Current Employment Agreement Undermines the Stockholder Franchise and Exerts ‘Dead Hand Control’ Over the Actions of All Future Boards

Agreement Pays Approximately $600 million to CEO if the Board Merely Appoints a Lead Independent Director or if Stockholders Replace More Than One-Third of the Incumbent Board

Politan Capital Management (together with its affiliates, “Politan”), a 9% stockholder of Masimo Corporation (“Masimo” or the “Company”) (NASDAQ: MASI) today announced that the California State Teachers’ Retirement System (CalSTRS) has joined Politan’s ongoing legal action against Masimo and its Board of Directors (the “Board”). Politan’s lawsuit, filed in the Court of Chancery of the State of Delaware, challenges the validity and legality of the employment agreement (the “Employment Agreement”) of Masimo’s Chairman and Chief Executive Officer (“CEO”) Joe Kiani.

Aeisha Mastagni, CalSTRS Portfolio Manager of Sustainable Investment and Stewardship Strategies, stated, “CalSTRS has been a Masimo stockholder for more than a decade and believes an essential part of managing our portfolio is taking a stand against problematic corporate governance practices that impede stockholder rights and raise investment risks. The Masimo CEO’s employment agreement is not only counter to the best interests of the Company’s stockholders, but also sets a dangerous precedent. Ultimately, good governance drives greater value and that is why we are joining this lawsuit.”

Quentin Koffey, Managing Partner and Chief Investment Officer of Politan, said, “CalSTRS is widely recognized as one of the most influential and respected champions for stockholders in the country. Their participation in this action underscores its importance. We remain open to working constructively with management and the Board and have continued to make efforts to engage. However, we believe that pursuing our claims is imperative to fixing corporate governance at Masimo.”

Politan’s lawsuit challenges a number of illegal elements of Mr. Kiani’s Employment Agreement:

• The Employment Agreement provides Mr. Kiani restricted stock units equal to 5% of the Company’s outstanding shares and a $35 million cash payment (the “Special Payment”) – in addition to accelerated salary, bonus, unvested stock options, and equity awards – for a total payment of approximately $600 million (approximately 250% of Masimo’s 2022 earnings), if any one of the following actions are taken:
  
  
  
  
  • If more than one-third of Masimo’s classified, five-member Board is voted out over a two-year period, a strict-single trigger kicks in and Mr. Kiani is unconditionally entitled to receive the Special Payment – even if there is no change to his role or position.
    
    
    
    
  • If the Board appoints a lead independent director, Mr. Kiani is entitled to terminate his employment and receive the Special Payment.
    
    
    
    
  • If Mr. Kiani ceases to serve as both Chairman and CEO, he is entitled to terminate his employment and receive the Special Payment.
    
    
    
    
• The Employment Agreement includes a “dead hand” provision that irrevocably eliminates the Board’s authority to disable the change in control provision for any new director whose “initial assumption of office is in connection with an actual or threatened election contest.”
  
  
  
  
• The Employment Agreement renews every year, has no expiration date, and nonrenewal by the Board entitles Mr. Kiani to terminate his employment and receive the Special Payment.

On February 3, 2023, Vice Chancellor Nathan Cook of the Delaware Court of Chancery denied Masimo’s motion to dismiss Politan’s current case, specifically criticizing the change in control payment by noting, “[t]his is an astounding amount of consideration for a change in the composition of one-third of the board. Not a majority. One-third.” He also noted that, it is “truly amazing” for the “appointment of a lead director to trigger these provisions.”

The Vice Chancellor also cited in his ruling the deposition testimony from one of Masimo’s own sitting directors, Adam Mikkelson, who described the risk of triggering the Special Payment provision as “a very scary prospect for me in that it's a lot of shares and a lot of dollars,” and stated he "thought that the employment contract that existed alone was a sufficient poison pill." Mr. Mikkelson also stated that when making his decision to approve Masimo’s heavily criticized new advance notice bylaws, his “biggest concern was always around the change in control impact of any board nomination.”

Three days after the February 3^rd ruling denying Masimo’s motion to dismiss, Masimo repealed its advance notice bylaw amendments and waived the application of the change in control provision for the 2023 Annual Meeting of Stockholders under the condition that the trial against the broader Employment Agreement be delayed. The trial is now scheduled for September.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230303005124/en/