Masimo’s Recent Bylaw Amendments Following Politan’s Engagement Effectively Preclude Stockholders from Nominating Director Candidates and Are Without Precedent

Politan Hopes for Constructive Engagement with Masimo Yet Now Needs to Defend Stockholder Rights in Court

Politan Capital Management (together with its affiliates, “Politan”), an 8.8% stockholder of Masimo Corporation (“Masimo” or the “Company”) (NASDAQ: MASI), filed a lawsuit in the Court of Chancery of the State of Delaware today against the Company and its Board of Directors (the “Board”).

The suit is in response to amendments to Masimo’s bylaws that the Company adopted on September 9, 2022 (the “Bylaw Amendments”) – one week after its only meeting with Politan – at which time the Board also instituted a stockholder rights agreement (commonly known as a poison pill).

Many of the Bylaw Amendments are unprecedented among publicly traded companies. They require providing information that a nominating stockholder either does not have access to or is prohibited from disclosing due to confidentiality obligations. Information demands include:

• The names of the nominating stockholders’ passive limited partners (“LPs”) as well as their and their families’ investment holdings in the Company’s competitors or counterparties to litigation (including stock holdings in companies as commonly held as Alphabet Inc., Amazon.com Inc., Apple Inc., Medtronic plc, and Samsung Electronics Ltd). This requirement ignores the standard confidentiality obligations investment managers have by requesting information the stockholder is unlikely to have, has no right to obtain and otherwise is obligated to keep confidential.
  
  
  
  
• Future plans to nominate directors at other public companies in the next 12 months as well as details on any prior proposals or nominations made within the last 36 months. These plans are highly sensitive intellectual property, and prior non-public engagements are typically subject to confidentiality agreements.
  
  
  
  
• Names of any stockholders who have expressed any support for the nominations (not just financial support). These disclosures would chill important and permitted communications among stockholders – communications that the Securities and Exchange Commission has expressly encouraged – and facilitate the harassment of any potential supporters of a stockholder’s efforts to nominate new directors.

Politan recently submitted a draft nomination notice with more than 100 pages of information about the firm and its Managing Partner, Quentin Koffey. Masimo responded that the disclosures were insufficient and did not comply with the bylaws, further reinforcing that the Bylaw Amendments, in effect, preemptively block stockholders from nominating candidates for election to the Board.

Politan’s suit seeks to declare the Bylaw Amendments unenforceable, find that the Company’s directors breached their fiduciary duties by approving and implementing the amendments, invalidate the change of control provisions in the CEO’s employment agreement that could result in hundreds of millions of dollars of value being transferred to Chairman and CEO Joe Kiani even if only two of directors on the Board were replaced, and enjoin Masimo and the Board from taking any actions to prevent Politan from exercising its rights to nominate candidates for election to the Board.

Quentin Koffey, Managing Partner and CIO of Politan, stated:

“We are taking this legal action because Masimo has left us no other option for preserving our rights as stockholders. Over the past months we have tried to engage constructively with Mr. Kiani and the Board. After repeated requests, Mr. Kiani finally agreed to a meeting, during which we expressed our interest in obtaining representation on Masimo’s Board and made clear that Politan was approaching the situation with an open mind, would reserve judgment on any of Masimo’s strategic initiatives and had a long-term focus with the substantial majority of our capital committed for three to four years.

Following this conversation, we asked to meet with the whole Board. The very next week the Company rejected our request for a meeting and amended its bylaws to effectively block stockholders’ ability to nominate directors.

Masimo’s array of defensive measures is extreme: a staggered board, a poison pill, a change of control provision in its CEO compensation that is triggered just by two directors being replaced, and now these bylaws.

Federal securities laws already include extensive proxy disclosure rules that cover any legitimate concerns around appropriate disclosure. Masimo’s bylaws eliminate stockholders’ ability to nominate directors and restrict stockholder voting to only those candidates selected by the incumbents. The Board cannot create its own set of rules by which it is elected and deny stockholders the ability to select who represents them.

While it would still be our preferred path to work constructively with Mr. Kiani and the Board, we must seek relief in Delaware court simply to preserve the fundamental ability to nominate directors in time for Masimo’s next annual meeting.”

View source version on businesswire.com: https://www.businesswire.com/news/home/20221021005274/en/