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Director Independence and Related Person Transactions
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On
July 2, 2016, we completed the
spin-off
(Separation) of Fortive Corporation (Fortive), consisting of our former Test & Measurement segment, Industrial Technologies segment
(excluding the product identification businesses) and retail/commercial petroleum business. Following the Separation, Danaher and Fortive operate as separate publicly-traded companies and neither entity has any ownership interest in the other.
However, Steven Rales and Mitchell Rales collectively own more than 10% of the equity of Fortive. In connection with the Separation, Danaher and Fortive entered into various agreements to effect the Separation and provide a framework for their
relationship after the Separation, including a transition services agreement, an employee matters agreement, a tax matters agreement, an intellectual property matters agreement and a license agreement with respect to the Danaher Business System, or
DBS (a proprietary set of business processes and methodologies we use that are designed to continuously improve business performance). These agreements provide for the allocation between Danaher and Fortive of assets, employees, liabilities and
obligations (including investments, property and employee benefits and
tax-related
assets and liabilities) attributable to periods prior to, at and after Fortives separation from Danaher and govern
certain relationships between Danaher and Fortive after the Separation. In addition, following the Separation certain of our subsidiaries sell products and services to, and/or purchase products and services from, Fortive from time to time in the
ordinary course of business and on an arms-length basis. In 2018, Danaher collected on Fortives behalf for remittance to Fortive approximately $3.1 million relating to procurement, compensation and other matters, billed Fortive
approximately $300,000 for transition services and paid Fortive approximately $600,000 for transition services. Our subsidiaries sold approximately $14.6 million of products and services to, and purchased approximately $17.6 million of
products and services from, Fortive, which in each case is less than 0.3% of Fortives, and of Danahers, revenues for 2018. Our subsidiaries intend to sell products and services to and purchase products and services from Fortive in the
future in the ordinary course of their businesses and on an arms-length basis.
FJ900, Inc. (FJ900), an indirect, wholly-owned subsidiary of
Danaher, is party to an airplane management agreement with Joust Capital II, LLC (Joust II) and a substantially identical agreement with Joust Capital III, LLC (Joust III and together with Joust II, the Joust
entities). Joust II is owned by Mitchell Rales and Joust III is owned by Steven Rales. Under the management agreements, FJ900 performs management services for the respective aircraft owned by each of the Joust entities in like manner to the
management services provided by FJ900 for Danahers aircraft. The management services provided by FJ900 include the provision of aircraft management, pilot services, maintenance, record-keeping and other aviation services. FJ900 receives no
compensation for its services under the agreements. Having FJ900 perform management services for all of these aircraft enables Danaher and the Joust entities to share certain fixed expenses relating to the use, maintenance, storage, operation and
supervision of their respective aircraft and utilize joint purchasing or joint bargaining arrangements where appropriate, allowing each party to benefit from efficiencies of scale and cost savings. We believe that this cost-sharing arrangement
results in lower costs to Danaher than if we incurred these fixed costs on a stand-alone basis. Under the agreement, FJ900 prorates all shared expenses annually among the Joust entities and Danaher based on each partys flight hours logged for
the year. The Joust entities
pre-pay
FJ900 on a quarterly basis for their estimated, prorated portion of such shared expenses, and the amounts are trued up at the end of the year. With respect to the year
ended December 31, 2018, the Joust entities together paid FJ900 approximately $2.8 million for the Joust entities share of the fixed airplane management expenses shared with Danaher. Each Joust entity pays directly all expenses
attributable to its aircraft that are not shared. Under the management agreements, each party is also required to maintain a prescribed amount of comprehensive aviation liability insurance and name the other party and its affiliates as additional
named insureds, while the Joust entities must also maintain
all-risk
hull insurance for their aircraft. If either party suffers any losses in connection with the arrangements set forth in the management
agreement, and such losses are due to the fault, negligence, breach or strict liability of the other party, the sole recourse of the party incurring the loss against the other party is to the available insurance proceeds. Each management agreement
may be terminated by any party upon 30 days notice.
In addition, Danaher is party to substantially identical airplane interchange agreements with each of the
Joust entities with respect to each respective aircraft owned by Danaher and by each of the Joust entities. Under each interchange agreement, the Joust entity has agreed to lease its aircraft to Danaher and Danaher has agreed to lease the respective
Danaher aircraft to the Joust entity, in each case on a
non-exclusive
basis. Neither party is charged for its use of the other partys aircraft, the intent being that over the life of the contract each
partys usage of the other partys aircraft will be generally equal. With respect to the year ended December 31, 2018, the incremental value of the use of the Joust aircraft by Danaher, net of the incremental value of the use of the
Danaher aircraft by the Joust entities, was approximately $200,000. The owner of each aircraft, as operator of the aircraft, is responsible for providing a flight crew for all flights operated under the interchange agreement. Each owner/operator is
required to maintain standard insurance, including
all-risk
hull insurance and a prescribed amount of comprehensive aviation liability insurance, and to name the other party and its affiliates as additional
named insureds. With respect to any losses suffered by the party using the owner/operators plane, the using partys recourse against the owner/operator is limited to the amount of available insurance proceeds. To the extent the using
party and/or any third party suffers losses in connection with the using partys use of the owner/operators aircraft, and recovers from the owner/operator an amount in excess of the available insurance proceeds, the using party will
indemnify the owner/operator for all such excess amounts. The interchange agreements may be terminated by either party upon 10 days notice.
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18
DANAHER
2019 PROXY STATEMENT
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