Related Party Transactions

The Company’s Chairman and CEO is also the Chairman and CEO of Cercacor. The Company is a party to the following agreements and transactions 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 parties. 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. Actual aggregate royalties accrued for Cercacor under the license were $6.4 million, $6.7 million and $5.5 million for the years ended December 31, 2016, January 2, 2016 and January 3, 2015, respectively. All amounts prior to the deconsolidation of Cercacor on January 3, 2016 were eliminated in consolidation. The Company had less than $0.1 million in sales to Cercacor for the year ended December 31, 2016 and no sales to Cercacor for the years ended January 2, 2016 and January 3, 2015.

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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 31, 2016, January 2, 2016 and January 3, 2015.

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Cercacor’s Expenses related to Pronto-7^®. In February 2009, in order to accelerate the development of the technology and product development supporting the Company’s Pronto-7^® device, Cercacor agreed to re-direct a substantial amount of its engineering development activities to focus on this project and the Company agreed to fund such expenses. Accordingly, from April 2009 through June 2010, the Company agreed to reimburse Cercacor for all third-party engineering materials and supplies expenses related to Pronto-7^® development and 50% of Cercacor’s total engineering and engineering-related payroll expenses. Subsequent to July 2010, Cercacor continued to assist the Company with other product development efforts and charged the Company accordingly. Beginning in 2012, due to a revised estimate of the support required to complete the Company’s various Pronto-7^® related projects, the Company’s board of directors approved an increase in the percentage of Cercacor’s total engineering and engineering related payroll expenses funded by the Company from 50% to 60%. For the year ended January 3, 2015, the total funding for these additional Cercacor expenses was $3.1 million. This arrangement was discontinued by mutual agreement effective as of January 4, 2015.

During the year ended January 2, 2016, Cercacor completed a review of its fiscal 2014 cross-charges related to Pronto-7^®. Based on this review, it was determined that less than 60% of Cercacor’s total engineering and engineering-related payroll expenses were attributable to the development of Pronto-7^®, resulting in an overpayment by the Company to Cercacor of approximately $1.6 million for fiscal 2014. In addition, the Company and Cercacor agreed to equally share approximately $1.4 million of previously incurred engineering-related payroll expenses associated with research for a new LED sensor technology for the Company and, as a result, the Company and Cercacor mutually agreed that Cercacor would refund $0.9 million to the Company.

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Consulting Services Agreement - The Company is also a party to a consulting services agreement (Consulting Agreement) with Cercacor that governs certain engineering consulting and clinical studies support services that Cercacor may provide to the Company from time-to-time. Expenses incurred by the Company related to this Consulting Agreement were approximately $0.0 million and $0.3 million for the years ended December 31, 2016 and January 2, 2016, respectively.

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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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Sublease Agreement - 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 expires on November 30, 2019. The Company recognized $0.3 million of sublease income for the year ended December 31, 2016.

Net amounts due from Cercacor were less than $0.1 million and approximately $1.1 million as of December 31, 2016 and January 2, 2016, respectively.

The Company’s Chief Executive Officer is also the Chairman and one of his family members is a Director of the Masimo Foundation for Ethics, Innovation and Competition in Healthcare (Masimo Foundation), a non-profit organization which was founded in 2010 to provide a platform for encouraging ethics, innovation and competition in healthcare. The Company’s Chief Financial Officer is also a Director of the Masimo Foundation. During the fiscal years ended December 31, 2016, January 2, 2016 and January 3, 2015, the Company contributed approximately $5.0 million, $6.3 million and $2.8 million, respectively, to the Masimo Foundation. A portion of the Company’s contributions to the Masimo Foundation were, in turn, contributed by the Masimo Foundation to the Patient Safety Movement Foundation.

The Company’s Chief Executive Officer is also the Chairman of the Patient Safety Movement Foundation, 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 Chief Financial Officer is also the Treasurer and Secretary of the Patient Safety Movement Foundation. During the fiscal years ended December 31, 2016, January 2, 2016 and January 3, 2015, the Company contributed approximately $200,271, $220 and $500,000, respectively, and Cercacor contributed approximately $25,000, $25,000 and $25,000, respectively, to the Patient Safety Movement Foundation.

The Company’s Chief Executive Officer is also the Chairman of the Patient Safety Movement Coalition, a not-for-profit social welfare organization which was founded in 2013 to promote patient safety legislation. The Company’s Chief Financial Officer is also the Secretary of the Patient Safety Movement Coalition. During the fiscal years ended December 31, 2016, January 2, 2016 and January 3, 2015, the Company contributed approximately $20,000, $10,000 and $10,000, respectively, to the Patient Safety Movement Coalition.

The Company’s Chief Executive Officer is a member of the board of directors for Atheer Labs (Atheer), which is working with the Company on the development of next generation Root^® applications. During the fiscal years ended, December 31, 2016, January 2, 2016 and January 3, 2015, the Company incurred approximately $255,000, $200,000 and $0, respectively, in license fees and other expenses owed to Atheer.

The Company’s Chief Executive Officer is a member of the board of directors of Children’s Hospital of Orange County and CHOC Children’s at Mission Hospital (collectively, CHOC), two non-profit hospitals that are devoted exclusively to caring for children. During the fiscal years ended December 31, 2016, January 2, 2016 and January 3, 2015, the Company contributed approximately $11,500, $1,500 and $26,500, respectively, to CHOC and its affiliates.