Related Party Transactions

12 Months Ended

Dec. 28, 2019

3. Related Party Transactions

Cercacor Laboratories, Inc. (Cercacor) is an independent entity that was spun off from the Company to its stockholders in 1998. Joe Kiani, the Company’s Chairman and Chief Executive Officer (CEO), is also the Chairman and CEO of Cercacor. Effective as of January 3, 2016, in connection with changes in the capital structure of Cercacor, the Company determined that Cercacor was no longer required to be consolidated. Although the Company believes that Cercacor continues to be considered a variable interest entity, the Company has determined that it is no longer the primary beneficiary of Cercacor as it does not have the power to direct the activities of Cercacor that most significantly impact Cercacor’s economic performance and has no obligation to absorb Cercacor’s losses.

The Company is a party to the following agreements with Cercacor:

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Cross-Licensing Agreement - The Company and Cercacor are parties to the Cross-Licensing Agreement, which governs each party’s rights to certain intellectual property held by the two companies. The Company is subject to certain annual minimum aggregate royalty obligations for use of the rainbow^® licensed technology. The current annual minimum royalty obligation is $5.0 million. Aggregate liabilities payable to Cercacor arising under the Cross-Licensing Agreement were $12.1 million, $10.9 million and $8.0 million for the years ended December 28, 2019, December 29, 2018 and December 30, 2017, respectively. The Company had $0.1 million in sales to Cercacor for the year ended December 28, 2019. The Company had less than $0.1 million in sales to Cercacor for each of the years ended December 29, 2018 and December 30, 2017.

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Administrative Services Agreement - The Company is a party to an administrative services agreement with Cercacor (G&A Services Agreement), which governs certain general and administrative services that the Company provides to Cercacor. Amounts charged by the Company pursuant to the G&A Services Agreement were $0.2 million for each of the years ended December 28, 2019, December 29, 2018 and December 30, 2017.

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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 purchase price of $2.4 million. Pursuant to the Patent Agreement, the Company granted Cercacor an irrevocable, non-exclusive, worldwide license with respect to the products and services covered by the Purchased Patents.

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Lease and Sublease Agreements - Effective December 14, 2019, the Company entered into a new lease agreement with Cercacor for approximately 34,000 of square feet of office, research and development space at one of the Company’s owned facilities in Irvine (Cercacor Lease). The term of the Cercacor Lease expires on December 31, 2024. In March 2016, the Company entered into a sublease agreement with Cercacor for approximately 16,830 square feet of excess office and laboratory space located at 40 Parker, Irvine, California (Cercacor Sublease). The Cercacor Sublease began on May 1, 2016 and expired on December 15, 2019. The Company recognized approximately $0.4 million of combined lease and sublease income for each of the years ended December 28, 2019, December 29, 2018, and December 30, 2017.

Net amounts due to Cercacor were approximately $2.9 million as of December 28, 2019 and December 29, 2018.

The Company’s CEO is also the Chairman of the Masimo Foundation for Ethics, Innovation and Competition in Healthcare (Masimo Foundation), a non-profit organization that was founded in 2010 to provide a platform for encouraging ethics, innovation and competition in healthcare. In addition, the Company’s Executive Vice President (EVP), Chief Financial Officer (CFO) serves as the Treasurer of the Masimo Foundation and the Company’s EVP, General Counsel and Corporate Secretary serves as the Secretary for the Masimo Foundation. For the fiscal years ended December 28, 2019 and December 29, 2018, the Company made cash contributions of approximately $1.0 million and $2.0 million, respectively, to the Masimo Foundation, a portion of which was, in turn, indirectly contributed by the Masimo Foundation to the Patient Safety Movement Foundation (PSMF) by a donor advised fund. For the fiscal year ended December 30, 2017, the Company made no cash contributions to the Masimo Foundation. In addition, for each of the years ended December 28, 2019, December 29, 2018 and December 30, 2017, the Company made various in-kind contributions to the Masimo Foundation, mainly in the form of donated administrative services.

The Company’s CEO is also the Chairman of PSMF, a non-profit organization which was founded in 2013 to work with hospitals, medical technology companies and patient advocates to unite the healthcare ecosystem and eliminate the more than 200,000 U.S. preventable hospital deaths that occur every year by 2020. The Company’s EVP, CFO also serves as the Treasurer of PSMF. During the fiscal years ended December 28, 2019, December 29, 2018 and December 30, 2017, the Company contributed approximately $35,262, $207,530 and $1,300, respectively, to PSMF.

The Company maintains an aircraft time share agreement, pursuant to which the Company has agreed from time to time to make its aircraft available to the Company’s CEO for lease on a time-sharing basis. The Company charges the Company’s CEO for personal use based on agreed upon reimbursement rates. During the fiscal years ended December 28, 2019, December 29, 2018 and December 30, 2017, the Company charged the Company’s CEO $0.1 million, $0.2 million and less than $0.1 million, respectively, related to such reimbursements.