Exhibit 10.48
COST SHARING
AGREEMENT
MASIMO CORPORATION — MASIMO
INTERNATIONAL HOLDINGS
THIS COST SHARING
AGREEMENT (the
“Agreement” ) is effective as of the date of
execution (the “Effective Date” ), by and
between Masimo Corporation (“Masimo US”), a
Delaware corporation having its principal place of business at 40
Parker, Irvine, CA 92618, and Masimo International Holdings
(“Masimo Cayman”), a Cayman Islands corporation
having its registered office at 75 Fort Street, P.O. Box 1350,
Grand Cayman, KY 1-1108 Cayman Islands (collectively, the
“Parties” and individually,
“Party”) .
RECITALS
WHEREAS, the Parties are, or intend to be, engaged in the
business of selling Products (as defined below);
WHEREAS, the Parties are entering into a Buy-In License
Agreement effective as of the date of execution (“Buy-In
License Agreement”), whereby Masimo Cayman has received
licenses to the Masimo US Intangibles (as defined
below);
WHEREAS, the Parties desire to pool their resources for
the purpose of further developing and otherwise enhancing the value
of the Masimo US Intangibles and to share the benefits
therefrom;
WHEREAS, the Parties intend to exploit the Developed
Intangibles (as defined below) in their respective businesses;
and
WHEREAS, the Parties intend that the arrangements
contemplated by this Agreement constitute a qualified cost sharing
arrangement within the meaning of U.S. Treasury Regulation
Section 1.482-7.
NOW, THEREFORE,
in consideration of the premises and
of the mutual promises hereinafter set forth, the Parties hereto
agree as follows:
ARTICLE 1
EFFECTIVENESS OF
RECITALS/DEFINITIONS
The Recitals set forth above are an
integral part of this Agreement and shall have the same contractual
and legal significance as any other language in this Agreement. For
purposes of this Agreement, the following definitions shall apply
to the terms set forth below wherever they appear:
Section 1.1
“Affiliate” of a Party means any entity
controlled by, controlling, or under common control with such
Party, where “control” in any of the foregoing forms
means ownership, either direct or indirect, of more than 50% of the
equity interest entitled to vote for
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the election of directors or equivalent
governing body. An entity shall be considered an Affiliate only so
long as such entity continues to meet the foregoing
definition.
Section 1.2 “Aggregate
Allocable Development Costs” for any Fiscal Year, or part
thereof, means the sum of the Development Costs of both Parties for
such Fiscal Year, or part thereof, less Specific Development Costs,
as calculated under Article 2 (Development Costs).
Section 1.3 “Annual
CSA Report” means the document prepared by the Parties as
provided in Article 3 (Development Cost Allocation).
Section 1.4
“Confidential Information” shall have the
meaning defined for that term in Article 6 (Confidential
Information) and shall also include Developed Technology and Masimo
US Technology.
Section 1.5 “Cost
Share” and “Cost Share Percentage” for
any quarter of the Fiscal Year shall be the amounts respectively
specified for those terms in Section 3.5 (Cost Share and Cost
Share Percentage).
Section 1.6 “Developed
Intangibles” means and includes any and all intellectual
property or other intangible assets relating to Developed
Technology, and all Developed Marketing Intangibles (“covered
intangibles” within the meaning of U.S. Treasury Regulation
Section 1.482-7(b)(4)).
Section 1.7 “Developed
Marketing Intangibles” means and includes any and all
trademarks, trade names, designs, service marks, applications and
registrations of any of the foregoing, packaging, marketing
strategies, customer lists, or other marketing information, that
are made or developed from the Parties’ activities under this
Agreement on or after the Effective Date.
Section 1.8 “Developed
Technology” means and includes any and all inventions,
updates, adaptations, know-how, mask works, software, technical
data, trade secrets, functional or detailed design specifications,
or designs, and enhancements of any of the foregoing whether
patentable or unpatentable, registered or unregistered, arising
from or developed as a result of the Development Program on or
after the Effective Date. Developed Technology shall not mean or
include Developed Marketing Intangibles. Developed Technology shall
be considered Masimo US’ Confidential Information as defined
in Article 6 (Confidential Information).
Section 1.9
“Development Costs” of a Party shall be the
amounts specified for that term in Article 2 (Development
Costs).
Section 1.10
“Development Program” means the activities of
either Party under this Agreement that give rise to Development
Costs, provided that, the Development Program will not
include development activities performed by one of the Parties
related to a project in respect to which the other Party opts not
to act as a cost sharing participant. In the event that a Party
decides not to participate in such a project, it must so indicate
its intentions by notifying the other Party prior to the
commencement of the research, development or marketing
efforts.
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Section 1.11 “Fiscal
Quarterly Close Date” means the last day of the fiscal
quarter as determined in accordance with U.S. generally accepted
accounting principles (“US GAAP”) as applied by
Masimo US for financial accounting purposes.
Section 1.12 “Fiscal
Year” means Masimo US’ fiscal year and
“Fiscal Year End” means the last day of the
Fiscal Year as determined in accordance with US GAAP as
applied by Masimo US for financial accounting purposes.
Section 1.13 “Masimo
US Intangibles” means and includes any and all
intellectual property or other intangible assets relating to Masimo
US Technology, and all Masimo US Marketing Intangibles.
Section 1.14 “Masimo
US Intellectual Property Rights” means all rights that
arise on or after the Effective Date and that Masimo US owns or has
the right to license to Masimo Cayman (by whatever name or term
known or designated), including, without limitation:
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(a)
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rights
associated with works of authorship throughout the world, including
but not limited to copyrights, moral rights, and
mask-works;
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(b)
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trademarks,
service marks and trade name rights and similar rights;
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(d)
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patents,
renewals, extensions, reissues and re-examinations thereof, design
rights, and other industrial property rights that have the benefit
of a filing date on or after the Effective Date;
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(e)
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all
registrations, patent applications (including continuations,
continuations-in-part, and divisions thereof) now or hereafter in
force, that have the benefit of a filing date on or after the
Effective Date;
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(f)
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all other
intellectual and industrial property rights (of every kind and
nature and however designated), including “rental”
rights and rights to remuneration, whether arising by operation of
law, contract, license, or otherwise; and
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(g)
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any additional
applicable intangible property as defined under U.S. Treasury
Regulation Section 1.482-4(b) (whether or not in documentary
form and whether or not patentable, copyrightable or otherwise
protectable under applicable laws).
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Section 1.15 “Masimo
US Marketing Intangibles” means and includes any and all
trademarks, trade names, copyrighted material, designs, service
marks, applications and registrations of any of the foregoing,
packaging, marketing strategies, customer lists, and other
marketing information that are non-routine in nature, which Masimo
US presently owns or has the right to license to Masimo Cayman
before the Effective Date.
Section 1.16 “Masimo
US Technology” means and includes any and all inventions,
updates, adaptations, know-how, mask works, software, technical
data, trade secrets, functional
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or detailed design specifications, algorithms,
designs and enhancements of any of the foregoing whether patentable
or unpatentable, registered or unregistered, that Masimo US
presently owns or has the right to license to Masimo Cayman before
the Effective Date. Masimo US Technology shall not mean or include
Masimo US Marketing Intangibles. Masimo US Technology shall be
considered Confidential Information.
Section 1.17 “Net
Revenues” shall mean the net revenues determined in
accordance with US GAAP as applied by Masimo US for financial
reporting purposes and shall mean the revenues recognized by or for
the account of both Parties from the sale or license of the
Products, provided that Net Revenues shall not include any of the
following:
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(a)
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Any government
taxes or levies collected from customers with respect to the sale
of or the license relating to the Products that are to be paid over
to any applicable governmental authority; or
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(b)
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Any amounts
associated with the shipment and delivery of the Products,
including, without limitation, all freight charges, freight
forwarding fees, customs fees and insurance premiums; or
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(c)
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Any allocable
amounts that are billed to customers for maintenance or other
service of the Products; or
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(d)
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Any portion of
the sales or the license revenues of the Products that is refunded
to a customer; or
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(e)
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Any revenues
received from an Affiliate.
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Section 1.18 “Prior
Year Adjustment” means any adjustment to the
Parties’ Cost Shares for a Fiscal Year prior to the current
Fiscal Year, which may be made in accordance with Section 3.7
(Reconciliation of Prior Year Cost Shares) of this
Agreement.
Section 1.19
“Products” means sensors, monitors, equipment,
devices, cables, circuit boards, machines, software and other
similar and related products (including but not limited to upgrades
and enhancements) that incorporate, or are made in accordance with
Masimo US Intellectual Property Rights, in whole or in
part.
Section 1.20
“Quarterly Payment” means a payment between the
Parties as defined in Section 4.3 (Timing of Payments) of this
Agreement.
Section 1.21 “Specific
Development” means the Developed Intangible(s) which can,
as between Masimo US and Masimo Cayman, be utilized by or is of
benefit solely to Masimo US or solely to Masimo Cayman, as the case
may be.
Section 1.22 “Specific
Development Costs” means the sum of Development Costs of
Masimo US and Masimo Cayman for a Fiscal Year, or part thereof,
incurred with respect to any particular Specific
Development.
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Section 1.23
“Sublicensee” means any Affiliate of Masimo
Cayman or any Third Party to whom Masimo Cayman sublicenses or
transfers any portion of its rights under this Agreement to use the
Developed Intangibles within one or more countries in the Territory
and who agrees in writing to be bound by and comply with all of the
terms, conditions and obligations pertaining to
“Sublicensees” under this Agreement.
Section 1.24
“Territory” means all countries other than the
United States, or as mutually agreed upon from time to time in
writing by the Parties, and shall be determined by the shipping
destination of Products to customers contained in the customer
invoices.
Section 1.25 “Third
Party” means and includes any individual, corporation,
trust, estate, partnership, joint venture, company, association,
league, governmental bureau or agency, or any other entity
regardless of the type or nature, which is not a Party or an
Affiliate.
ARTICLE 2
DEVELOPMENT COSTS
Section 2.1 Specific
Development Costs . All Specific Development Costs shall be
allocated in their entirety to the Party to whom the particular
Specific Development pertains.
Section 2.2 Development
Costs . Development Costs of a Party shall include the
following:
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(a)
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All costs
incurred by such Party from activities relating to the creation or
improvement of Developed Technology for Products on or after the
Effective Date.
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(b)
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All costs
incurred by such Party from activities relating to the creation or
improvement of Developed Marketing Intangibles on or after the
Effective Date.
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(c)
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Stock-based
compensation granted to employees whose salaries are included in
the cost of the Developed Intangibles, on or after the Effective
Date. The Parties may, throughout the term of this Agreement,
review this Section 2.2(c) and if it is mutually determined
that the Parties, acting at arm’s length, would not include
stock- based compensation in such cost, then any amount of
stock-based compensation previously included in the calculation of
Development Costs shall be treated as an advance payment against
future Development Costs at a date to be mutually determined by the
Parties.
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Section 2.3 Determination of
Costs . The following principles shall apply in the
determination of Development Costs:
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(a)
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Development
Costs shall be determined in accordance with expenses recognized
under US GAAP as applied by Masimo US for financial reporting
purposes; provided, however, that (i) such costs shall not
include any depreciation or amortization incurred or any
US GAAP expense for stock-based compensation, and
(ii) such costs shall include a reasonable rental charge for
each item of tangible personal property used in connection with the
Development Program.
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(b)
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Development
Costs shall include direct costs of the relevant activities, and an
allocable share of administrative or overhead costs. Where any
indirect costs or direct costs benefit both Aggregate Allocable
Development Costs and Specific Development Costs, an allocation
shall be made using methods that are mutually agreed to be
consistent, reasonable and in keeping with sound accounting
practices.
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(c)
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The stock-based
compensation portion of Development Costs shall be calculated in a
manner consistent with U.S. Treasury Regulation Section
1.482-7(d)(2)(iii)(B) and equal the amount allowable as a deduction
for U.S. Federal income tax purposes.
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(d)
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In the event
that a Party acquires any intangible property relating to the
Development Program from a Third Party by means of a purchase,
license, merger, acquisition, or similar transaction, that
intangible property, or any portion thereof, may be added to the
Development Program and made available to the cost sharing
arrangement only upon the Parties entering into a definitive
agreement to include any or all of such intangible property to the
Development Program.
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Section 2.4 Development
Costs Budget . Before or during each Fiscal Year, the Parties
shall agree on a budget of Development Costs expected to be
incurred pursuant to the Development Program during that Fiscal
Year.
ARTICLE 3
DEVELOPMENT COST
ALLOCATION
Section 3.1 Annual CSA
Report . As soon as practical after each Fiscal Year End, the
Parties shall each prepare necessary financial statements and
forecasts, and shall jointly reconcile and consolidate such
statements and forecasts into an “Annual CSA
Report,” containing the information required by this
Article 3.
Section 3.2 Determination of
Aggregate Allocable Development Costs . The Annual CSA Report
shall indicate the types and amounts of Development Costs incurred
by each Party during the Fiscal Year, comprising the Aggregate
Allocable Development Costs. Such Aggregate Allocable Development
Costs shall be determined quarterly and paid in accordance with
Sections 3.4 (Measure of Anticipated Benefits), 4.1 (Quarterly
Payment Amount) and 4.3 (Timing of Payments) as well as reconciled
annually in accordance with Sections 3.6 (Amendments and
Compensating Adjustments) and 3.7 (Reconciliation of Prior Year
Cost Shares).
Section 3.3 Financial
Results and Forecasts . The Annual CSA Report shall include
such financial information and forecasts as may be mutually agreed
to be necessary to obtain the most reliable measure of benefits
reasonably anticipated to be derived by each Party from the
Developed Intangibles.
Section 3.4 Measure of
Anticipated Benefits . The Parties agree to share the Aggregate
Allocable Development Costs under the terms specified in this
Agreement. Aggregate Allocable Development Costs of the Development
Program shall be borne by each Party based upon the
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reasonably anticipated benefits to be derived by
each Party as a result of exploitation of the Developed Intangibles
derived from the Development Program. The Parties have determined
that the most reliable basis for measuring reasonably anticipated
benefits to be derived by them from Developed Intangibles is the
Net Revenues projected to be derived by them for the then current
and next two Fiscal Years. The Parties believe that the ratio of
such revenue projections can be assumed to be related to income
generated or costs saved by the Parties. The Parties agree to
periodically adjust how Aggregate Allocable Development Costs are
shared to appropriately reflect any changes in economic conditions,
their business operations and practices, and the ongoing research
and development efforts under this Agreement.
Section 3.5 Cost Share and
Cost Share Percentage . A Party’s Cost Share Percentage
shall be that Party’s reasonably anticipated benefits to be
derived from exploiting the Developed Intangibles over the sum of
each Party’s reasonably anticipated benefits to be derived
from exploiting the Developed Intangibles, as determined under
Section 3.4 (Measure of Anticipated Benefits) of this
Agreement (“Cost Share Percentage”) . A
Party’s Cost Share for a particular Fiscal Year shall be the
Aggregate Allocable Development Costs for that Fiscal Year
multiplied by that Party’s Cost Share Percentage
(“Cost Share”) . The Annual CSA Report shall
include a determination of each Party’s Cost Share Percentage
and Cost Share.
Section 3.6 Amendments and
Compensating Adjustments . The Parties anticipate applying and
amending the calculations specified in Sections 3.2 (Determination
of Aggregate Allocable Development Costs) and 3.5 (Cost Share and
Cost Share Percentage) as follows:
(a) On, or at a reasonable time
after, the first day of the Fiscal Year, the Parties shall
calculate the current Fiscal Year amounts for each Party
individually and the total for the Parties;
(b) Quarterly Payments of Aggregate
Allocable Development Costs during the current Fiscal Year as
specified in Section 4.1 (Quarterly Payment Amount) shall be
paid by the Parties based upon the ratio calculated in
Section 3.5 (Cost Share and Cost Share Percentage), utilizing
the Net Revenues specified in Section 3.6(a) above;
(c) Upon completion of the current
Fiscal Year and before the completion of income tax returns for the
just completed Fiscal Year of either Party, the Parties may upon
mutual written agreement amend the Annual CSA Report for the
previous Fiscal Year to reflect the most reliable financial data
and forecasts then available, and make an appropriate compensating
adjustment. In the event of the application of this
Section 3.6(c), the Parties shall update the calculation
specified in
Section 3.6(a) as applied for the just completed Fiscal Year,
utilizing actual financial results for the respective Parties that
are determined in accordance with US GAAP as applied by Masimo
US for financial reporting purposes; and
(d) The Parties shall continue to
perform the calculation steps outlined in Sections 3.6(a) through
3.6(c) for successive Fiscal Years.
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Section 3.7 Reconciliation
of Prior Year Cost Shares . The Annual CSA Report shall include
a reconciliation of all prior year Cost Share computations that
relied on forecasts of the current and next two Fiscal Year
financial results. The prior year Cost Share Percentages shall be
recomputed replacing prior forecasts with most recent actual data
and forecasts available for the current and next two Fiscal Year,
as specified in Section 3.6(c). Potential adjustments shall be
determined for all prior years, in accordance with the cumulative
application of actual financial results specified in
Section 3.6(c), for which either Party’s initial Cost
Share Percentage differs by more than twenty percent
(20%) from the recomputed percentage unless such difference is
due to an extraordinary event, beyond the control of the Parties,
that could not reasonably have been anticipated. Adjustments for
prior years may also be determined upon mutual agreement by the
Parties.
ARTICLE 4
PAYMENTS
Section 4.1 Quarterly
Payment Amount . The Parties shall pay the net amount to
reconcile their quarterly Development Costs incurred with their
quarterly relative Cost Share Percentage as applied to the
Aggregate Allocable Development Costs. Such amounts are specified
in Sections 3.2 (Determination of Aggregate Allocable Development
Costs) and 3.5 (Cost Share and Cost Share Percentage),
respectively.
Section 4.2 Year-End
Settlement Amount . The Parties shall pay th
