of the waterfall, containedin Section 2.17(b), such Banking Services Obligations and/or Swap Agreement Obligations will be placed.SECTION 2.21. Increase in Commitments. (a) Request for Increase. Provided that there exists no Default or Event of Default,upon notice to the Administrative Agent (which shall promptly notify the Lenders), the Borrower may from time to time request anincrease in the Commitments and/or incur new commitments to provide term loans under a single incremental term loan facility underthis Agreement, provided that (i) any such increases and incremental commitments shall not exceed $400,000,000 in the aggregate, (ii)any such increase shall be in a minimum amount of $25,000,000 with minimum increments of $5,000,000 in excess thereof, providedthat in the case of the initial incurrence of such incremental term loan facility, such increase shall be in a minimum amount of$50,000,000, (iii) the Borrower shall not incur more than ten (10) increases pursuant to this Section 2.21, and (iv) in the case of theincurrence of a commitment to provide a term loan, such term loan shall be documented pursuant to this Agreement, shall be pari passuin all respects with the existing Obligations and shall be subject to the same covenants53and have the same economic terms, including maturity, interest rates and, with respect to any delayed draw term loan, Unused Fees, butexcluding any arrangement and upfront fees payable to the lenders in connection with the making of such commitments and loans, asthe existing Commitments and Loans. At the time of sending such notice, the Borrower (in consultation with the Administrative Agent)shall specify the time period within which each Lender is requested to respond (which shall in no event be less than ten Business Daysfrom the date of delivery of such notice to the Lenders).(b) Increasing and Additional Lenders. Each Lender shall notify the Administrative Agent within such time period whether ornot it agrees to increase its Commitment or incur a new commitment to provide a term loan, as applicable, and, if so, whether by anamount equal to, greater than, or less than its Applicable Percentage of such requested increase or new term loan commitment. AnyLender not responding within such time period shall be deemed to have declined to increase its Commitment or incur a newcommitment to provide a term loan, as applicable. The Administrative Agent shall notify the Borrower and each Lender of the Lenders’responses to each request made hereunder. To achieve the full amount of the requested increase, the Borrower may designate any otherPerson (which may be, but need not be, an existing Lender), unless such Person is a Lender with a Commitment immediately prior togiving effect to such increase or new term loan commitment, subject to the approval of (i) the Administrative Agent, (ii) the IssuingBank and (iii) the Swingline Lender, other than an Ineligible Institution, and which at the time agrees in its sole discretion to (x) in thecase of any such designated Lender that is an existing Lender, increase its Commitment or incur a new term loan commitment, asapplicable, and (y) in the case of any other such Person, become a party to this Agreement pursuant to a joinder agreement in form andsubstance satisfactory to the Administrative Agent and its counsel. Notwithstanding anything contained in Section 9.02 to the contrary,the Administrative Agent, the Borrower and the Lenders providing an increase or a new term loan commitment pursuant to this Sectionshall be permitted to make any amendments or modifications to this Agreement to the extent necessary to reflect the implementation ofsuch increase or new term loan commitment.(c) Effective Date and Allocations. If the Commitments are increased or a commitment to provide a term loan is incurred inaccordance with this Section, the Borrower and the Administrative Agent shall determine the effective date (the “Increase EffectiveDate”) and the final allocation of such increase or new term loan commitment. The Administrative Agent shall promptly notify theLenders of the final allocation of such increase or new term loan commitment and the Increase Effective Date. For the avoidance ofdoubt, any increased Commitments or new term loan commitment shall be subject to the same terms and conditions as all otherCommitments.(d) Conditions to Effectiveness of Increase. As a condition precedent to such increase or addition, the Borrower shall deliver tothe Administrative Agent a certificate of each Loan Party dated as of the Increase Effective Date (in sufficient copies for each Lender)signed by a Financial Officer of such Loan Party (i) certifying and attaching the resolutions adopted by such Loan Party approving orconsenting to such increase or addition, and (ii) certifying that, before and after giving effect to such increase or addition, (A) therepresentations and warranties contained in Article III and the other Loan Documents to which it is a party are true and correct in allmaterial respects (except that such materiality qualifier shall not apply to any representations and warranties that are qualified ormodified by materiality in the text thereof) on and as of the Increase Effective Date, except to the extent that such representations andwarranties specifically refer to an earlier date, in which case they are true and correct in all material respects (except that suchmateriality qualifier shall not apply to any representations and warranties that are qualified or modified by materiality in the text thereof)as of such earlier date, (B) no Default or Event of Default shall have occurred and (C) the Borrower would be in compliance withSection 6.09 on a pro forma basis as of the last day of the most recently-ended fiscal quarter for which financial statements are54available. In the case of any increase in the Commitments, the Borrower shall prepay any Loans outstanding on the Increase EffectiveDate (and pay any additional amounts required pursuant to Section 2.15) to the extent necessary to keep the outstanding Loans ratablewith any revised Applicable Percentages arising from any nonratable increase in the Commitments under this Section.(e) Conflicting Provisions. This Section shall supersede any provisions in Section 2.17 or 9.02 to the contrary.55ARTICLE IIIRepresentations and WarrantiesThe Borrower represents and warrants to the Lenders that:SECTION 3.01. Organization; Powers. Each of the Borrower and its Material Subsidiaries is duly organized, validly existingand in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its businessas now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result ina Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification isrequired.SECTION 3.02. Authorization; Enforceability. The Transactions are within the Borrower’s corporate powers and have beenduly authorized by all necessary corporate and, if required, stockholder action. This Agreement has been duly executed and deliveredby the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subjectto applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject togeneral principles of equity, regardless of whether considered in a proceeding in equity or at law.SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of,registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are infull force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents ofthe Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under anyindenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or its assets, or give rise to a rightthereunder to require any payment to be made by the Borrower or any of its Subsidiaries, and (d) will not result in the creation orimposition of, or the requirement to create, any Lien on any asset of the Borrower or any of its Subsidiaries (other than Liens permittedunder Section 6.02(a)).SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lendersits consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year endedDecember 30, 2017, reported on by Grant Thornton LLP, independent public accountants, and (ii) as of and for the fiscal quarter andthe six months ended June 30, 2018, certified by its chief financial officer. Such financial statements present fairly, in all materialrespects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of suchdates and for such periods in accordance with GAAP (in effect as of the date hereof), subject to year end audit adjustments and theabsence of footnotes in the case of the statements referred to in clause (ii) above.(b) Since December 30, 2017, there has been no material adverse change in the business, assets, operations or financialcondition of the Borrower and its Subsidiaries, taken as a whole.SECTION 3.05. Properties. (a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all itsreal and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct itsbusiness as currently conducted or to utilize such properties for their intended purposes.56(b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, trade names, copyrights, patents andother intellectual property necessary to its business except to the extent such failure to own or license such intellectual property couldnot reasonably be expected to have a Material Adverse Effect and the use thereof by the Borrower and its Subsidiaries does not infringeupon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably beexpected to result in a Material Adverse Effect.SECTION 3.06. Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before anyarbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting theBorrower or any of its Subsidiaries (i) that could reasonably be expected, individually or in the aggregate, to result in a MaterialAdverse Effect or (ii) that involve this Agreement or the Transactions.(b) Except with respect to any matters that, individually or in the aggregate, could not reasonably be expected to result in aMaterial Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or toobtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subjectto any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of anybasis for any Environmental Liability.SECTION 3.07. Compliance with Laws and Agreements. Each of the Borrower and its Subsidiaries is in compliance with alllaws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and otherinstruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably beexpected to result in a Material Adverse Effect.SECTION 3.08. Investment Company Status. Neither the Borrower nor any of its Subsidiaries is an “investment company” asdefined in, or subject to regulation under, the Investment Company Act of 1940.SECTION 3.09. Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns andreports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes thatare being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has setaside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a MaterialAdverse Effect.SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with allother such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a MaterialAdverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposesof Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting suchamounts, exceed by an amount that could reasonably be expected to result in a Material Adverse Effect the fair market value of theassets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptionsused for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statementsreflecting such amounts, exceed by an amount that could reasonably be expected to result in a Material Adverse Effect the fair marketvalue of the assets of all such underfunded Plans.57SECTION 3.11. Disclosure. (a) The Borrower has disclosed to the Lenders all agreements, instruments and corporate or otherrestrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that to the knowledge of the Borrower,individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financialstatements, certificates or other information (other than general economic or industry information) furnished by or on behalf of theBorrower or any Subsidiary to the Administrative Agent or any Lender in connection with the negotiation of this Agreement ordelivered hereunder (as modified or supplemented by other information so furnished), taken as a whole, contains any materialmisstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances underwhich they were made, not materially misleading; provided that, with respect to projected financial information (including withoutlimitation budgets, estimates and forecasts), the Borrower represents only that such information was prepared in good faith based uponassumptions believed to be reasonable at the time.(b) As of the Effective Date, to the best knowledge of the Borrower, the information included in the Beneficial OwnershipCertification provided on or prior to the Effective Date to any Lender in connection with this Agreement is true and correct in allrespectsSECTION 3.12. Anti-Corruption Laws and Sanctions. The Borrower has implemented and maintains in effect policies andprocedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees andagents with Anti-Corruption Laws and applicable Sanctions, and the Borrower, its Subsidiaries and their respective officers anddirectors and to the knowledge of the Borrower its employees and agents, are in compliance with Anti-Corruption Laws and applicableSanctions in all material respects. None of (a) the Borrower, any Subsidiary, any of their respective directors or officers or employees,or (b) to the knowledge of the Borrower, any agent of the Borrower or any Subsidiary that will act in any capacity in connection with orbenefit from the credit facility established hereby, is a Sanctioned Person. No Borrowing or Letter of Credit, use of proceeds or othertransaction contemplated by this Agreement will violate any Anti-Corruption Law or applicable Sanctions.SECTION 3.13. EEA Financial Institutions. No Loan Party is an EEA Financial Institution.SECTION 3.14. Plan Assets; Prohibited Transactions. None of the Borrower or any of its Subsidiaries is an entity deemed tohold “plan assets” (within the meaning of the Plan Asset Regulations), and neither the execution, delivery or performance of thetransactions contemplated under this Agreement, including the making of any Loan and the issuance of any Letter of Credit hereunder,will give rise to a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code.SECTION 3.15. Margin Regulations. The Borrower is not engaged and will not engage, principally or as one of its importantactivities, in the business of purchasing or carrying Margin Stock, or extending credit for the purpose of purchasing or carrying MarginStock, and no part of the proceeds of any Borrowing or Letter of Credit extension hereunder will be used to buy or carry any MarginStock. Following the application of the proceeds of each Borrowing or drawing under each Letter of Credit, not more than 25% of thevalue of the assets (either of the Borrower only or of the Borrower and its Subsidiaries on a consolidated basis) will be Margin Stock.SECTION 3.16. Solvency. The Borrower and its Subsidiaries are Solvent on a consolidated basis as of the Effective Date.58ARTICLE IVConditionsSECTION 4.01. Effective Date. The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters ofCredit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived inaccordance with Section 9.02):(a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of thisAgreement signed on behalf of such party or (ii) written evidence reasonably satisfactory to the Administrative Agent (which mayinclude telecopy or electronic transmission of a signed signature page of this Agreement) that such party has signed a counterpart ofthis Agreement.(b) The Administrative Agent (or its counsel) shall have received executed counterparts of the Fee Letter, sufficient in numberfor distribution to the Administrative Agent and the Borrower.(c) The Administrative Agent (or its counsel) shall have received the Guaranty duly executed by each Guarantor.(d) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and theLenders and dated the Effective Date) of Paul Hastings LLP, counsel for the Borrower and the Guarantors, in form and substancereasonably acceptable to the Administrative Agent, and covering such other matters relating to the Borrower, the Guarantors, thisAgreement or the Transactions as the Required Lenders shall reasonably request. The Borrower hereby requests such counsel to deliversuch opinion.(e) To the extent requested by the Administrative Agent not less than five (5) Business Days prior to the Closing Date, theAdministrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonablyrequest relating to the organization, existence and good standing of the Borrower, the authorization of the Transactions and any otherlegal matters relating to the Borrower, this Agreement or the Transactions, all in form and substance reasonably satisfactory to theAdministrative Agent and its counsel.(f) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a VicePresident or a Financial Officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (a) and (b) ofSection 4.02 (other than those conditions waived in accordance with Section 9.02).(g) All governmental and third party approvals necessary in connection with the Transactions shall have been obtained and bein full force and effect.(h) The Administrative Agent shall have received satisfactory audited consolidated financial statements of the Borrower for thetwo most recent fiscal years ended prior to the Effective Date as to which such financial statements are available.(i) (i) The Administrative Agent shall have received, at least five days prior to the Effective Date, all documentation and otherinformation regarding the Borrower requested in connection with applicable “know your customer” and anti-money laundering rulesand regulations, including the Patriot Act, to the extent requested in writing of the Borrower at least 10 days prior to the Effective Dateand (ii)59to the extent the Borrower qualifies as a “legal entity customer” under the Beneficial Ownership Regulation, at least five days prior tothe Effective Date, any Lender that has requested, in a written notice to the Borrower at least 10 days prior to the Effective Date, aBeneficial Ownership Certification in relation to the Borrower shall have received such Beneficial Ownership Certification (providedthat, upon the execution and delivery by such Lender of its signature page to this Agreement, the condition set forth in this clause (ii)shall be deemed to be satisfied).(j) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date,including, to the extent invoiced prior to the Effective Date, reimbursement or payment of all out of pocket expenses required to bereimbursed or paid by the Borrower hereunder.The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive andbinding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credithereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or priorto 3:00 p.m., New York City time, on December 17, 2018 (and, in the event such conditions are not so satisfied or waived, theCommitments shall terminate at such time).SECTION 4.02. Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing, and ofthe Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions:(a) The representations and warranties of the Loan Parties contained in this Agreement and each other Loan Document shall betrue and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations andwarranties that already are qualified or modified by materiality in the text thereof) on and as of the date of such Borrowing or the dateof issuance, amendment, renewal or extension of such Letter of Credit, as though made on and as of such date (except to the extent thatsuch representations and warranties relate solely to an earlier date, in which case such representations and warranties shall be true andcorrect in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties thatalready are qualified or modified by materiality in the text thereof) as of such earlier date); and(b) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension ofsuch Letter of Credit, as applicable, no Default shall have occurred and be continuing.Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute arepresentation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.60ARTICLE VAffirmative CovenantsUntil the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payablehereunder shall have been paid in full and all Letters of Credit shall have expired or terminated, in each case, without any pendingdraw, or otherwise Cash Collateralized and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees withthe Lenders that:SECTION 5.01. Financial Statements; Ratings Change and Other Information. The Borrower will furnish to the AdministrativeAgent and each Lender, including their Public-Siders:(a) within 90 days after the end of each fiscal year of the Borrower (commencing with the fiscal year ending on or aroundDecember 31, 2018), its audited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows asof the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on byGrant Thornton LLP or other independent public accountants of recognized national standing (without a “going concern” or likequalification, commentary or exception and without any qualification or exception as to the scope of such audit except forqualifications resulting solely from the Obligations being classified as short term indebtedness during the one year period prior to theMaturity Date) to the effect that such consolidated financial statements present fairly in all material respects the financial condition andresults of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistentlyapplied;(b) within 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower (commencing withthe fiscal quarter ending September 29, 2018), its consolidated balance sheet and related statements of operations, stockholders’ equityand cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case incomparative form the figures as of the end of and for the corresponding period or periods of the previous fiscal year, all certified by oneof its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower andits consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end auditadjustments and the absence of footnotes;(c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer ofthe Borrower (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and anyaction taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliancewith Sections 5.09 (including a designation of each Subsidiary as a Material Subsidiary or an Immaterial Subsidiary), 6.01(e), (f), (g)and (q), 6.04(c)(iv), (d), (e), (f) and (o), 6.06(e) and 6.09 and (iii) stating whether any change in GAAP or in the application thereof hasoccurred since the date of the audited financial statements referred to in Section 3.04 and, if any such change has occurred, specifyingthe effect of such change on the financial statements accompanying such certificate;(d) promptly after the same become publicly available, upon the request of Agent, copies of all periodic reports and proxystatements filed by the Borrower or any Subsidiary with the SEC, or any Governmental Authority succeeding to any or all of thefunctions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, asthe case may be;61(e) promptly following any request therefor, (x) such other information regarding the operations, business affairs and financialcondition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or anyLender (through the Administrative Agent) may reasonably request and (y) information and documentation reasonably requested by theAdministrative Agent or any Lender for purposes of compliance with applicable “know your customer” and anti-money launderingrules and regulations, including the Patriot Act and the Beneficial Ownership Regulation.Documents required to be delivered pursuant to Section 5.01(a), (b) or (d) (to the extent any such documents are included inmaterials otherwise filed with the SEC) may be delivered electronically and, if so delivered, shall be deemed to have been delivered onthe date (i) on which such materials are publicly available as posted on the Electronic Data Gathering, Analysis and Retrieval system(EDGAR); or (ii) on which such documents are posted on the Borrower’s behalf on an Internet or intranet website, if any, to which eachLender and the Administrative Agent have access (whether a commercial, third-party website or whether made available by theAdministrative Agent); provided that: (A) upon written request by the Administrative Agent (or any Lender through the AdministrativeAgent) to the Borrower, the Borrower shall deliver paper copies of such documents to the Administrative Agent or such Lender until awritten request to cease delivering paper copies is given by the Administrative Agent or such Lender and (B) the Borrower shall notifythe Administrative Agent and each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to theAdministrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. The Administrative Agent shall haveno obligation to request the delivery of or to maintain paper copies of the documents referred to above, and in any event shall have noresponsibility to monitor compliance by the Borrower with any such request by a Lender for delivery, and each Lender shall be solelyresponsible for timely accessing posted documents or requesting delivery of paper copies of such document to it and maintaining itscopies of such documentsSo long as the Borrower is required to file periodic reports under Section 13(a) or Section 15(d) of the Exchange Act, theBorrower may satisfy its obligation to deliver the financial statements referred to in clauses (a) and (b) above by delivering suchfinancial statements to the SEC or any Governmental Authority succeeding to any or all of the functions of said Commission, inaccordance with the Section 13(a) or Section 15(d) of the Exchange Act.SECTION 5.02. Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender promptwritten notice of the following:(a) the Chief Executive Officer or any Financial Officer of the Borrower obtaining knowledge of the occurrence of anyDefault;(b) the Chief Executive Officer or any Financial Officer of the Borrower obtaining knowledge of the filing or commencementof any action, suit or proceeding or investigation by or before any arbitrator or Governmental Authority against or affecting theBorrower or any Affiliate thereof, including pursuant to any applicable Environmental Laws, that would reasonably be expected toresult in a Material Adverse Effect;(c) the Chief Executive Officer or any Financial Officer of the Borrower obtaining knowledge of the occurrence of any ERISAEvent that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of theBorrower and its Subsidiaries in an aggregate amount that could reasonably be expected to result in a Material Adverse Effect;62(d) the Chief Executive Officer or any Financial Officer of the Borrower obtaining knowledge that any other development hasresulted in, or could reasonably be expected to result in, a Material Adverse Effect; and(e) at the request of the Administrative Agent, any change in the information provided in the Beneficial OwnershipCertification delivered to any Lender that would result in a change to the list of beneficial owners identified in such certification.Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of theBorrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken withrespect thereto.SECTION 5.03. Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause tobe done all things necessary to preserve, renew and keep in full force and effect its legal existence and its respective rights, licenses,permits, privileges and franchises except where the failure to do so would not reasonably be expected to have a Material AdverseEffect; provided that the foregoing shall not prohibit any merger, consolidation, Division, liquidation or dissolution permitted underSection 6.03.SECTION 5.04. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations,including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or indefault, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower orsuch Subsidiary has set aside on its books adequate reserves with respect thereto to the extent required by GAAP and (c) the failure tomake payment pending such contest could not reasonably be expected to result in a Material Adverse Effect.SECTION 5.05. Maintenance of Properties; Insurance. The Borrower will, and will cause each of its Subsidiaries to, (a) keepand maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted,and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as arecustomarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations.SECTION 5.06. Books and Records; Inspection Rights. The Borrower will, and will cause each of its Subsidiaries to, keepproper books of record and account in which full, true and correct entries are made of all material dealings and transactions in relationto its business and activities, including any such dealings and transactions to the extent necessary to prepare the consolidated financialsof the Borrower and its Subsidiaries in accordance with GAAP. The Borrower will, and will cause each of its Subsidiaries to, permit anyrepresentatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties,to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers andindependent accountants, all at such reasonable times during normal operating hours and as often as reasonably requested; provided,excluding any such visits and inspections during the continuation of a Default, only the Administrative Agent on behalf of the Lendersmay exercise rights of the Administrative Agent and the Lenders under this Section 5.06 and the Administrative Agent shall notexercise such rights more often than two (2) times during any consecutive four fiscal quarter period absent the existence of a Defaultand only one (1) such time shall be at the Borrower’s expense; provided, further, that when a Default is continuing, the AdministrativeAgent or any Lender may do any of the foregoing at the expense of the Borrower at any time during normal business hours and upon atleast 24 hours’ notice. The Administrative Agent, the Lenders and their63respective representatives and independent contractors shall use commercially reasonable efforts to avoid interruption of the normalbusiness operations of the Borrower and its Subsidiaries. The Administrative Agent and the Lenders shall give the Borrower theopportunity to participate in any discussions with the independent public accountants of the Borrower and its Subsidiaries.Notwithstanding anything to the contrary in this Section 5.06, neither of the Borrower nor any of its Subsidiaries will be required todisclose, permit the inspection, examination or making copies or abstracts of, or discussion of, any document, information or othermatter that (i) in respect of which disclosure to the Administrative Agent or any Lender (or their respective representatives orcontractors) is prohibited by Law or any binding agreement or (ii) is subject to attorney-client or similar privilege or constitutes attorneywork product.SECTION 5.07. Compliance with Laws. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws,rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so,individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. The Borrower will maintain ineffect and enforce policies and procedures designed to ensure compliance in all material respects by the Borrower, its Subsidiaries andtheir respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.SECTION 5.08. Use of Proceeds and Letters of Credit. The proceeds of the Loans will be used only for general corporatepurposes of the Borrower and the Guarantors in the ordinary course of business (including the purchase of a new headquarters facilityand improvements, permitted Acquisitions and permitted share repurchases). No part of the proceeds of any Loan will be used, whetherdirectly or indirectly, for any purpose that entails a violation of any of the regulations of the Federal Reserve Board, includingRegulations T, U and X. Letters of Credit will be issued only to support the general corporate purposes of the Borrower and theGuarantors in the ordinary course of business. The Borrower will not request any Borrowing or Letter of Credit, and the Borrower shallnot use, and shall procure that its Subsidiaries and its or their respective directors, officers, employees and agents shall not use, theproceeds of any Borrowing or Letter of Credit (A) in furtherance of an offer, payment, promise to pay, or authorization of the paymentor giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (B) for the purpose of funding,financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country, to theextent such activities, businesses or transaction would be prohibited by Sanctions if conducted by a corporation incorporated in theUnited States or in a European Union member state, or (C) in any manner that would result in the violation of any Sanctions applicableto any party hereto.SECTION 5.09. Additional Guarantors. The Borrower will notify the Administrative Agent within 30 days (or such later dateas determined by the Administrative Agent in its sole discretion) that any Person that is either a Material Subsidiary or directly owns aMaterial Subsidiary becomes a Subsidiary, or that any Immaterial Subsidiary is re-designated as a Material Subsidiary, and promptlythereafter (and in any event within 45 days or such later date as determined by Administrative Agent in its sole discretion): if suchMaterial Subsidiary is a U.S. Person, is directly or indirectly wholly owned by the Borrower and is not a CFC Holding Company,Borrower shall cause such Material Subsidiary to become a Guarantor by executing and delivering to the Administrative Agent acounterpart of the Guaranty, or such other document as the Administrative Agent shall deem appropriate for such purpose, in form,content and scope reasonably satisfactory to the Administrative Agent. Notwithstanding anything in the preceding sentence, in no eventshall Borrower be required to cause any CFC, CFC Holding Company or SPE to become a Guarantor.64ARTICLE VINegative CovenantsUntil the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payablehereunder shall have been paid in full and all Letters of Credit shall have expired or terminated, in each case, without any pendingdraw, or otherwise Cash Collateralized and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees withthe Lenders that:SECTION 6.01. Indebtedness. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit toexist any Indebtedness, except:(a) the Obligations, including without limitation, Indebtedness created hereunder and under any other Loan Documents;(b) Indebtedness existing on the date hereof and set forth in Schedule 6.01, and extensions, renewals and replacements of anysuch Indebtedness that (i) do not increase the outstanding principal amount thereof, and (ii) does not shorten the maturity or weightedaverage life to maturity thereof; (c) Indebtedness of (i) the Borrower owing to any Guarantor, (ii) any Guarantor owing to the Borrower or any other Guarantor,(iii) any Loan Party to any Subsidiary (other than a Guarantor), (iv) of any Subsidiary (other than a Guarantor) owing to the Borrower orany other Subsidiary; provided, that any such Indebtedness permitted under subclause (iii) shall be subordinated to the Obligations onterms satisfactory to the Administrative Agent and shall have a maturity date after the Maturity Date; provided, further, that, any suchIndebtedness permitted under subclause (iv) shall be subject to Section 6.04(c);(d) Guarantees by the Borrower of Indebtedness of any Guarantor and by any Guarantor of Indebtedness of the Borrower orany other Guarantor; provided, that Guarantees by any Loan Party of Indebtedness of any Subsidiary that is not a Loan Party shall besubject to Section 6.04(d);(e) Indebtedness of the Borrower or any Subsidiary incurred to finance the acquisition, construction, repair, replacement orimprovement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with theacquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals andreplacements of any such Indebtedness that do not increase the outstanding principal amount thereof; provided that (i) suchIndebtedness is incurred prior to or within 270 days after such acquisition or the completion of such construction, repair, replacement orimprovement and (ii) the aggregate principal amount of Indebtedness permitted by this clause (e) shall not exceed the greater of (x)$40,000,000 and (y) 10% of Total Assets at any time outstanding;(f) Indebtedness of any Person that becomes a Subsidiary after the date hereof other than as a result of a Division; providedthat (i) such Indebtedness exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connectionwith such Person becoming a Subsidiary and (ii) the aggregate principal amount of Indebtedness permitted by this clause (f) at any timeoutstanding shall not exceed the greater of (x) $40,000,000 and (y) 10% of Total Assets determined at the time of incurrence of suchIndebtedness as of the last day of the most recently ended fiscal quarter for which financial statements have been delivered pursuant toSection 5.01(a) or (b), as applicable;(g) Indebtedness of Subsidiaries of Borrower that are not U.S. Persons in an aggregate principal amount at any timeoutstanding not to exceed the greater of (i) $40,000,000 and (ii) 10% of the65Total Assets determined at the time of incurrence of such Indebtedness as of the last day of the most recently ended fiscal quarter forwhich financial statements have been delivered pursuant to Section 5.01(a) or (b), as applicable;(h) Swap Obligations permitted by Section 6.05;(i) endorsements for collection or deposit in the ordinary course of business;(j) obligations in respect of performance, bid, appeal and surety bonds and performance and completion guarantees orobligations in respect thereto provided by either Borrower or any of its Subsidiaries in the ordinary course of business;(k) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawnagainst insufficient funds in the ordinary course of business; provided that such Indebtedness is extinguished within five (5) BusinessDays of its incurrence;(l) Indebtedness arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, ineach case entered into in connection with the disposition of any business, assets or Equity Interests permitted hereunder;(m) Indebtedness arising from agreements providing for deferred consideration, indemnification, adjustments of purchase price(including “earnouts”) or similar obligations, in each case entered into in connection with Permitted Acquisitions or other investmentsand acquisitions permitted by this Agreement;(n) obligations under an agreement to provide such Banking Services and other Indebtedness in respect of netting services,automatic clearing house arrangements, employees’ credit or purchase cards, overdraft protections and similar arrangements in eachcase incurred in the ordinary course of business;(o) Indebtedness comprising reimbursement obligations in respect of retention obligations or any casualty obligations, in eachcase under any insurance policy;(p) Indebtedness that is secured by real property of the Borrower or any of its Subsidiaries and is recourse to such real propertyin an aggregate amount not to exceed 75% of the appraised value of such real property outstanding at any time; and(q) other Indebtedness in an aggregate principal amount at any time outstanding not exceeding the greater of (x) $50,000,000and (y) 10% of Total Assets determined at the time of incurrence of such Indebtedness as of the last day of the most recently endedfiscal quarter for which financial statements have been delivered pursuant to Section 5.01(a) or (b), as applicable.For purposes of determining compliance with this Section 6.01, in the event that an item of Indebtedness when incurred meets thecriteria of more than one of the categories of Indebtedness described in this Section 6.01, the Borrower may, in its sole discretion,classify such item as incurred in whole or in part pursuant to any one or combination of such categories, and may thereafter from timeto time reclassify such item of Indebtedness, in whole or in part, into any one or more other categories, so long as such item ofIndebtedness meets the criteria for such other categories when reclassified. The Borrower will only be required to count any item ofIndebtedness against the availability for any category of Indebtedness to the extent that, and for so long as, the Borrower has classifiedsuch item as incurred pursuant to such category. The accrual of66interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness shall not be deemed to be anincurrence of Indebtedness for purposes of this Section 6.01.SECTION 6.02. Liens. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to existany Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accountsreceivable) or rights in respect of any thereof, except:(a) Liens on Cash Collateral securing the Guaranteed Obligations;(b) Permitted Encumbrances;(c) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof and set forth in Schedule6.02; provided that such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary;(d) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing onany property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary;provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming aSubsidiary, as the case may be, and (ii) such Lien shall secure only those obligations which it secures on the date of such acquisition orthe date such Person becomes a Subsidiary, as the case may be and extensions, renewals and replacements thereof that (A) do notincrease the outstanding principal amount thereof, and (B) do not shorten the maturity or weighted average life to maturity; and(e) Liens on fixed or capital assets acquired, constructed, repaired, replaced or improved by the Borrower or any Subsidiary;provided that (i) such security interests secure Indebtedness permitted by clause (e) of Section 6.01, (ii) such security interests and theIndebtedness secured thereby are incurred prior to or within 270 days after such acquisition or the completion of such construction,repair, replacement or improvement, (iii) the Indebtedness secured thereby does not exceed 100% of the cost of acquiring, constructingor improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of the Borroweror any Subsidiary; provided, however, that individual financings of assets subject to such Liens provided by one lender or lessor maybe cross-collateralized to the other financings provided by such lender or lessor;(f) Liens on any assets of Subsidiaries of Borrower that are not U.S. Persons securing Indebtedness permitted under Section6.01;(g) Liens on real property of the Borrower or any of its Subsidiaries securing Indebtedness permitted under clause (p) ofSection 6.01; and(h) additional Liens on property of Borrower or any of its Subsidiaries securing any Indebtedness or other liabilities; provided,that the aggregate outstanding principal amount of all such Indebtedness and liabilities secured by property of the Loan Parties shall notexceed the greater of (x) $5,000,000 and (y) 1.0% of Total Assets determined at the time of such Lien is granted as of the last day ofthe most recently ended fiscal quarter for which financial statements have been delivered pursuant to Section 5.01(a) or (b), asapplicable .SECTION 6.03. Fundamental Changes. (a) The Borrower will not, and will not permit any Material Subsidiary to, merge intoor consolidate with any other Person, or permit any other Person to67merge into or consolidate with it, consummate a Division as the Dividing Person or sell, transfer, lease or otherwise dispose of (in onetransaction or a series of transactions) all or any substantial part of its assets, or all or substantially all of the stock of any of its MaterialSubsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof andimmediately after giving effect thereto no Default shall have occurred and be continuing (i) any Subsidiary may merge into theBorrower in a transaction in which the Borrower is the surviving corporation, (ii) any Subsidiary may merge into any Subsidiary in atransaction in which the surviving entity is a Subsidiary so long as, in the event that either such Subsidiary is a Guarantor, the survivingentity is a Guarantor or becomes a Guarantor concurrently with such merger, (iii) any Subsidiary may sell, transfer, lease or otherwisedispose of its assets to the Borrower or to another Subsidiary so long as, in the event that the Subsidiary selling, transferring, leasing orotherwise disposing such assets is a Guarantor, the entity to which it sells, transfers, leases or otherwise disposes of its assets is theBorrower or a Guarantor or becomes a Guarantor concurrently with such asset sale, (iv) any Subsidiary may liquidate or dissolve if theBorrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materiallydisadvantageous to the Lenders (v) any Subsidiary may merge into or consolidate with any Person in connection with a PermittedAcquisition so long as, in the event that such Subsidiary is a Guarantor, the surviving entity is a Guarantor or becomes a Guarantorconcurrently with such merger or consolidation; provided that any such merger involving a Person that is not a wholly ownedSubsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 6.04 and (vi) any Subsidiary that isa limited liability company may consummate a Division as the Dividing Person if, immediately upon the consummation of the Division,the assets of the applicable Dividing Person are held by one or more Subsidiaries at such time so long as, in the case of a Divisionpursuant to which the Dividing Person is a Guarantor, any such Subsidiaries which hold such assets upon the consummation of suchDivision are Guarantors or become Guarantors concurrently with such Division.(b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business otherthan businesses of the type conducted by the Borrower and its Subsidiaries on the date of execution of this Agreement and businessesreasonably related, ancillary or complementary thereto (including related, complementary, synergistic or ancillary technologies inwhich the Borrower and its Subsidiaries are currently engaged).SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions. The Borrower will not, and will not permit anyof its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with, or as a Division Successor pursuant to theDivision of, any Person that was not a wholly owned Subsidiary prior to such merger or Division) any capital stock, evidences ofindebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to existany loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any otherPerson, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting abusiness unit, except:(a) Permitted Investments;(b) investments, loans and advances by the Borrower and its Subsidiaries existing on the date hereof in or to other Persons(including investments, loans and advances by Borrower in or to its Subsidiaries) and set forth on Schedule 6.04;(c) investments, loans or advances (i) made by the Borrower or any Guarantor to any Guarantor (or any Person that willsubstantially concurrently with such investment, loan or advance become a Guarantor), (ii) made by any Subsidiary to the Borrower orany Guarantor, (iii) made by any Subsidiary that is not a Guarantor to any other Subsidiary that is not a Guarantor, and (iv) made by68Borrower or any Guarantor to any Subsidiary that is not a Guarantor (other than as a result of directors’ qualifying shares as required byapplicable law); provided, that the aggregate amount of investments, loans or advances incurred under this clause (iv) plus theaggregate amount of Guarantees referred to in the proviso to clause (d) below shall not exceed the greater of (A) $40,000,000 and (B)10% of Total Assets determined on the date of such investment, loan or advance as of the last day of the most recently ended fiscalquarter for which financial statements have been delivered pursuant to Section 5.01(a) or (b), as applicable;(d) Guarantees constituting Indebtedness permitted by Section 6.01 or any other liabilities; provided, that the aggregateprincipal amount of Indebtedness and liabilities of Person that is not Loan Parties that is Guaranteed by a Loan Party plus the aggregateamount of investments, loans and advances outstanding pursuant to clause (c)(iv) above shall not exceed the greater of (A)$40,000,000 and (B) 10% of Total Assets determined on the date of such Guarantee as of the last day of the most recently ended fiscalquarter for which financial statements have been delivered pursuant to Section 5.01(a) or (b), as applicable;(e) Acquisitions meeting the following requirements or otherwise approved by the Required Lenders (each such Acquisitionconstituting a “Permitted Acquisition”):(i) as of the date of the consummation of such Acquisition, no Default shall have occurred and be continuing orwould result from such Acquisition, and the representation and warranty contained in Section 5.08 shall be true both before andafter giving effect to such Acquisition;(ii) such Acquisition is consummated on a non-hostile basis pursuant to a negotiated acquisition agreement approvedby the board of directors or other applicable governing body of the seller or entity to be acquired;(iii) the business to be acquired in such Acquisition is similar, ancillary, complementary or related to one or more ofthe lines of business in which the Borrower and its Subsidiaries are engaged on the Effective Date (including without limitationrelated, complementary, synergistic or ancillary technologies in which the Borrower and its Subsidiaries are currently engaged);(iv) as of the date of the consummation of such Acquisition, all material approvals required in connection therewithshall have been obtained; and(v) after giving pro forma effect to such Acquisition, the Total Net Leverage Ratio shall not exceed 3.25 to 1.0 as ofthe last day of the most recently-ended fiscal quarter for which financial statements are available; provided, that in the case ofany Specified Material Investment, so long as the Total Net Leverage Ratio was not greater than 3.25 to 1.0 prior to givingeffect thereto, the Total Net Leverage Ratio may be greater than 3.25 to 1.0 (but not greater than 4.00 to 1.0) as of the last dayof the most recently-ended fiscal quarter for which financial statements are available after giving pro forma effect to suchSpecified Material Investment;;(f) investments, loans and advances made by the Borrower or any Guarantor in or for the benefit of any Subsidiary that is not aGuarantor, investments in or loans or advances to, joint ventures and other investments in any other Persons, and Guarantees ofobligations of any Person other than a Loan Party, provided that (i) as of the date of such investment, no Default shall have occurredand be continuing or result from such investment, loan, advance or Guarantee, (ii) such investment is related to69one or more of the lines of business conducted by the Borrower and its Subsidiaries on the date of execution of this Agreement andbusinesses reasonably related, ancillary or complementary thereto (including related, complementary, synergistic or ancillarytechnologies in which the Borrower and its Subsidiaries are currently engaged) and (iii) after giving pro forma effect to suchinvestment, the Total Net Leverage Ratio shall not exceed 3.25 to 1.0 as of the last day of the most recently-ended fiscal quarter forwhich financial statements are available; provided, that in the case of any Specified Material Investment, so long as the Total NetLeverage Ratio was not greater than 3.25 to 1.0 prior to giving effect thereto, the Total Net Leverage Ratio may be greater than 3.25 to1.0 (but not greater than 4.00 to 1.0) as of the last day of the most recently-ended fiscal quarter for which financial statements areavailable after giving pro forma effect to such Specified Material Investment;(g) transactions consummated pursuant to Swap Agreements permitted by Section 6.05;(h) loans and advances constituting Indebtedness permitted by Section 6.01;(i) (i) endorsements for collection or deposit in the ordinary course of business consistent with past practice, (ii) extensions oftrade credit (other than to Affiliates of the Borrower) arising or acquired in the ordinary course of business and (iii) Investmentsreceived in settlements in the ordinary course of business of such extensions of trade credit;(j) investments by any Loan Party or any Subsidiary of a Loan Party in any Subsidiary of such Person which is required by lawto maintain a minimum net capital requirement or as may otherwise be required by applicable law or regulation;(k) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods in theordinary course of business;(l) loans or advances to employees, officers or directors of the Borrowers or any of their Subsidiaries in the ordinary course ofbusiness; provided that the aggregate amount of all such loans and advances does not exceed $1,000,000 at any time outstanding;(m) investments held and loans and advances made by a Person acquired in a Permitted Acquisition or an Acquisition that isotherwise permitted hereunder to the extent that such investments, loans or advances were not made in connection with orcontemplation of such acquisition and were in existence as of the date of consummation of such acquisition;(n) investments by the Borrower or any of its Subsidiaries for which the consideration consists solely of Equity Interests of theBorrower; and(o) other Acquisitions and investments in an annual aggregate amount for all such transactions not to exceed the greater of (x)$40,000,000 and (y) 10% of Total Assets determined on the date of such Acquisition or investment as of the last day of the mostrecently ended fiscal quarter for which financial statements have been delivered pursuant to Section 5.01(a) or (b), as applicable.SECTION 6.05. Swap Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any SwapAgreement, except (a) Swap Agreements entered into to hedge or mitigate risks to which the Borrower or any Subsidiary has actualexposure (other than those in respect of Equity Interests of the Borrower or any of its Subsidiaries), and (b) Swap Agreements enteredinto in order to effectively cap, collar or exchange interest rates (from fixed to floating rates, from one floating rate to another floatingrate or otherwise) with respect to any interest-bearing liability or investment of the Borrower or any Subsidiary.70SECTION 6.06. Restricted Payments. The Borrower will not, and will not permit any of its Subsidiaries to, declare or make, oragree to pay or make, directly or indirectly, any Restricted Payment, except (a) the Borrower may declare and pay dividends withrespect to its Equity Interests payable solely in additional shares of its common stock, (b) Subsidiaries may declare and pay dividendsratably with respect to their Equity Interests, (c) the Borrower may make Restricted Payments pursuant to and in accordance with stockoption plans or other benefit plans for management or employees of the Borrower and its Subsidiaries, (d) Subsidiaries may make anyRestricted Payment to the Borrower or another Subsidiary that constitutes an investment permitted under Section 6.04 and (e) theBorrower may declare and make Restricted Payments in the form of dividends or other distributions (whether in cash, securities or otherproperty) with respect to any Equity Interests in the Borrower, or in the form of redemptions or repurchases of Equity Interests in theBorrower, (x) in an unlimited amount so long as at the time of such making or declaration (i) no Default shall be then continuing and(ii) after giving pro forma effect thereto, the Total Net Leverage Ratio shall not exceed 3.25 to 1.0 as of the last day of the mostrecently-ended fiscal quarter for which financial statements are available, or (y) otherwise in an annual aggregate amount for all suchtransactions not to exceed the greater of $50,000,000 and 10% of Total Assets (determined as of the last day of the most recently endedfiscal quarter preceding the record date of such Restricted Payment for which financial statements have been delivered pursuant toSection 5.01(a) or (b), as applicable) so long as at the time of such making or declaration no Default shall be then continuing.SECTION 6.07. Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease orotherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage inany other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions notless favorable to the Borrower or such Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties,(b) transactions between or among the Borrower and its wholly owned Subsidiaries not involving any other Affiliate , (c) any RestrictedPayment permitted by Section 6.06, (d) the issuance of Equity Interests of the Borrower to any employee, director, officer, manager,distributor or consultant (or their respective controlled Affiliates) of the Borrower or any of its Subsidiaries, and (e) reasonablecompensation and salaries (and expense reimbursement and indemnification arrangements for) to officers and directors of the Borrowerand its Subsidiaries.SECTION 6.08. Restrictive Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, directly orindirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon(a) the ability of the Borrower or any Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets, or (b) theability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loansor advances to the Borrower or any other Subsidiary or to Guarantee Indebtedness of the Borrower or any other Subsidiary; providedthat (i) the foregoing shall not apply to restrictions and conditions imposed by law, regulation, rule or order, by this Agreement or anyother Loan Document, (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule6.08 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction orcondition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of aSubsidiary or any assets of Borrower or any of its Subsidiaries pending such sale, provided such restrictions and conditions apply onlyto the Subsidiary or asset that is to be sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not apply torestrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions orconditions apply only to the property or assets securing such Indebtedness, (v) the foregoing shall not apply to agreements orobligations to which a Person was subject at the time such Person becomes a Subsidiary so long as such agreements or71obligations were not entered into in contemplation of such Person becoming a Subsidiary and (vi) clause (a) of the foregoing shall notapply to customary provisions in leases, licenses and other contracts restricting the assignment thereof.SECTION 6.09. Financial Covenants.(a) Total Net Leverage Ratio. The Total Net Leverage Ratio shall not exceed 3.50 to 1.00 as of the last day of any fiscalquarter; provided that after the consummation or making of any Specified Material Investment, such maximum Total Net LeverageRatio shall be increased to 4.00 to 1.00 solely for the last day of the fiscal quarter in which such Specified Material Investment isconsummated or made and for the last day of the next three succeeding fiscal quarters(b) Interest Coverage Ratio. The Interest Coverage Ratio shall not be less than 3.50 to 1.00 as of the last day of any fiscalquarter.72ARTICLE VIIEvents of DefaultSECTION 7.01. Events of Default. If any of the following events (“Events of Default”) shall occur:(a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LCDisbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepaymentthereof or otherwise;(b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to inclause (a) of this Article) payable under this Agreement or any other Loan Document, when and as the same shall become due andpayable, and such failure shall continue unremedied for a period of five Business Days;(c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Guarantor in or in connectionwith this Agreement or any other Loan Document or any amendment or modification hereof or waiver hereunder or thereunder, or inany report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or anyamendment or modification hereof or waiver hereunder or thereunder, shall prove to have been incorrect in any material respect (exceptthat such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified bymateriality in the text thereof) when made or deemed made;(d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02, 5.03 (withrespect to the Borrower’s existence) or 5.08 or in Article VI;(e) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other thanthose specified in clause (a), (b) or (d) of this Article) or any other Loan Document, and such failure shall continue unremedied for aperiod of 30 days after notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of anyLender);(f) the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount)in respect of any Material Indebtedness, when and as the same shall become due and payable;(g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or thatenables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness orany trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase,redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Indebtednessthat becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; provided, in eachcase, such event or condition remains unremedied or has not been waived by the holders of such Material Indebtedness;(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation,reorganization or other relief in respect of the Borrower or any Material Subsidiary or its debts, or of a substantial part of its assets,under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointmentof a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material73Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60days or an order or decree approving or ordering any of the foregoing shall be entered;(i) the Borrower or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seekingliquidation, reorganization or other relief under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now orhereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petitiondescribed in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator,conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of its assets, (iv) file an answeradmitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit ofcreditors or (vi) take any action for the purpose of effecting any of the foregoing;(j) the Borrower or any Material Subsidiary shall become unable, admit in writing its inability or fail generally to pay its debtsas they become due;(k) one or more judgments for the payment of money in an aggregate amount in excess of $40,000,000 (to the extent notcovered by insurance as to which the insurer has not denied coverage) shall be rendered against the Borrower, any Subsidiary or anycombination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not beeffectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or anySubsidiary to enforce any such judgment;(l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISAEvents that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregateamount that could reasonably be expected to result in a Material Adverse Effect;(m) [Reserved];(n) [Reserved];(o) any material provision of any Loan Document for any reason ceases to be valid, binding and enforceable in accordancewith its terms (or any Loan Party shall challenge the enforceability of any Loan Document or shall assert in writing, or engage in anyaction or inaction based on any such assertion, that any provision of any of the Loan Documents has ceased to be or otherwise is notvalid, binding and enforceable in accordance with its terms) other than any cessation in validity or enforceability that occurs inaccordance with its terms; or(p) a Change in Control shall occur;then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at anytime thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall,by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) terminate the Commitments, andthereupon the Commitments shall terminate immediately, (ii) declare the Loans then outstanding to be due and payable in whole (or inpart, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), andthereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and otherobligations of the Borrower accrued74hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of whichare hereby waived by the Borrower, (iii) require that the Borrower provide cash collateral as required in Section 2.05(j), and (iv)exercise on behalf of itself, the Lenders and the Issuing Bank all rights and remedies available to it, the Lenders and the Issuing Bankunder the Loan Documents and Applicable Law; and in case of any event with respect to the Borrower described in clause (h) or (i) ofthis Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accruedinterest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, andthe obligation of the Borrower to Cash Collateralize the LC Exposure as provided in clause (iii) above shall automatically becomeeffective, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. Upon theoccurrence and during the continuance of an Event of Default, the Administrative Agent may, and at the request of the RequiredLenders shall, exercise any rights and remedies provided to the Administrative Agent under the Loan Documents or at law or equity.75ARTICLE VIIIThe Administrative AgentSECTION 8.01. Authorization and Action. (a) Each Lender and the Issuing Bank hereby irrevocably appoints the entity namedas Administrative Agent in the heading of this Agreement and its successors and assigns to serve as the administrative agent under theLoan Documents and each Lender and the Issuing Bank authorizes the Administrative Agent to take such actions as agent on its behalfand to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Administrative Agent undersuch agreements and to exercise such powers as are reasonably incidental thereto. Without limiting the foregoing, each Lender and theIssuing Bank hereby authorizes the Administrative Agent to execute and deliver, and to perform its obligations under, each of the LoanDocuments to which the Administrative Agent is a party, to exercise all rights, powers and remedies that the Administrative Agent mayhave under such Loan Documents.(b)As to any matters not expressly provided for herein and in the other Loan Documents (including enforcement orcollection), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or torefrain from acting (and shall be fully protected in so acting or refraining from acting) upon the written instructions of the RequiredLenders (or such other number or percentage of the Lenders as shall be necessary, pursuant to the terms in the Loan Documents), and,unless and until revoked in writing, such instructions shall be binding upon each Lender and the Issuing Bank; provided, however, thatthe Administrative Agent shall not be required to take any action that (i) the Administrative Agent in good faith believes exposes it toliability unless the Administrative Agent receives an indemnification satisfactory to it from the Lenders and the Issuing Bank withrespect to such action or (ii) is contrary to this Agreement or any other Loan Document or applicable law, including any action that maybe in violation of the automatic stay under any requirement of law relating to bankruptcy, insolvency or reorganization or relief ofdebtors or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any requirement oflaw relating to bankruptcy, insolvency or reorganization or relief of debtors; provided, further, that the Administrative Agent may seekclarification or direction from the Required Lenders prior to the exercise of any such instructed action and may refrain from acting untilsuch clarification or direction has been provided. Except as expressly set forth in the Loan Documents, the Administrative Agent shallnot have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower, any Subsidiaryor any Affiliate of any of the foregoing that is communicated to or obtained by the Person serving as Administrative Agent or any of itsAffiliates in any capacity. Nothing in this Agreement shall require the Administrative Agent to expend or risk its own funds orotherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers ifit shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is notreasonably assured to it.(c)In performing its functions and duties hereunder and under the other Loan Documents, the Administrative Agent isacting solely on behalf of the Lenders and the Issuing Bank (except in limited circumstances expressly provided for herein relating tothe maintenance of the Register), and its duties are entirely mechanical and administrative in nature. Without limiting the generality ofthe foregoing:(i)the Administrative Agent does not assume and shall not be deemed to have assumed any obligation or duty orany other relationship as the agent, fiduciary or trustee of or for any Lender, the Issuing Bank or holder of any other obligationother than as expressly set forth herein and in the other Loan Documents, regardless of whether a Default or an Event of Default76has occurred and is continuing (and it is understood and agreed that the use of the term “agent” (or any similar term) herein orin any other Loan Document with reference to the Administrative Agent is not intended to connote any fiduciary duty or otherimplied (or express) obligations arising under agency doctrine of any applicable law, and that such term is used as a matter ofmarket custom and is intended to create or reflect only an administrative relationship between contracting parties); additionally,each Lender agrees that it will not assert any claim against the Administrative Agent based on an alleged breach of fiduciaryduty by the Administrative Agent in connection with this Agreement and the transactions contemplated hereby; and(ii)nothing in this Agreement or any Loan Document shall require the Administrative Agent to account to anyLender for any sum or the profit element of any sum received by the Administrative Agent for its own account;(d)The Administrative Agent may perform any of its duties and exercise its rights and powers hereunder or under anyother Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent andany such sub-agent may perform any of their respective duties and exercise their respective rights and powers through their respectiveRelated Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of theAdministrative Agent and any such sub-agent, and shall apply to their respective activities pursuant to this Agreement. TheAdministrative Agent shall not be responsible for the negligence or misconduct of any sub-agent except to the extent that a court ofcompetent jurisdiction determines in a final and nonappealable judgment that the Administrative Agent acted with gross negligence orwillful misconduct in the selection of such sub-agent.(e)No Arranger shall have obligations or duties whatsoever in such capacity under this Agreement or any other LoanDocument and shall incur no liability hereunder or thereunder in such capacity, but all such persons shall have the benefit of theindemnities provided for hereunder.(f)In case of the pendency of any proceeding with respect to any Loan Party under any Federal, state or foreignbankruptcy, insolvency, receivership or similar law now or hereafter in effect, the Administrative Agent (irrespective of whether theprincipal of any Loan or any Obligation shall then be due and payable as herein expressed or by declaration or otherwise andirrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered (butnot obligated) by intervention in such proceeding or otherwise:(i)to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of theLoans, LC Disbursements and all other Obligations that are owing and unpaid and to file such other documents as may benecessary or advisable in order to have the claims of the Lenders, the Issuing Bank and the Administrative Agent (including anyclaim under Sections 2.11, 2.12, 2.14, 2.16 and 9.03) allowed in such judicial proceeding; and(ii)to collect and receive any monies or other property payable or deliverable on any such claims and todistribute the same;and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such proceeding is herebyauthorized by each Lender, the Issuing Bank to make such payments to the Administrative Agent and, in the event that theAdministrative Agent shall consent to the making of such payments directly to the Lenders, the Issuing Bank, to pay to theAdministrative Agent any amount due to it, in its capacity as the Administrative Agent, under the Loan Documents (including underSection 9.03).77Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalfof any Lender or the Issuing Bank any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or therights of any Lender or the Issuing Bank or to authorize the Administrative Agent to vote in respect of the claim of any Lender or theIssuing Bank in any such proceeding.(g)The provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the IssuingBank, and, except solely to the extent of the Borrower’s rights to consent pursuant to and subject to the conditions set forth in thisArticle, none of the Borrower or any Subsidiary, or any of their respective Affiliates, shall have any rights as a third party beneficiaryunder any such provisions.SECTION 8.02. Administrative Agent’s Reliance, Indemnification, Etc. (a) Neither the Administrative Agent nor any of itsRelated Parties shall be (i) liable for any action taken or omitted to be taken by it under or in connection with this Agreement or theother Loan Documents (x) with the consent of or at the request of the Required Lenders (or such other number or percentage of theLenders as shall be necessary, or as the Administrative Agent shall believe in good faith to be necessary, under the circumstances asprovided in the Loan Documents) or (y) in the absence of its own gross negligence or willful misconduct (such absence to be presumedunless otherwise determined by a court of competent jurisdiction by a final and nonappealable judgment) or (ii) responsible in anymanner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party or any officer thereofcontained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to orprovided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document orfor the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or forany failure of any Loan Party to perform its obligations hereunder or thereunder.(b)The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written noticethereof (stating that it is a “notice of default”) is given to the Administrative Agent by the Borrower, a Lender or the Issuing Bank, andthe Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty orrepresentation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other documentdelivered thereunder or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other termsor conditions set forth in any Loan Document or the occurrence of any Default, (iv) the sufficiency, validity, enforceability,effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (v) the satisfaction of anycondition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to bedelivered to the Administrative Agent or satisfaction of any condition that expressly refers to the matters described therein beingacceptable or satisfactory to the Administrative Agent. Notwithstanding anything herein to the contrary, the Administrative Agent shallnot be liable for, or be responsible for any loss, cost or expense suffered by the Borrower, any Subsidiary, any Lender or the IssuingBank as a result of, any determination of the Revolving Credit Exposure, any of the component amounts thereof or any portion thereofattributable to each Lender or the Issuing Bank, or any Exchange Rate.(c)Without limiting the foregoing, the Administrative Agent (i) may treat the payee of any promissory note as its holderuntil such promissory note has been assigned in accordance with Section 9.04, (ii) may rely on the Register to the extent set forth inSection 9.04(b), (iii) may consult with legal counsel (including counsel to the Borrower), independent public accountants and otherexperts selected by it, and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance78with the advice of such counsel, accountants or experts, (iv) makes no warranty or representation to any Lender or the Issuing Bankand shall not be responsible to any Lender or the Issuing Bank for any statements, warranties or representations made by or on behalfof any Loan Party in connection with this Agreement or any other Loan Document, (v) in determining compliance with any conditionhereunder to the making of a Loan, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lenderor the Issuing Bank, may presume that such condition is satisfactory to such Lender or the Issuing Bank unless the AdministrativeAgent shall have received notice to the contrary from such Lender or the Issuing Bank sufficiently in advance of the making of suchLoan or the issuance of such Letter of Credit and (vi) shall be entitled to rely on, and shall incur no liability under or in respect of thisAgreement or any other Loan Document by acting upon, any notice, consent, certificate or other instrument or writing (which writingmay be a fax, any electronic message, Internet or intranet website posting or other distribution) or any statement made to it orally or bytelephone and believed by it to be genuine and signed or sent or otherwise authenticated by the proper party or parties (whether or notsuch Person in fact meets the requirements set forth in the Loan Documents for being the maker thereof).SECTION 8.03. Posting of Communications. (a) The Borrower agrees that the Administrative Agent may, but shall not beobligated to, make any Communications available to the Lenders and the Issuing Bank by posting the Communications onIntraLinks™, DebtDomain, SyndTrak, ClearPar or any other electronic platform chosen by the Administrative Agent to be its electronictransmission system (the “Approved Electronic Platform”).(b)Although the Approved Electronic Platform and its primary web portal are secured with generally-applicable securityprocedures and policies implemented or modified by the Administrative Agent from time to time (including, as of the Effective Date, auser ID/password authorization system) and the Approved Electronic Platform is secured through a per-deal authorization methodwhereby each user may access the Approved Electronic Platform only on a deal-by-deal basis, each of the Lenders, each of the IssuingBank and the Borrower acknowledges and agrees that the distribution of material through an electronic medium is not necessarilysecure, that the Administrative Agent is not responsible for approving or vetting the representatives or contacts of any Lender that areadded to the Approved Electronic Platform, and that there are confidentiality and other risks associated with such distribution. Each ofthe Lenders, the Issuing Bank and the Borrower hereby approves distribution of the Communications through the Approved ElectronicPlatform and understands and assumes the risks of such distribution.(c)THE APPROVED ELECTRONIC PLATFORM AND THE COMMUNICATIONS ARE PROVIDED “AS IS” AND“AS AVAILABLE”. THE APPLICABLE PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY ORCOMPLETENESS OF THE COMMUNICATIONS, OR THE ADEQUACY OF THE APPROVED ELECTRONIC PLATFORM ANDEXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR OMISSIONS IN THE APPROVED ELECTRONIC PLATFORM AND THECOMMUNICATIONS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTYOF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS ORFREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE APPLICABLE PARTIES IN CONNECTION WITHTHE COMMUNICATIONS OR THE APPROVED ELECTRONIC PLATFORM. IN NO EVENT SHALL THE ADMINISTRATIVEAGENT, ANY ARRANGER OR ANY OF THEIR RESPECTIVE RELATED PARTIES (COLLECTIVELY, “APPLICABLE PARTIES”)HAVE ANY LIABILITY TO ANY LOAN PARTY, ANY LENDER, THE ISSUING BANK OR ANY OTHER PERSON OR ENTITYFOR DAMAGES OF ANY KIND, INCLUDING DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIALDAMAGES, LOSSES OR EXPENSES (WHETHER79IN TORT, CONTRACT OR OTHERWISE) ARISING OUT OF ANY LOAN PARTY’S OR THE ADMINISTRATIVE AGENT’STRANSMISSION OF COMMUNICATIONS THROUGH THE INTERNET OR THE APPROVED ELECTRONIC PLATFORM.“Communications” means, collectively, any notice, demand, communication, information, document or other material provided by oron behalf of any Loan Party pursuant to any Loan Document or the transactions contemplated therein which is distributed by theAdministrative Agent, any Lender or any Issuing Bank by means of electronic communications pursuant to this Section, includingthrough an Approved Electronic Platform.(d)Each Lender and the Issuing Bank agrees that notice to it (as provided in the next sentence) specifying thatCommunications have been posted to the Approved Electronic Platform shall constitute effective delivery of the Communications tosuch Lender for purposes of the Loan Documents. Each Lender and the Issuing Bank agrees (i) to notify the Administrative Agent inwriting (which could be in the form of electronic communication) from time to time of such Lender’s or the Issuing Bank’s (asapplicable) email address to which the foregoing notice may be sent by electronic transmission and (ii) that the foregoing notice may besent to such email address.(e)Each of the Lenders, the Issuing Bank and the Borrower agrees that the Administrative Agent may, but (except asmay be required by applicable law) shall not be obligated to, store the Communications on the Approved Electronic Platform inaccordance with the Administrative Agent’s generally applicable document retention procedures and policies.(f)Nothing herein shall prejudice the right of the Administrative Agent, any Lender or the Issuing Bank to give anynotice or other communication pursuant to any Loan Document in any other manner specified in such Loan Document.SECTION 8.04. The Administrative Agent Individually. With respect to its Commitment, Loans, Letter of Credit Commitmentsand Letters of Credit, the Person serving as the Administrative Agent shall have and may exercise the same rights and powers hereunderand is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender or Issuing Bank, as thecase may be. The terms “Issuing Bank”, “Lenders”, “Required Lenders” and any similar terms shall, unless the context clearlyotherwise indicates, include the Administrative Agent in its individual capacity as a Lender, Issuing Bank or as one of the RequiredLenders, as applicable. The Person serving as the Administrative Agent and its Affiliates may accept deposits from, lend money to, ownsecurities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of banking, trust orother business with, the Borrower, any Subsidiary or any Affiliate of any of the foregoing as if such Person was not acting as theAdministrative Agent and without any duty to account therefor to the Lenders or the Issuing Bank.SECTION 8.05. Successor Administrative Agent. (a) The Administrative Agent may resign at any time by giving 30 days’ priorwritten notice thereof to the Lenders, the Issuing Bank and the Borrower, whether or not a successor Administrative Agent has beenappointed. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent. If nosuccessor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment,within 30 days after the retiring Administrative Agent’s giving of notice of resignation, then the retiring Administrative Agent may, onbehalf of the Lenders and the Issuing Bank, appoint a successor Administrative Agent, which shall be a bank with an office in NewYork, New York or an Affiliate of any such bank. In either case, such appointment shall be subject to the prior written approval of theBorrower (which approval may not be unreasonably withheld and shall not be required80while an Event of Default has occurred and is continuing). Upon the acceptance of any appointment as Administrative Agent by asuccessor Administrative Agent, such successor Administrative Agent shall succeed to, and become vested with, all the rights, powers,privileges and duties of the retiring Administrative Agent. Upon the acceptance of appointment as Administrative Agent by a successorAdministrative Agent, the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement andthe other Loan Documents. Prior to any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the retiringAdministrative Agent shall take such action as may be reasonably necessary to assign to the successor Administrative Agent its rights asAdministrative Agent under the Loan Documents.(b)Notwithstanding paragraph (a) of this Section, in the event no successor Administrative Agent shall have been soappointed and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its intent toresign, the retiring Administrative Agent may give notice of the effectiveness of its resignation to the Lenders, the Issuing Bank and theBorrower, whereupon, on the date of effectiveness of such resignation stated in such notice, (i) the retiring Administrative Agent shallbe discharged from its duties and obligations hereunder and under the other Loan Documents; and (ii) the Required Lenders shallsucceed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent; provided that (A)all payments required to be made hereunder or under any other Loan Document to the Administrative Agent for the account of anyPerson other than the Administrative Agent shall be made directly to such Person and (B) all notices and other communications requiredor contemplated to be given or made to the Administrative Agent shall directly be given or made to each Lender and the Issuing Bank.Following the effectiveness of the Administrative Agent’s resignation from its capacity as such, the provisions of this Article andSection 9.03, as well as any exculpatory, reimbursement and indemnification provisions set forth in any other Loan Document, shallcontinue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect ofany actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.SECTION 8.06. Acknowledgements of Lenders and Issuing Bank. (a) Each Lender represents that it is engaged in making,acquiring or holding commercial loans in the ordinary course of its business and that it has, independently and without reliance uponthe Administrative Agent, any Arranger or any other Lender, or any of the Related Parties of any of the foregoing, and based on suchdocuments and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement as aLender, and to make, acquire or hold Loans hereunder. Each Lender also acknowledges that it will, independently and without relianceupon the Administrative Agent, any Arranger or any other Lender, or any of the Related Parties of any of the foregoing, and based onsuch documents and information (which may contain material, non-public information within the meaning of the United Statessecurities laws concerning the Borrower and its Affiliates) as it shall from time to time deem appropriate, continue to make its owndecisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or anydocument furnished hereunder or thereunder.(b)Each Lender, by delivering its signature page to this Agreement on the Effective Date, or delivering its signature pageto an Assignment and Assumption or any other Loan Document pursuant to which it shall become a Lender hereunder, shall be deemedto have acknowledged receipt of, and consented to and approved, each Loan Document and each other document required to bedelivered to, or be approved by or satisfactory to, the Administrative Agent or the Lenders on the Effective Date.SECTION 8.07. Certain ERISA Matters. (a) Each Lender (x) represents and warrants, as of the date such Person became aLender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceasesbeing a Lender party hereto, for the benefit of, the81Administrative Agent, and each Arranger and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of theBorrower or any other Loan Party, that at least one of the following is and will be true:(i)such Lender is not using “plan assets” (within the meaning of the Plan Asset Regulations) of one or moreBenefit Plans in connection with the Loans, the Letters of Credit or the Commitments,(ii)the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certaintransactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certaintransactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involvinginsurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collectiveinvestment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), isapplicable with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, theLetters of Credit, the Commitments and this Agreement,(iii) (A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaningof Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of suchLender to enter into, participate in, administer and perform the Loans, the Letters of Credit, the Commitments and thisAgreement, (C) the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, theCommitments and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to thebest knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to suchLender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitmentsand this Agreement, or(iii)such other representation, warranty and covenant as may be agreed in writing between the AdministrativeAgent, in its sole discretion, and such Lender.(b)In addition, unless sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender or suchLender has not provided another representation, warranty and covenant as provided in sub-clause (iv) in the immediately precedingclause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y)covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for thebenefit of, the Administrative Agent, and each Arranger and their respective Affiliates, and not, for the avoidance of doubt, to or for thebenefit of the Borrower or any other Loan Party, that none of the Administrative Agent, or any Arranger or any of their respectiveAffiliates is a fiduciary with respect to the assets of such Lender (including in connection with the reservation or exercise of any rightsby the Administrative Agent under this Agreement, any Loan Document or any documents related to hereto or thereto).(c)The Administrative Agent, and each Arranger hereby informs the Lenders that each such Person is not undertaking toprovide impartial investment advice, or to give advice in a fiduciary capacity, in connection with the transactions contemplated hereby,and that such Person has a financial interest in the transactions contemplated hereby in that such Person or an Affiliate thereof (i) mayreceive interest or other payments with respect to the Loans, the Letters of Credit, the Commitments and this Agreement, (ii) mayrecognize a gain if it extended the Loans, the Letters of Credit or the Commitments for an amount82less than the amount being paid for an interest in the Loans, the Letters of Credit or the Commitments by such Lender or (iii) mayreceive fees or other payments in connection with the transactions contemplated hereby, the Loan Documents or otherwise, includingstructuring fees, commitment fees, arrangement fees, facility fees, upfront fees, underwriting fees, ticking fees, agency fees,administrative agent or collateral agent fees, utilization fees, minimum usage fees, letter of credit fees, fronting fees, deal-away oralternate transaction fees, amendment fees, processing fees, term out premiums, banker’s acceptance fees, breakage or other earlytermination fees or fees similar to the foregoing.83ARTICLE IX MiscellaneousSECTION 9.01. Notices. (a) Except in the case of notices and other communications expressly permitted to be given bytelephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shallbe delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:(i) if to the Borrower, to it at Masimo Corporation, 52 Discovery, Irvine, California 92618, Attention of ChiefFinancial Officer (Facsimile No. 949-297-7099) with a copy to Paul Hastings LLP, 1117 S. California Avenue, Palo Alto, CA94304, Attention of Jeff Hartlin;(ii) if to the Administrative Agent, Issuing Bank or Swingline Lender, (A) in the case of Borrowings and Letters ofCredit denominated in Approved Currencies, to JPMorgan Chase Bank, London Branch, 25 Bank Street, Canary Wharf, 6thFloor, London E145JP, United Kingdom, Attention: Loans Agency, facsimile: 888-303-9732, with a copy to JPMorgan ChaseBank, 3 Park Plaza, Suite 900, Irvine CA 92614, Attention of Ling Li, and (B) in the case of all other notices, to JPMorganChase Bank, N.A., Attn: Awri McKee, 10 S. Dearborn St Floor 07, Chicago, IL 60603, Telephone Number: 312-385-7036,facsimile: 888-303-9732, with a copy to JPMorgan Chase Bank, 3 Park Plaza, Suite 900, Irvine CA 92614, Attention of Ling Li;and(iii) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire.Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given whenreceived; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal businesshours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient).Notices delivered through Approved Electronic Platforms, to the extent provided in paragraph (b) below, shall be effective as providedin said paragraph (b).(b) Notices and other communications to the Lenders and the Issuing Bank hereunder may be delivered or furnished by usingApproved Electronic Platforms pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall notapply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Lender. TheAdministrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder byelectronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited toparticular notices or communications.(c) Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shallbe deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receiptrequested” function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to anInternet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address asdescribed in the foregoing clause (i), of notification that such notice or communication is available and identifying the website addresstherefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normalbusiness hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the nextbusiness day for the recipient.84(d) Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice tothe other parties hereto.SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the Administrative Agent, the Issuing Bank or any Lenderin exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right orpower, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereofor the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Bank and the Lendershereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provisionof this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall bepermitted by paragraph (b) or (c) of this Section, and then such waiver or consent shall be effective only in the specific instance and forthe purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Creditshall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or the Issuing Bank mayhave had notice or knowledge of such Default at the time.(b) Subject to Section 2.13(b) and Section 9.02(c) below, neither this Agreement nor any provision hereof may be waived,amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lendersor by the Borrower and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall(i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan orLC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of eachLender affected thereby; provided, however, that only the consent of the Required Lenders shall be necessary (A) to amend or waivedefault interest pursuant hereto or (B) to amend any financial covenant (or any term defined therein) even if the effect of suchamendment would be to reduce the rate of interest on any Loan or Letter of Credit or to reduce any fee payable hereunder,(iii) postpone the scheduled date of payment of the principal amount of any Loan or LC Disbursement (including the waiver of anymandatory prepayment), or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any suchpayment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affectedthereby, (iv) change Section 2.08(c) or 2.17(b) or (c) in a manner that would alter ratable reduction of Commitments or the pro ratasharing of payments required thereby, without the written consent of each Lender, (v) change the payment waterfall provisions ofSection 2.19(b) or 7.02 without the written consent of each Lender, (vi) change any of the provisions of this Section or the definition of“Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modifyany rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender or (vii)release any Guarantor from its obligations under the Loan Documents without the consent of each Lender, other than any such releaseexpressly contemplated under Article VIII; provided further that no such agreement shall amend, modify or otherwise affect the rightsor duties of the Administrative Agent, the Issuing Bank or the Swingline Lender hereunder (including any amendments or modificationsto Section 2.19) without the prior written consent of the Administrative Agent, the Issuing Bank or the Swingline Lender, as the casemay be; provided further that the Fee Letter may be amended in writing entered into by the Borrower, the Issuing Bank and theAdministrative Agent; provided further that any waiver, amendment or modification requiring the consent of all Lenders or eachaffected Lender that by its terms affects any Defaulting Lender disproportionately adversely relative to other affected Lenders shallrequire the consent of such Defaulting Lender; provided further that no such agreement shall amend or modify the provisions of Section2.05 or any letter of credit application and any bilateral agreement between the Borrower and the Issuing Bank regarding the IssuingBank’s Letter of85Credit Commitment or the respective rights and obligations between the Borrower and the Issuing Bank in connection with the issuanceof Letters of Credit without the prior written consent of the Administrative Agent and the Issuing Bank, respectively.(c) If the Administrative Agent and the Borrower acting together identify any ambiguity, omission, mistake, typographicalerror or other defect in any provision of this Agreement or any other Loan Document, then the Administrative Agent and the Borrowershall be permitted to amend, modify or supplement such provision to cure such ambiguity, omission, mistake, typographical error orother defect, and such amendment shall become effective without any further action or consent of any other party to this Agreement;provided that, for the avoidance of doubt, the foregoing shall not apply in the case of amendments, modifications or supplementsrequiring the consent of each Lender, each affected Lender, the Issuing Bank or the Swingline Lender, as applicable, pursuant to clause(b) above.(d) If, in connection with any proposed amendment, waiver or consent requiring the consent of “each Lender” or “eachLender directly affected thereby”, including any request by the Borrower to add a new currency (other than Sterling, Euros or Yen) asan additional Approved Currency, the consent of the Required Lenders is obtained, but the consent of other necessary Lenders is notobtained (any such Lender who consent is necessary but not obtained being referred to herein as “Non-Consenting Lender”), then theBorrower may elect to replace a Non-Consenting Lender as a Lender party to this Agreement, provided that, concurrently with suchreplacement, (i) another bank or other entity which reasonably satisfactory to the Borrower and the Administrative Agent shall agree, asof such date, to purchase for cash the Loans and the other Obligations due to the Non-Consenting Lender pursuant to an Assignmentand Assumption and become a Lender for all purposes under this Agreement and to assume all obligations of the Non-ConsentingLender to be terminated as of such date and to comply with the requirements of clause (b) of Section 9.04, and (ii) the Borrower shallpay to such Non-Consenting Lender in same day funds on the day of replacement all interest, fees and other amounts then accrued butunpaid to such Non-Consenting Lender by the Borrower hereunder to an including the date of termination.SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable and documented out ofpocket expenses actually incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges anddisbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facility provided for herein, thepreparation and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of theprovisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated) (but limited, in thecase of legal fees and expenses of legal counsel, to the actual reasonable and documented out-of-pocket fees, disbursements and othercharges of one counsel to the Arranger, the Administrative Agent and their Affiliates), (ii) all reasonable and documented out-of-pocketexpenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or anydemand for payment thereunder and (iii) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent,the Issuing Bank or any Lender, including the fees, charges and disbursements of one primary counsel, one local counsel and, in thecase of an actual or perceived conflict of interest, one additional primary and/or local counsel to the Administrative Agent and theLenders as needed to address any such actual or perceived conflict of interest, in connection with the enforcement or protection of itsrights in connection with this Agreement and the other Loan Documents, including its rights under this Section, or in connection withthe Loans made or Letters of Credit issued hereunder, including all such out-of pocket expenses incurred during any workout,restructuring or negotiations in respect of such Loans or Letters of Credit.86(b) The Borrower shall indemnify the Administrative Agent, each Arranger the Issuing Bank and each Lender, and eachRelated Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemniteeharmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable fees, charges anddisbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, oras a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplatedhereby or thereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of theTransactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom(including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented inconnection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence orrelease of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or anyEnvironmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation,investigation, arbitration or proceeding relating to any of the foregoing, whether or not such claim, litigation, investigation, arbitrationor proceeding is brought by the Borrower or any other Loan Party or their respective equity holders, Affiliates, creditors or any otherthird Person and whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto;provided that (A) for claims made by an Indemnitee pursuant to clause (i) of this Section 9.03(b), the Borrower shall not be liable forlegal fees and expenses of legal counsel with respect to any individual claims, damages, losses, liabilities or expenses of more than oneprimary counsel, one local counsel and, in the case of an actual or perceived conflict of interest, any other primary and/or local counselto the Administrative Agent and the Lenders, and (B) such indemnity shall not, as to any Indemnitee, be available to the extent thatsuch losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and non-appealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or any of its Related Parties.This Section 9.03(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims or damages arising fromany non-Tax claim.(c) Each Lender severally agrees to pay any amount required to be paid by the Borrower under paragraph (a) or (b) of thisSection 9.03 to the Administrative Agent, the Issuing Bank and the Swingline Lender, and each Related Party of any of the foregoingPersons (each, an “Agent Indemnitee”) (to the extent not reimbursed by the Borrower and without limiting the obligation of theBorrower to do so), ratably according to their respective Applicable Percentage in effect on the date on which indemnification is soughtunder this Section (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loansshall have been paid in full, ratably in accordance with such Applicable Percentage immediately prior to such date), from and againstany and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any kindwhatsoever that may at any time (whether before or after the payment of the Loans) be imposed on, incurred by or asserted against suchAgent Indemnitee in any way relating to or arising out of the Commitments, this Agreement, any of the other Loan Documents or anydocuments contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken oromitted by such Agent Indemnitee under or in connection with any of the foregoing; provided that the unreimbursed expense orindemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against such AgentIndemnitee in its capacity as such; provided further that no Lender shall be liable for the payment of any portion of such liabilities,obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final andnonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of suchAgent Indemnitee or any of its Related Parties. The agreements87in this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.(d) To the extent permitted by applicable law (i) the Borrower shall not assert, and the Borrower hereby waives, any claimagainst any Indemnitee for any damages arising from the use by others of information or other materials obtained throughtelecommunications, electronic or other information transmission systems (including the Internet), and (ii) no party hereto shall assert,and each such party hereby waives, any claim against any other party hereto, on any theory of liability, for special, indirect,consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, thisAgreement, any other Loan Document, or any agreement or instrument contemplated hereby or thereby, the Transactions, any Loan orLetter of Credit or the use of the proceeds thereof; provided that, nothing in this clause (d)(ii) shall relieve the Borrower of anyobligation it may have to indemnify an Indemnitee against special, indirect, consequential or punitive damages asserted against suchIndemnitee by a third party.(e) All amounts due under this Section shall be payable not later than ten Business Days after written demand therefor.SECTION 9.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefitof the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issuesany Letter of Credit), except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder withoutthe prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be nulland void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section.Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, theirrespective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit),Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the RelatedParties of each of the Administrative Agent, the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or byreason of this Agreement.(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more Persons (otherthan an Ineligible Institution) all or a portion of its rights and obligations under this Agreement (including all or a portion of itsCommitment, participations in Letters of Credit and the Loans at the time owing to it) with the prior written consent (such consent not tobe unreasonably withheld or delayed) of:(A) the Borrower; provided that the Borrower shall be deemed to have consented to an assignment of all or aportion of the Revolving Loans and Commitments unless it shall have objected thereto by written notice to theAdministrative Agent within ten (10) Business Days after having received notice thereof provided that no consent of theBorrower shall be required for (i) an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Eventof Default has occurred and is continuing, any other assignee;(B) the Administrative Agent, provided that no consent of the Administrative Agent shall be required for anassignment of any Commitment to an assignee that is a Lender (other than a Defaulting Lender) with a Commitmentimmediately prior to giving effect to such assignment;88(C) the Issuing Bank, and(D) the Swingline Lender.(ii) Assignments shall be subject to the following additional conditions:(A) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entireremaining amount of the assigning Lender’s Commitment or Loans of any Class, the amount of the Commitment orLoans of the assigning Lender subject to each such assignment (determined as of the date the Assignment andAssumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000unless each of the Borrower and the Administrative Agent otherwise consent, provided that no such consent of theBorrower shall be required if an Event of Default has occurred and is continuing;(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’srights and obligations under this Agreement, provided that this clause shall not be construed to prohibit the assignmentof a proportionate part of all the assigning Lender’s rights and obligations in respect of one Class of Commitments orLoans;(C) the parties to each assignment shall execute and deliver to the Administrative Agent (x) an Assignment andAssumption or (y) to the extent applicable, an agreement incorporating an Assignment and Assumption by referencepursuant to a Platform as to which the Administrative Agent and the parties to the Assignment and Assumption areparticipants), together with a processing and recordation fee of $3,500; and(D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an AdministrativeQuestionnaire in which the assignee designates one or more Credit Contacts to whom all syndicate-level information(which may contain material non-public information about the Borrower and its related parties or its securities) will bemade available and who may receive such information in accordance with the assignee’s compliance procedures andapplicable laws, including Federal and state securities laws.For the purposes of this Section 9.04(b), the term “Approved Fund” and “Ineligible Institution” have the following meanings:“Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investingin bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender,(b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.“Ineligible Institution” means (a) a natural person, (b) a Defaulting Lender, (c) the Borrower or any of its Affiliates, or (d) acompany, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person or relative(s) thereof;provided that, such company, investment vehicle or trust shall not constitute an Ineligible Assignee if it (x) has not been established forthe primary purpose of acquiring any Loans or Commitments, (y) is managed by a professional advisor, who is not such natural personor a relative thereof, having significant experience in the business of making or89purchasing commercial loans, and (z) has assets greater than $25,000,000 and a significant part of its activities consist of making orpurchasing commercial loans and similar extensions of credit in the ordinary course of its business.(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after theeffective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent ofthe interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement,and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, bereleased from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of theassigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continueto be entitled to the benefits of Sections 2.14, 2.15, 2.16 and 9.03). Any assignment or transfer by a Lender of rights orobligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement asa sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.(iv) The Administrative Agent, acting for this purpose as a non-fiduciary agent of the Borrower, shall maintain atone of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names andaddresses of the Lenders, and the Commitment of, and principal amount (and stated interest) of the Loans and LCDisbursements owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Registershall be conclusive, and the Borrower, the Administrative Agent, the Issuing Bank and the Lenders shall treat each Personwhose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement,notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Bank and anyLender, at any reasonable time and from time to time upon reasonable prior notice.(v) Upon its receipt of (x) a duly completed Assignment and Assumption executed by an assigning Lender and anassignee or (y) to the extent applicable, an agreement incorporating an Assignment and Assumption by reference pursuant to aPlatform as to which the Administrative Agent and the parties to the Assignment and Assumption are participants), theassignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processingand recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required byparagraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record theinformation contained therein in the Register; provided that if either the assigning Lender or the assignee shall have failed tomake any payment required to be made by it pursuant to Section 2.04(c), 2.05(d) or (e), 2.06(b), 2.17(d) or 9.03(c), theAdministrative Agent shall have no obligation to accept such Assignment and Assumption and record the information therein inthe Register unless and until such payment shall have been made in full, together with all accrued interest thereon. Noassignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in thisparagraph.(c) Any Lender may, without the consent of the Borrower, the Administrative Agent, the Issuing Bank or the SwinglineLender, sell participations to one or more banks or other entities (a “Participant”), other than an Ineligible Institution, in all or a portionof such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it);provided that (A) such Lender’s obligations under this Agreement shall remain unchanged; (B) such90Lender shall remain solely responsible to the other parties hereto for the performance of such obligations; and (C) the Borrower, theAdministrative Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connectionwith such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such aparticipation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment,modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lenderwill not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso toSection 9.02(b) that affects such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.14,2.15 and 2.16 (subject to the requirements and limitations therein, including the requirements under 2.16(f) (it being understood that thedocumentation required under Section 2.16(f) shall be delivered to the participating Lender and the information and documentationrequired under Section 2.16(g) will be delivered to the Borrower and the Administrative Agent)) to the same extent as if it were aLender and had acquired its interest by assignment pursuant to paragraph (b) of this Section; provided that such Participant (A) agreesto be subject to the provisions of Section 2.18 as if it were an assignee under paragraph (b) of this Section; and (B) shall not be entitledto receive any greater payment under Section 2.14 or 2.16, with respect to any participation, than its participating Lender would havebeen entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occursafter the Participant acquired the applicable participation. Each Lender that sells a participation agrees, at the Borrower’s request andexpense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 2.18(b) with respect to anyParticipant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were aLender; provided that such Participant agrees to be subject to Section 2.17(c) as though it were a Lender. Each Lender that sells aparticipation shall, acting solely for this purpose as a fiduciary agent of the Borrower, maintain a register on which it enters the nameand address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or otherobligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all orany portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest inany Commitments, Loans, Letters of Credit or its other obligations under any Loan Document) to any Person except to the extent thatsuch disclosure is necessary to establish that such Commitment, Loan, Letter of Credit or other obligation is in registered form underSection 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifesterror, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation forall purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in itscapacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement tosecure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal ReserveBank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge orassignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assigneefor such Lender as a party hereto.SECTION 9.05. Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in theother Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or anyother Loan Documents shall be considered to have been relied upon by the other parties hereto and shall survive the execution and91delivery of this Agreement and the other Loan Documents and the making of any Loans and issuance of any Letters of Credit,regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, theIssuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time anycredit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loanor any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and solong as the Commitments have not expired or terminated. The provisions of Sections 2.14, 2.15, 2.16 and 9.03 and Article VIII shallsurvive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment ofthe Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or anyprovision hereof.SECTION 9.06. Counterparts; Integration; Effectiveness; Electronic Execution. (a) This Agreement may be executed incounterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which whentaken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to theAdministrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and allprevious agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, thisAgreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agentshall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, andthereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.(b) Delivery of an executed counterpart of a signature page of this Agreement by telecopy, emailed pdf, or any other electronicmeans that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpartof this Agreement. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any documentto be signed in connection with this Agreement and the transactions contemplated hereby shall be deemed to include ElectronicSignatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity orenforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the casemay be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and NationalCommerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the UniformElectronic Transactions Act; provided that nothing herein shall require the Administrative Agent to accept electronic signatures in anyform or format without its prior written consent.SECTION 9.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdictionshall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity,legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdictionshall not invalidate such provision in any other jurisdiction.SECTION 9.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender, the Issuing Bank,and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, toset off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held, and other obligations atany time owing, by such Lender, the Issuing Bank or any such Affiliate, to or for the credit or the account of the Borrower against anyand all of the obligations of the Borrower now or hereafter existing under this Agreement or92any other Loan Document to such Lender or the Issuing Bank or their respective Affiliates, irrespective of whether or not such Lender,Issuing Bank or Affiliate shall have made any demand under this Agreement or any other Loan Document and although suchobligations of the Borrower may be contingent or unmatured or are owed to a branch office or Affiliate of such Lender or the IssuingBank different from the branch office or Affiliate holding such deposit or obligated on such indebtedness; provided that in the eventthat any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to theAdministrative Agent for further application in accordance with the provisions of Section 2.19 and, pending such payment, shall besegregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent, theIssuing Bank, and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describingin reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The rights of eachLender, the Issuing Bank and their respective Affiliates under this Section are in addition to other rights and remedies (including otherrights of setoff) that such Lender, the Issuing Bank or their respective Affiliates may have. Each Lender and Issuing Bank agrees tonotify the Borrower and the Administrative Agent promptly after any such setoff and application; provided that the failure to give suchnotice shall not affect the validity of such setoff and application.SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement and the other LoanDocuments shall be construed in accordance with and governed by the law of the State of New York.(b) Each of the Lenders and the Administrative Agent hereby irrevocably and unconditionally agrees that, notwithstanding thegoverning law provisions of any applicable Loan Document, any claims brought against the Administrative Agent by any Lenderrelating to this Agreement, any other Loan Document or the consummation or administration of the transactions contemplated hereby orthereby shall be construed in accordance with and governed by the law of the State of New York.(c) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusivejurisdiction of the United States District Court for the Southern District of New York sitting in the Borough of Manhattan (or if suchcourt lacks subject matter jurisdiction, the Supreme Court of the State of New York sitting in the Borough of Manhattan), and anyappellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Documentor the transactions relating hereto or thereto, or for recognition or enforcement of any judgment, and each of the parties hereto herebyirrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may (and any such claims, cross-claims or third party claims brought against the Administrative Agent or any of its Related Parties may only) be heard and determined insuch Federal (to the extent permitted by law) or New York State court. Each of the parties hereto agrees that a final judgment in anysuch action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any othermanner provided by law. Nothing in this Agreement or in any other Loan Document shall affect any right that the AdministrativeAgent, any Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against theBorrower, any Loan Party or its properties in the courts of any jurisdiction.(d) Each of the parties hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectivelydo so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of orrelating to this Agreement or any other Loan Document in any court referred to in paragraph (c) of this Section. Each of the partieshereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance ofsuch action or proceeding in any such court.93(e) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01.Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENTPERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDINGDIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONSCONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TOENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEENINDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS ANDCERTIFICATIONS IN THIS SECTION.SECTION 9.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience ofreference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, thisAgreement.SECTION 9.12. Confidentiality. Each of the Administrative Agent, the Issuing Bank and the Lenders agrees to maintain theconfidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ directors,officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whomsuch disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Informationconfidential), (b) to the extent requested by any Governmental Authority (including any self-regulatory authority such as the NationalAssociation of Insurance Commissioners), it being understood that the Persons to whom such disclosure is made will be informed of theconfidential nature of such Information and instructed to keep such Information confidential, (c) to the extent required by applicablelaws or regulations or by any subpoena or similar legal process (it being understood that the Persons to whom such disclosure is madewill be informed of the confidential nature of such Information and instructed to keep such Information confidential), (d) to any otherparty to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to thisAgreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those ofthis Section, to (i) any permitted assignee of or Participant in, or any prospective permitted assignee of or Participant in, any of its rightsor obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transactionrelating to the Borrower and its obligations, (g) on a confidential basis to (1) any rating agency in connection with rating the Companyor its Subsidiaries or the credit facilities provided for herein or (2) the CUSIP Service Bureau or any similar agency in connection withthe issuance and monitoring of identification numbers with respect to the credit facilities provided for herein, (h) with the consent of theBorrower or (i) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or(ii) becomes available to the Administrative Agent, the Issuing Bank or any Lender on a non-confidential basis from a source other thanthe Borrower. For the purposes of this Section, “Information” means all information received from the Borrower relating to theBorrower or its business, other than any such information that is available to the Administrative Agent, the Issuing Bank or any Lenderon a non-confidential basis prior to disclosure by the Borrower and other than information pertaining to this Agreement routinelyprovided by arrangers to data service providers, including league table providers, that serve the lending industry; provided that, in thecase of information received from the94Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required tomaintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do soif such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord toits own confidential information.SECTION 9.13. Material Non-Public Information.(a) EACH LENDER ACKNOWLEDGES THAT INFORMATION AS DEFINED IN SECTION 9.12(a) FURNISHED TO ITPURSUANT TO THIS AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC INFORMATION CONCERNING THEBORROWER AND ITS RELATED PARTIES OR THEIR RESPECTIVE SECURITIES, AND CONFIRMS THAT IT HAS DEVELOPEDCOMPLIANCE PROCEDURES REGARDING THE USE OF MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILLHANDLE SUCH MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND APPLICABLELAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.(b) ALL INFORMATION, INCLUDING REQUESTS FOR WAIVERS AND AMENDMENTS, FURNISHED BY THEBORROWER OR THE ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE COURSE OF ADMINISTERING, THISAGREEMENT WILL BE SYNDICATE-LEVEL INFORMATION, WHICH MAY CONTAIN MATERIAL NON-PUBLICINFORMATION ABOUT THE BORROWER, THE LOAN PARTIES AND THEIR RELATED PARTIES OR THEIR RESPECTIVESECURITIES. ACCORDINGLY, EACH LENDER REPRESENTS TO THE BORROWER AND THE ADMINISTRATIVE AGENTTHAT IT HAS IDENTIFIED IN ITS ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVEINFORMATION THAT MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH ITS COMPLIANCEPROCEDURES AND APPLICABLE LAW.SECTION 9.14. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rateapplicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicablelaw (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged,taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respectof such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extentlawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operationof this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall beincreased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the NYFRB Rate tothe date of repayment, shall have been received by such Lender.SECTION 9.15. USA Patriot Act. Each Lender that is subject to the requirements of the USA PATRIOT Act of 2001)) (the“Patriot Act”) hereby notifies the Borrower that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and recordinformation that identifies the Borrower, which information includes the name and address of the Borrower and other information thatwill allow such Lender to identify the Borrower in accordance with the Patriot Act.SECTION 9.16. California Judicial Reference. If any action or proceeding is filed in a court of the State of California by oragainst any party hereto in connection with any of the transactions contemplated by this Agreement or any other Loan Document, (a)the parties agree, and hereby agree to advise the applicable court, that the adjudication of any such action or proceeding (and all relatedclaims)95shall be made pursuant to California Code of Civil Procedure Section 638 by a referee (who shall be a single active or retired judge)who shall hear and determine all of the issues in such action or proceeding (whether of fact or of law) and report a statement ofdecision, provided that at the option of any party to such proceeding, any such issues pertaining to a “provisional remedy” as defined inCalifornia Code of Civil Procedure Section 1281.8 shall be heard and determined by the court, and (b) without limiting the generality ofSection 9.03, the Borrower shall be solely responsible to pay all fees and expenses of any referee appointed in such action orproceeding.SECTION 9.17. Judgment Currency. If for the purposes of obtaining judgment in any court it is necessary to convert a sumdue from the Borrower hereunder in the currency expressed to be payable herein (the “Specified Currency”) into another currency, theparties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which inaccordance with normal banking procedures the Administrative Agent could purchase the Specified Currency with such other currencyat the Administrative Agent’s New York office on the Business Day preceding that on which final judgment is given. The obligations ofthe Borrower in respect of any sum due to any Lender, the Issuing Bank or the Administrative Agent hereunder shall, notwithstandingany judgment in a currency other than the Specified Currency, be discharged only to the extent that on the Business Day followingreceipt by such Lender, the Issuing Bank or the Administrative Agent (as the case may be) of any sum adjudged to be so due in suchother currency such Lender or the Administrative Agent (as the case may be) may in accordance with normal banking procedurespurchase the Specified Currency with such other currency; if the amount of the Specified Currency so purchased is less than the sumoriginally due to such Lender, the Issuing Bank or the Administrative Agent, as the case may be, in the Specified Currency, theBorrower agrees, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such judgment, toindemnify such Lender, the Issuing Bank or the Administrative Agent, as the case may be, against such loss.SECTION 9.18 Acknowledgement and Consent to Bail-In of EEA Financial Institutions. Notwithstanding anything to thecontrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party heretoacknowledges that any liability of any EEA Financial Institution arising under any Loan Document may be subject to the Write-Downand Conversion Powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:(a)the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilitiesarising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and(b)the effects of any Bail-In Action on any such liability, including, if applicable:(i)a reduction in full or in part or cancellation of any such liability;(ii)a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEAFinancial Institution, its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that suchshares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under thisAgreement or any other Loan Document; or(iii)the variation of the terms of such liability in connection with the exercise of the Write-Down and ConversionPowers of any EEA Resolution Authority. 96SECTION 9.19. No Fiduciary Duty, etc. The Borrower acknowledges and agrees, and acknowledges its Subsidiaries’understanding, that no Credit Party will have any obligations except those obligations expressly set forth herein and in the other LoanDocuments and each Credit Party is acting solely in the capacity of an arm’s length contractual counterparty to the Borrower withrespect to the Loan Documents and the transaction contemplated therein and not as a financial advisor or a fiduciary to, or an agent of,the Borrower or any other person. The Borrower agrees that it will not assert any claim against any Credit Party based on an allegedbreach of fiduciary duty by such Credit Party in connection with this Agreement and the transactions contemplated hereby.Additionally, the Borrower acknowledges and agrees that no Credit Party is advising the Borrower as to any legal, tax, investment,accounting, regulatory or any other matters in any jurisdiction. The Borrower shall consult with its own advisors concerning suchmatters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated hereby,and the Credit Parties shall have no responsibility or liability to the Borrower with respect thereto.The Borrower further acknowledges and agrees, and acknowledges its Subsidiaries’ understanding, that each Credit Party,together with its Affiliates, is a full service securities or banking firm engaged in securities trading and brokerage activities as well asproviding investment banking and other financial services. In the ordinary course of business, any Credit Party may provide investmentbanking and other financial services to, and/or acquire, hold or sell, for its own accounts and the accounts of customers, equity, debtand other securities and financial instruments (including bank loans and other obligations) of, the Borrower and other companies withwhich the Borrower may have commercial or other relationships. With respect to any securities and/or financial instruments so held byany Credit Party or any of its customers, all rights in respect of such securities and financial instruments, including any voting rights,will be exercised by the holder of the rights, in its sole discretion.In addition, the Borrower acknowledges and agrees, and acknowledges its Subsidiaries’ understanding, that each Credit Partyand its affiliates may be providing debt financing, equity capital or other services (including financial advisory services) to othercompanies in respect of which the Borrower may have conflicting interests regarding the transactions described herein and otherwise.No Credit Party will use confidential information obtained from the Borrower by virtue of the transactions contemplated by the LoanDocuments or its other relationships with the Borrower in connection with the performance by such Credit Party of services for othercompanies, and no Credit Party will furnish any such information to other companies. The Borrower also acknowledges that no CreditParty has any obligation to use in connection with the transactions contemplated by the Loan Documents, or to furnish to the Borrower,confidential information obtained from other companies.IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respectiveauthorized officers as of the day and year first above written.MASIMO CORPORATION, asBorrower By: Name: Micah YoungTitle: Executive Vice President& Chief Financial OfficerJPMORGAN CHASE BANK, N.A.,individually and as AdministrativeAgent, By: Name:Title:JPMORGAN CHASE BANK, N.A.,as Lender, By: Name:Title:BANK OF THE WEST, as Lender, By: Name:Title: 1 EXHIBIT AASSIGNMENT AND ASSUMPTIONThis Assignment and Assumption (the “Assignment and Assumption”) is dated as of the Effective Date set forth below and isentered into by and between [Insert name of Assignor] (the “Assignor”) and [Insert name of Assignee] (the “Assignee”). Capitalizedterms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the“Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions setforth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment andAssumption as if set forth herein in full.For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee herebyirrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and theCredit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignor’s rightsand obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuantthereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations ofthe Assignor under the respective facilities identified below (including any letters of credit, guarantees, and swingline loans included insuch facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other rightof the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with theCredit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in anyway based on or related to any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all otherclaims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligationssold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the “Assigned Interest”). Such sale andassignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, withoutrepresentation or warranty by the Assignor.1. Assignor: ______________________________2. Assignee: ______________________________ [and is an Affiliate/Approved Fund of [identify Lender]1]3. Borrower: Masimo Corporation4.Administrative Agent: JPMorgan Chase Bank, N.A., as the administrative agent under the Credit Agreement5.Credit Agreement: The Credit Agreement dated as of December 17, 2018 among Masimo Corporation, the Lenders partiesthereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other parties thereto6. Assigned Interest:__________________________1Select as applicable.2Facility AssignedAggregate Amount ofCommitment/Loans for allLendersAmount of Commitment/LoansAssignedPercentage Assigned ofCommitment/Loans2Revolving Commitment$$% $$% $$%Effective Date: _____________ ___, 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THEEFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]The Assignee agrees to deliver to the Administrative Agent a completed Administrative Questionnaire in which the Assignee designatesone or more Credit Contacts to whom all syndicate-level information (which may contain material non-public information about theBorrower[, the Loan Parties] and [its] [their] Related Parties or their respective securities) will be made available and who may receivesuch information in accordance with the Assignee’s compliance procedures and applicable laws, including Federal and state securitieslaws.The terms set forth in this Assignment and Assumption are hereby agreed to:ASSIGNOR[NAME OF ASSIGNOR] By: Title:ASSIGNEE[NAME OF ASSIGNEE] By: Title:__________________________2Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder. 2 3[Consented to and]3 Accepted:JPMORGAN CHASE BANK, N.A., as Administrative AgentBy_________________________________Title:[Consented to:]4 [NAME OF RELEVANT PARTY]By________________________________Title:__________________________3To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement.4To be added only if the consent of the Borrower and/or other parties (e.g. Swingline Lender, Issuing Bank) is required by the terms of the Credit Agreement. 3 ANNEX 1CREDIT AGREEMENT DATED AS OF DECEMBER 17, 2018 FOR MASIMO CORPORATIONSTANDARD TERMS AND CONDITIONS FOR ASSIGNMENT AND ASSUMPTION1. Representations and Warranties.1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii)the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and hastaken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplatedhereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection withthe Credit Agreement, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Agreement or anycollateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated inrespect of the Agreement or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any otherPerson of any of their respective obligations under the Agreement.1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all actionnecessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and tobecome a Lender under the Credit Agreement, (ii) it satisfies the requirements, if any, specified in the Credit Agreement that arerequired to be satisfied by it in order to acquire the Assigned Interest and become a Lender, (iii) from and after the Effective Date, itshall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall havethe obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recentfinancial statements delivered pursuant to Section 5.01 thereof, as applicable, and such other documents and information as it hasdeemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase theAssigned Interest on the basis of which it has made such analysis and decision independently and without reliance on theAdministrative Agent or any other Lender, and (v) attached to the Assignment and Assumption is any documentation required to bedelivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) itwill, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documentsand information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action underthe Agreement, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Agreement arerequired to be performed by it as a Lender.2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of the AssignedInterest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to butexcluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties heretoand their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, whichtogether shall constitute one instrument. Acceptance and adoption of the terms of this Assignment and Assumption by the Assignee andthe Assignor by Electronic Signature or delivery of an executed counterpart of a signature page of this2Assignment and Assumption by any Approved Electronic Platform shall be effective as delivery of a manually executed counterpart ofthis Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law ofthe State of New York. 2 EXHIBIT C-1[FORM OF]U.S. TAX COMPLIANCE CERTIFICATE(For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)Reference is hereby made to the Credit Agreement dated as of December 17, 2018 (as amended, supplemented or otherwisemodified from time to time, the “Credit Agreement”), among Masimo Corporation, JPMorgan Chase Bank, N.A., as administrativeagent, and each lender from time to time party thereto.Pursuant to the provisions of Section 2.16 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole recordand beneficial owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate,(ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrowerwithin the meaning of Section 871(h)(3)(B) of the Code and (iv) it is not a controlled foreign corporation related to the Borrower asdescribed in Section 881(c)(3)(C) of the Code.The undersigned has furnished the Administrative Agent and the Borrower with a certificate of its non-U.S. Person status on IRSForm W-8BEN. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, theundersigned shall promptly so inform the Borrower and the Administrative Agent, and (2) the undersigned shall have at all timesfurnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendaryear in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to themin the Credit Agreement.[NAME OF LENDER]By: Name: Title:Date: ________ __, 20[ ]EXHIBIT C-2[FORM OF]U.S. TAX COMPLIANCE CERTIFICATE(For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)Reference is hereby made to the Credit Agreement dated as of December 17, 2018 (as amended, supplemented or otherwisemodified from time to time, the “Credit Agreement”), among Masimo Corporation, JPMorgan Chase Bank, N.A., as administrativeagent, and each lender from time to time party thereto.Pursuant to the provisions of Section 2.16 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole recordand beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a bank within the meaning ofSection 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) ofthe Code, and (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.The undersigned has furnished its participating Lender with a certificate of its non-U.S. Person status on IRS Form W-8BEN. Byexecuting this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shallpromptly so inform such Lender in writing, and (2) the undersigned shall have at all times furnished such Lender with a properlycompleted and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or ineither of the two calendar years preceding such payments.Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to themin the Credit Agreement.[NAME OF PARTICIPANT]By: Name: Title:Date: ________ __, 20[ ]EXHIBIT C-3[FORM OF]U.S. TAX COMPLIANCE CERTIFICATE(For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)Reference is hereby made to the Credit Agreement dated as of December 17, 2018 (as amended, supplemented or otherwisemodified from time to time, the “Credit Agreement”), among Masimo Corporation, JPMorgan Chase Bank, N.A., as administrativeagent, and each lender from time to time party thereto.Pursuant to the provisions of Section 2.16 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole recordowner of the participation in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the solebeneficial owners of such participation, (iii) with respect such participation, neither the undersigned nor any of its direct or indirectpartners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or businesswithin the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholderof the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is acontrolled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.The undersigned has furnished its participating Lender with IRS Form W-8IMY accompanied by one of the following formsfrom each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN from each of such partner’s/member’s beneficial owners that is claiming the portfoliointerest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes,the undersigned shall promptly so inform such Lender and (2) the undersigned shall have at all times furnished such Lender with aproperly completed and currently effective certificate in either the calendar year in which each payment is to be made to theundersigned, or in either of the two calendar years preceding such payments.Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to themin the Credit Agreement.[NAME OF PARTICIPANT]By: Name: Title:Date: ________ __, 20[ ]EXHIBIT C-4[FORM OF]U.S. TAX COMPLIANCE CERTIFICATE(For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)Reference is hereby made to the Credit Agreement dated as of December 17, 2018 (as amended, supplemented or otherwisemodified from time to time, the “Credit Agreement”), among Masimo Corporation, JPMorgan Chase Bank, N.A., as administrativeagent, and each lender from time to time party thereto.Pursuant to the provisions of Section 2.16 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole recordowner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) its direct orindirect partners/members are the sole beneficial owners of such Loan(s) (as well as any Note(s) evidencing such Loan(s)), (iii) withrespect to the extension of credit pursuant to this Credit Agreement or any other Loan Document, neither the undersigned nor any of itsdirect or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of itstrade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a tenpercent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirectpartners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.The undersigned has furnished the Administrative Agent and the Borrower with IRS Form W-8IMY accompanied by one of thefollowing forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or (ii) anIRS Form W-8IMY accompanied by an IRS Form W-8BEN from each of such partner’s/member’s beneficial owners that is claiming theportfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificatechanges, the undersigned shall promptly so inform the Borrower and the Administrative Agent, and (2) the undersigned shall have at alltimes furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either thecalendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to themin the Credit Agreement.[NAME OF LENDER]By: Name: Title:Date: ________ __, 20[ ]Exhibit 21.1Subsidiaries of the Registrant - 2018The following are wholly-owned subsidiaries of the registrant, Masimo Corporation, a Delaware corporation: Name of SubsidiaryState or Jurisdiction of Incorporation or Organization Masimo Americas, Inc.DelawareMasimo de Mexico Holdings I LLCDelawareMasimo de Mexico Holdings II LLCDelawareMasimo Holdings LLCDelawareSpO2.com, Inc.DelawareSEDLine, Inc.DelawareMasimo Australia Pty LtdAustraliaMasimo Öesterreich GmbHAustriaMasimo Importacao e Distribuicao de Produtos Medicos LtdaBrazilMasimo Holdings LPCaymanMasimo China Medical Technology Co., Ltd.ChinaMasimo Europe Ltd.England and WalesMasimo Hong Kong LimitedHong KongMasimo Medical Technologies India Private LimitedIndiaMasimo Japan Kabushiki KaishaJapanMasimo Mexico, S. de R.L. de C.V.MexicoMasimo Canada ULCNova ScotiaMasimo Peru SrlPeruMasimo Asia Pacific PTE. Ltd.SingaporeMasimo International SARLSwitzerlandMasimo International Technologies SARLSwitzerlandMasimo Medikal Ürünler Ticaret Limited ŞirketiTurkeyMasimo Semiconductor, Inc.DelawareMasimo Sweden ABSweden52 Discovery, LLCCaliforniaMasimo 25 Sagamore, LLCNew HampshireMasimo Korea, LLCSouth KoreaMasimo Polska sp. Z.o.o.PolandMasimo 17, LLCCaliforniaMasimo (Shanghai) Industrial Co., Ltd. ChinaPatient Doctor Technologies, Inc.Delaware-1-Exhibit 21.1Subsidiaries of the Registrant - 2018Name of SubsidiaryState or Jurisdiction of Incorporation or Organization Alton Office Property, LLCDelawareAlton Office Holdings, LLCDelaware-2-Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRMWe have issued our reports dated February 26, 2019, with respect to the consolidated financial statements, financial statement schedule, and internal controlover financial reporting included in the Annual Report of Masimo Corporation on Form 10-K for the year ended December 29, 2018. We consent to theincorporation by reference of said reports in the Registration Statements of Masimo Corporation on Forms S-8 (File No. 333-148149, effective December 19,2007; File No. 333-149138, effective February 11, 2008; File No. 333-157673, effective March 4, 2009; File No. 333-168534, effective August 4, 2010; FileNo. 333-179557, effective February 17, 2012; File No. 333-186692, effective February 15, 2013; File No. 333-194089, effective February 24, 2014; and FileNo. 333-219207, effective July 10, 2017)./s/ GRANT THORNTON LLPNewport Beach, CaliforniaFebruary 26, 2019Exhibit 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPursuant to Rule 13a-14(a) adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Joe Kiani, certify that:1. I have reviewed this annual report on Form 10-K 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 thestatements 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 financialcondition, 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 ExchangeAct 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 registrantand have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat 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 inaccordance 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 effectivenessof 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 fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’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 likelyto 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 overfinancial reporting.Dated: February 26, 2019 /s/ JOE KIANI Joe Kiani Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Exhibit 31.2CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPursuant to Rule 13a-14(a) adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Micah Young, certify that:1. I have reviewed this annual report on Form 10-K 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 thestatements 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 financialcondition, 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 ExchangeAct 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 registrantand have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat 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 inaccordance 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 effectivenessof 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 fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’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 likelyto 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 overfinancial reporting.Dated: February 26, 2019 /s/ MICAH YOUNG Micah Young Executive Vice President, Finance and Chief Financial Officer (Principal Financial Officer) Exhibit 32.1CERTIFICATIONS OFCHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002I, 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 Annual Report on Form 10-K of the Company for the period ended December 29, 2018 (the “Report”) fully complies with the requirements of Section13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Dated: February 26, 2019/s/ JOE KIANI 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 theSarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to my knowledge:1. The Annual Report on Form 10-K of the Company for the period ended December 29, 2018 (the “Report”) fully complies with the requirements of Section13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Dated: February 26, 2019/s/ MICAH YOUNG Micah Young Executive Vice President, Finance 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 theSecurities and Exchange Commission or its staff upon request.These certifications are being furnished solely to accompany this Annual Report on Form 10-K pursuant to 18 U.S.C. Section 1350, and shall not be deemedfiled for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of MasimoCorporation, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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