SETTLEMENT AGREEMENT AND RELEASE OF CLAIMS

1

Definitions:

1.1

"Affiliate" means, with respect to each Party, any legal entity that is, directly or indirectly, controlling, controlled by or under common control with the Party. For purposes of this definition, an entity shall be deemed to control another entity if it owns or controls, directly or indirectly, more than fifty percent (50%) of the voting equity of the other entity (or other comparable ownership interest for an entity other than a corporation).

1.2

"Essentially Unchanged" means no changes other than (i) immaterial changes to the software for the correction of bugs or implementation of a software translation (e.g., a recompile due to processor change), and/or (ii) hardware changes that are not covered by any of the other Party’s patents not proven invalid or unenforceable by a court of competent jurisdiction, and/or (iii) software changes for size or power utilization, industrial design, user interface and connectivity that are not covered by any of the other Party’s patents not proven invalid or unenforceable by a court of competent jurisdiction, and/or (iv) changes consisting of the addition of the parameters of

blood pressure, respiration rate, temperature, ECG, and CO2 that are not, alone or in combination with other new features, functions or parameters, covered by any of the other Party’s patents not found invalid or unenforceable by a court of competent jurisdiction and/or (v) changes consisting of the addition of new feature(s), function(s) or parameter(s) that are generated from pulse rate and/or Oxygen Saturation calculations and that are not, alone or in combination with other new features or functions or parameters, covered by any of the other Party’s patents not found invalid or unenforceable by a court of competent jurisdiction. For purposes of this Section 1.2, "other Party’s patents" includes (a) patents that are exclusively licensed to such Party and (b) with respect to a specified field of use, patents that are exclusively licensed to such party for such field of use.

1.3

"Pulse Oximetry Revenue" means Nellcor’s and its Affiliates’ net pulse oximetry revenue for products shipped, service and licenses to purchasers in the United States. Net Pulse Oximetry Revenue is calculated in accordance with GAAP, consistent with how such calculations were made in the past by Nellcor, as provided to Masimo in accordance with Section 3.1. Nellcor has not and will not direct revenue away from the United States and to international markets in order to avoid or reduce paying royalties under this Agreement. For multiparameter devices (i.e., devices including parameters or therapeutic functions other than pulse rate and Oxygen Saturation), the per unit portion of the net revenue attributable to pulse oximetry revenue will be set at 100% of the then current year average net sales price of Nellcor’s stand alone pulse oximetry monitors, but not less than $1500.

1.4

"Masimo Patents" means U.S. Patent Nos. 6,263,222, 6,157,850, and 5,769,785.

1.5

"06 Pulse Oximetry Products" means Nellcor’s pulse oximetry products (including oximetry software licensed to OEMs) that use the 06 algorithm as shown to Masimo during November 2005 in the due diligence process of the Memorandum of Understanding dated October 20, 2005. A list of the 06 Pulse Oximetry Products is set forth in Exhibit C.

1.6

"Oxygen Saturation" is as defined in ISO 9919:2005 section 3.25 (definition of SpO2, which is an estimate of SaO2 or the true functional saturation).

1.7

"Fractional Saturation" is as defined in ISO 9919:2005 section 3.8 (definition of fractional oxyhaemoglobin FO2Hb), or HbO2/(Hb + HbO2 + HbCO + HbMet), or SpO2 – (SpCO and/or SpMet), (including using the ratio of ratios for each of the hemoglobins and then converting to fractional saturation), and any approximations thereof.

2

Settlement Payment:

2.1

By January 19, 2006, Nellcor shall deliver a non-refundable payment by wire transfer to Masimo Corp. in the amount of Three-Hundred Thirty Million Four-Hundred-Eighty Thousand Dollars ($330,480,000). This amount is comprised of Two-Hundred-Fifty-Eight Million ($258,000,000) for infringements by 04, 05 and 05ci sales through December 31, 2005; Six Million Two Hundred Fifty Thousand ($6,250,000) for pulse oximetery sales from January 1, 2006 through January 31, 2006; and Sixty-Six Million Two-Hundred-Thirty Thousand ($66,230,000) as an advance royalty payment for the period from February 1, 2006 through December 31, 2006. Late payments shall accrue interest at 10% per annum.

2.2

The Settlement Payment in Section 2.1 is based upon unit shipments of Nellcor 04, 05, 05ci and 06 pulse oximeters and pulse oximeter boards for January 2006 of 9,000 units. No later than April 1, 2006, Nellcor will provide actual unit volumes for sales of such pulse oximeters and pulse oximeter boards for January 2006 for the same geographic scope presented at the trial. If Nellcor shipped more than 9,000 units during that period, it shall pay to Masimo an additional amount as follows: the number of such units over 9,000 shall be calculated ("Overage Units") and, for each 06 unit shipped, up to the number of Overage Units, Nellcor will pay 20% of the Pulse Oximetry Revenue for such units, and if there are any Overage Units in excess of the number of 06 units shipped, Nellcor will pay $580 per unit for each such unit. If Nellcor shipped less than 9,000 units Masimo will credit Nellcor $580 per unit for each unit under 9,000 toward future royalties due. The number of units shipped for January 2006 provided by Nellcor will be subject to the audit provisions of Section 6 below.

3

Representations and Warranties:

3.1

In advance of execution of this Agreement, Nellcor has provided to Masimo’s counsel (under attorney-eyes only confidentiality and to Masimo’s CEO and CFO) documents sufficient to show: (i) unit shipments of 04, 05, and 05ci pulse oximeter products between June 2004 through October 2005 consistent with the damages calculation during the Patent Litigation; and (ii) Pulse Oximetry Revenue for the consecutive calendar quarters ending December 31, 2001 through December 31, 2005. Nellcor states that its good faith estimate for its Pulse Oximetry Revenue in 2006 is approximately $350 million. Nellcor represents and warrants that the information provided under this Section 3.1 is materially accurate and complete based upon the information in the books and records of Nellcor.

3.2

Nellcor represents and warrants that the 06 Pulse Oximetry Products commercially released will be the same as the product reviewed by Knobbe, Martens, Olson & Bear in November 2005 and will use the same

specification, circuit diagrams and source code provided under section 4.2. Further, Nellcor represents and warrants that the 06 Pulse Oximetry Products do not (i) contain closed loop adaptive filters, (ii) calculate Oxygen Saturation based on two or more alternative calculations of Oxygen Saturation, ratio of ratios or a representative indication or value for Oxygen Saturation from the same signal, (iii) calculate pulse rate based on three or more alternative calculations of pulse rate from the same signal, or (iv) measure physiological parameters other than pulse rate, Oxygen Saturation, plethysmographic waveforms, ECG, pulse amplitude (not displayed as a number or in real time on a scale with a number), blood pressure, respiration rate, temperature, ECG and CO2. Masimo acknowledges for purposes of this Section 3.2 that an ECG signal and an optical signal are not the same signal. Nellcor acknowledges that for the purposes of this Section 3.2, an optical signal is considered the same signal regardless of the number of wavelengths detected.

3.3

Nellcor represents that none of its current sensors, cables which connect the sensor to the pulse oximeters (including OEM boards), or O6 Pulse Oximetry Products are configured to be compatible with any current Masimo pulse oximeters (including OEM boards) or sensors.

3.4

Masimo represents that none of its current sensors, cables which connect the sensor to the pulse oximeter (including OEM boards), or products listed in exhibit D are configured to be compatible with any current Nellcor OxiMax pulse oximeter (including OEM boards) or Oximax Sensors, except with respect to the RCAL compatibility (including in OxiMax sensors). Masimo further represents (i) that Masimo’s currently commercially available oximeters do not store the physiological patient data collected during monitoring in a memory on the sensor, and (ii) that Masimo’s currently commercially available oximeters do not store in a memory on the sensor, sensor-specific user troubleshooting messages for optimal sensor placement. For purposes of clarity, storing the sensor type or ID and displaying the sensor type when the sensor is connected to the oximeter is not storing a sensor-specific user troubleshooting message.

4

Covenants Not to Sue

4.1

Masimo and it Affiliates covenant not to sue Nellcor and/or its Affiliates for infringement by Nellcor’s 06 Pulse Oximetry Products, and new products Essentially Unchanged therefrom. This covenant also extends to the potential change referenced in Section 5.1. For as long as the running royalties are being paid, Masimo and its Affiliates further covenant not to sue Nellcor and/or its Affiliates for the Nellcor pulse oximetry portion of future Nellcor products, including oximetry software licensed to OEMs, ("Next Generation Pulse Oximeters") under Claims 17 or 18 of U.S. Patent Number 6,263,222, and continuations and continuations-in-part, either with claims directed to or

covering the same subject matter. For as long as the running royalties are being paid, Masimo and its Affiliates further covenant not to sue Nellcor and/or its Affiliates for the Next Generation Pulse Oximeters under Claims 1, 10, 11, 22, 23 and 24 of U.S. Patent Number 6,157,850, and continuations and continuations-in-part, either with claims directed to or covering the same subject matter, provided that such Next Generation Pulse Oximeters (i) do not calculate any physiological parameter other than pulse rate based on two or more alternative calculations of that physiological parameter from the same signal and (ii) do not calculate pulse rate based on three or more alternative calculations of pulse from the same signal, and (iii) do not include parameters other than Oxygen Saturation, pulse rate, plethysmographic waveforms, pulse amplitude (not displayed as a number or in real time on a scale with a number), blood pressure, respiration rate, temperature, ECG and CO2 and feature(s), function(s) or parameter(s) that are generated from pulse rate and/or Oxygen Saturation calculations. If Nellcor succeeds in reducing royalties under Section 5.1, the same condition to reduce the royalty applies to Next Generation Pulse Oximeters in order for the royalty reduction to apply. Masimo also covenants not to sue for infringement any customer, distributor, OEM, licensee, supplier or purchasing organization with respect to the purchase, distribution, manufacturing (excluding sensors and accessories not manufactured for Nellcor), marketing or use of the covenanted products or Nellcor and/or its Affiliates products Essentially Unchanged therefrom as described in this Section 4.1. The covenants of this Section 4.1 do not extend to any products that are permitted or intended for use, with any sensors (including non-Nellcor sensors manufactured by Nellcor for another company) other than Nellcor sensors.

4.2

Nellcor shall deliver one Nellcor pulse oximeter containing 06 technology to Masimo’s lawyers, and represents that this has the same technology and performance as that disclosed to Masimo’s lawyers and tested during November 2005. Nellcor also shall place in an independent, third party escrow on mutually agreeable terms the corresponding specifications, circuit diagrams and source code for such pulse oximeter, as evidence of the 06 technology disclosed to Masimo, which Nellcor represents and warrants will be the same as that disclosed to Masimo’s lawyers and tested during November 2005. Masimo’s lawyers may provide the pulse oximeter to Masimo on or after January 10, 2006.

4.3

Nellcor and its Affiliates covenant not to sue Masimo and/or its Affiliates for infringement by Masimo’s pulse oximetry and Rainbow SET products commercially available as of January 17, 2006 and new products Essentially Unchanged therefrom. Nellcor and its Affiliates further covenant not to sue Masimo and/or its Affiliates for infringement of any new disposable and multisite versions of the currently commercially available reusable Rainbow sensors and associated cables, and new products Essentially Unchanged therefrom, provided that such sensors are not configured to be compatible

with Nellcor’s pulse oximeters, where the compatibility between pulse oximeter and the sensor (i.e, lock and key) is covered by a Nellcor patent not proven invalid or unenforceable by a court of competent jurisdiction. Nellcor and its Affiliates further covenant not to sue Masimo and/or its Affiliates for infringement due to any changes to such products above to enable such products to include the parameters of Fractional Saturation, carboxyhemoglobin, methemoglobin, total hemoglobin, hematocrit, bilirubin and/or glucose. Nellcor’s and its Affiliates covenants include a covenant not to sue Masimo and/or its Affiliates for infringement for (i) improvements (except improvements to sensors) to precision and accuracy of any parameter in such products available as of January 17, 2006, and Fractional Saturation, total hemoglobin, hematocrit, bilirubin and/or glucose, except to the extent such improvement is covered by any Nellcor patent (or patent exclusively licensed to Nellcor or exclusively licensed to Nellcor for the relevant field of use) not found to be invalid or unenforceable by a court of competent jurisdiction, the substance of which is filed for the first time after the January 17, 2006 and not having a priority claim to a date or entitled to priority from a date before such date and (ii) any other improvement to the covenanted products, except to the extent such other improvement is covered by any Nellcor patent (or patent exclusively licensed to Nellcor or exclusively licensed to Nellcor for the relevant field of use) not found to be invalid or unenforceable by a court of competent jurisdiction. Nellcor and its Affiliates also covenant not to sue for infringement any customer, distributor, OEM, licensee, supplier or purchasing organization with respect to the purchase, distribution, manufacturing (excluding sensors and accessories not manufactured for Masimo), marketing or use of the covenanted products or Masimo and/or its Affiliates products Essentially Unchanged therefrom as described in this Section 4.3. Masimo will use good faith efforts to compile a list of pulse oximetry and Rainbow SET products commercially available as of January 17, 2006 and provide such list to Nellcor’s lawyers (under attorney-eyes only confidentiality and to David Sell, Brian Earp, and Paul Mannheimer), and attached hereto as Exhibit D.

4.4

The covenants of Sections 4.1 and 4.3 extend to proprietary rights that are exclusively licensed to the covenanting party, or, with respect to a specified field of use, patents that are exclusively licensed to the covenanting party for such field of use, including any right to control the institution or maintenance of litigation. Nellcor and Masimo will not assist any of its licensors in enforcing proprietary rights against the other party, except to the extent required by law.

5

Ongoing Royalties.

5.1

Nellcor agrees to pay Masimo Corp. a 13% running royalty based on its and its Affiliates Pulse Oximetry Revenue occurring on or after February 1, 2006. Nellcor will pay an additional 7% running royalty on its and its Affiliates

Pulse Oximetry Revenue for calendar year 2006. Nellcor will pay an additional 2% running royalty on its and its Affiliates Pulse Oximetry Revenue for calendar year 2007. Nellcor will pay an advance royalty of $66,230,000 on or before January 19, 2006 (the "Payment Date") for the 2006 royalty as provided in Section 2. On or after January 1, 2007, the 13% royalty will be reduced to 10%, plus the additional 2% for 2007, in the event that Nellcor establishes that a proposed change to the 06 Pulse Oximetry Products and new products Essentially Unchanged therefrom (and the Next Generation Pulse Oximeters) would result in not calculating any physiological parameter based on two or more alternative calculations for that parameter, or a representative indication or value for that parameter, from the same signal, and that proposed change is then implemented in such products (and the prior products are no longer being made or sold). In the event of a dispute involving whether a proposed change would accomplish this result, Nellcor shall continue to pay the 13% royalty rate, plus the additional 2% for 2007, until such dispute is resolved. For purposes of this Section 5.1, Masimo acknowledges that an ECG signal and an optical signal are not the same signal. For the purposes of this Section 5.1, Nellcor acknowledges that an optical signal is considered the same signal regardless of the number of wavelengths detected.

5.2

For the 2006 advance royalty payment, if Nellcor’s Pulse Oximetry Revenues exceed $320,833,000 from February 1, 2006 through December 31, 2006, then Nellcor will pay 17% of the revenue over this amount by March 30, 2007. If Nellcor’s Pulse Oximetry Revenues are less than $320,833,000 for this same time period, then Nellcor will receive a credit of 17% of the revenue under this amount to be applied to future royalty payments. Nellcor shall deliver to Masimo within 60 days of the end of each quarter, an accounting of Pulse Oximetry Revenue by product category.

5.3

Running royalties accruing on January 1, 2007 and thereafter shall be paid quarterly within 60 days of the end of each calendar quarter. An accounting of revenue by product category shall be included with each payment. Late payments will accrue interest at 10% per annum.

5.4

On or after March 14, 2011, upon at least sixty (60) days written notice to Masimo, Nellcor may terminate on a prospective basis all protection or rights under Section 4.1,(but Nellcor will retain the right to provide sensors and service for all previously sold products), and Nellcor will no longer be obligated to pay royalties under this section. Masimo maintains all rights to assert its patents against Nellcor’s and/or its Affiliates’ pulse oximetry products that may be manufactured or sold after termination. All other provisions of this agreement remain effective.

5.5

Any dispute between the Parties arising pursuant to Section 5.1, if not resolved by the Parties after at least two weeks of good faith discussions

beginning upon one Party providing the other Party notice of the dispute, such discussions to include the most senior executive of Tyco Healthcare and Masimo, shall be resolved by binding and non-appealable arbitration before a member of JAMS, applying CCP 1283.05, agreed to by the Parties (agreement not unreasonably withheld or delayed) with a final decision within two months of initiation of the arbitration proceeding.

6

Audit Rights . Nellcor agrees to maintain records sufficient to verify the calculation of all Pulse Oximetry Revenue for a period of two (2) years from the end of the calendar year in which the royalties are paid by Nellcor. In addition, Nellcor agrees to maintain records sufficient to verify the calculation of all Pulse Oximetry Revenue for calendar years 2004 and 2005 until December 31, 2007. Nellcor agrees that Masimo, as set forth below, shall have the right to have the books and records of Nellcor inspected, at Masimo’s expense, to verify the accuracy of Nellcor’s accounting reports, but such right shall not extend beyond the period of two (2) years from the end of the calendar year to be audited. Such inspection shall be carried out by an independent representative or accountant (non-employee) of Masimo agreed upon by Masimo and Nellcor (which agreement shall not be unreasonably withheld) who shall be bound by a confidentiality agreement. Such representative or accountant shall report to Masimo and Nellcor whether the reports and payments made by Nellcor were correct or, if not correct, the amount of discrepancy. Masimo agrees to hold all reports in confidence and to impose a similar requirement of confidentiality on any representative or accountant appointed hereunder. Masimo and any such representative or accountant shall not use any information gained from such inspection for any purpose other than determining and enforcing Masimo’s rights under this Agreement. No more than one inspection shall be permitted during each calendar year. In the event that any such inspection leads to a determination that Nellcor underpaid the royalties due to Masimo, Nellcor shall reimburse Masimo such underpayment within fifteen (15) days of the date of the report. Late payments and underpayments will accrue interest at 10% per annum. If royalties due Masimo were underpaid by ten percent (10%) or more, Nellcor shall also reimburse Masimo for the reasonable fees and expenses of the independent representative/accountant for the inspection. In the event of an overpayment of Earned Royalties, then Masimo shall credit Nellcor such overpayment, and such credit will be reflected in Nellcor’s next due royalty payment(s).

7

Additional Covenants . Nellcor covenants that it will not claim that its products use Masimo’s technology. Masimo covenants that it will not claim that its products use Nellcor’s technology.

8

No Challenge to Patents . Nellcor agrees that it will not directly, indirectly or in concert with others challenge the validity or enforceability of any of the Masimo Patents, or interfere with the prosecution of any pending application claiming priority to the Masimo Patents, in any Patent Office or in any court (except in connection with litigation initiated, or threatened resulting in a Declaratory Judgment by Nellcor, by Masimo), nor will Nellcor encourage, facilitate or participate with others to do so,

provided that this sentence does not prohibit Nellcor from participating in an interference instituted by the Patent Office. However, this Agreement in no way alters any collateral estoppel and Res Judicata effects arising from the Patent Litigation.

9

Current Nellcor Products . Nellcor shall discontinue making, offering to sell, selling and shipping its 04, 05, and 05ci technology platform or any other devices that employ an algorithm that is no more than colorably different from the 04, 05, and 05ci algorithms with regard to any one or more of the claims found to be infringed by Nellcor in the Patent Litigation, in any future products by January 31, 2006, except for Latin America and Asia. For Latin America and Asia, the date will be the time reasonably required to complete regulatory approval proceedings in such regions, but no later than Dec. 1, 2006. Nellcor retains the right to service and provide sensors for units shipped prior to these dates. Nothing contained in this Section 9 shall be deemed to prohibit Nellcor from making, offering to sell, selling and shipping O6 Pulse Oximetry Products or products Essentially Unchanged therefrom.

10

Releases