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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ASPECT MEDICAL SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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<S> <C> <C>
DELAWARE 3845 04-2985553
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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TWO VISION DRIVE
NATICK, MASSACHUSETTS 01760
(508) 653-0603
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
NASSIB G. CHAMOUN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ASPECT MEDICAL SYSTEMS, INC.
TWO VISION DRIVE
NATICK, MASSACHUSETTS 01760
(508) 653-0603
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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SUSAN W. MURLEY, ESQ. LESLIE E. DAVIS, ESQ.
HALE AND DORR LLP TESTA, HURWITZ & THIBEAULT, LLP
60 STATE STREET HIGH STREET TOWER
BOSTON, MASSACHUSETTS 02109 125 HIGH STREET
TELEPHONE: (617) 526-6000 BOSTON, MASSACHUSETTS 02110
TELECOPY: (617) 526-5000 TELEPHONE: (617) 248-7000
TELECOPY: (617) 248-7100
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
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Common Stock, $.01 par value per share................ $53,475,000 $15,776
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933,
as amended.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
JUNE 25, 1998
Shares
[Corporate Logo]
Common Stock
------------------
All the shares of Common Stock offered hereby will be sold by
Aspect Medical Systems, Inc. ("Aspect" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is presently estimated that the initial public offering price will be between
$ and $ per share. See "Underwriting" for the factors to be
considered in determining the initial public offering price. Application has
been made for the quotation of the Common Stock on the Nasdaq National Market
under the symbol "ASPM."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
- ---------------------------------------------------------------------------------------------------------------
Per Share........................ $ $ $
- ---------------------------------------------------------------------------------------------------------------
Total(2)......................... $ $ $
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(1) Before deducting expenses estimated at $ , payable by the Company.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock solely to cover over-allotments,
if any. To the extent the option is exercised, the Underwriters will offer
the additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made through the
facilities of the Depository Trust Company in New York, New York, on or about
, 1998 against payment therefor in immediately available funds.
BT Alex. Brown
Merrill Lynch & Co.
Piper Jaffray Inc.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
[Photograph depicting the Company's A-2000 BIS Monitor product with BIS Sensor
affixed to model's forehead]
[Photograph depicting the Company's BIS Sensor, BIS Module Kit and Digital
Signal Converter products]
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SYNDICATE SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
BIS, Bispectral Index, A-1050, A-2000 and ZipPrep are trademarks of Aspect
Medical Systems, Inc. Aspect is a registered trademark licensed on a
non-exclusive basis to the Company. All other trademarks or trade names referred
to in this Prospectus are the property of their respective owners.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors."
THE COMPANY
Aspect develops, manufactures and markets anesthesia monitoring systems
that enable anesthesia providers to assess levels of consciousness and
administer the appropriate amount of anesthetics during surgery. The BIS System
incorporates the Company's proprietary disposable BIS Sensors and the A-2000 BIS
Monitor, which was cleared for marketing by the United States Food and Drug
Administration (the "FDA") in February 1998. The BIS System is based on Aspect's
patented core technology, the Bispectral Index (the "BIS index"), which is the
only FDA-cleared, commercially available direct measure of the effects of
anesthesics on the brain. The BIS System was developed over a ten-year period
and is the subject of eight issued and five pending United States patents.
Aspect markets the BIS System through a direct sales organization in the United
States. As of April 4, 1998, more than 600 BIS monitors have been sold to
approximately 100 sites in the United States, and the Company believes that over
100,000 patients have been monitored using the BIS index during surgery.
Each year, more than 29 million patients in the United States and 47
million patients in Europe and Japan receive anesthesia in surgical procedures.
Of these 76 million patients, more than 60% receive general anesthesia or deep
sedation monitored by an anesthesia provider. Historically, anesthesia providers
have had no direct means of assessing levels of consciousness during surgery and
have generally relied on recommended drug dosages and indirect indicators of
consciousness, including blood pressure and heart rate. Changes in these
indirect measures, however, are not reliable indicators of changes in a
patient's levels of consciousness. Using existing monitoring devices, anesthesia
providers are sometimes unable to detect surgical awareness, or the
unintentional regaining of consciousness during surgery. The Company believes
the desire to prevent surgical awareness, as well as the difficulty of
accounting for variability in patient tolerances to anesthetic drugs, leads
anesthesia providers to administer more anesthetic than is required by many of
their patients. Overmedication results in increased drug costs, prolonged and
unpredictable wake-ups from anesthesia and prolonged recovery in the Post
Anesthesia Care Unit (the "PACU"). These factors, in turn, lead to
inefficiencies in operating room (the "OR") and PACU scheduling and increased
personnel costs.
Aspect's BIS index is designed to allow anesthesia providers to measure
directly the effects of anesthetics on the brain in order to assess levels of
consciousness and to administer the appropriate amount of anesthetics for
surgical procedures, while avoiding unintentional overmedication or
undermedication. The BIS index ranges from 100, indicating the patient is awake,
to zero, indicating an absence of electrical brain activity. The Company has
demonstrated in a 302-patient prospective, randomized controlled utility trial
that BIS monitoring provides more controlled and cost-effective dosing of
anesthetic drugs, faster and more predictable recovery from anesthesia and
improved quality of recovery.
Aspect's objective is to become a major multinational anesthesia-monitoring
company by establishing BIS monitoring as the standard of practice in anesthesia
and sedation monitoring in the OR, in the intensive care unit and for procedures
requiring sedation outside the OR. Key elements of the Company's strategy to
accomplish its objective include: (i) a direct sales force for rapid
commercialization, (ii) clinical specialists to educate and to promote the use
of Aspect's BIS System, (iii) OEM relationships to broaden distribution
channels, (iv) technological leadership and (v) new product development.
The Company was organized in Delaware in 1987. The Company's principal
executive offices are located at Two Vision Drive, Natick, Massachusetts 01760,
and its telephone number is (508) 653-0603.
3
<PAGE> 5
THE OFFERING
Common Stock offered by the
Company..................... shares
Common Stock to be outstanding
after the offering.......... shares(1)
Use of proceeds............... To fund sales and marketing, research and
development, the sales-type lease program,
possible acquisitions and working capital and
other corporate purposes
Proposed Nasdaq National
Market symbol................. ASPM
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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YEAR ENDED DECEMBER 31, QUARTER ENDED
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MARCH 29, APRIL 4,
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue......................... $ 155 $ 852 $ 1,067 $ 1,389 $ 3,068 $ 415 $ 1,733
Loss from operations............ (3,885) (4,491) (5,607) (5,477) (10,308) (2,224) (2,941)
Net loss........................ (3,657) (4,260) (5,546) (5,396) (9,886) (2,166) (2,817)
Pro forma basic and diluted net
loss per share(2)............. (1.28) (0.30)
Weighted average shares used to
compute pro forma net loss per
share(2)...................... 7,707 9,492
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<CAPTION>
APRIL 4, 1998
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ACTUAL AS ADJUSTED(3)
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(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities.......... $13,206 $
Working capital........................................... 10,949
Total assets.............................................. 17,456
Long-term capital lease obligations....................... 81 81
Total stockholders' equity................................ 12,873
</TABLE>
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(1) Based on the number of shares of Common Stock outstanding on June 25, 1998.
Excludes an aggregate of 1,317,031 shares of Common Stock reserved for
issuance pursuant to exercise of currently outstanding options at a weighted
average exercise price of $1.13 per share. See "Management -- Executive
Compensation" and Note 9 of Notes to Financial Statements.
(2) See Note 10 of Notes to Financial Statements.
(3) Adjusted to give effect to the estimated net proceeds based upon an assumed
public offering price of $ per share.
Unless otherwise indicated, all information contained in this Prospectus
(i) reflects the conversion of all outstanding shares of the Company's Series
A-1, Series B-1, Series C, and Series D Convertible Preferred Stock (the
"Convertible Preferred Stock") into an aggregate of 9,313,509 shares of Common
Stock at the closing of this offering and (ii) assumes no exercise of the
Underwriters' over-allotment option. The Company follows a system of fiscal
months as opposed to calendar months. Under this system, the first eleven months
of each fiscal year end on a Saturday and the last month of the fiscal year
always ends on December 31.
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered by this Prospectus.
UNCERTAINTY OF MARKET ACCEPTANCE OF TECHNOLOGY AND PRODUCTS
Commercial introduction of the Company's BIS monitor, BIS Sensor and
related products (collectively, the "BIS System") commenced in late 1996, and to
date sales of BIS Systems have been limited. The commercial success of the BIS
System will depend on its acceptance by hospitals and anesthesia providers as an
accurate, reliable and cost-effective method of monitoring the effects of
anesthetics on the brain in order to assess levels of consciousness. There can
be no assurance that anesthesia providers will modify their current practice
methods and support the BIS System as a complement to current anesthesia
monitoring. In addition, market acceptance of the BIS System will depend in part
on the Company demonstrating that the cost of a BIS System would be offset by a
reduction in costs associated with administering anesthesia, including the costs
of drugs and post-operative recovery time. Even if the Company is successful in
marketing and selling BIS monitors, there can be no assurance that customers
will continue to use such monitors or that the Company will be successful in
generating sales of BIS Sensors. Failure of the Company's BIS System to provide
an accurate and reliable measure of the effects of anesthetics on the brain in
order to assess levels of consciousness, whether because of misuse, malfunction
or otherwise, could have a material adverse effect on market acceptance of BIS
Systems. For example, cases of surgical awareness, or the unintentional
regaining of consciousness during surgery, undetected by Bispectral Index (the
"BIS index") monitoring may occur, and the resulting adverse publicity could
result in the failure of anesthesia providers and hospitals to adopt BIS
Systems, which would have a material adverse effect on the business, financial
condition and results of operations of the Company. In addition, market
acceptance of the Company's BIS System could be adversely affected by events
outside its control, including the introduction of superior competitive products
or the failure of competitive products to perform in accordance with customers'
expectations.
LIMITED MARKETING AND SALES EXPERIENCE
The Company has only limited sales and marketing experience in the United
States and no direct sales experience outside the United States. No assurance
can be given that the Company's direct sales force and clinical specialist group
will be successful in promoting BIS Systems. The sales effort is typically
lengthy, in part because the Company generally must educate potential customers
about the clinical benefits and cost effectiveness of BIS Systems. There can be
no assurance that the Company's education or other sales strategies are properly
developed or that they will be successfully implemented. The Company is also
evaluating international and other domestic marketing and sales channels,
including contract sales organizations, distributors and marketing partners. The
Company's failure to develop and implement successfully its sales and marketing
strategy would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Sales, Marketing
and Customers."
RELIANCE ON SINGLE PRODUCT FAMILY
The BIS System is the Company's only product. To date, the BIS System has
not achieved widespread market acceptance and sales have been limited. The
failure of the Company to gain widespread market acceptance of BIS Systems would
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, sales of BIS Sensors are dependent upon
continued use by customers of the BIS monitors. There can be no assurance that
customers will continue to use BIS monitors or purchase BIS Sensors. Moreover,
there can be no assurance the Company will further enhance its products for use
outside of the operating room (the "OR"), including in the intensive care unit
("ICU"), for conscious sedation or for other applica-
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tions. The Company's failure to develop its products for use outside of the OR
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "-- Uncertainty of Market Acceptance of
Technology and Products" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
LIMITED MANUFACTURING EXPERIENCE; MANUFACTURING EXPANSION
Aspect relies on third-party manufacturers to assemble and manufacture the
components of its BIS monitors. The Company performs final assembly and testing
of the BIS monitors. The Company has historically outsourced the manufacturing
of its BIS Sensor, but in the first quarter of 1998, the Company began
manufacturing a portion of the BIS Sensors in its own manufacturing facility.
The failure of the Company or any contract manufacturer to produce enough
components or products on time, cost-effectively and in compliance with
applicable licensing or regulatory requirements, such as the Good Manufacturing
Practices ("GMPs") of the United States Food & Drug Administration (the "FDA"),
including the FDA's Quality Systems Regulations, would have a material adverse
effect on the Company's business, results of operations and financial condition.
Any termination or modification of any manufacturing arrangement with a
third-party could result in a business interruption for the Company. The Company
may require additional manufacturing capacity within the next two years. There
can be no assurance that the Company will be successful in expanding its
manufacturing facility or relocating its facility to meet demand in a timely
manner or within budget. The Company has only one manufacturing facility and any
loss of, damage to or interruption of production at its facility could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Manufacturing."
DEPENDENCE ON SINGLE OR LIMITED SOURCE SUPPLIERS
The Company currently obtains certain key components of its BIS Systems,
including certain components used in the BIS Sensors, from single or limited
sources. The Company purchases components pursuant to purchase orders rather
than long-term supply agreements. The Company has experienced shortages and
delays in obtaining certain components of its BIS Systems in the past. There can
be no assurance that the Company will not experience similar delays or shortages
in the future. The disruption or termination of the supply of components or a
significant increase in the costs of these components from these sources could
have a material adverse effect on the Company's business, financial condition
and results of operations. Furthermore, if the Company is required to change the
manufacturer of a key component of the BIS System, the Company may be required
to verify that the new manufacturer maintains facilities and procedures that
comply with all applicable regulations and guidelines. The delays associated
with verification could delay the manufacture and sale of the Company's BIS
Systems and any delay could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Manufacturing."
TECHNOLOGICAL RISKS
The medical industry is characterized by rapid product development and
technological advances. There can be no assurance that new monitoring products,
alternative techniques for evaluating the effects of anesthesia, significant
changes in the methods of delivering anesthesia or new anesthetic agents will
not be developed that will render the Company's current or planned products
obsolete or inferior. New products or technologies used on patients or in the OR
during surgery, or electrical or mechanical interference from new or existing
products or technologies, could also adversely affect the performance of the BIS
index. The effect of technological changes on the Company's business cannot be
predicted and could have a material adverse effect on the Company's business,
financial condition and results of operations.
Additional studies, sponsored in part by the Company, are ongoing to assess
the performance of the BIS index in the presence of certain anesthetics, such as
ketamine, and patient populations, such
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as children, not included in the clinical development of the BIS algorithms.
There can be no assurance that the BIS technology will be effective in
monitoring these or other anesthetic agents and patient populations or when
other anesthetic techniques are used. Furthermore, there can be no assurance
that the Company will be successful in developing any product enhancements or
extensions or new products, including products for use in the ICU, for conscious
sedation or for other applications. The failure of the Company to develop
product enhancements or extensions or new products could have a material adverse
effect on the Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL
The Company's success is substantially dependent on the ability, experience
and performance of its senior management and other key personnel. The Company
needs to hire, train, retain and motivate additional personnel, particularly
sales representatives and clinical specialists who are responsible for customer
education and training and post-installation customer support. The Company
continues to experience difficulty in recruiting and retaining qualified
personnel because the pool of experienced persons is small and the Company
competes for such personnel with other companies, many of which have greater
resources than the Company. The failure of the Company to hire and retain
required personnel, including sales representatives and clinical specialists,
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Sales, Marketing and
Customers," "Business -- Employees" and "Management."
COMPETITION
Although products incorporating the BIS index are currently the only
devices cleared by the FDA to measure the effects of anesthetics on the brain,
the Company expects to face substantial competition. The Company believes that
competition will initially come from companies, including patient monitoring
companies, currently marketing conventional EEG monitors utilizing standard
signal-processing techniques such as the Spectral Edge Frequency and Median
Frequency or from companies that market EEG monitors utilizing novel
signal-processing technologies, including at least two companies that are
currently conducting clinical trials on products under development.
Additionally, a number of academic researchers worldwide are studying the
potential use of other techniques to measure the effects of anesthetics,
including the use of auditory evoked potentials, heart rate variability,
pupillary reflexes and skin blood flow measurement techniques. Competitors that
develop a product that is substantially equivalent to an FDA-cleared product
developed by the Company may use the Company's product as a predicate device to
obtain more quickly FDA clearance under the 510(k) process. Accordingly, there
can be no assurance that competitors will not develop and market products that
compete with any of the Company's products in less time than it took the Company
to develop its products. Further, the Company may face substantial competition
from companies developing sensor products that compete with the Company's
proprietary BIS Sensors for use with the Company's BIS monitors. Competitors in
some jurisdictions outside the United States may enter the market without delays
caused by regulatory barriers that exist in the United States. Many of the
Company's potential competitors have substantially greater financial, marketing,
technical, manufacturing and distribution resources than those of the Company
and the Company expects to compete in areas in which the Company has limited
experience, including manufacturing, marketing and sales and customer service
and support. There can be no assurance that the Company will be able to compete
successfully or that competition, including the development and
commercialization of new products and technology, will not have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Competition."
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DEPENDENCE ON PATENTS, TRADEMARKS, LICENSES AND PROPRIETARY RIGHTS
Aspect believes that its success depends, in part, on obtaining patent
protection for its products, defending patents once obtained, preserving its
trade secrets and operating without infringing upon patents and proprietary
rights held by third parties, both in the United States and in foreign
countries. There can be no assurance that the Company has or will develop or
obtain additional rights to products or processes that are patentable, that
patents will issue from any of the pending patent applications filed by the
Company or that claims allowed will be sufficient to protect the Company's
technology or technology that is licensed to the Company. In addition, no
assurances can be given that any patents issued to or licensed by the Company
will not be challenged, invalidated, infringed or circumvented or that the
rights granted thereunder will provide competitive advantages for the Company's
business or products. The Company may be subject to further risks as it expands
its operations in countries where intellectual property laws are not well
developed or are difficult to enforce. Legal protections of the Company's
proprietary rights may be ineffective in those countries. In such event, the
business, results of operations and financial condition of the Company could be
materially adversely affected.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical devices industry. The Company has in
the past been involved in patent litigation and future litigation may be
necessary to protect patents, trade secrets, copyrights or "know-how" owned by
or licensed to the Company or to defend the Company against claimed infringement
of the rights of others and to determine the scope and validity of the
proprietary rights of the Company and others. The validity and breadth of claims
covered in medical technology patents involve complex legal and factual
questions for which important legal principles are unresolved. Any intellectual
property litigation could result in substantial cost to and diversion of effort
by the Company. Adverse determinations in any litigation could subject the
Company to significant liabilities to third parties, could require the Company
to seek licenses from third parties with unfavorable terms, if at all, and could
prevent the Company from manufacturing, selling or using certain of its
products, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company also relies on trade secrets and proprietary technology that it
seeks to protect, in part, through confidentiality agreements with employees,
consultants and other parties. There can be no assurance that these agreements
will not be breached, that the Company will have adequate remedies for any
breach, that others will not independently develop substantially equivalent
proprietary information or that third parties will not otherwise gain access to
the Company's trade secrets.
The Company also relies upon trademarks and trade names for the development
and protection of brand loyalty and associated goodwill in connection with its
products. There can be no assurance that any registered or unregistered
trademarks or trade names owned by or licensed to the Company will not be
challenged, cancelled, infringed, circumvented, or be declared generic or
infringing of other third-party marks or provide any competitive advantage to
the Company. The Company also is a party to a license agreement with a third
party pursuant to which it has obtained the nonexclusive right to make, use
and/or sell products under the name "Aspect." The licensor of the Aspect name
markets products for use in the health care industry. There can be no assurance
that there will not be confusion in the market between the Company and such
licensor or that any such confusion would compromise the competitive advantage,
if any, the Company derives from its name. See "Business -- Patents and
Proprietary Rights."
HISTORY OF LOSSES; UNCERTAINTY OF PROFITABILITY
The Company has incurred losses since inception. The Company incurred net
losses of $5.5 million, $5.4 million, $9.9 million and $2.8 million during 1995,
1996, 1997 and the quarter ended April 4, 1998, respectively. The Company
expects to continue to incur operating losses in
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<PAGE> 10
future periods, and there can be no assurance that the Company will ever achieve
or sustain profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's results of operations have varied significantly from quarter
to quarter. Quarterly operating results will depend upon several factors, many
of which are not in the Company's control, including commercial acceptance of
the Company's products, both in the United States and internationally, timing
and cancellation of customer orders, cost of product upgrades, continued use by
customers of BIS monitors and, accordingly, sales of BIS Sensors, the
introduction of new products by the Company or competitors, the mix between
pilot production of new products and full scale manufacturing of existing
products, the timing and amount of expenses, the timing and results of clinical
trials, the timing of regulatory approvals and variations in foreign exchange
rates. The Company does not have a significant backlog of customer orders, so
revenues in any quarter depend on orders received in that quarter. The Company's
expenses are relatively fixed and difficult to adjust in response to fluctuating
revenues. In addition, depending on the timing of new product introductions,
competitive factors, warranty claims and product returns, the Company may need
to reserve amounts in excess of those currently reserved for product
obsolescence, excess inventory, warranty claims and product returns. There can
be no assurance that such reserves will be adequate to cover all costs
associated with such items. In addition, quarterly results of operations may be
affected by foreign government controls, export license requirements, political
and economic instability, trade restrictions, changes in tariffs, employee
strikes or disruptions arising under foreign labor laws, standards or
guidelines, or difficulties in staffing and managing international operations.
As a result of these and other factors, the Company expects to continue to
experience significant fluctuations in quarterly operating results, and there
can be no assurance that the Company will be able to achieve or maintain
profitability in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
GOVERNMENT REGULATION
The Company's products and operations are subject to extensive regulation
by numerous governmental authorities. In particular, the Company must obtain
specific clearance from the FDA before it can market new products or certain
modified products in the United States. The FDA administers the Federal Food,
Drug, and Cosmetic Act (the "FDC Act"). The Company has made certain
enhancements to its currently marketed products which it believes do not
necessitate the filing of a new 510(k) notification. However, there can be no
assurance that the FDA would agree with the Company's determination that these
modifications do not require a 510(k) notification. If the FDA requires the
Company to file a new 510(k) notification for any past or future modification to
a cleared device, the Company may be prohibited from marketing the device as
modified until it obtains clearance from the FDA. There can be no assurance that
the Company will obtain 510(k) clearance on a timely basis, if at all, for any
device modification. Furthermore, there can be no assurance that the Company's
future products, if any, will receive 510(k) clearance.
FDA regulations also require companies to adhere to GMPs, which include
production design controls, testing, quality control, storage and documentation
procedures. Compliance with device GMP regulations is difficult, costly and
uncertain. The FDA may at any time inspect the Company's facilities to determine
whether adequate compliance has been achieved. There can be no assurance that
adequate compliance will be achieved or that the FDA will not withdraw marketing
clearance, require product recall or permit marketing if there is inadequate
compliance. In addition, when any change or modification is made to a device or
its intended use, the manufacturer may be required to reassess compliance with
device GMP regulations, which may cause interruptions or delays in the marketing
and sale of the Company's products. Any such interruptions or delays could have
a material adverse effect on the Company's business, financial condition and
results of operations.
9
<PAGE> 11
Sales of medical device products outside the United States are subject to
foreign regulatory requirements that vary from country to country. The time
required to obtain approvals required by foreign countries may be longer or
shorter than that required for FDA approval, and requirements for licensing may
differ from FDA requirements.
Failure to comply with applicable federal, state or foreign laws or
regulations could subject the Company to enforcement actions, including, but not
limited to, product seizures, recalls, withdrawal of clearances or approvals and
civil and criminal penalties against the Company or its responsible officials,
any one or more of which could have a material adverse effect on the Company's
business, results of operations and financial condition. Federal, state and
foreign laws and regulations regarding the manufacture and sale of medical
devices are subject to future changes, as are administrative interpretations of
regulatory agencies. No assurance can be given that such changes will not have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF AVAILABILITY OF ADDITIONAL FINANCING
The Company believes that the anticipated net proceeds from this offering
together with interest thereon and the Company's existing capital resources will
be sufficient to fund its operations at least through 1999. However, the
Company's future liquidity and capital requirements will depend upon numerous
factors, including the resources required to further develop its marketing and
sales organization domestically and internationally, expand manufacturing
capacity, finance the Company's sales-type lease program, and meet market demand
for the Company's products. The Company's capital requirements will also depend
upon the progress of the Company's research and development programs, including
clinical trials, the receipt of and the time required to obtain regulatory
clearances and approvals, the resources the Company devotes to developing,
manufacturing and marketing its products, and the resources, if any, the Company
may devote to the expansion of its business, including through the possible
acquisition of businesses, technologies or other intellectual property rights.
There can be no assurance that the Company will not require additional financing
or will not in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. Additional
funding may not be available when needed or on terms acceptable to the Company,
which would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
POTENTIAL PRODUCT LIABILITY OR RECALL
The manufacture and sale of the Company's products expose it to product
liability claims and product recalls, including those which may arise from
misuse, malfunction or design flaws. There can be no assurance that the
Company's existing insurance coverage will cover the costs of any product
liability claims made against the Company or that the Company will be able to
obtain insurance in the future at satisfactory rates or in adequate amounts.
Product liability claims or product recalls, regardless of their ultimate
outcome, could result in costly litigation and could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Insurance."
LIMITATIONS ON THIRD-PARTY REIMBURSEMENT
The Company expects that anesthesia providers will not be reimbursed
separately for patient monitoring activities utilizing the Company's BIS
monitor. For hospitals and independent ambulatory surgical centers ("ASCs"),
when reimbursement is based on charges or costs, BIS monitoring may reduce
reimbursements for surgical procedures, because charges or costs may decline as
a result of BIS monitoring. Any reduction in the reimbursement by third-party
payors to hospitals and other users as a result of using the BIS System could
limit market acceptance of the BIS System and
10
<PAGE> 12
have a material adverse effect on the Company's business, financial condition
and results of operations.
POTENTIAL ADVERSE EFFECTS OF YEAR 2000 PROBLEM
The Company has conducted a software review to identify functions that need
corrections to be "Year 2000" compliant. The Year 2000 problem is the result of
computer programs being written to recognize two digits rather than four to
define the applicable year causing computer programs to interpret a date using
"00" as the year 1900 rather than the year 2000, which could result in product
failures or miscalculations. The Company is undertaking certain corrective
actions in an effort to ensure that software systems incorporated in its
products or used to manage its business will continue to function properly in
the year 2000. However, there can be no assurance that Year 2000 problems will
not be encountered or that the costs incurred to resolve such problems will not
be material. Additionally, there can be no assurance that the Year 2000 problem
will not affect the Company by causing disruptions in the business operations of
persons with whom the Company does business, such as customers or suppliers.
Year 2000 problems could have a material adverse effect on the Company.
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or continue after this offering. The initial public
offering price will be determined by negotiations among the Company and the
representatives of the Underwriters, and may not be indicative of the market
price for the Common Stock after this offering. From time to time after this
offering, there may be significant volatility in the market price of the Common
Stock. Quarterly operating results of the Company, deviations in results of
operations from estimates of securities analysts, changes in general conditions
in the economy or the medical equipment industry or other developments affecting
the Company or its competitors could cause the market price of the Common Stock
to fluctuate substantially. The equity markets have, on occasion, experienced
significant price and volume fluctuations that have affected the market prices
for many companies' securities and that have often been unrelated to the
operating performance of these companies. Any fluctuations in the equity market
that occur following completion of this offering may adversely affect the market
price of the Common Stock. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE AND POTENTIAL ADVERSE EFFECT ON MARKET PRICE
Sales of substantial amounts of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. Upon completion of this offering, the Company will have outstanding
shares of Common Stock, assuming no exercise of outstanding
options. On the date of this Prospectus, in addition to the
shares offered hereby, approximately 472,500 shares of Common Stock, which are
not subject to 180-day lock-up agreements (the "Lock-up Agreements") with the
representatives of the Underwriters, will be eligible for immediate sale in the
public market pursuant to Rule 144(k) under the Securities Act of 1933, as
amended (the "Securities Act"). Approximately 336,800 additional shares of
Common Stock which are not subject to the Lock-up Agreements will be eligible
for sale in the public market in accordance with Rule 144 or Rule 701 under the
Securities Act beginning on the 91st day after the date of this Prospectus. Upon
expiration of the Lock-up Agreements 180 days after the date of this Prospectus,
approximately 11,551,000 shares of Common Stock (including approximately 489,000
shares of Common Stock which may be acquired upon the exercise of outstanding
options) will be available for sale in the public market, subject to the
provisions of Rule 144 under the Securities Act. BT Alex. Brown Incorporated may
release any or all shares subject to Lock-up Agreements at any time or from time
to time without notice. Approximately 180 days after the date of this
Prospectus, the Company intends to register an aggregate of approximately
1,900,000 shares of
11
<PAGE> 13
Common Stock subject to present or future options under its Amended and Restated
1991 Stock Option Plan and 1998 Director Stock Option Plan, as amended. Holders
of approximately 10,138,000 shares of Common Stock have agreed, pursuant to the
Lock-up Agreements, not to offer to sell, contract to sell, transfer, engage in
any hedging transaction with respect to or otherwise dispose of such shares for
180 days after the date of this Prospectus. The Company is unable to predict the
effect that sales made under Rule 144, or otherwise, may have on the then
prevailing market price of the Common Stock. The holders of approximately
9,400,000 shares of Common Stock are entitled to certain incidental and demand
registration rights with respect to such shares. By exercising their
registration rights, such holders could cause a large number of shares to be
registered and sold in the public market at any given time. Sales pursuant to
Rule 144 or other exemptions from registration, or pursuant to registration
rights, may have an adverse effect on the market price for the Common Stock and
could impair the Company's ability to raise capital through offerings of its
equity securities. See "Management -- Executive Compensation -- Stock Plans,"
"Shares Eligible for Future Sale" and "Underwriting."
CONTROL BY DIRECTORS, OFFICERS AND PRINCIPAL STOCKHOLDERS
Upon completion of this offering, the Company's directors, executive
officers and principal stockholders, together with their affiliates, will
beneficially own approximately % of the Company's outstanding Common Stock
(approximately % if the underwriters exercise their overallotment option in
full). As a result, these stockholders, if acting together, would have the
ability to influence or determine the outcome of corporate actions requiring
stockholder approval, including the election of directors and the approval of
certain mergers and other significant corporate transactions, such as a sale of
substantially all of the Company's assets, irrespective of how other
stockholders of the Company may vote. This concentration of ownership may have
the effect of delaying or preventing a change in control of the Company, which
could adversely affect the market price of the Company's Common Stock. See
"Management" and "Principal Stockholders."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER, BYLAW AND OTHER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation (the
"Restated Certificate") and Bylaws, as they are each proposed to be amended and
restated concurrently with the closing of the offering, and the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law statute, could
have the effect of delaying, deterring or preventing changes of control or
management of the Company, which could adversely affect the market price of the
Company's Common Stock. See "Description of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
shares of Common Stock in the amount of $ per share (after giving effect to
estimated underwriting discounts and commissions and offering expenses). See
"Dilution." In the event the Company offers additional Common Stock in the
future, including shares that may be issued upon exercise of stock options,
purchasers of Common Stock in this offering may experience further dilution in
the net tangible book value per share of the Common Stock of the Company.
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered hereby are estimated to be $ ($ if the Underwriters'
over-allotment option is exercised in full) after deducting the estimated
underwriting discounts and commissions and offering expenses payable by the
Company and assuming an initial public offering price of $ per share.
12
<PAGE> 14
The Company expects to use the net proceeds from this offering to fund
sales and marketing, research and development efforts, the sales-type lease
program and working capital and other corporate purposes. A portion of the
proceeds of this offering may be used to acquire businesses, technologies and
other intellectual property rights and products that complement the Company's
business, although the Company has no agreements or understandings with respect
to any such potential transactions. Pending use of the net proceeds, the Company
intends to invest the net proceeds from this offering in short-term, investment
grade, interest-bearing instruments.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to support its
growth strategy and, therefore, does not anticipate paying cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, current
and anticipated cash needs and plans for expansion. The Company's credit
agreement restricts the Company from declaring and paying any cash dividends.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 18 of Notes to Financial
Statements.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
April 4, 1998, and (ii) as adjusted to give effect to the conversion of all
outstanding shares of the Company's Convertible Preferred Stock into an
aggregate of 9,313,509 shares of Common Stock; the filing of the Company's
Restated Certificate to increase the number of authorized shares of Common Stock
and authorize 5,000,000 shares of authorized but undesignated preferred stock;
and to reflect the issuance and sale of shares of Common Stock
offered hereby at an assumed initial public offering price of $ per share,
after deducting the estimated underwriting discounts and commissions and
offering expenses payable by the Company. The capitalization information set
forth in the table below is qualified by the Financial Statements and Notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
APRIL 4, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term capital lease obligations......................... $ 81 $ 81
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value; no shares authorized,
issued or outstanding (actual); 5,000,000 shares
authorized, no shares issued or outstanding (as
adjusted)................................................. -- --
Convertible preferred stock, $.01 par value; 18,843,224
shares authorized (actual); 9,313,509 issued and
outstanding (actual); (liquidation
preference -- $41,425,301 (actual)); no shares authorized,
issued or outstanding (as adjusted); (liquidation
preference -- $0 (as adjusted))........................... 50,352 --
Common stock, $.01 par value; 14,500,000 shares authorized
(actual); 1,548,756 shares issued and outstanding
(actual); 40,000,000 shares authorized (as adjusted);
10,862,265 shares issued and outstanding (as
adjusted)(1).............................................. 15
Additional paid-in-capital................................ 340
Accumulated deficit....................................... (37,559) (37,559)
Less notes receivable from employees and directors........ (274) (274)
Less unrealized loss on marketable securities............. (1) (1)
Total stockholders' equity................................ 12,873
-------- --------
Total capitalization.............................. $ 12,954 $
======== ========
</TABLE>
- ---------------
(1) Excludes an aggregate of 1,125,075 shares of Common Stock reserved for
issuance pursuant to exercise of options outstanding as of April 4, 1998 at
a weighted average exercise price of $0.74 per share. See "Management --
Executive Compensation" and Note 9 of Notes to Financial Statements.
14
<PAGE> 16
DILUTION
The pro forma net tangible book value of the Company as of April 4, 1998
was approximately $12.9 million or $1.19 per share of Common Stock. Pro forma
net tangible book value per share is determined by dividing the Company's
tangible net worth (tangible assets less liabilities) by the number of shares of
Common Stock outstanding, after giving effect to the conversion of the Company's
Convertible Preferred Stock into Common Stock upon the completion of this
offering. After giving effect to the sale of the shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $ per
share and after deducting the estimated underwriting discounts and commissions
and offering expenses payable by the Company, the pro forma net tangible book
value of the Company as of April 4, 1998 would have been $ per share. This
represents an immediate increase in such pro forma net tangible book value of
$ per share to existing stockholders and an immediate dilution of $ per
share to new investors purchasing shares in this offering. If the initial public
offering price is higher or lower, the dilution to the new investors will be
greater or less, respectively. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of April 4,
1998................................................... $1.19
Increase per share attributable to new investors..........
Pro forma net tangible book value per share after this
offering..................................................
Dilution per share to new investors......................... $
</TABLE>
The following table summarizes, on a pro forma basis as of April 4, 1998
(after giving effect to the conversion of the Company's Convertible Preferred
Stock upon the completion of this offering) the total number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
consideration paid per share by the existing stockholders and by the new
investors based upon an assumed initial public offering price of $ per share
(before deducting the estimated underwriting discounts and commissions and
offering expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.... 10,862,265 % $51,048,830 % $4.70
New investors............ $
---------- ----- ----------- -----
Total.......... 100.0% 100.0%
========== ===== =========== =====
</TABLE>
The above information excludes an aggregate of 1,125,075 shares of Common
Stock issuable upon the exercise of options outstanding as of April 4, 1998 with
a weighted average price of $0.74 per share. To the extent that such options are
exercised there will be further dilution to new investors.
15
<PAGE> 17
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial information set forth below for the years ended
December 31, 1995, 1996 and 1997, and as of December 31, 1996 and 1997, are
derived from the Company's audited financial statements, which appear elsewhere
in this Prospectus and which have been audited, with respect to the years ended
December 31, 1996 and 1997 and as of December 31, 1996 and 1997, by Arthur
Andersen LLP, independent accountants, and with respect to the year ended
December 31, 1995, by Price Waterhouse LLP, independent accountants. The
selected financial information set forth below as of December 31, 1993, 1994 and
1995 and for the years ended December 31, 1993 and 1994 are derived from audited
financial statements, which are not included in this Prospectus. The selected
financial information for the quarters ended March 29, 1997 and April 4, 1998
and as of April 4, 1998 are derived from the unaudited financial statements
which appear elsewhere in this Prospectus. In the opinion of management, the
unaudited financial statements have been prepared on a basis consistent with the
Company's audited Financial Statements which appear elsewhere in this Prospectus
and include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the financial position and results of
operations for these unaudited periods. The operating results for the quarter
ended April 4, 1998 are not necessarily indicative of the results to be expected
for the full year ending December 31, 1998. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
Notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED
--------------------------------------------------- --------------------
MARCH 29, APRIL 4,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- ------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue..................... $ 155 $ 852 $ 1,067 $ 1,389 $ 3,068 $ 415 $ 1,733
Costs and expenses:
Costs of revenue.......... 80 525 704 1,096 3,602 582 1,211
Research and development.. 2,371 2,311 2,870 2,338 2,603 677 887
Sales and marketing....... 663 1,291 1,285 1,561 4,813 762 1,840
General and
administrative.......... 926 1,216 1,815 1,871 2,358 618 736
-------- -------- -------- ------- -------- ------- -------
Total costs and
expenses.............. 4,040 5,343 6,674 6,866 13,376 2,639 4,674
Loss from operations........ (3,885) (4,491) (5,607) (5,477) (10,308) (2,224) (2,941)
Interest income............. 233 286 146 144 500 78 133
Interest expense............ (5) (55) (85) (63) (78) (20) (9)
-------- -------- -------- ------- -------- ------- -------
Net loss.................... $ (3,657) $ (4,260) $ (5,546) $(5,396) $ (9,886) $(2,166) $(2,817)
======== ======== ======== ======= ======== ======= =======
Net loss per share(1):
Basic and diluted......... $(721.36) $(822.34) $(281.65) $(57.76) $ (16.23) $(10.38) $ (2.95)
======== ======== ======== ======= ======== ======= =======
Pro forma basic and
diluted................. $ (1.28) $ (0.30)
======== =======
Shares used in computing net
loss per share(1):
Basic and diluted......... 5 5 20 93 609 209 956
Pro forma basic and
diluted................. 7,707 9,492
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------ APRIL 4,
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities.................................. $8,134 $4,258 $3,329 $2,231 $4,981 $13,206
Working capital............................... 8,215 4,273 3,054 1,029 3,052 10,949
Total assets.................................. 8,948 5,719 4,552 3,973 7,603 17,456
Long-term capital lease obligations........... -- 423 333 270 118 81
Total stockholders' equity.................... 8,736 4,460 3,028 1,066 4,067 12,873
</TABLE>
- ---------------
(1) See Note 10 of Notes to Financial Statements.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus which could cause actual results to differ
materially from those indicated by such forward-looking statements, including
the matters set forth under the caption "Risk Factors."
OVERVIEW
Aspect develops, manufactures and markets anesthesia monitoring systems
that enable anesthesia providers to assess levels of consciousness and
administer the appropriate amount of anesthetics during surgery. The BIS System
incorporates the Company's proprietary disposable BIS Sensors and the A-2000 BIS
Monitor, which was cleared for marketing by the FDA in February 1998. The BIS
System is based on Aspect's patented core technology, the BIS index, which is
the only FDA-cleared, commercially available direct measure of the effects of
anesthetics on the brain. In addition to the
A-2000, the Company's other monitor products are the A-1000 monitor and the
A-1050 BIS monitor. After the introduction of the A-2000 monitor, the Company
ceased active marketing of the A-1050 monitor in the United States. In addition
to the Company's disposable BIS Sensor, the Company offers the ZipPrep EEG
electrode.
The Company follows a system of fiscal months as opposed to calendar
months. Under this system, the first eleven months of each fiscal year end on a
Saturday and the last month of the fiscal year always ends on December 31. All
references to the first quarter of 1997 relate to the period from January 1,
1997 to March 29, 1997, and all references to the first quarter of 1998 relate
to the period from January 1, 1998 to April 4, 1998.
The Company offers customers the option either to purchase the BIS monitors
outright or to acquire the BIS monitors pursuant to a sales-type lease agreement
whereby the customer contractually commits to purchase a minimum number of BIS
Sensors per BIS monitor per year. Under this agreement, customers purchase BIS
Sensors and the BIS monitor for the purchase price of the BIS Sensors plus an
additional charge per BIS Sensor to pay for the purchase price of the BIS
monitor and related financing costs over the term of the agreement. The customer
is granted an option to purchase the BIS monitor at the end of the term of the
agreement, which is typically three to five years. Revenue related to BIS
monitors sold pursuant to sales-type leases is recognized at the time of
shipment of the BIS monitors. Sales-type leases accounted for approximately 0%,
11% and 10% of revenue in 1995, 1996 and 1997, respectively, and for
approximately 5% and 26% of revenue in the first quarter of 1997 and the first
quarter of 1998, respectively.
In 1995, 1996 and 1997, revenue from the sale of monitors and related
accessories represented approximately 94%, 87% and 80%, respectively, of the
Company's revenue, and revenue from the sale of disposables represented
approximately 6%, 13% and 20%, respectively, of the Company's revenue. In the
first quarter of 1997 and the first quarter of 1998, revenue from the sale of
monitors and related accessories represented approximately 80% and 74%,
respectively, of the Company's revenue, and revenue from the sale of disposables
represented approximately 20% and 26%, respectively, of the Company's revenue.
The Company expects that revenue from the sale of disposables will continue to
increase as a percentage of total revenue.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, information
expressed as a percentage of revenue. Such information has been derived from the
Statements of Operations included
17
<PAGE> 19
eleswhere in this Prospectus. The Company's past operating results are not
necessarily indicative of future operating results.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
--------------------------------------------------
YEAR ENDED DECEMBER 31, QUARTER ENDED
------------------------- ---------------------
MARCH 29, APRIL 4,
1995 1996 1997 1997 1998
----- ----- ----- --------- --------
<S> <C> <C> <C> <C> <C>
Revenue..................................... 100% 100% 100% 100% 100%
Costs and expenses:
Costs of revenue.......................... 66 79 117 140 70
Research and development.................. 269 168 85 163 51
Sales and marketing....................... 120 112 157 183 106
General and administrative................ 170 135 77 149 43
---- ---- ---- ---- ----
Total costs and expenses.......... 625 494 436 635 270
Loss from operations........................ (525) (394) (336) (535) (170)
Interest income............................. 13 10 16 19 8
Interest expense............................ (8) (5) (2) (5) (1)
---- ---- ---- ---- ----
Net loss.................................... (520)% (389)% (322)% (521)% (163)%
==== ==== ==== ==== ====
</TABLE>
First Quarter of 1998 Compared to First Quarter of 1997
The Company's revenue increased to $1.7 million in the first quarter of
1998 from $415,000 in the first quarter of 1997. Revenue from the sale of
monitors and related accessories increased to $1.3 million in the first quarter
of 1998 from $331,000 in the first quarter of 1997, and revenue from the sale of
disposables increased to $443,000 in the first quarter of 1998 from $84,000 in
the first quarter of 1997. The growth in sales of monitors and related
accessories was primarily related to an increase in the number of units sold as
a result of the introduction in the United States of the A-2000 monitor and the
growth of the direct sales force. The increase in sales of disposables was
primarily related to growth in the installed base of monitors.
The Company's gross profit was 30% of revenue in the first quarter of 1998
as compared to a negative gross profit of 40% of revenue in the first quarter of
1997. The negative gross profit in the first quarter of 1997 resulted primarily
from under-absorbed overhead costs and provisions for excess and obsolete
inventory. The increase in gross profit in the first quarter of 1998 as compared
to the first quarter of 1997 was primarily due to lower per-unit monitor costs
and improved manufacturing efficiencies.
Research and development expenses increased to $887,000 in the first
quarter of 1998 from $677,000 in the first quarter of 1997, but decreased as a
percentage of revenue. The absolute dollar increase in the first quarter of 1998
was primarily attributable to continued product development efforts related to
the A-2000 monitor and development of products for use outside the OR and an
increase in expenses related to clinical studies.
Sales and marketing expenses increased to $1.8 million in the first quarter
of 1998 from $762,000 in the first quarter of 1997, but decreased as a
percentage of revenue. The increase in absolute dollars was due to an increase
in sales and marketing personnel and an increase in advertising and market
development expenses associated with a promotion program for the BIS monitor
initiated by the Company in the first quarter of 1998.
General and administrative expenses increased to $736,000 in the first
quarter of 1998 from $618,000 in the first quarter of 1997, but decreased as a
percentage of revenue. The absolute dollar increase was primarily attributable
to an increase in general and administrative personnel to support the Company's
growth.
Interest income increased to $133,000 in the first quarter of 1998 from
$78,000 in the first quarter of 1997. The increase in interest income was due to
a higher average outstanding cash and investments balance resulting from sales
of the Company's Convertible Preferred Stock in February 1997 and February 1998.
Interest expense decreased to $9,000 in the first quarter of 1998 from
18
<PAGE> 20
$20,000 in the first quarter of 1997 as a result of lower average outstanding
capital lease obligations in the first quarter of 1998.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
The Company's revenue increased to $3.1 million in 1997 from $1.4 million
in 1996. Revenue from the sale of monitors and related accessories increased to
$2.5 million in 1997 from $1.2 million in 1996 and revenue from the sale of
disposables increased to $606,000 in 1997 from $181,000 in 1996. The increase in
revenue from the sale of monitors and related accessories was primarily
attributable to the commercial introduction of the A-1050 monitor in 1996 and
the increase in the growth of the direct sales force in 1997. The increase in
revenue from the sale of disposables was primarily attributable to the
commercial introduction of the BIS Sensor in 1997 and growth in the installed
base of monitors. In 1996, the ZipPrep electrode was the Company's only
disposable product.
In 1997, the Company had a negative gross profit percentage of 17% as
compared to a gross profit percentage of 21% in 1996. The negative gross profit
in 1997 and the decrease in gross profit as compared to 1996 resulted primarily
from under-absorbed overhead costs and provisions for excess and obsolete
inventory.
Research and development expenses increased to $2.6 million in 1997 from
$2.3 million in 1996, but decreased as a percentage of revenue in 1997 as
compared to 1996. The absolute dollar increase in 1997 was primarily due to the
new product development efforts related to the A-2000 monitor and the BIS Module
Kit.
Sales and marketing expenses increased to $4.8 million in 1997 from $1.6
million in 1996. This increase was primarily due to an increase in sales and
marketing personnel, including the establishment of the clinical specialist
group, and the related costs of compensation, benefits and travel expenses.
General and administrative expenses increased to $2.4 million in 1997 from
$1.9 million in 1996, but decreased as a percentage of revenue in 1997 as
compared to 1996. The absolute dollar increase was primarily attributable to an
increase in general and administrative personnel to support the Company's
growth.
Interest income increased to $500,000 in 1997 from $144,000 in 1996 due to
an increase in the average outstanding cash and investments balance resulting
from the sale of the Company's Convertible Preferred Stock in February 1997.
Interest expense increased to $78,000 in 1997 from $63,000 in 1996 as a result
of higher average outstanding capital lease obligations in 1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company's revenue increased to $1.4 million in 1996 from $1.1 million
in 1995. Revenue from the sale of monitors and related accessories increased to
$1.2 million in 1996 from $1.0 million in 1995, and revenue from the sale of
disposables increased to $181,000 in 1996 from $67,000 in 1995. The increase in
revenue from the sale of monitors and related accessories was primarily
attributable to the commercial introduction of the A-1050 monitor in 1996. The
increase in revenue from the sale of disposables was primarily attributable to
growth in the installed base of monitors.
The Company's gross profit was 21% of revenue in 1996 as compared to 34% of
revenue in 1995. The decrease from 1995 to 1996 was primarily attributable to a
lower average selling price on the A-1050 monitor introduced in 1996 compared to
the A-1000 monitor.
Research and development expenses decreased to $2.3 million in 1996 from
$2.9 million in 1995. This decrease resulted from a reduction in research and
development personnel in the second half of 1995.
19
<PAGE> 21
Sales and marketing expenses increased to $1.6 million in 1996 from $1.3
million in 1995, but decreased as a percentage of revenue. The absolute dollar
increase was primarily due to an increase in advertising and marketing expenses
related to the introduction of the A-1050 monitor.
General and administrative expenses increased to $1.9 million in 1996 from
$1.8 million in 1995, but decreased as a percentage of revenue in 1996 as
compared to 1995. The absolute dollar increase was primarily attributable to an
increase in general and administrative personnel to support the Company's
growth.
Interest income remained relatively constant between 1995 and 1996.
Interest expense decreased from $85,000 in 1995 to $63,000 in 1996. The lower
interest expense in 1996 was primarily due to lower average outstanding capital
lease obligations.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited selected operating results for
each of the five fiscal quarters in the period ended April 4, 1998. The Company
believes that the following selected quarterly information includes all
adjustments (consisting only of normal, recurring adjustments) that the Company
considers necessary to present this information fairly. This financial
information should be read in conjunction with the Company's Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. These
operating results are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
MARCH 29, JUNE 28, SEPTEMBER 27, DECEMBER 31, APRIL 4,
1997 1997 1997 1997 1998
--------- -------- ------------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue...................... $ 415 $ 661 $ 845 $ 1,147 $ 1,733
Net loss..................... (2,166) (2,281) (2,409) (3,030) (2,817)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed operations primarily from the
sale of its Convertible Preferred Stock. Through April 4, 1998, the Company had
raised approximately $50.4 million from equity financings and had received $1.2
million in equipment lease financing. At April 4, 1998, the Company had
approximately $300,000 committed to the purchase of equipment related to the
automation of the BIS Sensor production line.
Working capital at April 4, 1998 was approximately $10.9 million compared
to approximately $3.1 million and approximately $1.0 million at December 31,
1997 and 1996, respectively. The increases in working capital from 1996 to 1997
and from December 31, 1997 to April 4, 1998 were primarily due to the sale of
the Company's Convertible Preferred Stock in February 1997 and 1998, and
increases in accounts receivable and investment in sales-type leases, offset by
an increase in deferred revenue.
The Company used approximately $2.7 million of cash for operations in the
first quarter of 1998. Cash used for operations during this period was primarily
driven by operating losses, increases in accounts receivable and investment in
sales-type leases, which were partially offset by an increase in deferred
revenue. The Company used approximately $17.5 million for operations during the
three years ended December 31, 1997. Cash used for operations during this period
was also primarily driven by operating losses, increases in accounts receivable
and investment in sales-type leases, offset by increases in accounts payable,
accrued liabilities and deferred revenue.
The Company used approximately $3.0 million of cash for investing
activities in the first quarter of 1998. The Company invested approximately $2.3
million, net, in marketable securities and approximately $710,000 in
manufacturing equipment, leasehold improvements and new information systems. The
Company used approximately $3.0 million for investing activities during the
three
20
<PAGE> 22
years ended December 31, 1997. The Company invested approximately $1.2 million,
net, in marketable securities and approximately $1.8 million in manufacturing
equipment, leasehold improvements and new information systems.
The Company received approximately $11.6 million of cash from financing
activities in the first quarter of 1998 primarily as a result of the sale by the
Company of its Convertible Preferred Stock in February 1998. The Company
received approximately $20.1 million of cash from financing activities during
the three years ended December 31, 1997. Cash provided by financing activities
during this period was primarily the result of the sale by the Company of its
Convertible Preferred Stock in each of the three years.
In June 1998, the Company entered into a loan agreement with a commercial
bank. Under the terms of this loan agreement, the Company may borrow up to $5.0
million for working capital and equipment. The amount available to the Company
under the working capital portion of the loan agreement is based upon a
percentage of the Company's outstanding accounts receivable. The outstanding
principal under the working capital portion of the loan agreement is due and
payable in December 1999. The principal amount outstanding under the equipment
portion of the loan agreement is due in 36 equal monthly installments commencing
January 1999.
The Company has conducted a software review to identify functions that need
corrections to be "Year 2000" compliant. The Year 2000 problem is the result of
computer programs being written to recognize two digits rather than four to
define the applicable year causing computer programs to interpret a date using
"00" as the year 1900 rather than the year 2000, which could result in product
failures or miscalculations. The Company is undertaking certain corrective
actions in an effort to ensure that software systems incorporated in its
products or used to manage its business will continue to function properly in
the year 2000. However, there can be no assurance that Year 2000 problems will
not be encountered or that the costs incurred to resolve such problems will not
be material. Additionally, there can be no assurance that the Year 2000 problem
will not affect the Company by causing disruptions in the business operations of
persons with whom the Company does business, such as customers or suppliers.
Year 2000 problems could have a material adverse effect on the Company.
The Company believes that the financial resources available to it,
including its current working capital and loan agreement, together with the net
proceeds of this offering, will be sufficient to finance its planned operations
and capital expenditures at least through 1999. However, the Company's future
liquidity and capital requirements will depend upon numerous factors, including
the resources required to further develop its marketing and sales organization
domestically and internationally, to expand manufacturing capacity, to finance
the Company's sales-type lease program and to meet market demand for the
Company's products.
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<PAGE> 23
BUSINESS
THE COMPANY
Aspect develops, manufactures and markets anesthesia monitoring systems
that enable anesthesia providers to assess levels of consciousness and
administer the appropriate amount of anesthetics during surgery. The BIS System
incorporates the Company's proprietary disposable BIS Sensors and the A-2000 BIS
Monitor, which was cleared for marketing by the FDA in February 1998. The BIS
System is based on Aspect's patented core technology, the BIS index, which is
the only FDA-cleared, commercially available direct measure of the effects of
anesthetics on the brain. The BIS System was developed over a ten-year period
and is the subject of eight issued and five pending United States patents.
Aspect markets the BIS System through a direct sales organization in the United
States. As of April 4, 1998, more than 600 BIS monitors have been sold to
approximately 100 sites in the United States, and the Company believes that over
100,000 patients have been monitored using the BIS index during surgery.
MARKET OPPORTUNITY
The three basic objectives of general anesthesia are to render the patient
unconscious, to prevent response to painful stimuli and to ensure the patient
will not move during the surgical procedure. A combination of drugs is typically
used to accomplish these goals, including drugs to induce unconsciousness,
analgesics to provide pain relief and muscle relaxants to immobilize the
patient. Historically, anesthesia providers have had no direct means of
assessing a patient's level of consciousness during surgery and have generally
relied on recommended drug dosages and on indirect indicators of consciousness,
including blood pressure and heart rate. Changes in these indirect measures,
however, are not reliable indicators of changes in a patient's level of
consciousness. Although anesthesia providers can adjust recommended anesthetic
dosages based on individual patient characteristics, these adjustments cannot
always account for variability in patient responses to anesthesia or changes in
anesthetic requirements during the course of surgery.
Each year, approximately 29 million patients in the United States and 47
million patients in Europe and Japan receive anesthesia for surgical procedures,
of whom more than 60% receive general anesthesia or deep sedation monitored by
an anesthesia provider. In the United States, there are approximately 34,000 ORs
in hospitals and 5,000 in independent ambulatory ASCs. In Europe and Japan,
there are approximately 48,000 ORs in hospitals.
Third-party payors and managed care organizations are increasingly
scrutinizing the high cost of surgical care. As a result, hospitals are
implementing programs to control surgical costs, including the cost of
anesthetic drugs and anesthesia recovery, while seeking to improve quality of
care and safety. Programs to accelerate the anesthesia recovery process include
reducing the amount of time patients remain in the OR following the completion
of surgery, reducing the amount of time patients are required to remain in the
Post Anesthesia Care Unit ("PACU") after surgery, and allowing a higher
percentage of patients to bypass the PACU following ambulatory surgery and
proceed immediately to less costly step-down recovery areas.
The Company believes that providing an effective tool for monitoring a
patient's level of consciousness during surgery will contribute to improving the
quality, safety and efficiency of anesthesia care. Using existing monitoring
devices, anesthesia providers are sometimes unable to identify surgical
awareness, or the unintentional regaining of consciousness during surgery,
because anesthetized patients who have received muscle relaxants are unable to
communicate and because changes in vital signs are not reliable indicators of
changes in levels of consciousness. It is estimated that, in the United States,
surgical awareness occurs in approximately 0.2% of surgeries requiring general
anesthesia, or approximately 35,000 procedures per year.
Because of variations in the amount of anesthetic drugs administered for
any given surgery, variations in patient tolerances to anesthetic drugs and the
desire to prevent surgical awareness, the
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<PAGE> 24
Company believes that anesthesia providers tend to administer more anesthetic
than is required by many of their patients. Overmedication contributes to the
high cost of surgical care as a result of increased drug costs, prolonged and
unpredictable wake-ups from anesthesia and prolonged post-anesthesia recovery in
the PACU. These factors, in turn, lead to inefficiencies in OR and PACU
scheduling and increased personnel costs.
In addition to the OR, anesthesia is administered to sedate patients in
ICUs and for diagnostic and therapeutic procedures outside the OR. Many patients
admitted to the ICU receive sedation during their stay. There are approximately
80,000 beds in hospitals in the United States for critical care patients and
over 22 million patient days per year are spent in the ICU. The assessment of a
patient's level of sedation in the ICU is subjective, relies on indirect
measures, and is usually carried out by several different individuals in a
24-hour period, many of whom are not trained in anesthesia. The Company believes
that this may result in overmedication that may extend the patient's length of
stay in the ICU.
Advances in pharmacology and the development of less-invasive diagnostic
and therapeutic procedures have enabled physicians to perform more procedures
outside the OR under conscious sedation rather than general anesthesia. Aspect
estimates that in the United States there are approximately 42,000 rooms in
hospitals, ASCs and doctors' offices where these procedures are performed.
During conscious-sedation procedures, a trained anesthesia provider may or may
not be present depending on the institution's policies and the attending
physician's judgment. One of the risks of conscious sedation is that
overmedication may cause a patient to lose consciousness and fall into a state
of general anesthesia resulting in the loss of protective reflexes, including
the ability to breath without mechanical assistance.
THE ASPECT SOLUTION: PATIENT MONITORING WITH THE BIS INDEX
The Company has developed the only FDA-cleared, commercially available
product for use as a direct measure of anesthetic effect on the brain. Aspect's
clinically validated BIS index assists the anesthesia provider in assessing
levels of consciousness and administering appropriate amounts of anesthesia
required for the surgical procedure while avoiding unintentional overmedication
or undermedication. Company-sponsored clinical trials have shown that
administering appropriate levels of anesthetics results in less drug use, and
therefore, lower drug costs, faster wake-up from anesthesia, less patient time
in the OR and the PACU following surgery and improvement in the quality of
recovery. Other studies have shown that when appropriate levels of anesthesia
are administered, patients are more likely to meet criteria for bypassing the
PACU following ambulatory surgery and proceeding immediately to the less costly
step-down recovery area. The Company also believes that the BIS index can be
used to assess the risk of surgical awareness.
The BIS index is a numerical index derived from the combination of several
processed EEG variables that correlate with loss of consciousness and changes in
levels of sedation. The BIS System, which incorporates the BIS index, is
comprised of the Company's anesthesia monitor and single-use, disposable BIS
Sensors. The FDA cleared for marketing the BIS index for use as a direct measure
of anesthetic effect on the brain in October 1996 and cleared the A-2000 BIS
monitor in February 1998.
The following are examples of the benefits of BIS monitoring demonstrated
by the Company in a 302-patient prospective, randomized, controlled clinical
utility trial:
- More controlled and cost-effective dosing of anesthetic drugs: Patients
monitored with the BIS index during surgery received 23% less anesthetic
than patients who were not BIS monitored. Based upon the current average
cost of the anesthetic drugs used in this utility trial, the Company
believes that the use of the BIS index could result in drug cost savings
of up to $18.00 per case.
- Faster and more predictable recovery from anesthesia: Patients receiving
BIS monitoring during surgery emerged from unconsciousness 35% to 40%
faster than patients who did not
23
<PAGE> 25
receive BIS monitoring. In addition, only 5% of BIS-monitored patients
required more than 15 minutes to emerge from anesthesia compared with 16%
of patients who did not receive BIS monitoring. Moreover, patients who
received BIS monitoring were eligible for discharge from the PACU 16%
faster than patients who did not receive BIS monitoring.
- Improved quality of recovery: Patients received better clinical
assessments of their recovery by PACU nurses when the BIS index was used.
In addition, 43% of patients monitored with the BIS index were alert and
oriented when admitted to the PACU, as compared to 23% of patients not
monitored with the BIS index during surgery.
The Company believes that the BIS index also provides an effective
indication of the risk of surgical awareness. The Company demonstrated the
correlation of BIS index values with the loss of and return to consciousness in
two clinical efficacy studies, one involving approximately 100 volunteers and
one involving 40 patients. The Company estimates that more than 100,000 patients
have been monitored with the BIS index during surgery. Four cases of surgical
awareness with BIS monitoring have been reported to the Company. In each case,
high BIS index values were noted, indicating that the BIS index correctly
identified the potential risk of awareness in these patients. The Company has
not undertaken the clinical studies necessary to confirm that BIS monitoring
reduces the incidence of surgical awareness because the Company estimates that
surgical awareness typically occurs in only one patient per 500 and, therefore,
the required studies are not practicable.
STRATEGY
The BIS index is the only FDA-cleared and commercially available measure of
the effects of anesthetics on the brain. Aspect's objective is to become a major
multinational anesthesia-monitoring company by establishing BIS monitoring as
the standard of practice in anesthesia and sedation monitoring. Key elements of
the Company's strategy to accomplish its objective include the following:
Direct Sales Force for Rapid Commercialization. Aspect intends to
capitalize on its first-to-the-market position by pursuing a rapid
commercialization strategy that emphasizes use of a direct sales force. The
Company believes that a direct sales force is best able to convey to anesthesia
providers and administrators the clinical benefits and potential cost savings
achievable with BIS monitoring. Flexible sales options allow hospitals to either
purchase BIS monitors outright or acquire BIS monitors by committing to purchase
a minimum number of BIS Sensors per monitor per year. As of April 4, 1998, the
Company has sold more than 600 BIS monitors to approximately 100 sites in the
United States and the Company believes that over 100,000 patients have been
monitored with the BIS Sensor.
Clinical Specialists to Educate and to Promote the Use of Aspect's BIS
System. Aspect intends to establish a ratio of 1.5 clinical specialists for
each of the Company's sales representatives. The principal responsibilities of
these clinical specialists are to provide education, training and support for
the Company's installed base and to promote appropriate use of BIS Systems.
These activities are designed to increase the use of BIS Sensors in the OR. The
Company expects that clinical specialists will also play a key role in expanding
the use of BIS monitoring to markets outside the OR, including the ICU and
conscious sedation.
OEM Relationships to Broaden Distribution Channels. The Company believes
that original equipment manufacturer ("OEM") relationships will accelerate
market penetration of the BIS technology. OEM relationships will result in
integration of the BIS index into third-party patient-monitoring systems. The
Company currently is a party to two OEM agreements and expects to enter into
additional OEM relationships with patient-monitoring or medical device companies
over the next several years to expand the channels for distribution of the BIS
System, particularly in international markets.
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<PAGE> 26
Technological Leadership. Aspect's priority is to improve current
applications of BIS technology and to develop further its signal-processing
technology. In addition, the Company intends to continue to sponsor and support
research of leading clinicians to further document the clinical utility of the
BIS index. The Company intends to protect its intellectual property and
technology leadership position through product innovation, patents and other
proprietary means.
New Product Development. The Company is continuing to focus both on
product extensions, such as the application of the BIS index for the ICU and
conscious-sedation markets, and on new product development, such as the
application of bispectral analysis to the electrocardiogram (the "ECG"). Each of
these initiatives builds on the Company's core expertise and innovations in
signal-processing technology. Continued innovation and commercialization of new
proprietary products is an essential element in the Company's long-term growth
strategy and the source of potential competitive advantages.
PRODUCTS
The following chart summarizes Aspect's product offerings, all of which
have received 510(k) clearance from the FDA:
<TABLE>
<CAPTION>
INITIAL
COMMERCIAL
PRODUCT SHIPMENT DESCRIPTION
------- ------------ -----------
<S> <C> <C>
A-2000 BIS Monitor March 1998 Small, lightweight third-generation BIS
monitor for the OR
BIS Sensor 1997 Single-piece, single-use disposable
product for use with A-2000, A-1050 and
BIS Module Kit
BIS Module Kit(1) -- Components of BIS monitoring technology to
be integrated into OEM monitors
A-1050 EEG Monitor with BIS 1996 Second-generation monitor with BIS index
and simplified user interface
A-1000 EEG Monitor 1993 Aspect's first commercial EEG monitor with
BIS index
ZipPrep EEG Electrode 1995 EEG electrode with Aspect's ZipPrep
technology used with A-1000 monitor
</TABLE>
- ---------------
(1) The Company has commenced commercial shipment of the BIS Module Kit. The
Company does not believe any OEM has commenced commercial shipment of its
BIS Module product. Each OEM will be required to obtain FDA clearance of its
BIS Module product.
A-2000 BIS Monitor
Aspect began commercial distribution of the A-2000 BIS Monitor ("A-2000"),
the Company's third-generation monitoring product, in March 1998. The A-2000 is
a compact, portable system designed to accommodate the space limitations and
positioning requirements of surgical settings. The A-2000 displays the BIS index
and supporting information on a high-contrast electro-luminescent display and
includes Aspect's proprietary Digital Signal Converter. The Digital Signal
Converter is a palm-sized module that performs the analog-to-digital conversion
of the EEG and provides the interface between the monitor and the BIS Sensor,
which adheres to the patient's forehead. The A-2000 is compact (7 inches by 6.8
inches by 4 inches) and lightweight (3.1 pounds). The hardware architecture of
the A-2000 employs a 50 megaflops floating-point processor to perform the BIS
index computation and a 25 MIPS RISC processor to perform the user-interface
functions. The list price for the A-2000 is $8,900.
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BIS Sensor
The BIS Sensor is a single-piece, single-use disposable product for use
with the A-2000, the A-1050 and the BIS Module Kit. Aspect's BIS monitors and
BIS Module Kits require the use of the BIS Sensor to generate the BIS index. The
BIS Sensor provides a reliable and simple means of acquiring the high-resolution
EEG signal needed to generate the BIS index. The one-piece design allows quick
and accurate placement on the patient's forehead. The BIS Sensor connects to the
monitor by a single-point proprietary connector. The Company commenced
commercial shipment of the BIS Sensor in January 1997. The list price for the
BIS Sensor is $15.00.
Aspect's ZipPrep self-prepping technology is a key feature of the BIS
Sensor because it minimizes patient set-up time and enables consistent, accurate
readings of the EEG signal. Prior to Aspect's development of the ZipPrep
technology, to obtain an EEG signal the user prepared a patient's skin by
rubbing an abrasive cream over the area 10 to 20 times in order to remove the
top layer of skin. The ZipPrep technology contains a non-conductive polymer disk
with multiple, small, flexible tines that are embedded in a standard electrode
hydrogel. As a function of their design, the ZipPrep tines come in contact with
and part the outer layer of dead cells on the skin. This allows the electrode's
hydrogel to quickly penetrate the skin and establish an effective electrical
contact to the patient.
BIS Module Kit
In 1996, Aspect introduced the BIS Module Kit, which requires the use of
the BIS Sensor in order to calculate the BIS index. The BIS Module Kit is
designed to facilitate the integration of the Company's BIS index into
monitoring products marketed by third parties that enter into OEM arrangements
with the Company. The Company is currently a party to two OEM agreements.
The BIS Module Kit consists of two pieces, the Company's proprietary
Digital Signal Converter and a small circuit board that resides in the OEM
equipment. The Digital Signal Converter acquires the EEG signal from the BIS
Sensor, performs the analog-to-digital conversion, and transmits the digitized
EEG signal to the circuit board. The circuit board then processes the EEG signal
and outputs the BIS index to the OEM system.
The Company expects that all OEM licensees of the BIS index technology will
use the common architecture of the BIS Module Kit, which will facilitate
integration of the BIS index into the OEM's system and will simplify any future
software updates of the BIS index technology.
TECHNOLOGY
Aspect's BIS System was developed over a ten-year period and combines the
computational power of bispectral analysis with proprietary signal-processing
algorithms. The BIS index is a numerical index derived from the combination of
several processed EEG variables that correlate with loss of consciousness and
changes in levels of sedation. The EEG, the electrical signal generated in the
cortex of the brain, changes in response to anesthetic drugs. In general, the
EEG changes from a low-amplitude, high-frequency signal while a person is awake
to a large-amplitude, low-frequency signal while a person is deeply
anesthetized. Mathematical algorithms based on this observation, such as the
Spectral Edge Frequency and Median Frequency, attempt to track the effects of
anesthetics on the brain. However, these processed EEG parameters have not been
widely adopted because studies have indicated that they generally do not provide
sufficient clinically useful information to assess levels of consciousness with
commonly used anesthetic agents and doses.
In developing the BIS index, the Company sought to improve these early EEG
analyses in two ways. First, by using bispectral analysis, a mathematical tool
that examines non-linear signals such as the EEG, new information is extracted
from the EEG signal. The second improvement involves the development of
proprietary processing algorithms that extract information from bispectral
analysis, power spectral analysis and time domain analysis. Bispectral analysis
was originally used in the early
26
<PAGE> 28
1960s by geophysicists to study ocean wave motion, atmospheric pressure changes
and seismic activity. Bispectral analysis can now be utilized for other
applications with the advent of high-speed, low-cost digital signal processors.
This technology is based on the non-linear expansion of Fourier analysis, which
provides the means to analyze the frequency, amplitude and phase relationships
within a signal. As a result, a distinctive "fingerprint" of the underlying
process that generates the signal can be obtained. Bispectral analysis extracts
this unique fingerprint and represents it as a three-dimensional mathematical
model of the signal's structure.
The Company created the BIS index to describe changes in the EEG that
relate to the effects of anesthetics on the brain in order to assess levels of
consciousness. Over a number of years, a large database of high-fidelity EEG
recordings and clinical assessments were collected by the Company and third
parties from patients and volunteers receiving a wide variety of anesthetic
agents. The clinical assessments used to define levels of consciousness included
a sedation-rating scale, picture or word recall memory tests, and response to
stimuli. Using statistical methods, Aspect identified features within the EEG
that correlated with sedation and loss of consciousness. The Company used
proprietary multivariate statistical methods to combine these features to
generate an interpretive numerical index, which the Company refers to as the BIS
index. The BIS index ranges from 100, indicating that the patent is awake, to
zero, indicating an absence of electrical brain activity.
CLINICAL DEVELOPMENT
The Company's clinical and regulatory affairs research group (i)
establishes collaborative relationships with leading clinical researchers; (ii)
encourages publications related to the BIS index in the scientific literature;
(iii) is responsible for clinical research with the goal of extending the
application of BIS monitoring to other settings and clinical uses; and (iv)
collects data for new product development. The Company has a clinical database
of over 5,000 cases for use in algorithm development and product validation
based on trials conducted or sponsored by the Company or undertaken by third
parties.
In 1996, the FDA cleared for marketing the Company's BIS index as a measure
of anesthetic effect on the brain. The regulatory process involved studies
conducted by the Company on over 900 subjects. These studies characterized the
relationships between the BIS index value and various clinical endpoints,
including movement response to incision, response to verbal command as a measure
of consciousness in volunteers and patients, memory function, drug utilization
and speed of patient recovery following surgery.
The Company evaluated the use of BIS monitoring as a measure of sedation,
consciousness and memory function in two clinical trials. In a multicenter study
involving approximately 100 volunteers, the Company demonstrated that the BIS
index correlated with the level of responsiveness and tracked the loss of
consciousness. In a second trial involving 40 patients, the BIS index reliably
correlated with the return to consciousness after a single injection of either
propofol or thiopental, two anesthetics often used to induce unconsciousness.
Several studies conducted by third parties, some of which were partially funded
by the Company, have generally confirmed these results.
The Company's multicenter, prospective, randomized, clinical utility trial
of 302 patients demonstrated the outcome benefits of BIS monitoring. This trial
compared clinical outcomes of a group of BIS-monitored patients to a similar
group of patients who were monitored under standard clinical practice without
BIS monitoring. The principal efficacy endpoints were the amounts of anesthetic
given and the speed of recovery following surgery. BIS-monitored patients
received 23% less propofol, woke up earlier in the operating room, were more
likely (43% versus 23%) to arrive at the PACU fully alert and oriented, were
judged by PACU nurses to have had better recovery and met criteria for discharge
from the PACU sooner.
Following FDA clearance of the BIS index, there have been five additional
prospective, randomized, clinical studies of BIS monitoring. The studies, one of
which was conducted by the Company, evaluated the effectiveness of BIS
monitoring in conjunction with various commonly used
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anesthetic agents on a total of nearly 300 patients. Each of the five studies
indicated that BIS monitoring led to a statistically significant reduction,
ranging from 15% to 38%, in the amount of anesthetic used per patient.
One of the third-party studies, which was partially funded by the Company,
evaluated whether patients monitored with the BIS index were more likely to
bypass the PACU and proceed directly to the step-down recovery unit following
surgery. In this 60-patient study, approximately 90% of the BIS-monitored
patients were considered eligible to bypass the PACU as compared to 63% of
patients who were not BIS-monitored.
In 1997, the Company's outcome study of 1,552 patients documented the
clinical impact and cost-effectiveness of routine BIS monitoring in all
operating rooms of Grady Hospital, a high-acuity, urban hospital located in
Atlanta, Georgia and affiliated with Emory University. Patients received a wide
variety of anesthetic agents typically used in general practice. Comprehensive
data were collected on all patients who received general anesthesia for at least
one hour. Results demonstrated that maintaining BIS index values within a
recommended target range during anesthetic maintenance was associated with
improved outcomes in terms of drug utilization, OR and PACU recovery and
associated costs.
There are more than 175 scientific articles and abstracts reporting the
results of BIS index performance in studies conducted by the Company and third
parties. In addition, Aspect currently maintains collaborations with over 50
clinical research sites.
SALES, MARKETING AND CUSTOMERS
The Company markets its BIS Systems in the United States through a direct
sales force. As of April 4, 1998, the Company's domestic sales force was
comprised of 14 sales professionals and 8 clinical specialists. Aspect has
developed a financial model for use by sales representatives to assist
administrators in evaluating the economic impact of BIS monitoring at their
hospital. Aspect believes that its clinical specialists play a key role in the
ongoing process of developing support for the BIS technology both before and
after the sale of BIS Systems. The principal responsibilities of clinical
specialists are clinical training and education at the time the equipment is
installed. Clinical specialists also make follow-up visits at each customer site
at regularly scheduled intervals. These visits allow clinical specialists to
monitor customer satisfaction and provide continuing feedback to the Company's
marketing and research and development staffs. The Company also believes that
these visits may help to establish BIS monitoring as the standard of practice in
anesthesia monitoring and to extend BIS monitoring into other settings in the
hospital, such as the ICU and conscious-sedation procedure rooms. Clinical
specialists generally have nursing backgrounds and have experience in
anesthesia, perioperative care or critical care. The Company currently plans to
hire several additional sales representatives and clinical specialists prior to
the end of 1998. The Company intends to establish a ratio of 1.5 clinical
specialists for each of the Company's sales representatives.
The Company offers customers the option either to purchase the BIS monitors
outright or to acquire the BIS monitors pursuant to a sales-type lease agreement
whereby the customer contractually commits to purchase a minimum number of BIS
Sensors per BIS monitor per year. Under this agreement, customers purchase the
BIS Sensors and the BIS monitor for the purchase price of the BIS Sensors plus
an additional charge per BIS Sensor to pay for the purchase price of the BIS
monitor and related financing costs over the term of the agreement. The customer
is granted an option to purchase the BIS monitor at the end of the term of the
agreement, which is typically three to five years. The Company believes that the
sale-type lease arrangement in some cases reduces the time required for
customers to adopt the BIS System because it provides them with an option to
utilize their operating budget to fund the purchase.
The Company's customers include anesthesia providers, hospitals, ASCs and
individual practitioners in office-based practice. The key customers that the
Company has targeted initially include
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the larger hospitals and ASCs, at or near capacity, with a high ratio of
outpatient surgical procedures to total surgical procedures. Through April 4,
1998, over approximately 100 sites in the United States have acquired the BIS
System.
The Company conducts several activities for the different constituencies
that may be involved in the decision-making process. For clinical audiences, the
Company exhibits at tradeshows, sponsors speakers at professional meetings and
develops articles for publication in conjunction with industry experts. To
educate consumers and hospital administrators, the Company is conducting a
public-relations campaign to highlight the benefits of BIS monitoring for
hospitals and patients. In addition, the Company works with hospitals to
publicize their adoption of BIS monitoring in an effort to assist them in
communicating their commitment to improving the quality and efficiency of
patient care. The Company believes that such publicity in the local media allows
hospitals to compete more effectively in their service areas and has allowed
Aspect to expand its business in those markets.
In January 1998, the Company entered into a three-year distribution
agreement with Nihon Kohden pursuant to which the Company granted to Nihon
Kohden Corporation ("Nihon Kohden") exclusive rights to distribute the Company's
BIS monitors in Japan. The import and sale of the Company's BIS monitors by
Nihon Kohden is subject to approval by the Japanese Ministry of Health and
Welfare. Nihon Kohden applied for this approval in early 1998.
The Company has hired a president of its newly-developed International
Division and is evaluating several options for international distribution of its
products, including the development of a field organization that includes sales
representatives and clinical specialists in selected countries and international
regions. The Company is also evaluating entering into distribution agreements
with dealers, distributors and anesthesia monitoring companies outside the
United States.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts focus primarily on
continuing to improve the function and features of the BIS System and enhancing
the Company's technical leadership in signal-processing technology for use in
patient care. The Company intends to leverage the BIS technology for the
development of new monitoring products and proprietary disposables for new
applications.
During the fiscal years ended December 31, 1995, 1996 and 1997, and the
quarter ended April 4, 1998, the Company expended $2.9 million, $2.4 million,
$2.6 million and $887,000, respectively, in its research and development
efforts, including clinical and regulatory expenses. The Company expects
research and development expenses to increase in the future as it seeks to
enhance its existing products and develop additional products. As of April 4,
1998, the Company employed 15 persons in its research and development group and
six persons in its clinical and regulatory group. For a further discussion of
the Company's clinical and regulatory group, see "-- Clinical Development."
The Company conducts research and development in five areas: algorithm
research, product development, disposable-product development, pre-production
quality assurance and clinical engineering. Algorithm research involves
developing signal-processing techniques to analyze the EEG and other
biopotentials. Product-development activities include developing the hardware
and software, including signal-processing software employed in the Company's BIS
Systems, and coordinating with external resources, particularly with respect to
mechanical engineering and industrial design. Disposable-product research and
development combines expertise in materials science, disposable-products design,
electrode technology and design for manufacturing to develop the Company's
disposable products, including the BIS Sensor products. Pre-production quality-
assurance activities include testing the Company's products to ensure that they
meet FDA guide-
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<PAGE> 31
lines, other applicable regulatory and international quality standards and
internal verification and validation protocols.
The Company is currently seeking to improve the BIS index technology for
ICU applications. Sedative agents are frequently used on ICU patients to reduce
anxiety, to enhance patient compliance to various interventional treatments and
to improve patient comfort. The current methods of assessing levels of sedation
in the ICU rely on a variety of indirect, often subjective, assessments
performed by observing physical signs and patient responsiveness to voice or
touch. These assessments are typically carried out by a number of different
health care providers in a 24-hour period, many of whom are not trained in
anesthesia. Patients in the ICU often have a critical illness or injury that
affects one or more organ systems simultaneously resulting in high degrees of
variability in patient responses to drug doses. Another complicating problem in
assessing a patient's level of sedation in the ICU is the effect of muscle
relaxants. These drugs may render the assessment extremely difficult because the
patient's ability to respond to the observer is eliminated due to drug-induced
paralysis. There are reports of patients who do not receive adequate levels of
sedation when these agents are used. In these cases, patients are paralyzed and
subjected to painful and traumatic therapies while the clinician is unaware of
the patient's discomfort. The Company is currently evaluating monitoring
products intended to measure the effects of sedation in the ICU setting.
The Company is also enhancing the BIS index for use in procedures requiring
sedation that are performed outside the OR. In these procedures, the level of
conscious sedation required ranges from light to deep sedation. The types of
procedures where conscious sedation is used include diagnostic endoscopy for
upper gastrointestinal exams, colonoscopy, bronchoscopy, and cystoscopy;
diagnostic and therapeutic radiological procedures, oral surgery, plastic
surgery, interventional cardiac procedures, and some emergency-room procedures.
During these procedures, a trained anesthetist may not be present depending upon
the local institution's policies and the attending physician's judgment. One of
the risks of conscious sedation is that overmedication may cause a patient to
lose consciousness and fall into a state of general anesthesia resulting in the
loss of protective reflexes, including the ability to breath without mechanical
assistance.
The Company is exploring the development of a BIS Sensor with improved
signal-processing systems for detection and filtration of noise in settings
outside the OR and other BIS Sensors which offer advantages in cases where
patients may require extended BIS monitoring, such as in the ICU.
The Company is also conducting preliminary research on the application of
its BIS index technology to ECG signals to diagnose cardiovascular disease. The
Company believes that bispectral analysis may provide a means for extracting and
quantifying subtle physiological information contained in the ECG and thus has
the potential to enhance the diagnostic accuracy of many ECG applications,
including the early diagnosis and assessment of coronary artery disease, a more
rapid assessment of acute myocardial infarctions and advanced perioperative
ischemia monitoring for patients at risk for heart attacks during or after
surgery.
Additional studies, sponsored in part by the Company, are ongoing to assess
the performance of the BIS index in the presence of certain anesthetics, such as
ketamine, and patient populations, such as children, not included in the
clinical development of the BIS algorithms. There can be no assurance that the
BIS technology will be effective in monitoring these or other anesthetic agents
and patient populations or when other anesthetic techniques are used.
Furthermore, there can be no assurance that the Company will be successful in
developing any product enhancements or extensions or new products, including
products for use in the ICU, for conscious sedation or for other applications.
The failure of the Company to develop product enhancements or extensions or new
products on a timely basis or at all could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Technological Risks."
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MANUFACTURING
The Company assembles all of its BIS monitors in a 7,000 square foot
manufacturing facility located within its Natick, Massachusetts headquarters.
The Company has historically outsourced the manufacturing of its BIS Sensors. In
the first quarter of 1998, the Company transitioned a portion of its production
of BIS Sensors to its manufacturing facility. The Company currently outsources
to third parties the production of some of its BIS Sensors and all of its
ZipPrep electrodes. The Company is currently building a custom-designed,
semi-automated production line for the high-volume manufacture of its BIS
Sensors that it expects to be operational by late 1998. The Company may require
additional manufacturing capacity within the next two years. The Company will
seek to obtain additional manufacturing facilities as needed. While the Company
believes that additional space on reasonable commercial terms will be available
to meet its future manufacturing needs, there can be no assurance that the
Company will be successful in expanding its manufacturing facility or relocating
its facility to meet demand in a timely manner or within budget.
The Company's production process for its BIS monitors consists of final
assembly, integration and testing of standard and custom components. The
Company's production process for its BIS Sensors consists of several
manufacturing and assembly processes using custom components. Qualified
sub-contractors, who have met the Company's supplier certification process and
are placed on an approved vendors list, produce certain custom components.
The Company maintains a quality-assurance program covering its
manufacturing operations. Suppliers of purchased components are required to meet
stated specifications. The Company certifies suppliers prior to use by
conducting audits and product inspections. The Company engages in ongoing
evaluations of the performance of its suppliers by evaluating the results of
inspections and tests as well as the timeliness of product deliveries. The
Company employs numerous quality-assurance procedures during its in-house
manufacturing processes to ensure finished products meet specification.
Quality-assurance procedures include operator training, process validation,
equipment calibration, inspection and testing. All manufacturing procedures and
processes are formally approved and updated using established revision-control
procedures. Documentation of in-process and final-testing results is maintained
in device history records for every unit. The Company maintains an ongoing
post-sale performance-monitoring program.
Although most of the standard components utilized by the Company in
manufacturing its products are available from more than one vendor, certain key
components of the Company's BIS Systems, including certain components used in
the BIS Sensor, are currently provided to the Company by single or limited
sources. A significant unplanned event at a supplier, including shortages of raw
materials or components, could have a material adverse effect on the Company's
operations. In addition, any termination or modification of any manufacturing
arrangement with a third party could result in a business interruption for the
Company. The Company has only one manufacturing facility, and any loss of,
damage to, or interruption of production at its facility could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Limited Manufacturing Experience; Manufacturing
Expansion."
COMPETITION
The medical device market is highly competitive and characterized by rapid
product development and technological advances. The future success of the
Company will depend in part upon its ability to anticipate and keep pace with
advancing technology and competitive innovations. However, there can be no
assurance that the Company will be successful in identifying, developing and
marketing new products or enhancing its existing products. In addition, there
can be no assurance that new monitoring products or alternative techniques for
evaluating the effects of anesthesia or other significant changes in the methods
of delivering anesthesia will not be developed that will render the Company's
current or planned products obsolete or inferior. Rapid technological
development by competitors may result in the Company's products becoming obso-
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lete before the Company recovers a significant portion of the research,
development and commercialization expenses incurred with respect to such
products.
Although the BIS monitor is currently the only device to be cleared by the
FDA for use in the United States as a direct measure of anesthetic effect on the
brain, the Company expects to face significant competition in the future. The
Company believes that competition will initially come from companies, including
patient monitoring companies, currently marketing conventional EEG monitors
utilizing standard signal-processing techniques such as the Spectral Edge
Frequency and Median Frequency, or companies that market EEG monitors utilizing
novel signal-processing technologies, including at least two companies that are
currently conducting clinical trials on products under development.
Additionally, a number of academic researchers worldwide are studying the
potential use of other techniques to measure the effects of anesthesia,
including the use of auditory evoked potentials, heart rate variability,
pupillary reflexes and skin blood flow measurement techniques. In addition, the
Company may face substantial competition from companies developing sensor
products that are competitive with the Company's proprietary BIS Sensors for use
with the Company's BIS monitors. Competitors in some jurisdictions outside the
United States may enter the market without the delay caused by regulatory
barriers that exist in the United States. Many potential competitors have
substantially greater financial, marketing, technical, manufacturing and
distribution resources than those of the Company. In addition, the Company will
compete on the basis of a number of factors in areas in which the Company has
limited experience, including manufacturing efficiencies, marketing and sales
capabilities and customer service. There can be no assurance that the Company
will be able to compete successfully against competitors or that competition,
including the development and commercialization of new products and technology,
will not have a material adverse effect on the Company's business, financial
condition or results of operations. See "Risk Factors -- Competition."
PATENTS AND PROPRIETARY RIGHTS
The Company's policy is to prosecute and enforce its patents and
proprietary technology. The Company intends to continue to file United States
and foreign patent applications to protect technology, inventions and
improvements that are considered important to the development of its business.
The Company also relies upon trade secrets, know how, continuing technological
innovation and licensing opportunities to develop and maintain its competitive
position. As of June 25, 1998, the Company held eight United States patents and
several foreign patents and had filed five additional United States patent
applications and numerous patent applications in certain major industrial
countries, including Canada, the major European market countries, Australia and
Japan.
The Company has established a substantial proprietary position with respect
to its core signal-processing technology, bispectral analysis, and its
application to biological signals. A series of four issued United States patents
covers the application of bispectral and higher order analysis to EEG signals,
along with various statistical-modeling techniques. Two United States patent
applications cover innovative methods of ensuring the reliability of the
computed values; of these, one has been allowed but has not yet issued and the
other is pending. The Company also holds two issued United States patents
covering the application of its core technology to ECG applications. The Company
holds one United States patent and three United States patent applications
covering its proprietary electrode and sensor technology. The issued patent
covers the Company's ZipPrep self-prepping disposable electrode technology, a
patent application covers the Company's proprietary sensor interconnection
technology, and two other patent applications cover the Company's proprietary
disposable BIS Sensor technology. The Company owns a United States patent that
covers signal acquisition technology for the Company's Digital Signal Converter
and has been granted a perpetual, royalty-free, non-exclusive license to a
second United States patent covering this technology by a third party.
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The Company believes that its competitive position and success has depended
on, in part, and will continue to depend on the ability of the Company to obtain
patent protection for its products, to defend patents once obtained, to preserve
its trade secrets and to operate without infringing upon patents and proprietary
rights held by third parties, both in the United States and in foreign
countries. There can be no assurance that the Company has or will develop or
obtain additional rights to products or processes that are patentable, that
patents will issue from any of the pending patent applications filed by the
Company or that claims allowed will be sufficient to protect the Company's
technology or technology that is licensed to the Company. In addition, no
assurances can be given that any patents issued to the Company will not be
challenged, invalidated, infringed or circumvented or that the rights granted
thereunder will provide competitive advantages for the Company's business or
products. Protection of patent rights outside the United States could be more
costly and result in a greater diversion of effort and resources of management
than protection of patent rights inside the United States. In such event, the
business, results of operations and financial condition of the Company could be
materially adversely affected.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical devices industry. The Company has in
the past been involved in patent litigation and future litigation may be
necessary to protect patents, trade secrets, copyrights or "know-how" owned by
the Company or to defend the Company against claimed infringement of the rights
of others and to determine the scope and validity of the proprietary rights of
the Company and others. The validity and breadth of claims covered in medical
technology patents involve complex legal and factual questions for which
important legal principles are unresolved. Any such litigation could result in
substantial cost to and diversion of effort by the Company. Adverse
determinations in any such litigation could subject the Company to significant
liabilities to third parties, could require the Company to seek licenses from
third parties with unfavorable terms, if at all, and could prevent the Company
from manufacturing, selling or using certain of its products, any of which could
have a material adverse effect on the Company's business, results of operations
and financial condition.
The Company also relies on copyrights, trade secrets and proprietary
technology that it seeks to protect, in part, through confidentiality agreements
with employees, consultants and other parties. There can be no assurance that
these agreements will not be breached, that the Company will have adequate
remedies for any breach, that others will not independently develop
substantially equivalent proprietary information or that third parties will not
otherwise gain access to the Company's trade secrets.
The Company also relies upon trademarks and trade names for the development
and protection of brand loyalty and associated goodwill in connection with its
products. The Company's policy is to protect its trademarks, trade names and
associated goodwill by, among other methods, filing United States and foreign
trademark applications relating to its products and business. The Company owns
numerous United States and foreign trademark registrations and applications. The
Company's registered and unregistered trademark rights relate to the majority of
the Company's products. There can be no assurance that any registered or
unregistered trademarks or trade names owned by or licensed to the Company or
licensed to the Company will not be challenged, cancelled, infringed,
circumvented, be declared generic or infringing of other third-party marks or
provide any competitive advantage to the Company. The Company also is a party to
a license agreement with a third party pursuant to which it has obtained the
nonexclusive right to make, use and/or sell products under the name "Aspect."
The licensor of the Aspect name markets monitors for use in the healthcare
industry. There can be no assurance that there will not be confusion in the
market between the Company and such licensor. In addition, there can be no
assurance that other companies in the medical device industry will not emerge
with the same or a similar name and thereby create confusion in the market or
that any such confusion would compromise the competitive advantage, if any, the
Company derives from its name.
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GOVERNMENT REGULATION
The manufacture and sale of medical diagnostic devices intended for
commercial distribution and use are subject to extensive government regulation
in the United States and in other countries. The Company's existing products are
regulated in the United States as medical devices by the FDA under the Federal
Food, Drug, and Cosmetic Act ("FDC Act"). Pursuant to the FDC Act, the FDA
regulates the research, testing, manufacturing, safety, labeling, storage,
record keeping, advertising, distribution and production of medical devices.
Noncompliance with applicable regulations can result in failure of the
government to grant clearance for devices, withdrawal of prior clearances or
approvals, total or partial suspension of production, fines, injunctions, civil
penalties, recall or seizure of products and criminal prosecution.
Generally, before the Company can introduce a new product in the United
States, the Company must obtain FDA clearance of a premarket notification under
Section 510(k) of the FDA Act ("510(k)") or approval of a PMA application under
Section 515 of the FDC Act. To date, the Company has received 510(k) clearance
from the FDA with respect to the following products: A-1000 (December 1992);
ZipPrep EEG Electrodes (June 1994); A-1050 (January 1996); BIS Sensor (October
1996); BIS Clinical Utility Indication (October 1996) and A-2000 (February
1998). While the Company has been successful to date in obtaining regulatory
approval of its products through the 510(k) notification process, there can be
no assurance that any of the Company's future products will meet the
requirements for 510(k) clearance. If the FDA concludes that any product does
not meet such requirements, then a PMA would be required and the process for
obtaining regulatory approval would be significantly delayed.
Once 510(k) clearance has been received, any products manufactured or
distributed by the Company are subject to extensive and continuing regulation by
the FDA, including compliance with GMP regulations, recordkeeping requirements,
reporting of adverse experience with the use of the device, post-market
surveillance, and other actions deemed necessary by the FDA. A new 510(k)
notification is also required when a medical device manufacturer makes a change
or modification to a legally marketed device that could significantly affect the
safety or effectiveness of the device, or where there is a major change or
modification in the intended use of the device. When any change or modification
is made to a device or its intended use, the manufacturer must make the initial
determination whether the change or modification is of a kind that would
necessitate the filing of a new 510(k) notification. The FDA's regulations
provide only limited guidance for making this determination. The Company has
made certain enhancements to its currently marketed products which it believes
do not necessitate the filing of a new 510(k) notification. There can be no
assurance that the FDA would agree with the Company's determinations that these
modifications do not require 510(k) notification. If the FDA requires the
Company to file a new 510(k) notification for any past or future modification to
a cleared device, the Company may be prohibited from marketing the device as
modified until it obtains clearance from the FDA. There can be no assurances
that the Company will obtain 510(k) clearance on a timely basis, if at all, for
any device modification.
The FDC Act regulates the Company's quality control and manufacturing
procedures by requiring the Company to demonstrate and maintain compliance with
GMPs, including Quality Systems Regulations, as specified by the FDA. This
regulation requires, among other things, that (i) the product development and
manufacturing process be controlled by the use of written procedures and (ii)
the ability to produce devices which meet the manufacturer's specifications be
validated by extensive and detailed testing of every aspect of the process. The
regulation also requires investigation of any deficiencies in the manufacturing
process or in the products produced and detailed record keeping. The GMP
regulations are applicable to manufacturers that produce components specifically
for use in a medical device, and require design controls and maintenance of
service records.
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The FDA monitors compliance with GMP by conducting periodic inspections of
manufacturing facilities. If violations of applicable regulations are noted
during FDA inspections of the Company's manufacturing facilities, the continued
marketing of the Company's products may be adversely affected.
The GMP regulations are subject to change and depend heavily on
administrative interpretations. There can be no assurance that future changes in
regulations or interpretations made by the FDA or other regulatory bodies, with
possible retroactive effect, will not adversely affect the Company. In August
1996, the FDA conducted a routine inspection of the Company's manufacturing
facility to ensure compliance with GMP regulations. The FDA noted no adverse
observations during this inspection. The Company believes that it has continued
to maintain manufacturing facilities and procedures that are fully compliant
with all applicable government quality systems regulations and guidelines.
However, adverse findings during future FDA facility inspections could have
material adverse effects on the Company's business, financial condition, and
result of operations.
Sales of medical device products outside the United States are subject to
foreign regulatory requirements that vary from country to country. The time
required to obtain approvals required by foreign countries may be longer or
shorter than that required for FDA approval, and requirements for licensing may
differ from FDA requirements. Failure to comply with foreign regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.
In June 1998, the Company obtained ISO 9001/EN46001 international quality
systems registration, a certification showing that the Company's procedures and
manufacturing facilities comply with standards for quality assurance and
manufacturing process control. The ISO 9001 certification, along with the
EN46001, the European Medical Device Directive ("MDD") certification, signifies
compliance with the requirements enabling the Company to affix the CE Mark to
its current products. The CE Mark denotes conformity with European standards for
safety and allows certified devices to be placed on the market in all European
Union countries. After June 1998, medical devices may not be sold in European
Union countries unless they display the CE Mark. However, there can be no
assurance that the Company will be able to maintain regulatory approvals or
clearances for its products in foreign countries. See "Risk
Factors -- Government Regulation."
The Company has established a dedicated regulatory and quality assurance
group to maintain regulatory compliance and manage all quality-assurance
activities for the Company. This group is responsible for all regulatory
submissions and communications, scheduling and performing company-wide audits,
coordinating product update procedures and corrective actions, and maintaining
document control activities. Other quality-related responsibilities include
complaint handling, adhering to appropriate procedures and applicable
requirements related to the FDA's quality systems regulations, and coordinating
appropriate documentation for FDA and ISO 9001/EN 46001 review and audits.
THIRD-PARTY REIMBURSEMENT
Third-party payors such as Medicare, Medicaid, private health insurance
carriers, managed care organizations, health care administration authorities in
foreign countries and other organizations may affect the pricing or demand for
the Company's products by regulating the maximum amount of reimbursement
provided for by such payors to the anesthesia providers, hospitals, ASCs or
physician's offices where surgical procedures are performed.
The Company does not expect that anesthesia providers will be separately
reimbursed for patient monitoring activities utilizing the Company's BIS
monitor. When providers, such as hospitals or ASCs, are reimbursed a fixed fee
calculated on a per case, per stay, or per capita basis, which is typical for
inpatient hospital procedures and procedures performed in ASCs, the cost of BIS
monitoring will not be recovered by these providers unless the incremental costs
of BIS monitoring are offset by savings in other costs, such as the costs of
anesthetic drugs or costs of the OR or PACU.
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There can be no assurance that BIS monitoring will result in sufficient savings
to offset these costs. When reimbursement is based on charges or costs, BIS
monitoring may have the effect of reducing reimbursement because the charges or
costs for surgical procedures, including OR and PACU charges and costs, may
decline as a result of BIS monitoring. Failure by hospitals and other users of
the BIS Systems to obtain sufficient reimbursement from third-party payors, or
any reduction in the reimbursement by third-party payors to hospitals and other
users as a result of using the BIS System, could limit market acceptance of the
BIS System and have a material adverse effect on the Company's business, results
of operations and financial condition. See "Risk Factors -- Limitations on
Third-Party Reimbursement."
EMPLOYEES
As of April 4, 1998, the Company had 77 full-time employees. Approximately
15 persons were engaged in research and development activities, 17 persons were
engaged in manufacturing and engineering, six persons were engaged in clinical
and regulatory affairs, 28 persons were engaged in sales and marketing and
clinical support and 11 persons were engaged in general and administrative
functions. None of the Company's employees is covered by a collective bargaining
agreement. The Company considers relations with its employees to be good.
SCIENTIFIC ADVISORS
The Company utilizes a number of scientists and physicians to advise it on
scientific and medical matters, including experts in EEG monitoring,
pharmacology and anesthesia management. These individuals advise the Company
concerning its research and development programs, the design and implementation
of the Company's clinical research program, the Company's publication
strategies, the identification of market opportunities from the clinical
perspective and specific scientific and technical issues.
FACILITIES
The Company currently leases approximately 23,000 square feet of
development, production, and administrative space in Natick, Massachusetts
pursuant to a lease which expires on October 31, 2000. The Company believes its
current facilities will be sufficient to meet the Company's needs through the
first half of 1999 and that additional space will be available at a reasonable
cost to meet the Company's space needs thereafter.
INSURANCE
The business of the Company entails the risk of product liability and
product recall claims and any such claims could have an adverse impact on the
Company. The Company has taken and will continue to take what it believes are
appropriate precautions, including maintaining general liability and commercial
liability insurance policies which include adequate coverage for product
liability and product recall claims. The Company evaluates its insurance
requirements on an ongoing basis to enable it to maintain adequate levels of
coverage. However, there can be no assurance that product liability or product
recall claims will not exceed such insurance coverage limits or that such
insurance will be available on commercially reasonable terms or at all.
LITIGATION
The Company is not a party to any material threatened or pending legal
proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, their respective ages
as of June 15, 1998 and their positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Nassib G. Chamoun...................... 36 Chief Executive Officer, President and Director
J. Breckenridge Eagle.................. 48 Chairman of the Board of Directors
J. Neal Armstrong...................... 60 Vice President, Chief Financial Officer and
Secretary
Jeffrey Barrett........................ 35 Vice President of Manufacturing and Operations
Boudewijn L.P.M. Bollen................ 51 President - International
Philip Devlin.......................... 41 Vice President of Research and Development
Steven H. Kane......................... 45 Vice President of Sales and Field Operations
Paul J. Manberg, Ph.D. ................ 43 Vice President of Clinical, Regulatory and Quality
Assurance
Jean Nelson............................ 39 Vice President of Marketing
Stephen E. Coit(1)..................... 50 Director
Edwin M. Kania, Jr. (2)................ 40 Director
Lester John Lloyd(2)................... 62 Director
Terrance McGuire....................... 42 Director
Donald Stanski, M.D.(1)................ 48 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. Chamoun is a founder of the Company and has served as a director of the
Company since 1987. Mr. Chamoun has served as President of the Company since
1996 and Chief Executive Officer since 1995. Mr. Chamoun served as Chairman of
the Board of Directors, from 1987 to 1996, and as Chief Scientific Officer from
1991 to 1995. Mr. Chamoun also served as President and Chief Executive Officer
prior to 1995 at various times since founding the Company in 1987. From 1984 to
1987, Mr. Chamoun was a fellow in cardiovascular physiology at the Lown
Cardiovascular Laboratory of the Harvard School of Public Health. Mr. Chamoun
earned a bachelors degree in Electrical Engineering from Northeastern University
and a masters degree in Computer Engineering from Boston University.
Mr. Eagle has served as a director of the Company from 1988 to 1991 and
from 1996 to the present. Mr. Eagle has served as Chairman of the Board of
Directors since November 1996. He served as President and Chief Operating
Officer of the Company in 1996 and served as a consultant to the Company in
1995. From 1989 to 1995, he served as President of ECS, Inc., a medical practice
management company which he founded in 1989. From 1981 to 1988, he served as
Chief Financial Officer, Vice President and General Manager of The Health Data
Institute, Inc., a health care services company, which he co-founded. Mr. Eagle
earned a bachelors degree in Psychology and a masters degree in Public Health
from Yale University and received a masters degree in Business Administration
from Harvard Business School.
Mr. Armstrong has served as Vice President and Chief Financial Officer of
the Company since 1996. From 1990 to 1996, he served as Vice President of
Finance, Chief Financial Officer and a director of Haemonetics, Inc., a
manufacturer of blood processing systems ("Haemonetics"). From 1985 to 1990, he
served as Vice President of Finance and Administration, Treasurer and Chief
Financial Officer at BTU International, a manufacturer of thermal processing
systems. He previously served for 14 years in senior operating and financial
positions at Texas Instruments, Inc., an
37
<PAGE> 39
electronics company. Mr. Armstrong holds a bachelors degree in Business
Administration from the University of Texas and is a certified public
accountant.
Mr. Barrett has served as Vice President of Manufacturing and Operations of
the Company since 1997. From 1996 to 1997, he served as Vice President of
Manufacturing at Aksys, Ltd., a developer of dialysis equipment. From 1989 to
1996, Mr. Barrett served in a variety of manufacturing and operating positions
at Haemonetics, serving most recently as its Vice President of Operations. Mr.
Barrett received a bachelors degree in Economics and Industrial Engineering from
Rutgers University and a masters degree in Business Administration from Boston
University.
Mr. Bollen has served as President - International of the Company since
June 1998. From 1986 to 1997, Mr. Bollen held several positions at Nellcor
Puritan Bennett, Inc., a medical device company, including Executive Vice
President for Worldwide Sales, Service and Distribution, Vice President of
European Sales and Marketing, and Vice President and Managing Director for
Europe. From 1981 to 1986, Mr. Bollen served as Vice President of Marketing and
Sales in Europe for Bentley Laboratories, Inc., a manufacturer of specialized
monitoring and medical equipment. Mr. Bollen holds the equivalent of a bachelors
degree in Hotel Business Management from the Hotel Business School in
Maastricht, Holland.
Mr. Devlin has served as Vice President of Research and Development of the
Company since 1994 and served as Director of Product Development of the Company
from 1990 to 1994. From 1984 to 1985 and 1986 to 1990, he served as Software
Engineer and Manager of Software Engineering at Lifeline Systems, Inc., a
medical products and communications company. From 1980 to 1984, he served as
Chief Biomedical Engineer at Beth Israel Hospital in Boston, Massachusetts and
from 1985 to 1986, he served as Technical Marketing Engineer in the Medical
Product Group of Hewlett-Packard Company, a manufacturer of computers and
medical devices. Mr. Devlin holds a bachelors and masters degree in Electrical
Engineering from Northeastern University.
Mr. Kane has served as Vice President of Sales and Field Operations of the
Company since 1997. From 1990 to 1997, he served as Area Vice President, Sales
and Operations, Northeastern United States at Pyxis Corp., a medical technology
company. From 1988 to 1990, he served as Regional Manager, Eastern United
States, at IVAC Corp., an intravenous infusion therapy systems company.
Dr. Manberg has served as Vice President of Clinical, Regulatory and
Quality Assurance of the Company since 1991. From 1984 to 1990, he served in a
variety of clinical research positions at Serono Laboratories, a pharmaceutical
company, most recently as Vice President, Research and Development. From 1979 to
1984, he served as a Clinical Research Scientist at Burroughs-Wellcome Company,
a pharmaceutical company, and served as an Adjunct Research Scientist at the
University of North Carolina. Dr. Manberg received a bachelors degree in
Biological Sciences from the State University of New York at Binghamton and a
doctorate in Pharmacology from the University of North Carolina at Chapel Hill.
Ms. Nelson has served as Vice President of Marketing of the Company since
1992. From 1988 to 1992, she was employed by Nellcor, Inc., a medical device
company, serving from 1990 to 1992 as Manager of Advanced Technologies, from
1989 to 1990 as Multi-Function Monitor Group Manager and from 1988 to 1989 as
New Products Manager. From 1984 to 1988, Ms. Nelson served as a consultant with
Bain and Company, Inc., a strategic management consulting firm. Ms. Nelson
earned a bachelors degree in Metallurgy and Materials Engineering from Lehigh
University and a masters degree in Business Administration from the University
of Chicago Graduate School of Business.
Mr. Coit has served as a director of the Company since 1987. He has been a
self-employed artist since 1997. From 1995 to 1997, Mr. Coit served as a general
partner of Charles River Ventures, a venture capital firm. From 1984 to 1994,
Mr. Coit served as a general partner of Merrill, Pickard, Anderson & Eyre, a
venture capital firm. Since 1989, Mr. Coit has also served as a director of
International Data Group, a provider of media research and conferences to the
information technology industry.
38
<PAGE> 40
Mr. Kania has served as a director of the Company since 1995. Mr. Kania is
a founding general partner of OneLiberty Ventures, a venture capital firm.
Previously, he was a general partner at a predecessor firm, Morgan Holland
Ventures, which he joined in 1985. Mr. Kania is also a director of Anesta
Corporation.
Mr. Lloyd has served as a director of the Company from 1991 to April 1995
and from November 1995 to the present. He served as President and Chairman of
Aradigm, Inc., a medical device company, from 1992 to 1997. From 1995 to the
present, Mr. Lloyd has also served as Chairman of the Board of Alere Medical,
Inc., a chronic disease monitoring company. Mr. Lloyd is also a director of
Molecular Dynamics, Inc.
Mr. McGuire has served as a director of the Company since 1997. He has been
a general partner of Polaris Venture Partners, a venture capital firm, since
1996. From 1992 to the present, Mr. McGuire has served as general partner of
Burr, Egan, Deleage & Co., a venture capital firm, and from 1988 to the present,
he has served as general partner of Beta Partners, a venture capital firm. Mr.
McGuire is also a director of Ascent Pediatrics, Inc., Cubist Pharmaceuticals,
Inc. and Integ Incorporated.
Dr. Stanski has served as a director of the Company since 1996. Dr. Stanski
has been a professor of anesthesia and medicine (Clinical Pharmacology) at
Stanford University since 1979 and is an anesthesiologist/clinical
pharmocologist. He served as Chair of the Department of Anesthesia at Stanford
University from 1992 to 1997. Dr. Stanski received his medical degree from the
University of Calgary, Canada, and his anesthesiology training at the
Massachusetts General Hospital.
Pursuant to a Third Amended and Restated Voting Agreement dated February
13, 1998 among the Company and certain stockholders of the Company, certain
stockholders have the right to nominate persons as their representatives on the
Company's Board of Directors. Each of the current directors has been nominated
to serve as a director pursuant to this agreement. This agreement will terminate
concurrently with the closing of this offering.
The Company's Restated Certificate, to be filed concurrently with the
closing of this offering, provides that the Board of Directors of the Company
will be divided into three classes, each of whose members will serve for a
staggered three-year term. The Board will consist of two Class I Directors, two
Class II Directors and three Class III Directors. At each annual meeting of
stockholders, a class of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then expiring. The terms
of the Class I Directors, Class II Directors and Class III Directors expire upon
the election and qualification of successor directors at the annual meeting of
stockholders held during the calendar years 1999, 2000 and 2001, respectively.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a Compensation Committee comprised of Mr. Coit
and Dr. Stanski, which makes recommendations concerning salaries and incentive
compensation for employees of and consultants to the Company and administers and
grants stock options pursuant to the Company's stock option plans. The Board of
Directors has an Audit Committee comprised of Messrs. Lloyd and Kania, which
reviews the results and scope of the annual audit, other services provided by
the Company's independent public accountant and other matters relating to
internal control systems.
DIRECTOR COMPENSATION
All of the directors are reimbursed for expenses incurred in connection
with their attendance at Board of Directors and committee meetings. In addition,
non-employee directors of the Company are eligible to receive stock options
under the Company's 1998 Director Stock Option Plan.
1998 Director Stock Option Plan. The Company's 1998 Director Stock Option
Plan, as amended (the "Director Plan"), was adopted by the Board of Directors
and stockholders of the Company in February 1998. Under the terms of the
Director Plan, directors of the Company who are not employees of the Company or
any subsidiary of the Company ("Outside Directors") are eligible
39
<PAGE> 41
to receive nonstatutory options to purchase shares of Common Stock. A total of
100,000 shares of Common Stock may be issued upon exercise of options granted
under the Director Plan.
Pursuant to the Director Plan, on April 14, 1998 (the "Initial Grant
Date"), each Outside Director (other than Mr. Lloyd and Dr. Stanski) received an
option to purchase 10,000 shares of Common Stock, and each person who first
becomes an Outside Director after the Initial Grant Date will be granted an
option to purchase 10,000 shares of Common Stock on the date of his or her
initial election to the Board (the "Initial Options"). In addition, each Outside
Director shall be granted an additional option to purchase 5,000 shares of
Common Stock (the "Additional Options") on the date of each Annual Meeting of
Stockholders, commencing with the 1999 Annual Meeting of Stockholders. Each
Outside Director will be eligible to receive an Additional Option if he or she
is serving as a director immediately prior to the Annual Meeting of Stockholders
and continues to serve immediately following such Annual Meeting of
Stockholders, and, if the grant date of such Additional Option is at least six
months after the Outside Director receives an Initial Option.
The exercise price per share of Initial Options granted on the Initial
Grant Date was $2.80. The exercise price of Initial Options granted after the
Initial Grant Date and of any Additional Options will be the closing price per
share of Common Stock on the date of grant. Initial Options are exercisable as
to one-half of the shares as of the date of grant and as to one-sixth ( 1/6th)
of the shares on the first, second and third anniversaries of the date of grant,
provided that the optionee continues to serve as a director. Additional Options
are exercisable in three equal annual installments on each of the first, second
and third anniversaries of the date of grant, provided that the optionee
continues to serve as a director. Options granted under the Director Plan
terminate on the earlier of (i) ten years from the date of grant or (ii) sixty
days after the optionee ceases to serve as a director (180 days after the
optionee ceases to serve as a director if due to death or disability).
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
the year ended December 31, 1997 by its Chief Executive Officer and President
and its four other most highly compensated executive officers in 1997 who were
serving as executive officers on December 31, 1997 (the Chief Executive Officer
and such other executive officers are hereinafter referred to as the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ----------------------
NAME AND ----------------------- NUMBER OF SECURITIES
PRINCIPAL POSITION SALARY ($) BONUS ($) UNDERLYING OPTIONS(1)
------------------ ---------- --------- ----------------------
<S> <C> <C> <C>
Nassib G. Chamoun........................... $170,000 $40,000 200,000
Chief Executive Officer and President
J. Breckenridge Eagle....................... 157,500 27,565 --
Chairman of the Board of Directors
J. Neal Armstrong........................... 153,750 26,910 70,000
Vice President, Chief Financial Officer
and Secretary
Steven H. Kane(2)........................... 127,153 58,648 180,000
Vice President of Sales and Field
Operations
Paul J. Manberg............................. 137,500 24,065 50,000
Vice President of Clinical, Regulatory and
Quality Assurance
</TABLE>
- ---------------
(1) Represents the number of shares covered by options to purchase shares of the
Company's Common Stock granted during the year ended December 31, 1997.
40
<PAGE> 42
(2) Mr. Kane commenced employment with the Company on April 1, 1997 and received
a salary for only nine months of the year ended December 31, 1997. His
current annual base salary is $165,000.
Option Grants During 1997
The following table sets forth grants of stock options to each of the Named
Executive Officers during the year ended December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
----------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF PERCENT OF TOTAL EXERCISE RATES OF STOCK PRICE
SECURITIES OPTIONS OR BASE APPRECIATION FOR
UNDERLYING GRANTED PRICE OPTION TERM(2)
OPTIONS TO EMPLOYEES IN PER EXPIRATION ---------------------------
NAME GRANTED(1) FISCAL YEAR SHARE DATE 5% 10%
---- ---------- ---------------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Nassib G. Chamoun........ 200,000 19.21% $ .80 11/4/07 $100,623 $254,999
J. Breckenridge Eagle.... -- -- -- -- -- --
J. Neal Armstrong........ 70,000 6.7% .80 9/8/07 35,218 89,250
Steven H. Kane........... 180,000 17.3% .375 4/14/07 42,450 107,578
Paul J. Manberg.......... 50,000 4.8% .80 9/8/07 25,156 63,750
</TABLE>
- ---------------
(1) The dates of exercisability of the options are determined in accordance with
their respective vesting schedules.
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compound rates of appreciation (5% and 10%) on
the market value of the Common Stock on the date of option grant over the
term of the options. These numbers are calculated based on rules promulgated
by the Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the timing of such
exercise and the future performance of the Common Stock. There can be no
assurance that the rates of appreciation assumed in this table can be
achieved or that the amounts reflected will be received by the individuals.
Option Exercises and Year-End Option Values
The following table sets forth certain information regarding the aggregate
number of shares of Common Stock acquired upon option exercises by the Named
Executive Officers and the value
41
<PAGE> 43
realized upon such exercises during the year ended December 31, 1997 and the
number and value of unexercised options held by each of the Named Executive
Officers on December 31, 1997.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END(2)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(1) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- -------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Nassib G. Chamoun....... 378,964 $227,378 --/200,000 --
J. Breckenridge Eagle... 189,482 113,689 2,625/-- $1,575 / --
J. Neal Armstrong....... 120,000 72,000 0/70,000 --
Steven H. Kane.......... 180,000 76,500 -- --
Paul J. Manberg......... 81,207 48,724 --/50,000 --
</TABLE>
- ---------------
(1) Represents shares acquired upon exercise of stock options that are subject
to repurchase by the Company. See Note 9 to Notes to Financial Statements.
(2) Represents the difference between the exercise price and the fair market
value of the Common Stock at fiscal year end ($0.80) as determined by the
Board of Directors of the Company.
Stock Plans
Amended and Restated 1991 Stock Option Plan. The Company's Amended and
Restated 1991 Stock Option Plan (the "1991 Plan") was initially adopted by the
Board of Directors and approved by the stockholders of the Company in April
1991. As of April 4, 1998, 3,460,000 shares were authorized for issuance upon
exercise of outstanding options under the 1991 Plan and options to purchase an
aggregate of 1,125,075 shares of Common Stock at a weighted average exercise
price of $0.74 per share were outstanding under the 1991 Plan.
The 1991 Plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), nonstatutory stock options, restricted stock and other stock-based
awards (collectively, "Awards").
Officers, employees, directors, consultants and advisors of the Company are
eligible to receive Awards under the 1991 Plan. Under present law, however,
incentive stock options may only be granted to employees. The maximum number of
shares with respect to which an Award may be granted to any participant under
the 1991 Plan may not exceed 200,000 shares per calendar year.
Optionees receive the right to purchase a specified number of shares of
Common Stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. Options may be
granted at an exercise price which may be less than, equal to or greater than
the fair market value of the Common Stock on the date of grant. Under present
law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the Common Stock
on the date of grant (or less than 110% of the fair market value in the case of
incentive stock options granted to optionees holding more than 10% of the voting
power of the Company). The 1991 Plan permits the Board of Directors to determine
the manner of payment of the exercise price of options, including through
payment by cash, check or in connection with a "cashless exercise" through a
broker, by surrender to the Company of shares of Common Stock, by delivery to
the Company of a promissory note, or by any combination of the permitted forms
of payment.
42
<PAGE> 44
The 1991 Plan is administered by the Board of Directors. The Board of
Directors has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the 1991 Plan and to interpret the
provisions thereof. Pursuant to the terms of the 1991 Plan, the Board of
Directors may delegate authority under the 1991 Plan to one or more committees
of the Board of Directors and, subject to certain limitations, to one or more
executive officers of the Company. The Board of Directors has authorized the
Compensation Committee to administer the 1991 Plan, including the granting of
options to executive officers. Subject to any applicable limitations contained
in the 1991 Plan, the Board of Directors, the Compensation Committee or any
other committee or executive officer to whom the Board of Directors delegates
authority, as the case may be, selects the recipients of Awards and determines
(i) the number of shares of Common Stock covered by options and the dates upon
which such options become exercisable, (ii) the exercise price of options, (iii)
the duration of options, and (iv) the number of shares of Common Stock subject
to any restricted stock or other stock-based Awards and the terms and conditions
of such Awards, including the conditions for repurchase, issue price and
repurchase price.
No Award may be granted under the 1991 Plan after April 1, 2001, but the
vesting and effectiveness of Awards previously granted may extend beyond that
date. The Board of Directors may at any time amend, suspend or terminate the
1991 Plan, except that no Award granted after an amendment of the 1991 Plan and
designated as subject to Section 162(m) of the Code by the Board of Directors
will become exercisable, realizable or vested (to the extent such amendment was
required to grant such Award) unless and until such amendment is approved by the
Company's stockholders.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Board of Directors
are Mr. Coit and Dr. Stanski. No executive officer of the Company has served as
a director or member of the compensation committee (or other committee serving
an equivalent function) of any other entity, whose executive officers served as
a director of or member of the Compensation Committee of the Board of Directors.
43
<PAGE> 45
CERTAIN TRANSACTIONS
In October 1995, certain investors, including One Liberty Fund III, L.P.
("Liberty III"), Charles River Partnership VII, Limited Partnership ("CRL VII"),
New Enterprise Associates IV, Limited Partnership ("NEA") and Catalyst Ventures,
Limited Partnership ("Catalyst"), made bridge loans to the Company in the
aggregate amount of $500,000 in exchange for promissory notes (the "October 1995
Notes"). In November 1995 and June 1996, the Company sold an aggregate of
3,800,428 shares of its Series B-1 Convertible Preferred Stock to a group of
existing and new investors, including Messrs. J. Breckenridge Eagle, the
Chairman of the Board of Directors, and J. Neal Armstrong, Vice President, Chief
Financial Officer and Secretary of the Company, Liberty III, CRL VII, NEA and
Catalyst, at a purchase price of $2.00 per share for an aggregate purchase price
of approximately $7.6 million. The purchase price was paid, in part, by the
cancellation and conversion of the October 1995 Notes. Mr. Kania, a director of
the Company, is a general partner of One Liberty Partners III, L.P., which is
the general partner of Liberty III. Mr. Coit, a director of the Company, served
as a general partner of CRL VII at the time that CRL VII purchased these
securities from the Company.
In February 1997, August 1997 and October 1997, the Company sold an
aggregate of 3,439,949 shares of its Series C Convertible Preferred Stock to a
group of existing and new investors, including Messrs. Eagle and Armstrong,
Jeffrey Barrett, Vice President of Manufacturing of the Company, and Stephen H.
Kane, Vice President of Sales and Field Operations of the Company, Liberty III,
CRL VII, NEA, Orchid & Co., nominee for T. Rowe Price Threshold Fund III, L.P.
("T. Rowe Price"), Merrill, Pickard, Anderson & Eyre IV Limited Partnership
("MPAE"), Polaris Venture Partners, L.P. ("Polaris V.P.") and Polaris Venture
Partners Founders' Fund, L.P. ("Polaris F.F."), at a purchase price of $3.75 per
share for an aggregate purchase price of approximately $12.9 million. Mr.
Jordan, who served as a director of the Company until June 1998, is a Vice
President of T. Rowe Price Threshold Fund Associates, Inc., the general partner
of T. Rowe Price. Mr. McGuire, a director of the Company, is a member of Polaris
Venture Management Co., LLC, which is a general partner of Polaris V.P. and
Polaris F.F. Mr. McGuire is also a general partner of Polaris Venture Partners.
In February 1998, the Company issued and sold an aggregate of 1,666,234
shares of its Series D Convertible Preferred Stock to a group of existing and
new investors, including Messrs. Armstrong, Kane and Coit and Lester John Lloyd,
a director of the Company, CRL VII, Liberty III, Orchid & Co., Polaris V.P.,
Polaris F.F. and MPAE, at a purchase price of $7.00 per share for an aggregate
purchase price of approximately $11.7 million.
In February 1997, the Company entered into a Pledge Agreement with Mr.
Nassib Chamoun, the Company's Chief Executive Officer and President, pursuant to
which the Company loaned to Mr. Chamoun, on a full recourse basis, $68,214,
representing 90% of the aggregate exercise price of certain options exercised by
Mr. Chamoun. Mr. Chamoun pledged the shares of Common Stock issued upon exercise
of such options as collateral for the loan. The loan bears interest at 8% per
annum. As of April 4, 1998, the entire principal amount of the loan plus accrued
interest was outstanding.
In May 1997, the Company loaned $80,000 to Mr. Chamoun. The loan is
represented by two promissory notes and is secured by a security interest in
certain securities of the Company owned by Mr. Chamoun. The loan bears interest
at 6.42% per annum. As of April 4, 1998, the entire principal amount of the loan
plus accrued interest was outstanding.
In May 1997, the Company entered into a Pledge Agreement with Mr. Kane,
pursuant to which the Company loaned Mr. Kane, on a full recourse basis,
$60,750, representing 90% of the aggregate exercise price of certain options
exercised by Mr. Kane. Mr. Kane pledged the shares of Common Stock issued upon
exercise of such options as collateral for the loan. The loan bears interest at
8% per annum. As of April 4, 1998, the entire principal amount of the loan plus
accrued interest was outstanding.
44
<PAGE> 46
In September 1997, the Company loaned $27,000 to Mr. Barrett. The loan is
evidenced by a promissory note and bears interest at 8% per annum. Pursuant to
the terms of the promissory note, in the event that Mr. Barrett is employed by
the Company on each of September 24, 1998, 1999, 2000 and 2001, respectively,
the Company will forgive the payment by Mr. Barrett of $8,152 on each of such
dates and such amounts will be considered and treated as compensation to Mr.
Barrett by the Company.
In April 1998, the Company entered into a Pledge Agreement with Mr.
Barrett, pursuant to which the Company loaned to Mr. Barrett, on a full recourse
basis, $63,000, representing 90% of the aggregate exercise price of certain
options exercised by Mr. Barrett. Mr. Barrett pledged the shares of Common Stock
issued upon exercise of such options as collateral for the loan. The loan bears
interest at 8% per annum. As of April 4, 1998, the entire principal amount of
the loan plus accrued interest was outstanding.
The Company has adopted a policy providing that all material transactions
between the Company and its officers, directors and other affiliates must (i) be
approved by a majority of the members of the Company's Board of Directors and by
a majority of the disinterested members of the Company's Board of Directors and
(ii) be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
45
<PAGE> 47
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 25, 1998, and as adjusted to
reflect the sale by the Company of the shares of Common Stock offered hereby, by
(i) each person (or group of affiliated persons) who is known to the Company to
own beneficially more than 5% of the outstanding shares of Common Stock, (ii)
each of the Company's directors and Named Executive Officers, and (iii) all
directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OWNED(1)(2)
SHARES -----------------------
BENEFICIALLY BEFORE THE AFTER THE
BENEFICIAL OWNERS OWNED(1) OFFERING OFFERING
- ----------------- ------------ ---------- ---------
<S> <C> <C> <C>
5% STOCKHOLDERS
Charles River Partnership VII, Limited Partnership...... 1,580,953 14.3% %
1000 Winter Street, Suite 3300
Waltham, MA 02154
One Liberty Fund III, L.P.(3)........................... 1,528,096 13.8% %
One Liberty Ventures
One Liberty Square
Boston, MA 02109
Polaris Venture Partners, L.P.(4)....................... 1,007,143 9.1% %
Bay Colony Corporate Center
1000 Winter Street, Suite 3350
Waltham, MA 02154
New Enterprise Associates IV, Limited Partnership(5).... 654,493 5.9% %
1119 St. Paul Street
Baltimore, MD 21202
Orchid & Co., Nominee for T. Rowe Price
Threshold Fund III, L.P............................... 618,382 5.6% %
T. Rowe Price Assoc. Inc.
100 East Pratt
Baltimore, MD 21202
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Nassib G. Chamoun(6).................................... 387,990 3.5% %
J. Breckenridge Eagle(7)................................ 210,447 1.9% %
Lester John Lloyd(8).................................... 50,030 * *
Stephen E. Coit(9)...................................... 5,000 * %
Edwin M. Kania, Jr.(10)................................. 1,533,096 13.9% %
Donald Stanski(11)...................................... 39,354 * *
Terrance McGuire(12).................................... 1,012,143 9.2% %
J. Neal Armstrong(13)................................... 177,530 1.6% %
Steven H. Kane(14)...................................... 212,062 1.9% %
Paul J. Manberg(15)..................................... 91,178 * *
All current executive officers and directors as a group
(14 persons)(16)...................................... 3,985,595 35.8% %
</TABLE>
- ---------------
* Indicates less than 1%
(1) Reflects the conversion, simultaneously with the closing of this offering,
of all outstanding shares of preferred stock of the Company into an
aggregate of 9,313,509 shares of Common Stock. The number of shares of
Common Stock deemed outstanding after this offering includes the
shares of Common Stock of the Company being offered for sale
in
46
<PAGE> 48
this offering. The persons and entities named in the table have sole voting
and investment power with respect to the shares beneficially owned by them,
except as noted below. Share numbers include shares of Common Stock
issuable pursuant to outstanding options that may be exercised within the
60-day period following June 25, 1998.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Mr. Kania, a director of the Company, is a General Partner of One Liberty
Partners III, L.P., a General Partner of Liberty III. Mr. Kania disclaims
beneficial ownership of the shares held by Liberty III, except to the
extent of his pecuniary interest therein.
(4) Includes 54,829 shares held by Polaris F.F. North Star Ventures directly or
indirectly provides investment advisory services to various venture capital
funds, including Polaris V.P. and Polaris F.F. The respective general
partners of these funds exercise sole voting and investment power with
respect to the shares held by such funds. The principals of North Star
Ventures are members of Polaris Venture Management Co., L.L.C. (the General
Partner of both Polaris V.P. and Polaris F.F.). As members of these funds,
they may be deemed to share voting and investment powers for the shares
held by the funds. These principals disclaim beneficial ownership of all
such shares held by all of the aforementioned funds except to the extent of
their proportionate pecuniary interests therein. Mr. McGuire, a director of
the Company, is a member of Polaris Venture Management Co., L.L.C. (which
is the general partner of both Polaris V.P. and Polaris F.F.). As a member
of these funds, he may be deemed to share voting and investment power with
respect to the shares held by the funds. Mr. McGuire disclaims beneficial
ownership of all the shares held by these funds except to the extent of his
proportionate pecuniary interest therein.
(5) Includes 154,203 shares held by Catalyst. New Enterprise Associates IV,
Limited Partnership is a General Partner of Catalyst and may be deemed to
share voting and investment power with respect to the shares held by
Catalyst.
(6) Includes an aggregate of 12,500 shares of Common Stock subject to options
which are exercisable within 60 days after June 25, 1998. Also includes
50,000 shares of Common Stock held by The Nassib G. Chamoun 1998
Irrevocable Trust, of which Mr. Chamoun disclaims beneficial ownership, and
87,235 shares of Common Stock subject to repurchase by the Company under
certain circumstances. Does not include 145,833 shares which will not
become exercisable within 60 days of June 25, 1998.
(7) Includes 35,000 shares of Common Stock held by Jeanne Warren Eagle as
Trustee for the Trust for John Warren Eagle, of which Mr. Eagle disclaims
beneficial ownership, and 75,003 shares of Common Stock subject to
repurchase by the Company under certain circumstances. Does not include
37,000 shares which will not become exercisable within 60 days of June 25,
1998.
(8) Includes an aggregate of 2,708 shares of Common Stock subject to options
which are exercisable within 60 days after June 25, 1998 and 9,699 shares
of Common Stock subject to repurchase by the Company under certain
circumstances. Does not include 7,292 shares which will not become
exercisable within 60 days of June 25, 1998.
(9) Includes 5,000 shares of Common Stock subject to options which are
exercisable within 60 days after June 25, 1998. Does not include 5,000
shares which will not become exercisable within 60 days of June 25, 1998.
(10) Includes 1,528,096 shares held by Liberty III. See Note 4 above. Also
includes 5,000 shares of Common Stock subject to options which are
exercisable within 60 days after June 25, 1998. Does not include 5,000
shares which will not become exercisable within 60 days of June 25, 1998.
(11) Includes an aggregate of 19,354 shares of Common Stock subject to options
which are exercisable within 60 days after June 25, 1998. Does not include
25,646 shares which will not become exercisable within 60 days of June 25,
1998.
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<PAGE> 49
(12) Includes 952,314 shares held by Polaris V.P. and 54,829 shares held by
Polaris F.F. See Note 5 above. Also includes 5,000 shares of Common Stock
subject to options which are exercisable within 60 days after June 25,
1998. Does not include 5,000 shares which will not become exercisable
within 60 days of June 25, 1998.
(13) Includes an aggregate of 4,375 shares of Common Stock subject to options
which are exercisable within 60 days after June 25, 1998 and 62,500 shares
of Common Stock subject to repurchase by the Company under certain
circumstances. Does not include 55,417 shares which will not become
exercisable within 60 days of June 25, 1998.
(14) Includes an aggregate of 1,823 shares of Common Stock subject to options
which are exercisable within 60 days after June 25, 1998 and 131,250 shares
of Common Stock subject to repurchase by the Company under certain
circumstances. Does not include 16,927 shares which will not become
exercisable within 60 days of June 25, 1998.
(15) Includes an aggregate of 13,542 shares of Common Stock subject to options
which are exercisable within 60 days after June 25, 1998. Also includes
3,571 shares of Common Stock held by Paul Manberg, as Custodian under the
Uniform Transfer to Minors Act, for Shawn Joseph Manberg, 3,571 shares of
Common Stock held by Paul Manberg, as Custodian under the Uniform Transfer
to Minors Act, for Kate Michelle Manberg and 20,384 shares of Common Stock
subject to repurchase by the Company under certain circumstances. Does not
include 36,458 shares which will not become exercisable within 60 days of
June 25, 1998.
(16) Includes an aggregate of 74,458 shares of Common Stock subject to options
which are exercisable within 60 days after June 25, 1998 and 492,733 shares
of Common Stock subject to repurchase by the Company under certain
circumstances. Does not include 207,335 shares which will not become
exercisable within 60 days of June 25, 1998.
48
<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
As of June 25, 1998, there were outstanding an aggregate of 11,061,824
shares of Common Stock, assuming the conversion of all of the Company's
Convertible Preferred Stock, held of record by 145 stockholders.
Upon closing of this offering, the authorized capital stock of the Company
will consist of 40,000,000 shares of Common Stock and 5,000,000 shares of
undesignated preferred stock, $.01 par value per share (the "Preferred Stock").
Immediately after the sale of the shares of Common Stock offered
hereby, there will be shares of Common Stock outstanding and no
shares of Preferred Stock outstanding.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, (i) the provisions of the Company's Restated Certificate and
amended By-Laws (to be filed and effected, respectively, on or before the
closing of this offering) and (ii) the provisions of applicable law.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights. Holders
of Common Stock are entitled to receive dividends if, as and when declared by
the Board of Directors out of funds legally available therefor. See "Dividend
Policy." Upon the liquidation, dissolution or winding up of the Company, holders
of Common Stock are entitled to share ratably in the assets of the Company
available for distribution to its stockholders, subject to the preferential
rights of any then outstanding shares of Preferred Stock. No shares of Preferred
Stock will be outstanding immediately following the closing of this offering.
The Common Stock outstanding upon the effective date of the Registration
Statement, and the shares offered by the Company hereby, upon issuance and sale,
will be fully paid and nonassessable.
PREFERRED STOCK
Upon closing of this offering, the Company's Board of Directors will have
the authority to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to fix the relative rights, preferences, privileges, qualifications,
limitations and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders. The Company believes that the power to issue
Preferred Stock will provide flexibility in connection with possible corporate
transactions. The issuance of Preferred Stock could adversely affect the voting
power of the holders of Common Stock and restrict their rights to receive
payment upon liquidation and could have the effect of delaying, deferring or
preventing a change-in-control of the Company. See "-- Delaware Law and Certain
Charter and By-Law Provisions." The Company has no present plans to issue any
shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder' for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
49
<PAGE> 51
The Restated Certificate, which will become effective concurrently with the
closing of this offering, provides for the division of the Board of Directors
into three classes as nearly equal in size as possible with staggered three-year
terms. See "Management." The Restated Certificate also provides that, after the
closing of this offering, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting and
may not be taken by written action in lieu of a meeting. The Restated
Certificate further provides that special meetings of the stockholders may only
be called by the Chairman of the Board, the President or the Board of Directors.
Under the Company's Bylaws, in order for any matter to be considered "properly
brought" before a meeting, a stockholder must comply with certain requirements
regarding advance notice to the Company. The foregoing provisions could have the
effect of delaying until the next stockholders' meeting stockholder actions
which are favored by the holders of a majority of the outstanding voting
securities of the Company. These provisions may also discourage another person
or entity from making a tender offer for the Common Stock, because such person
or entity, even if it acquired a majority of the outstanding voting securities
of the Company, would be able to take action as a stockholder (such as electing
new directors or approving a merger) only at a duly called stockholders'
meeting, and not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or bylaws, as the case may
be, requires a greater percentage. The Restated Certificate and the Bylaws
require the affirmative vote of the holders of at least 75% of the shares of
capital stock of the Company issued and outstanding and entitled to vote to
amend or repeal any of the provisions described in the prior two paragraphs.
The Restated Certificate contains certain provisions permitted under the
General Corporation Law of Delaware relating to the liability of directors. The
provisions eliminate a director's liability for monetary damages for a breach of
fiduciary duty, except in certain circumstances involving wrongful acts, such as
the breach of a director's duty of loyalty or acts or omissions which involve
intentional misconduct or a knowing violation of law. Further, the Restated
Certificate contains provisions to indemnify the Company's directors and
officers to the fullest extent permitted by the General Corporation Law of
Delaware. The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors.
50
<PAGE> 52
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the securities
of the Company. Upon completion of this offering, based upon the number of
shares outstanding at June 25, 1998, there will be shares of
Common Stock of the Company outstanding (assuming no exercise of the
Underwriters' over-allotment option or outstanding options of the Company). Of
these shares, the shares sold in this offering will be freely
transferable without restriction or further registration under the Securities
Act, except that any shares purchased by "affiliates" of the Company, as that
term is defined in Rule 144 ("Rule 144") under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations of
Rule 144 described below.
SALES OF RESTRICTED SECURITIES
The remaining 11,061,824 outstanding shares of Common Stock are owned by
existing stockholders and are deemed "Restricted Shares" under Rule 144. These
shares may not be resold, except pursuant to an effective registration statement
or an applicable exemption from registration. Of these remaining shares,
approximately 809,200 shares of Common Stock will be eligible for sale under
Rules 144 and 701 on the ninety-first day after the effectiveness of this
offering. Stockholders of the Company, holding in the aggregate approximately
10,100,000 shares of Common Stock, have agreed to enter into the Lock-up
Agreements. At the end of the 180-day period, approximately 11,551,000 shares of
Common Stock (including approximately 489,000 shares of Common Stock which may
be acquired upon the exercise of outstanding options) will be eligible for sale
under Rules 144 and 701.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially owned
Restricted Shares for at least one year from the later of the date such
Restricted Shares were acquired from the Company and (if applicable) the date
they were acquired from an Affiliate, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock or the average weekly trading volume
in the public market during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain requirements as to the manner and
notice of sale and the availability of public information concerning the
Company. All sales of shares of the Company's Common Stock, including Restricted
Shares, held by Affiliates of the Company must be sold under Rule 144, subject
to the foregoing volume limitations and other restrictions. In addition, under
Rule 144(k), if a period of at least two years has elapsed between the later of
the date restricted securities were acquired from the Company or (if applicable)
the date they were acquired from an Affiliate of the Company, a stockholder who
is not an Affiliate of the Company at the time of sale and has not been an
Affiliate with the Company for at least three months prior to the sale is
entitled to sell the shares immediately without compliance with the foregoing
requirements under Rule 144.
The Company's directors and executive officers and certain of its
stockholders have agreed that they will not, without the prior written consent
of the representatives of the Underwriters, offer to sell, sell, contract to
sell, grant any option to sell or otherwise dispose of or require the Company to
file with the Commission a registration statement under the Securities Act to
register any shares of Common Stock or securities convertible or exchangeable
for shares of Common Stock or warrants or other rights to acquire shares of
Common Stock during the 180-day period following the effective date of the
Registration Statement of which this Prospectus is a part.
OPTIONS
The Company plans to file registration statements under the Securities Act
to register an aggregate of approximately 1,900,000 shares of Common Stock
issuable under the 1991 Plan and the Director Plan following the 180th day after
the date of the Registration Statement of which this Prospectus is a part. Upon
registration, such shares will be eligible for immediate resale upon
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<PAGE> 53
exercise, subject, in the case of Affiliates, to the volume, manner of sale and
notice requirements of Rule 144.
REGISTRATION RIGHTS
Pursuant to the Third Amended and Restated Registration Rights Agreement
(the "Registration Rights Agreement"), dated as of February 13, 1998, among the
Company and certain persons and entities (the "Rightsholders"), the
Rightsholders will be entitled, following the offering, to certain rights with
respect to the registration under the Securities Act of a total of approximately
9,400,000 shares of Common Stock (the "Registrable Stock"). The Registration
Rights Agreement generally provides that, in the event the Company proposes to
register (the "Registration") any of its securities under the Securities Act,
the Rightsholders shall be entitled to include Registrable Stock in such
Registration, subject to the right of the managing underwriter of any
underwritten offering to limit for marketing reasons the number of shares of
Registrable Stock included in such "piggyback" registration period.
The Rightsholders may, at any time after one year following the date of the
closing of this offering and upon the request of holders of not less than 35% of
the Registrable Stock then outstanding, require the Company to prepare and file
a registration statement under the Securities Act with respect to their shares
of Registrable Stock. The Company need effect only three such demand
registrations. In addition, at any time after the Company becomes eligible to
file a registration statement on Form S-3 (or any successor form), Rightsholders
may request the Company to effect a registration on Form S-3 of Registrable
Stock having an aggregate offering price of at least $250,000.
EFFECT OF SALES OF SHARES
Prior to this offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that market sales
of shares of Common Stock or the availability of shares for sale will have on
the market price of the Common Stock prevailing from time to time. Nevertheless,
sales of significant numbers of shares of the Common Stock in the public market
could adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
52
<PAGE> 54
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters") through their Representatives, BT
Alex. Brown Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Piper Jaffray Inc. have severally agreed to purchase from the Company the
following respective numbers of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITER SHARES
- ----------- --------
<S> <C>
BT Alex. Brown Incorporated.................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Piper Jaffray Inc...........................................
--------
Total.............................................
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
initial public offering, the public offering price and other selling terms may
be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by it shown in the above table bears to ,
and the Company will be obligated, pursuant to the option, to sell such shares
to the Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares on the
same terms as those on which the shares are being offered.
The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities under the Securities Act.
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
In connection with this offering, the Underwriters and certain other
persons participating in this offering may purchase and sell the Common Stock in
the open market in accordance with Regulation M under the Securities Exchange
Act of 1934, as amended. These transactions may include over-allotment and
stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock; and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock than
they are required to purchase from the Company in the offering. The
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<PAGE> 55
Underwriters also may impose a penalty bid, whereby selling concessions allowed
to syndicate members or other broker-dealers in respect of the securities sold
in the offering for their account may be reclaimed by the syndicate if such
securities are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Common Stock, and as a result, such price may be higher than
the price that might otherwise prevail in the open market. The Underwriters and
such other persons are not required to engage in these activities, and may end
any of these activities at any time. These transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiations among the Company and the
Representatives of the Underwriters. Among the factors to be considered in such
negotiations will be prevailing market conditions, the results of operations of
the Company in recent periods, the market capitalizations and stages of
development of other companies which the Company and the Representatives of the
Underwriters believe to be comparable to the Company, estimates of the business
potential of the Company, the present state of the Company's development and
other factors deemed relevant. Application has been made for quotation of the
Common Stock on the Nasdaq National Market under the symbol "ASPM."
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company hereby
will be passed upon for the Company by Hale and Dorr LLP, Boston, Massachusetts,
and for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts. An investment partnership comprised of certain partners of Hale
and Dorr LLP owns an aggregate of 9,107 shares of Common Stock of the Company.
EXPERTS
The audited financial statements as of December 31, 1996 and 1997 and for
the years then ended have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
The Company's financial statements for the year ended December 31, 1995
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all amendments,
exhibits, schedules and supplements thereto) on Form S-1 under the Securities
Act with respect to the shares of Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission, to
which Registration Statement reference is hereby made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement and the exhibits thereto may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street,
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<PAGE> 56
Suite 1400, Chicago, Illinois 60661. In addition, the Company is required to
file electronic versions to these documents with the Commission through the
Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.
The Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
The Company intends to distribute to its stockholders annual reports
containing audited consolidated financial statements. The Company also intends
to make available to its stockholders, within 45 days after the end of each
fiscal quarter, reports for the first three quarters of each fiscal year
containing interim unaudited financial information.
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<PAGE> 57
ASPECT MEDICAL SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Arthur Andersen LLP, Independent Public
Accountants............................................... F-2
Report of Price Waterhouse LLP, Independent Accountants..... F-3
Balance Sheets as of December 31, 1996 and 1997, April 4,
1998 (Unaudited) and Pro Forma April 4, 1998
(Unaudited)............................................... F-4
Statements of Operations for the Years Ended December 31,
1995, 1996, and 1997 and for the Quarters Ended March 29,
1997 (Unaudited) and April 4, 1998 (Unaudited)............ F-5
Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997 and for the Quarter Ended
April 4, 1998 (Unaudited)................................. F-6
Statements of Cash Flows for the Years Ended December 31,
1995, 1996, and 1997 and for the Quarters Ended March 29,
1997 (Unaudited) and April 4, 1998 (Unaudited)............ F-7
Notes to Financial Statements............................... F-8
</TABLE>
F-1
<PAGE> 58
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Aspect Medical Systems, Inc.:
We have audited the accompanying balance sheets of Aspect Medical Systems,
Inc. (a Delaware corporation) as of December 31, 1996 and 1997, and the related
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aspect Medical Systems, Inc.
as of December 31, 1996 and 1997, and the results of its operations and cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 27, 1998
F-2
<PAGE> 59
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Aspect Medical Systems, Inc.
In our opinion, the accompanying statements of operations, of stockholders'
equity and of cash flows present fairly, in all material respects, the results
of operations and cash flows of Aspect Medical Systems, Inc. for the year ended
December 31, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the financial statements of the Company for any
period subsequent to December 31, 1995.
/s/ PRICE WATERHOUSE LLP
Boston, Massachusetts
July 3, 1996
F-3
<PAGE> 60
ASPECT MEDICAL SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31, APRIL 4, APRIL 4, 1998
1996 1997 1998 (NOTE 2)
------------ ------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 1,353,920 $ 368,507 $ 6,277,269 $ 6,277,269
Marketable securities.......................... 876,741 4,612,462 6,928,438 6,928,438
Accounts receivable, net of allowance of
$50,000, $62,400 and $62,400 at December 31,
1996, 1997 and April 4, 1998, respectively... 152,440 719,172 1,176,311 1,176,311
Investment in sales-type leases................ 44,676 136,392 264,917 264,917
Inventory...................................... 1,099,837 387,479 482,397 482,397
Other current assets........................... 137,619 245,962 322,140 322,140
------------ ------------ ------------ ------------
Total current assets.................... 3,665,233 6,469,974 15,451,472 15,451,472
Property and equipment, net...................... 208,984 923,559 1,584,732 1,584,732
Investment in sales-type leases.................. 98,864 209,074 420,076 420,076
------------ ------------ ------------ ------------
Total assets............................ $ 3,973,081 $ 7,602,607 $ 17,456,280 $ 17,456,280
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations... $ 429,871 $ 154,906 $ 143,987 $ 143,987
Accounts payable............................... 659,277 1,119,055 1,112,924 1,112,924
Accrued liabilities............................ 724,331 1,500,591 1,657,041 1,657,041
Deferred revenue............................... 823,000 643,000 1,588,621 1,588,621
------------ ------------ ------------ ------------
Total current liabilities............... 2,636,479 3,417,552 4,502,573 4,502,573
------------ ------------ ------------ ------------
Long-term capital lease obligations.............. 270,273 117,680 80,764 80,764
------------ ------------ ------------ ------------
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred Stock, $.01 par value; (pro forma --
5,000,000 shares authorized, no shares issued
or outstanding).............................. -- -- -- --
Convertible Preferred Stock, $.01 par value;
18,843,224 shares authorized, 4,207,326,
7,647,275 and 9,313,509 shares issued and
outstanding at December 31, 1996 and 1997 and
April 4, 1998, respectively (liquidation
preference -- $41,425,301 at April 4, 1998)
(pro forma -- no shares authorized, issued or
outstanding)................................. 25,891,270 38,726,070 50,351,652 --
Common Stock, $.01 par value; 14,500,000 shares
authorized, 93,424, 1,548,027 and 1,548,756
shares issued and outstanding at December 31,
1996 and 1997, and April 4, 1998,
respectively (pro forma -- 40,000,000 shares
authorized, 10,862,265 shares issued and
outstanding)................................. 934 15,480 15,487 108,622
Additional paid-in capital..................... 31,096 338,970 339,546 50,598,063
Notes receivable from employees and
directors.................................... -- (273,579) (273,579) (273,579)
Unrealized gain (loss) on marketable
securities................................... (162) 3,098 (605) (605)
Accumulated deficit............................ (24,856,809) (34,742,664) (37,559,558) (37,559,558)
------------ ------------ ------------ ------------
Total stockholders' equity.............. 1,066,329 4,067,375 12,872,943 12,872,943
------------ ------------ ------------ ------------
Total liabilities and stockholders'
equity................................ $ 3,973,081 $ 7,602,607 $ 17,456,280 $ 17,456,280
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 61
ASPECT MEDICAL SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED
---------------------------------------- -------------------------
MARCH 29, APRIL 4,
1995 1996 1997 1997 1998
----------- ----------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.................................. $ 1,067,207 $ 1,388,788 $ 3,067,573 $ 415,481 $ 1,733,121
Costs and expenses:
Costs of revenue....................... 704,386 1,095,872 3,601,569 581,868 1,211,205
Research and development............... 2,870,231 2,338,239 2,603,117 677,574 886,520
Sales and marketing.................... 1,284,880 1,560,635 4,813,505 762,169 1,840,185
General and administrative............. 1,814,850 1,871,071 2,357,695 618,344 736,210
----------- ----------- ------------ ----------- -----------
Total costs and expenses........ 6,674,347 6,865,817 13,375,886 2,639,955 4,674,120
----------- ----------- ------------ ----------- -----------
Loss from operations..................... (5,607,140) (5,477,029) (10,308,313) (2,224,474) (2,940,999)
Interest income.......................... 145,636 143,675 500,485 77,928 132,884
Interest expense......................... (84,405) (63,084) (78,027) (19,518) (8,779)
----------- ----------- ------------ ----------- -----------
Net loss................................. $(5,545,909) $(5,396,438) $ (9,885,855) $(2,166,064) $(2,816,894)
=========== =========== ============ =========== ===========
Net loss per share:
Basic and diluted...................... $(281.65) $(57.76) $(16.23) $(10.38) $(2.95)
=========== =========== ============ =========== ===========
Pro forma basic and diluted............ $(1.28) $(0.30)
============ ===========
Shares used in computing net loss per
share:
Basic and diluted...................... 19,691 93,424 609,026 208,721 956,118
Pro forma basic and diluted............ 7,707,188 9,492,051
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 62
ASPECT MEDICAL SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK NOTES
CONVERTIBLE PREFERRED ------------------- RECEIVABLE UNREALIZED
STOCK ADDITIONAL FROM GAIN (LOSS) ON
----------------------- PAR PAID-IN EMPLOYEES MARKETABLE
SHARES AMOUNT SHARES VALUE CAPITAL AND DIRECTORS SECURITIES
--------- ----------- --------- ------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994...... 49,137 $18,384,462 5,306 $ 53 $ 11,205 $ -- $(21,561)
Issuance of common stock....... -- -- 87,952 879 16,691 -- --
Issuance of Series B-1
convertible preferred stock,
net of issuance costs of
approximately $80,000........ 2,075,042 4,069,909 -- -- -- -- --
Issuance of anti-dilution
shares....................... 357,761 -- -- -- -- -- --
Issuance of common stock upon
exercise of common stock
options...................... -- -- 166 2 3,200 -- --
Change in unrealized gain
(loss) on marketable
securities................... -- -- -- -- -- -- 23,905
Net loss....................... -- -- -- -- -- -- --
--------- ----------- --------- ------- -------- --------- --------
Balance, December 31, 1995...... 2,481,940 22,454,371 93,424 934 31,096 -- 2,344
Issuance of Series B-1
convertible preferred stock,
net of issuance costs of
approximately $14,000........ 1,725,386 3,436,899 -- -- -- -- --
Change in unrealized gain
(loss) on marketable
securities................... -- -- -- -- -- -- (2,506)
Net loss....................... -- -- -- -- -- -- --
--------- ----------- --------- ------- -------- --------- --------
Balance, December 31, 1996...... 4,207,326 25,891,270 93,424 934 31,096 -- (162)
Issuance of Series C
convertible preferred stock,
net of issuance costs of
approximately $61,000........ 3,439,949 12,834,800 -- -- -- -- --
Issuance of common stock upon
exercise of common stock
options...................... -- -- 1,454,603 14,546 307,874 (273,579) --
Change in unrealized gain
(loss) on marketable
securities................... -- -- -- -- -- -- 3,260
Net loss....................... -- -- -- -- -- -- --
--------- ----------- --------- ------- -------- --------- --------
Balance, December 31, 1997...... 7,647,275 38,726,070 1,548,027 15,480 338,970 (273,579) 3,098
Issuance of Series D
convertible preferred stock,
net of issuance costs of
approximately $38,000
(unaudited).................. 1,666,234 11,625,582 -- -- -- -- --
Issuance of common stock upon
exercise of common stock
options(unaudited)........... -- -- 729 7 576 -- --
Change in unrealized gain
(loss) on marketable
securities(unaudited)........ -- -- -- -- -- -- (3,703)
Net loss(unaudited)............ -- -- -- -- -- -- --
--------- ----------- --------- ------- -------- --------- --------
Balance, April 4, 1998
(unaudited).................... 9,313,509 $50,351,652 1,548,756 $15,487 $339,546 $(273,579) $ (605)
========= =========== ========= ======= ======== ========= ========
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ -------------
<S> <C> <C>
Balance, December 31, 1994...... $(13,914,462) $ 4,459,697
Issuance of common stock....... -- 17,570
Issuance of Series B-1
convertible preferred stock,
net of issuance costs of
approximately $80,000........ -- 4,069,909
Issuance of anti-dilution
shares....................... -- --
Issuance of common stock upon
exercise of common stock
options...................... -- 3,202
Change in unrealized gain
(loss) on marketable
securities................... -- 23,905
Net loss....................... (5,545,909) (5,545,909)
------------ -----------
Balance, December 31, 1995...... (19,460,371) 3,028,374
Issuance of Series B-1
convertible preferred stock,
net of issuance costs of
approximately $14,000........ -- 3,436,899
Change in unrealized gain
(loss) on marketable
securities................... -- (2,506)
Net loss....................... (5,396,438) (5,396,438)
------------ -----------
Balance, December 31, 1996...... (24,856,809) 1,066,329
Issuance of Series C
convertible preferred stock,
net of issuance costs of
approximately $61,000........ -- 12,834,800
Issuance of common stock upon
exercise of common stock
options...................... -- 48,841
Change in unrealized gain
(loss) on marketable
securities................... -- 3,260
Net loss....................... (9,885,855) (9,885,855)
------------ -----------
Balance, December 31, 1997...... (34,742,664) 4,067,375
Issuance of Series D
convertible preferred stock,
net of issuance costs of
approximately $38,000
(unaudited).................. -- 11,625,582
Issuance of common stock upon
exercise of common stock
options(unaudited)........... -- 583
Change in unrealized gain
(loss) on marketable
securities(unaudited)........ -- (3,703)
Net loss(unaudited)............ (2,816,894) (2,816,894)
------------ -----------
Balance, April 4, 1998
(unaudited).................... $(37,559,558) $12,872,943
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 63
ASPECT MEDICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED
--------------------------------------- -------------------------
MARCH 29, APRIL 4,
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................. $(5,545,909) $(5,396,438) $(9,885,855) $(2,166,064) $(2,816,894)
Adjustments to reconcile net loss to net
cash used for operating activities --
Depreciation and amortization.......... 575,373 189,378 192,571 59,336 49,195
Provision for doubtful accounts........ -- 43,000 14,333 -- --
Changes in assets and liabilities --
Increase in accounts receivable...... (188,004) (92,990) (437,525) (143,780) (457,139)
(Increase) decrease in inventory..... (214) 61,193 763,483 (88,637) (94,918)
Decrease (increase) in other current
assets............................. 121,764 (60,628) (108,343) (76,651) (76,178)
Increase in investment in sales-type
leases............................. -- -- (345,466) (21,700) (339,527)
(Decrease) increase in accounts
payable............................ (100,281) 493,575 459,778 131,812 (6,131)
Increase (decrease) in accrued
liabilities........................ 454,407 (4,385) 776,260 247,242 156,450
(Decrease) increase in deferred
revenue............................ (121,717) 814,717 (180,000) (65,000) 945,621
----------- ----------- ----------- ----------- -----------
Net cash used for operating
activities....................... (4,804,581) (3,952,578) (8,750,764) (2,123,442) (2,639,521)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment.... (272,270) (622,384) (958,271) (58,000) (710,368)
Purchases of marketable securities....... (347,820) (23,953,144) (65,379,625) (35,364,584) (38,945,965)
Proceeds from sales of marketable
securities............................. 2,800,052 24,045,377 61,647,164 33,395,455 36,626,286
----------- ----------- ----------- ----------- -----------
Net cash provided by (used for)
investing activities............. 2,179,962 (530,151) (4,690,732) (2,027,129) (3,030,047)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Principal payments on capital lease
obligations............................ (206,646) (287,616) (427,558) (109,400) (47,835)
Proceeds from sale leaseback of property
and equipment.......................... 238,996 330,291 -- -- --
Proceeds received from issuance of
convertible notes...................... 500,000 -- -- -- --
Proceeds from issuance of convertible
preferred stock, net of stock issuance
costs.................................. 3,569,909 3,436,899 12,834,800 12,688,714 11,625,582
Proceeds from issuance of common stock... 20,772 -- 48,841 52,582 583
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities....................... 4,123,031 3,479,574 12,456,083 12,631,896 11,578,330
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents.............................. 1,498,412 (1,003,155) (985,413) 8,481,325 5,908,762
Cash and cash equivalents, beginning of
period................................... 858,663 2,357,075 1,353,920 1,353,920 368,507
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period... $ 2,357,075 $ 1,353,920 $ 368,507 $ 9,835,245 $ 6,277,269
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flow
information:
Interest paid............................ $ 209,404 $ 59,000 $ 78,000 $ 17,000 $ 10,000
=========== =========== =========== =========== ===========
Supplemental disclosure of noncash
financing activities:
Capital lease obligations totaling
$239,000 and $367,000, including sale
leaseback transactions, were incurred
during 1995 and 1996, respectively.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 64
ASPECT MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) DESCRIPTION OF OPERATIONS
Aspect Medical Systems, Inc. (the "Company") develops, manufactures and
markets anesthesia monitoring systems that enable anesthesia providers to assess
levels of consciousness and administer the appropriate amount of anesthetics
during surgery. The BIS System incorporates the Company's proprietary disposable
BIS Sensors and the A-2000 BIS Monitor, which was cleared for marketing by the
United States Food and Drug Administration (the "FDA") in February 1998. The BIS
System is based on Aspect's patented core technology, the Bispectral Index (the
"BIS index"), which is the only FDA cleared, commercially available direct
measure of the effects of anesthesia on the brain.
The Company incurred net losses of $5,545,909, $5,396,438 and $9,885,855
for the years ended December 31, 1995, 1996 and 1997, respectively, and at April
4, 1998 had an accumulated deficit of $37,559,558. Principal risks that may
affect the business, results of operations and financial condition of the
Company include market acceptance of the Company's technology and products,
limited sales and marketing experience, the reliance on a single product family,
manufacturing risks, the dependence on single source or limited suppliers,
technological risks and other risks.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies used by the Company in the
preparation of its financial statements are as follows:
Interim Financial Statements
The accompanying balance sheet as of April 4, 1998, statements of
operations and cash flows for the quarters ended March 29, 1997 and April 4,
1998 and the statement of stockholders' equity for the quarter ended April 4,
1998 are unaudited but, in the opinion of management, include all adjustments
(consisting of normal, recurring adjustments) necessary for a fair presentation
for results of these interim periods. The results of operations for the quarter
ended April 4, 1998 are not necessarily indicative of results to be expected for
the entire year or for any other interim period.
Unaudited Pro Forma Presentation
Under the terms of the Company's agreements with the holders of the
convertible preferred stock, all of such preferred stock will be converted
automatically into shares of common stock upon the closing of the Company's
initial public offering. The unaudited pro forma balance sheet information at
April 4, 1998 reflects the conversion of all series of preferred stock into
9,313,509 shares of common stock as if the conversion occurred on April 4, 1998.
Cash, Cash Equivalents and Marketable Securities
The Company invests its excess cash in money market accounts, U.S. Treasury
bills, high grade commercial paper, and debt obligations of various government
agencies. The Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash equivalents.
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. In accordance with SFAS No. 115, the
Company has classified all of its investments as available-for-sale at December
31, 1996 and 1997, respectively. The securities are reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of stockholders' equity.
F-8
<PAGE> 65
ASPECT MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Revenue Recognition
Revenue from equipment sales, disposable product sales and sales-type
leases are recognized at the time of shipment. Payments received prior to
shipment are recorded as deferred revenue. The Company has entered into certain
licensing and distribution agreements for which payments received in advance are
recorded as deferred revenue. Revenue is recognized as earned per the terms of
the respective agreements. The Company provides for the cost of warranty at the
time of product shipment.
Inventory
Inventory is valued at the lower of cost or estimated market, cost being
determined on a first-in, first-out basis.
Property and Equipment
Property and equipment is recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the related equipment.
Equipment held under capital leases is stated at the lower of the fair market
value of the equipment or the present value of the minimum lease payments at the
inception of the lease and is amortized on a straight-line basis over the
shorter of the lives of the related assets or the term of the leases.
Maintenance and repair expenditures are charged to expense as incurred.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under this method, deferred tax assets and
liabilities are recognized for the expected future tax consequences, utilizing
currently enacted tax rates, of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. Deferred tax assets are
recognized, net of any valuation allowance, for the estimated future tax effects
of deductible temporary differences and tax operating loss and credit
carryforwards.
Concentration of Credit Risk, Significant Customer and Single or Limited
Source Suppliers
Financial instruments that potentially expose the Company to concentrations
of credit risk consist primarily of trade accounts receivable, investment in
sales-type lease receivables and investments. To minimize the risk with respect
to accounts receivable and investment in sales-type lease receivables, the
Company maintains reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations. The Company maintains
cash, cash equivalents and investments with various financial institutions. The
Company performs periodic evaluations of the relative credit quality of
investments and Company policy is designed to limit exposure to any one
institution or type of investment. The primary objective of the Company's
investment strategy is the safety of the principal invested.
At December 31, 1996 and 1997 and April 4, 1998, accounts receivable from
the Company's international distributor accounted for approximately 8%, 19% and
22%, respectively, of the total amounts due to the Company. For the years ended
December 31, 1995, 1996 and 1997, sales to this customer accounted for
approximately 47%, 49% and 35%, respectively, of the Company's total revenue.
For the quarter ended April 4, 1998, sales to this customer accounted for
approximately 14% of total revenue. Effective July 1, 1998, this customer will
no longer distribute the Company's monitors.
F-9
<PAGE> 66
ASPECT MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The Company currently obtains certain key components of its products from
single or limited sources. The Company purchases components pursuant to purchase
orders rather than long-term supply agreements. The Company has experienced
shortages and delays in obtaining certain components of its products in the
past. There can be no assurance that the Company will not experience similar
delays or shortages in the future. The disruption or termination of the supply
of components or a significant increase in the costs of these components from
these sources could have a material adverse effect on the Company's business,
financial condition and results of operations.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 requires disclosure of all components of comprehensive income on an
annual and interim basis. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. The adoption of SFAS No. 130 did
not have a material effect on the Company's financial statements, as the only
element of comprehensive income impacting the Company is the unrealized gain
(loss) on marketable securities.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The estimated fair market values of the Company's financial instruments,
which include marketable securities, accounts receivable, investment in
sales-type leases, accounts payable and capital lease obligations, approximate
their carrying values.
(3) CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- APRIL 4,
1996 1997 1998
---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash......................................... $ 369,566 $131,757 $ 278,642
U.S. Government debt securities.............. 280,036 236,750 368,497
Corporate debt securities.................... 704,318 -- 5,630,130
---------- -------- ----------
$1,353,920 $368,507 $6,277,269
========== ======== ==========
</TABLE>
F-10
<PAGE> 67
ASPECT MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Available-for-sale securities included in marketable securities at December
31, 1996 and 1997 and April 4, 1998 consist of the following:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1996 --
U.S. Government debt securities....... $ 220,929 $ -- $ -- $ 220,929
Corporate debt securities............. 405,974 -- (162) 405,812
Municipal notes....................... 250,000 -- -- 250,000
---------- ------ ----- ----------
$ 876,903 $ -- $(162) $ 876,741
========== ====== ===== ==========
December 31, 1997 --
U.S. Government debt securities....... $ 99,187 $ -- $ -- $ 99,187
Corporate debt securities............. 4,010,177 3,098 -- 4,013,275
Municipal notes....................... 500,000 -- -- 500,000
---------- ------ ----- ----------
$4,609,364 $3,098 $ -- $4,612,462
========== ====== ===== ==========
April 4, 1998 -- (unaudited)
U.S. Government debt securities
(weighted average maturity of 19
months)............................ $1,003,960 $ -- $ -- $1,003,960
Corporate debt securities (weighted
average maturity of 11 months)..... 5,124,758 -- (605) 5,124,153
Municipal notes (weighted average
maturity of 11 months)............. 800,325 -- -- 800,325
---------- ------ ----- ----------
$6,929,043 $ -- $(605) $6,928,438
========== ====== ===== ==========
</TABLE>
Gross realized gains and losses on the sales of investments have not been
material to the Company's financial statements.
(4) INVESTMENT IN SALES-TYPE LEASES
The Company leases equipment to customers under sales-type leases. The
components of the Company's net investment in sales-type leases are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 4,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Total minimum lease payments receivable.................. $505,474 $939,854
Less -- unearned interest.............................. 160,008 254,861
-------- --------
Net investment in sales-type leases...................... 345,466 684,993
Less -- current portion................................ 136,392 264,917
-------- --------
$209,074 $420,076
======== ========
</TABLE>
F-11
<PAGE> 68
ASPECT MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Future minimum lease payments due under noncancelable leases as of December
31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
- -----------
<S> <C>
1998........................................................ $222,565
1999........................................................ 165,443
2000........................................................ 79,455
2001........................................................ 21,554
2002........................................................ 16,457
--------
$505,474
========
</TABLE>
(5) INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- APRIL 4,
1996 1997 1998
---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials................................ $ 363,205 $322,636 $140,212
Work-in-progress............................. 59,928 -- 2,229
Finished goods............................... 676,704 64,843 339,956
---------- -------- --------
$1,099,837 $387,479 $482,397
========== ======== ========
</TABLE>
(6) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE ---------------------- APRIL 4,
IN YEARS 1996 1997 1998
-------------------------- --------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment.......... 3 $ 454,414 $ 707,071 $1,059,604
Construction in progress.... -- -- 490,194 746,200
Machinery and equipment..... 3 -- 152,735 238,934
Furniture and fixtures...... 3 123,039 133,114 148,744
Shorter of the life of the
lease or the estimated
Leasehold improvements...... remaining useful life -- 1,485 1,485
--------- ---------- ----------
577,453 1,484,599 2,194,967
Accumulated depreciation and
amortization.............. (368,469) (561,040) (610,235)
--------- ---------- ----------
$ 208,984 $ 923,559 $1,584,732
========= ========== ==========
</TABLE>
At December 31, 1996, 1997 and April 4, 1998, property and equipment held
under capital leases totaled approximately $521,651. Accumulated amortization of
these assets totaled approximately $365,515 and $458,988 at December 31, 1996
and 1997, respectively, and $475,052 at April 4, 1998.
During 1995 and 1996, the Company entered into sale-leaseback transactions.
The Company received proceeds of approximately $239,000 and $330,000 during 1995
and 1996, respectively,
F-12
<PAGE> 69
ASPECT MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
from the sale of these assets. No gain was recorded during 1995 as the net book
value of the assets sold approximated the proceeds received. A gain of
approximately $99,000 relating to the sale-leaseback transaction was deferred in
1996 and is being amortized over the term of the respective lease.
(7) INCOME TAXES
Deferred income tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Net operating loss carryforwards..................... $ 9,009,000 $ 12,254,000
Tax credit carryforwards............................. 1,038,000 1,119,000
Other................................................ 315,000 782,000
------------ ------------
Gross deferred tax assets....................... 10,362,000 14,155,000
Valuation allowance............................. (10,362,000) (14,155,000)
------------ ------------
Net deferred tax asset.......................... $ -- $ --
============ ============
</TABLE>
The Company has provided a full valuation allowance against its gross
deferred tax assets at December 31, 1996 and 1997 because the future
realizability of such asset is uncertain. Should the Company achieve
profitability in the future, various components of the gross deferred tax assets
would be available to offset future income tax liabilities and expenses.
The Company has net operating loss and research and development tax credit
carryforwards for federal income tax purposes of approximately $30,430,000 and
$1,119,000, respectively, at December 31, 1997 that will expire commencing in
the year 2002 through the year 2012 if not utilized.
The net operating loss and research and development tax credit
carryforwards are subject to review by the Internal Revenue Service. Ownership
changes, as defined in the Internal Revenue Code, may limit the amount of these
tax attributes that can be utilized annually to offset future taxable income or
tax liabilities. The amount of the annual limitation is determined based on the
Company's value immediately prior to the ownership change. Subsequent ownership
changes may further affect the limitation in future years.
(8) STOCKHOLDERS' EQUITY
Authorized Capital Stock
As of December 31, 1997, the Company's authorized capital stock consisted
of 10,600,000 shares of common stock, $.01 par value, and 7,707,326 shares of
preferred stock, $.01 par value. Of the 7,707,326 shares of preferred stock,
406,898 shares are designated Series A-1 convertible preferred stock, 3,800,428
shares are designated Series B-1 convertible preferred stock and 3,500,000
shares are designated Series C convertible preferred stock.
In February 1998, the Company restated its certificate of incorporation. As
a result, the authorized capital stock increased to 14,500,000 shares of common
stock, $.01 par value, and 18,843,224 shares of preferred stock, $.01 par value.
Of the 18,843,224 shares of preferred stock, 406,898 shares are designated
Series A-1 convertible preferred stock, 3,800,428 shares are designated Series
B-1 convertible preferred stock, 3,500,000 shares are designated Series C
convertible preferred stock, 1,714,286 shares are designated Series D
convertible preferred stock, 406,898 shares are designated Series A-2
convertible preferred stock, 3,800,428 shares are designated
F-13
<PAGE> 70
ASPECT MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Series B-2 convertible preferred stock, 3,500,000 shares are designated Series
C-2 convertible preferred stock and 1,714,286 shares are designated Series D-2
convertible preferred stock.
Upon the closing of the Company's initial public offering, the authorized
capital stock of the Company will consist of 40,000,000 shares of common stock
and 5,000,000 shares of preferred stock, the terms of which will not be
designated.
Convertible Preferred Stock
Convertible preferred stock outstanding consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- APRIL 4,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Series A-1 convertible preferred stock; 406,898
shares issued and outstanding, at issuance
price, net of issuance costs.................... $18,384,462 $18,384,462 $18,384,462
Series B-1 convertible preferred stock; 3,800,428
shares issued and outstanding, at issuance
price, net of issuance costs.................... 7,506,808 7,506,808 7,506,808
Series C convertible preferred stock; 3,439,949
shares issued and outstanding, at issuance
price, net of issuance costs.................... -- 12,834,800 12,834,800
Series D convertible preferred stock; 1,666,234
shares issued and outstanding, at issuance
price, net of issuance costs.................... -- -- 11,625,582
----------- ----------- -----------
$25,891,270 $38,726,070 $50,351,652
=========== =========== ===========
</TABLE>
In November 1995 and June 1996, the Company sold 2,075,042 and 1,725,386
shares, respectively, of Series B-1 convertible preferred stock in a private
placement, for total net proceeds of $7,506,808 including the conversion of
$500,000 of notes payable to certain stockholders that were issued in 1995. As a
result of anti-dilution provisions associated with this transaction and an
associated recapitalization of the Company, certain preferred stockholders
received an additional 357,761 shares of Series A-1 convertible preferred stock.
In 1997, the Company issued 3,439,949 shares of Series C convertible
preferred stock for net proceeds of $12,834,800.
In February 1998, the Company issued 1,666,234 shares of Series D
convertible preferred stock for net proceeds of $11,625,582.
The rights and preferences of the Company's convertible preferred stock are
as follows:
Voting Rights
Except as set forth in the Certificate of Incorporation, the holders of the
preferred stock vote together with the holders of common stock as a single class
on all matters. Each preferred stockholder is entitled to the number of votes
equal to the number of whole shares of common stock into which such
stockholder's shares are convertible.
F-14
<PAGE> 71
ASPECT MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Conversion
Each preferred share is convertible into common stock at the option of the
stockholder or automatically upon the closing of a public offering of the
Company's common stock at a price per common share equal to or exceeding $12.00,
and that results in gross proceeds to the Company of at least $20,000,000. The
number of shares of common stock into which holders of the preferred stock shall
be entitled upon conversion is one-for-one, subject to adjustment for certain
dilutive events.
Liquidation, Dissolution or Winding Up of the Company
In the event of any liquidation, dissolution or winding up of the Company,
the Series A-1 convertible preferred stockholders will receive $22.76 per share,
the Series B-1 convertible preferred stockholders will receive $2.00 per share,
the Series C convertible preferred stockholders will receive $3.75 per share and
the Series D convertible preferred stockholders will receive $7.00 per share. In
the case where the remaining assets of the Company available for distribution
are insufficient to pay the preferred stockholders the full amount they are
entitled to, the preferred stockholders shall share ratably in any distribution
of the assets. Any amounts available after these distributions are to be
distributed to the holders of common stock.
Dividends
The holders of the preferred stock are entitled to dividends when and if
declared by the Board of Directors.
Common Stock
At April 4, 1998, the Company has reserved approximately 9,313,509 shares
of common stock for issuance upon conversion of the preferred stock and
2,098,821 shares of common stock for issuance upon the exercise of stock options
under the Company's stock option plans (see Note 9).
(9) STOCK OPTION PLANS
1991 Restated Stock Option Plan
The Company's 1991 Restated Stock Option Plan provides for the granting, at
the discretion of the Board of Directors, of options for the purchase of up to
3,460,000 shares of common stock to employees, directors and advisors. Option
prices are determined by the Board of Directors. As of April 4, 1998, 873,746
shares of Common Stock remained available for future option grants.
F-15
<PAGE> 72
ASPECT MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
A summary of plan activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF OPTION PRICE AVERAGE OPTION
SHARES PER SHARE PRICE PER SHARE
---------- --------------- ---------------
<S> <C> <C> <C>
Outstanding, December 31, 1994................. 14,151 $16.67 - $45.83 $31.02
Granted...................................... 1,106,532 .20 - 45.83 .22
Exercised.................................... (166) 16.67 - 45.83 16.91
Canceled..................................... (14,507) 16.67 - 45.83 34.78
---------- --------------- ------
Outstanding, December 31, 1995................. 1,106,010 .20 - 45.83 .32
Granted...................................... 451,002 .20 .20
Exercised.................................... -- --
Canceled..................................... (939) .20 .20
---------- --------------- ------
Outstanding, December 31, 1996................. 1,556,073 .20 - 45.83 .28
Granted...................................... 1,046,532 .20 - .80 .66
Exercised.................................... (1,460,450) .20 - .375 .22
Canceled..................................... (71,529) .20 - .375 .20
---------- --------------- ------
Outstanding, December 31, 1997................. 1,070,626 .20 - 45.83 .74
Granted (unaudited).......................... 65,281 .80 .80
Exercised (unaudited)........................ (729) .80 .80
Canceled (unaudited)......................... (10,103) .80 .51
---------- --------------- ------
Outstanding, April 4, 1998 (unaudited)......... 1,125,075 $.20 - $45.83 $ .74
========== =============== ======
Exercisable, April 4, 1998 (unaudited)......... 382,888 $.20 - $45.83 $ .85
========== =============== ======
</TABLE>
During 1997, employees and directors exercised stock options to purchase an
aggregate of 1,407,970 shares of restricted common stock. The shares are subject
to repurchase by the Company, at prices ranging from $.20 to $.375 per share.
The payment for the restricted common stock was in the form of cash of $38,735
and full recourse notes of $273,579 payable to the Company.
At April 4, 1998, options for 228,612 shares, of which 153,198 are
exercisable, at an exercise price of $.20 are outstanding; options for 120,500
shares, of which 27,554 are exercisable, at an exercise price of $.375 are
outstanding; options for 771,081 shares, of which 197,254 are exercisable, at an
exercise price of $.80 are outstanding; options for 3,357 shares, all of which
are exercisable, at an exercise price of $16.67 are outstanding; and options for
1,525 shares, all of which are exercisable, at an exercise price of $45.83 are
outstanding. The remaining weighted average maturity of options outstanding is
approximately 9.15 years.
In April 1998, the Company granted options to purchase 163,365 shares of
common stock at an exercise price of $2.80 per share. In June 1998, the Company
granted options to purchase 125,000 and 63,150 shares of common stock at
exercise prices of $7.00 and $11.05 per share, respectively. In connection with
certain of these grants, the Company recorded deferred compensation of
approximately $744,000 which represented the difference between the estimated
fair market value of the common stock and the exercise price of the options.
This deferred compensation will be recognized as compensation expense over the
vesting term of the options.
In October 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 requires the
measurement of the fair value
F-16
<PAGE> 73
ASPECT MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
of stock options or warrants to be included in the statement of income or
disclosed in the notes to financial statements. The Company has determined that
it will continue to account for stock-based compensation for employees under
Accounting Principles Board Opinion No. 25 and elect the disclosure-only
alternative under SFAS No. 123. The Company has computed the value of options
granted in 1995, 1996 and 1997 using the Black-Scholes option-pricing model
prescribed by SFAS No. 123. The following table shows the weighted average
assumptions used in the applicable periods and the weighted average fair market
value of the options granted in each period.
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, -----------------------
----------------------------------- MARCH 29, APRIL 4,
1995 1996 1997 1997 1998
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Risk-free interest rate....... 5.9%-6.2% 6.4%-6.8% 6.5%-6.75% 6.4%-6.8% 6.5%-6.75%
Expected dividend yield....... -- -- -- -- --
Expected life................. 7 years 7 years 7 years 7 years 7 years
Expected volatility........... 60% 60% 60% 60% 60%
Weighted average fair market
value of options granted.... $ .16 $ .15 $ .48 $ .15 $ .58
</TABLE>
Had compensation cost for these options been determined consistent with SFAS
No. 123, the Company's net loss and pro forma net loss per common share would
have been increased to the following pro forma amounts:
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, -------------------------
---------------------------------------- MARCH 29, APRIL 4,
1995 1996 1997 1997 1998
----------- ----------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss
As reported................ $(5,545,909) $(5,396,438) $ (9,885,855) $(2,166,064) $(2,816,894)
=========== =========== ============ =========== ===========
Pro forma.................. $(5,590,110) $(5,457,382) $(10,073,236) $(2,212,909) $(2,873,309)
=========== =========== ============ =========== ===========
Basic and diluted net loss
per common share
As reported................ $(281.65) $(57.76) $(16.23) $(10.38) $(2.95)
=========== =========== ============ =========== ===========
Pro forma.................. $(283.89) $(58.42) $(16.54) $(10.60) $(3.01)
=========== =========== ============ =========== ===========
Pro forma basic and diluted
net loss per common share
As reported................ $(1.28) $(0.30)
============ ===========
Pro forma.................. $(1.31) $(0.30)
============ ===========
</TABLE>
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions, including expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. Also, because options
vest over several years and the Company expects to grant options in future
years, the above pro forma results of applying the provisions of SFAS No. 123
are not necessarily representative of the pro forma results in future years.
F-17
<PAGE> 74
ASPECT MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1998 Director Stock Option Plan
In February 1998, the Company adopted the 1998 Director Stock Option Plan
("Director Plan"). Under the terms of this plan, directors of the Company who
are not employees of the Company are eligible to receive nonstatutory options to
purchase shares of common stock. A total of 100,000 shares of common stock may
be issued upon exercise of options under this plan. The initial options granted
under the Director Plan are exercisable as to 50% of the option as of the date
of grant and as to one-sixth of the shares on the first, second and third
anniversaries of the date of grant, provided that the optionee continues to
serve as a director. Additional options granted will be exercisable in three
equal annual installments on each of the first, second and third anniversaries
of the date of grant, provided that the optionee continues to serve as a
director. Options granted under the Director Plan terminate on the earlier of
(i) ten years from the date of grant, or (ii) sixty days after the optionee
ceases to serve as a director. In April 1998, options to purchase 40,000 shares
were granted under this plan at an exercise price of $2.80. In connection with
these grants, the Company recorded deferred compensation of approximately
$56,000 which represented the difference between the estimated fair market value
of the common stock and the exercise price of the options. This deferred
compensation will be recognized as compensation expense over the vesting term of
the options.
(10) NET LOSS PER SHARE
The Company follows Statement of Financial Accounting Standards (SFAS) No.
128, Earnings per Share. Basic net loss per share represents net loss available
to common stockholders divided by the weighted average number of common shares
outstanding. The Company has excluded all shares of restricted common stock that
are subject to repurchase by the Company from the weighted average number of
common shares outstanding. Diluted net loss per share is the same as basic net
loss per share for the Company, because all stock options and convertible
preferred stock have been excluded from the calculation. Inclusion of stock
issuable pursuant to the exercise of stock options and the conversion of
convertible preferred stock would be antidilutive. Pro forma net loss per share
includes the weighted average common shares outstanding and reflects the
automatic conversion of all convertible preferred stock into common stock upon
completion of the Company's initial public offering based on the original
issuance date using the "if-converted" method.
(11) DISTRIBUTION AND LICENSING AGREEMENTS
The Company has entered into various distribution, licensing and royalty
agreements relating to its monitor products with distributors covering the
international market. These agreements have terms ranging from three to ten
years. In connection with these agreements, approximately $823,000 and $643,000
in revenue was deferred as of December 31, 1996 and 1997, respectively, and
approximately $1,543,000 was deferred as of April 4, 1998. The deferred revenue
relates to prepayments for monitoring systems under minimum purchase obligations
and also includes prepaid license and royalty fees. The deferred revenue will be
recognized upon product shipment and as license and royalty fees are earned.
License and royalty fees are related to future technological developments and
will be recognized upon shipment of units incorporating this technology.
F-18
<PAGE> 75
ASPECT MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(12) 401(K) SAVINGS PLAN
The Company has a 401(k) savings plan in which substantially all employees
can participate. Employer contributions are at the discretion of the Board of
Directors and vest ratably over five years. The Company made no contributions to
the plan during the years ended December 31, 1995, 1996 and 1997.
(13) COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office space under an operating lease and certain
equipment under capital leases. Rent expense was approximately $328,000,
$335,000 and $346,000 in 1995, 1996 and 1997, respectively. Future gross minimum
lease commitments as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASES
---------------- --------------
<S> <C> <C>
1998................................................. $ 406,298 $169,016
1999................................................. 397,528 135,960
2000................................................. 331,273 --
---------- --------
Total minimum lease payments......................... $1,135,099 304,976
==========
Less -- Amount representing interest................. 32,390
--------
Present value of obligations under capital leases.... 272,586
Less -- Current portion.............................. 154,906
--------
$117,680
========
</TABLE>
Subleases
During 1995, 1996 and 1997, the Company had a sublease agreement whereby a
portion of existing office space was leased to a third party under an operating
lease. Rental income for 1995, 1996 and 1997 approximated $15,000, $129,000 and
$113,000, respectively. This agreement expired in 1997.
(14) OTHER RELATED PARTY TRANSACTIONS
In addition to the transactions discussed in Note 9, during 1997 the
Company loaned a total of $107,000 to certain employees of the Company. The
loans are evidenced by promissory notes bearing interest with rates ranging from
6.42% to 8% per annum. At December 31, 1997, the outstanding balance on these
notes was approximately $105,000.
(15) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- APRIL 4,
1996 1997 1998
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Payroll and payroll-related.................. $ 80,163 $ 375,121 $ 277,168
Other........................................ 644,168 1,125,470 1,379,873
-------- ---------- ----------
$724,331 $1,500,591 $1,657,041
======== ========== ==========
</TABLE>
F-19
<PAGE> 76
ASPECT MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(16) FINANCIAL INFORMATION BY GEOGRAPHIC AREA
Revenues by geographic destination and as a percentage of total revenues
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED
-------------------------------------- -------------------------------
1995 1996 1997 MARCH 29, 1997 APRIL 4, 1998
---------- ---------- ---------- -------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
GEOGRAPHIC AREA BY
DESTINATION
Domestic........... $ 563,857 $ 699,362 $1,881,409 $273,919 $1,496,358
International...... 503,350 689,426 1,186,164 141,562 236,763
---------- ---------- ---------- -------- ----------
$1,067,207 $1,388,788 $3,067,573 $415,481 $1,733,121
========== ========== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED
------------------------- --------------------------------
1995 1996 1997 MARCH 29, 1997 APRIL 4, 1998
----- ----- ----- -------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
GEOGRAPHIC AREA BY DESTINATION
Domestic.......................... 53% 51% 61% 66% 86%
International..................... 47 49 39 34 14
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
(17) VALUATION AND QUALIFYING ACCOUNTS
The following table sets forth activity in the Company's allowance for
doubtful accounts:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF CHARGES TO END OF
PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended --
December 31, 1995...................... $ 8,000 $ -- $1,000 $ 7,000
December 31, 1996...................... 7,000 43,000 -- 50,000
December 31, 1997...................... 50,000 14,333 1,933 62,400
</TABLE>
(18) LOAN AGREEMENT
In June 1998, the Company entered into a loan agreement with a commercial
bank. Under the terms of this loan agreement, the Company may borrow up to $5.0
million for working capital and equipment. The amount available to the Company
under the working capital portion of the loan agreement is based upon a
percentage of the Company's outstanding accounts receivable. The outstanding
principal under the working capital portion of the loan agreement is due and
payable in December 1999. Interest on the working capital portion of the loan
agreement is at the prime rate plus .5% until September 30, 1998 whereby it
becomes the prime rate plus .25%.
The principal amount outstanding under the equipment portion of the loan
agreement is due in 36 equal monthly installments commencing in January 1999.
Interest on the equipment loan portion of the loan agreement is at the prime
rate plus 1.0% up to and including the closing date of the Company's initial
public offering. After the closing of the Company's initial public offering, the
interest rate becomes the prime rate.
There are no outstanding balances under either the working capital portion
or the equipment portion of the loan agreement.
F-20
<PAGE> 77
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES, OR AN OFFER TO SELL TO, OR SOLICITATION OF, ANY
PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 12
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Financial Information........ 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 22
Management............................ 37
Certain Transactions.................. 44
Principal Stockholders................ 46
Description of Capital Stock.......... 49
Shares Eligible for Future Sale....... 51
Underwriting.......................... 53
Legal Matters......................... 54
Experts............................... 54
Additional Information................ 54
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
Shares
LOGO
Common Stock
-------------------
PROSPECTUS
-------------------
BT Alex. Brown
Merrill Lynch & Co.
Piper Jaffray Inc.
, 1998
======================================================
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $15,776
NASD filing fee............................................. 5,848
Nasdaq National Market listing fee.......................... 95,000
Blue Sky fees and expenses.................................. 10,000
Transfer Agent and Registrar fees...........................
Accounting fees and expenses................................
Legal fees and expenses.....................................
Printing and mailing expenses...............................
Miscellaneous...............................................
-------
Total............................................. $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article EIGHTH of the Registrant's Restated Certificate of Incorporation
(the "Restated Certificate of Incorporation") provides that no director of the
Registrant shall be personally liable for any monetary damages for any breach of
fiduciary duty as a director, except to the extent that the Delaware General
Corporation Law prohibits the elimination or limitation of liability of
directors for breach of fiduciary duty.
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination
II-1
<PAGE> 79
by the Registrant that the director or officer did not meet the applicable
standard of conduct required for indemnification, or if the Registrant fails to
make an indemnification payment within 60 days after such payment is claimed by
such person, such person is permitted to petition the court to make an
independent determination as to whether such person is entitled to
indemnification. As a condition precedent to the right of indemnification, the
director or officer must give the Registrant notice of the action for which
indemnity is sought and the Registrant has the right to participate in such
action or assume the defense thereof.
Article NINTH of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Registrant
must indemnify those persons to the fullest extent permitted by such law as so
amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding shares of Common
Stock and Preferred Stock issued and options granted by the Company since April
1, 1995. Further included is the consideration, if any, received by the Company
for such shares and options and information relating to the section of the
Securities Act of 1933, as amended (the "Securities Act"), or rule of the
Securities and Exchange Commission under which exemption from registration was
claimed.
Certain of the transactions described below involved directors, officers
and 5% Stockholders of the Company. See "Certain Transactions."
The Company's Amended and Restated 1991 Stock Option Plan was adopted by
the Board of Directors and approved by the stockholders of the Company in April
1991. As of April 4, 1998, options to purchase 1,461,752 of Common Stock had
been exercised for an aggregate consideration of $335,569 and options to
purchase 1,125,075 of Common Stock, at a weighted average exercise price of
$0.74 per share, were outstanding under such plan.
In November 1995, the Company issued and sold 104 shares of its Common
Stock to LTI Ventures Leasing Corp. at a purchase price of $2.00 per share in
connection with the execution of a Master Lease Agreement.
On November 2, 1995 and June 28, 1996, the Company issued and sold an
aggregate of 3,800,428 shares of its Series B-1 Convertible Preferred Stock to a
group of investors at a purchase price of $2.00 per share.
II-2
<PAGE> 80
On February 26, 1997, August 8, 1997 and October 7, 1997, the Company
issued and sold an aggregate of 3,439,949 shares of its Series C Convertible
Preferred Stock to a group of investors at a purchase price of $3.75 per share.
On February 13, 1998, the Company issued and sold an aggregate of 1,666,234
shares of its Series D Convertible Preferred Stock to a group of investors at a
purchase price of $7.00 per share.
The securities issued in the foregoing transactions were either (i) offered
and sold in reliance upon exemptions from Securities Act registration set forth
in Sections 3(b) and 4(2) of the Securities Act, or any regulations promulgated
thereunder, relating to sales by an issuer not involving any public offering, or
(ii) in the case of certain options to purchase shares of Common Stock and
shares of Common Stock issued upon the exercise of such options, such offers and
sales were made in reliance upon an exemption from registration under Rule 701
of the Securities Act. No underwriters were involved in the foregoing sales of
securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
1* Form of Underwriting Agreement.
3.1 Third Restated Certificate of Incorporation of the Company.
3.2* Form of Certificate of Amendment to Third Restated
Certificate of Incorporation of the Company (to be filed
immediately prior to the effectiveness of this Registration
Statement).
3.3* Form of Restated Certificate of Incorporation of the Company
(to be filed upon the closing of the offering to which this
Registration Statement relates).
3.4 By-Laws of the Company, as amended.
3.5 Form of Amended and Restated By-Laws of the Company (to be
effective upon the closing of the offering to which this
Registration Statement relates).
4.1* Specimen certificate for shares of Common Stock, $.01 par
value, of the Company.
5* Opinion of Hale and Dorr LLP.
10.1 1998 Director Stock Option Plan.
10.2 [Intentionally left blank.]
10.3+ International Distribution Agreement, dated as of January
21, 1998, by and between the Company and Nihon Kohden
Corporation.
10.4+ International License Agreement, dated as of January 21,
1998, by and between the Company and Nihon Kohden
Corporation.
10.5 Trademark License Agreement, dated May 25, 1994, between
Aspect Electronics, Inc. and the Company.
10.6+ License Agreement, dated as of October 31, 1995, between
Siemens Medical Systems, Inc. and the Company.
10.7 Property Lease at 2 Vision Drive between the Company and
Vision Drive, Inc., successor in interest to Natick
Executive Park Trust No. 2, dated September 8, 1994, as
amended, together with Subordination, Non-Disturbance and
Attornment Agreement between the Company and Teachers
Insurance Association of America, dated June 15, 1995.
10.8 Lease Extension Agreement, dated as of August 7, 1997,
between Vision Drive, Inc. and the Company.
</TABLE>
II-3
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
10.9 Loan Agreement, dated as of June 22, 1998, between the
Company and Imperial Bank, together with Revolving Loans
Promissory Note, dated June 22, 1998, made in favor of
Imperial Bank by the Company, Equipment Loans Promissory
Note, dated June 22, 1998, made in favor of Imperial Bank by
the Company, Security Agreement, dated as of June 22, 1998,
between the Company and Imperial Bank, Trademark Collateral
Security and Pledge Agreement, dated as of June 22, 1998,
between the Company and Imperial Bank, Patent Collateral
Security and Pledge Agreement, dated as of June 22, 1998,
between the Company and Imperial Bank and Agreement to
Provide Insurance, dated June 22, 1998, between the Company
and Imperial Bank.
10.10 Promissory Note, dated February 18, 1997, as amended on
April 14, 1997, made in favor of the Company by Nassib G.
Chamoun, together with Pledge Agreement, dated as of
February 18, 1997, as amended on April 14, 1997, between
Nassib G. Chamoun and the Company.
10.11 Promissory Note, dated May 1, 1997, made in favor of the
Company by Nassib G. Chamoun, together with Pledge
Agreement, dated as of May 1, 1997, between Nassib G.
Chamoun and the Company.
10.12 Promissory Note, dated May 1, 1997, made in favor of the
Company by Nassib G. Chamoun, together with Pledge
Agreement, dated as of May 1, 1997, between Nassib G.
Chamoun and the Company.
10.13 Form of Promissory Note made in favor of the Company by
certain directors and executive officers, together with Form
of Pledge Agreement between the Company and certain
directors and executive officers.
10.14 Promissory Note, dated September 24, 1997, made in favor of
the Company by Jeffrey Barrett.
10.15 Promissory Note, dated April 10, 1998, made in favor of the
Company by Jeffrey Barrett, together with Pledge Agreement,
dated as of April 10, 1998, between Jeffrey Barrett and the
Company.
10.16 Series D Convertible Preferred Stock Purchase Agreement
dated February 13, 1998 by and among the Company and the
several purchasers named on Schedule I thereto.
10.17 Third Amended and Restated Right of First Refusal and
Co-Sale Agreement dated February 13, 1998 by and among the
Company and the several parties named on Schedules I and II
thereto.
10.18 Third Amended and Restated Registration Rights Agreement
dated February 13, 1998 by and among the Company and the
parties named on the signature pages thereto.
10.19 Third Amended and Restated Voting Agreement dated February
13, 1998 by and among the Company and the several parties
named on Schedule I thereto.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Price Waterhouse LLP.
23.3* Consent of Hale and Dorr LLP (included in Exhibit 5).
24 Power of Attorney (included on page II-7).
27.1 Financial Data Schedule for fiscal year ended December 31,
1997.
27.2 Financial Data Schedule for quarter ended April 4, 1998.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions have
been omitted and filed separately with the Securities and Exchange Commission.
(b) Financial Statement Schedules
All schedules have been omitted because they are not required or because
the required information is given in the Company's Financial Statements or Notes
thereto.
II-4
<PAGE> 82
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions contained in the Amended and Restated Certificate of
Incorporation of the Company and the laws of the State of Delaware, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Company hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted form the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Natick, Massachusetts on this 23rd
day of June, 1998.
ASPECT MEDICAL SYSTEMS, INC.
By: /s/ NASSIB G. CHAMOUN
------------------------------------
Nassib G. Chamoun
Chief Executive Office and President
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Aspect Medical Systems, Inc.,
hereby severally constitute and appoint Nassib G. Chamoun, J. Breckenridge Eagle
and J. Neal Armstrong and each of them singly, our true and lawful attorneys
with full power to them, and each of them singly, to sign for us and in our
names in the capacities indicated below, the Registration Statement on Form S-1
filed herewith and any and all pre-effective and post-effective amendments to
said Registration Statement, and any subsequent Registration Statement for the
same offering which may be filed under Rule 462(b), and generally to do all such
things in our names and on our behalf in our capacities as officers and
directors to enable Aspect Medical Systems, Inc. to comply with the provisions
of the Securities Act of 1933, as amended, and all requirements of the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
Registration Statement and any and all amendments thereto or to any subsequent
Registration Statement for the same offering which may be filed under Rule
462(b). Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ NASSIB G. CHAMOUN Chief Executive Officer and June 23, 1998
- ------------------------------------------------ President (Principal Executive
Nassib G. Chamoun Officer)
/s/ J. BRECKENRIDGE EAGLE Chairman of the Board of Directors June 23, 1998
- ------------------------------------------------
J. Breckenridge Eagle
/s/ J. NEAL ARMSTRONG Vice President and Chief Financial June 23, 1998
- ------------------------------------------------ Officer (Principal Financial and
J. Neal Armstrong Accounting Officer)
/s/ STEPHEN E. COIT Director June 23, 1998
- ------------------------------------------------
Stephen E. Coit
/s/ EDWIN M. KANIA, JR. Director June 23, 1998
- ------------------------------------------------
Edwin M. Kania, Jr.
</TABLE>
II-6
<PAGE> 84
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LESTER J. LLOYD Director June 23, 1998
- ------------------------------------------------
Lester J. Lloyd
/s/ TERRANCE MCGUIRE Director June 23, 1998
- ------------------------------------------------
Terrance McGuire
/s/ DONALD STANSKI Director June 23, 1998
- ------------------------------------------------
Donald Stanski
</TABLE>
II-7
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
1* Form of Underwriting Agreement.
3.1 Third Restated Certificate of Incorporation of the Company.
3.2* Form of Certificate of Amendment to Third Restated
Certificate of Incorporation of the Company (to be filed
immediately prior to the effectiveness of this Registration
Statement).
3.3* Form of Restated Certificate of Incorporation of the Company
(to be filed upon the closing of the offering to which this
Registration Statement relates).
3.4 By-Laws of the Company, as amended.
3.5 Form of Amended and Restated By-Laws of the Company (to be
effective upon the closing of the offering to which this
Registration Statement relates).
4.1* Specimen certificate for shares of Common Stock, $.01 par
value, of the Company.
5* Opinion of Hale and Dorr LLP.
10.1 1998 Director Stock Option Plan.
10.2 [Intentionally left blank.]
10.3+ International Distribution Agreement, dated as of January
21, 1998, by and between the Company and Nihon Kohden
Corporation.
10.4+ International License Agreement, dated as of January 21,
1998, by and between the Company and Nihon Kohden
Corporation.
10.5 Trademark License Agreement, dated May 25, 1994, between
Aspect Electronics, Inc. and the Company.
10.6+ License Agreement, dated as of October 31, 1995, between
Siemens Medical Systems, Inc. and the Company.
10.7 Property Lease at 2 Vision Drive between the Company and
Vision Drive, Inc., successor in interest to Natick
Executive Park Trust No. 2, dated September 8, 1994, as
amended, together with Subordination, Non-Disturbance and
Attornment Agreement between the Company and Teachers
Insurance Association of America, dated June 15, 1995.
10.8 Lease Extension Agreement, dated as of August 7, 1997,
between Vision Drive, Inc. and the Company.
10.9 Loan Agreement, dated as of June 22, 1998, between the
Company and Imperial Bank, together with Revolving Loans
Promissory Note, dated June 22, 1998, made in favor of
Imperial Bank by the Company, Equipment Loans Promissory
Note, dated June 22, 1998, made in favor of Imperial Bank by
the Company, Security Agreement, dated as of June 22, 1998,
between the Company and Imperial Bank, Trademark Collateral
Security and Pledge Agreement, dated as of June 22, 1998,
between the Company and Imperial Bank, Trademark Collateral
Security and Pledge Agreement, dated as of June 22, 1998,
between the Company and Imperial Bank, Patent Collateral
Security and Pledge Agreement, dated as of June 22, 1998,
between the Company and Imperial Bank and Agreement to
Provide Insurance, dated June 22, 1998, between the Company
and Imperial Bank.
10.10 Promissory Note, dated February 18, 1997, as amended on
April 14, 1997, made in favor of the Company by Nassib G.
Chamoun, together with Pledge Agreement, dated as of
February 18, 1997, as amended on April 14, 1997, between
Nassib G. Chamoun and the Company.
10.11 Promissory Note, dated May 1, 1997, made in favor of the
Company by Nassib G. Chamoun, together with Pledge
Agreement, dated as of May 1, 1997, between Nassib G.
Chamoun and the Company.
10.12 Promissory Note, dated May 1, 1997, made in favor of the
Company by Nassib G. Chamoun, together with Pledge
Agreement, dated as of May 1, 1997, between Nassib G.
Chamoun and the Company.
10.13 Form of Promissory Note made in favor of the Company by
certain directors and executive officers, together with Form
of Pledge Agreement between the Company and certain
directors and executive officers.
</TABLE>
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
10.14 Promissory Note, dated September 24, 1997, made in favor of
the Company by Jeffrey Barrett.
10.15 Promissory Note, dated April 10, 1998, made in favor of the
Company by Jeffrey Barrett, together with Pledge Agreement,
dated as of April 10, 1998, between Jeffrey Barrett and the
Company.
10.16 Series D Convertible Preferred Stock Purchase Agreement
dated February 13, 1998 by and among the Company and the
several purchasers named on Schedule I thereto.
10.17 Third Amended and Restated Right of First Refusal and
Co-Sale Agreement dated February 13, 1998 by and among the
Company and the several parties named on Schedules I and II
thereto.
10.18 Third Amended and Restated Registration Rights Agreement
dated February 13, 1998 by and among the Company and the
parties named on the signature pages thereto.
10.19 Third Amended and Restated Voting Agreement dated February
13, 1998 by and among the Company and the several parties
named on Schedule I thereto.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Price Waterhouse LLP.
23.3* Consent of Hale and Dorr LLP (included in Exhibit 5).
24 Power of Attorney (included on page II-7).
27.1 Financial Data Schedule for fiscal year ended December 31,
1997.
27.2 Financial Data Schedule for quarter ended April 4, 1998.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions have
been omitted and filed separately with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 3.1
THIRD RESTATED
CERTIFICATE OF INCORPORATION
OF
ASPECT MEDICAL SYSTEMS, INC.
Pursuant to Section 245
of the Corporation Law of
the State of Delaware
-------------------------
The undersigned, President of Aspect Medical Systems, Inc., a Delaware
Corporation (the "Corporation"), acting under Section 245 of the General
Corporation Law of the State of Delaware, does hereby certify:
1. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on October 14, 1987
under the name "Biometrak Corporation."
2. This Third Restated Certificate of Incorporation was proposed and
declared advisable by the Board of Directors of the Corporation on February 3,
1998 and was consented to in writing by the Corporation's stockholders as of
February 13, 1998, in accordance with Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware.
The Corporation's Restated Certificate of Incorporation is hereby
restated in its entirety as follows:
FIRST: The name of the Corporation is Aspect Medical Systems, Inc.
SECOND: The registered office and registered agent of the Corporation
is The Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares that the Corporation shall have
authority to issue is 33,343,224 shares consisting of 14,500,000 shares of
Common Stock, par value $0.01 per share, and 18,843,224 shares of preferred
stock, par value $.01 per share, of which 406,898 shares have been designated
Series A-1 Convertible Preferred Stock (the "Series A-1 Preferred Stock"),
3,800,428 shares have been designated Series B-1 Convertible Preferred Stock
(the "Series B-1 Preferred Stock"), 3,500,000 shares have been designated Series
C Convertible Preferred Stock (the "Series C Preferred Stock"), 1,714,286 shares
have been designated Series D Convertible Preferred Stock (the "Series D
Preferred Stock"), 406,898 shares have been designated Series A-2 Convertible
Preferred Stock (the "Series A-2 Preferred Stock"),
1
<PAGE> 2
3,800,428 shares have been designated Series B-2 Convertible Preferred Stock
(the "Series B-2 Preferred Stock"), 3,500,000 shares have been designated Series
C-2 Convertible Preferred Stock (the "Series C-2 Preferred Stock") and 1,714,286
shares have been designated Series D-2 Convertible Preferred Stock (the "Series
D-2 Preferred Stock").
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights of the
holders of any then outstanding Preferred Stock.
2. VOTING. The holders of the Common Stock are entitled to one vote
for each share held at all meetings of stockholders (and written actions in lieu
of meetings). There shall be no cumulative voting.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors of the Corporation and subject to any preferential dividend rights of
any then outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law or this Restated Certificate
of Incorporation. Different series of Preferred Stock shall not be construed to
constitute different classes of shares for the purposes of voting by classes
unless expressly provided.
Authority is hereby expressly granted to the Board of Directors of the
Corporation from time to time to issue the Preferred Stock in one or more
series, and in connection with the creation of any such series, by resolution or
resolutions providing for the issue of the shares thereof, to determine and fix
such voting powers, full or limited, or no voting powers, and such designations,
preferences and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such votes, all
to the full extent now or hereafter permitted by the General Corporation Law of
Delaware. Without limiting the generality of the foregoing, the resolutions
providing for issuance of any series of Preferred Stock may provide that such
series shall be superior or rank equally or be junior to the Preferred Stock of
any other series to the extent permitted by law. Except as otherwise set forth
herein, no vote of the
2
<PAGE> 3
holders of the Preferred Stock or Common Stock shall be prerequisite to the
issuance of any shares of any series of the Preferred Stock authorized by and
complying with the conditions of this Restated Certificate of Incorporation, the
right to have such vote being expressly waived by all present and future holders
of the capital stock of the Corporation.
The relative rights, preferences, privileges and restrictions granted
to or imposed upon the respective classes of Common Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series A-2 Preferred Stock, Series B-2 Preferred Stock, Series C-2
Preferred Stock and Series D-2 Preferred Stock and/or the holders thereof are as
follows:
Except as specifically set forth herein, the holders of shares of
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series A-2 Preferred Stock, Series B-2
Preferred Stock, Series C-2 Preferred Stock and Series D-2 Preferred Stock shall
have the same powers, privileges and rights, and the same qualifications,
limitations and restrictions, with respect to the shares of Preferred Stock held
by them, and except as specifically set forth herein, such shares of Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series A-2 Preferred Stock, Series B-2 Preferred Stock, Series
C-2 Preferred Stock and Series D-2 Preferred Stock shall rank on a parity with
each other with respect to such powers, privileges and rights. The Series A-1
Preferred Stock, the Series B-1 Preferred Stock, the Series C Preferred Stock,
the Series D Preferred Stock, the Series A-2 Preferred Stock, the Series B-2
Preferred Stock, the Series C-2 Preferred Stock and Series the D-2 Preferred
Stock are collectively referred to hereinafter as the "Preferred Stock." The
Series A-1 Preferred Stock and Series A-2 Preferred Stock are collectively
referred to as the "Series A Stock." The Series B-1 Preferred Stock and Series
B-2 Preferred Stock are collectively referred to as the "Series B Stock." The
Series C Preferred Stock and the Series C-2 Preferred Stock are collectively
referred to as the "Series C Stock." The Series D Preferred Stock and the Series
D-2 Preferred Stock are collectively referred to as the "Series D Stock."
1. DIVIDENDS. The holders of the Preferred Stock shall be entitled to
receive, out of funds legally available therefor, dividends declared by the
Board of Directors but in any event at the same rate as dividends (other than
dividends paid in additional shares of Common Stock) are paid with respect to
the Common Stock (treating each share of Preferred Stock as being equal to the
number of shares of Common Stock (including fractions of a share) into which
each share of Preferred Stock is then convertible). Declared and unpaid
dividends shall be payable upon the liquidation or winding-up of the
Corporation. No dividend shall be declared and paid on the Common Stock without
a like dividend being declared and paid on the Preferred Stock.
2. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Preferred
Stock then outstanding shall first be entitled to be paid out of the assets of
the Corporation available for distribution to its stockholders, after and
subject to the payment in full of
3
<PAGE> 4
all amounts required to be distributed to the holders of any other class or
series of stock of the Corporation ranking on liquidation prior and in
preference to the Preferred Stock, but before any payment shall be made to the
holders of Common Stock or any other class or series of stock ranking on
liquidation junior to the Preferred Stock by reason of their ownership thereof,
an amount equal to the greater of (i) $22.76 per share with respect to the
Series A Stock, $2.00 per share with respect to the Series B Stock, $3.75 per
share with respect to the Series C Stock and $7.00 per share with respect to the
Series D Stock (in each case subject to appropriate adjustment in the event of
any stock dividend, stock split, combination or other similar recapitalization
affecting such shares), plus any dividends declared and/or accrued but unpaid on
such shares or (ii) with respect to each series of Preferred Stock, the amount
per share as would have been payable had such series of Preferred Stock been
converted into Common Stock pursuant to Section 4 immediately prior to such
liquidation, dissolution or winding up of the Corporation. If upon any such
liquidation, dissolution or winding up of the Corporation, the remaining assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of the Preferred Stock the full amount to which
they shall be entitled, the holders of the Preferred Stock and any class or
series of stock ranking on liquidation on a parity with the Preferred Stock
shall share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect of the shares of Preferred Stock held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full. Each series of Preferred Stock shall rank on liquidation on a parity
with each other series of Preferred Stock.
(b) After the payment of all preferential amounts required to be
paid to the holders of Preferred Stock and any other class or series of stock of
the Corporation ranking on liquidation on a parity with the Preferred Stock,
upon the dissolution, liquidation or winding up of the Corporation, the holders
of shares of Common Stock or any other class or series of stock ranking on
liquidation junior to the Preferred Stock then outstanding shall be entitled to
receive the remaining assets and funds of the Corporation available for
distribution to its stockholders.
(c) The merger or consolidation of the Corporation into or with
another corporation (except if the Corporation is the surviving entity and the
holders of voting stock of the Corporation immediately prior to a merger
involving the Corporation are the holders of not less than a majority of the
Corporation immediately following such merger), or the sale of all or
substantially all of the assets of the Corporation or other reorganization or
recapitalization of the Corporation having a similar effect shall be deemed to
be a liquidation, dissolution or winding up of the Corporation for the purposes
of this Section 2. The amount deemed distributed to the holders of Preferred
Stock upon any such merger, consolidation or recapitalization shall be the cash
distributed to such holders or the value (to be determined by a majority vote of
the Board of Directors of the Corporation) of the property, rights or securities
distributed to such holders by the acquiring person, firm or other entity.
3. VOTING.
(a) RIGHT TO VOTE. Each holder of outstanding shares of
Preferred Stock shall be entitled to the number of votes equal to the number of
whole
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shares of Common Stock into which the shares of Preferred Stock held by such
holder are convertible (as adjusted from time to time pursuant to Section 4
hereof), at each meeting of stockholders of the Corporation (and written actions
of stockholders in lieu of meetings) with respect to any and all matters
presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of Section 3(b)
below or by the provisions establishing any other class or series of Preferred
Stock, holders of Preferred Stock and of any other outstanding class or series
of Preferred Stock shall vote together with the holders of Common Stock as a
single class.
(b) SPECIAL VOTING RIGHTS. The Corporation shall not, without
the prior approval of the holders of a majority of the shares of Preferred
Stock, given in writing or by vote at a meeting, consenting or voting (as the
case may be) together as a single class:
(i) amend, repeal or add any provision to the Third
Restated Certificate of Incorporation or By-Laws of the Corporation;
(ii) authorize, create or issue any debt or equity
securities, except for (1) shares of Common Stock (including without
limitation stock options exercisable for shares of Common Stock) which
may be issued to employees, directors, consultants, scientific advisors
or other persons pursuant to arrangements, contracts or plans as are
recommended by management and approved by the vote of a majority of the
members of the Board of Directors (as such shares may be appropriately
adjusted for stock splits, stock dividends, combinations,
reorganizations, recapitalizations and other similar events involving a
change in the capital structure of the Corporation) (the "Reserved
Employee Shares"); and (2) indebtedness for borrowed money from a bank
or other institutional lender or indebtedness in connection with a
capital equipment leasing arrangement, other lease financing
arrangement or for operating capital purposes, in each case under this
subsection (2) approved by the vote of a majority of the members of the
Board of Directors;
(iii) merge or consolidate with, or sell, assign, lease or
otherwise dispose of or voluntarily part with the control of (whether
in one transaction or in a series of transactions) substantially all of
its assets (whether now owned or hereafter acquired) or permit any
subsidiary to do any of the foregoing, except for sales or other
dispositions of assets in the ordinary course of business EXCEPT that
(1) any wholly-owned subsidiary may merge into or consolidate with or
transfer assets to any other wholly-owned subsidiary, (2) any
wholly-owned subsidiary may merge into or transfer assets to the
Corporation, and (3) the Corporation may merge another entity into it
or otherwise acquire such entity so long as the Corporation is the
surviving entity, the holders of voting stock of the Corporation
immediately prior to such merger are the holders of not less than a
majority of the Corporation immediately following such merger, such
merger or acquisition does not result in the violation of any of the
provisions of the Series D Convertible Preferred Stock Purchase
Agreement (the "Series D Purchase Agreement") and no such violation
exists at the time of such merger or acquisition;
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(iv) sell, transfer or license any intellectual property
rights of the Corporation, except in connection with clinical testing
or in the ordinary course of business;
(v) file a registration statement with the Securities and
Exchange Commission with respect to any of the Corporation's securities
(except with respect to a registration statement filed in connection
with a demand registration right);
(vi) increase or decrease the authorized number of
directors constituting the Board of Directors;
(vii) declare or pay any dividends, or purchase, redeem,
retire, or otherwise acquire for value any of its capital stock (or
rights, options or warrants to purchase such shares) now or hereafter
outstanding, return any capital to its stockholders as such, or make
any distribution of assets to its stockholders as such, or permit any
subsidiary to do any of the foregoing, PROVIDED, HOWEVER, that nothing
herein contained shall prevent the Corporation from:
(1) effecting a stock split (except for a reverse
stock split) or declaring or paying any dividends consisting of shares
of any class of capital stock to the holders of shares of such class of
capital stock;
(2) complying with any specific provisions of the
terms of the Preferred Stock or the terms of the Series D Purchase
Agreement; or
(3) repurchasing any stock at cost pursuant to
restricted stock agreements with employees, consultants, directors,
scientific advisors and others under restricted stock agreements
previously approved by the Board of Directors;
(viii) create any subsidiary that is not a wholly-owned
subsidiary;
(ix) reclassify any securities into shares having
preferences or priority equal to or superior to any series of Preferred
Stock; or
(x) grant to any of its employees options to purchase
Reserved Employee Shares which shall become exercisable at a rate in
excess of 25% per annum from the date of such grant (unless such
vesting schedule (or any amendment thereto) is approved by a majority
of the members of the Board of Directors).
The provisions of this Section 3(b) shall not apply to actions taken by the
Corporation to effect a Special Mandatory Conversion pursuant to Section 6
below.
4. OPTIONAL CONVERSION. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
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(a) RIGHT TO CONVERT. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, into such number of fully paid and nonassessable shares of Common Stock as
is determined by dividing the conversion value (the "Conversion Value")
specified below by the Conversion Price (as defined below) in effect at the time
of the conversion. The conversion price at which shares of Common Stock shall be
deliverable upon conversion of Preferred Stock without the payment of
additional consideration by the holder thereof (the "Conversion Price") shall
initially be $2.00 in the case of Series A Stock, $2.00 in the case of Series B
Stock, $3.75 in the case of Series C Stock and $7.00 in the case of Series D
Stock. Such initial Conversion Price, and the rate at which shares of Preferred
Stock may be converted into shares of Common Stock, shall be subject to
adjustment as provided below. The Conversion Value shall be $2.00 in the case of
Series A Stock, $2.00 in the case of Series B Stock, $3.75 in the case of Series
C Stock and $7.00 in the case of Series D Stock.
In the event of a liquidation of the Corporation, the
Conversion Rights shall terminate at the close of business on the first full day
preceding the date fixed for the payment of any amounts distributable on
liquidation to the holders of Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of the Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective applicable Conversion Price.
(c) DIVIDENDS. Upon any conversion of the Preferred Stock, no
adjustment to the Conversion Price shall be made for any accrued and unpaid
dividends on the Preferred Stock surrendered for conversion or on the Common
Stock delivered upon conversion, and all rights to such accrued and unpaid
dividends shall terminate and be canceled.
(d) MECHANICS OF CONVERSION.
(i) In order for a holder of Preferred Stock to convert
shares of Preferred Stock into shares of Common Stock, such holder
shall surrender the certificate or certificates for such shares of
Preferred Stock, at the office of the transfer agent for the Preferred
Stock (or at the principal office of the Corporation if the Corporation
serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the
Preferred Stock represented by such certificate or certificates. Such
notice shall state such holder's name or the names of the nominees in
which such holder wishes the certificate or certificates for shares of
Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a
written instrument or instruments of transfer, in form satisfactory to
the Corporation, duly executed by the registered holder or his or its
attorney duly authorized in writing. The date or receipt of such
certificates and notice by the transfer agent (or by the Corporation if
the Corporation serves as its own transfer agent) shall be the
conversion date ("Conversion Date"). The Corporation shall, as soon as
practicable after the Conversion Date, issue and deliver at such office
to such
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holder of Preferred Stock, or to his or its nominees, a certificate or
certificates for the number of shares of Common Stock to which such
holder shall be entitled, together with cash in lieu of any fraction of
a share.
(ii) The Corporation shall at all times when the Preferred
Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purposes of effecting the
conversion of the Preferred Stock, such number of its duly authorized
shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding Preferred Stock. Before taking
any action which would cause an adjustment reducing the Conversion
Price below the then par value of the shares of Common Stock issuable
upon conversion of the Preferred Stock, the Corporation will take any
corporate action which may, in the opinion of its counsel, be necessary
in order that the Corporation may validly and legally issue fully paid
and nonassessable shares of Common Stock at such adjusted Conversion
Price.
(iii) All shares of Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed
to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall immediately
cease and terminate on the Conversion Date, except only the right of
the holders thereof to receive shares of Common Stock in exchange
therefor. Any shares of Preferred Stock so converted shall be retired
and canceled and shall not be reissued, and the Corporation may from
time to time take such appropriate action as may be necessary to reduce
the authorized Preferred Stock accordingly.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the date of issuance of
the Preferred Stock combine the outstanding shares of Common Stock, the
Conversion Price then in effect for each series of Preferred Stock immediately
before the combination shall be proportionately increased. If the Corporation
shall at any time or from time to time after the date of issuance of the
Preferred Stock effect a subdivision of the outstanding Common Stock, the
Conversion Price then in effect for each series of Preferred Stock immediately
before that subdivision shall be proportionately decreased. Any adjustment under
this paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time, or from time to time after the date of
issuance of the Preferred Stock shall make or issue, or fix a record rate for
the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, then and in
each such event the Conversion Price for each series of Preferred Stock then in
effect shall be decreased as of the time of such issuance or, in the event such
a record date shall have been fixed, as of the close of business on such record
date, by multiplying the Conversion Price for each such series of Preferred
Stock then in effect by a fraction:
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(1) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus
the number of shares of Common Stock issuable in payment of such
dividend or distribution;
PROVIDED, HOWEVER, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for each such series of Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for each such series of Preferred Stock shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time or from time to time after the date of
issuance of the Preferred Stock shall make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each event provision shall be made so that the holders
of each series of Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had their
Preferred Stock been converted into Common Stock on the date of such event and
had thereafter, during the period from the date of such event to and including
the Conversion Date, retained such securities receivable by them as aforesaid
during such period giving application to all adjustments called for during such
period under this paragraph with respect to the rights of the holders of the
Preferred Stock.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION.
If the Common Stock issuable upon the conversion of the Preferred Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification, or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
above, or a reorganization, merger, consolidation, or sale of assets provided
for below), then and in each such event the holder of each such share of
Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification, or other change, by holders of the
number of shares of Common Stock into which such shares of Preferred Stock might
have been converted immediately prior to such reorganization, reclassification,
or change, all subject to further adjustment as provided herein.
(i) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In the case of
any consolidation or merger of the Corporation with or into another corporation
or the sale of all or substantially all of the assets of the Corporation to
another corporation (other than a consolidation, merger or sale which is treated
as a liquidation
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pursuant to Section 2(c)), each share of Preferred Stock shall thereafter be
convertible into the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Preferred Stock, to the
end that the provisions set forth in this Section 4 (including provisions with
respect to changes in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Preferred Stock.
(j) ADJUSTMENTS TO APPLICABLE CONVERSION PRICE OF SERIES A-1
PREFERRED STOCK, SERIES B-1 PREFERRED STOCK, SERIES C PREFERRED STOCK AND/OR
SERIES D PREFERRED STOCK UPON DILUTIVE ISSUANCES OF COMMON STOCK.
(i) If the Corporation shall, at any time after the date
on which a share of Series D Preferred Stock was first issued or sold,
while there are any shares of Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C Preferred Stock and/or Series D Preferred
Stock outstanding, issue or sell shares of its Common Stock (or Common
Stock Equivalents, as provided herein) without consideration or at a
price per share less than the applicable Conversion Price for the
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C
Preferred Stock and/or Series D Preferred Stock in effect immediately
prior to such issuance or sale, then the Conversion Price for the
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C
Preferred Stock and/or Series D Preferred Stock, as the case may be,
upon each such issuance or sale, except as hereinafter provided, shall
be lowered so as to be equal to an amount determined by multiplying the
applicable Conversion Price by a fraction:
(A) the numerator of which shall be (a) the number
of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares of Common Stock or Common Stock Equivalents,
plus (b) the number of shares of Common Stock which the net aggregate
consideration, if any, received by the Corporation for the total number
of such additional shares of Common Stock or Common Stock Equivalents
so issued would purchase at the Conversion Price in effect immediately
prior to such issuance, and
(B) the denominator of which shall be (a) the number
of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares of Common Stock or Common Stock Equivalents,
plus (b) the number of such additional shares of Common Stock or Common
Stock Equivalents so issued.
(ii) For the purposes of this Section 4(j), the issuance
of any warrants, options, subscription or purchase rights with respect
to shares of Common Stock and the issuance of any securities
convertible into or
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exchangeable for shares of Common Stock, or the issuance of any
warrants, options, subscription or purchase rights with respect to such
convertible or exchangeable securities (collectively, "Common Stock
Equivalents"), shall be deemed an issuance of Common Stock with respect
to the Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock if the Net Consideration
Per Share (as hereinafter determined) which may be received by the
Corporation for such Common Stock shall be less than the applicable
Conversion Price in effect for any of such series of Preferred Stock at
the time of such issuance. Any obligation, agreement or undertaking to
issue Common Stock Equivalents at any time in the future shall be
deemed to be an issuance at the time such obligation, agreement or
undertaking is made or arises. No adjustment of the Conversion Price
shall be made under this Section 4(j) upon the issuance of any shares
of Common Stock which are issued pursuant to the exercise, conversion
or exchange of any Common Stock Equivalents if any adjustment shall
previously have been made upon the issuance of any such Common Stock
Equivalents as above provided.
(iii) Should the Net Consideration Per Share (as
hereinafter defined) of any such Common Stock Equivalents be decreased
from time to time, then, upon the effectiveness of each such change,
the Conversion Price will be that which would have been obtained (1)
had the adjustments made upon the issuance of such Common Stock
Equivalents been made upon the basis of the actual Net Consideration
Per Share of such securities, and (2) had adjustments made to the
Conversion Price since the date of issuance of such Common Stock
Equivalents been made to such Conversion Price as adjusted pursuant to
paragraph (ii) above. Any adjustment of the Conversion Price with
respect to this paragraph which relates to Common Stock Equivalents
shall be disregarded if, as, and when all of such Common Stock
Equivalents expire or are cancelled without being exercised, so that
the Conversion Price effective immediately upon such cancellation or
expiration shall be equal to the Conversion Price in effect at the time
of the issuance of the expired or cancelled Common Stock Equivalents,
with such additional adjustments as would have been made to the
Conversion Price had the expired or cancelled Common Stock Equivalents
not been issued.
(iv) For purposes of this Section 4(j), the "Net
Consideration Per Share" which may be received by the Corporation shall
be determined as follows:
(A) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any, received by
the Corporation for the issuance of such Common Stock Equivalents, plus
the minimum amount of consideration, if any, payable to the Corporation
upon exercise, or conversion or exchange thereof, divided by the
aggregate number of shares of Common Stock that would be issued if all
such Common Stock Equivalents were exercised, exchanged or converted.
(B) The "Net Consideration Per Share" which may be
received by the Corporation shall be determined in each instance as of
the date of issuance of Common Stock Equivalents without giving effect
to any
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possible future upward price adjustments or rate adjustments which may
be applicable with respect to such Common Stock Equivalents.
(v) For purposes of this Section 4(j), in the event that
the Corporation shall make or issue, or shall fix a record date for the
determination of holders of any capital stock of the Corporation OTHER
THAN holders of Common Stock entitled to receive a dividend or other
distribution payable in Common Stock or securities of the Corporation
convertible into or otherwise exchangeable for the Common Stock of the
Corporation, then such Common Stock or other securities issued in
payment of such dividend shall be deemed to have been issued for a
consideration of $.01, except for (i) dividends payable in shares of
Common Stock payable pro rata to holders of Preferred Stock and to
holders of any other class of stock (whether or not paid to holders of
any other class of stock), (ii) with respect to the Series A Stock,
dividends payable in shares of Series A Stock, (iii) with respect to
Series B Stock, dividends payable in shares of Series B Stock, (iv)
with respect to Series C Stock, dividends payable in shares of Series C
Stock or (v) with respect to Series D Stock, dividends payable in
shares of Series D Stock; PROVIDED, HOWEVER, that holders of any shares
of Series A Stock, Series B Stock, Series C Stock or Series D Stock
shall be entitled to receive such shares of Common Stock for which the
shares of Series A Stock, Series B Stock, Series C Stock or Series D
Preferred Stock are then convertible.
(vi) For purposes of this Section 4(j), if a part of all
of the consideration received by the Corporation in connection with the
issuance of shares of the Common Stock or the issuance of any of the
securities described in this Section 4(j) consists of property other
than cash, such consideration shall be deemed to have a fair market
value as is reasonably determined in good faith by the Board of
Directors of the Corporation. In the event of any dispute between the
holders of the Series A-1 Preferred Stock, Series B-1 Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock and the
Corporation regarding the determination of fair market value, at the
option of the holders of a majority of the outstanding shares of the
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock, the Corporation shall
engage a consulting firm or investment banking firm selected by the
holders of a majority of the outstanding shares of the Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock to prepare an independent appraisal of the
fair market value of such property to be distributed. The expenses of
such appraisal shall be borne by the Corporation.
(vii) This Section 4(j) shall not apply with respect to:
(A) the Reserved Employee Shares;
(B) the issuance of Common Stock upon conversion of
the Series A Stock, Series B Stock, Series C Stock and Series D Stock;
or
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(C) the issuance of Series A-2 Preferred Stock,
Series B-2 Preferred Stock, Series C-2 Preferred Stock and Series D-2
Preferred Stock upon a Special Mandatory Conversion under Section 6
below.
(viii) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by
or for the account of the Corporation, and the disposition of any such
shares shall be considered an issue or sale for the purposes of this
Section 4(j).
(ix) SERIES A-2 PREFERRED STOCK, SERIES B-2 PREFERRED
STOCK, SERIES C-2 PREFERRED STOCK AND SERIES D-2 PREFERRED STOCK. There
shall be no adjustment for the Series A-2 Preferred Stock, Series B-2
Preferred Stock, Series C-2 Preferred Stock and Series D-2 Preferred
Stock under this Section 4(j).
All such numbers shall be subject to equitable adjustment in the event of any
stock dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Corporation.
(k) NO IMPAIRMENT. The Corporation will not, by amendment of its
Third Restated Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such actions as
may be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Preferred Stock against impairment.
(l) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of any series of Preferred
Stock pursuant to this Section 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the applicable Conversion Price then in
effect, and (iii) the number of shares of Common Stock and the amount, if any,
of other property which then would be received upon the conversion of the
Preferred Stock.
(m) NOTICE OF RECORD DATE. In the event that, on or after the
date of issuance of the Preferred Stock:
(i) the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
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(ii) the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) there is any reclassification of the Common Stock of
the Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock
distribution thereon), or any consolidation or merger of the
Corporation into or with another corporation, or a sale of all or
substantially all of the assets of the Corporation; or
(iv) there is an involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office
or at the office of the transfer agent of the Preferred Stock, and
shall cause to be mailed to the holders of the Preferred Stock at
their last addresses as shown on the records of the Corporation or
such transfer agent, at least ten days prior to the record date
specified in (A) below or twenty days before the date specified in (B)
below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be taken, the
date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected
that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, sale,
dissolution or winding up.
5. MANDATORY CONVERSION.
(a) The Corporation may, at its option, require all (and not
less than all) holders of shares of any series of Preferred Stock then
outstanding to convert their shares of such series of Preferred Stock into
shares of Common Stock, at the then effective conversion rate pursuant to
Section 4, at any time on or after the closing of the sale of shares of the
Corporation's Common Stock, at a price per share which equals or exceeds $12.00,
which number shall be appropriated adjusted for stock splits, stock dividends,
combinations, reorganizations, recapitalizations and other similar events
involving a change in capital structure of the Corporation, in a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, resulting in at least $20,000,000
of aggregate gross proceeds; PROVIDED, HOWEVER, that in the event an
underwritten public offering does not meet the thresholds provided in this
paragraph (a), a vote of two-thirds (2/3) of the outstanding shares of Preferred
Stock may, require all (and not less than all) holders of shares of any series
of Preferred Stock then outstanding to convert their shares of such series of
Preferred Stock into shares of Common Stock, at the then effective conversion
rate pursuant to Section 4.
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(b) All holders of record of shares of Preferred Stock will be
given at least 10 days' prior written notice of the date fixed and the place
designated for mandatory conversion of all such shares of Preferred Stock
pursuant to this Section 5. Such notice will be sent by first class or
registered mail, postage prepaid, to each record holder of Preferred Stock at
such holder's address last shown on the records of the transfer agent for the
Preferred Stock (or the records of the Corporation, if it serves as its own
transfer agent). On or before the date fixed for conversion, each holder of
shares of Preferred Stock shall surrender his or its certificate or certificates
for all such shares to the Corporation at the place designated in such notice,
and shall thereafter receive certificates for the number of shares of Common
Stock to which such holder is entitled pursuant to this Section 5. On the date
fixed for conversion, all rights with respect to the Preferred Stock so
converted, including the rights, if any, to receive notices and vote, will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Preferred Stock has been
converted. If so required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or by his or its attorney duly authorized in writing.
As soon as practicable after the date of such mandatory conversion and the
surrender of the certificate or certificates for Preferred Stock, the
Corporation shall cause to be issued and delivered to such holder, or on his or
its written order, a certificate or certificates for the number of full shares
of Common Stock issuable on such conversion in accordance with the provisions
hereof and cash as provided in Section 4(b) in respect of any fraction of a
share of Common Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Preferred Stock which
are required to be surrendered for conversion in accordance with the provisions
hereof shall, for and after the date such certificates are so required to be
surrendered, be deemed to have been retired and canceled and the shares of
Preferred Stock represented thereby converted into Common Stock for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date. The Corporation may
thereafter take such appropriate action as may be necessary to reduce the
authorized Preferred Stock accordingly.
6. SPECIAL MANDATORY CONVERSION.
(a) If any holder of shares of Preferred Stock is entitled to
exercise the right of first refusal (the "Right of First Refusal") as set forth
in Section 7.14 of the Series D Purchase Agreement with respect to any equity
financing (the "Equity Financing") of the Corporation in which the holders of a
majority of the shares of Preferred Stock choose to participate and which would
result in the reduction of the Conversion Price, and (i) the Corporation has
fully complied in all respects with its obligations pursuant to Section 7.14 of
the Series D Purchase Agreement, in respect thereof, and (ii) the provisions of
the Right of First Refusal have not been waived at the request of the
Corporation by such holder, if such holder (a "Non-Participating Holder") does
not, by exercise of such holder's Right of First Refusal, acquire at least its
Special Proportionate Percentage (as hereinafter defined) of the Allocated
Offered Securities offered to the holders of the Preferred Stock in such Equity
Financing (a
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<PAGE> 16
"Mandatory Offering"), then all of such holder's shares of Preferred Stock shall
automatically and without further action on the part of such holder be converted
effective subject to and concurrently with consummation of the Mandatory
Offering (the "Mandatory Offering Date") as follows: (A) each share of Series
A-1 Preferred Stock held by such Non-Participating Holder shall be converted
into one share of Series A-2 Preferred Stock, (B) each share of Series B-1
Preferred Stock held by such Non-Participating Holder shall be converted into
one share of Series B-2 Preferred Stock, (C) each share of Series C Preferred
Stock held by such Non-Participating Holder shall be converted into one share of
Series C-2 Preferred Stock and (D) each share of Series D Preferred Stock held
by such Non-Participating Holder shall be converted into one share of Series D-2
Preferred Stock. Upon such conversion, the shares of Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock so converted shall be cancelled and not subject to reissuance. As used in
this Section 6, the following terms shall have the following respective
meanings:
(1) "Allocated Offered Securities" shall mean: (i) as to any
holder of Series A-1 Preferred Stock that portion of the gross amount
of offered securities which has expressly been allocated for purchase
by the holders of the Series A-1 Preferred Stock as a group, it being
understood that for purposes of this Section 6(a) that Allocated
Offered Securities may represent an amount of offered securities that
is less (but in no event greater) than the amount of offered securities
which the Corporation is otherwise required to offer to the holders of
Series A-1 Preferred Stock pursuant to Section 7.14 of the Series D
Purchase Agreement, (ii) as to any holder of Series B-1 Preferred Stock
that portion of the gross amount of offered securities which has
expressly been allocated for purchase by the holders of the Series B-1
Preferred Stock as a group, it being understood that for purposes of
this Section 6(a) that Allocated Offered Securities may represent an
amount of offered securities that is less (but in no event greater)
than the amount of offered securities which the Corporation is
otherwise required to offer to the holders of Series B-1 Preferred
Stock pursuant to Section 7.14 of the Series D Purchase Agreement,
(iii) as to any holder of Series C Preferred Stock that portion of the
gross amount of offered securities which has expressly been allocated
for purchase by the holders of the Series C Preferred Stock as a group,
it being understood that for purposes of this Section 6(a) that
Allocated Offered Securities may represent an amount of offered
securities that is less (but in no event greater) than the amount of
offered securities which the Corporation is otherwise required to offer
to the holders of Series C Preferred Stock pursuant to Section 7.14 of
the Series D Purchase Agreement and (iv) as to any holder of Series D
Preferred Stock that portion of the gross amount of offered securities
which has expressly been allocated for purchase by the holders of the
Series D Preferred Stock as a group, it being understood that for
purposes of this Section 6(a) that Allocated Offered Securities may
represent an amount of offered securities that is less (but in no event
greater) than the amount of offered securities which the Corporation is
otherwise required to offer to the holders of Series D Preferred Stock
pursuant to Section 7.14 of the Series D Purchase Agreement; and
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<PAGE> 17
(2) "Special Proportionate Percentage" shall mean (i) as to any
holder of Series A-1 Preferred Stock, that percentage figure which
expresses the ratio which (x) the number of shares of outstanding
Common Stock issuable upon conversion of the Series A-1 Preferred Stock
then owned by such holder bears to (y) the aggregate number of shares
of Common Stock issuable with respect to all outstanding shares of
Series A-1 Preferred Stock, (ii) as to any holder of Series B-1
Preferred Stock, that percentage figure which expresses the ratio
which (x) the number of shares of outstanding Common Stock issuable
upon conversion of the Series B-1 Preferred Stock then owned by such
holder bears to (y) the aggregate number of shares of Common Stock
issuable with respect to all outstanding shares of Series B-1 Preferred
Stock, (iii) as to any holder of Series C Preferred Stock, that
percentage figure which expresses the ratio which (x) the number of
shares of outstanding Common Stock issuable upon the conversion of the
Series C Preferred Stock then owned by such holder bears to (y) the
aggregate number of shares of outstanding Common Stock issuable with
respect to all outstanding shares of Series C Preferred Stock and (iv)
as to any holder of Series D Preferred Stock, that percentage figure
which expresses the ratio which (x) the number of shares of outstanding
Common Stock issuable upon conversion of the Series D Preferred Stock
then owned by such holder bears to (y) the aggregate number of shares
of outstanding Common Stock issuable with respect to all outstanding
shares of Series D Preferred Stock.
Notwithstanding the above, in the event that any holder of Preferred Stock shall
have apportioned its Right of First Refusal pursuant to Section 7.14(e) of the
Series D Purchase Agreement among itself and its general partners, officers and
other affiliates, and collectively such persons and entities shall have
exercised such Right of First Refusal to acquire not less than such holder's
Special Proportionate Percentage of the Allocated Offered Securities of a
Mandatory Offering, then such holder shall not be deemed a Non-Participating
Holder hereunder and the Preferred Stock held by such holder shall not be
subject to mandatory conversion pursuant to this Section 6 with respect to such
Mandatory Offering.
(b) The holder of any shares of Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock converted pursuant to Section 6 shall deliver to the Corporation during
regular business hours at the office of any transfer agent of the Corporation
for the Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C
Preferred Stock and/or Series D Preferred Stock (or at the office of the
Corporation if it serves as its own transfer agent), or at such other place as
may be designated by the Corporation, the certificate or certificates for the
shares so converted, duly endorsed or assigned in blank or to the Corporation.
As promptly as practicable thereafter, the Corporation shall issue and deliver
to such holder, at the place designated by such holder, a certificate or
certificates for the number of full shares of the Series A-2 Preferred Stock,
Series B-2 Preferred Stock, Series C-2 Preferred Stock and Series D-2 Preferred
Stock to which such holder is entitled. The person in whose name the certificate
for such Series A-2 Preferred Stock, Series B-2 Preferred Stock, Series C-2
Preferred Stock or Series D-2 Preferred Stock is to be issued shall be deemed to
have become a stockholder of record on the Mandatory Offering Date unless the
transfer books of the Corporation
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<PAGE> 18
are closed on that date, in which event he shall be deemed to have become a
stockholder of record on the next succeeding date on which the transfer books
are open.
(c) Each share of such Non-Participating Holder's shares of
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock
or Preferred Series D Stock shall be converted into one share of Series A-2
Preferred Stock, Series B-2 Preferred Stock, Series C-2 Preferred Stock and
Series D-2 Preferred Stock concurrently with the consummation of the subject
Mandatory Offering. Such new series of Preferred Stock shall be identical in all
respects, except with respect to the respective Conversion Prices then in
effect, to the Series A-2 Preferred Stock, Series B-2 Preferred Stock, Series
C-2 Preferred Stock and Series D-2 Preferred Stock issued pursuant to the
provisions of Section 6(a) above.
7. NO REISSUANCE OF PREFERRED STOCK. Shares of Preferred Stock which
are converted into shares of Common Stock as provided herein or shares of Series
A-1 Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock which are converted into shares of Series A-2 Preferred
Stock, Series B-2 Preferred Stock, Series C-2 Preferred Stock and Series D-2
Preferred Stock pursuant to Section 6 of this Article FOURTH shall not be
reissued.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director notwithstanding any provision of law imposing such liability;
provided, however, that, to the extent provided by applicable law, this
provision shall not eliminate the liability of a director (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. No amendment to or repeal of this
provision shall apply to or have any effect on the liability or alleged
liability of any director for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.
SEVENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
ss.291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
ss.279 of Title 8 of the Delaware Code order a meeting of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as consequence of such
compromise or arrangement, the
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<PAGE> 19
said compromise or arrangement and the said reorganization shall, if sanctioned
by the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
19
<PAGE> 20
Executed by the undersigned on this 13th day of February 1998.
/s/ Nassib G. Chamoun
---------------------
Nassib G. Chamoun
President
[Third Restated Certificate of Incorporation]
20
<PAGE> 1
EXHIBIT 3.4
BY-LAWS
OF
ASPECT MEDICAL SYSTEMS, INC.
<PAGE> 2
ASPECT MEDICAL SYSTEMS CORPORATION
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - Stockholders ................................................... 1
Section 1.1 Place of Meetings ......................................... 1
Section 1.2 Annual Meeting ............................................ 1
Section 1.3 Special Meetings .......................................... 1
Section 1.4 Notice of Meetings ........................................ 1
Section 1.5 Voting List ............................................... 2
Section 1.6 Quorum .................................................... 2
Section 1.7 Adjournments .............................................. 2
Section 1.8 Voting and Proxies ........................................ 2
Section 1.9 Action at Meeting ......................................... 2
Section 1.10 Action without Meeting .................................... 3
ARTICLE 2 - Directors ...................................................... 3
Section 2.1 General Powers ............................................ 3
Section 2.2 Number; Election and Qualification ........................ 3
Section 2.3 Enlargement of the Board .................................. 3
Section 2.4 Tenure .................................................... 3
Section 2.5 Vacancies ................................................. 4
Section 2.6 Resignation ............................................... 4
Section 2.7 Regular Meetings .......................................... 4
Section 2.8 Special Meetings .......................................... 4
Section 2.9 Notice of Special Meetings ................................ 4
Section 2.10 Meetings by Telephone Conference Calls .................... 4
Section 2.11 Quorum .................................................... 5
Section 2.12 Action at Meeting ......................................... 5
Section 2.13 Action by Consent ......................................... 5
Section 2.14 Removal ................................................... 5
Section 2.15 Committees ................................................ 5
Section 2.16 Compensation of Directors ................................. 6
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 3 - Officers ....................................................... 6
Section 3.1 Enumeration ............................................... 6
Section 3.2 Election .................................................. 6
Section 3.3 Qualification ............................................. 6
Section 3.4 Tenure .................................................... 6
Section 3.5 Resignation and Removal ................................... 6
Section 3.6 Vacancies ................................................. 7
Section 3.7 Chairman of the Board and Vice-Chairman of the Board ...... 7
Section 3.8 President ................................................. 7
Section 3.9 Vice Presidents ........................................... 7
Section 3.10 Secretary and Assistant Secretaries ....................... 7
Section 3.11 Treasurer and Assistant Treasurers ........................ 8
Section 3.12 Salaries .................................................. 8
ARTICLE 4 - Capital Stock .................................................. 8
Section 4.1 Issuance of Stock ......................................... 8
Section 4.2 Certificates of Stock ..................................... 9
Section 4.3 Transfers ................................................. 9
Section 4.4 Right of First Refusal .................................... 9
Section 4.5 Lost, Stolen or Destroyed Certificates .................... 15
Section 4.6 Record Date ............................................... 15
ARTICLE 5 - Indemnification ................................................ 16
ARTICLE 6 - General Provisions ............................................. 17
Section 6.1 Fiscal Year ............................................... 17
Section 6.2 Corporate Seal ............................................ 17
Section 6.3 Waiver of Notice .......................................... 17
Section 6.4 Voting of Securities ...................................... 17
Section 6.5 Evidence of Authority ..................................... 17
Section 6.6 Certificate of Incorporation .............................. 17
Section 6.7 Transactions with Interested Parties ...................... 17
Section 6.8 Severability .............................................. 18
Section 6.9 Pronouns .................................................. 18
ARTICLE 7 - Amendments ..................................................... 18
Section 7.1 By the Board of Directors ................................. 18
Section 7.2 By the Stockholders ....................................... 18
</TABLE>
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<PAGE> 4
BY-LAWS
OF
ASPECT MEDICAL SYSTEMS, INC.
ARTICLE 1 - STOCKHOLDERS
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at
such place within or without the Commonwealth of Massachusetts as may be
designated from time to time by the Board of Directors or the President or, if
not so designated, at the registered office of the corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on the fourth Thursday in
April in each year, at a time fixed by the Board of Directors or the President.
If this date shall fall upon a legal holiday at the place of the meeting, then
such meeting shall be held on the next succeeding business day at the same hour.
If no annual meeting is held in accordance with the foregoing provisions, the
Board of Directors shall cause the meeting to be held as soon thereafter as
convenient. If no annual meeting is held in accordance with the foregoing
provisions, a special meeting may be held in lieu of the annual meeting, and any
action taken at that special meeting shall have the same effect as if it had
been taken at the annual meeting, and in such case all references in these
By-laws to the annual meeting of the stockholders shall be deemed to refer to
such special meeting.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called
at any time by the President or by the Board of Directors. Business transacted
at any special meeting of stockholders shall be limited to matters relating to
the purpose or purposes stated in the notice of meeting.
1.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
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1.5 VOTING LIST. The officer who has charge of the stock ledger of
the corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to-act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 VOTING AND PROXIES. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 ACTION AT MEETING. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the
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stockholders at such meeting, except when a different vote is required by
express provision of law, the Certificate of Incorporation or these By-Laws. Any
election by stockholders shall be determined by a plurality of the votes cast by
the stockholders entitled to vote at the election.
1.10 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE 2 - DIRECTORS
2.1 GENERAL POWERS. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the stockholders or the Board of Directors, but in no event shall be less
than one. The number of directors may be decreased at any time and from time to
time either by the stockholders or by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election. Directors need not be
stockholders of the corporation.
2.3 ENLARGEMENT OF THE BOARD. The number of directors may be
increased at any time and from time to time by the stockholders or by a majority
of the directors then in office.
2.4 TENURE. Each director shall hold office until the next annual
meeting and until his successor is elected and qualified, or until his earlier
death, resignation or removal.
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2.5 VACANCIES. Unless and until filled by the stockholders, any
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may be filled by vote of a majority
of the directors then in office, although less than a quorum, or by a sole
remaining director. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next annual meeting of stockholders and until his successor is elected
and qualified, or until his earlier death, resignation or removal.
2.6 RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.7 REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held without notice at such time and place, either within or without the
Commonwealth of Massachusetts, as shall be determined from time to time by the
Board of Directors; provided that any director who is absent when such a
determination is made shall be given notice of the determination. A regular
meeting of the Board of Directors may be held without notice immediately after
and at the same place as the annual meeting of stockholders.
2.8 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be held at any time and place, within or without the Commonwealth of
Massachusetts, designated in a call by the Chairman of the Board, President, two
or more directors, or by one director in the event that there is only a single
director in office.
2.9 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his last known business or home address
at least 48 hours in advance of the meeting, or (iii) by mailing written notice
to his last known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
2.10 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
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2.11 QUORUM. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.12 ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.13 ACTION BY CONSENT. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.14 REMOVAL. Any one or more or all of the directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors, except that the directors elected by the
holders of a particular class or series of stock may be removed without cause
only by vote of the holders of a majority of the outstanding shares of such
class or series.
2.15 COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the
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conduct of its business, but unless otherwise provided by the directors or in
such rules, its business shall be conducted as nearly as possible in the same
manner as is provided in these By-Laws for the Board of Directors.
2.16 COMPENSATION OF DIRECTORS. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
ARTICLE 3 - OFFICERS
3.1 ENUMERATION. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 ELECTION. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate
of Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any
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period following his resignation or removal, or any right to damages on account
of such removal, whether his compensation be by the month or by the year or
otherwise, unless such compensation is expressly provided in a duly authorized
written agreement with the corporation.
3.6 VACANCIES. The Board of Directors may fill any vacancy occurring
in any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD. The Board
of Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. If the Board of
Directors appoints a Vice-Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.8 PRESIDENT. The President shall be the Chief Executive Officer of
the corporation. The President shall, subject to the direction of the Board of
Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. The President shall perform such other
duties and shall have such other powers as the Board of Directors may from time
to time prescribe.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and
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special meetings of the Board of Directors, to attend all meetings of
stockholders and the Board of Directors and keep a record of the proceedings, to
maintain a stock ledger and prepare lists of stockholders and their addresses as
required, to be custodian of corporate records and the corporate seal and to
affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
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ARTICLE 4 - CAPITAL STOCK
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the Corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the Corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the Corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the Corporation. Each such certificate shall be signed by, or in
the name of the Corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the Corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 TRANSFERS. Except as otherwise established by rules and
regulations adopted by the Board of Directors, and subject to applicable law,
shares of stock may be transferred on the books of the Corporation by the
surrender to the Corporation or its transfer agent of the certificate
representing such shares properly endorsed or accompanied by a written
assignment or power of attorney properly executed, and with such proof of
authority or the authenticity of signature as the Corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the Corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect to such stock, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on the books of
the Corporation in accordance with the requirements of these By-Laws.
4.4 RIGHT OF FIRST REFUSAL. No stockholder of the corporation shall
sell, assign, pledge or otherwise transfer (collectively, "transfer") any of the
shares of stock of the Corporation or any right or interest therein, whether
voluntarily or by
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operation of law, or by gift or otherwise, except by a transfer which meets the
following requirements:
(a) If any stockholder (the "Selling Stockholder") proposes to
transfer any shares of stock of the Corporation (the "Offered Shares"), then the
Selling Stockholder shall first give written notice of the proposed transfer
(the "Transfer Notice") to the Corporation. The Transfer Notice shall name the
proposed transferee and state the number of shares to be transferred, the price
per share and all other material terms and conditions of the transfer.
(b) For 15 days following its receipt of such Transfer Notice,
the Corporation shall have the option to purchase all or any lesser part of the
Offered Shares at the price and upon the terms set forth in the Transfer Notice.
In the event the Corporation elects to purchase all of the Offered Shares, it
shall give written notice of its election to the Selling Stockholder within such
15-day period and the settlement of the sale of such Offered Shares shall be
made as provided below in paragraph (d).
(c) If the Corporation does not elect to acquire all of the
Offered Shares, the Corporation shall, within 15 days after receipt of the
Selling Stockholder's Transfer Notice, give written notice of its decision to
the holders of Common and Preferred Stock of the Corporation other than the
Selling Stockholder ("Eligible Stockholders"). Such notice shall state the
number of Offered Shares available for purchase. Each Eligible Stockholder shall
be entitled to purchase that proportion of the Offered Shares available for
purchase as the number of shares of Common or Preferred Stock owned by him bears
to the total number of issued and outstanding shares of Common and Preferred
Stock of the Corporation then owned by all Eligible Stockholders. For this
purpose, any shares of Preferred Stock of the Corporation then outstanding shall
be treated as if converted into the number of shares of Common Stock into which
such shares may then be converted. Within ten days after mailing of such notice
to the Eligible Stockholders, each Eligible Stockholder shall give written
notice to the Corporation and the Selling Stockholder stating how many shares of
his pro rata allotment he will purchase and how many additional shares he will
purchase if additional Offered Shares are made available. If an Eligible
Stockholder fails to respond in writing within this ten-day period to the notice
given by the Corporation, the right of such Eligible Stockholder to acquire his
proportionate part of the Offered Shares of the Selling Stockholder shall
terminate. If one or more Eligible Stockholders do not elect to acquire his full
pro rata shares of the Offered Shares available, these Offered Shares shall be
allocated to each other Eligible Stockholder in proportion to the respective
number of additional shares which Eligible Stockholders indicated they would
purchase OR in the same proportion as the Eligible Stockholder's holdings of
Common and Preferred Stock bears to the aggregate of all Eligible Stockholders'
holdings of Common and Preferred Stock (treating all shares of Preferred Stock
as if converted into Common Stock). If any
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Eligible Stockholder is thereby given the right to purchase a greater number of
Offered Shares than he has subscribed for, the excess shall be reallocated to
the other Eligible Stockholders on the same proportionate basis described above.
The Corporation shall allocate and reallocate the shares available according to
this procedure, but it shall have discretion to allocate amounts of less than
100 shares as it sees fit in its sole discretion. All allocations and
reallocations pursuant to this paragraph must be completed within 14 days after
the end of the ten-day period referred to above.
(d) If the Corporation and/or Eligible Stockholders elect to
acquire all, but not less than all, of the Offered Shares of the Selling
Stockholder as specified in the Selling Stockholder's Transfer Notice, the
Corporation shall so notify the Selling Stockholder and settlement shall be made
at the principal office of the Corporation in cash within 30 days after the
Corporation receives the Selling Stockholder's Transfer Notice; PROVIDED THAT if
the terms of payment set forth in the Selling Stockholder's Transfer Notice were
other than cash against delivery, the Corporation and/or the Eligible
Stockholders shall pay for said Offered Shares on the same terms and conditions
set forth in the Selling Stockholder's Transfer Notice.
(e) If the Corporation and/or the Eligible Stockholders do not
elect to acquire all of the Offered Shares specified in the Selling
Stockholder's Transfer Notice, the Selling Stockholder may, within the 90-day
period following the expiration of the option rights granted to the Corporation
and the Eligible Stockholders, transfer the Offered Shares specified in the
Selling Stockholder's Transfer Notice to the proposed transferee or any other
purchaser, PROVIDED THAT this sale shall not be on terms and conditions more
favorable to the purchaser than those contained in the Selling Stockholder's
Transfer Notice. Notwithstanding any of the above, all Offered Shares
transferred pursuant to this Section shall be subject to the provisions of this
Section in the same manner and to the same extent as before the transfer.
(f) The following transactions shall be exempt from the
provisions of this Section:
(1) A stockholder's transfer of any or all of his shares
either during his lifetime or on death by will or intestacy to his immediate
family or to a trust the beneficiaries of which are exclusively one or more of
the stockholder and a member or members of the stockholder's immediate family,
except any such transfers made pursuant to any divorce or separation proceedings
or settlement. "Immediate family" shall mean spouse, lineal descendant, father,
mother, brother or sister of the stockholder making the transfer;
(2) A stockholder's bona fide pledge or mortgage of his
or its shares with a commercial lending institution;
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(3) A corporate stockholder's transfer of any or all of
its shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate stockholder, or pursuant to a sale of substantially all of the stock
or assets of a corporate stockholder;
(4) A corporate stockholder's transfer of any or all of
its shares to any or all of its stockholders;
(5) A transfer by a stockholder which is a partnership to
any or all of its partners or retired partners, or to the estate of any partner
or retired partner;
(6) A transfer to the Corporation pursuant to any stock
restriction agreement between the stockholder and the Corporation;
(7) A transfer to a person who is already a stockholder
of the Corporation;
(8) A transfer to the guardian or conservator of the
stockholder;
(9) Any transfer pursuant to a registration statement
filed by the Corporation with the Securities and Exchange Commission;
(10) A transfer by a "Key Stockholder" or a "Preferred
Shareholder" (as such terms are defined in the Amended and Restated Right of
First Refusal and Co-Sale Agreement among the Company and the Key Stockholders
and Preferred Shareholders named therein dated May 24, 1993, the "Right of First
Refusal and Co-Sale Agreement") effected pursuant to a right of first offer or
right of Co-Sale in accordance with the procedures set forth in the Right of
First Refusal and Co-Sale Agreement.
PROVIDED, HOWEVER, that in any such case, except as otherwise provided in
paragraph (1) the transferee, assignee, pledgee, mortgagee or other recipient
shall receive and hold such stock subject to the provisions of this Section and
there shall be no further transfer of such stock except in accordance with this
Section.
(g) A stockholder of the Corporation shall be deemed to have
given a Transfer Notice to the Corporation and to have offered to sell all of
the shares of stock of the Corporation then held by such stockholder if such
stockholder:
(1) dies and as a result any transfer of stock is to be
made other than as permitted by Subsection (f)(1) above;
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(2) applies for or consents to the appointment of a
receiver, trustees or liquidator of any of his properties;
(3) admits in writing his inability to pay his debts as
they mature;
(4) makes a general assignment for the benefit of
creditors;
(5) is adjudicated a bankrupt or insolvent;
(6) files a voluntary petition in bankruptcy or files a
petition or an answer seeking an arrangement with creditors or seeks to take
advantage of any bankruptcy, insolvency, readjustment of debt, or liquidation
law or statute, or files an answer admitting the material allegations of a
petition filed against him in any proceeding under such laws; or if that
stockholder's shares are subject to:
(1) attachment or execution of a judgment;
(2) any other transfer by operation of law, by gift
or otherwise without consideration (other than pursuant to Subsection (f)).
If any offer is deemed to have been made under this Subsection (g), the
Corporation and/or the Eligible Stockholders may elect to purchase all or any
portion of such Offered Shares, and the price to be paid by the Corporation
and/or the Eligible Stockholders for the Offered Shares so deemed to be offered
shall be (a) if such stock is traded on a securities exchange, the last reported
sale price, regular way, on the principal exchange on which such stock is traded
on the last trading day preceding the date of purchase; (b) otherwise, if such
stock is traded over the counter and is the subject of regular quotations by a
recognized market maker, the average of the closing bid and asked prices quoted
for such stock by the principal market maker for the ten trading days preceding
the date of purchase; or (c) otherwise, if the Board of Directors shall in good
faith have established at any time within the 13 months preceding the date of
purchase a fair market value for such stock (including without limitation a
valuation established as the purchase or exercise price under an employee stock
purchase or stock option plan which requires that the purchase or exercise price
be at fair market value, a valuation established by an arm's-length sale of such
stock by the Corporation, or a valuation established specifically for purposes
of this Section), the most recent valuation for such stock established by the
Board of Directors. If the parties do not agree with the price set by the Board
of Directors, then the price shall be the fair market value of such shares as
determined by an appraiser mutually satisfactory to the Corporation and the
Selling Stockholder deemed to be making such offer or his
successors-in-interest, or, if they cannot agree on a single appraiser, by an
appraiser appointed by the Corporation, a second appraiser appointed by such
Selling Stockholder or his successors-in-interest and a
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third appraiser appointed by the other two appraisers. Each party shall bear the
cost of his or its own appraiser, and the cost of the third appraiser shall be
shared equally by the parties. If the shares are not purchased by the
Corporation and/or the Eligible Stockholders but are transferred to other
parties, the transferee shall hold such stock subject to the provisions of this
Section and there shall be no further transfer of such stock except in
accordance with this Section.
(h) If any stockholder of the Corporation is deemed to have
offered his stock to the Corporation pursuant to Subsection (g) hereof, the
Corporation and/ or the Eligible Stockholders may pay for any stock it and/or
they agree to purchase with its and/or their promissory note(s) (the "Note").
The Note shall contain the following terms:
(1) The principal amount of the Note shall be payable in
eight quarterly installments, with the last such installment payable on the
second anniversary date of the Note's issuance;
(2) The Note shall bear interest at the same rate as
two-year U.S. Treasury notes issued on or about the same date as the Note, with
accrued interest being payable quarterly;
(3) The Note shall provide for acceleration upon default
for 60 days in the payment of any installment of principal or interest when due,
shall contain customary default provisions in the event of the Corporation
bankruptcy and similar circumstances and shall be secured by a pledge of the
shares for which the Corporation paid with the Note, PROVIDED, HOWEVER, that the
pledgee shall have no right to vote or receive dividends with respect to such
shares until and unless the pledgee forecloses on such shares after the
occurrence of a default under the Note.
(i) The Corporation may assign its rights to purchase stock in
any particular transaction under this Section to one or more persons or
entities.
(j) Notwithstanding anything to the contrary in the By-laws
including the general provisions for amending these By-laws set forth in
Articles 7.1 and 7.2, the provisions set forth in this Section may only be
waived, amended or repealed after the Corporation first obtains the affirmative
vote or written consent of the holders of a majority in interest of the Common
and Preferred Stock of the Corporation, if any Common or Preferred Stock then
remains outstanding.
(k) Any sale or transfer, or purported sale or transfer, of
securities of the Corporation shall be null and void unless the terms,
conditions, and provisions of this Section are strictly observed and followed.
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(l) The foregoing right of first refusal shall terminate upon
either of the following dates, whichever shall first occur:
(1) On October 31, 1997; or
(2) Upon the closing of the first public offering of
securities of the Corporation which is effected pursuant to a registration
statement filed with, and declared effective by, the Securities and Exchange
Commission under the Securities Act of 1933, as amended (other than an offering
registered on Form S-8 or any similar form) that results in gross proceeds of at
least $20,000,000; or
(3) upon the sale of all or substantially all of the
shares of the Corporation, by merger, consolidation, sale of assets or
otherwise.
(m) Whenever the neuter, masculine or feminine gender or the
plural or singular number is used herein, it shall be deemed to represent
whatever gender or number the context or circumstances require.
(n) Any notice hereunder shall be in writing and shall be
deemed to have been duly given when mailed by first class mail, or delivered by
hand, (i) if to the Corporation, to its principal executive office, attention:
President; and (ii) if to a stockholder, to the address of the stockholder
listed in the stock transfer books of the Corporation.
4.5 LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may issue
a new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the Corporation or any
transfer agent or registrar.
4.6 RECORD DATE. The Board of Directors may fix in advance a date as
a record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for
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determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed. The
record date for determining stockholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - INDEMNIFICATION
The Corporation shall, to the fullest extent permitted by Section 145
of the General Corporation Law of Delaware, as that Section may be amended and
supplemented from time to time, indemnify any director, officer or trustee which
it shall have power to indemnify under that Section against any expenses,
liabilities or other matters referred to in or covered by that Section. The
indemnification provided for in this Article (i) shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under any by-law,
agreement or vote of stockholders or disinterested directors or otherwise, both
as to action in their official capacities and as to action in another capacity
while holding such office, (ii) shall continue as to a person who has ceased to
be a director, officer or trustee and (iii) shall inure to the benefit of the
heirs, executors and administrators of such a person. The Corporation's
obligation to provide indemnification under this Article shall be offset to the
extent of any other source of indemnification or any otherwise applicable
insurance coverage under a policy maintained by the Corporation or any other
person.
To assure indemnification under this Article of all such persons who
are determined by the Corporation or otherwise to be or to have been
"fiduciaries" of any employee benefit plan of the Corporation which may exist
from time to time, such Section 145 shall, for the purposes of this Article, be
interpreted as follows: an "other enterprise" shall be deemed to include such an
employee benefit plan, including, without limitation, any plan of the
Corporation which is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
Corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his duties to the
Corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to such
Act of Congress shall be deemed "fines"; and action taken or omitted by a person
with respect to an
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employee benefit plan in the performance of such person's duties for a purpose
reasonably believed by such person to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Corporation.
ARTICLE 6 - GENERAL PROVISIONS
6.1 FISCAL YEAR. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the Corporation shall begin on the
first day of January in each year and end on the last day of December in each
year.
6.2 CORPORATE SEAL. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
6.3 WAIVER OF NOTICE. Whenever any notice whatsoever is required to
be given by law, by the Certificate of Incorporation or by these By-Laws, a
waiver of such notice either in writing signed by the person entitled to such
notice or such person's duly authorized attorney, or by telegraph, cable or any
other available method, whether before, at or after the time stated in such
waiver, or the appearance of such person or persons at such meeting in person or
by proxy, shall be deemed equivalent to such notice.
6.4 VOTING OF SECURITIES. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
Corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other Corporation or organization, the
securities of which may be held by this Corporation.
6.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
Corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
6.6 CERTIFICATE OF INCORPORATION. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the Corporation, as amended and in effect from time to time.
6.7 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the Corporation and one or more of the directors or officers, or between
the Corporation and any other Corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers,
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or have a financial interest, shall be void or voidable solely for this reason,
or solely because the director or officer is present at or participates in the
meeting of the Board of Directors or a committee of the Board of Directors which
authorizes the contract or transaction or solely because his or their votes are
counted for such purpose, if:
(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes
of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
6.8 SEVERABILITY. Any determination that any provision of these
By-Laws is for any reason inapplicable, illegal or ineffective shall not affect
or invalidate any other provision of these By-Laws.
6.9 PRONOUNS. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 7 - AMENDMENTS
7.1 BY THE BOARD OF DIRECTORS. These By-Laws may be altered, amended
or repealed or new by-laws may be adopted by the affirmative vote of a majority
of the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
7.2 BY THE STOCKHOLDERS. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a
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majority of the shares of the capital stock of the Corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
As Adopted by the Board
of Directors on March 12, 1992
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BY-LAW AMENDMENT
1. The By-Laws shall be amended to amend and restate
Section 4.4(f)(10) so that Section 4.4(f)(10) shall read in its entirety as
follows:
"(10) A transfer by a "Key Stockholder" or a "Preferred Shareholder"
(as such terms are defined in the Amended and Restated Right of First Refusal
and Co-Sale Agreement among the Company and the Key Stockholders and Preferred
Shareholders named therein dated May 24, 1993, the "Right of First Refusal and
Co-Sale Agreement") effected pursuant to a right of first offer or right of
Co-Sale in accordance with the procedures set forth in the Right of First
Refusal and Co-Sale Agreement."
2. The By-Laws shall be amended to include a new Section 4.4(f)(11)
which Section 4.4(f)(11) shall read in its entirety as follows:
"(11) A corporate stockholder's transfer of any or all of its shares to
a wholly owned subsidiary corporation, to a parent corporation which wholly owns
such corporate stockholder, or to a corporation which is wholly owned by such a
parent corporation;"
As adopted by the Board of Directors on May 21, 1993.
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Exhibit 3.5
AMENDED AND RESTATED BYLAWS
OF
ASPECT MEDICAL SYSTEMS, INC.
<PAGE> 2
AMENDED AND RESTATED BYLAWS
TABLE OF CONTENTS
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ARTICLE 1 -- Stockholders....................................................1
1.1 Place of Meetings................................................1
1.2 Annual Meeting...................................................1
1.3 Special Meetings.................................................1
1.4 Notice of Meetings...............................................1
1.5 Voting List......................................................2
1.6 Quorum...........................................................2
1.7 Adjournments.....................................................2
1.8 Voting and Proxies...............................................2
1.9 Action at Meeting................................................2
1.10 Nomination of Directors..........................................3
1.11 Notice of Business at Annual Meetings............................3
1.12 Action without Meeting...........................................4
1.13 Organization.....................................................5
ARTICLE 2 -- Directors.......................................................6
2.1 General Powers...................................................6
2.2 Number; Election and Qualification...............................6
2.3 Classes of Directors.............................................6
2.4 Terms of Office..................................................6
2.5 Allocation of Directors Among Classes in the Event
of Increases or Decreases in the Number of Directors.............6
2.6 Vacancies........................................................7
2.7 Resignation......................................................7
2.8 Regular Meetings.................................................7
2.9 Special Meetings.................................................7
2.10 Notice of Special Meetings.......................................7
2.11 Meetings by Telephone Conference Calls...........................8
2.12 Quorum...........................................................8
2.13 Action at Meeting................................................8
2.14 Action by Consent................................................8
2.15 Removal..........................................................8
2.16 Committees.......................................................8
2.17 Compensation of Directors........................................9
ARTICLE 3 -- Officers........................................................9
3.1 Enumeration......................................................9
3.2 Election.........................................................9
3.3 Qualification....................................................9
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3.4 Tenure...........................................................9
3.5 Resignation and Removal..........................................9
3.6 Vacancies.......................................................10
3.7 Chairman of the Board and Vice Chairman of the Board............10
3.8 President.......................................................10
3.9 Vice Presidents.................................................10
3.10 Secretary and Assistant Secretaries.............................11
3.11 Treasurer and Assistant Treasurers..............................11
3.12 Salaries........................................................12
ARTICLE 4 -- Capital Stock..................................................12
4.1 Issuance of Stock...............................................12
4.2 Certificates of Stock...........................................12
4.3 Transfers.......................................................12
4.4 Lost, Stolen or Destroyed Certificates..........................13
4.5 Record Date.....................................................13
ARTICLE 5 -- General Provisions.............................................13
5.1 Fiscal Year.....................................................13
5.2 Corporate Seal..................................................13
5.3 Waiver of Notice................................................13
5.4 Voting of Securities............................................14
5.5 Evidence of Authority...........................................14
5.6 Certificate of Incorporation....................................14
5.7 Transactions with Interested Parties............................14
5.8 Severability....................................................15
5.9 Pronouns........................................................15
ARTICLE 6 -- Amendments.....................................................15
6.1 By the Board of Directors.......................................15
6.2 By the Stockholders.............................................15
6.3 Certain Provisions..............................................15
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AMENDED AND RESTATED BYLAWS
OF
ASPECT MEDICAL SYSTEMS, INC.
ARTICLE 1 -- Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held within six months after the end of each
fiscal year of the corporation on a date to be fixed by the Board of Directors
or the President (which date shall not be a legal holiday in the place where the
meeting is to be held) at the time and place to be fixed by the Board of
Directors or the President and stated in the notice of the meeting. If no annual
meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these Bylaws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
any time only by the Chairman of the Board of Directors, the Chief Executive
Officer (or, if there is no Chief Executive Officer, the President) or the Board
of Directors. Business transacted at any special meeting of stockholders shall
be limited to matters relating to the purpose or purposes stated in the notice
of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
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1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these Bylaws by the stockholders present or represented at the meeting and
entitled to vote, although less than a quorum, or, if no stockholder is present,
by any officer entitled to preside at or to act as Secretary of such meeting. It
shall not be necessary to notify any stockholder of any adjournment of less than
30 days if the time and place of the adjourned meeting are announced at the
meeting at which adjournment is taken, unless after the adjournment a new record
date is fixed for the adjourned meeting. At the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by the General Corporation Law of the State of Delaware, the Certificate of
Incorporation or these Bylaws. Each stockholder of record entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a meeting, may vote or express such consent or dissent in person
or may authorize another person or persons to vote or act for him by written
proxy executed by the stockholder or his authorized agent and delivered to the
Secretary of the corporation. No such proxy shall be voted or acted upon after
three years from the date of its execution, unless the proxy expressly provides
for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or
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represented and voting on a matter) shall decide any matter to be voted upon by
the stockholders at such meeting, except when a different vote is required by
express provision of law, the Certificate of Incorporation or these Bylaws. Any
election of directors by stockholders shall be determined by a plurality of the
votes cast by the stockholders entitled to vote at the election.
1.10 Nomination of Directors. Only persons who are nominated in accordance
with the following procedures shall be eligible for election as directors.
Nomination for election to the Board of Directors of the corporation at a
meeting of stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
1.10. Such nominations, other than those made by or on behalf of the Board of
Directors, shall be made by notice in writing delivered or mailed by first class
United States mail, postage prepaid, to the Secretary, and received not less
than 60 days nor more than 90 days prior to such meeting; provided, however,
that if less than 70 days' notice or prior public disclosure of the date of the
meeting is given to stockholders, such nomination shall have been mailed or
delivered to the Secretary not later than the close of business on the 10th day
following the date on which the notice of the meeting was mailed or such public
disclosure was made, whichever occurs first. Such notice shall set forth (a) as
to each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to be named as
a nominee and to serve as a director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the corporation's
books, of such stockholder and (ii) the class and number of shares of the
corporation which are beneficially owned by such stockholder. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of such
proposed nominee to serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
1.11 Notice of Business at Annual Meetings. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought
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before the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before an annual meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, if
such business relates to the election of directors of the corporation, the
procedures in Section 1.10 must be complied with. If such business relates to
any other matter, the stockholder must have given timely notice thereof in
writing to the Secretary. To be timely, a stockholder's notice must be delivered
to or mailed and received at the principal executive offices of the corporation
not less than 60 days nor more than 90 days prior to the meeting; provided,
however, that in the event that less than 70 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the date on which such notice of the date of
the meeting was mailed or such public disclosure was made, whichever occurs
first. A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 1.11 and except that
any stockholder proposal which complies with Rule 14a-8 of the proxy rules (or
any successor provision) promulgated under the Securities Exchange Act of 1934,
as amended, and is to be included in the corporation's proxy statement for an
annual meeting of stockholders shall be deemed to comply with the requirements
of this Section 1.11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 1.11, and if he should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
1.12 No Action without Meeting. Stockholders may not take any action by
written consent in lieu of a meeting.
1.13 Organization. The Chairman of the Board, or in his absence the Vice
Chairman of the Board designated by the Chairman of the Board, or the President,
in the order named, shall call meetings of the stockholders to order, and shall
act as chairman of such meeting; provided, however, that the Board of Directors
may appoint any stockholder to act as chairman of any meeting in the absence of
the Chairman of the Board. The Secretary of the corporation shall act as
secretary at all meetings of the stockholders; but in the absence of the
Secretary at any meeting of
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the stockholders, the presiding officer may appoint any person to act as
secretary of the meeting.
ARTICLE 2 -- Directors
2.1 General Powers. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be less than three. The number
of directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
2.3 Classes of Directors. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No director shall be
elected or appointed to a class if, as a result, one class shall have more than
one director more than any other class. If a fraction is contained in the
quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class 1, and if such fraction is two-thirds, one of the extra directors shall
be a member of Class 1 and one of the extra directors shall be a member of
Class 2, unless otherwise provided from time to time by resolution adopted by
the Board of Directors.
2.4 Terms of Office. Each director (other than a director elected to fill
a vacancy in accordance with Section 2.6) shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
1999; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 2000; and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2001; and provided further, that the term of each director shall
be subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
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2.5 Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
2.6 Vacancies. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, shall be filled
only by vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office, and a
director chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next election of the class for which such
director shall have been chosen, subject to the election and qualification of
his successor and to his earlier death, resignation or removal.
2.7 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.8 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.9 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.10 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the
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directors calling the meeting. Notice shall be duly given to each director (i)
by giving notice to such director in person or by telephone at least 24 hours in
advance of the meeting, (ii) by sending a telegram, telecopy, or telex, or
delivering written notice by hand, to his last known business or home address at
least 24 hours in advance of the meeting, or (iii) by mailing written notice to
his last known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
2.11 Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.12 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.13 Action at Meeting. At any meeting of the Board of Directors at which
a quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these Bylaws.
2.14 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.15 Removal. Directors of the corporation may be removed only for cause
by the affirmative vote of the holders of two-thirds of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote.
2.16 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any
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absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors and subject to the provisions of the
General Corporation Law of the State of Delaware, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Each such
committee shall keep minutes and make such reports as the Board of Directors may
from time to time request. Except as the Board of Directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the directors or in such rules, its business shall
be conducted as nearly as possible in the same manner as is provided in these
Bylaws for the Board of Directors.
2.17 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 -- Officers
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws, each officer shall hold office until his
successor is
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elected and qualified, unless a different term is specified in the vote choosing
or appointing him, or until his earlier death, resignation or removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote of
a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.8 President. The President shall, subject to the direction of the Board
of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
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3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such
duties and shall have such powers as may from time to time be assigned to him by
the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these Bylaws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
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The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 -- Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the name
of the corporation by, the Chairman or Vice Chairman, if any, of the Board of
Directors, or the President or a Vice President, and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, these Bylaws,
applicable securities laws or any agreement among any number of stockholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and
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<PAGE> 15
with such proof of authority or the authenticity of signature as the corporation
or its transfer agent may reasonably require. Except as may be otherwise
required by law, by the Certificate of Incorporation or by these Bylaws, the
corporation shall be entitled to treat the record holder of stock as shown on
its books as the owner of such stock for all purposes, including the payment of
dividends and the right to vote with respect to such stock, regardless of any
transfer, pledge or other disposition of such stock until the shares have been
transferred on the books of the corporation in accordance with the requirements
of these Bylaws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 -- General Provisions
5.1 Fiscal Year. Except as from time to time otherwise designated by the
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January in each year and end on the last day of December in each year.
- 12 -
<PAGE> 16
5.2 Corporate Seal. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these Bylaws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise designate,
the President or Treasurer may waive notice of, and act as, or appoint any
person or persons to act as, proxy or attorney-in-fact for this corporation
(with or without power of substitution) at, any meeting of stockholders or
shareholders of any other corporation or organization, the securities of which
may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a committee or any officer or representative of the corporation shall
as to all persons who rely on the certificate in good faith be conclusive
evidence of such action.
5.6 Certificate of Incorporation. All references in these Bylaws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and/or restated and in effect from
time to time.
5.7 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
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<PAGE> 17
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these Bylaws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these Bylaws.
5.9 Pronouns. All pronouns used in these Bylaws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE 6 -- Amendments
6.1 By the Board of Directors. These Bylaws may be altered, amended or
repealed or new bylaws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 By the Stockholders. Except as otherwise provided in Section 6.3,
these Bylaws may be altered, amended or repealed or new bylaws may be adopted by
the affirmative vote of the holders of a majority of the shares of the capital
stock of the corporation issued and outstanding and entitled to vote at any
regular or special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new bylaws shall have been stated in the notice
of such regular or special meeting.
6.3 Certain Provisions. Notwithstanding any other provision of law, the
Certificate of Incorporation or these Bylaws, and notwithstanding the fact that
a lesser percentage may be specified by law, the affirmative vote of the holders
of at least seventy-five percent (75%) of the shares of the capital stock of the
corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to
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<PAGE> 18
adopt any provision inconsistent with Section 1.3, Section 1.10, Section 1.11,
Section 1.12, Section 1.13, Article 2 or Article 6 of these Bylaws.
- 15 -
<PAGE> 1
Exhibit 10.1
ASPECT MEDICAL SYSTEMS, INC.
1998 DIRECTOR STOCK OPTION PLAN
1. Purpose.
The purpose of this 1998 Director Stock Option Plan (the "Plan") of
Aspect Medical Systems, Inc. (the "Company") is to advance the interests of the
Company's stockholders by enhancing the Company's ability to attract, retain and
motivate outside directors of the Company by providing such directors with
equity ownership opportunities and thereby better aligning the interests of such
directors with those of the Company's stockholders.
2. Administration.
The Board of Directors of the Company (the "Board") shall supervise and
administer the Plan. Grants of stock options under the Plan and the amount and
nature of the awards to be granted shall be automatic in accordance with Section
5. However, all questions concerning interpretation of the Plan or any options
granted under it shall be resolved by the Board. The Board shall have authority
to adopt, amend and repeal such administrative rules, guidelines and practices
relating to the Plan as it shall deem advisable. The Board may correct any
defect, supply any omission or reconcile any inconsistency in the Plan or any
option in the manner and to the extent it shall deem expedient to carry the Plan
into effect and it shall be the sole and final judge of such expediency. No
member of the Board shall be liable for any action or determination relating to
the Plan. All decisions by the Board shall be made in the Board's sole
discretion and shall be final and binding on all persons having or claiming any
interest in the Plan or in any option granted pursuant to the Plan. No director
or person acting pursuant to the authority delegated by the Board shall be
liable for any action or determination under the Plan made in good faith.
3. Participation in the Plan.
Directors of the Company who are not full-time employees of the Company
or any subsidiary of the Company ("outside directors") shall be eligible to
receive options under the Plan.
<PAGE> 2
4. Stock Subject to the Plan.
(a) The maximum number of shares of the Company's Common Stock, par
value $.01 per share ("Common Stock"), which may be issued under the Plan shall
be 100,000 shares, subject to adjustment as provided in Section 7.
(b) If any outstanding option under the Plan for any reason expires or
is terminated, surrendered or canceled without having been exercised in full or
is forfeited in whole or in part or results in any Common Stock not being
issued, the shares covered by the unexercised portion of such option shall again
become available for issuance pursuant to the Plan. Shares issued under the Plan
may consist in whole or in part of authorized but unissued shares or treasury
shares.
(c) All options granted under the Plan shall be non-statutory options
not entitled to special tax treatment under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
5. Terms, Conditions and Form of Options.
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board shall from time to time approve, which
agreements may contain terms and conditions in addition to but not inconsistent
with those set forth in the Plan.
(a) Option Grant Dates. Subject to adjustment as provided in Section 7,
options shall automatically be granted to all eligible outside directors as
follows:
(i) each person who is an eligible outside director on April
14, 1998 (the "Initial Grant Date") shall be granted an option (the "Initial
Option") to purchase 10,000 shares of Common Stock on the Initial Grant Date;
provided, however, that Lester J. Lloyd and Donald Stanski shall not be eligible
to receive such option pursuant to the terms of this Section 5(a)(i);
(ii) each person who first becomes an eligible outside
director after the Initial Grant Date shall be granted an Initial Option to
purchase 10,000 shares of Common Stock on the date of his or her initial
election or appointment to the Board; and
(iii) each eligible outside director shall be granted an
additional option (the "Additional Option") to purchase 5,000 shares of Common
Stock as follows (each such date referred to herein as an "Additional Option
Grant Date"): (x) prior to the Company's initial public offering of Common Stock
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "IPO"), on May 1 of each year, commencing May 1, 1999,
provided that he or she is
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<PAGE> 3
an eligible director on such date, and provided further that the Additional
Option Grant Date is at least six months after he or she received an Initial
Option, and (y) following the IPO, on the date of each Annual Meeting of
Stockholders of the Company commencing with the first Annual Meeting of
Stockholders following the IPO, provided that he or she is an eligible director
immediately prior to such Annual Meeting and continues to serve as a director
immediately following such Annual Meeting, and provided further that the
Additional Option Grant Date is at least six months after he or she received an
Initial Option.
(b) Option Exercise Price. The option exercise price per share of
Common Stock for each option granted under the Plan shall equal (i) the last
reported sales price per share of Common Stock on the Nasdaq National Market
(or, if the Company is traded on a nationally recognized securities exchange on
the date of grant, the reported closing sales price per share of Common Stock by
such exchange) on the date of grant (or if no such price is reported on such
date such price as reported on the nearest preceding day) or (ii) if the Common
Stock is not traded on the Nasdaq National Market or such an exchange, the fair
market value per share of Common Stock on the date of grant as determined by the
Board.
(c) Options Non-Transferable. Except as the Board may otherwise
determine or provide in an option agreement, any option granted under the Plan
to an optionee shall not be sold, assigned, transferred, pledged or otherwise
encumbered by the person to whom it was granted, either voluntarily or by
operation of law, other than by will or the laws of descent and distribution and
shall be exercisable during the optionee's lifetime only by the optionee or the
optionee's guardian or legal representative.
(d) Exercise Period.
(i) Initial Options. Each Initial Option granted pursuant to
Section 5(a)(i) and (ii) of the Plan shall immediately become exercisable as to
50% of the shares subject to the option on the date such option was granted and
one-sixth of the shares shall become exercisable on each of the first, second
and third anniversaries of the date such option was granted so that such option
shall be fully exercisable three (3) years after the date such option was
granted; provided, however, that the optionee continues to serve as a director
on each such date.
(ii) Additional Options. Each Additional Option granted
pursuant to Section 5(a)(iii) of the Plan shall become exercisable in three
equal annual installments on each of the first, second and third anniversaries
of the date such option was granted so that such option shall be fully
exercisable three (3) years after the date such option was granted; provided,
however, that the optionee continues to serve as a director on each such date.
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<PAGE> 4
(iii) No Fractional Shares. In the event that the vesting
schedule set forth in this Section 5(d) produces a fractional number of shares
issuable upon exercise of such option, the optionee shall receive one less share
on the first anniversary of the date such option was granted than such optionee
shall receive on the second and third anniversaries of the date such option was
granted.
(iv) Board Action. The Board may at any time provide that any
options granted under the Plan become immediately exercisable in full or in
part.
(e) Termination. Each option shall terminate, and may no longer be
exercised, on the earlier of the date (i) 10 years after the date such option
was granted or (ii) 60 days after the optionee ceases to serve as a director of
the Company; provided that, in the event an optionee ceases to serve as a
director due to his or her death or disability (within the meaning of Section
22(e)(3) of the Code or any successor provision), then the exercisable portion
of the option may be exercised within the period of 180 days following the date
the optionee ceases to serve as a director (but in no event later than 10 years
after the date such option was granted) by the optionee or by the person to whom
the option is transferred by will, by the laws of descent and distribution, or
by written notice pursuant to Section 5(g).
(f) Exercise Procedure. An option may be exercised only by written
notice to the Company at its principal office accompanied by payment of the full
consideration for the shares as to which the option is exercised. Such payment
may be made as follows:
(i) in cash or by check, payable to the order of the Company;
(ii) by delivery of a promissory note of the optionee to the
Company on terms determined by the Board;
(iii) by payment of such other lawful consideration as the
Board may determine; or
(iv) any combination of the above permitted forms of payment.
(g) Exercise by Representative Following Death of Director. An
optionee, by written notice to the Company, may designate one or more persons
(and from time to time change such designation), including his or her legal
representative, who, by reason of the optionee's death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.
6. Limitation of Rights.
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<PAGE> 5
(a) No Right to Continue as a Director. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain the optionee as a director for any period of time.
(b) No Stockholder Rights for Options. No optionee nor a designated
beneficiary thereof shall have any rights as a stockholder with respect to any
shares of Common Stock to be distributed with respect to an option until
becoming the record holder of such shares.
7. Adjustment to Common Stock.
In the event of any stock split, stock dividend, recapitalization,
reorganization, merger, consolidation, combination, exchange of shares,
liquidation, spin-off or other similar change in capitalization or event, or any
distribution to holders of Common Stock other than a normal cash dividend, (i)
the number and class of securities available under this Plan, (ii) the number
and class of securities subject to future option grants, and (iii) the number
and class of securities and exercise price per share subject to each outstanding
option shall be appropriately adjusted by the Company (or substituted options
may be made, if applicable) to the extent the Board shall determine, in good
faith, that such an adjustment (or substitution) is necessary and appropriate.
If this Section 7 applies and Section 8 also applies to any event, Section 8
shall be applicable to such event, and this Section 7 shall not be applicable.
8. Modification, Extension and Renewal of Options.
The Board shall have the power to modify or amend outstanding options;
provided, however, that no modification or amendment may (i) have the effect of
altering or impairing any rights or obligations of any option previously granted
without the consent of the optionee, or (ii) modify the number of shares of
Common Stock subject to the option (except as provided in Section 7).
9. Amendment of the Plan.
The Board may amend, suspend or terminate the Plan or any portion
thereof at any time, provided that no amendment shall be made without
stockholder approval if such approval is necessary to comply with any applicable
tax or regulatory requirements. Amendments requiring stockholder approval shall
become effective when adopted by the Board.
10. Withholding.
Each optionee shall pay to the Company, or make provision satisfactory
to the Board for payment of, any taxes required by law to be withheld in
connection with
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<PAGE> 6
options granted under the Plan to such optionee no later than the date of the
event creating the tax liability. The Board may allow optionees to satisfy such
tax obligations in whole or in part in shares of Common Stock, including shares
retained from the option creating the tax obligation, valued at their fair
market value as determined by the Board in good faith. The Company may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to an optionee.
11. Notice.
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
12. Governing Law.
The provisions of the Plan, all determinations made and actions taken
pursuant hereto and all options made hereunder shall be governed by and
interpreted in accordance with the laws of the State of Delaware, without regard
to any applicable conflicts of law.
13. Effective Date and Term of Plan.
The Plan shall become effective on the date of approval by the
stockholders of the Company. No options shall be granted under the Plan after
the completion of ten years from the earlier of (i) the date on which the Plan
was adopted by the Board or (ii) the date the Plan was approved by the Company's
stockholders, but options previously granted may extend beyond that date.
Adopted by the Board on February 6, 1998
Approved by the stockholders as of February 13, 1998
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<PAGE> 1
Exhibit 10.3
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.
INTERNATIONAL DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into as of January 21, 1998, by and
between ASPECT MEDICAL SYSTEMS, INC. ("Aspect"), a Delaware, U.S.A. corporation
having offices at 2 Vision Drive, Natick, Massachusetts 01760-2059, U.S.A.,
Attention: J. Breckenridge Eagle, Telecopy No.: 1-508-647-2059, and NIHON
KOHDEN CORPORATION ("NK"), a Japanese company having offices at 31-4
Nishiochiai, 1-chome, Shinjuku-ku, Tokyo 161 Japan, Attention: Yuzuru
Nagamitsu, Telecopy No.: 81-3-5996-8101.
WITNESSETH:
In consideration of the mutual covenants and conditions herein
contained, and intending to be legally bound hereby, Aspect and NK (the
"Parties") mutually agree as follows:
1. PRODUCTS AND TERRITORY
(a) Aspect hereby appoints NK on an exclusive basis (except as provided in
(i) below) as its sole distributor in Japan (the "Territory") for the products
listed on Exhibit A hereto (the "Products") during the term of this Agreement;
PROVIDED, HOWEVER, that: (i) NK acknowledges that Aspect has an existing
bispectral index ("BIS") module license and sensor distribution arrangement with
SpaceLabs Medical, Inc. ("SMI"); and (ii) if any non-Japanese patient monitoring
companies other than SMI develop a bispectral index ("BIS") module for the
Japanese market, NK shall supply BIS sensors (as described in Exhibit A hereto)
to such companies' distributors (including such companies' branches and
Affiliates) in the Territory at a reasonable price. If such non-Japanese patient
monitoring companies' distributor in the Territory prefers to purchase BIS
sensors from such non-Japanese patient monitoring companies out of Japan, they
may do so, provided, however, that Aspect shall not directly sell BIS sensors to
such companies' distributors in Japan.
(b) NK shall not solicit orders for any Product from any prospective
purchaser outside the Territory. If NK receives an order for any Product from a
prospective purchaser outside the Territory, NK shall immediately refer that
order to Aspect. NK shall not accept any such orders. NK may not deliver or
tender (or cause to be delivered or tendered) any Product outside of the
Territory. NK shall not sell any Product to a purchaser in the Territory if NK
knows or has reason to believe that such purchaser intends to remove that
Product from the Territory. If Aspect receives any order or inquiry for any
Product from a prospective purchaser in the Territory, Aspect shall immediately
refer such order or inquiry to NK.
<PAGE> 2
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.
2. PRICES AND PAYMENT.
(a) NK shall order Products from Aspect by submitting a written purchaser
order identifying the Products ordered, requested delivery date(s) and any
export/import information required to enable Aspect to fill the order. All
orders for Products are subject to written acceptance by Aspect's Controller.
(b) If a purchase order is accepted in accordance with Section 2(a) above,
the transfer prices for Products covered by such purchase order shall be as
follows:
(i) FOR MONITORS:
(A) the transfer price for demonstration units of the
A-1050 monitor shall be US[**], but such units may
not be resold;
(B) prior to introduction of the A-2000 monitor in the
Territory, the transfer price for A-1050 monitors
will be US[**]; after introduction of the A-2000
monitor in the Territory (which will occur no later
than one year after the introduction of the A-2000
monitor in the United States), the transfer price for
the A-1050 monitor shall be reevaluated by the
Parties;
(C) the transfer price for the A-2000 monitor shall be
set by Aspect at such time as it is introduced in the
Territory. Aspect agrees that the transfer price for
the A-2000 will be no more than US[**];
(D) Aspect shall extend volume discounts for monitor
sales when hospital customers agree to purchase more
than one monitor at the same time. To administer this
provision, NK shall inform Aspect from time to time
(but no less frequently than quarterly) of the names,
addresses, and key contacts of hospitals purchasing
monitors. In the event a hospital purchases more than
one monitor at the same time, Aspect will provide NK
a credit applicable to NK's next monitor purchase
from Aspect. These volume discounts shall be as
follows:
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<PAGE> 3
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.
Percentage
Volume Purchased by a Specific Hospital Discount
--------------------------------------- ----------
[**] monitors [**]
[**] monitors [**]
[**] monitors [**]
[**] monitors [**]
(E) In addition, and in its discretion, Aspect shall
consider, at NK's request, whether to provide a
volume discount for hospitals that purchase more than
one monitor at different times (E.G., hospital
purchases one monitor and then agrees to purchase two
more the following month)
(ii) FOR SENSORS AND OTHER ACCESSORIES:
(A) The transfer price for BIS sensors shall be US[**],
except where BIS sensors are being used for training,
demonstrations and customer evaluations, in which
case the transfer price shall be US[**]. Transfer
prices for accessories are listed in Exhibit B
attached hereto; and
(B) During the first 12 month after the date on which the
Japanese Ministry of Health and Welfare ("MHW")
approves the A-1050 monitor (the "MHW Approval Date"
and such 12-month period hereafter referred to as a
"Contract Year"), NK shall be granted a discount of
[**] for all BIS sensor purchases in excess of [**].
Thereafter, the Parties shall discuss the basis for
additional sensor volume discounts.
Aspect's transfer prices shall be FCA (FREE CARRIER) Natick, Massachusetts,
U.S.A. Notwithstanding anything contained in this Agreement to the contrary,
starting with the second (2nd) Contract Year, Aspect may change those transfer
prices; PROVIDED, HOWEVER, that: (i) such change may be made only once a year
effective as of the first day of April with the prior written notice to be given
by Aspect no later than the last day of December of the preceding year, after
consulting with NK; (ii) the annual increase shall be[**], except that,
effective the first day of second April after the introduction of the A-2000 in
the Territory, Aspect reserves the right to increase the transfer price of the
A-1050 by up to[**], after consulting with NK; and (iii) no price
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<PAGE> 4
change shall affect purchase orders offered by NK and accepted by Aspect prior
to the date such price change becomes effective.
(c) NK shall be free to establish its own pricing for Products which it
resells. NK shall notify Aspect of its list prices and average selling prices to
its customers as in effect from time to time.
(d) The ultimate shipment of orders to NK shall be subject to the right and
ability of Aspect to make such sales, and obtain required licenses and permits,
under all decrees, statutes, rules and regulations of the government of the
United States and agencies or instrumentalities thereof presently in effect or
which may be in effect hereafter.
(e) NK hereby agrees: (i) to assist Aspect in obtaining any such required
licenses or permits by supplying such documentation or information as may be
requested by Aspect; (ii) to comply with such decrees, statutes, rules and
regulations of the government of the United States and agencies or
instrumentalities thereof; (iii) to maintain the necessary records to comply
with such decrees, statues, rules and regulations; (iv) to obtain all Japanese
governmental approvals and licenses necessary to import the Products into the
Territory; (v) not to sell, transfer or otherwise dispose of Products in
violation of the export laws of the United States; and (vi) to indemnify and
hold harmless Aspect from any and all fines, damages, losses, costs and expenses
(including reasonable attorneys' fees) incurred by Aspect as a result of any
breach of this Section 2(e) by NK.
(f) Unless NK requests otherwise, all Products ordered by NK shall be
packed for shipment and storage in accordance with Aspect's standard commercial
practices. It is NK's obligation to notify Aspect of any special packaging
requirements (which shall be at NK's expense). Aspect shall deliver Products
into the possession of a common carrier designated by NK in Natick,
Massachusetts, U.S.A. Risk of loss and damage to a Product shall pass to NK upon
the delivery of such Products to the common carrier designated by NK. If NK does
not designate a common carrier by the specified delivery date, then Aspect may
do so on NK's behalf. All claims for non-conforming shipments must be made in
writing to Aspect within ten days of the passing of risk of loss and damage.
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<PAGE> 5
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.
(g) DELIVERY TIMES AND PAYMENT FOR PRODUCTS
(i) Within fifteen (15) days after the MHW Approval Date, but in
no event later than July 1, 1998 (unless through no fault of NK, the MHW
Approval Date has been delayed), NK shall pay Aspect US[**] as pre-payment for
the first[**] A-1050 monitors to be purchased by NK pursuant to this Agreement.
Within 90 days after making such payment, NK will deliver a purchase order to
Aspect for[**] monitors at a price of US[**]. Aspect agrees to deliver those
monitors FCA (FREE CARRIER) Natick, Massachusetts, U.S.A. to NK in accordance
with a delivery schedule to be agreed upon by the Parties, such that all of the
[**] prepaid monitors are delivered to NK within six months after the MHW
Approval Date. In the event Aspect is unable to deliver those [**] monitors
pursuant to such schedule, Aspect agrees to refund to NK the prepayments for
those monitors it is unable to deliver, until such time as those monitors are
delivered.
(ii) NK shall pay Aspect an additional US[**] as pre-payment for
the second group of 50 A-1050 and/or A-2000 monitors to be purchased by NK
pursuant to this Agreement. Such additional pre-payment shall be paid to Aspect
on the earlier of: (A) the date on which the first [**] monitors have been
resold by NK; or (B) the end of the first (1st) Contract Year. NK shall deliver
a purchase order to Aspect for these second[**] monitors at price of US[**] at
such time. Aspect agrees to deliver those monitors FCA (FREE CARRIER) Natick,
Massachusetts, U.S.A. to NK in accordance with a delivery schedule to be agreed
upon by the Parties, such that all of the second [**] prepaid monitors are
delivered to NK within six months after receiving this purchase order. In the
event Aspect is unable to deliver that second group of [**] monitors pursuant to
such schedule, Aspect agrees to refund to NK the prepayments for those monitors
it is unable to deliver, until such time as the monitors are delivered.
(iii) For all other purchase orders of Products, Aspect agrees to
deliver such Products within 90 days after accepting such orders. A purchase
order placed by NK shall be deemed accepted by Aspect, unless notified in
writing to the contrary within ten (10) days after Aspect receives it.
(iv) For any Product not pre-paid in accordance with Section
2(g)(i) and (ii) above, all amounts due and payable with respect to such Product
delivered by Aspect in accordance with Section 2(f) hereof shall be paid in full
within 30 days after the date of Aspect's invoice therefor. All such amounts
shall be paid in U.S. Dollars by wire transfer, to such bank or account as
Aspect may from time to time designate in writing. All costs incurred in
connection with such wire transfer shall be the
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responsibility of NK. Whenever any amount hereunder is due on a day which is not
a day on which banks in Natick, Massachusetts, U.S.A. are open for business (a
"Business Day"), such amount shall be paid on the next such Business Day.
Amounts hereunder shall be considered to be paid as of the day on which funds
are received by Aspect's bank. No part of any amount payable to Aspect hereunder
may be reduced due to any counterclaim, set-off, adjustment or other right which
NK might have or assert against Aspect, any other party or otherwise.
(h) All amounts due and owing to Aspect hereunder but not paid by NK on the
due date thereof shall bear interest (in U.S. Dollars) at the rate 18 per cent
per annum. Such interest shall accrue on the balance of unpaid amounts from time
to time outstanding from the date on which portions of such amounts become due
and owing until payment thereof in full.
(i) In the event of any discrepancy between any purchase order accepted by
Aspect and this Agreement, the terms of this Agreement shall govern.
3. NK'S OTHER OBLIGATIONS
(a) NK covenants that all of its activities under or pursuant to this
Agreement shall comply with all applicable laws, rules and regulations. NK shall
be responsible for obtaining all licenses, permits and approvals which are
necessary or advisable for the importation and sale of the Products in the
Territory and for the performance of its duties hereunder; PROVIDED, HOWEVER,
that NK shall not be responsible for obtaining, and shall not obtain, an Import
Approval (I.E., Yunyu Shonin) for any Product. For each Product for which the
approval of the MHW is required (I.E., for which a Shonin is necessary), Aspect
shall obtain a Foreign Manufacturing Approval (I.E., Gaikoku Seizo Shonin) and
NK shall be Aspect's In-Country Caretaker (I.E., Kokunai Kanrinin, as this term
is defined in 19-2 of Japan's Pharmaceutical Affairs Law). NK shall develop and
submit to the MHW (in Aspect's name and on Aspect's behalf) the application
dossier which is necessary for Aspect to obtain each such Foreign Manufacturing
Approval. NK shall use its best efforts to ensure that each such application is
submitted to and approved by the MHW at the earliest possible time. Except as
specifically provided for in Article 4 hereof, NK shall be responsible for all
costs and expenses related to the development, submission and approval of all
such applications.
(b) NK shall pay all of its expense, including without limitation all
travel, lodging and entertainment expenses, incurred in connection with its
activities hereunder, except as otherwise provided herein and/or agreed between
the Parties. Aspect shall not reimburse NK for any of those expenses.
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<PAGE> 7
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.
(c) NK shall translate, at its own expense, all user and technical manuals
and advertising and marketing information with respect to the Products into
Japanese and provide Aspect with copies of all such materials. NK and Aspect
shall jointly own all copyrights in all translations. Aspect shall not be liable
for translation errors made by NK or at NK's direction or for the
non-conformance of such translations with the laws and regulations in force from
time to time in the Territory. NK shall indemnify and hold Aspect harmless to
the extent that a third party brings claims against Aspect based on such errors
or non-conformance.
(d) NK shall provide Aspect with written quarterly reports, which shall
include business trends, production planning of NK's primary customers, market
forecasts and other reports requested by Aspect.
(e) NK shall promptly give Aspect written notice of the MHW Approval Date.
(f) NK confirms [**]. NK confirms [**]. Until the [**] anniversary of the
termination or expiration of this Agreement, as the case may be, [**]; PROVIDED,
HOWEVER, that: [**] at any time, [**] at any time, [**] after the expiration or
termination of this Agreement [**]. Specifically, it will [**}, subject to the
terms and conditions of this Section 3(f).
(g) NK agrees that any publicity or advertising which shall be released by
it in which Aspect is identified in connection with the Products shall be in
accordance with the terms of this Agreement and with any information or data
which Aspect has furnished in connection with this Agreement. Copies of all such
publicity and advertising shall be forwarded promptly to Aspect.
(h) NK may not customize, modify or have customized or modified any Product
unless it obtains the prior written consent of Aspect, which consent may be
withheld in the sole discretion of Aspect. Any unauthorized customizing or
modification of any Product by NK or any third party shall relieve Aspect from
any obligation it would otherwise have had with respect to such Product under
the warranties described in Exhibit C attached hereto and made a part hereof.
(i) NK shall engage in the market development activities described in its
proposal dated July 1997 (a copy of which is attached as Exhibit D hereto),
including without limitation participation in trade shows, advertising,
sponsorship of BIS lectures, establishing dedicated marketing/sales/and clinical
specialists, supporting BIS clinical investigators in Japan, and paying for the
translation of sales materials and users manuals required to make the Product
suitable for the use in the Territory.
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<PAGE> 8
(j) The Products include circuitry and software programs in binary code
form which are designed for use with such Products (the "Circuitry and
Software"). Aspect hereby grants to NK a non-exclusive and non-transferable
license, without the right to sublicense (except to purchasers of such
Products), in the Territory during the term of this Agreement to use the
Circuitry, the Software and related documentation provided by Aspect (the
"Documentation") solely in connection with operation of the Products. NK shall
not disclosure, furnish, transfer or otherwise make available the Circuitry, the
Software, the Documentation or any portion thereof in any form to any third
party (other than to a purchaser of the Products for use solely in connection
with the operation of the Products) and shall not duplicate the Circuitry, the
Software, the Documentation or any part thereof. Title to and ownership of and
all proprietary rights in or related to the Circuitry, the Software, the
Documentation and all partial or complete copies thereof shall at all times
remain with Aspect or its licensor(s). This Agreement shall not be construed as
a sale of any rights in the Circuitry, the Software, the Documentation, any
copies thereof or any part thereof. All references in this Agreement to sale,
resale or purchase of the Products, or references of like effect, shall, with
respect to the Circuitry, the Software and the Documentation mean licenses or
sublicenses of the Circuitry, the Software and the Documentation pursuant to
this Section 3(j). Distributor shall not disassemble, decompile or reverse
engineer the Circuitry, the Software or any part thereof. NK shall retain and
shall not alter or obscure any notices, markings or other insignia which are
affixed to the Software, the Documentation or any part thereof at the time of
delivery of such Software or such Documentation.
(k) NK shall bear all expenses incurred in connection with obtaining new
reimbursement authorization for BIS monitoring.
4. ASPECT'S OBLIGATIONS
(a) Aspect shall develop and host up to three (3) three-day sales and BIS
training programs in the United States for key marketing/sales/and clinical
specialist personnel of NK. In addition, Aspect agrees to offer one or two
technical training programs of up to three days each in the United States for NK
technical service representatives. Such programs shall be scheduled at dates
that are mutually acceptable to the Parties (but in no event later than June 30,
1999). The travel, lodging and related costs of NK personnel attending these
programs in the United States shall be borne by NK.
(b) From time to time, Aspect personnel or advisers scheduled to travel to
Japan shall make themselves available to provide additional training for NK
personnel in Japan. The travel, lodging and related costs of Aspect personnel in
connection with such visits shall be borne by Aspect.
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<PAGE> 9
(c) All reasonable costs of any new clinical studies required to obtain
marketing approvals for A-1050 and A-2000 monitors as EEG and BIS monitors will
be shared equally by the Parties. To defray its share of the cost of such
clinical studies, Aspect shall provide, free of charge, all monitors and BIS
sensors reasonably needed to performance such clinical studies. NK shall bear
all other costs of such clinical studies; PROVIDED, HOWEVER, that the total cost
of such clinical studies shall be divided equally between the Parties. The
Parties shall jointly develop strategies and acceptable timelines for these
submissions.
(d) Aspect shall provide NK with all relevant clinical trial data used in
comparable submissions by Aspect to the U.S. Food and Drug Administration.
(e) Aspect shall provide NK with copies of all marketing, sales, and
promotional materials developed by Aspect with respect to the Products for the
U.S. market to the extent such materials may be useful for NK's introduction of
the Products in the Territory.
(f) In the event that Aspect modifies, alters, changes or discontinues any
Product, Aspect shall provide NK with at least four (4) months prior written
notice.
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<PAGE> 10
.
(g) Aspect shall (i) fully comply with any applicable law, regulation and
rule of the government of the United States and agencies or instrumentalities
thereof; (ii) maintain all U.S. governmental approvals and licenses necessary to
produce and export Products; and (iii) indemnify and hold harmless NK from
reasonable costs and damages actually incurred by NK as a result of any breach
of this Section 4(g) by Aspect.
(h) Aspect shall immediately provide NK with a written notice upon Aspect
becoming aware of the occurrence of any of the following events: (i) Aspect
recalls any Product, or ceases or suspends the sale of any Product due to any
problem which relates to such Product's efficacy and patient safety, in any
country outside Territory; (ii) any defect of any Product, which relates to such
Product's efficacy or patient safety, is published, reported or made known to
the public by any third party, or found by Aspect; or (iii) any Product
contributed to or caused a death or serious injury, or any Product malfunctioned
and if that malfunction occurred again, it would be likely to contribute or
cause a death or serious injury.
5. RELATIONSHIP OF THE PARTIES.
(a) NK shall be considered to be an independent contractor. The
relationship between Aspect and NK shall not be construed to be that of employer
and employee, nor to constitute a partnership, joint venture or agency of any
kind. Neither Party shall have any right to enter into any contracts or
commitments in the name of, or on behalf of, the other Party, or to bind the
other Party in any respect whatsoever.
(b) NK shall not obligate or purport to obligate Aspect by issuing or
making any affirmations, representations, warranties or guaranties with respect
to Products to any third party, other than the warranties described in Exhibit C
hereto.
6. MINIMUM PURCHASE REQUIREMENTS.
(a) NK shall purchase a sufficient amount of Products from Aspect so as to
meet or exceed both the minimum purchase requirement for monitors set forth in
Section 6(a)(i) below and the minimum purchase requirement for sensors set forth
in Section 6(a)(ii) below.
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<PAGE> 11
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.
(i) PURCHASES OF MONITORS:
(A) For the first (1st) Contract Year, NK's minimum
purchase requirement shall be [**].
(B) For the second (2nd) Contract Year, NK's minimum
purchase requirement shall be [**].
(C) For the third (3rd) Contract Year, NK's minimum
purchase requirement shall be [**].
For the purposes of this provision, a "purchase" of monitors within a specified
time period shall mean paying Aspect for such monitors on or before the last day
of such period.
(ii) PURCHASES OF SENSORS. After MHW Approval Date, NK's minimum
purchase of sensors from Aspect per year shall be[**] for each monitor resold to
NK's customers. For the purpose of this provision, such one year period for the
minimum purchase of sensors for each monitor shall separately commence on the
first day of the month following the month when NK resells such monitor to NK's
customers. To administer this provision, NK shall inform Aspect from time to
time (but no less frequently than quarterly) of the names and addresses of
hospitals purchasing monitors. The sensors purchased by NK at US[**] under
Section 2(b)(ii) herein shall not be counted toward this minimum purchase of
sensors. For the purpose of this provision, a "purchase" of sensors within a
Contract Year shall mean paying Aspect for such sensors on or before the last
day of such Contract Year.
(b) For the purposes of determining Aspect's A-1050 monitor and A-2000
monitor sales in the United States during the relevant periods, monitors that
are placed by Aspect free-of-charge for any reason shall not be considered a
sale. Aspect hereby gives NK the right to audit Aspect's reports of monitor
sales in a reasonable manner to confirm the accuracy of such reports.
(c) Failure to meet either of the minimum purchase requirements described
in Sections 6(a)(i) and (ii) above shall constitute a material breach of this
Agreement for the purposes of Section 11(a) below. Termination shall be the only
consequence of NK failing to satisfy either of these minimum purchase
requirements.
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<PAGE> 12
7. TRADEMARKS, SERVICE MARKS AND TRADE NAMES.
(a) NK may use Aspect's trademarks, service marks and trade names listed in
Exhibit E hereto (the "Trademarks") on a non-exclusive basis in the Territory
only for the duration of this Agreement and solely for display or advertising
purposes in connection with selling and distributing the Products in accordance
with this Agreement. NK shall not at any time do or permit any act to be done
which may in any way impair the rights of Aspect in the Trademarks.
(b) In order to comply with Aspect's quality control standards, NK shall:
(i) use the Trademarks in compliance with all relevant laws and regulations;
(ii) accord Aspect the right to inspect during normal business hours, without
prior advance notice, NK's facilities used in connection with efforts to sell
Products in order to confirm that NK's use of such Trademarks is in compliance
with this Section; and (iii) not modify any of the Trademarks in any way and not
use any of the Trademarks on or in connection with any goods or services other
than the Products.
8. LIMITED WARRANTY.
(a) Aspect makes the warranties set forth in Exhibit C hereto. Under no
circumstances shall the warranties set forth in Exhibit C apply to any Product
which has been customized, modified, damaged or misused by NK or any third party
without Aspect's authorization. NK's sole remedy for a non-conforming Product
is, at Aspect's election, the repair or replacement of such Product.
(b) THE PROVISIONS OF THE FOREGOING WARRANTIES ARE IN LIEU OF ANY OTHER
WARRANTY, WHETHER EXPRESS OR IMPLIED, WRITTEN OR ORAL (INCLUDING ANY WARRANTY OF
MERCHANT ABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT.
9. INDEMNIFICATIONS.
(a) NK hereby agrees to indemnify, defend and hold harmless Aspect, its
Affiliates and all officers, directors, employees and agents thereof from all
liabilities, claims, damages, losses, costs, expenses, demands, suits and
actions (including without limitation attorneys' fees, expenses and settlement
costs) (collectively, "Damages") arising out of: (i) NK's failure to comply with
relevant laws and regulations; and (ii) NK's making representations or
warranties which are not authorized by Aspect hereunder.
(b) Aspect hereby agrees to indemnify, defend and hold harmless NK, its
Affiliates and all officers, directors, employees and agents thereof from all
Damages arising out of: (i) NK's selling of the Products infringing on the
intellectual property
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<PAGE> 13
rights of third parties; or (ii) personal injuries and/or property damages
resulting from the Products; PROVIDED, HOWEVER, that:
(i) Aspect shall have no obligation for any claim of infringement
arising from: (i) any combination by NK of the Products with any other product
not supplied or approved in writing by Aspect, where such infringement would not
have occurred but for such combination; (ii) the adaptation or modification of
the Products not performed or not authorized by Aspect, where such infringement
would not have occurred but for such adaptation or modification; (iii) the
misuse of the Products or the use of the Products in an application for which
they were not designed, where such infringement would not have occurred but for
such use or misuse, unless instructed or authorized by Aspect; or (iv) a claim
based on intellectual property rights owned by NK or any of its Affiliates.
(ii) In the event that any of the Products are held in a suit or
proceeding to infringe any intellectual property rights of a third party, and
the use of such Products is enjoined or Aspect reasonably believes that it is
likely to be found to infringe or likely to be enjoined, Aspect shall, at its
sole cost and expense, either (i) procure for NK the right to continue selling
such Products, or (ii) replace such Products with non-infringing Products of
equivalent functionality. If neither (i) or (ii) are practicable, either Party
may terminate this Agreement, effective immediately, upon giving the other party
written notice. Upon such termination, Aspect shall refund to NK any unused
portions of the prepayments made under Section 2(g)(i) and (ii) above.
(iii) This Section 9(b) constitutes NK's exclusive remedy in the
event that the Products infringe on the intellectual property rights of third
parties.
(c) The Party benefitting from any indemnity hereunder (the "indemnified
party") hereby agrees that: (A) the other Party (the "indemnifying Party") shall
have sole control and authority with respect to the defense or settlement of any
such claim; and (B) the indemnified Party and its Affiliates, officers,
directors, employees and agents thereof shall cooperate fully with the
indemnifying Party, at the indemnifying Party's sole cost and expense, in the
defense of any such claim. Any settlement of any such claims that imposes any
liability or limitation on the indemnifying Party shall not be entered into
without the prior written consent of the indemnifying Party.
(d) In the event a claim is based partially on an indemnified claim
described in Sections 9(a) and/or 9(b) above and partially on a non-indemnified
claim, or is based partially on a claim described in Section 9(a) above and
partially on a claim described in Section 9(b) above, any payments and
reasonable attorney fees incurred in connection with such claims are to be
apportioned between the Parties in accordance with the degree of cause
attributable to each Party.
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<PAGE> 14
10. LIMITATIONS OF LIABILITY.
(a) EXCEPT AS PROVIDED IN SECTION 9 HEREIN, ASPECT'S LIABILITY ARISING OUT
OF THE MANUFACTURE, SALE OR SUPPLYING OF THE PRODUCTS OR THEIR USE OR
DISPOSITION, WHETHER BASED UPON WARRANTY, CONTRACT, TORT OR OTHERWISE, SHALL NOT
EXCEED THE ACTUAL PURCHASE PRICE PAID BY NK FOR THE PRODUCTS.
(b) IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO,
LOSS OF PROFITS OR LOSS OF USE DAMAGES) ARISING OUT OF THE MANUFACTURE, SALE OR
SUPPLYING OF THE PRODUCTS, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES OR LOSSES.
11. TERMINATION AND TERM.
(a) Upon the occurrence of a material breach or default as to any
obligation hereunder by either party and the failure of the breaching party to
promptly pursue (within thirty (30) days after receiving written notice thereof
from the non-breaching party) a reasonable remedy designed to cure (in the
reasonable judgment of the non- breaching party) such material breach or
default, this Agreement may be terminated by the non-breaching party by giving
written notice of termination to the breaching party, such termination being
immediately effective upon the giving of such notice of termination.
(b) The initial term of this Agreement shall begin on the date first
indicated above and shall (unless terminated earlier pursuant to the terms of
Section 11(a) above) expire at the end of the third (3rd) Contract Year or any
renewal period. The term of this Agreement shall be automatically renewed for
additional periods of one (1) Contract Year each unless either Party gives the
other Party a written notice not to renew this Agreement at least three (3)
months before the expiration of the original term or any such renewal of this
Agreement. If such three (3) months notice has not been given, then both Parties
shall agree in writing on mutually acceptable terms for such renewed Contract
Year.
(c) Upon termination or expiration of this Agreement, neither party shall
have any obligation to the other party, or to any employee of the other party,
for compensation or for damages of any kind, whether on account of the loss by
the other party or such employee of present or prospective sales, investments,
compensation, goodwill or otherwise. Each party, for itself and on behalf of
each of its employees, hereby waives any rights which may be granted to it or
them under the laws and regulations of the Territory or otherwise which are not
granted to it or them by this Agreement. Each party hereby indemnifies and holds
the other party harmless from and against
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<PAGE> 15
any and all claims, costs, damages and liabilities whatsoever asserted by any of
its employees, agents or representatives under any applicable termination,
labor, social security or other similar laws or regulations.
(d) Notwithstanding Section 11(c) above or any other provision of this
Agreement, termination of this Agreement shall not affect the obligation of NK
to pay Aspect all amounts owing or to become owing as a result of Products
delivered on or before the date of such termination, as well as interest thereon
to the extent any such amounts are paid after the date they became or will
become due pursuant to this Agreement.
(e) Notwithstanding anything else in this Agreement to the contrary, the
parties agree that Sections 2(e)(vi), 3(c) and (f), 8, 9, 10, 11(c), (d) and
(e), 12 and 13 shall survive the termination or expiration of this Agreement, as
the case may be.
(f) Before or upon termination or expiration of this Agreement, the Parties
shall discuss the rights and obligations of the Parties after such termination
regarding NK's inventories of Products not resold to any customers at the time
of such termination or expiration (including NK's right to sell, or Aspect's
obligation to repurchase, such inventories), and regarding the after-service for
Products resold to the customers in the Territory by NK before such termination
or expiration (including Aspect's responsibility for taking over such
after-service or for supplying NK with any parts that are necessary for such
after-service).
(g) After termination or expiration of this Agreement, Aspect or its
designee shall continue to supply NK with BIS sensors to use with BIS monitors
sold by NK before such termination or expiration.
12. CONFIDENTIALITY MAINTAINED.
(a) Each Party (the "disclosing Party") has a proprietary interest in
information which it discloses to the other Party (the "receiving Party"),
whether in connection with this Agreement or otherwise, which is (i) a trade
secret, confidential or proprietary information, (ii) not publicly known, and
(iii) annotated by a legend, stamp or other written identification as
confidential or proprietary information, or if disclosed orally, is identified
as confidential or proprietary by a written instrument within 30 days of such
disclosure (hereinafter referred to as "Proprietary Information"). The receiving
Party shall disclose the Proprietary Information of the disclosing Party only to
those of its agents and employees to whom it is necessary in order properly to
carry out their duties as limited by the terms and conditions hereof. Both
during and after the term of this Agreement, all disclosures by the receiving
Party to its agents and employees shall be held in strict confidence by such
agents and employees. During and after the term of this Agreement, the receiving
Party, its agents and employees shall not use the Proprietary Information for
any purpose other than in connection with discharging its duties pursuant to
this Agreement. The
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<PAGE> 16
receiving Party shall, at its expense, return to the disclosing Party the
Proprietary Information of the disclosing Party as soon as practicable after the
termination or expiration of this Agreement. During the term of this Agreement
and thereafter, all such Proprietary Information shall remain the exclusive
property of the disclosing Party. This Section 12 shall also apply to any
consultants or subcontractors that the receiving Party may engage in connection
with its obligations under this Agreement.
(b) Notwithstanding anything contained in this Agreement to the contrary,
the receiving Party shall not be liable for a disclosure of the Proprietary
Information of the disclosing Party if the information so disclosed: (i) was in
the public domain at the time of disclosure without breach of this Agreement; or
(ii) was known to or contained in the records of the receiving Party from a
source other than the disclosing Party at the time of disclosure by the
disclosing Party to the receiving Party and can be so demonstrated; or (iii)
becomes known to the receiving Party from a source other than the disclosing
Party without breach of this Agreement by the receiving Party and can be so
demonstrated; or (iv) was disclosed pursuant to court order or as otherwise
compelled by law.
13. MISCELLANEOUS.
(a) This Agreement and the rights and obligations hereunder may not be
assigned, delegated or transferred by either Party without the prior written
consent of the other Party; PROVIDED, HOWEVER, that the other Party's consent
shall not be required with respect to any assignment, delegation or transfer by
a Party to (i) an Affiliate of such Party; or (ii) the purchaser of all or
substantially all of the assets or stock of such Party, through merger,
consolidation or otherwise. To the extent permitted by this Agreement, this
Agreement shall be binding upon and inure to the benefit of the permitted
successors and assigns of both Parties.
(b) This Agreement shall be construed and governed according to, and any
arbitration shall be conducted in accordance with, the laws of the Commonwealth
of Massachusetts, U.S.A. excluding its conflicts of laws principles.
(c) Any dispute, controversy or claim arising out of or relating to this
Agreement or to a breach hereof, including its interpretation, performance or
termination, shall be finally resolved by arbitration. The arbitration shall be
conducted by three (3) arbitrators, one to be appointed by Aspect, one to be
appointed by NK and a third being nominated by the two arbitrators so selected
or, if they cannot agree on a third arbitrator, by the President of the American
Arbitration Association. The arbitration shall be conducted in English and in
accordance with the commercial arbitration rules of the United Nations
Commission on International Trade Law. The arbitration, including the rendering
of the award, shall take place in Los Angeles, California, U.S.A. and shall be
the exclusive forum for resolving such dispute, controversy or claim. The
decision of the arbitrators shall be binding upon the parties hereto, and
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<PAGE> 17
the expense of the arbitration (including without limitation the award of
attorneys' fees to the prevailing party) shall be paid as the arbitrators
determine. The decision of the arbitrators shall be executory, and judgment
thereon may be entered by any court of competent jurisdiction. Notwithstanding
anything contained in this Section to the contrary, each Party shall have the
right to institute judicial proceedings against the other Party or anyone acting
by, through or under such other Party, in order to enforce the instituting
Party's rights hereunder through reformation of contract, specific performance,
injunction or similar equitable relief.
(d) This Agreement supersedes and cancels any previous agreements or
understandings, whether oral, written or implied, heretofore in effect and sets
forth the entire agreement between Aspect and NK with respect to the subject
matter hereof. No modification or change may be made in this Agreement except by
written instrument duly signed by a duly authorized representative of each
Party.
(e) All notices given under this Agreement shall be in writing and shall be
addressed to the Parties at their respective addresses and telecopy numbers, and
to the attention of the individuals set forth above. Either Party may change its
address, telecopy number and contact person for purposes of this Agreement by
giving the other Party written notice of its new address, telecopy number or
contact person. Any such notice if given or made by registered or recorded
delivery international air mail letter shall be deemed to have been received on
the earlier of the date actually received and the date fifteen (15) calendar
days after the same was posted (and in proving such it shall be sufficient to
prove that the envelope containing the same was properly addressed and posted as
aforesaid) and if given or made by telecopy transmission shall be deemed to have
been received at the time of dispatch, unless such date of deemed receipt is not
a day on which banks in the receiving party's home city are open for business,
in which case the date of deemed receipt shall be the next day on which banks in
the receiving party's home city are open for business.
(f) None of the conditions or provisions of this Agreement shall be held to
have been waived by any act or knowledge on the part of either Party, except by
an instrument in writing signed by a duly authorized officer or representative
of such Party. Further, the waiver by either Party of any right hereunder or the
failure to enforce at any time any of the provisions of this Agreement, or any
rights with respect thereto, shall not be deemed to be a waiver of any other
rights hereunder or any breach or failure of performance of the other Party.
(g) No rights or licenses with respect to the Products or the Trademarks
are granted or deemed granted hereunder or in connection herewith, other than
those rights expressly granted in this Agreement.
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(h) Taxes now or hereafter imposed with respect to the transactions
contemplated hereunder (with the exception of income taxes or other taxes
imposed upon Aspect and measured by the gross or net income of Aspect) shall be
the responsibility of NK, and if paid or required to be paid by Aspect, the
amount thereof shall be added to and become a part of the amounts payable by NK
hereunder.
(i) If any provision of this Agreement is declared invalid or unenforceable
by a court having competent jurisdiction, it is mutually agreed that this
Agreement shall endure except for the part declared invalid or unenforceable by
order of such court. The Parties shall consult and use their best efforts to
agree upon a valid and enforceable provision which shall be a reasonable
substitute for such invalid or unenforceable provision in light of the intent of
this Agreement.
(j) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(k) For the purposes of this Agreement, an "Affiliate" of a Party shall
mean any entity controlling, controlled by or under common control with such
Party.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement under
seal.
ASPECT MEDICAL SYSTEMS, INC.
By: /s/ J. Breckenridge Eagle
-----------------------------------------
Name: J. Breckenridge Eagle
Title: Chairman
NIHON KOHDEN CO., LTD.
By: /s/ Kazuo Ogino
-----------------------------------------
Name: Kazuo Ogino
Title: President & Chief Executive Officer
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<PAGE> 19
EXHIBIT A: PRODUCTS
MONITORING SYSTEM COMPONENTS
A-1050(TM) MONITOR WITH THE BISPECTRAL INDEX(TM) (BIS(TM))
Includes:
(1) A-1050 BIS(TM) (Bispectral Index(TM)) Monitor with power cord
(1) Digital Signal Converter (DSC-2) with cable
(1) A-1050 Operator's Manual-English
MONITOR AND DIGITAL SIGNAL CONVERTER INCLUDE ONE YEAR WARRANTY
A-1050 DIGITAL SIGNAL CONVERTER (DSC-2)
INCLUDES ONE YEAR WARRANTY
A-2000(TM) MONITOR WITH THE BISPECTRAL INDEX(TM) (BIS(TM))
Includes:
(1) A-2000 BIS(TM) (Bispectral Index(TM)) Monitor with power cord
(1) Digital Signal Converter (DSC-2) with cable
(1) A-2000 Operator's Manual-English
MONITOR AND DIGITAL SIGNAL CONVERTER INCLUDE ONE YEAR WARRANTY
A-2000 DIGITAL SIGNAL CONVERTER (DSC-2)
INCLUDES ONE YEAR WARRANTY
ACCESSORIES
BIS SENSOR(TM): 1 CASE
1 case contains 50 sensors (25/box, 2 boxes/case)
BIS SENSOR PATIENT INTERFACE CABLE (PIC-S)
ZIPPREP(TM) SELF-PREPPING, DISPOSABLE ELECTRODES: 1 CASE
1 case contains 60 packs (15/box, 4 boxes/case)
2-CHANNEL BIPOLAR PATIENT INTERFACE CABLE
For use with Zipprep electrodes
PRINTREX INKLESS, NON-IMPACT THERMAL PRINTER WITH INTEGRAL ROLL PAPER
Compatible for use with the A-1050. Includes one
Centronics parallel port interface cable.
INCLUDES ONE YEAR WARRANTY
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<PAGE> 20
ACCESSORIES CONTINUED:
PRINTER INTERFACE CABLE:
DB25 parallel port, Centronics 36, shielded
PERMANENT THERMAL PAPER: 4 ROLLS/CASE
100 feet per roll
For use with Printrex printer
PERMANENT THERMAL PAPER: 8 ROLLS/CASE
100 feet per roll
For use with Printrex printer
A-1050 OPERATOR'S MANUAL - ENGLISH
A-1050 SERVICE MANUAL - ENGLISH
GCX POLYMOUNT ROLL STAND FOR THE A-1050 MONITOR
Includes:
Baseweight for added stability
Roll stand handle
12" X 8" X 3.5" basket
GCX POLYMOUNT ROLL STAND ADAPTER FOR THE PRINTREX PRINTER
Includes:
6" utility basket
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<PAGE> 21
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.
EXHIBIT B: PRICE LIST
MONITORING SYSTEM COMPONENTS PRICE
---------------------------- -----
A-1050(TM) MONITOR WITH THE BISPECTRAL INDEX(TM) (BIS(TM)) [**]
Includes:
(1) A-1050 BIS(TM) (Bispectral Index(TM)) Monitor with power cord
(1) Digital Signal Converter (DSC-2) with cable
(1) A-1050 Operator's Manual-English
MONITOR AND DIGITAL SIGNAL CONVERTER INCLUDE ONE YEAR WARRANTY
A-1050 DIGITAL SIGNAL CONVERTER (DSC-2) [**]
INCLUDES ONE YEAR WARRANTY
A-2000(TM) MONITOR WITH THE BISPECTRAL INDEX(TM) (BIS(TM)) TO BE DETERMINED
Includes:
(1) A-2000 BIS(TM) (Bispectral Index(TM)) Monitor with power cord
(1) Digital Signal Converter (DSC-2) with cable
(1) A-2000 Operator's Manual-English
MONITOR AND DIGITAL SIGNAL CONVERTER INCLUDE ONE YEAR WARRANTY
A-2000 DIGITAL SIGNAL CONVERTER (DSC-2) TO BE DETERMINED
INCLUDES ONE YEAR WARRANTY
ACCESSORIES
BIS SENSOR(TM): 1 CASE [**]
1 case contains 50 sensors (25/box, 2 boxes/cases)
BIS SENSOR PATIENT INTERFACE CABLE (PIC-S) [**]
ZIPPREP(TM) SELF-PREPPING, DISPOSABLE ELECTRODES: 1 CASE [**]
1 case contains 60 packs (15/box, 4 boxes/case)
2-CHANNEL BIPOLAR PATIENT INTERFACE CABLE [**]
For use with Zipprep electrodes
PRINTREX INKLESS, NON-IMPACT THERMAL PRINTER WITH INTEGRAL
ROLL PAPER
Compatible for use with the A-1050. Includes
one Centronics parallel port interface cable.
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<PAGE> 22
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.
INCLUDES ONE YEAR WARRANTY
PRINTER INTERFACE CABLE: [**]
DB25 parallel port, Centronics 36, shielded
PERMANENT THERMAL PAPER: 4 ROLLS/CASE [**]
100 feet per roll
For use with Printrex printer
PERMANENT THERMAL PAPER: 8 ROLLS/CASE [**]
100 feet per roll
For use with Printrex printer
A-1050 OPERATOR'S MANUAL - ENGLISH [**]
A-1050 SERVICE MANUAL - ENGLISH [**]
GCX POLYMOUNT ROLL STAND FOR THE A-1050 MONITOR [**]
Includes:
Baseweight for added stability
Roll stand handle
12" x 8" x 3.5" basket
GCX POLYMOUNT ROLL STAND ADAPTER FOR THE PRINTREX PRINTER [**]
Includes:
6" utility basket
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<PAGE> 23
EXHIBIT C:
WARRANTY
Aspect warrants to the initial Purchaser that the A-1050 EEG monitor, the A-2000
monitor, and the Digital Signal Converter ("Warranted Product") will be free
from defects in workmanship or materials, when given normal, proper, and
intended usage for a period of 18 months from the date of its initial shipment
to Purchaser or 12 months from the date of resale by Purchaser, whichever period
first expires. Excluded from this warranty are expendable components and supply
items such as, but not limited to, electrodes, cables, and prep solutions.
Aspect's obligations under this warranty are to repair or replace any Warranted
Product or part thereof that Aspect reasonably determines to be covered by this
warranty and to be defective in workmanship or materials provided that the
Purchaser has given notice of such warranty claim within the Warranty Period and
the Warranted Product is returned to the factory with freight prepaid. Repair or
replacement of Products under this warranty does not extend the Warranty Period.
To request repair or replacement under this warranty, Purchaser should contact
Aspect at 2 Vision Drive, Natick, Massachusetts 01760, 800-442-2051 or
508-647-2088. Aspect will authorize Purchaser to return the Warranted Product
(or part thereof) to Aspect. Aspect shall determine whether to repair or replace
Products and parts covered by this warranty and all Products or parts replaced
shall become Aspect's property. In the course of warranty service, Aspect may
but shall not be required to make engineering improvements to the Warranted
Product or part thereof. If Aspect reasonably determines that a repair or
replacement is covered by the warranty, Aspect shall bear the costs of shipping
the repaired or replacement Product to Purchaser. All other shipping costs shall
be paid by Purchaser. Risk of loss or damage during shipments under this
warranty shall be borne by the party shipping the Product. Products shipped by
Purchaser under this warranty shall be packaged in the original shipping
container or equivalent packaging to protect the Product. If Purchaser ships a
Product to Aspect in unsuitable packaging, any physical damage present in the
Product on receipt by Aspect (and not previously reported) will be presumed to
have occurred in transit and will be the responsibility of Purchaser.
Unless authorized or instructed by Aspect in advance, this warranty does not
extend to any Warranted Products or part thereof: that have been subject to
misuse, neglect or accident; that have been damaged by causes external to the
Warranted Product, including but not limited to failure of or faulty electrical
power; that have been used in violation of Aspect's instructions; that have been
affixed to any nonstandard accessory attachment; on which the serial number has
been removed or made illegible; that have been modified by anyone other than
Aspect; or that have been disassembled, serviced, or reassembled by anyone other
than Aspect, unless authorized by Aspect. Aspect shall have no obligation to
make repairs, replacements,
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<PAGE> 24
or corrections which result, in whole or in part, from normal wear and tear.
Aspect makes no warranty (a) with respect to any products that are not Warranted
Products, (b) with respect to any products purchased from a person other than
Aspect or an Aspect-authorized distributor or (c) with respect to any product
sold under a brand name other than Aspect.
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<PAGE> 1
EXHIBIT 10.4
Confidential Materials omitted and filed separately with
the Securities and Exchange Commission. Asterisks denote omissions.
INTERNATIONAL LICENSE AGREEMENT
THIS AGREEMENT is made and entered into as of January 21, 1998 (the
"Effective Date"), by and between ASPECT MEDICAL SYSTEMS, INC. ("Aspect"), a
Delaware, U.S.A. corporation having offices at 2 Vision Drive, Natick,
Massachusetts 01760-2059, U.S.A., Attention: J. Breckenridge Eagle, Telecopy
No.: 1-508-647-2059, and NIHON KOHDEN CORPORATION ("NK"), a Japanese company
having offices at 31-4 Nishiochiai, 1-chome, Shinjuku-ku, Tokyo 161 Japan,
Attention: Hajime Yasuda, Telecopy No.: 81-3-5996-8097.
WHEREAS, Aspect possesses certain intellectual and industrial property
rights; and
WHEREAS, Aspect is willing to grant, and NK desires to acquire,
non-exclusive worldwide rights to use such rights in accordance with the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual promises,
terms and conditions hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Aspect and NK (the "Parties") do hereby agree as follows:
1. DEFINITIONS
As used herein, the following terms shall have the following definitions.
1.1 AFFILIATES. "Affiliates" of a Party hereto shall mean companies which are
controlled by, control or under common control with such Party. A company shall
be considered an "Affiliate" for only so long as such control exists. For the
purposes of this definition, partnerships or similar entities where a
majority-in-interest of its partners or owners are a Party hereto and/or
Affiliates of such Party shall also be deemed to be Affiliates of such Party.
1.2 AGREEMENT TERM. "Agreement Term" shall mean the period beginning on the
Effective Date and ending on the date of termination or expiration of this
Agreement, as the case may be.
1.3 BIS. "BIS"(TM) shall mean the Bispectral Index,(TM) which is Aspect's
proprietary processed EEG parameter that directly measures the hypnotic effects
of anesthetic and sedative agents on the brain.
<PAGE> 2
1.4 BUSINESS DAY. "Business Day" shall mean a day on which banks are open for
business in Natick, Massachusetts, U.S.A.
1.5 COMMENCEMENT DATE. "Commencement Date" shall mean the earlier of: (a)
May 1, 1999 (unless through no fault of NK, the MHW Approval has been delayed);
and (b) the MHW Approval Date.
1.6 CONTRACT YEAR. "Contract Year" shall mean the 12-month period commencing
on the Commencement Date, and then each 12-month period thereafter.
1.7 KIT. "Kit" shall mean Aspect's BIS Module Kit, as further described in
Exhibit A attached hereto and made a part hereof.
1.8 LICENSED TECHNOLOGY. "Licensed Technology" shall mean the Rights, the
Products and the Technical Information.
1.9 LICENSE TERM. "License Term" shall mean the period beginning on the
Commencement Date and ending on the date of termination or expiration of this
Agreement, as the case may be.
1.10 MHW APPROVAL DATE. "MHW Approval Date" shall mean the date on which NK
receives the approval of the Japanese Ministry of Health and Welfare to market
the Product in Japan.
1.11 PRODUCT. "Product" shall mean a BIS module.
1.12 RIGHTS. "Rights" shall mean:
(a) the patents listed on Exhibit B attached hereto and made a part hereof,
and all continuations, divisions, extensions and reissues thereof;
(b) the patent applications listed on Exhibit B hereto, and all continuations,
divisions, extensions and reissues thereof;
(c) any and all continuations, divisions, reissues, extensions and other
filings that Aspect may file with the governmental agency which issues patents
in any jurisdiction with respect to such patents and/or patent applications
described in parts (a) and (b) above of this definition; and
(d) all relevant copyrights and circuitry relating to the Software (as defined
in Section 2.6 below) or the Kits; and
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<PAGE> 3
(e) any and all patents, patent applications, copyrights, mask work rights and
other intellectual property rights with respect to any inventions, which
patents, patent applications, copyrights, mask work rights and other rights (i)
are granted or to be granted to Aspect (either directly or through its
Affiliates, successors, assigns, agents or employees) and (ii) with respect to
which Aspect (either directly or through its Affiliates, successors, assigns,
agents or employees) shall have the right to grant licenses, sublicenses and
rights of the type described in Article 2 below;
PROVIDED, HOWEVER, that with respect to this definition, if any patents,
copyrights, mask work rights or other intellectual property rights have been or
are in the future issued, granted or registered based on or embodied in any
Product or any part of the Technical Information, such patents, copyrights, mask
work rights and other rights shall be deemed included in this definition.
1.13 TECHNICAL INFORMATION. "Technical Information" shall mean all trade
secrets, know-how, computer programs (including copyrights in said software),
knowledge, technology, means, methods, processes, practices, formulas,
techniques, procedures, technical assistance, designs, drawings, apparatus,
written and oral rectifications of data, specifications, assembly procedures,
schematics and other valuable information of whatever nature, whether
confidential or not, and whether proprietary or not, which is now in (or
hereafter, during the Agreement Term, comes into) the possession of Aspect and
which is necessary to the manufacture, assembly, sale, distribution, use,
installation, servicing or testing of the Product.
1.14 U.S. DOLLARS. "U.S. Dollars" shall mean lawful money of the United States
of America, in immediately available funds.
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<PAGE> 4
Confidential Materials omitted and filed separately with
the Securities and Exchange Commission. Asterisks denote omissions.
2. GRANT OF RIGHTS AND LICENSES
Subject to all of the terms and conditions set forth in this Agreement:
2.1 USE OF RIGHTS.
(a) Aspect hereby grants to NK [**] during the Agreement Term [**].
Specifically, but without limitation, [**].
(b) During the Agreement Term, Aspect shall not grant, directly or indirectly,
the right and license described in Section 2.1(a) above [**].
(c) For the rights and licenses granted hereunder, NK shall pay Aspect a
license fee of [**] within thirty (30) days of the execution of this Agreement.
NK may [**] of said license fee in order to pay withholding tax levied by the
Government of Japan. NK agrees to send to Aspect tax payment certificates
indicating payment of such withholding tax so that Aspect can be allowed by the
tax authorities of the United States a tax credit in the amount of such
withholding tax deducted in Japan.
2.2 USE OF TECHNICAL INFORMATION.
(a) Aspect grants to NK a non-exclusive worldwide right and license during the
Agreement Term to use the Technical Information in connection with NK's exercise
of its rights and licenses granted in Section 2.1, and for no other purpose.
(b) As soon as practical after the Effective Date, Aspect shall provide to NK,
at no additional cost to NK, all of the Technical Information.
2.3 TRADEMARKS, SERVICE MARKS AND TRADE NAMES.
(a) NK shall be required to mark the Products with Aspect's trademarks,
service marks and trade names listed in Exhibit C hereto (the "Trademarks").
Aspect hereby grants NK the right to use the Trademarks on a non-exclusive basis
only for the License Term and solely for display or advertising purposes in
connection with the Products manufactured and sold in accordance with this
Agreement. During the License Term, NK may use, without Aspect's prior written
consent, trademarks, service marks and trade names in connection with the
Products other than the Trademarks; PROVIDED, HOWEVER, that the Trademarks are
always used in a manner which makes them at least as large and at least as
prominent as any other such trademarks, service marks or trade names appearing
on any such label, display or advertisement. Any use by NK of the Trademarks
shall be deemed to be a use of the same by Aspect. NK shall not at any time do
or permit any act to be done (including
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<PAGE> 5
without limitation registering any of the Trademarks in its own name or the name
of any entity other than Aspect) which may in any way impair the rights of
Aspect in the Trademarks. Except as provided above, NK has no rights in the
Trademarks or of any goodwill associated therewith and NK agrees that, except as
expressly provided in this Agreement, it shall not acquire any rights in respect
thereof and that all such rights and goodwill are, and shall remain, vested in
Aspect.
(b) In order to comply with Aspect's quality control standards, NK shall: (i)
whenever it uses the Trademarks, include a statement that the Trademarks are
trademarks of Aspect; (ii) use the Trademarks in compliance with all relevant
laws and regulations; (iii) at Aspect's request, provide Aspect with samples of
the Products, so that Aspect can confirm that such Products are being
manufactured hereunder in a manner consistent with the quality standards which
Aspect applies in manufacturing BIS modules itself; and (iv) not modify any of
the Trademarks in any way and not use any of the Trademarks on or in connection
with any goods or services other than the Products.
2.4 RIGHT TO SUBLICENSE. NK shall not have the right to sublicense any of the
rights or licenses granted hereunder without Aspect's prior written consent,
which consent shall be withheld in Aspect's absolute discretion; PROVIDED,
HOWEVER, it is understood that NK shall have the right to grant sublicenses to
NK's Affiliates without Aspect's prior written consent. All sublicenses shall
not become effective until the sublicensee confirms in writing to Aspect that it
agrees to be bound by all of the terms and conditions contained in this
Agreement.
2.5 NO RIGHTS BY IMPLICATION. No rights or licenses with respect to Licensed
Technology are granted or deemed granted hereunder or in connection herewith,
other than those rights or licenses expressly granted in this Agreement.
2.6 SOFTWARE AND COMPUTER PROGRAMS. The Product includes circuitry and
software programs in binary code form which are designed for use with the
Product (the "Circuitry" and the "Software"). For the purpose of this Agreement,
the Circuitry and the Software shall not include any portion of the Product
which is proprietary to NK or which is developed by or licensed to NK,
independently of Rights and Technical Information provided by Aspect hereunder.
Aspect hereby grants to NK a non-exclusive and non-transferable worldwide
license, without the right to sublicense (except to purchasers of the Product
and NK's Affiliates which become sublicensees pursuant to Section 2.4 above),
during the Agreement Term to use the Circuitry, the Software and related
documentation provided by Aspect (the "Documentation") solely in connection with
operation of the Product. NK shall not disclose, furnish, transfer or otherwise
make available the Circuitry, the Software, the Documentation or any portion
thereof in any form to any third party (other than to purchasers of the Product
and NK's Affiliates which becomes sublicensees pursuant to Section 2.4 above)
and shall not duplicate the Circuitry, the Software, the Documentation or any
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<PAGE> 6
Confidential Materials omitted and filed separately with
the Securities and Exchange Commission. Asterisks denote omissions.
part thereof, except in connection with NK's manufacture and assembly of the
Product in accordance with this Agreement. Title to and ownership of and all
proprietary rights in or related to the Circuitry, the Software, the
Documentation and all partial or complete copies thereof shall at all times
remain with Aspect or its licensor(s). This Agreement shall not be construed as
a sale of any rights in the Circuitry, the Software, the Documentation, any
copies thereof or any part thereof. All references in this Agreement to sale,
resale or purchase of the Products, or references of like effect, shall, with
respect to the Circuitry, the Software and the Documentation mean licenses or
sublicenses of the Circuitry, the Software and the Documentation pursuant to
this Section 2.6. NK shall not disassemble, decompile or reverse engineer the
Circuitry, the Software or any part thereof (except in the European Union and
Norway, and only to the extent that it has the right to do so pursuant to
applicable law in order to ensure interoperability with other software
programs). NK shall retain and shall not alter or obscure any notices, markings
or other insignia which are affixed to the Software, the Documentation or any
part thereof at the time of delivery of such Software or such Documentation.
2.7 NON-COMPETITION. NK confirms [**]. NK confirms [**]. Until the [**]
anniversary of the termination or expiration of this Agreement, as the case may
be, [**]; PROVIDED, HOWEVER that:[**], at any time,[**] at any time,[**] after
the expiration or termination of this Agreement [**]. Specifically, it will [**]
subject to the terms and conditions of this Section 2.7.
2.8 CHANGES TO KITS AND PRODUCTS.
(a) From time to time during the Agreement Term, Aspect may introduce
improvements and modifications to the Kit. Aspect shall promptly deliver to NK
one reproducible copy of manufacturing drawings and engineering specifications
relating to such modification and improvement. NK may use, at its sole
discretion, each such modification or improvement under the terms and conditions
of this Agreement, without paying any additional amounts to Aspect. If NK
determines not to use such modification or improvement, Aspect shall continue to
supply NK with the Kit, but not as so modified or improved.
(b) Notwithstanding anything contained in this Agreement to the contrary,
Aspect reserves the right from time to time during the License Term to require
NK, after consulting with NK, to modify or improve the Product (including
without limitation the software programs used in connection with the Product) if
the modification or improvement reasonably relates to efficacy or patient
safety. NK shall implement those changes to the Products being manufactured or
to be manufactured and to modify and improve Products previously manufactured
and shipped to customers in
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<PAGE> 7
order to incorporate such changes. In that event, Aspect agrees to repair or
replace Kits previously provided to NK or collected by NK from its customers,
free of charge, whether or not such repair or replacement occurs during the
relevant Warranty Period.
(c) Aspect shall immediately provide NK with a written notice upon Aspect
becoming aware of the occurrence of any of the following events: (i) Aspect
recalls any Kit, or ceases or suspends the sale of any Kit due to any problem
which relates to such Kit's efficacy or patient safety in any country outside
Japan; (ii) any defect of any Kit or the Licensed Technology, which relates to
such Kit's efficacy or patient safety, is published, reported or made known to
the public by any third party, or found by Aspect; or (iii) any Kit or the
Licensed Technology contributed to or caused a death or serious injury, or any
Kit or the Licensed Technology malfunctioned and if that malfunction occurred
again, it would be likely to contribute or cause a death or serious injury.
2.9 INTELLECTUAL PROPERTY MAINTENANCE FEES. Aspect shall keep current all
Rights relevant to the Products, and shall pay all fees and expenses in
connection therewith promptly as such fees and expenses become due and payable.
2.10 NO KNOWLEDGE OF THIRD PARTY CLAIMS. Aspect represents and warrants to NK
that Aspect knows of no claim by any third party of infringement by Aspect on
such party's patent, trademark, copyright, trade secret or other intellectual
property rights.
2.11 DISCLAIMER OF LIABILITY. ASPECT MAKES NO EXPRESS OR IMPLIED WARRANTY,
STATUTORY OR OTHERWISE, CONCERNING THE LICENSED TECHNOLOGY OR ANY OTHER
INFORMATION COMMUNICATED TO NK, INCLUDING WITHOUT LIMITATION NO WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE, OR NO WARRANTIES AS TO QUALITY OR THE
USEFULNESS OF THE LICENSED TECHNOLOGY FOR ITS INTENDED PURPOSE; PROVIDED,
HOWEVER, if Aspect or NK shall discover any errors in the Licensed Technology
during the License Term, Aspect shall use commercially reasonable efforts to
correct such errors in the Licensed Technology without cost to NK.
IN NO EVENT, HOWEVER, SHALL ASPECT BE LIABLE TO NK FOR ANY SPECIAL,
CONSEQUENTIAL, INCIDENTAL, EXEMPLARY OR INDIRECT LOSSES OR DAMAGES RESULTING
FROM SUCH ERRORS IN THE LICENSED TECHNOLOGY.
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<PAGE> 8
Confidential Materials omitted and filed separately with
the Securities and Exchange Commission. Asterisks denote omissions.
3. SALES BY ASPECT TO NK
3.1 OFFER AND ACCEPTANCE; PRICING.
(a) NK shall have the right to purchase from Aspect Kits at a transfer price
of US[**] per Kit. For each proposed purchase by NK from Aspect, NK shall
present a purchase order to Aspect (a "Purchase Order"). Each Purchase Order
shall be deemed an offer to purchase and, unless NK is notified in writing to
the contrary within five (5) Business Days after Aspect receives it, such
Purchase Order shall be deemed accepted by Aspect.
(b) Aspect's transfer prices shall be FCA (FREE CARRIER) Natick,
Massachusetts, U.S.A. Starting with the second (2nd) Contract Year, Aspect may
change those transfer prices; PROVIDED, HOWEVER, that: (i) such change may be
made only once a year effective as of the first day of April with the prior
written notice to be given by Aspect no later than the last day of December of
the preceding year, after consulting with NK; (ii) the annual increase shall be
[**]; and (iii) no price change shall affect purchase orders offered by NK and
accepted by Aspect prior to the date such price change becomes effective.
3.2 DELIVERY. Unless NK requests otherwise, all Kits ordered by NK shall be
packed for shipment and storage in accordance with Aspect's standard commercial
practices. It is NK's obligation to notify Aspect of any special packaging
requirements (which shall be at NK's expense if such requirement is in excess of
the scope of normal and necessary packaging for export). Aspect shall deliver
Kits into the possession of a common carrier designated by NK in Natick,
Massachusetts, U.S.A. no later than the date specified for such delivery on the
relevant purchase order. Risk of loss and damage to a Kit shall pass to NK upon
the delivery thereof to the common carrier designated by NK. If NK does not
designate a common carrier by the specified delivery date, then Aspect may do so
on NK's behalf. All claims for non-conforming shipments must be made in writing
to Aspect within thirty (30) days of the passing of risk of loss and damage.
3.3 METHOD OF PAYMENT
(a) All amounts due and payable with respect to Kits delivered by Aspect in
accordance with this Article 3 shall be paid in full within 30 days after the
date of Aspect's invoice therefor. All such amounts shall be paid in U.S.
Dollars by wire transfer, to such bank or account as Aspect may from time to
time designate in writing. All costs incurred in connection with such wire
transfer shall be the
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<PAGE> 9
responsibility of NK. Whenever any amount hereunder is due on a day which is not
a day on which banks in Natick, Massachusetts, U.S.A. are open for business (a
"Business Day"), such amount shall be paid on the next such Business Day.
Amounts hereunder shall be considered to be paid as of the day on which funds
are received by Aspect's bank. No part of any amount payable to Aspect hereunder
may be reduced due to any counterclaim, set-off, adjustment or other right which
NK might have or assert against Aspect, any other party or otherwise.
(b) All amounts due and owing to Aspect hereunder but not paid by NK on the
due date thereof shall bear interest (in U.S. Dollars) at the rate 18 per cent
per annum. Such interest shall accrue on the balance of unpaid amounts from time
to time outstanding from the date on which portions of such amounts become due
and owing until payment thereof in full.
3.4 LIMITED WARRANTY.
(a) With respect to the Kit, Aspect makes the warranties set forth in
Exhibit D attached hereto and made a part hereof. Under no circumstances shall
the warranties set forth in Exhibit D hereto apply to a Kit which has been
customized, modified, damaged or misused by NK or any third party without
Aspect's authorization. NK's sole remedy for a non-conforming Kit is, at
Aspect's election, the repair or replacement thereof.
(b) THE PROVISIONS OF THE FOREGOING WARRANTIES ARE IN LIEU OF ANY OTHER
WARRANTY, WHETHER EXPRESS OR IMPLIED, WRITTEN OR ORAL (INCLUDING ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE).
(c) EXCEPT AS PROVIDED IN SECTION 5.2 HEREIN, ASPECT'S LIABILITY ARISING OUT
OF THE MANUFACTURE, SALE OR SUPPLYING OF KITS OR THEIR USE OR DISPOSITION,
WHETHER BASED UPON WARRANTY, CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE
ACTUAL PURCHASE PRICE PAID BY NK FOR SUCH KITS.
(d) After expiration of the Warranty Period, Aspect shall undertake repairs of
Kits or shall provide parts for repairs by NK, at reasonable cost to NK. Both
parties shall agree on the charge for such repairs and parts.
3.5 PRIORITY OF AGREEMENT. In the event of any discrepancy between any
Purchase Order and this Agreement, the terms of this Agreement shall govern.
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Confidential Materials omitted and filed separately with
the Securities and Exchange Commission. Asterisks denote omissions.
3.6 MINIMUM PURCHASE REQUIREMENTS WITH RESPECT TO BIS SENSORS.
(a) NK' s minimum purchase of BIS sensors from Aspect under the international
distribution agreement between the Parties dated as of the date hereof for the
first (1st) Contract Year (as defined in this Agreement) shall be [**] per year
for each Product sold by NK hereunder. For the purpose of this provision, such
one year period for the minimum purchase of BIS sensors for each Product shall
separately commence on the first day of the month following the month when NK
resells such Product to NK's customers. To administer this provision, NK shall
inform Aspect from time to time (but no less frequently than quarterly), to the
extent such information is available to NK, of the names and addresses of
hospitals purchasing Products from NK and the number of Products sold by NK. On
or before the end of the first (1st) Contract Year, the Parties shall review
minimum sensor usage based on the actual experience during such Contract Year,
and shall adjust this requirement accordingly for subsequent Contract Years. For
the purposes of this provision, a "purchase" of sensors within a Contract Year
shall mean paying Aspect for such sensors on or before the last day of such
Contract Year.
(b) Failure to meet the minimum purchase requirement described in
Section 3.6(a) above shall constitute a material breach of this Agreement for
the purposes of Section 6.2 below. Termination shall be the only consequence of
NK failing to satisfy this minimum purchase requirement.
4. CONFIDENTIAL INFORMATION
4.1 CONFIDENTIALITY OBLIGATIONS. Each Party (the "disclosing Party") has a
proprietary interest in information which it discloses to the other Party (the
"receiving Party"), whether in connection with this Agreement or otherwise,
which is (a) a trade secret, confidential or proprietary information, (b) not
publicly known, and (c) annotated by a legend, stamp or other written
identification as confidential or proprietary information, or if disclosed
orally, is identified as confidential or proprietary by a written instrument
within 30 days of such disclosure (hereinafter referred to as "Proprietary
Information"). The receiving Party shall disclose the Proprietary Information of
the disclosing Party only to those of its agents and employees to whom it is
necessary in order properly to carry out their duties as limited by the terms
and conditions hereof. Both during and after the Agreement Term, all disclosures
by the receiving Party to its agents and employees shall be held in strict
confidence by such agents and employees. During and after the Agreement Term,
the receiving Party, its agents and employees shall not use the Proprietary
Information for any purpose other than in connection with discharging its duties
pursuant to this Agreement. The receiving Party shall, at its expense, return to
the
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<PAGE> 11
disclosing Party the Proprietary Information of the disclosing Party as soon as
practicable after the termination or expiration of this Agreement. During the
Agreement Term and thereafter, all such Proprietary Information shall remain the
exclusive property of the disclosing Party. This Article 4 shall also apply to
any consultants or subcontractors that the receiving Party may engage in
connection with its obligations under this Agreement.
4.2 EXCEPTIONS. Notwithstanding anything contained in this Agreement to the
contrary, the receiving Party shall not be liable for a disclosure of the
Proprietary Information of the disclosing Party if the information so disclosed:
(a) was in the public domain at the time of disclosure without breach of this
Agreement; or (b) was known to or contained in the records of the receiving
Party from a source other than the disclosing Party at the time of disclosure by
the disclosing Party to the receiving Party and can be so demonstrated; or (c)
becomes known to the receiving Party from a source other than the disclosing
Party without breach of this Agreement by the receiving Party and can be so
demonstrated; or (d) was disclosed pursuant to court order or as otherwise
compelled by law.
5. INDEMNIFICATIONS
5.1 IN FAVOR OF ASPECT. NK hereby agrees to indemnify, defend and hold
harmless Aspect, its Affiliates and all officers, directors, employees and
agents thereof from all liabilities, claims, damages, losses, costs, expenses,
demands, suits and actions (including without limitation attorneys' fees,
expenses and settlement costs) (collectively, "Damages") arising out of: (i)
NK's failure to comply with relevant laws and regulations; (ii) personal
injuries and/or property damages resulting from the Product which relate to the
portion of the Product developed and manufactured by NK or which relate to the
failure of NK to incorporate the Kit within the Product in accordance with the
Technical Information provided by Aspect hereunder; or (iii) NK's making
representations or warranties with respect to the Kits which are not authorized
by Aspect hereunder.
5.2 IN FAVOR OF NK. Aspect hereby agrees to indemnify, defend and hold
harmless NK, its Affiliates and all officers, directors, employees and agents
thereof from all Damages arising out of: (i) the Products or the Kits infringing
on the intellectual property rights of third parties; (ii) use of the Trademarks
in accordance with Section 2.3(a) above which infringes on the trademark,
service mark or trade name rights of third parties; or (iii) personal injuries
and/or property damages resulting from the Product which relate to the portion
of the Product developed and manufactured by Aspect or which relate to NK's
incorporation of the Kit within the Product in accordance with the Technical
Information provided by Aspect hereunder; PROVIDED, HOWEVER, that:
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<PAGE> 12
(a) Aspect shall have no obligation for any claim of infringement arising
from: (i) any combination by NK of the Product and/or the Kits with any other
product not supplied or approved in writing by Aspect (unless such combination
is a normal combination with other monitoring equipment or any part thereof),
where such infringement would not have occurred but for such combination; (ii)
the adaptation or modification of the Product and/or the Kits not performed or
not authorized by Aspect, where such infringement would not have occurred but
for such adaptation or modification; (iii) the misuse of the Product and/or the
Kits or the use of the Product and/or the Kits in an application for which they
were not designed by Aspect, where such infringement would not have occurred but
for such use or misuse; or (iv) a claim based on intellectual property rights
owned by NK or any of its Affiliates.
(b) In the event that the Products are held in a suit or proceeding to
infringe any intellectual property rights of a third party, and the use of the
Product or the Kits is enjoined or Aspect reasonably believes that it is likely
to be found to infringe or likely to be enjoined, Aspect shall, at its sole cost
and expense, either (i) procure for NK the right to continue manufacturing,
using and selling the Products and/or using and selling the Kits, or (ii)
replace the Product and/or the Kits with non-infringing Products of equivalent
functionality. If neither (i) or (ii) are practicable, either party may
terminate this Agreement, effective immediately, upon giving the other party
written notice. Upon such termination, Aspect shall refund to NK the Unused
Portion of the license fee described in Section 2.1(c) above, according to
Section 6.6 below.
(c) This Section 5.2 constitutes NK's exclusive remedy in the event that the
Product, the Kits and/or the Trademarks infringe on the intellectual property
rights of third parties.
5.3 INDEMNIFICATION PROCEDURES. The Party benefitting from an indemnity
hereunder (the "indemnified party") hereby agrees that: (a) the other Party (the
"indemnifying Party") shall have sole control and authority with respect to the
defense or settlement of any such claim; and (b) the indemnified Party and its
Affiliates, officers, directors, employees and agents thereof shall cooperate
fully with the indemnifying Party, at the indemnifying Party's sole cost and
expense, in the defense of any such claim. Any settlement of any such claims
that imposes any liability or limitation on the indemnifying Party shall not be
entered into without the prior written consent of the indemnifying Party.
5.4 PARTIAL INDEMNIFICATION. In the event a claim is based partially on an
indemnified claim described in Sections 5.1 and/or 5.2 above and partially on a
non-indemnified claim, or is based partially on a claim described in Section 5.1
above and partially on a claim described in Section 5.2 above, any payments and
reasonable attorney fees incurred in connection with such claims are to be
apportioned between the Parties in accordance with the degree of cause
attributable to each Party.
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<PAGE> 13
6. TERMINATION OR EXPIRATION
6.1 EXPIRATION OF AGREEMENT. Unless it is terminated earlier pursuant to this
Article, this Agreement shall continue in full force and effect until it
automatically expires on the fourth (4th) anniversary of the Commencement Date.
Both parties shall discuss the renewal of this Agreement at least six (6) months
prior to such expiration of this Agreement.
6.2 TERMINATION FOR CAUSE. Upon the occurrence of a material breach or default
as to any obligation hereunder by either Party and the failure of the breaching
Party to promptly pursue (within thirty (30) days after receiving written notice
thereof from the non-breaching Party) a reasonable remedy designed to cure (in
the reasonable judgment of the non-breaching Party) such material breach or
default, this Agreement may be terminated by the non-breaching Party by giving
written notice of termination to the breaching Party, such termination being
immediately effective upon the giving of such notice of termination.
6.3 AFTER TERMINATION OR EXPIRATION. The Parties agree that, once this
Agreement is terminated or expires, NK shall immediately cease: (a) any use or
practice of the Licensed Technology; and (b) any development, manufacture, use
or sale of the Product; PROVIDED, HOWEVER, that: (i) NK shall have the right to
manufacture Products using the Kits which are in NK's possession at the time of
such termination or expiration; (ii) NK shall have the right to sell Products
which are in NK's possession at the time of such termination or expiration, and
manufactured by NK under 6.3(a) above, for a period of three (3) months after
such termination or expiration; PROVIDED, HOWEVER, that NK may, at its option,
within ten (10) days after the end of such three (3) month period, notify Aspect
that it has elected to extend this period for nine (9) additional months, in
which case NK shall pay Aspect US [**] for each module sold during such nine (9)
month period; (iii) Aspect or any third party designated by Aspect shall sell to
NK the parts necessary to repair the Products and shall grant to NK the right to
repair Products, for a period reasonably deemed that Products are used by the
customers; and (iv) Aspect or any third party designated by Aspect shall
continue to supply NK with BIS sensors to use with Products, for a period
reasonably deemed that Products are used by the customers.
6.4 PAYMENT OBLIGATIONS CONTINUE. Upon termination or expiration of this
Agreement, nothing shall be construed to release NK from its obligations to pay
Aspect any and all amounts accrued but unpaid pursuant to Article 3 above prior
to the date of such termination or expiration.
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<PAGE> 14
6.5 NO DAMAGES FOR TERMINATION. The Parties agree that if either Party
terminates the other Party pursuant to this Article 6, then the terminating
Party shall not be liable for damages or injuries suffered by the other Party as
a result of that termination, unless otherwise expressly provided herein.
6.6 REFUND OF LICENSE FEE. In the event that this Agreement is terminated for
any reason (other than based on a material breach or default of NK in accordance
with Section 6.2 above), the Unused Portion of the license fee paid to Aspect by
NK under Section 2.1(c) of this Agreement shall be refunded to NK by Aspect. For
the purpose of this Agreement, "Unused Portion" shall mean the amount which
equals US [**]. In no event [**]. In the event that this Agreement is terminated
before Commencement Date (other than based on a material breach or default of NK
in accordance with Section 6.2 above), the full amount of such license fee [**]
shall be refunded to NK.
7. MISCELLANEOUS
7.1 NO INDIRECT DAMAGES. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER
PARTY FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT
LIMITED TO, LOSS OF PROFITS OR LOSS OF USE DAMAGES) ARISING OUT OF THE
MANUFACTURE, USE, SALE OR SUPPLYING OF THE PRODUCT OR KITS, EVEN IF SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR LOSSES.
7.2 ASSIGNMENTS. This Agreement and the rights and obligations hereunder may
not be assigned, delegated or transferred by either Party without the prior
written consent of the other Party; PROVIDED, HOWEVER, that the other Party's
consent shall not be required with respect to any assignment, delegation or
transfer by a Party to (i) an Affiliate of such Party; or (ii) the purchaser of
all or substantially all of the assets or stock of such Party, through merger,
consolidation or otherwise. To the extent permitted by this Agreement, this
Agreement shall be binding upon and inure to the benefit of the permitted
successors and assigns of both Parties.
7.3 GOVERNING LAW. This Agreement shall be construed and governed according
to, and any arbitration shall be conducted in accordance with, the laws of the
Commonwealth of Massachusetts, U.S.A., excluding its conflicts of laws
principles.
7.4 DISPUTE RESOLUTION. Any dispute, controversy or claim arising out of or
relating to this Agreement or to a breach hereof, including its interpretation,
performance or termination, shall be finally resolved by arbitration. The
arbitration shall be conducted by three (3) arbitrators, one to be appointed by
Aspect, one to be appointed by NK and a third being nominated by the two
arbitrators so selected or, if they cannot agree on a third arbitrator, by the
President of the American Arbitration Association. The arbitration shall be
conducted in English and in accordance with the commercial arbitration rules of
the United Nations Commission
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<PAGE> 15
on International Trade Law. The arbitration, including the rendering of the
award, shall take place in Los Angeles, California, U.S.A. and shall be the
exclusive forum for resolving such dispute, controversy or claim. The decision
of the arbitrators shall be binding upon the parties hereto, and the expense of
the arbitration (including without limitation the award of attorneys' fees to
the prevailing party) shall be paid as the arbitrators determine. The decision
of the arbitrators shall be executory, and judgment thereon may be entered by
any court of competent jurisdiction. Notwithstanding anything contained in this
Section to the contrary, each Party shall have the right to institute judicial
proceedings against the other Party or anyone acting by, through or under such
other Party, in order to enforce the instituting Party's rights hereunder
through reformation of contract, specific performance, injunction or similar
equitable relief.
7.5 ENTIRE AGREEMENT. This Agreement supersedes and cancels any previous
agreements or understandings, whether oral, written or implied, heretofore in
effect and sets forth the entire agreement between Aspect and NK with respect to
the subject matter hereof. No modification or change may be made in this
Agreement except by written instrument duly signed by a duly authorized
representative of each Party.
7.6 NOTICES. All notices given under this Agreement shall be in writing and
shall be addressed to the Parties at their respective addresses and telecopy
numbers, and to the attention of the individuals set forth above. Either Party
may change its address, telecopy number and contact person for purposes of this
Agreement by giving the other Party written notice of its new address, telecopy
number or contact person. Any such notice if given or made by registered or
recorded delivery international air mail letter shall be deemed to have been
received on the earlier of the date actually received and the date fifteen (15)
calendar days after the same was posted (and in proving such it shall be
sufficient to prove that the envelope containing the same was properly addressed
and posted as aforesaid) and if given or made by telecopy transmission shall be
deemed to have been received at the time of dispatch, unless such date of deemed
receipt is not a day on which banks in the receiving party's home city are open
for business, in which case the date of deemed receipt shall be the next day on
which banks in the receiving party's home city are open for business.
7.7 WAIVERS. None of the conditions or provisions of this Agreement shall be
held to have been waived by any act or knowledge on the part of either Party,
except by an instrument in writing signed by a duly authorized officer or
representative of such Party. Further, the waiver by either Party of any right
hereunder or the failure to enforce at any time any of the provisions of this
Agreement, or any rights with respect thereto, shall not be deemed to be a
waiver of any other rights hereunder or any breach or failure of performance of
the other Party.
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<PAGE> 16
7.8 RESPONSIBILITY FOR TAXES. Taxes now or hereafter imposed with respect to
the transactions contemplated hereunder (with the exception of income taxes or
other taxes imposed upon Aspect and measured by the gross or net income of
Aspect, and with the exception of withholding tax set forth in Section 2.1(c)
above) shall be the responsibility of NK, and if paid or required to be paid by
Aspect, the amount thereof shall be added to and become a part of the amounts
payable by NK hereunder.
7.9 SEVERABILITY. If any provision of this Agreement is declared invalid or
unenforceable by a court having competent jurisdiction, it is mutually agreed
that this Agreement shall endure except for the part declared invalid or
unenforceable by order of such court. The Parties shall consult and use their
best efforts to agree upon a valid and enforceable provision which shall be a
reasonable substitute for such invalid or unenforceable provision in light of
the intent of this Agreement.
7.10 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
7.11 RELATIONSHIP OF THE PARTIES.
(a) The relationship between Aspect and NK shall not be construed to be that
of employer and employee, nor to constitute a partnership, joint venture or
agency of any kind. Neither Party shall have any right to enter into any
contracts or commitments in the name of, or on behalf of, the other Party, or to
bind the other Party in any respect whatsoever.
(b) NK shall not obligate or purport to obligate Aspect by issuing or making
any affirmations, representations, warranties or guaranties with respect to Kits
to any third party, other than the warranties described in Exhibit D hereto.
7.12 LANGUAGE. All written material, correspondence, Technical Information,
notices and oral assistance supplied by either Party hereunder shall be in the
English language.
7.13 SURVIVAL OF CONTENTS. Notwithstanding anything else in this Agreement to
the contrary, the parties agree that Sections 2.7, 2.11, 3.3 and 3.4 and
Articles 4, 5, 6 and 7 shall survive the termination or expiration of this
Agreement, as the case may be.
7.14 COMPLIANCE WITH LAWS. NK covenants that all of its activities under or
pursuant to this Agreement shall comply with all applicable laws, rules and
regulations. NK shall be responsible for obtaining all licenses, permits and
approvals which are necessary or advisable for sales of Products in all
jurisdictions and for the performance of its duties hereunder. In particular,
but without limitation, NK shall
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<PAGE> 17
be responsible for all submissions to the MHW which may be required to obtain
marketing approval of the Product. NK shall use its best efforts to obtain such
MHW approvals as expeditiously as possible. NK shall promptly give Aspect
written notice of the MHW Approval Date. Aspect shall: (i) fully comply with any
applicable law, regulation and rule of government of the United States and
agencies or instrumentalities thereof; and (ii) maintain all U.S. governmental
approvals and licenses necessary to produce and export the Kit.
7.15 HEADINGS. Any headings contained herein are for directory purposes only,
do not constitute a part of this Agreement, and shall not be employed in
interpreting this Agreement.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement under
seal.
ASPECT MEDICAL SYSTEMS, INC.
By /s/ J. B. Eagle
-----------------------------------
Name: J. B. Eagle
Title: Chairman
NIHON KOHDEN CORPORATION
By /s/ Kazuo Ogino
-----------------------------------
Name: Kazuo Ogino
Title: Prsident and Chief Executive
EXHIBIT A Description of BIS Module Kit
EXHIBIT B Patents and Patent Applications
EXHIBIT C Trademarks, Service Marks and Trade Names
EXHIBIT D Warranties for Kit
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<PAGE> 18
Confidential Materials omitted and filed separately with
the Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT A
DESCRIPTION OF BIS MODULE KIT
The BIS `Module Kit' is designed specifically for OEM applications and allows
the integration of Aspect's BIS monitoring technology into OEM patient
monitoring systems. The BIS Engine will interface to the patient via the Aspect
BIS sensor and to the OEM equipment utilizing a serial (RS-232) 3-wire interface
and the necessary power connections.
The BIS module kits consists of a Digital Signal Converter (DSC-2) that is
placed in proximity to the patient and a small circuit board that resides in the
OEM equipment. The DSC-2 is a small (palm sized) front-end to the BIS Engine
circuit board that provides the patient interface and performs the high
performance analog to digital conversion of the EEG signals. The EEG signals are
transmitted in digital format from the DSC-2 to the BIS engine circuit board via
a 20 foot cable that is hard wired connected at the DSC-2.
The BIS Engine circuit board measures 3 x 4 inches. This board performs digital
signal processing on the digitized EEG signal and outputs the Bispectral Index
to the OEM system via the RS-232 serial connection. The board is constructed
using double sided surface mount techniques. The connections to the BIS Engine
circuit board are a serial interface (RS-232) and power.
Detailed Technical Specifications:
[**]
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<PAGE> 19
Confidential Materials omitted and filed separately with
the Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT B
PATENTS AND PATENT APPLICATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -------------- -------------------- -------------------------------------------- -------
US PATENT # PATENT DESCRIPTION
- -------------- -------------------- -------------------------------------------- -------
4,907,597 EEG BIS #1 Cerebral Bio-Potential Analysis Patents
- -------------- -------------------- covering adaption of bispectral analysis -------
5,010,891 EEG BIS #2 and means for extracting information for
- -------------- -------------------- diagnostic and monitoring applications -------
5,320,109 EEG BIS #3
- -------------- -------------------- -------
5,458,117 EEG BIS #4
- -------------- -------------------- -------------------------------------------- -------
5,381,804 A1000/A1050/DSC Interface to biopotential signal acquisition
- -------------- -------------------- -------------------------------------------- -------
5,305,746 ZipPrep Electrode Self-prepping electrode technology
- -------------- -------------------- -------------------------------------------- -------
pending [**] [**]
- -------------- -------------------- -------------------------------------------- -------
pending [**] [**]
- -------------- -------------------- -------------------------------------------- -------
</TABLE>
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<PAGE> 20
EXHIBIT C
TRADEMARKS
Aspect(R)
ZIPPREP(TM)
Zipprep(TM)
A-1050(TM)
A-1000(TM)
A-2000(TM)
Bispectral Index(TM)
BIS(TM)
BIS(TM)
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<PAGE> 21
EXHIBIT D
WARRANTY
Aspect warrants to the initial Purchaser that the BIS MODULE KIT ("Warranted
Product") will be free from defects in workmanship or materials, when given
normal, proper, and intended usage for a period of 18 months from the date of
its initial shipment to Purchaser, or 12 months from the date of resale by
Purchaser, whichever period first expires. Excluded from this warranty are
expendable components and supply items such as, but not limited to, electrodes,
cables, and prep solutions. Aspect's obligations under this warranty are to
repair or replace any Warranted Product or part thereof that Aspect reasonably
determines to be covered by this warranty and to be defective in workmanship or
materials provided that the Purchaser has given notice of such warranty claim
within the Warranty Period and the Warranted Product is returned to the factory
with freight prepaid. Repair or replacement of Products under this warranty does
not extend the Warranty Period.
To request repair or replacement under this warranty, Purchaser should contact
Aspect at 2 Vision Drive, Natick, Massachusetts 01760, 800-442-2051 or
508-647-2088. Aspect will authorize Purchaser to return the Warranted Product
(or part thereof) to Aspect. Aspect shall determine whether to repair or replace
Products and parts covered by this warranty and all Products or parts replaced
shall become Aspect's property. In the course of warranty service, Aspect may
but shall not be required to make engineering improvements to the Warranted
Product or part thereof. If Aspect reasonably determines that a repair or
replacement is covered by the warranty, Aspect shall bear the costs of shipping
the repaired or replacement Product to Purchaser. All other shipping costs shall
be paid by Purchaser. Risk of loss or damage during shipments under this
warranty shall be borne by the party shipping the Product. Products shipped by
Purchaser under this warranty shall be packaged in the original shipping
container or equivalent packaging to protect the Product. If Purchaser ships a
Product to Aspect in unsuitable packaging, any physical damage present in the
Product on receipt by Aspect (and not previously reported) will be presumed to
have occurred in transit and will be the responsibility of Purchaser.
Unless authorized or instructed by Aspect in advance, this warranty does not
extend to any Warranted Products or part thereof: that have been subject to
misuse, neglect or accident; that have been damaged by causes external to the
Warranted Product, including but not limited to failure of or faulty electrical
power; that have been used in violation of Aspect's instructions; that have been
affixed to any nonstandard accessory attachment; on which the serial number has
been removed or made illegible; that have been modified by anyone other than
Aspect; or that have been disassembled, serviced, or reassembled by anyone other
than Aspect, unless authorized by Aspect. Aspect shall have no obligation to
make repairs, replacements, or corrections which result, in whole or in part,
from normal wear and tear. Aspect
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<PAGE> 22
makes no warranty (a) with respect to any products that are not Warranted
Products, (b) with respect to any products purchased from a person other than
Aspect or an Aspect-authorized distributor or (c) with respect to any product
sold under a brand name other than Aspect.
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<PAGE> 23
THIS WARRANTY IS THE SOLE AND EXCLUSIVE WARRANTY FOR ASPECT'S PRODUCTS, EXTENDS
ONLY TO THE PURCHASER AND IS EXPRESSLY IN LIEU OF ANY OTHER EXPRESS OR IMPLIED
WARRANTIES INCLUDING WITHOUT LIMITATION ANY WARRANTY AS TO MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. EXCEPT AS OTHERWISE PROVIDED HEREIN, ASPECT'S
MAXIMUM LIABILITY ARISING OUT OF THE SALE OF THE PRODUCTS OR THEIR USE, WHETHER
BASED ON WARRANTY, CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE ACTUAL
PAYMENTS RECEIVED BY ASPECT IN CONNECTION THEREWITH. ASPECT SHALL NOT BE LIABLE
FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL LOSS, DAMAGE OR EXPENSE (INCLUDING
WITHOUT LIMITATION LOST PROFITS) DIRECTLY OR INDIRECTLY ARISING FROM THE SALE,
INABILITY TO SELL, USE OR LOSS OF USE OF ANY PRODUCT. EXCEPT AS SET FORTH
HEREIN, ALL PRODUCTS ARE SUPPLIED "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER
EXPRESS OR IMPLIED.
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<PAGE> 1
Exhibit 10.5
TRADEMARK LICENSE AGREEMENT
Agreement executed as of the 25 day of May, 1994, by and between Aspect
Electronics, Inc., a California corporation ("Licensor"), and Aspect Medical
Systems, Inc., a Delaware corporation ("Licensee").
INTRODUCTION
Licensor is the owner of statutory and common law rights in, and the
goodwill associated with, the trademark "ASPECT" (the "Trademark") and U.S.
Trademark Registration No. 1,650,675 for the mark ASPECT for use in connection
with certain medical diagnostic equipment, namely video display monitors, video
hard copy images and multi-image cameras. Licensee desires to obtain a license
to manufacture, distribute and sell certain products under the Trademark and
Licensor is willing to grant to Licensee a license to use the Trademark under
the terms and conditions of this Agreement.
Accordingly, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
1. GRANT OF LICENSE. Subject to the terms and conditions specified in
this Agreement, Licensor hereby grants to Licensee a nonexclusive, perpetual,
paid-up right and license to use the Trademark in its name in connection with
the manufacture, distribution and sale of products used in connection with the
gathering, analysis and interpretation of biopotential signals, including EEG,
EMG and EKG, and in connection with patient monitoring, but specifically
excluding any medical imaging products (the "Licensed Products").
<PAGE> 2
2. LICENSE FEE. Licensee shall pay Licensor twenty-five thousand
dollars ($25,000) upon execution of this Agreement for the licenses granted
under this Agreement.
3. OWNERSHIP OF TRADEMARK. Licensee acknowledges the ownership of the
Trademark in Licensor, agrees that it will do nothing inconsistent with such
ownership, and that all use of the Trademark by Licensee shall inure to the
benefit of and be on behalf of Licensor. Licensee agrees that nothing in this
Agreement shall give Licensee any right, title or interest in the Trademark
other than the right to use the Trademark in accordance with this Agreement.
Licensee agrees that it will not attack the title of Licensor to the Trademark
or attack the validity of this Agreement. Licensee also acknowledges that
Licensor makes no warranties or representations concerning its rights to the
Trademark licensed hereunder, and Licensor shall have no obligation to indemnify
Licensee if any third party institutes any action challenging Licensees rights
to use the Trademark. Licensee shall assign all of its rights, title and
interest in U.S. Trademark Application Serial No. 74/212,746 promptly after
Licensee files an Amendment to Allege Use, and such mark shall thereafter be
considered part of the trademark licensed herein.
4. QUALITY CONTROL. Licensee agrees that all Licensed Products bearing
the Trademark shall be of a quality similar to the quality of the Licensed
Products sold by Licensee as of the date of this Agreement. To ensure the
continuation of such quality, Licensee agrees to cooperate with Licensor to
permit reasonable inspection of Licensee's manufacturing facility and to supply
Licensor with specimens of all uses of
2
<PAGE> 3
the Trademark upon request. Licensee shall comply with all applicable laws and
regulations and obtain all appropriate governmental approvals pertaining to the
sale, distribution and advertising of goods covered by this Agreement.
5. INFRINGEMENT PROCEEDINGS. Licensee agrees to notify Licensor of any
unauthorized use of the Trademark by another promptly after such use comes to
Licensee's attention. Licensor shall have the sole right and discretion to bring
infringement or unfair competition proceedings involving the Trademark, provided
that Licensee shall reasonably cooperate in such proceedings. If Licensee
requests Licensor to enforce its rights in the Trademark with respect to
Licensed Products, Licensor shall do so provided that Licensee shall promptly
reimburse Licensor for Licensor's reasonable legal and other out-of-pocket costs
related to prosecuting or defending against infringement and unfair competition
actions involving use of the Trademark by others on Licensed Products. Costs
associated with prosecuting or defending against infringement by use of the
Trademark on products other than Licensed Products shall be Licensor's
responsibility.
6. TERM AND TERMINATION. This Agreement shall continue in force and
effect for as long as Licensee continues to use the Trademark, unless sooner
terminated as provided herein. If Licensee discontinues use of the Trademark for
a period of greater than six (6) months, then Licensee shall be deemed to have
discontinued use of the Trademark. Licensor shall have the right to terminate
this Agreement upon written notice to Licensee if Licensee fails to completely
cure a default under this Agreement within 30 days after Licensee's receipt of
written notice
3
<PAGE> 4
of default from Licensor. Upon termination, Licensee agrees to immediately
discontinue all use of the Trademark and any term confusingly similar thereto,
to delete the Trademark from its corporate or business name, to cooperate with
Licensor or its appointed agent to apply to the appropriate governmental
authorities to cancel any registered entry of the license granted hereunder, to
destroy all printed materials bearing the Trademark, and to permanently cover or
remove the Trademark from Licensed Products. In no case shall any portion of the
license fee be returned to Licensee in the event of termination of this
Agreement.
7. MISCELLANEOUS.
(a) Integration. This Agreement contains the full
understanding of the parties with respect to the subject matter hereof. No
waiver, alteration or modification of any of the provisions hereof shall be
binding unless made in writing and signed by the parties by their respective
authorized officers.
(b) Governing Law. This Agreement shall be subject to and
interpreted in accordance with the law of the State of California. Any suit to
interpret or enforce this Agreement shall be brought in a state or federal court
in California. Licensee hereby submits to the jurisdiction of such courts.
(c) Assignment/Sublicensing. Licensor may assign this
Agreement upon written notice to Licensee. Licensee may not assign this
Agreement or sublicense the Trademark without the advance written consent of
Licensor except that Licensee may assign this Agreement in connection with a
sale of substantially all of
4
<PAGE> 5
its assets to any third party other than a competitor of Licensor as reasonably
determined by Licensor.
(d) Notice. Whenever notice is required to be given under the
terms of this Agreement, it shall be in writing and shall be personally
delivered, sent by certified mail, return receipt requested, or sent by other
means of receipted delivery (e.g., Federal Express) to the address below for to
the party to receive such notice. Such notices shall be effective upon receipt.
Any change of address of either party shall be effective upon receipt of written
notice of such change by the opposite party.
If to Licensor:
President Aspect Electronics, Inc.
12740 Earhart Avenue
Auburn, CA 95602
If to Licensee:
President
Aspect Medical Systems, Inc.
770 Cochituate Road
Framingham, MA 01701
(e) Waiver. No waiver of any breach of this Agreement shall
constitute a waiver of any other breach, whether of the same or any other
covenant, term or condition.
(f) Severability. If any provision of this Agreement is held
invalid, illegal or unenforceable, the validity, legality or enforceability of
the remaining provisions shall in no way be affected or impaired thereby, except
that if the
5
<PAGE> 6
collection or retention of the license fee designated in section 2 hereof is
held to be illegal, then this Agreement shall terminate.
(g) Binding Effect. Subject to the express limitations set
forth herein, this Agreement shall be binding upon and inure to the benefit of
Licensor and Licensee and their respective permitted successors and assigns.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
executed under seal in their names by their properly and duly authorized
officers or representatives as of the date set forth above.
ASPECT ELECTRONICS, INC.
By: /s/David Wilson
-----------------------------------
David Wilson,
President
ASPECT MEDICAL SYSTEMS, INC.
By: /s/Patrick J. Connoy
-----------------------------------
Patrick J. Connoy
President
6
<PAGE> 1
EXHIBIT 10.6
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
LICENSE AGREEMENT
Effective as the 31st day of October, 1995, Siemens Medical Systems, Inc.
(hereinafter referred to as "Siemens"), a Delaware corporation, having an office
and principal place of business at 186 Wood Avenue South, Iselin, New Jersey
08830, and Aspect Medical Systems, Inc. (hereinafter referred to as "Aspect"), a
Delaware corporation, having an office and principal place of business at 2
Vision Dr., Natick, Massachusetts 01760, agree as follows:
BACKGROUND
Siemens is the owner of United States Patent No. [**] entitled "[**]"
("the [**] patent"), issued [**], which relates to devices commonly referred to
as patient monitors. Aspect is desirous of obtaining a non-exclusive license
under the [**] patent.
Aspect is the owner of United States Patent No. [**] entitled "[**]" ("the
[**] patent"), issued [**], which relates to devices commonly referred to as
patient monitors. Siemens is desirous of obtaining a non-exclusive license under
the [**] patent.
This Agreement sets forth the terms of the license agreement between
Siemens and Aspect and is entered into in accordance with the Settlement
Agreement entered into by Siemens and Aspect on October 1995.
<PAGE> 2
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks denote omissions.
I. DEFINITIONS
Siemens and Aspect are hereinafter occasionally referred to as
"parties" (in singular or plural usage, as indicated by the context). Terms in
this Agreement (other than names of parties and headings) which are set forth in
upper case letters have the meanings established for such terms in this section
below.
1.1 "LICENSED [**] PATENTS" shall mean:
U.S. Patent No. [**] entitled "[**]," issued [**], which
relates to and covers certain patient monitors and any present or future
reexams, reissues, continuations, based original on claims 1-5 and 19 of U.S.
Patent No. [**], and any present, or future foreign counter-part patents or
applications filed in the patent office of any other country or the European
Patent Office, the claims of which are directed to the invention described and
claimed in United States Pat. No. [**] or in original claims 1-5 and 19 in Appl.
No. [**] which issued in modified form in U.S. Pat. No. [**] and any present or
future reexams, reissues, or continuations therefrom; and
1.2 "LICENSED [**] PATENTS" shall mean:
U.S. Patent No. [**] entitled "[**] ," issued [**], which
relates to and covers certain patient monitors and any present or future
reexams, reissues, continuations, based on original claims 6-10 of U.S. Patent
No. [**], any present or future foreign counter-part patents or applications
pending in any patent office of any other country
-2-
<PAGE> 3
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks denote omissions.
or the European Patent Office, the claims of which are directed to the invention
described and claimed in United States Pat. No. [**] or in original claims 6-10
in Appl. No. [**] which issued in modified form in U.S. Pat No. [**] and any
present or future reexams, reissues, or continuations therefrom; and
1.3 "LICENSED [**] PRODUCTS" shall mean any and all devices covered by
at least one claim of the LICENSED [**] PATENTS.
1.4 "LICENSED [**] PRODUCTS" shall mean any and all devices covered by
at least one claim of the LICENSED [**] PATENTS.
1.5 "RELATED COMPANY" shall mean any affiliate. Affiliates include any
company, including subsidiaries, parent company or corporation, partnership,
joint venture or other entity which directly or indirectly controls, is
controlled by or is under common control with Aspect Medical Systems, Inc. on
one hand or Siemens Medical Systems, Inc. or Siemens AG on the other hand, or
subsidiaries thereof. "Control" shall mean the possession of a 50% or more
portion of the voting stock or the power to direct or cause the direction of the
management and policies of the controlled entity, whether through the ownership
of voting securities, by contract or otherwise.
1.6 "EFFECTIVE DATE" of this Agreement shall be the date of execution
of the Agreement.
-3-
<PAGE> 4
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks denote omissions.
II. GRANTS
2.1 Siemens hereby grants to Aspect and its RELATED COMPANIES, an
irrevocable; royalty-free, nonexclusive license to design, make, have made, use,
import and sell or otherwise dispose of LICENSED [**] PRODUCTS throughout the
world. However, Aspect shall not be licensed to design, make, have made, use,
import, or sell LICENSED [**] PRODUCTS that are plug-in compatible with any
patient monitor made by Siemens other than modules conforming to open industry
standards (as opposed to Siemens proprietary standards) which also happen to be
employed in a Siemens patient monitor.
2.2 Aspect shall not have the right to sublicense the rights granted it
under the LICENSED [**] PATENTS except under the following conditions:
(a) Aspect may grant a sublicense under the LICENSED [**]
PATENTS to a sublicensee that also (1) licenses substantial signal acquisition
technology from Aspect; (2) acquires digital signal processing hardware designs
and signal processing technology from Aspect; and (3) incorporates the licensed
signal acquisition technology and digital signal processing hardware designs and
technology acquired from Aspect into a commercial product of the licensee.
(b) The sublicenses extended under subsection (a) shall extend
only to the specific module/monitor combinations of the sublicensee that
incorporates Aspect's technology and extend to such specific module/monitor
combinations only
-4-
<PAGE> 5
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks denote omissions.
to the extent that Aspect's technology is used to detect and process acquired
patient information.
(c) In the event Aspect grants to any third party a sublicense
under the LICENSED [**] PATENTS, Aspect shall notify Siemens within 30 days of
the execution of said sub license and provide Siemens the identity of the sub
licensee, and shall provide a certification that the conditions and restraints
of sections 2.2 a-b of this Agreement, necessary to sublicense the LICENSED [**]
PATENTS, have been met.
2.3 Aspect hereby grants to Siemens and its RELATED COMPANIES, an
irrevocable, royalty-free, nonexclusive license to design, make, have made, use,
import and sell or otherwise dispose of LICENSED [**] PRODUCTS throughout the
world and all products covered by any claim of any patent or utility model that
issues from Canadian Appl. Serial No. [**], EPO Appl. Serial No. [**], PCT Appl.
Serial No. [**] or Australian Appl. Serial No. [**] (but only if such Australian
application (1) exists, (2) was filed by, or on behalf of, or owned by Aspect,
and (3) includes claims directed to subject matter substantially similar to the
subject matter of original claims 1-5 and 19 of the LICENSED [**] PATENTS), or
any patent or utility model that claims filing priority from U.S. Appl. Serial
No. [**] not already owned by Siemens. Siemens shall not be licensed to design,
make, have made, use, or sell LICENSED [**] PRODUCTS or other products covered
by patents licensed to Siemens
-5-
<PAGE> 6
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks denote omissions.
under this section that are plug-in compatible with any patient monitor made by
Aspect, other than modules conforming to open industry standards (as opposed to
Aspect proprietary standards) which also happen to be employed in an Aspect
patient monitor.
2.4 Siemens shall not have the right to sublicense the rights granted
it under the LICENSED [**] PATENTS or other patents licensed to Siemens pursuant
to section 2.3 of the Agreement except under the following conditions:
(a) Siemens may grant a sublicense under the LICENSED [**]
PATENTS or other patents licensed to Siemens under section 2.3 to a sublicensee
that also (1) licenses substantial signal acquisition technology from Siemens;
(2) acquires digital signal processing hardware designs and signal processing
technology from Siemens; and (3) incorporates the licensed signal acquisition
technology and digital signal processing hardware designs and technology
acquired from Siemens into a commercial product of the licensee.
(b) The sublicenses extended under subsection (a) shall extend
only to the specific module/monitor combinations of the sublicensee that'
incorporates Siemens' technology and extend to such specific module/monitor
combinations only to the extent that Siemens' technology is used to detect and
process acquired patient information.
-6-
<PAGE> 7
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks denote omissions.
(c) In the event Siemens grants to any third party a
sublicense under the LICENSED [**] PATENTS, or any other patents licensed to
Siemens under section 2.3, Siemens shall notify Aspect within 30 days after of
the execution of said sublicense and provide Aspect the identity of the
sublicensee, and shall provide a certification that the conditions and
restraints of sections 2.4 a-b of this Agreement, necessary to sublicense the
LICENSED [**] PATENTS and other patents licensed to Siemens under section 2.3,
have been met.
2.5 A party having actual knowledge that any product made, sold, used,
or imported includes subject matter claimed in any patent licensed to said party
pursuant to this Agreement, except products made, sold, used, or imported under
a sublicense granted pursuant to this Agreement, shall notify the licensing
party of said product.
III. MARKING
3.1 Aspect shall mark and require sublicensees to mark LICENSED [**]
PRODUCTS sold, imported, exported or used in the United States in the form of
"Licensed under U.S. Pat. No. [**]" at a location and in a manner on the product
sufficient to meet the requirements of 35 U.S.C. Section 287. However, Aspect
shall require sublicensees to mark LICENSED [**] PRODUCTS that have any patent
marking indicating that a patent is licensed from Aspect (whether said marking
be on the
-7-
<PAGE> 8
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks denote omissions.
product or associated literature) with "Manufactured under License from Siemens
Medical Systems, Inc. U.S. Pat. No. [**]" at the same location on the product or
associated literature as the Aspect marking and which is at least as conspicuous
as the most conspicuous of such notices identifying Aspect. In all events, all
LICENSED [**] PRODUCTS shall be marked at a location and in a manner sufficient
to meet the requirements of 35 U.S.C. Section 287. Aspect shall mark and require
all sublicensees to mark LICENSED [**] PRODUCTS sold in foreign countries with
marking on the product equivalent to the marking on products sold in the U.S.
and in accordance with the requirements of the domestic law of the foreign
country and shall always mark LICENSED [**] PRODUCTS so as to provide an
innocent infringer with constructive notice that the LICENSED [**] PRODUCTS are
patented.
3.2 Siemens shall mark and require all sublicensees to mark LICENSED
[**] PRODUCTS (and correspondingly mark and have sub licensees mark other
products covered by patents licensed to Siemens under section 2.3) sold,
imported, exported or used in the United States in the form in the form of
"Licensed under U.S. Pat. No. [**]" at a location and in a manner on the product
sufficient to meet the requirements of 35 U.S.C. Section 287. In all events,
Siemens shall require sublicensees to mark LICENSED [**] PRODUCTS (and other
products covered by patents licensed to Siemens under section 2.3) that have any
patent marking indicating that a patent is licensed from Siemens (whether said
marking be on the product or associated
-8-
<PAGE> 9
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks denote omissions.
literature) with "Manufactured under License from Aspect Medical Systems, Inc.
U.S. Pat. No. [**]" at the same location on the product or associated literature
as the Siemens marking and which is at least as conspicuous as the most
conspicuous of such notices identifying Siemens. In any event, all LICENSED [**]
PRODUCTS (and other products covered by patents licensed to Siemens under
section 2.3) shall be marked at a location and in a manner sufficient to meet
the requirements of 35 U.S.C. Section 287. Siemens shall mark and require all
sublicensees to mark LICENSED [**] PRODUCTS (and other products covered by
patents licensed to Siemens under section 2.3) sold in foreign countries with
marking on the product equivalent to the marking on products sold in the U.S.
and in accordance with the requirements of the domestic law of the foreign
country and shall always mark said LICENSED [**] PRODUCTS (and products covered
by patents licensed to Siemens under section 2.3) so as to provide an innocent
infringer with constructive notice that the LICENSED [**] PRODUCTS are patented.
IV. REPRESENTATIONS AND WARRANTIES; LIMITATIONS
4.1 Nothing in this Agreement shall be construed as:
(a) A warranty or representation by either party as to the
validity or scope of any LICENSED [**] PATENT or LICENSED [**] PATENT; or
-9-
<PAGE> 10
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks denote omissions.
(b) A warranty or representation that anything made, used,
sold, or otherwise disposed of under any license granted in this Agreement is or
will be free from infringement of patent of third parties; or
(c) A requirement that either party shall file any patent
application, secure any patent, or maintain any patent in force; or
(d) An obligation to bring or prosecute actions or suits
against third parties for infringement of any patent including the LICENSED [**]
PATENTS or LICENSED [**] PATENTS; or
(e) An obligation to furnish any manufacturing or technical
information, or any information concerning pending patent applications; or
(f) Conferring a right to use in advertising, publicity, or
otherwise any trademark or tradename of the other party; or
(g) Granting by implication, estoppel, or otherwise, any
licenses or rights under any patent other than the LICENSED [**] PATENTS or
LICENSED [**] PATENTS or those granted in section 2.3.
4.2 The parties makes no representation, extends no warranties of any
kind, either express or implied, or assumes any responsibilities whatever with
respect to use, sale, or other disposition by the other party or its vendees or
transferees of products incorporating or made by use of inventions licensed
under this Agreement.
-10-
<PAGE> 11
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks denote omissions.
4.3 To the extent permitted by law, a party shall not challenge or
otherwise oppose the issuance, validity, or enforceability of a patent to which
said party has been granted a license pursuant to this Agreement, and further
agrees not to initiate or fund any such challenge or opposition (except as may
be ordered by a court of competent jurisdiction).
V. TRANSFERABILITY OF RIGHTS AND OBLIGATIONS
5.1 The licenses granted in this Agreement shall be binding upon any
successor to either party in ownership or control of the LICENSED [**] PATENTS
or LICENSED [**] PATENTS or other patents licensed to Siemens under section 2.3
and the obligations of the parties, shall run in favor of any such successor and
of any assignee of the benefits under this Agreement.
5.2 The rights and licenses granted to Aspect in this Agreement are
personal to Aspect and may not be assigned or otherwise transferred except in
the event of:
(a) the sale of substantially all of the assets of Aspect; or
(b) the sale or transfer of substantially all of the assets in
which the technology claimed in the LICENSED [**] PATENTS is incorporated.
5.3 The rights and licenses granted to Siemens in this Agreement are
personal to Siemens and may not be assigned or otherwise transferred.
-11-
<PAGE> 12
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks denote omissions.
VI. TERM AND TERMINATION
6.1 Unless otherwise terminated as provided in section 6.2, this
Agreement shall continue in effect until the date of lapse or expiration of the
last to lapse or expire of the LICENSED [**] PATENTS, LICENSED [**] PATENTS, or
other patents licensed to Siemens under section 2.3.
6.2 In the event that any claim of the LICENSED [**] PATENTS or
LICENSED [**] PATENTS or other patents licensed to Siemens under section 2.3, is
determined to be invalid or unenforceable in any legal or administrative
proceeding, and all appeals therefrom have been finally exhausted, the
construction placed upon any such claim by such judgment shall thereafter be
followed in the jurisdiction of the proceeding, and then and only then, the
licensed party and its sub licensees shall have no further obligations under
such claim in the jurisdiction of the proceeding.
VII. NOTICES; APPLICABLE LAW; INTEGRATION
7.1 Any notice, report, or payment provided for in this Agreement shall
be deemed sufficiently given when sent by certified or registered mail or
Federal Express addressed to the party for whom intended at the address given at
the outset of this Agreement or at such changed address as the party shall
specify by written notice.
-12-
<PAGE> 13
7.2 This Agreement shall be construed, interpreted, and applied in
accordance with the laws of Massachusetts. All suits, actions or proceedings
arising out of or relating to this Agreement shall be brought in a federal or
state court in Massachusetts having competent jurisdiction to hear the dispute,
said court shall be the exclusive forum, and each party waives any objection
which it now has or may hereafter have to jurisdiction or venue in any of the
forums selected by the parties as set forth in this section and the substantive
laws of the State of Massachusetts shall govern the construction and
enforceability of this Agreement.
7.3 This Agreement contains the entire and only agreement between the
parties, except for the above mentioned Settlement Agreement (and documents
referenced therein) which is controlling, and supersedes all preexisting
agreements between them respecting its subject matter. Any representation,
promise, or condition in connection with such subject matter which is not
incorporated in this Agreement or the above mentioned Settlement Agreement shall
not be binding upon either party. No modification, renewal, extension, waiver,
and no termination of this Agreement or any of its provisions (except as
provided in Section VII hereof) shall be binding upon the party against whom
enforcement of such modification, renewal, extension, waiver, or termination is
sought, unless made in writing and signed on behalf of such party by one of its
executive officers. As used herein, the word "termination" includes any and all
means of bringing this Agreement to an end prior to its expiration by its own
terms, or any provision thereof, whether by release, discharge, abandonment, or
otherwise.
-13-
<PAGE> 14
7.4 In the event that any provision of this Agreement is held invalid
or unenforceable for any reason by a court of competent jurisdiction, such
provision or part thereof shall be considered separate from the remaining
provisions of this Agreement which shall remain in full force and effect. Such
invalid or unenforceable provision shall be deemed revised to effect, to the
fullest extent permitted by law, the intent of the parties as set forth therein.
7.5 Any failure of either party to insist upon the performance of a
provision of this Agreement shall not constitute a waiver of any right of either
party that the party may have under this Agreement. Any such waiver can only be
made in a writing signed by the party against whom enforcement of such waiver is
sought.
-14-
<PAGE> 15
IN WITNESS WHEREOF, each of the parties, intending to be legally bound,
has caused this Agreement to be executed and duly sealed in duplicate originals
by its duly authorized representative.
Siemens Medical Systems, Inc.
By: Yossi Elaz
-------------------------
VP Product Development &
Operations
Attest:
/s/ Stephen Zaniboni (SEAL)
- ----------------------
Secretary
Aspect Medical Systems, Inc.
By: /s/ Nassib G. Chamoun
-------------------------
Chairman/CEO
Attest:
/s/ Stephen Zaniboni (SEAL)
- ----------------------
Secretary
-15-
<PAGE> 1
EXHIBIT 10.7
LEASE BETWEEN
ASPECT MEDICAL SYSTEMS, INC.
AND
NATICK EXECUTIVE PARK TRUST NO. 2
FOR
BUILDING 2, NATICK EXECUTIVE PARK
NATICK, MASSACHUSETTS
INDEX
Page No.
REFERENCE DATA.............................................................. 1
1.1 SUBJECTS REFERRED TO:..................................... 1
1.2 EXHIBITS.................................................. 2
ARTICLE II - PREMISES AND TERM.............................................. 3
2.1 PREMISES.................................................. 3
2.2 TERM...................................................... 3
ARTICLE III - CONSTRUCTION.................................................. 4
3.1 INITIAL CONSTRUCTION...................................... 4
3.2 TENANT'S RECOVERY OF COSTS OF TENANT MODIFICATIONS........ 5
3.3 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION............. 5
3.4 REPRESENTATIVES........................................... 5
ARTICLE IV - RENT........................................................... 6
4.1 RENT...................................................... 6
4.2 OPERATING COST ESCALATION................................. 6
4.3 PAYMENTS................................................. 10
ARTICLE V - LANDLORD'S COVENANTS........................................... 10
5.1 LANDLORD'S COVENANTS DURING THE TERM..................... 10
5.2 INTERRUPTIONS............................................ 11
ARTICLE VI - TENANT'S COVENANTS............................................ 12
6.1 TENANT'S COVENANTS DURING THE TERM....................... 12
ARTICLE VII - CASUALTY AND TAKING.......................................... 18
7.1 CASUALTY AND TAKING...................................... 18
7.2 RESERVATION OF AWARD..................................... 19
ARTICLE VIII - RIGHTS OF MORTGAGEE......................................... 19
8.1 PRIORITY OF LEASE........................................ 19
8.2 LIMITATION ON MORTGAGEE'S LIABILITY...................... 20
<PAGE> 2
8.3 NO PREPAYMENT OR MODIFICATION, ETC........................ 20
8.4 NO RELEASE OR TERMINATION................................. 20
8.5 CONTINUING OFFER.......................................... 21
8.6 SUBMITTAL OF FINANCIAL STATEMENT.......................... 21
ARTICLE IX - DEFAULT........................................................ 21
9.1 EVENTS OF DEFAULT......................................... 21
9.2 TENANT'S OBLIGATIONS AFTER TERMINATION.................... 22
ARTICLE X - MISCELLANEOUS................................................... 23
10.1 TITLES.................................................... 23
10.2 NOTICE OF LEASE........................................... 23
10.3 RELOCATION................................................ 23
10.4 NOTICES FROM ONE PARTY TO THE OTHER....................... 23
10.5 BIND AND INURE............................................ 24
10.6 NO SURRENDER.............................................. 24
10.7 NO WAIVER, ETC............................................ 24
10.8 NO ACCORD AND SATISFACTION................................ 24
10.9 CUMULATIVE REMEDIES....................................... 25
10.10 PARTIAL INVALIDITY........................................ 25
10.11 LANDLORD'S RIGHT TO CURE.................................. 25
10.12 ESTOPPEL CERTIFICATE...................................... 26
10.13 WAIVER OF SUBROGATION..................................... 26
10.14 BROKERAGE................................................. 26
ARTICLE XI - SECURITY DEPOSIT............................................... 27
<PAGE> 3
DATE OF LEASE EXECUTION: , 1994
REFERENCE DATA
1.1 SUBJECTS REFERRED TO:
Each reference in this Lease to any of the following subjects shall
incorporate the data stated for that subject in this Section 1.1.
LANDLORD: Natick Executive Park Trust No. 2
MANAGING AGENT: The Gutierrez Company
LANDLORD'S AND MANAGING
AGENT'S ADDRESS: Burlington Office Park
One Wall Street
Burlington, Massachusetts 01803
LANDLORD'S REPRESENTATIVE: John A. Cataldo
TENANT: Aspect Medical Systems., Inc.
TENANT'S ADDRESS
(FOR NOTICE & BILLING): Two Vision Drive
Natick, Massachusetts 01760
TENANT'S REPRESENTATIVE: Patrick J. Connoy
BUILDING: Two Natick Executive Park
RENTABLE FLOOR AREA
OF TENANT'S SPACE: 21,488 SQUARE FEET
TOTAL RENTABLE FLOOR
AREA OF THE BUILDING: 83,300 SQUARE FEET
TENANT'S DESIGN COMPLETION DATE: N/A
SCHEDULED TERM COMMENCEMENT DATE: November 1, 1994
OUTSIDE DELIVERY DATE: N/A
TERM EXPIRATION DATE: October 31, 1997
APPROXIMATE TERM: Three Years
-1-
<PAGE> 4
FIXED RENT: $335,212.80/YEAR MONTHLY FIXED RENT: $27.934.40
ANNUAL ESTIMATED OPERATING COSTS: Actual 1995 Operating Costs
Calculated per Paragraph 4.2
ESTIMATED COST OF ELECTRICAL SERVICE TO TENANT'S SPACE
(included in Fixed Rent): $16,116; $0.75/SF
FIRST FISCAL YEAR FOR TENANT'S PAYING OPERATING COSTS
ESCALATION - YEAR ENDING December 31, 1996
SECURITY DEPOSIT: $ N/A GUARANTOR: N/A
TENANT IMPROVEMENT REIMBURSEMENT TO LANDLORD: N/A
PERMITTED USES: Office, Research & Development, final assembly and testing
of medical instruments, and uses accessory thereto.
PUBLIC LIABILITY INSURANCE: BODILY INJURY AND PROPERTY DAMAGE
EACH OCCURRENCE: $1,000,000
AGGREGATE: $2,000,000
SPECIAL PROVISIONS: 3.1 & 3.2 Tenant Construction
4.1.1 Partial Abatement for Tenant Work
5.1.9 Remedy
Exhibit H - Extension Option
Exhibit I - Expansion - Right of First Offer
1.2 EXHIBITS
The Exhibits listed below in this Section are incorporated in this
Lease by reference and are to be construed as part of this Lease:
EXHIBIT A Plan Showing Tenant's Space
EXHIBIT B Riders (if applicable)
EXHIBIT C Specifications of Leasehold Improvements and Tenant
Layout (if applicable)
EXHIBIT D Landlord's Services
EXHIBIT E Rules and Regulations
EXHIBIT F Guaranty (not applicable)
EXHIBIT G Estoppel Certificate
EXHIBIT H Tenant Extension Option
EXHIBIT I Right of First Offer on Adjacent Second Floor Space
-2-
<PAGE> 5
ARTICLE II
PREMISES AND TERM
2.1 PREMISES
Subject to and with the benefit of the provisions of this Lease and any
ground lease or land disposition agreement relating to the parcel on which the
Building is located (the "Lot"), Landlord hereby leases to Tenant and Tenant
leases from Landlord, Tenant's Space in the Building, excluding exterior faces
of exterior walls, the common facilities area and building service fixtures and
equipment serving exclusively or in common other parts of the Building. Tenant's
Space, with such exclusions, is hereinafter referred to as "the Premises."
Tenant shall have, as appurtenant to the Premises, the right to use in
common with others entitled thereto, subject to reasonable rules of general
applicability to tenants of the Building from time to time made by Landlord of
which Tenant is given notice: (a) the common facilities included in the Building
or on the Lot, including the parking facility, if any, to the extent from time
to time designated by Landlord; (b) the building service fixtures and equipment
serving the Premises; and (c) Tenant shall have the right to use 75 parking
spaces on an unreserved basis, and (d) the non-exclusive right to use showers
and changing rooms on the first and second floors of the Building.
Landlord reserves the right from time to time, without unreasonable
interference with Tenant's use, with reasonable prior notice to Tenant, which
may be by phone, except in an emergency, in which event no notice shall be
required: (a) to install, repair, replace, use, maintain and relocate for
service to the Premises and to other parts of the Building or either, building
service fixtures and equipment wherever located in the Building, and (b) to
alter or relocate any other common facility provided that substitutions are
substantially equivalent or better.
2.1.1 EXPANSION OPTION
See Exhibit I.
2.2 TERM
To have and to hold for a period (the "Term") commencing when the
Premises are deemed ready for occupancy as provided in Section 3.2, or, if no
work is to be performed by Landlord pursuant to Article III, on the Scheduled
Term Commencement Date (whichever of said dates is appropriate being hereafter
referred to as the "Commencement Date") and continuing until the Expiration
Date, unless sooner terminated as provided in Section 3.2 or 7.1 or in Article
IX.
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2.2.1 EXTENSION OPTION
See Exhibit H.
ARTICLE III
CONSTRUCTION
3.1 INITIAL CONSTRUCTION
Attached hereto are plans showing proposed modifications to Premises.
Within 20 days of execution of the Lease, Landlord will prepare construction
drawings and specifications for such modifications containing such details as
dimensions, partition plans, dimensioned electrical and telephone outlet plans,
modified reflected ceiling plans, room finish schedule, including wall, carpet,
floor tile, and VCT colors, and other necessary construction details and
specifications for the completion of such work, all in a manner reasonably
acceptable to Tenant. Space planning, construction drawings, and specifications
shall be provided by Landlord to Tenant a no cost to Tenant.
All construction of modifications to Tenant's Premises will be
accomplished by Tenant's contractor, which contractor shall furnish to Landlord
evidence of insurance as follows: General Liability and Property Damage -
$2,000,000 Aggregate, $2,000,000 per Occurrence; Workmens Compensation, and an
Owners and Contractors Protective Liability Policy in the amount of $1,000,000
naming the owner and The Gutierrez Company as insureds. In addition, in Tenant's
construction contract, Tenant shall insure that the contract holds Landlord and
The Gutierrez Company harmless, and that Landlord and The Gutierrez Company are
additional named insureds on all of Tenant's insurance policies. It shall be
Tenant's contractor's responsibility to obtain the building permit for said
modifications to Premises. It shall be Tenant's responsibility to insure that
all Tenant's general contractors subcontractors and materialmen are paid in
full, and if a lien is placed upon the Building by any such contractor,
subcontractor, materialmen, or other, to promptly remove such lien or provide a
bond reasonably satisfactory to Landlord and Landlord's mortgagee to insure that
such lien will be paid in full while contesting such lien.
Landlord shall permit Tenant and Tenant's contractor access for
construction of modifications to Tenant's premises promptly after execution
hereof.
All changes and additions shall be part of the Building, except such
items as by writing at the time of approval the parties agree either shall be
removed by Tenant on termination of this Lease, or shall be removed or left at
Tenant's election.
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3.2 TENANT'S RECOVERY OF COSTS OF TENANT MODIFICATIONS
Landlord has agreed as set forth in Paragraph 4.1.1 to abate a portion
of Tenant's Fixed Rent in order to allow Tenant to recover its expenditures for
modifications to the Premises up to a total of no more than $100,000.00.
Therefore, prior to commencing construction of the work on the Premises, the
costs of such proposed work shall be submitted to Landlord for its reasonable
approval, Landlord reserves this approval right in order to insure that the unit
prices of such costs are within market standards. Upon completion of such Tenant
construction work, Tenant will supply Landlord with paid invoices and mechanics
lien waivers from all contractors, subcontractors and materialmen indicating the
total cost paid for such work as well as evidence that it has been paid in full.
Upon receipt of such paid invoices and lien waivers, Landlord shall, commencing
with the next full months rent, partially abate Tenant's Fixed Rent at the rate
of $21,488.00 per month until such time as such credited Fixed Rental abatement
equals the amount of said approved and documented Tenant expenditures for
modifications to its Premises, said amount not to exceed $100,000.00. During
such partial abatement period, Tenant shall pay a partially abated Fixed Rent
payment of $6,446.40/month.
3.3 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION
All construction work required or permitted by this Lease, whether by
Landlord or by Tenant, shall be done in a good and workmanlike manner and in
compliance with all applicable laws and all lawful ordinances, regulations and
orders of governmental authority and insurers of the Building. Either party may
inspect the work of the other at reasonable times and shall promptly give notice
of observed defects, which shall be promptly corrected.
3.4 REPRESENTATIVES
Each party authorizes the other to rely in connection with their
respective rights and obligations under this Article III upon approval and other
actions on the party's behalf by Landlord's Representative in the case of
Landlord or Tenant's Representative in the case of Tenant or by any person
designated in substitution or addition by notice to the party relying.
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ARTICLE IV
RENT
4.1 RENT
Except as set forth in Paragraph 4.1.1 hereof, or as otherwise
specifically set forth herein, Tenant agrees to pay, without any offset or
reduction whatever, fixed rent equal to 1/12th of the Fixed Rent in equal
installments in advance on the first day of each calendar month included in the
Term; and for any portion of a calendar month at the beginning or end of the
Term, at the rate payable for such portion in advance.
4.1.1 PARTIAL RENT ABATEMENT
Provided that this Lease is not in default after the giving of
any required notice and the expiration of any applicable grace period,
commencing the month following receipt by Landlord of Tenant's paid invoices and
lien waivers for Tenant's modification work to the Premises, Landlord shall
commence partial abatement of Tenant's fixed rent at a rate of $21,488.00 per
month until such time as the amount determined in accordance with Paragraph 3.2
hereof, not to exceed $100,000.00, shall have been credited against Tenant's
Fixed Rent in the form of such abated rent in full amount of such agreed, paid,
and documented costs.
4.2 OPERATING COST ESCALATION
With respect to the First Fiscal Year for Tenant's Paying Operating
Cost Escalation, or fraction thereof, and any Fiscal Year or fraction
thereafter, Tenant shall pay to Landlord, as additional rent, Operating Cost
Escalation (as defined below), if any, on or before the thirtieth day following
receipt by Tenant of Landlord's Statement (as defined below). As soon as
practicable after the end of each Fiscal Year ending during the Term and after
Lease termination, and in either case, no later than 180 days thereafter,
Landlord shall render a statement ("Landlord's Statement") in reasonable detail
and according to usual accounting practices certified by Landlord and showing
for the preceding Fiscal Year or fraction thereof, as the case may be,
Landlord's Operating Costs. Upon request, Landlord will provide access to
Tenant, at reasonable times, to Landlord's books and records relating to the
preparation of Landlord's statement, and Tenant may inspect and copy such
records as are necessary to verify the accuracy of the Landlord's annual
statement. In the event of a dispute, Tenant shall have the right to conduct or
have conducted an audit according to generally accepted accounting principles
consistently applied, with which Landlord shall cooperate in good faith. In the
event of an error of five percent or more, Landlord shall bear all costs of such
inspection and audit.
For the purpose of this Paragraph 4.2, Landlord's Operating Costs shall
exclude the interest and amortization on mortgages for the Building and Lot or
leasehold
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interests therein and the cost of special services rendered to tenants
(including Tenant) for which a special charge is made, leasing commissions or
tenant inducements associated with leasing activities, costs or improvements to
any tenant's leased premises or otherwise exclusively for the benefit of an
individual tenant; late charges or other payments on loans, ground rent, or
payments on equity obligations; costs of repairing, replacing or otherwise
correcting defects in the design or construction of the Building or
improvements, or design or construction defects in any leasehold improvements in
rentable areas of the Building; leasing commissions, attorney's fees, costs and
disbursements and other expenses, any of which are incurred in connection with
negotiation or disputes with tenant's or prospective tenant's; except as
specifically set forth below, depreciation and amortization of the Building or
equipment; expenses in connection with services of a type which Tenant does not
receive under this Lease, but which are provided to another tenant; fines,
penalties or indemnification obligations incurred due to violations by Landlord
or parties for whom Landlord is responsible of any governmental rule or
authority, or any agreement made in connection therewith with the governmental
entity, and any costs of remedying such violations or defending the prosecution
thereof; all amounts paid to principals, subsidiaries, affiliates or other
parties related to Landlord for services for the Building and Lot in excess of
the amount payable for comparable services provided by a party who is not a
principal, subsidiary, affiliate or otherwise related party; costs and expenses
to the extent related to the ownership (as distinguished from the operation or
maintenance) of the Building and the Lot; any particular items and services for
which Tenant otherwise reimburses Landlord by direct payment over and above or
included within Fixed Rent or Operating Costs Escalation; advertising,
marketing, promotional and like expenditures; costs of refinancing the Building
and/or Lot; interest or penalties resulting from delinquent payments by
Landlord, repairs or other work occasioned by fire or other casualty covered by
insurance or to the extent recovered from condemnation proceeds; costs incurred
by Landlord which are considered capital improvements, replacements or expenses
under generally accepted accounting principals, including contributions to
replacement or contingency reserves created by Landlord except as specifically
set forth below; any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord; costs for the purchase of
sculpture, paintings or other objects of art and royalties payable in connection
therewith; and the cost of any curative action required, or any repair,
replacement or alteration made, by Landlord or on behalf of Landlord to remedy a
condition or damage caused by or resulting from the negligence or willful
misconduct of Landlord or parties for whom Landlord is responsible and the costs
of complying with insurance requirements to the extent caused by a condition
existing as of the Term Commencement Date;
For this purpose of this Paragraph 4.2, Landlord's Operating Costs
shall include, without limitation: real estate taxes on the Building and Lot;
installments and interest on assessments for public betterments or public
improvements (other than those if any, relating to a traffic signal and related
accessory improvements and turnaround on Route 9 adjacent to the Lot); expenses
of any proceedings for abatement of taxes and
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assessments with respect to any Fiscal Year or fraction of a Fiscal Year to the
extent such Fiscal Year is included in the Term and provided an abatement is
awarded and credited against Operating Costs for such Fiscal Year; premiums for
insurance; compensation and all fringe benefits, workmen's compensation,
insurance premiums and payroll taxes paid by Landlord to, for or with respect to
all persons engaged in the operating, maintaining, or cleaning of the Building
and Lot, but only to the extent such persons are involved directly in the
operation, maintenance and cleaning of the Building and Lot, or in the
supervision of such direct personnel, such supervisory personnel not to exceed
two full-time office personnel and supporting secretary; steam, water, sewer,
electric, gas, telephone, and other utility charges not billed directly to
tenants by Landlord or the utility, but not including the cost to Landlord of
electricity furnished for lighting, electrical facilities, equipment, machinery,
fixtures and appliances used by Tenant in Tenant's Space (other than Building
heating, ventilating and air conditioning equipment) as set forth in Paragraph
VII of Exhibit D; costs of building and cleaning supplies and equipment
(including rental); cost of maintenance, cleaning and repairs; cost of snow
plowing or removal, or both, and care of landscaping; payments to independent
contractors under service contracts for cleaning, operating, managing,
maintaining and repairing the Building and Lot (which payments may be to
affiliates of Landlord provided the same are at reasonable rates consistent with
the type of occupancy and the services rendered); imputed cost equal to the loss
of rent by Landlord for making available to the managing agent space for a
Building office on the ground floor or above not to exceed 800 square feet; if
the building is located in an office park, the Building's pro rata share (as
reasonably determined by Landlord) of the cost of operating, maintaining and
repairing the common areas and facilities within such park (such as, but not
limited to, snow plowing, landscaping, common area and street lighting, security
and management); and all other reasonable and necessary expenses paid in
connection with the operation, cleaning, maintenance, and repair of the Building
and Lot, or either, and properly chargeable against income, it being agreed that
if Landlord installs a new or replacement capital item for the purpose of
reducing Landlord's Operating Costs, the costs thereof as reasonably amortized
by Landlord over the item's useful life, with market rate interest on the
unamortized amount, shall be included in Landlord's Operating Costs, provided
however, that such amount, if any, shall not exceed the amount of costs
reasonably determined by Landlord to have been saved in such year. If the
building is not fully occupied, Landlord's Statement shall also show the average
number of square feet of the Building which were occupied for the preceding
Fiscal Year or fraction thereof.
If the management fee is reduced by reason of a tenant's default in the
payment of fixed or additional rent, Landlord shall reduce the Annual Estimated
Operating Costs by the amount of such reduction in the management fee. In case
of services which are not rendered to all areas on a comparable basis, the
proportion allocable to the Premises shall be the same proportion which the
Rentable Floor Area of Tenant's Space bears to the total rentable floor area to
which such service is so rendered (such latter area to be determined in the same
manner as the Total Rentable Floor Area of the Building).
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"Operating Cost Escalation" shall be equal to the difference, if any,
between:
(a) the product of Landlord's Operating Costs per rentable square
foot as indicated in Landlord's Statement times the Rentable
Floor Area of Tenant's Space; and
(b) the product of the Annual Estimated Operating Costs per
rentable square foot times the Rentable Floor Area of Tenant's
Space.
If, with respect to any Fiscal Year or fraction thereof during the
Term, Tenant is obligated to pay Operating Cost Escalation, then Tenant shall
pay, as additional rent, on the first day of each month of each ensuing Fiscal
Year thereafter which is at least twenty (20) days after notice from Landlord to
Tenant, accompanied by Landlord's statement, until Landlord's Statement for an
ensuing Fiscal Year reflects that Tenant is not obligated to pay Operating Cost
Escalation, Estimated Monthly Escalation Payments equal to 1/12th of the
annualized Operating Cost Escalation for the immediately preceding Fiscal Year,
Estimated Monthly Escalation Payments for each ensuing Fiscal Year shall be made
retroactively from the first day of such Fiscal Year and on account of the
payment to be made pursuant to the first sentence of this Section 4.2 for such
Fiscal Year, with an appropriate additional payment or credit to be made at the
time such payment is due.
The term "real estate taxes" as used above shall mean all taxes of
every kind and nature assessed by any governmental authority on the Lot, the
Building and improvements, or both, which the Landlord shall become obligated to
pay because of or in connection with the ownership, leasing and operation of the
Lot, the Building and improvements, or both, subject to the following: There
shall be excluded for such taxes all income taxes, excess profits taxes, excise
taxes, franchise taxes, estate, succession, inheritance and transfer taxes,
provided, however, that if at any time during the Term the present system of ad
valorem taxation of real property shall be changed so that in lieu of the whole
or any part of the ad valorem tax on real property, there shall be assessed on
Landlord a capital levy or other tax on the gross rents received with respect to
the Lot, Building and improvements, or both, a federal, state, county,
municipal, or other local income, franchise, excise or similar tax, assessment,
levy or charge (distinct from any now in effect) measured by or based, in whole
or in part, upon any such gross rents, then any and all of such taxes,
assessments, levies or charges, to the extent so measured or based, shall be
deemed to be included within the term "real estate taxes."
Upon not less than thirty (30) days prior written notice to Tenant,
Landlord shall have the right from time to time to change the periods of
accounting under this Section 4.2 to any annual period other than the Fiscal
Year and upon any such change all items referred to in this Section shall be
appropriately apportioned. In all Landlord's Statements, rendered under this
Section, amounts for periods partially within and partially without the
accounting periods shall be appropriately apportioned, and any
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items which are not determinable at the time of a Landlord's Statement shall be
included therein on the basis of Landlord's reasonable estimate, and with
respect thereto Landlord shall render promptly after determination a
supplemental Landlord's Statement, and appropriate adjustment shall be made
according thereto. All Landlord's Statements shall be prepared on an accrual
basis of accounting.
Notwithstanding any other provision of this Section 4.2, if the Term
expires or is terminated as of a date other than the last day of a Fiscal Year
at the end of the Term, Tenant's last payment to Landlord under this Section 4.2
shall be made on the basis of Landlord's best reasonable estimate of the items
otherwise includable in Landlord's Statement and shall be made on or before the
later of (a) 10 days after Landlord delivers such estimate to Tenant, or (b) the
last day of the Term, with an appropriate payment or refund to be made upon
submission of Landlord's Statement, which notwithstanding termination of the
Lease, Landlord shall promptly deliver to Tenant after the end of the Fiscal
Year.
4.3 PAYMENTS
All payments of fixed and additional rent shall be made to Managing
Agent, or to such other person as Landlord may from time to time designate such
other person to be designated by written notice to Tenant. If any installment of
rent, fixed or additional, or on account of leasehold improvements is paid more
than 15 days after the due date thereof, at Landlord's election, it shall bear
interest at the rate of the prime rate of a major Boston, Massachusetts bank
selected by Landlord, plus 3% per annum from such due date, which interest shall
be immediately due and payable as further additional rent.
ARTICLE V
LANDLORD' S COVENANTS
5.1 LANDLORD'S COVENANTS DURING THE TERM
Landlord covenants during the Term:
5.1.1 Building Services - To furnish in a first class manner,
through Landlord's employees or independent contractors, the
services listed in Exhibit D;
5.1.2 Additional Building Services - To furnish, through Landlord's
employees or independent contractors, reasonable additional
Building operation services in a first class manner, upon
reasonable advance request of Tenant at equitable rates from
time to time established by Landlord to be paid by Tenant;
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5.1.3 Repairs - Except as otherwise provided in Article VII, to make
such repairs to the roof, exterior walls, floor slabs and
common facilities of the Building as may be necessary to keep
them in serviceable condition and in a condition consistent
with a first class office building;
5.1.4 Quiet Enjoyment - That Landlord has the right to make this
Lease and that Tenant, on paying the rent and performing its
obligations hereunder, shall peacefully and quietly have, hold
and enjoy the Premises throughout the Term without any manner
of hindrance or molestation from Landlord or anyone claiming
under Landlord, subject, however, to all the terms and
provisions hereof;
5.1.5 Tenant Sign - To list Tenant's name and location in tenant
directory in the Building lobby;
5.1.6 Exterior - To maintain parking lot, landscaping and other
exterior areas in a first class manner and keep paved areas
reasonably free of snow and ice;
5.1.7 Access - To provide twenty-four hour, seven days a week,
fifty-two weeks a year access via note pad or key punch access
system;
5.1.8 ADA - To warrant, to the best of Landlord's knowledge, that
the Building is in compliance with handicapped access codes,
including ADA and that to the best of Landlord's knowledge
neither Building nor Lot contains materials hazardous to
Tenant's occupancy or employees, including without limitation,
asbestos and PCB and hazardous substances.
5.2 INTERRUPTIONS
Except as provided herein, Landlord shall not be liable to Tenant for
any compensation or reduction of rent by reason of inconvenience or annoyance or
for loss of business arising from power losses or shortages or from the
necessity of Landlord's entering the Premises for any of the purposes in this
Lease authorized, or for repairing the Premises or any portion of the Building
or Lot. In case Landlord is prevented or delayed from making any repairs,
alterations or improvements, or furnishing any service or performing any other
covenant or duty to be performed on Landlord's part, by reason of any cause
reasonably beyond Landlord's control, Landlord shall not be liable to Tenant
therefor, nor, except as expressly otherwise provided herein and in Article VII,
shall Tenant be entitled to any abatement or reduction of rent by reason
thereof, nor shall the same give rise to a claim in Tenant's favor that such
failure constitutes, actual or constructive, total or partial, eviction from the
Premises.
Landlord shall use reasonable diligence to make or cause to be made
such repairs as may be required to machinery or equipment within the Building or
on the Lot to
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provide restoration of services and when a cessation or interruption of service
has occurred due to circumstances or conditions beyond the boundaries of the Lot
or beyond Landlord's direct control, to cause the same to be restored to the
extent such restoration is within Landlord's control, and otherwise, by diligent
application or request to the provider thereof. Landlord also agrees to use
reasonable efforts to avoid unnecessary inconvenience to Tenant by reason
thereof and agrees, where reasonable, not to perform such work during normal
business hours. In the event Landlord fails to provide or cause to be provided
any one or more of the Building Services, and such failure causes the premises
or a portion thereof, to be rendered untenantable for the purpose of conducting
Tenant's business operations, and such conditions shall continue, in the case of
circumstances or conditions within Landlord's direct control, for any four (4)
consecutive business days or such condition shall occur in any seven (7)
business days during any thirty (30) day period, or in the case of circumstances
or conditions beyond or outside of Landlord's direct control for seven (7)
consecutive business days or such condition shall occur in any ten (10) business
days during any thirty (30) day period, Tenant shall have the right to abate the
portion of Fixed Rent which corresponds to the portion of the Premises rendered
untenantable. Notwithstanding the foregoing, any such abatement of Fixed Rent
shall be limited to twenty percent (20%) of the Monthly Fixed Rent in any month,
such monthly twenty percent (20%) of Fixed Rent abatement to continue until
Tenant has been fully reimbursed by such partial abatement for its abatement due
for each day that the Premises was rendered fully or partially untenantable
beyond the applicable period of four (4), seven (7) or ten (10) days until the
full amount of such abatement due Tenant has been recovered by Tenant through
such monthly partial abatement or by other payment to Tenant by Landlord.
Landlord reserves the right to stop any service or utility system when
necessary by reason of accident or emergency or until necessary repairs have
been completed. Except in case of emergency repairs, Landlord will give Tenant
reasonable advance notice of any contemplated stoppage and will use reasonable
efforts to avoid unnecessary inconvenience to Tenant by reason thereof.
ARTICLE VI
TENANT'S COVENANTS
6.1 TENANT'S COVENANTS DURING THE TERM
Tenant covenants during the Term and such further time as Tenant
occupies any part of the Premises:
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6.1.1 Tenant's Payments - To pay when due (a) all Fixed Rent and
additional rent, (b) all taxes which may be imposed on
Tenant's personal property in the Premises (including, without
limitation, Tenant's fixtures and equipment) regardless to
whomever assessed, (c) all charges by public utility for
telephone and other utility services (including service
inspections therefor) rendered to the Premises not otherwise
required hereunder to be furnished by Landlord without charge
and not consumed in connection with any services required to
be furnished by Landlord without charge, and (d) as additional
rent, all charges of Landlord for services rendered pursuant
to Section 5.1.2 hereof;
6.1.2 Repairs and Yielding Up - Except as otherwise provided in
Article VII and Section 5.1.3, to keep the Premises in good
order, repair and condition, reasonable wear only excepted,
and at the expiration or termination of this Lease peaceably
to yield up the Premises and all changes and additions therein
in such order, repair and condition, first removing all goods
and effects of Tenant and any items, the removal of which is
required by agreement or specified therein to be removed at
Tenant's election and which Tenant elects to remove, and
repairing all damage caused by such removal and restoring the
Premises and leaving them clean and neat; any property not so
removed and required by the terms hereof to be removed, shall
be deemed abandoned and may be removed and disposed of by
Landlord, in such manner as Landlord shall determine, and
Tenant shall pay Landlord the entire cost and expense incurred
by it by effecting such removal and disposition and in making
any incidental repairs and replacements to the Premises for
use and occupancy during the period after the expiration of
the term; it being agreed that the acceptance of reasonable
use and wear shall not apply so as to permit Tenant to keep
the Premises in anything less than suitable, tenant-like and
usable condition, considering the nature of the Premises and
the use reasonably made thereof, or in less than good and
tenant-like repair;
6.1.3 Occupancy and Use - To use and occupy the Premises only for
the Permitted Uses; and not to injure or deface the Premises,
Building or Lot; and not to permit in the Premises any auction
sale, nuisance, or the emission from the Premises of any
objectionable noise or odor; nor any use thereof which is
improper, offensive, contrary to law or ordinances, or liable
to invalidate or increase the premiums for any insurance on
the Building or its contents or liable to render necessary any
alteration or addition to the Building;
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6.1.4 Rules and Regulations - To comply with the Rules and
Regulations set forth in Exhibit E and all other reasonable
Rules and Regulations hereafter made by Landlord, of which
Tenant has been given at least thirty (30) days prior written
notice, for the care and use of the Building and Lot and their
facilities and approaches, it being understood that Landlord
shall not be liable to Tenant for the failure of other tenants
of the Building to conform to such Rules and Regulations,
provided that Landlord shall uniformly enforce such Rules and
Regulations;
6.1.5 Safety Appliances - To keep the Premises equipped with all
safety appliances required by law or ordinance or any other
regulation of any public authority because of any use made by
Tenant and to procure all licenses and permits so required
because of such use and, if requested by Landlord, to do any
work so required because of such use, it being understood that
the foregoing provisions shall not be construed to broaden in
any way Tenant's Permitted Uses;
6.1.6 Assignment and Subletting - Not without prior written consent
of Landlord, which shall not be unreasonably withheld or
delayed, to assign this Lease, to make any sublease, or to
permit occupancy of the Premises or any part thereof by anyone
other than Tenant, voluntarily or by operation of law, to
reimburse Landlord promptly for reasonable legal and other
expenses incurred by Landlord in connection with any request
by Tenant for consent to assignment or subletting; no
assignment or subletting shall affect the continuing primary
liability of Tenant (which, following assignment, shall be
joint and several with the assignee); no consent to any of the
foregoing in a specific instance shall operate as waiver in
any subsequent instance. If Tenant requests Landlord's consent
to assign this Lease or sublet more than 50% of the Premises,
Landlord shall have the option, exercisable by written notice
to Tenant given within 30 days after receipt of such request,
to terminate this Lease as to the portion of the Premises for
which such request was made, as of a date specified in such
notice which shall be not less than 45, or more than 60 days
after the date of such notice; and any rental received by
Tenant from sub-tenant must be remitted to Landlord. Anything
contained in the foregoing provisions of this section to the
contrary notwithstanding, neither Tenant nor any other person
having interest in the possession, use, occupancy or
utilization of the Premises shall enter into any lease,
sublease, license, concession or other agreement for use,
occupancy or utilization of space in the Premises which
provides for rental or other payment for such use, occupancy
or utilization based, in whole or in part, on the net income
or profits derived by any person from the Premises leased,
used, occupied or utilized (other than an amount based on a
fixed percentage or percentages of receipts or sales), and any
such purported lease, sublease, license, concession or other
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agreement shall be absolutely void and ineffective as a
conveyance of any right or interest in the possession use,
occupancy or utilization of any part of the Premises;
6.1.7 Indemnity - To defend, save harmless, and indemnify Landlord
from any liability for injury, loss, accident or damage to any
person or property and from any claims, actions, proceedings
and expenses and costs in connection therewith (including,
without implied limitation, reasonable counsel fees): (i)
arising from the omission, fault, willful act, negligence or
other misconduct of Tenant or from any use made or thing done
or occurring on the Premises not due to the omission, fault,
willful act, negligence or other misconduct of Landlord, or
(ii) resulting from the failure of Tenant to perform and
discharge its covenants and obligations under this Lease;
Likewise, Landlord shall defend, save harmless, and indemnify
Tenant from any liability for injury, loss, accident or damage
to any person or property and from any claims, actions,
proceedings and expenses and costs in connection therewith
(including, without implied limitation, reasonable counsel
fees): (i) arising from the omission, fault, willful act,
negligence or other misconduct of Landlord, or (ii) resulting
from the failure of Landlord to perform and discharge its
covenants and obligations under this Lease;
6.1.8 Tenant's Liability Insurance - To maintain public liability
insurance in the Premises in amounts which shall, at the
beginning of the Term, be at least equal to the limits set
forth in Section 1.1 and from time to time during the Term,
shall be for such higher limits, if any, as are customarily
carried in the area in which the Premises are located on
property similar to the Premises and used for similar purposes
and to furnish Landlord with the certificates thereof;
6.1.9 Tenant's Workmen's Compensation Insurance - To keep all
Tenant's employees working in the Premises covered by
workmen's compensation insurance in statutory amounts and to
furnish Landlord with certificates thereof;
6.1.10 Landlord's Right of Entry - To permit Landlord and Landlord's
agents entry after reasonable prior notice, which may be given
by phone, except in an emergency when no notice shall be
required; to examine the Premises at reasonable times and, if
Landlord shall so elect, to make repairs or replacements; to
remove, at Tenant's expense, any changes, additions, signs,
curtains, blinds, shades, awnings, aerials, flagpoles, or the
like not consented to in writing; and to show the Premises to
prospective tenants during the six months preceding expiration
of the Term and to prospective
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purchasers and mortgagees at all reasonable times all without
unreasonable interference with Tenant's use of the Premises;
6.1.11 Loading - Not to place a load upon the Premises exceeding an
average rate of 80 pounds per square foot of floor area; and
not to move any safe, vault or other heavy equipment in, about
or out of the Premises except in such a manner and at such
times as Landlord shall in each instance approve; Tenant's
business machines and mechanical equipment which cause
vibration or noise that may be transmitted to the Building
structure or to any other leased space in the Building shall
be placed and maintained by Tenant in settings of cork,
rubber, spring, or other types of vibration eliminators
sufficient to eliminate such vibration or noise;
6.1.12 Landlord's Costs - In case Landlord shall, without any fault
on its part, be made party to any litigation commenced by or
against Tenant or by or against any parties in possession of
the Premises or any part thereof claiming under Tenant, to
pay, as additional rent, all costs including, without implied
limitation, reasonable counsel fees incurred by or imposed
upon Landlord in connection with such litigation and as
additional rent, also to pay all such costs and fees incurred
by Landlord in connection with the successful enforcement by
Landlord of any obligations of Tenant under this Lease;
Similarly, in case Tenant shall, without any fault on its
part, be made party to any litigation commenced by or against
Landlord or by or against any parties in possession of the
Premises or any part thereof claiming under Landlord, to pay
all costs including, without implied limitation, reasonable
counsel fees incurred by or imposed upon Tenant in connection
with such litigation, also to pay all such costs and fees
incurred by Tenant in connection with the successful
enforcement by Tenant of any obligations of Landlord under
this Lease;
6.1.13 Tenant's Property - All the furnishings, fixtures, equipment,
effects and property of every kind, nature and description of
Tenant and of all persons claiming by, through or under Tenant
which, during the continuance of this Lease or any occupancy
of the Premises by Tenant or anyone claiming under Tenant, may
be on the Premises or elsewhere in the Building or on the Lot
shall be at the sole risk and hazard of Tenant, except for
Landlord's negligence or willful act of omission, and if the
whole or any part thereof shall be destroyed or damaged by
fire, water or otherwise, or by the leakage or bursting of
water pipes, steam pipes, or other pipes, by theft, or from
any other cause, no part of said loss or damage is to be
charged to or to be borne by Landlord unless the same was
caused by Landlord's negligence;
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6.1.14 Labor or Materialmen's Liens - To pay promptly when due the
entire cost of any work done on the Premises by Tenant, its
agents, employees, or independent contractors; not to cause
any liens for labor or material performed or furnished in
connection therewith to attach to the Premises; and
immediately to discharge or provide a bond reasonably
satisfactory to Landlord and Landlord's mortgagee for, any
such liens which may so attach and to vigorously pursue their
discharge and removal;
6.1.15 Changes or Additions - Not to make any material changes or
additions to the Premises without Landlord's prior written
consent, which consent shall not be unreasonably withheld or
delayed; and
6.1.16 Holdover - To pay to Landlord 175% the total of the Fixed and
additional rent then applicable for each month or portion
thereof Tenant shall retain possession of the Premises or any
part thereof after the termination of this Lease, whether by
lapse of time or otherwise, and also to pay all damages
sustained by Landlord on account thereof; the provisions of
this subsection shall not operate as a waiver by Landlord of
any right of re-entry provided in this Lease; at the option of
the Landlord exercised by a written notice given to Tenant
while such holding over continues for ninety (90) days or
longer, such holding over shall constitute an extension of
this Lease for a period of six months at 150% the Fixed and
additional rent.
6.1.17 Hazardous Materials - Tenant shall not (either with or without
negligence) cause or permit the escape, disposal or release of
any biologically or chemically active or other hazardous
substances, or materials onto or in the vicinity of the
Premises. Tenant shall not allow the storage or use of such
substances or materials in any manner not sanctioned by law or
by the highest standards prevailing in the industry for the
storage and use of such substances or materials, nor allow to
be brought into the Premises any such materials or substances
except to use in the ordinary course of Tenant's business, and
then only after written notice is given to Landlord of the
identity of such substances or materials. Notwithstanding the
foregoing, Tenant may use such materials as are normally used
in an office building for cleaning, copy machines and the
like, provided the same are used in compliance with all
applicable legal requirements. Without limitation, hazardous
substances and materials shall include those described in the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et
seq., the Resource Conservation and Recovery Act, as amended,
42 U.S.C. Section 6901 et seq., the Massachusetts Hazardous
Waste Management Act, as amended, M.G.L. c.21C, the
Massachusetts Oil and Hazardous Material Release Prevention
and Response Act, as amended, M.G.L. c.21E, any
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applicable local ordinance or bylaw, and the regulations
adopted under these acts, as amended (collectively, the
"Hazardous Waste Laws"). If any lender or governmental agency
shall ever require testing to ascertain whether or not there
has been any release of hazardous materials, then the
reasonable costs thereof shall be reimbursed by Tenant to
Landlord upon demand as additional charges if such requirement
applies to the Premises. If Tenant receives from any federal,
state or local governmental agency any notice of violation or
alleged violation of any Hazardous Waste Law, or if Tenant is
obligated to give any notice under any Hazardous Waste Law,
Tenant agrees to forward to Landlord a copy of any such notice
within three (3) days of Tenant's receipt or transmittal
thereof. In addition, Tenant shall execute affidavits,
representations and the like from time to time at Landlord's
request concerning Tenant's best knowledge of belief regarding
the presence of hazardous substances or materials on the
Premises. In all events, Tenant shall indemnify Landlord in
the manner elsewhere provided in this lease from any release
of hazardous materials on the Premises occurring while Tenant
is in possession, or elsewhere if caused by Tenant or persons
acting under Tenant. Landlord retains the right to inspect the
Premises at all reasonable times, upon reasonable notice to
Tenant, to ensure compliance with this paragraph. The within
covenants shall survive the expiration or earlier termination
of the lease term.
ARTICLE VII
CASUALTY AND TAKING
7.1 CASUALTY AND TAKING
In case during the Term all or any substantial part of the Premises,
the Building, or Lot or any one or more of them, are damaged materially by fire
or any other cause or by action of public or other authority in consequence
thereof such that in Landlord's estimate it will take 120 days or longer to
restore the Premises, Building or Lot to its prior condition, or are taken by
eminent domain or Landlord receives compensable damage by reason of anything
lawfully done in pursuance of public or other authority, this Lease shall
terminate at either Tenant's or Landlord's election, which may be made as to
Landlord, notwithstanding Landlord's entire interest may have been divested, by
notice given to Tenant within 30 days after the occurrence of the event giving
rise to the election to terminate, or if by Tenant within 30 days of notice by
Landlord that such restoration will require 120 days or longer to complete, or
notice by Landlord of such taking. Either such notice shall specify the
effective date of termination which shall be not less than 30, nor more than 60,
days after the date of notice of such termination. In the event that such
substantial and material casualty occurs within the last 180 days of the Term
and Tenant has not exercised its extension option, then if a substantial portion
of the Premises is rendered untenantable for the normal conduct of Tenant's
business for
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a period of greater than 60 days, then Tenant shall have the right to terminate
this Lease by notice to Landlord, such notice to be given and exercised as set
forth in the previous sentence. If in any such case the Premises are rendered
unfit for use and occupation or untenantable for the normal conduct of Tenant's
business, and the Lease is not so terminated, Landlord shall use due diligence
to put the Premises, or, in case of taking, what may remain thereof (excluding
any items installed or paid for by Tenant which Tenant may be required or
permitted to remove) into proper condition for use and occupation to the extent
permitted by the net award of insurance or damages in at least as good a
condition as at the commencement of the Term giving due consideration to wear
and tear, and a just proportion of the Fixed Rent and Additional Rent according
to the nature and extent of the injury shall be abated until the Premises or
such remainder shall have been put by Landlord in such condition; and in case of
a taking which permanently reduces the area of the Premises, a just proportion
of the Fixed Rent and Additional Rent shall be abated for the remainder of the
Term and an appropriate adjustment shall be made to the Annual Estimated
Operating Expenses.
7.2 RESERVATION OF AWARD
Landlord reserves to itself any and all rights to receive awards made
for damages to the Premises, Building or Lot and the leasehold hereby created,
or any one or more of them, accruing by reason of exercise of eminent domain or
by reason of anything lawfully done in pursuance of public or other authority.
Tenant hereby releases and assigns to Landlord all Tenant's rights to such
awards, and covenants to deliver such further assignments and assurances thereof
as Landlord may from time to time request, hereby irrevocably designating and
appointing Landlord as its attorney-in-fact to execute and deliver in Tenant's
name and behalf all such further assignments thereof. It is agreed and
understood, however, that Landlord does not reserve to itself, and Tenant does
not assign to Landlord, any damages payable for (i) movable trade fixtures
installed by Tenant or anybody claiming under Tenant, at its own expense, or
(ii) relocation expenses recoverable by Tenant from such authority in a separate
action.
ARTICLE VIII
RIGHTS OF MORTGAGEE
8.1 PRIORITY OF LEASE
Prior to the date hereof, Landlord shall cause to be obtained
non-disturbance and attornment agreements, in customary form, from all existing
mortgage holders. Landlord shall have the option to subordinate this Lease to
any mortgagee or deed of trust of the Lot or Building, or both ("the mortgaged
premises"), provided that the holder thereof enters into an agreement with
Tenant by the terms of which the holder will agree to recognize the rights of
Tenant under this Lease and to accept Tenant as tenant of the Premises under the
terms and conditions of this Lease in the event of acquisition of title by such
holder through foreclosure proceedings or otherwise and Tenant will agree to
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recognize the holder of such mortgage as Landlord in such event, which agreement
shall be made to expressly bind and inure to the benefit of the successors and
assigns of Tenant and of the holder and upon anyone purchasing the mortgaged
premises at any foreclosure sale. Any such mortgage to which this Lease shall be
subordinated may contain such terms, provisions and conditions as the holder
deems usual or customary. Unless Landlord exercises such option, this Lease
shall be superior to and shall not be subordinated to any mortgage or other
voluntary lien or other encumbrance on the mortgaged premises.
8.2 LIMITATION ON MORTGAGEE'S LIABILITY
Upon entry and taking possession of the mortgaged premises for any
purpose other than foreclosure, the holder of a mortgage shall have all rights
of Landlord, and during the period of such possession, the duty to perform all
Landlord's obligations hereunder. Except during such period of possession, no
such holder shall be liable, either as mortgagee or as holder of a collateral
assignment of this Lease, to perform, or be liable in damages for failure to
perform, any of the obligations of Landlord unless and until such holder shall
enter and take possession of the mortgaged premises for the purpose of
foreclosing a mortgage. Upon entry for the purpose of foreclosing a mortgage,
such holder shall be liable to perform all of the obligations of Landlord,
subject to the provisions of Section 8.3 provided that a discontinuance of any
foreclosure proceeding shall be deemed a conveyance under the provisions of
Section 10.5 to the owner of the equity of the mortgaged premises.
8.3 NO PREPAYMENT OR MODIFICATION, ETC.
No Fixed Rent, additional rent, or any other charge shall be paid more
than 30 days prior to the due dates thereof, and payments made in violation of
this provision shall (except to the extent that such payments are actually
received by a mortgagee in possession or in the process of foreclosing its
mortgage) be a nullity as against such mortgagee, and Tenant shall be liable for
the amount of such payments to such mortgagee. No assignment of this Lease and
no agreement to make or accept any surrender, termination or cancellation of
this Lease and no agreement to modify so as to reduce the rent, change the Term,
or otherwise materially change the rights of Landlord under this Lease, or to
relieve Tenant of any obligations or liability under this Lease, shall be valid
unless consented to in writing by Landlord's mortgagees of record, if any.
8.4 NO RELEASE OR TERMINATION
No act or failure to act on the part of Landlord which would entitle
Tenant under the terms of this Lease, or by law, to be relieved of Tenant's
obligations hereunder or to terminate this Lease, shall result in a release or
termination of such obligations or a termination of this Lease unless (i) Tenant
shall have first given written notice of
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Landlord's act or failure to act to Landlord's mortgagees of which Landlord has
given Tenant notice, together with the address therefor, if any, specifying the
act or failure to act on the part of Landlord which could or would give basis to
Tenant's rights, and (ii) such mortgagees, after receipt of such notice, have
failed or refused to correct or cure the condition complained of within a
reasonable time thereafter, but nothing contained in this Section 8.4 shall be
deemed to impose any obligation on any such mortgagee to correct or cure any
such condition. "Reasonable time" as used above means and includes a reasonable
time to obtain possession of the mortgaged premises, if the mortgagee elects to
do so, and a reasonable time to correct or cure the condition if such condition
is determined to exist. The current mortgagee is Teachers Insurance and Annuity
Association, Attention: Mortgage Department, 730 Third Avenue, New York, New
York 10017.
8.5 CONTINUING OFFER
The covenants and agreements contained in this Lease with respect to
the rights, powers and benefits of a mortgagee (particularly, without limitation
thereby, the covenants and agreements contained in this Article VIII) constitute
a continuing offer to any person, corporation or other entity, which by
accepting or requiring an assignment of this Lease or by entry or foreclosure
assumes the obligations herein set forth with respect to such mortgagee, and
such mortgagee shall be entitled to enforce such provisions in its own name.
Tenant agrees on request of Landlord to execute and deliver from time to time
any agreement which may reasonably be deemed necessary to implement the
provisions of this Article VIII.
8.6 SUBMITTAL OF FINANCIAL STATEMENT
At any time and from time to time during the term of this Lease, within
15 days after request therefor by Landlord, no more often than annually Tenant
shall supply to Landlord and/or any Mortgagee a current financial statement or
such other financial information as may be reasonably required by any such
party.
ARTICLE IX
DEFAULT
9.1 EVENTS OF DEFAULT
If any default by Tenant continues after notice, in case of Fixed Rent
or additional rent for more than ten days, or in any other case for more than 30
days and such additional time, if any, as is reasonably necessary to cure the
default if the default is of such a nature that it cannot reasonably be cured in
30 days; or if Tenant or Guarantor makes any assignment for the benefit of
creditors, or files a petition under any bankruptcy or insolvency law; or if
such a petition is filed against Tenant or any Guarantor and is not dismissed
within 90 days; or if a receiver or similar officer becomes
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entitled to Tenant's leasehold hereunder and it is not returned to Tenant within
90 days, or if such leasehold is taken on execution or other process of law in
any action against Tenant then, and in any such cases, Landlord and the agents
and servants of Landlord may, in addition to and not in derogation of any
remedies for any preceding breach of covenant, immediately or at any time
thereafter while such default continues and without further notice and with
process of law enter into and upon the Premises or any part thereof in the name
of the whole or mail a notice of termination addressed to Tenant at the Premises
and repossess the same as of Landlord's former estate and expel Tenant and those
claiming through or under Tenant and remove its and their effects without being
deemed guilty of any manner of trespass and without prejudice to any remedies
which might otherwise be used for arrears of rent or prior breach of covenant,
and upon such entry or mailing as aforesaid, this Lease shall terminate, but
Tenant shall remain liable as hereinafter provided. Tenant hereby waives all
statutory rights (including, without limitation, rights of redemption, if any)
to the extent such rights may be lawfully waived, and Landlord, without notice
to Tenant, may store Tenant's effects and those of any person claiming through
or under Tenant at the expense and risk of Tenant and, if Landlord so elects
after written notice to Tenant, may sell such effects at public auction or
private sale and apply the net proceeds to the payment of all sums due to
Landlord from Tenant, if any, and pay over the balance, if any, to Tenant.
9.2 TENANT'S OBLIGATIONS AFTER TERMINATION
In the event that this Lease is terminated under any of the provisions
contained in Section 9.1 or shall be otherwise terminated for breach of any
obligation of Tenant, Tenant covenants to pay forthwith to Landlord, as
compensation, the excess of the total rent reserved for the residue of the Term
over the rental value of the Premises for said residue of the Term. In
calculating the rent reserved, there shall be included, in addition to the Fixed
Rent and all additional rent, the value of all other consideration agreed to be
paid or performed by Tenant for said residue. Tenant further covenants as an
additional and cumulative obligation after any such ending to pay punctually to
Landlord all the sums and perform all the obligations which Tenant covenants in
this Lease to pay and to perform in the same manner and to the same extent and
at the same time as if this Lease had not been terminated. In calculating the
amounts to be paid by Tenant under the next foregoing covenant, Tenant shall be
credited with any amount paid to Landlord as compensation as provided in the
first sentence of this Section 9.2 and also with the net proceeds of any rents
obtained by Landlord by reletting the Premises, after deducting all Landlord's
reasonable expenses in connection with such reletting, including, without
implied limitation, all repossession costs, brokerage commissions, fees for
legal services and expense of preparing the Premises for such reletting, it
being agreed by Tenant that Landlord may (i) relet the Premises or any part or
parts thereof for a term or terms which may, at Landlord's option, be equal to
or less than or exceed the period which would otherwise have constituted the
balance of the Term and may grant such concessions and free rent as Landlord in
its sole judgment considers advisable or necessary to relet the same, and (ii)
make such alterations, repairs
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and decorations in the Premises as Landlord in its sole judgment considers
advisable or necessary to relet the same, and no action of Landlord in
accordance with the foregoing or failure to relet or to collect rent under
reletting shall operate or be construed to release or reduce Tenant's liability
as aforesaid.
Nothing contained in this Lease shall, however, limit or prejudice the
right of Landlord to prove and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amount of the loss or damages
referred to above.
ARTICLE X
MISCELLANEOUS
10.1 TITLES
The titles of the Articles are for convenience and are not to be
considered in construing this Lease.
10.2 NOTICE OF LEASE
Both parties shall execute and deliver, after the Term begins, a short
form of this Lease in a form appropriate for recording or registration, and upon
request of either party if this Lease is terminated before the Term expires, an
instrument in such form acknowledging the date of termination.
10.3 RELOCATION
Intentionally Omitted.
10.4 NOTICES FROM ONE PARTY TO THE OTHER
No notice, approval, consent requested or election required or
permitted to be given or made pursuant to this Lease shall be effective unless
the same is in writing. Communications shall be addressed, if to Landlord, at
Landlord's Address, or at such other address as may have been specified by prior
notice to Tenant and, if to Tenant, at Tenant's Address or at such other place
as may have been specified by prior notice to Landlord. Any communication so
addressed shall be deemed duly served if mailed by registered or certified mail,
return receipt requested and shall be deemed to have been given two (2) business
days after it has been so mailed.
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10.5 BIND AND INURE
The obligations of this Lease shall run with the land, and this Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Landlord named herein and
each successive owner of the Premises shall be liable only for the obligations
accruing during the period of its ownership. Neither the Landlord named herein
nor any successive owner of the Premises whether an individual, trust, a
corporation or otherwise shall have any personal liability beyond their equity
interest in the Premises.
10.6 NO SURRENDER
The delivery of keys to any employees of Landlord or to Landlord's
agent or any employee thereof shall not operate as a termination of this Lease
or a surrender of the Premises.
10.7 NO WAIVER, ETC.
The failure of Landlord or of Tenant to seek redress for violation of,
or to insist upon the strict performance of any covenant or condition of this
Lease or, with respect to such failure of Landlord, any of the Rules and
Regulations referred to in Section 6.1.4, whether heretofore or hereafter
adopted by Landlord, shall not be deemed a waiver of such violation nor prevent
a subsequent act, which would have originally constituted a violation, from
having all the force and effect of an original violation, nor shall the failure
of Landlord to enforce any of said Rules and Regulations against any other
tenant in the Building be deemed a waiver of any such Rules or Regulations. The
receipt by Landlord of Fixed Rent or additional rent with knowledge of the
breach of any covenant of this Lease shall not be deemed a waiver of such breach
by Landlord, unless such waiver be in writing signed by Landlord. No consent or
waiver, express or implied, by Landlord or Tenant to or of any breach of any
agreement or duty shall be construed as a waiver or consent to or of any other
breach of the same or any other agreement or duty.
10.8 NO ACCORD AND SATISFACTION
No acceptance by Landlord of a lesser sum than the Fixed Rent and
additional rent then due shall be deemed to be other than on account of the
earliest installment of such rent due, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment as rent be deemed as
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such installment or
pursue any other remedy in this Lease provided.
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10.9 CUMULATIVE REMEDIES
The specific remedies to which Landlord may resort under the terms of
this Lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which it may be lawfully entitled in case of any
breach or threatened breach by Tenant of any provisions of this Lease. In
addition to the other remedies provided in this Lease, Landlord shall be
entitled to the restraint by injunction of the violation or attempted or
threatened violation of any of the covenants, conditions or provisions of this
Lease or to a decree compelling specific performance of any such covenants,
conditions or provisions.
10.10 PARTIAL INVALIDITY
If any term of this Lease, or the application thereof to any person or
circumstances shall to any extent be invalid or unenforceable, the remainder of
this Lease, or the application of such term to persons or circumstances other
than those as to which it is invalid or unenforceable, shall not be affected
thereby, and each term of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
10.11 LANDLORD'S RIGHT TO CURE
If Tenant shall at any time default in the performance of any
obligation under this Lease, which default continues after giving of any
required notice and the expiration of any applicable grace period, Landlord
shall have the right, but shall not be obligated, to enter upon the Premises and
to perform such obligation, notwithstanding the fact that no specific provision
for such substituted performance by Landlord is made in this Lease with respect
to such default. In performing such obligation, Landlord may make any payment of
money or perform any other act. All sums so paid by Landlord (together with
interest at the rate of the prime rate as determined by a major Boston bank
selected by Landlord, plus 3% (i.e., prime plus 3%) per annum, and all necessary
incidental costs and expenses in connection with the performance of any such
acts by Landlord, shall be deemed to be additional rent under this Lease and
shall be payable to Landlord within thirty (30) days of demand. Landlord may
exercise the foregoing rights without waiving any other of its rights or
releasing Tenant from any of its obligations under this Lease.
Similarly, if Landlord shall at any time default in the performance of
any material obligation under this Lease, which default continues after giving
of any required notice and the expiration of any applicable grace period, Tenant
shall have the right, after 30 days notice to Landlord and Landlord's mortgagee,
but shall not be obligated, to perform such obligation, notwithstanding the fact
that no specific provision for such substituted performance by Tenant is made in
this Lease with respect to such material default. In performing such obligation,
Tenant may make any payment of money or perform any other act. All reasonable
sums so paid by Tenant (together with interest at the rate of the prime rate as
determined by a major Boston bank selected by Tenant, plus 3% (i.e.,
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prime plus 3%) per annum, and all necessary incidental costs and expenses in
connection with the performance of any such acts by Tenant shall be payable to
Tenant within thirty (30) days of demand. Tenant may exercise the foregoing
rights without waiving any other of its rights or releasing Landlord from any of
its obligations under this Lease.
10.12 ESTOPPEL CERTIFICATE
Tenant agrees on the Commencement Date, and from time to time as
reasonably necessary thereafter, upon not less than 15 days' prior written
request by Landlord, to execute, acknowledge and deliver to Landlord a statement
in writing in the form attached hereto as Exhibit G, certifying that this Lease
is unmodified and in full force and effect; that Tenant has no defenses, offsets
or counterclaims against its obligations to pay the Fixed Rent and additional
rent and to perform its other covenants under this Lease; that there are no
uncured defaults of Landlord or Tenant under this Lease (or, if there are any
defenses, offsets, counterclaims, or defaults, setting them forth in reasonable
detail); and the dates to which the Fixed Rent, additional rent and other
charges have been paid. Any such statements delivered pursuant to this Section
10.12 may be relied upon by any prospective purchaser or mortgage of premises
which include the Premises or any prospective assignee of any such mortgagee.
10.13 WAIVER OF SUBROGATION
Any insurance carried by either party with respect to the Premises and
property therein or occurrences thereon, shall if the other party so requests
and it can be so written without additional premium or with any additional
premium which the other party agrees to pay, include a clause or endorsement
denying to the insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrence of injury or
loss. Each party, notwithstanding any provisions of this Lease to the contrary,
hereby waives any rights of recovery against the other for injury or loss due to
hazards covered by insurance containing such clause or endorsement to the extent
of the indemnification received thereunder.
10.14 BROKERAGE
Tenant and Landlord represent and warrant that either has dealt with no
broker in connection with this transaction other than Palladins, Inc., Austin
Smith of Whittier Partners, and Chris Tosti of Leggat McCall/Grubb & Ellis and
agrees to defend, indemnify and save Landlord harmless from and against any and
all claims for a commission arising out of this Lease made by anyone other than
Palladins, Inc., Austin Smith of Whittier Partners, and Chris Tosti of Leggat
McCall/Grubb & Ellis. Landlord shall pay the commission of said brokers.
-26-
<PAGE> 29
ARTICLE XI
SECURITY DEPOSIT
Intentionally Omitted.
EXECUTED as a sealed instrument in two or more counterparts on the day
and year first above written.
TENANT: LANDLORD:
ASPECT MEDICAL SYSTEMS, INC. NATICK EXECUTIVE PARK TRUST NO. 2
/s/ Patrick J. Connoy /s/ John A. Cataldo
- ---------------------------- --------------------------------
as Trustee, and not individually
-27-
<PAGE> 30
EXHIBIT "D"
LANDLORD'S SERVICES
I. CLEANING
A. General
1. All cleaning work will be performed between 8:00 AM
and midnight, Monday through Friday, unless otherwise
necessary for stripping, waxing, etc., but shall not
unreasonably interfere with Tenant's use of the
Premises.
2. Abnormal waste removal (e.g., computer installation
paper, bulk packaging, wood or cardboard crates,
refuse from cafeteria operation, etc.) shall be
Tenant's responsibility.
B. Daily Operations (5 times per week)
1. Tenant Areas
a. Empty and clean all waste receptacles. Wash
receptacles as necessary.
b. Vacuum all rugs and carpeted areas.
c. Empty, damp-wipe and dry all ashtrays.
2. Lavatories
a. Sweep and wash floors with disinfectant.
b. Wash both sides of toilet seats with
disinfectant.
c. Wash all mirrors, basins, bowls, urinals.
d. Spot-clean toilet partitions.
e. Empty and disinfect sanitary napkin disposal
receptacles.
f. Refill toilet tissue, towel, soap and
sanitary napkin dispensers.
3. Public Areas
a. Wipe down entrance doors and clean glass
(interior and exterior).
b. Vacuum elevator carpets and wipe down doors
and walls.
Page 1 of 3
<PAGE> 31
C. Operations as Needed (but not less than every other day)
1. Tenant and Public Areas
a. Buff all resilient floor areas every other
day.
b. Clean water coolers.
D. Weekly Operations
1. Tenant Areas, Lavatories, Public Areas
a. Hand dust and wipe clean all horizontal
surfaces with treated cloths to include
furniture, office equipment, windowsills,
door ledges, chair rails, baseboards,
convector tops, etc. within normal reach.
b. Remove finger marks from private entrance
doors, light switches, and doorways.
c. Sweep all stairways.
E. Monthly Operations
1. Tenant and Public Areas
a. Thoroughly vacuum seat cushions on chairs,
sofas, etc.
b. Vacuum and dust grillwork.
2. Lavatories
a. Wash down interior walls and toilet
partitions.
F. As Required and Weather Permitting (but not less than three
times per year)
1. Entire Building
a. Clean inside of all windows.
b. Clean outside of all windows.
G. Yearly
1. Tenant and Public Areas
a. Strip and wax all resilient tile floor
areas.
Page 2 of 3
<PAGE> 32
II. HEATING, VENTILATING AND AIR CONDITIONING
1. Heating, ventilation and air conditioning as required to
provide reasonably comfortable temperatures for normal
business day occupancy (except holidays), Monday through
Friday, from 8:00 AM to 6:00 PM and Saturday from 8:00 AM to
1:00 PM.
2. Maintenance on any additional or special air conditioning
equipment and the associated operating cost will be at
Tenant's expense.
III. WATER
1. Hot water for lavatory purposes and cold water for drinking,
lavatory and toilet purposes.
IV. ELEVATORS (If building is elevated)
1. Elevators for the use of all tenants and the general public
for access to and from all floors of the Building, programming
of elevators (including, but not limited to, service
elevators), shall be as Landlord from time to time reasonably
determines best for the Building as a whole, but in any event,
shall include two (2) elevators (subject to necessary repair
or replacement) with a capacity of at least 2,500 pounds at
125 feet per minute.
V. RELAMPING OF LIGHT FIXTURES
1. Tenant will reimburse Landlord for relamping, ballasts and
starters within the Premises, all of which shall be in good
operable condition on the Term Commencement Date, after the
first year of the Term.
VI. CAFETERIA, VENDING AND PLUMBING INSTALLATIONS
1. Any space to be used primarily for lunchroom or cafeteria
operation shall be Tenant's responsibility to keep clean and
sanitary. Cafeteria, vending machines or refreshment service
installations by Tenant must be approved by Landlord in
writing. All maintenance, repairs and additional cleaning
necessitated by such installations shall be at Tenant's
expense.
2. Tenant is responsible for the maintenance and repair of
plumbing fixtures and related equipment installed in the
leased premises for its exclusive use (such as in coffee room,
cafeteria or employee exercise area).
Page 3 of 3
<PAGE> 33
VII. ELECTRICITY
1. Tenant shall pay for all electricity consumed in Tenant's
space. If not metered separately, Landlord shall reasonably
estimate the cost of such electrical usage for Tenant's lights
and plugs, and Tenant shall reimburse Landlord for such costs
on a monthly basis. If Tenant's use of electrical energy in
Tenant's Space is disproportionate to other tenants' use of
electrical energy, Tenant shall also pay for all excess
electricity consumed in Tenant's space as estimated by
Landlord. If Tenant is billed in any manner for tenant
electricity other than as Estimated Cost of Tenant Electrical
Service to Tenant's space (included in Fixed Rent) as set
forth in Paragraph 1.1 hereof, the Fixed Rent shall be
adjusted by deducting the portion thereof representing the
cost of electrical service to Tenant's Space.
Tenant's use of electrical energy in Tenant's space shall not
at any time exceed the capacity of any of the electrical
conductors or equipment in or otherwise serving Tenant's
space. To ensure that such capacity is not exceeded and to
avert possible adverse effects upon the Building's electrical
system, Tenant shall not, without prior written notice to
Landlord in each instance, connect to the Building electric
distribution system any fixtures, appliances or equipment
which operates on a voltage in excess of 120 or 208 volts
nominal or make any alteration or addition to the electric
system of the Tenant's space. Unless Landlord shall reasonably
object to the connection of any such fixtures, appliances or
equipment, all additional risers or other equipment required
therefore shall be provided by Landlord and the cost thereto
shall be paid by Tenant upon Landlord's demand.
<PAGE> 34
EXHIBIT "E"
RULES AND REGULATIONS
1. The entrance, lobbies, passages, corridors, elevators and stairways
shall not be encumbered or obstructed by Tenant, Tenant's agents,
servants, employees, licensees, and visitors be used by them for any
purpose other than for ingress and egress to and from the Premises. The
moving in or out of all safes, freight, furniture, or bulky matter of
any description must take place during the hours which Landlord may
reasonably determine from time to time. Landlord reserves the right to
inspect all freight and bulky matter to be brought into the Building
and to exclude from the Building all freight and bulky matter which
violates any of these Rules and Regulations or the Lease of which these
Rules and Regulations are a part.
2. No curtains, blinds, shades, screens, or signs other than those
furnished by Landlord shall be attached to, hung in, or used in
connection with any window or door of the Premises without the prior
written consent of the Landlord. Interior signs on doors shall be
painted or affixed for Tenant by Landlord or by sign painters first
approved by Landlord, at the expense of Tenant, and shall be of a size,
color and style acceptable to Landlord.
3. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by Tenant, nor shall any changes be made in
existing locks or the mechanism thereof without the prior written
consent of Landlord. Tenant must, upon the termination of its tenancy,
restore to Landlord all keys of stores, shops, booths, stands, offices
and toilet rooms, either furnished to or otherwise procured by Tenant;
and in the event of the loss of any keys so furnished, Tenant shall pay
to Landlord the cost thereof.
4. Canvassing, soliciting and peddling in the Building are prohibited, and
Tenant shall cooperate to prevent the same.
5. Tenant may request heating and/or air conditioning during other periods
in addition to normal working hours by submitting their request in
writing to the Building Manager's office no later than 2:00 PM the
preceding workday (Monday through Friday) on forms available from the
Building Manager. The request shall clearly state the start and stop
hours of the "off-hour" service. Tenant shall submit to the Building
Manager a list of personnel who are authorized to make such requests.
Charges are to be determined by the Building Manager on the additional
hours of operations and shall be fair and reasonable and reflect the
additional operating costs involved, provided however, that Tenant
shall not be charged to the extent another tenant makes the same
request prior to Tenant. Currently such charge is $25.00 per hour for
the whole Building and $12.50 per
Page 1 of 2
<PAGE> 35
hour for one-half of the Building and shall not be changed without
prior written notice to Tenant.
6. Tenant shall comply with all security measures from time to time
reasonably established by Landlord for the Building.
7. Should Tenant's organization have a non-smoking policy presently in
effect for their visitors and/or employees or institute such a policy
during the term of this Lease and should such policy not prohibit
smoking altogether, then Tenant shall set aside a smoking area within
the leased premises, properly ventilated and/or with smoke filtration
units, so as not to interfere with any fire protection devices, such as
smoke detectors, or the quality of air recirculated in the building's
HVAC system.
Page 2 of 2
<PAGE> 36
EXHIBIT "F"
GUARANTY
Intentionally Omitted.
<PAGE> 37
EXHIBIT "G"
ESTOPPEL CERTIFICATE
THIS CERTIFICATE is made to
with respect to a Lease between
as Landlord and the undersigned, covering a building located in ,
such lease being dated , as amended by (list all amendments):
The undersigned has been advised that
as Trustee as aforesaid (the "Bank"), is about to enter into a transaction
whereby the Bank is making a loan secured by the aforesaid real estate and the
Lease to the undersigned, and under which the Bank may acquire an ownership
interest in such real estate. In connection with this transaction, the entire
interest of the Landlord under the Lease to the undersigned will be assigned to
the Bank. The undersigned acknowledges that the Bank is and will be relying upon
the truth, accuracy and completeness of this letter in proceeding with the
transaction described above.
The undersigned, for the benefit of the bank, their successors and
assigns, hereby certifies, represents, warrants, agrees and acknowledges that:
1. The Lease is in full force and effect in accordance with its terms
without modification or amendment except as noted above and the undersigned is
the holder of the Tenant's interest under the Lease.
2. The undersigned is in possession of all of the Premises described in
the Lease under and pursuant to the Lease and is doing business thereon; and the
premises are completed as required by the Lease.
3. The undersigned has no claims or offsets with respect to any of its
obligations as Tenant under the Lease, and neither the undersigned nor the
Landlord is claimed to be in default under the Lease.
4. The undersigned has not paid any rental or installments thereof more
than thirty (30) days in advance of the due date as set forth in the Lease.
5. Except as otherwise specified in paragraph 9 below, the undersigned
has no notice of prior assignment, hypothecation or pledge of rents of the Lease
or the Landlord's interest thereunder or of the Tenant's interest thereunder.
Page 1 of 2
<PAGE> 38
6. The term of the Lease has commenced and is presently scheduled to
expire on . If there are any rights of extension or renewal under the terms
of the Lease, the same have not, as of the date of this letter, been exercised
unless specified in paragraph 9 below.
7. The current Monthly Fixed Rent payment is $__________; Monthly Fixed
Rent has been paid through ______________________; Tenant's pro rata share of
Operating Cost Escalation is _________%.
8. Until such time as the Bank shall become the Landlord, if the
undersigned should assert a claim that the Landlord has failed to perform an
obligation to the undersigned under the terms of the Lease or otherwise, notice
thereof shall promptly be furnished to the Bank at the following address:
Teachers Insurance and Annuity Association of America, 730 Third Avenue, New
York, New York 10017, or at such other address as Landlord may direct by notice
to Tenant; and the undersigned agrees that the undersigned will not exercise any
rights which the undersigned might otherwise have on account of any such failure
until notice thereof has been given to the Bank, and the Bank has had the same
opportunity to cure any such failure as the Landlord may have under the terms of
the Lease.
9. Each of the statements set forth in Paragraphs 1 through 8 are true,
accurate and complete except as follows (state specifically any exception):
DATED:
ATTEST:
By: By:
------------------------------- -------------------------------
Page 2 of 2
<PAGE> 39
EXHIBIT "H"
TENANT EXTENSION OPTION
Provided that Tenant is not then in default after the giving of any
required notice and beyond any applicable cure period under this Lease, Tenant
at its option, by written notice provided to Landlord not less than five months
prior to the Expiration Date, may elect to extend the term of this Lease for one
additional three year term. Unless Tenant withdraws its exercise of this
extension option as provided in the following paragraph the exercise of such
extension option shall automatically extend the term of this Lease without the
necessity of additional documentation, and the term "Expiration Date" shall
thenceforth mean the final date of the Lease so extended. At the request of
either Landlord or Tenant, however, any such extension shall be memorialized by
execution of an amendment which confirms and memorializes such extension. The
Fixed Rent payable by Tenant during such extended term shall be at a rate equal
to the greater of: (i) 90% of the "Fair Market Rental Value" of the Premises at
the time of extension; or (ii) an annual amount equal to $14.85 per square foot,
plus a charge for tenant electricity currently estimated at $0.75 per square
foot. Within 10 days after said extension notice from Tenant, Landlord shall,
after discussion with Tenant, determine the Fair Market Rental Value for the
Extension Period by written notice to Tenant. The "Fair Market Rental Value" of
the Premises shall mean the fair market rental value of comparable first-class
office space in Natick and Framingham, Massachusetts. Ninety percent (90%) of
the Fair Market Rental Value so determined by Landlord shall be the Fixed Rent
for the extended term, unless Tenant notifies Landlord, within 15 days of
Tenant's receipt of Landlord's proposed Fair Market Rental Value, that
Landlord's proposed 90% Fair Market Rental Value is not satisfactory to Tenant
(such notice being referred to as "Tenant's Rejection Notice").
In the event that Tenant provides a Tenant Rejection Notice, if the
Fair Market Rental Value is not otherwise agreed upon by Landlord and Tenant
within 15 days after Landlord's receipt of such Tenant Rejection Notice, then
Tenant shall be deemed to have withdrawn its exercise of this Extension Option,
in which case Tenant's rights under this Extension Option shall terminate,
unless Tenant shall give notice to Landlord within 10 days after said 15 day
period that Tenant desires to determine the Fair Market Rental Value of the
Premises by the following arbitration procedure. In such event, each party shall
designate one arbitrator, and the two arbitrators shall designate a third, and
the Fair Market Rental Value of the Premises shall be the average of the two
closest values determined by three arbitrators (unless the highest and lowest
values determined are equidistant from the middle value, in which case the Fair
Market Rental Value shall be equal to the middle value). The Fixed Rent for the
extension term shall be the greater of: (i) 90% of the Fair Market Rental Value
so determined, or (ii) an annual amount equal to $14.85 per square foot plus a
charge for tenant electricity currently estimated at $0.75 per square foot. Such
determination
Page 1 of 1
<PAGE> 40
shall, if at all possible, be made within 30 days after Landlord's receipt of
Tenant's notification that it desires the Fair Rental Value to be determined by
arbitration. Tenant and Landlord shall each pay the fees of any arbitrator
appointed by it and shall share equally the fees of the third arbitrator.
<PAGE> 41
EXHIBIT "I"
RIGHT OF FIRST OFFER
ADJACENT SECOND FLOOR SPACE
Provided that Tenant is not then in default of this Lease after the
giving of any required notice and beyond any applicable cure period and, if
within the last eight (8) months of the Term, have exercised its Extension
Option as set forth in Exhibit "H" hereof, at the time such Right of First Offer
is exercised, Tenant shall be granted a right of first offer to expand into and
lease the adjacent first floor space of 6,599 square feet, the current lease for
which is scheduled to terminate on April 30, 1997.
Landlord will give Tenant notice of the expected date on which said
adjacent space will become available promptly after it becomes aware of the same
and, in any event, within 14 days of Landlord's notification of its expected
availability or within 60 days of the scheduled termination date. Rent for such
space shall be fair market value of such space, but not less than Tenant's then
existing rent. Landlord shall state its estimation of the fair market value and
supporting data in its notification to Tenant. Upon receipt of Landlord's notice
of the availability of space and offer to rent it at Landlord's stated fair
market rental value, Tenant shall have seven business days to either: (i) accept
Landlord's proposed rental terms; or (ii) alternately, within seven business
days of receipt of Landlord's notice and offer, to propose an alternate rent for
the adjacent space; or (iii) reject Landlord's offer without counter-proposing
an alternate rent. Landlord shall have seven business days after receipt of
Tenant's counter-proposal of Fixed Rent, if any, to accept or reject Tenant's
counter-proposal. In the event of either (i) or (ii) if either Landlord or
Tenant accepts the others proposed Fixed Rent, then Landlord shall present
Tenant with a lease amendment in reasonable form reflecting such agreement,
within ten days of either such acceptance, and Tenant shall have 30 days in
which to execute such lease amendment. In such event, failure to execute such
lease amendment by Tenant shall result in extinguishment of this right of first
offer, and thereafter Landlord shall be free to lease the adjacent space on
whatever terms and conditions it desires to any tenant it chooses. In the event
of (iii) or failure by Tenant to respond within seven business days, this Right
of First Offer shall be extinguished and Landlord shall thereafter be free to
lease such space on whatever terms and conditions to whomever it chooses.
In the event that Tenant makes a Fixed Rent counter-proposal for said
expansion space as set forth in (ii) above, and Landlord rejects such Tenant
rent counter-proposal, then Landlord shall be free to rent such adjacent space
to any other party at a rent which is greater than Tenant's counter-proposed
Fixed Rent (giving due regard to the value of any tenant improvements to be
provided by Landlord, rental concessions or other consideration). However, in
the event of an offer by a prospective tenant to lease any said adjacent second
floor space at a Fixed Rent equal
Page 1 of 2
<PAGE> 42
to or less than that of Tenant's counter-proposal Fixed Rent (giving due regard
to the value of any tenant improvements to be provided by Landlord, rental
concessions or other consideration), then Landlord shall give Tenant notice of
such a prospective tenant, and Tenant shall have a right of first refusal to
lease such adjacent second floor space on identical terms and conditions to that
offered such alternate tenant, such right to be exercised by notice given to
Landlord within seven days of receipt by Tenant of Landlord's notice of another
prospective tenant at such equal or lesser Fixed Rent, and to execute a lease
amendment for such adjacent space on such terms and conditions and in reasonable
form, within 30 days of acceptance by Tenant of said alternate terms and
conditions. Failure by Tenant to execute said lease amendment shall result in an
extinguishment of all tenant's rights under this right of first offer, and
Landlord shall thereafter be free to lease space as it pleases on whatever terms
and conditions to any tenant it chooses.
Any such expansion space will be leased in "as is" condition at the
date the prospective tenant would have occupied, or one week after such space is
vacated by the prior tenant at Tenant's election.
The Lease Amendment for such space shall be on the same terms as are
set forth herein except: (1) the term shall expire on the Term Expiration Date
of this extended Lease; (2) the Fixed Rent for the Expansion Space shall be as
set forth above; (3) there shall be no additional Tenant Improvements to the
Expanded Premises provided by Landlord; and (4) there shall be no partial rental
abatement for the expanded Premises, provided however, that Tenant shall be
given credit for the value of any tenant improvements to be provided by
Landlord, rental concessions or other consideration which Landlord was to have
provided to such other prospective tenant.
Page 2 of 2
<PAGE> 43
SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
This Subordination, Non-Disturbance and Attornment Agreement
("Agreement") executed between Teachers Insurance and Annuity Association of
America, a New York corporation ("Mortgagee") and Aspect Medical Systems, Inc.
("Tenant").
W I T N E S S E T H:
WHEREAS, Natick Executive Park Trust No. 2 ("Landlord") and Tenant have
entered into a certain lease dated August, 1994, ("Lease") at Building Two,
Natick Executive Park, Natick, Massachusetts ("Premises"), said Premises being
more particularly described in said Lease and being situated on a portion of the
real property described in Exhibit "A" attached hereto and made a part hereof;
and
WHEREAS, Mortgagee has made a mortgage loan to Landlord in the original
principal amount secured by a Mortgage dated _________________ ("Mortgage")
covering the Premises, which Mortgage is recorded in official Records Book __,
Page ___, of the Middlesex South District Registry of Deeds, Massachusetts.
NOW THEREFORE, it is mutually agreed as follows:
1. The Lease is and shall be subject and subordinate to the Mortgage
and to all renewals, modifications, consolidations, replacements and extensions
of the Mortgage.
2. In the event of a foreclosure of the Mortgage or should Mortgagee
obtain title by deed in lieu thereof, or otherwise, Mortgagee, for itself, its
successors or assigns, agrees that Tenant may continue its occupancy of the
Premises in accordance with the terms and provisions of the Lease, so long as
Tenant continues to pay rent and otherwise to perform its obligations thereunder
after the giving of any required notice and the expiration of any applicable
grace period. Mortgagee agrees not to name Tenant as a party defendant in any
foreclosure action.
3. Tenant agrees to attorn to: (a) Mortgagee when in possession of the
Premises; (b) a receiver appointed in an action or proceeding to foreclose the
Mortgage or otherwise; or (c) to any party acquiring title to the Premises as a
result of foreclosure of the Mortgage or deed in lieu thereof. Tenant further
covenants and agrees to execute and deliver, upon request of Mortgagee, or its
assigns, an appropriate agreement of attornment with any subsequent title holder
of the Premises.
Page 1 of 3
<PAGE> 44
4. So long as the Mortgage on the Premises remains outstanding and
unsatisfied, Tenant will deliver to Mortgagee a copy of all notices permitted or
required to be given to Landlord by Tenant pursuant to which the Tenant proposes
to abate or reduce the rental payable under the Lease or to terminate or cancel
the Lease, and that no such notices to Landlord shall be effective, unless a
copy of such notice is also delivered to Mortgagee. At any time before the
rights of Landlord shall have been forfeited or adversely affected because of
any default or failure of performance under the Lease as therein provided,
Mortgagee shall have the right (but not the obligation) to cure such default or
failure of performance within thirty (30) days from Mortgagee's receipt of such
written notice from Tenant stating the nature of such default or failure of
performance.
5. Tenant certifies that the Lease has been duly executed by Tenant,
that no rent under the Lease has been paid more than thirty (30) days in advance
of its due date; and the Tenant, as of this date, has no charge, lien or claim
offset under the Lease, or otherwise, against the rents or other charges due or
be become due thereunder.
6. If Mortgagee shall succeed to the interest of Landlord under the
Lease, Mortgagee shall be bound to Tenant under all the terms, covenants and
conditions of the Lease, and Tenant shall, from and after Mortgagee's succession
to the interest of Landlord under the Lease, have the same remedies against
Mortgagee for the breach of an agreement contained in the Lease that Tenant
might have had under the Lease against Landlord if Mortgagee had not succeeded
to the interest of Landlord; provided further, however, that Mortgagee shall not
be:
(a) liable for any warranty, act or omission of any prior
landlord, or obligation arising prior to the date of
acquisition;
(b) subject to any offsets or defense which Tenant might have
against any prior landlord (including Landlord), except those
which arose out of such Landlord's default under the Lease and
which continue after Tenant has notified Mortgagee and given
Mortgagee an opportunity to cure as provided herein; and
(c) bound by any rent or additional rent which Tenant might have
paid more than thirty (30) days in advance to any prior
landlord (including Landlord); or
(d) bound by any amendment or modification of the Lease or any
collateral agreement made without Mortgagee's consent.
Page 2 of 3
<PAGE> 45
7. This Agreement shall be binding upon and inure to the benefit of the
heirs, successors and assigns of the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
indicated below their respective signatures.
Signed, sealed and delivered in the MORTGAGEE;
presence of: TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
A New York Corporation
By:
- --------------------------------- --------------------------------
Its:
--------------------------------
Date:
------------------------------
Signed, sealed and delivered in the TENANT:
presence of: ASPECT MEDICAL SYSTEMS, INC.
/s/ By: /s/ Patrick J. Connoy
------------------------------- ---------------------------------
Its: President/CEO
---------------------------------
Date: 8/24/94
------------------------------
Page 3 of 3
<PAGE> 1
Exhibit 10.8
LEASE EXTENSION AGREEMENT
This Lease Extension Agreement (this "Agreement") is entered into as of
8/7, 1997, by and between Vision Drive, Inc., a Delaware corporation
("Landlord"), and Aspect Medical Systems, Inc., a Delaware corporation
("Tenant").
RECITALS
A. Reference is made to that certain lease between Tenant and Natick
Executive Park Trust No. 2, predecessor in interest to Landlord, demising
certain premises located on the second floor of the building commonly known and
numbered as Two Vision Drive, Natick, Massachusetts (the "Lease"). Any
capitalized term used herein and not otherwise defined shall have the meaning
assigned such term in the Lease.
B. Landlord and Tenant desire to amend the Lease to extend its Term and
to modify certain other provisions thereof.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby mutually acknowledged, Landlord and Tenant agree as follows:
1. Extension Term.
Pursuant to Section 2.2.1 of the Lease, Tenant has exercised
its one-time right to extend the Term for a three year period beginning
on November 1, 1997 and expiring on October 31, 2000 (the "Extension
Term"). The only Tenant Extension Option described in the Lease has
been exercised and Tenant shall have no further rights to extend the
Term.
2. Fixed Rent.
Rent during the Extension Term shall be Three Hundred
Ninety-Seven Thousand Five Hundred Twenty-Eight Dollars ($397,528.00)
per annum, payable in monthly installments of Thirty-Three Thousand and
One Hundred and Twenty-Seven Dollars and Thirty-Three Cents
($33,127.33).
3. Base Year for Operating Costs.
During the Extension Term, the "Annual Estimated Operating
Costs" as defined in the "Reference Data" section on page 1 of the
Lease shall be actual 1997 operating costs, rather than actual 1995
operating costs.
<PAGE> 2
4. No Brokers.
Buyer and Seller hereby each represent and warrant to the
other that it has dealt with no broker in connection with the execution
and negotiation of this Agreement or the Extension Term, and each
agrees to hold the other harmless from and indemnify the other against
all damages, costs, claims, losses and liabilities, including legal
fees, incurred by the other arising out of or resulting from the
failure of this representation and warranty.
5. Ratification of Lease.
Except as amended hereby, the Lease shall remain unmodified
and in full force and effect and is hereby ratified.
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under seal as of the day and year first written above.
LANDLORD:
Vision Drive, Inc.
By:/s/ John J. Rogers
----------------------------------------
Name: John J. Rogers
Its: CFO
TENANT:
Aspect Medical Systems, Inc.
By:/s/ J. Neal Armstrong
----------------------------------------
Name: J. Neal Armstrong
Its: CFO
2
<PAGE> 1
EXHIBIT 10.9
IMPERIAL BANK
MEMBER FDIC
LOAN AGREEMENT
DATED AS OF: JUNE 22, 1998
This Loan Agreement (as amended or supplemented from time to time, "this
Agreement"), dated as of June 22, 1998, is entered into between ASPECT MEDICAL
SYSTEMS, INC., a Delaware corporation (herein called "Borrower"), and IMPERIAL
BANK, a California bank (herein called "Bank").
1. REVOLVING LOANS.
a. COMMITMENT TO MAKE REVOLVING LOANS. Bank hereby commits, subject
to all the terms and conditions of this Agreement (including, without
limitation, the limitations set forth in Section 3 hereof), and prior to the
termination of Bank's commitment to make Revolving Loans hereunder as
hereinafter provided, to make loans to Borrower from time to time ("Revolving
Loans") in such amounts up to, but not exceeding in the aggregate unpaid
principal balance at any time, the Commitment Amount. Bank's commitment to make
Revolving Loans hereunder shall terminate on December 22, 1999, and Bank shall
have no obligation hereunder to make any Revolving Loans to Borrower after that
date. Bank's commitment to make Revolving Loans hereunder may terminate prior to
December 22, 1999 in accordance with Section 13 or 14 hereof. Bank's commitment
to make Revolving Loans hereunder shall also terminate on the date on which any
mandatory prepayment shall be required pursuant to Section 4 hereof.
b. REQUESTS FOR REVOLVING LOANS. Each request for a Revolving Loan
hereunder shall be in writing duly executed by Borrower in a form satisfactory
to Bank and shall contain a certification (i) setting forth, in reasonable
detail, calculations establishing to the reasonable satisfaction of Bank that
Borrower is entitled to the amount of the Revolving Loan being requested, (ii)
that on the date of such Revolving Loan, and before and after giving effect to
such Revolving Loan, all representations and warranties of Borrower set forth
herein and in the other Loan Documents will be true and correct, and (iii) that
no Default or Event of Default shall be continuing on the date of such Revolving
Loan, either before or after giving effect to such Revolving Loan or the
application by Borrower of the proceeds thereof. Anything herein to the contrary
notwithstanding, Bank shall not be obligated to make any Revolving Loan to
Borrower while any Default or Event of Default shall be continuing, or if any
Default or Event of Default would arise from the making of such Revolving Loan
or the application of the proceeds thereof.
c. LOAN ACCOUNT; REPAYMENTS OF REVOLVING LOANS. The amount of each
Revolving Loan made by Bank to Borrower hereunder shall be debited to the loan
ledger account of Borrower maintained by Bank (herein called "Loan Account"),
and Bank shall credit the Loan Account with all repayments of Revolving Loans
made by Borrower. Borrower promises to pay Bank the unpaid balance of the Loan
Account on December 22, 1999, or such earlier date on which the outstanding
principal of the Revolving Loans shall be declared to be or shall otherwise
become due and payable pursuant to Section 4, 13 or 14 hereof (December 22, 1999
or such earlier date being called the "Revolving Loan Maturity Date"). In the
event that the unpaid balance of the Loan Account shall at any time exceed the
Commitment Amount, Borrower promises immediately to pay to Bank, for credit to
the Loan Account, the amount of such excess.
d. REVOLVING NOTE. The obligations of Borrower in respect of the
Revolving Loans and any interest accrued thereon shall also be evidenced by a
Promissory Note executed and delivered by Borrower to Bank on the date hereof,
in the face amount of $5,000,000 ("Revolving Note"). Borrower hereby irrevocably
authorizes Bank to make appropriate notations on any Schedule attached to such
Revolving Note, which notations, if made, shall evidence the date of, the
outstanding principal of and payments on the Revolving Loans evidenced thereby.
Bank's notations on any Schedule attached to the Revolving Note shall constitute
rebuttable presumptive evidence of the principal amount of Revolving Loans
outstanding, but the failure to record such information on any such Schedule
shall not limit or affect the obligations of Borrower hereunder or under the
Revolving Note to make payments of principal or interest on the Revolving Loans
when due.
2. EQUIPMENT LOANS.
a. COMMITMENT TO MAKE EQUIPMENT LOANS. Bank hereby commits, subject
to all the terms and conditions of this Agreement (including, without
limitation, the limitations set forth in Section 3 hereof), and prior to the
termination of Bank's commitment to make Equipment Loans hereunder as
hereinafter provided, to make loans to Borrower from time to time ("Equipment
Loans"). The proceeds of each Equipment Loan shall be used by Borrower on the
date of such Equipment Loan to purchase Qualified Equipment or reimburse
Borrower for the purchase of
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<PAGE> 2
Qualified Equipment (PROVIDED THAT any such reimbursement shall not be for
Qualified Equipment purchased prior to nine (9) months to the date hereof). The
amount of any Equipment Loan for any Qualified Equipment shall not exceed the
full invoice purchase price of such Qualified Equipment, LESS (to the extent
included in such invoice purchase price) the amount of any sales taxes and
freight charges payable in respect of the purchase of such Qualified Equipment
or the delivery thereof to the location specified by Borrower.
b. REQUESTS FOR EQUIPMENT LOANS. Requests for Equipment Loans
hereunder shall be in writing duly executed by Borrower in a form satisfactory
to Bank and shall contain a certification (i) setting forth, in reasonable
detail, (a) the amount of the requested Equipment Loan, (b) a reasonably
detailed description of the equipment purchased or to be purchased with the
proceeds of such Equipment Loan (including the serial number, model and make of
such equipment, if applicable), and the location at which the equipment will be
located, and (c) a copy of the invoice for such equipment, (ii) that, upon the
purchase thereof by Borrower, such equipment will constitute Qualified
Equipment, and (iii) that no Default or Event of Default shall be continuing on
the date of such requested Equipment Loan or after giving effect thereto and to
the use of proceeds thereof. Anything herein to the contrary notwithstanding,
Bank shall not be obligated to make any Equipment Loan to Borrower while any
Default or Event of Default shall be continuing, or if any Default or Event of
Default would arise from the making of such Equipment Loan or the use of the
proceeds thereof. Bank shall not be required to make any Equipment Loan
requested by Borrower hereunder unless the amount of such Equipment Loan is
equal to at least $10,000, or, if less, the entire unused amount of Bank's
commitment to make Equipment Loans hereunder.
c. TERMINATION OF EQUIPMENT LOAN COMMITMENT; REPAYMENTS AND
PREPAYMENTS OF EQUIPMENT LOANS. Bank's commitment to make Equipment Loans
hereunder shall terminate on December 31, 1998, and Bank shall have no
obligation hereunder to make any additional Equipment Loans to Borrower after
that date. Bank's commitment to make Equipment Loans hereunder may terminate
prior to December 31, 1998 in accordance with Section 13 or 14 hereof. Bank's
commitment to make Equipment Loans hereunder shall also terminate on the date on
which any mandatory prepayment shall be required pursuant to Section 4 hereof.
Borrower promises to pay to Bank the aggregate principal of all Equipment
Loans outstanding on December 31, 1998 in thirty-six (36) equal monthly
installments on the last day of each calendar month commencing with the first
such installment payment on December 31, 1998. The outstanding principal amount
of Equipment Loans may be prepaid by Borrower at any time without premium or
penalty. If any Qualified Equipment purchased (or refinanced) with the proceeds
of any Equipment Loan is at any time sold, assigned or otherwise transferred,
Borrower will prepay the outstanding principal of the Equipment Loans, on the
date of such sale, assignment or transfer, in an amount equal to the fair market
value of the net proceeds received by Borrower on the date of such sale,
assignment or transfer after payment of any costs associated therewith. Any such
optional or mandatory prepayments shall reduce each of the remaining installment
payments of principal on the Equipment Loans in the inverse order of the
maturities hereof.
Notwithstanding anything to the contrary set forth herein, Borrower
promises to pay to Bank the aggregate unpaid principal amount of all Equipment
Loans on December 22, 2001, or such earlier date on which the outstanding
principal of the Equipment Loans shall be declared to be or shall otherwise
become due and payable pursuant to Section 4, 13 or 14 hereof (December 22, 2001
or such earlier date being called the "Equipment Loan Maturity Date".)
d. EQUIPMENT NOTE. The obligations of Borrower in respect of the
Equipment Loans and any interest accrued thereon shall be evidenced by a
Promissory Note executed and delivered to Bank on the date hereof, in the face
amount of $5,000,000 ("Equipment Note"). Borrower hereby irrevocably authorizes
Bank to make appropriate notations on any Schedule attached to the Equipment
Note, which notations, if made, shall evidence the date of, the outstanding
principal of, and payments on the Equipment Loans evidenced thereby. Bank's
notations on any Schedule attached to the Equipment Note shall constitute
rebuttable presumptive evidence of the principal amount of Equipment Loans
outstanding, but any failure to record any information on any such Schedule
shall not limit or affect the obligations of Borrower hereunder or under the
Equipment Note to make payments of principal or interest on the Equipment Loans
when due.
3. LIMITATION ON OUTSTANDING OBLIGATIONS. NOTWITHSTANDING ANYTHING TO THE
CONTRARY SET FORTH HEREIN, BANK SHALL NOT BE REQUIRED TO MAKE ANY REVOLVING LOAN
OR EQUIPMENT LOAN IF, AFTER GIVING EFFECT THERETO, THE SUM OF (a) THE AGGREGATE
OUTSTANDING PRINCIPAL AMOUNT OF REVOLVING LOANS, PLUS (b) THE AGGREGATE
OUTSTANDING PRINCIPAL AMOUNT OF EQUIPMENT LOANS, WOULD EXCEED $5,000,000.
4. SPECIAL PAYMENT OBLIGATION. Borrower will prepay all of its
outstanding obligations under this Agreement and the other Loan Documents on the
date that is three business days prior to the date on which
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<PAGE> 3
Borrower shall pay or be required to pay any dividend on, or make or be required
to make any distribution on or in respect of, any of its capital stock (other
than the payment of dividends consisting of shares of common stock on
outstanding shares of common stock), or shall make or be required to make any
payment or distribution in respect of the purchase, repurchase, redemption or
other acquisition of any of its capital stock, other than repurchases of
restricted stock permitted by Section 12.b(viii).
5. INTEREST. Borrower promises to pay to Bank interest (A) on the average
daily unpaid balance of the Loan Account, (i) at the rate of one half of one
percent (0.5%) per annum in excess of the rate of interest announced by Bank
from time to time as its prime lending rate (as the same may vary from time to
time, "Prime Rate") for the entire period prior to and including September 30,
1998, and (ii) commencing October 1, 1998, at the rate of one quarter of one
percent (0.25%) per annum in excess of the Prime Rate, and (B) on the aggregate
outstanding principal amount of each Equipment Loan at the rate of one percent
(1.0%) per annum in excess of the Prime Rate for the entire period prior to but
including the closing date of Borrower's initial public offering of common
stock, and (ii) at all times after such closing date, at the rate per annum
equal to the Prime Rate. Interest shall be computed at the above rates on the
basis of the actual number of days elapsed divided by 360, which shall for
interest computation purposes be considered one year. Interest accrued on the
outstanding principal of the Loan Account and on the outstanding principal of
the Equipment Loans shall be payable in arrears on the first day of each
calendar month.
At the Borrower's option, in connection with the request for any Equipment
Loan, the Borrower may request that the Bank designate a fixed interest rate
that the Bank uses in the course of normal banking practices (the "Fixed Rate")
for such Equipment Loan. If the Borrower and the Bank agree on the applicable
Fixed Rate, then the Fixed Rate shall thereafter be applicable to such Equipment
Loan. If Bank and Borrower are unable to agree on a fixed interest rate for
these purposes prior to the funding date of such Equipment Loan, then the
floating interest rate described above in this Section shall be applicable to
such Equipment Loan.
6. DEFAULT INTEREST. Upon the occurrence and during the continuance of
any Event of Default, the entire principal balance of the Loan Accounts, the
entire unpaid principal of the Equipment Note, and, to the extent permitted by
applicable law, all interest, fees, charges and other sums that may be due and
payable under this Agreement or any other Loan Document, shall bear interest at
the rate of five percent (5%) per year in excess of the rate otherwise
applicable to such principal, as it may vary from time to time, and shall be
payable upon demand by Bank.
7. PAYMENTS. All payments required to be made by Borrower to Bank
hereunder or under any of the Loan Documents shall be made at the SANTA CLARA
REGIONAL OFFICE OF BANK AT 226 AIRPORT PARKWAY, SAN JOSE, CALIFORNIA, on or
prior to 11:00 a.m., San Jose time, on the due date of such payment, without any
set-off or counterclaim, and in immediately available funds. Any partial
payments of the obligations of Borrower hereunder or under any of the other Loan
Documents, except where this Agreement or any other Loan Document otherwise
specifies, shall be applied FIRST, to any charges, sums or other amounts (other
than principal or interest) due and payable under the Loan Documents, SECOND, to
accrued and unpaid interest, and THIRD, to the principal of the Loan Account or
Equipment Note in such manner as Bank shall determine.
8. SECURITY. All of the obligations of Borrower to Bank under this
Agreement, the Revolving Note, the Equipment Note, and the other Loan Documents
shall be secured by and entitled to the benefit of certain Collateral. Reference
is made to the Loan Documents for a complete description of the Collateral, and
of the rights of Bank with respect thereto.
9. DEFINITIONS. As used in this Agreement, the following terms shall have
the following meanings:
"Accounts" means any right to payment for goods sold or leased, or to be
sold or to be leased, or for services rendered or to be rendered, no matter how
evidenced, including accounts receivable, contract rights, chattel paper,
instruments, purchase orders, notes, drafts, acceptances, general intangibles
and other forms of obligations and receivables.
"Ancillary Documents" means, collectively, (i) Borrower's Certificate of
Incorporation, as amended and in effect from time to time and (ii) each other
agreement designated by Borrower and Bank from time to time as an "Ancillary
Document" for purposes of this Agreement and the other Loan Documents.
"Associated Person" means (i) any person that is an affiliate of Borrower
(including, without limitation, any officer or director of Borrower), (ii) any
Family Member of any individual Associated Person described
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<PAGE> 4
in clause (i), (iii) any corporation, partnership, limited liability company or
other entity (other than Borrower) that controls or is controlled by any
Associated Person described in clause (i), (iv) any Investor, and (v) any
corporation, partnership, limited liability company or other entity (other than
Borrower) that controls or is controlled by any Investor.
"Borrowing Base" means, at any time, 80% of Eligible Accounts at such time.
"Change in Control" means any event or series of events (including a merger
or consolidation) as a result of which (1) other than the stockholders of
Borrower on the date of this Agreement, any "person" or "group" within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act of 1934, as amended,
together with their affiliates, (i) shall hold or acquire, directly or
indirectly, outstanding voting shares of Borrower such that such person or
group, together with such affiliates thereof, is or becomes the "beneficial
owner" (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act of
1934, as amended) of outstanding voting shares of Borrower entitling such person
or group, together with such affiliates, to exercise more than 40% of the total
voting power of all classes of outstanding voting shares of Borrower, or (ii)
shall have a sufficient number of its or their nominees elected to Borrower's
Board of Directors such that such nominees so elected (whether new or continuing
as directors) shall constitute a majority of Borrower's Board of Directors, or
(2) individuals who are directors of Borrower on the date hereof (and any new
director whose election by the directors of Borrower or nomination for election
by the stockholders of Borrower was approved by a vote of at least two-thirds of
the directors then still in office who either were directors on the date hereof
or whose election or nomination for election was previously so approved) shall
cease to constitute a majority of the directors of Borrower.
"Collateral" means any and all property of Borrower which is or shall be
assigned to Bank as security or in which Bank now has or hereafter acquires a
security interest to secure the payment and performance of any of the
obligations of Borrower to Bank under this Agreement or any of the other Loan
Documents.
"Commitment Amount" means (i) prior to and including December 31, 1998, the
Maximum Commitment, and (ii) after December 31, 1998, an amount equal to the
lesser of the Maximum Commitment or the Borrowing Base.
"Consolidated EBITDA" means, in relation to Borrower and its subsidiaries
for any period, the sum of (i) the consolidated net operating profit of Borrower
and its subsidiaries for such period, PLUS (ii) the aggregate amount of all
depreciation and amortization expense of Borrower and its subsidiaries for such
period to the extent, but only to the extent, that such aggregate amount was
deducted in determining consolidated net operating profit of Borrower and its
subsidiaries for such period.
"Debt Service Coverage Ratio" means, in relation to Borrower and its
subsidiaries for any period, the ratio of (i) the Consolidated EBITDA of
Borrower and its subsidiaries for such period, to (ii) the current portion of
Borrower's long term indebtedness (including all outstanding Revolving Loans),
determined as at the last day of such period, determined in accordance with
generally accepted accounting principles.
"Default" means any of the events specified in Section 13(i) through
13(xii) hereof, whether or not any requirement for the giving of notice, the
lapse of time, or both, or any other condition has been satisfied.
"Eligible Accounts" means all of Borrower's Accounts, EXCLUDING, HOWEVER,
(i) Account balances over ninety (90) days from invoice date, (ii) all Accounts
against which the account debtor or any other person obligated to make payment
thereon shall have asserted any defense, offset, counterclaim or other right to
avoid or reduce the liability represented by the Account (but only to the extent
of such claim, defense or offset), (iii) fifty percent (50%) of otherwise
Eligible Accounts with respect to which 25% or more of the account debtor's
total accounts or obligations outstanding to Borrower are more than 90 days from
invoice date, (iv) for Accounts representing more than 25% of Borrower's total
Accounts, the balance in excess of the 25%, (v) Accounts with respect to
international transactions unless insured by an insurance company acceptable to
Bank or covered by letters of credit issued or confirmed by a bank acceptable to
Bank, (vi) Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrower, (vii)
Accounts where the account debtor is a seller to Borrower, whereby a potential
offset (contra) exists but only to the extent of such offset, (viii) Accounts
for consignment or guaranteed sales, (ix) bill and hold Accounts, (x) collection
Accounts, (xi) distributor sample Accounts, whereby accounts are offset by
commissions payable, (xii) government receivables, unless formally assigned to
Bank in accordance with the Federal Assignment of Claims Act or applicable state
law, (xiii) Accounts for pre-billings, (xiv) any Accounts if the account debtor
or any other person liable in connection therewith is insolvent, subject to
bankruptcy or receivership
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<PAGE> 5
proceedings or has made an assignment for the benefit of creditors or whose
credit standing is unacceptable to Bank and Bank has so notified Borrower, and
(xv) any other Accounts as Bank in its reasonable discretion shall determine are
ineligible from time to time, and Bank has so notified Borrower.
"Event of Default" is defined in Section 13 hereof.
"Family Member" means, in relation to any individual, any spouse, parent,
grandparent, aunt, uncle, child, grandchild, brother or sister of such
individual, the spouse of any of the foregoing, or any trust established
exclusively for the benefit of any of such persons.
"Indebtedness for Borrowed Money" means, in relation to any person at any
time, (i) all indebtedness of such person for borrowed money (including all
notes payable and drafts accepted representing extensions of credit and all
obligations evidenced by bonds, debentures, notes or other similar instruments
on which interest charges are customarily paid), all indebtedness of such person
relative to the face amount of all letters of credit, whether or not drawn, all
indebtedness of such person constituting capitalized lease obligations, and all
other obligations of such person for the deferred purchase price of property or
services (other than in the ordinary course of business), and (ii) all
contingent obligations of such person in respect of any indebtedness of any
other persons of the kind described in clause (i) of this definition.
"Investors" means, collectively, the holders from time to time of
Borrower's outstanding Preferred Stock.
"Liquidity Ratio" means, in relation to the Borrower and its subsidiaries
at any time, (i) the sum of (A) all cash, cash equivalents and marketable
securities of Borrower and its subsidiaries not subject to any liens or
encumbrances other than liens in favor of Bank, PLUS (B) the amount of Eligible
Accounts, DIVIDED BY (ii) aggregate amount of Borrower's Indebtedness for
Borrowed Money.
"Loan Documents" means, collectively, (i) this Agreement, (ii) each of the
following documents or instruments executed by Borrower and delivered to Bank in
connection with the financing arrangements contemplated hereby: the Revolving
Note, the Equipment Note, the Security Agreement, the Trademark Collateral
Security and Pledge Agreement, and the Patent Collateral Security and Pledge
Agreement, (iii) any letters of credit issued by Bank for the account of
Borrower, and (iv) each other instrument or agreement evidencing, guarantying or
securing any of the obligations of Borrower to Bank under this Agreement or any
other Loan Document, in each case, as amended and in effect from time to time.
"Maximum Commitment" means $5,000,000 LESS the aggregate principal amount
of Equipment Loans made by Bank to Borrower pursuant to Section 2, without
giving effect to any repayment, prepayment or other satisfaction of such
principal amount of Equipment Loans. The Maximum Commitment shall be reduced by
the face amount of any outstanding letters of credit issued by the Bank for the
account of Borrower and by the amount of any outstanding reimbursement
obligations in respect of any such letters of credit.
"Materially Adverse Effect" means, in relation to any event, occurrence or
development, (i) a material adverse effect on the business, property, operations
or financial condition of Borrower, (ii) a material adverse effect on the
ability of Borrower to perform any of its or his obligations, covenants or
agreements under this Agreement or any other Loan Document, or (iii) a material
impairment of the validity or enforceability of any Loan Document, or a material
impairment of the rights, remedies or benefits available to Bank under any Loan
Document.
"Qualified Equipment" means equipment used or useful in the ordinary course
of business of Borrower that will be owned by Borrower free and clear of any
liens, security interests or other encumbrances, other than security interests
in favor of Bank or otherwise permitted hereunder.
10. FINANCIAL INFORMATION. All financial covenants and financial
information referenced herein shall be interpreted and prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
previous years.
11. WARRANTIES. In order to induce Bank to make loans to Borrower under
this Agreement, Borrower represents and warrants to Bank that (each of which
representations will be deemed repeated as of the date of any Revolving Loan or
Equipment Loan hereunder as if made on such date):
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a. ORGANIZATION; POWER AND AUTHORITY. Borrower is duly organized and
existing in the State of its incorporation; this Agreement and each of the other
Loan Documents has been duly and validly executed and delivered by Borrower; and
the execution, delivery and performance by Borrower of this Agreement and each
other Loan Document are within Borrower's corporate powers, have been duly
authorized by Borrower, and are not in conflict with any applicable law or with
the terms of Borrower's Certificate of Incorporation or by-laws, as amended, or
any indenture, material agreement or undertaking to which Borrower is a party or
by which Borrower is bound or affected. The obligations of Borrower set forth in
the Loan Documents constitute legal, valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms, SUBJECT,
HOWEVER, to any applicable bankruptcy or insolvency laws affecting generally the
enforcement of creditors' rights against Borrower, and to the discretion of any
court with respect to the enforcement of any equitable remedies.
b. LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrower that could reasonably be expected to
have a Materially Adverse Effect, and Borrower is not in default with respect to
any order, writ, injunction, decree or demand of any court or other governmental
or regulatory authority.
c. FINANCIAL CONDITION.
i. The audited balance sheet of Borrower as of December 31, 1997, and the
related audited income statement and cash flows of Borrower, (collectively,
"Financials"), copies of which have heretofore been delivered to Bank by
Borrower are true and correct, and the Financials fairly present the financial
condition of Borrower as of the dates thereof and the results of the operations
of Borrower for the periods covered thereby, and have been prepared in
accordance with generally accepted accounting principles on a basis consistently
maintained. Since December 31, 1997, there have been no events or occurrences
which, individually or in the aggregate, have had or are reasonably likely to
have a Materially Adverse Effect. Borrower has no knowledge of any liabilities,
contingent or otherwise, at such date not reflected in said balance sheet which
are required under such generally accepted accounting principles to be so
reflected, and Borrower has not entered into any special commitments or
substantial contracts since the date of such balance sheet, other than in the
ordinary and normal course of its business which could not reasonably be
expected to have a Materially Adverse Effect. Except for Borrower's obligations
under the Loan Documents, and the Indebtedness for Borrowed Money reflected in
SCHEDULE 12(b)(iv) attached hereto, or as permitted hereunder, Borrower has no
Indebtedness for Borrowed Money or guaranties or contingent obligations in
respect of Indebtedness for Borrowed Money.
ii. The projected consolidated financial statements of Borrower and its
subsidiaries for the fiscal years ending December 31, 1998, December 31, 1999,
and December 31, 2000 ("Projections"), copies of which have heretofore been
delivered by Borrower to Bank, have been prepared on the basis of the
assumptions accompanying them and reflect the best good faith estimates by
Borrower of the performance of Borrower for the periods covered thereby, and the
financial condition of Borrower as of the dates thereof, based on such
assumptions. Without limiting the foregoing, Bank acknowledges that there are no
assurances that the Borrower's actual financial performance will be consistent
with these projections.
d. TRADEMARKS, PATENTS, COPYRIGHTS. Borrower, as of the date hereof,
possesses all trademarks, service marks, trade names, copyrights, patents,
patent rights, and licenses that are necessary to conduct its business as now
operated, without any known conflict with any trademarks, trade names,
copyrights, patents or license rights of others. SCHEDULE 11(d) sets forth a
true and complete list and description of each (i) patent or patent application
held or filed by Borrower, (ii) registered trademark or service mark, or
trademark or service mark registration application, held or filed by Borrower,
and (iii) material copyright of Borrower, and, with respect to each such
copyright, whether such copyright has been registered by Borrower or whether
Borrower has applied for any such registration.
e. TAX STATUS. Borrower has no liability for any delinquent state,
local or federal taxes.
f. SUBSIDIARIES; CAPITALIZATION: Borrower has no subsidiaries.
SCHEDULE 11(f) sets forth a true and complete list of authorized capital stock
of Borrower of each series or class, the number of shares of capital stock of
each series or class of Borrower outstanding as of the date hereof, and the
holder of such capital stock. Except as set forth on SCHEDULE 11(f), there are
no outstanding options, warrants, subscription rights or other rights to
purchase or acquire any capital stock of Borrower.
g. PROPERTIES. SCHEDULE 11(g) sets forth a true and complete list of
each property owned or leased by Borrower, the address of such property and the
business conducted by Borrower at such property.
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<PAGE> 7
h. AFFILIATE TRANSACTIONS. Except as described in SCHEDULE 11(h)
attached hereto, Borrower is not a party to or otherwise bound by any written or
oral contracts with any Associated Person. Except as described on SCHEDULE
11(h), there is no Indebtedness for Borrowed Money owing by Borrower to any
Associated Person, and there is no Indebtedness for Borrowed Money owing by any
Associated Person to Borrower. Borrower has delivered to Bank a true and
complete copy of each contract (or, where such contract is oral, a true and
complete description thereof) described in SCHEDULE 11(h).
i. OTHER REPRESENTATIONS. Each of the material representations and
warranties of Borrower in any of the other Loan Documents is true and correct.
12. COVENANTS.
a. CERTAIN AFFIRMATIVE COVENANTS. Borrower affirmatively covenants
that so long as any obligations of Borrower to Bank under this Agreement or any
other Loan Document remain outstanding or any commitment of Bank to make loans
to Borrower hereunder remains outstanding, Borrower will:
i. BANKING RELATIONSHIPS. Maintain with Bank all of its primary banking
and transaction accounts, including accounts to hold cash or cash equivalent
balances of not less than 40% of the net proceeds of any initial public offering
of Borrower's securities, upon terms which are reasonably similar to terms
provided to other customers of Bank similarly situated.
ii. REPORTING.
(A) Within 30 days after each month-end, deliver to Bank an Accounts
receivable aging reconciled to the general ledger of Borrower, a detailed
accounts payable aging reconciled to Borrower's general ledger, and an inventory
certification outlining both inventory composition and activity for the month.
All the foregoing will be in form satisfactory to Bank.
(B) Within 30 days after each month-end, deliver to Bank a balance
sheet of Borrower as at the end of such month, together with related statements
of operations for such month, in form satisfactory to Bank, all certified as to
fairness of presentation by the chief financial officer of Borrower.
(C) Within 30 days after the end of each fiscal quarter of Borrower,
deliver to Bank a balance sheet of Borrower as at the end of such fiscal
quarter, together with related statements of operations and cash flows for such
fiscal quarter and for the portion of the fiscal year ended at the end of such
fiscal quarter, all certified at to fairness of presentation by the chief
financial officer of Borrower.
(D) Within 90 days after the end of each fiscal year of Borrower,
deliver to Bank a balance sheet of Borrower as at the end of such fiscal year,
together with the related statements of operations and cash flows for such
fiscal year, prepared on an audited basis with an unqualified opinion by an
independent certified public accountant selected by Borrower but reasonably
acceptable to Bank.
(E) Promptly upon completion thereof, and in any event not later than
March 1 of each fiscal year, deliver to Bank a copy of the annual business plan
and budget for such fiscal year, including budgeted results for each fiscal
quarter and for the fiscal year as a whole, and upon the delivery of any
financial statements relating to any period included in such budget, a summary
comparing the actual financial performance of Borrower during such period to
that shown in the budget.
(F) Promptly upon obtaining knowledge thereof, deliver to Bank
written notice of the occurrence of any event which has had, or is reasonably
likely to have, a Materially Adverse Affect.
(G) Deliver to Bank, promptly upon Bank's request, all other
information relating to the affairs or business of Borrower as Bank may
reasonably request.
iii. OTHER NOTICES. Promptly upon obtaining knowledge thereof, deliver to
Bank written notice of the occurrence of any Default or Event of Default, or of
any event which has had, or is reasonably likely to have, a Materially Adverse
Effect.
Page 7 of 12
<PAGE> 8
iv. COMPLIANCE CERTIFICATE. Together with the financial statements
described in paragraph (ii)(A) for any month, deliver to Bank a certificate,
prepared and signed by the chief financial officer of Borrower, certifying as to
(A) compliance by Borrower with the covenants set forth in paragraphs 12(b)(i)
and (ii) hereof for the relevant period most recently ended, and showing, in
reasonable detail, the calculations necessary to demonstrate such compliance and
(B) the absence of any Default or Event of Default.
v. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises,
licenses and other authorities adequate for the conduct of its business;
maintain its properties, equipment and facilities in good order and repair;
conduct its business in an orderly manner without voluntary interruption and
maintain and preserve its corporate existence and good standing.
vi. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property including,
but not limited to, the Collateral against fire and other hazards with
responsible insurance carriers to the extent usually maintained by similar
businesses. At the request of Bank, Borrower will provide evidence of property
and casualty and general liability insurance in amounts and types reasonably
acceptable to Bank. Bank will be named as Loss Payee and Additional Insured on
such policies together with any equipment financiers or holders of other
permitted indebtedness, as their interests may appear.
vii. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties, and all of
its indebtedness and other liabilities, except to the extent and so long as:
(A) the same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any material adverse effect upon its
financial condition or the loss of any right of redemption from any sale
thereunder; and
(B) it shall have set aside on its books reserves segregated (to the
extent required by generally accepted accounting practice) and adequate with
respect thereto.
viii. RECORDS AND REPORTS. Maintain a system of accounting in accordance
with generally accepted accounting principles on a basis consistently
maintained; and permit Bank's representatives to have access to, and to examine,
its properties, books and records at all reasonable times.
ix. FURTHER ASSURANCES. Borrower hereby agrees that it will, upon the
request of Bank from time to time at its own expense, promptly execute and
deliver all such further instruments including, documents or agreements that
Bank shall reasonably require, and take all such further action that may be
reasonably necessary or appropriate, or that Bank may reasonably request, in
order to perfect, preserve or protect any liens granted or purported to be
granted under the Loan Documents, to enable Bank to exercise and enforce any of
its rights or remedies under this Agreement or any of the other Loan Documents
or otherwise to carry out the intent of this Agreement or any of the other Loan
Documents.
x. REIMBURSEMENT OBLIGATIONS. Reimburse Bank upon demand for any and all
reasonable legal costs, including reasonable attorneys' fees, and other expenses
incurred in connection with the enforcement of any term or provision of this
Agreement or any of the other Loan Documents, the consideration of any legal
questions relevant to the transactions contemplated by this Agreement and the
other Loan Documents and the consideration and/or conduct of any proposed or
actual "workout" of any of the obligations of Borrower under this Agreement or
any of the other Loan Documents, and the structuring, preparation, negotiation,
review, execution, or delivery of this Agreement, any of the other Loan
Documents or amendments or waivers hereunder or thereunder, or any related
documents (whether or not any of the same become effective). ALL SUCH COSTS AND
EXPENSES ACCRUED UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS THROUGH THE
DATE OF THIS AGREEMENT SHALL BE PAID BY BORROWER UPON AND IN CONNECTION WITH
BANK'S EXECUTION AND DELIVERY OF THIS AGREEMENT.
xi. INDEMNIFICATION. Indemnify and hold free and harmless Bank and each
of its shareholders, officers, directors, employees, agents, subsidiaries and
affiliates ("Indemnified Parties"), upon demand, from and against any and all
actions, causes of action, suits, losses, costs, liabilities, damages and
expenses actually incurred in connection with any of the financing transactions
contemplated by any of the Loan Documents (irrespective of whether such
Indemnified Party is a party to the action for which indemnification is sought),
including all reasonable fees and disbursements of counsel, all amounts paid in
settlement and all court costs incurred from time to time by the Indemnified
Parties or any of them, and all liabilities and expenses that may arise under
any environmental laws except due to its breach of this Agreement, or its own
gross negligence or willful misconduct.
Page 8 of 12
<PAGE> 9
b. CERTAIN NEGATIVE COVENANTS. Borrower agrees that so long as any
obligations of Borrower to Bank under this Agreement or any of the Loan
Documents remain outstanding, or any commitment of Bank to make any loans to
Borrower remains outstanding, Borrower will not without Bank's written consent:
i. LIQUIDITY RATIO. At all times until the date on which financial
statements shall have been delivered to Bank by Borrower for the first fiscal
quarter of Borrower for which Borrower's net operating profit shall exceed $1.00
or, if later, March 31, 1999 (the date of delivery of such financial statements
or, if applicable, March 31, 1999, being called the "Covenant Conversion Date"),
permit the Liquidity Ratio to be less than 1.5:1.
ii. DEBT SERVICE COVERAGE. Permit the Debt Service Coverage Ratio for any
Reference Period (as herein defined), ending after the Covenant Conversion Date
to be less than 1.25:1. "Reference Period" means a period of 4 consecutive
fiscal quarters, PROVIDED THAT for each of the first 3 fiscal quarters for which
the foregoing test shall be applicable, the Reference Period shall be the actual
number of fiscal quarters ending after the Covenant Conversion Date, and the
Consolidated EBITDA for any such Reference Period shall be determined for such
actual number of fiscal quarters, but on an annualized basis.
iii. TYPE OF BUSINESS. Make any material change in the character of its
business.
iv. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
Indebtedness for Borrowed Money other than (A) loans from Bank, (B) obligations
existing on the date hereof set forth on SCHEDULE 12(b)(iv), or (C) Indebtedness
for Borrowed Money of Borrower incurred after the date of this Agreement in the
form of capitalized lease obligations and purchase money obligations, provided
that the aggregate amount of such capitalized lease obligations and purchase
money obligations shall not at any time exceed $500,000.
v. LIENS AND ENCUMBRANCES. Create, incur, assume or permit to exist any
mortgage, pledge, encumbrance, lien (except for liens for taxes not yet due and
payable or other similar liens incurred in the ordinary course of Borrower's
business) or charge of any kind upon any asset now owned or hereafter acquired
by it, other than (A) liens in Bank's favor, (B) existing liens set forth on
SCHEDULE 12(b)(v), (C) liens of mechanics, warehousemen and other similar liens
which are either (1) in existence less than 120 days from the date of creation
in respect of obligations not yet due, or (2) being contested in good faith by
Borrower and bonded pending the resolution of such dispute, (D) liens over
leased equipment securing capitalized lease and/or purchase money obligations of
Borrower permitted by Section 12.b(iv), (E) statutory liens which, individually
or in the aggregate, do not cause a material limitation on the value or use of
Borrower's property, and (F) licenses of Borrower's products in the ordinary
course of business.
vi. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Except as otherwise set
forth below, make any loans or advances to any person or other entity, other
than to employees for relocation, travel or other business expenses in the
normal and ordinary course of its business; or make any investment in the
securities of any person or other entity, other than the United States
Government or consistent with past practices; or guarantee or otherwise become
liable upon the obligations of any other person or entity, except by endorsement
of negotiable instruments for deposit or collection in the ordinary and normal
course of its business; or make any other investments. This paragraph (vi) shall
not prohibit the payment by Borrower of any salaries or bonuses to employees, or
the making by Borrower of any loans or advances to employees, in each case in
the normal and ordinary course of business of Borrower consistent with past
practices, or cash investments by Borrower in any subsidiaries.
vii. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings
therefore; or, except in the ordinary and normal course of its business, sell
(including without limitation the selling of any property or other asset
accompanied by leasing back of same) any property or assets. Upon any sale of
any property or assets not permitted hereunder, Borrower shall pay to Bank,
immediately upon receipt by Borrower, all of the net proceeds of such sale, for
application by Bank to the outstanding obligations of Borrower under the Loan
Documents in such manner as Bank shall deem appropriate.
viii. DIVIDENDS, DISTRIBUTIONS, RESTRICTED PAYMENTS. Declare or pay any
dividend or make any other distribution on or in respect of any capital stock of
Borrower or any other securities convertible or exchangeable for any capital
stock of Borrower; make any payment in respect of the purchase, repurchase,
redemption or retirement of any of such capital stock or other securities (other
than the payment by Borrower of dividends consisting of shares of common stock
on outstanding shares of common stock); or make any payment, prepayment or other
distribution on, or payment or distribution in respect of the purchase,
repurchase, retirement or other acquisition of, any
Page 9 of 12
<PAGE> 10
Indebtedness for Borrowed Money or other liability, of Borrower to any
Associated Person. This paragraph (viii) shall not prohibit the payment by
Borrower of any salaries or bonuses to employees, or the making by Borrower of
any loans or advances to employees, in each case in the normal and ordinary
course of business of Borrower consistent with past practices. This paragraph
(viii) also shall not prohibit (A) the repurchase by Borrower of restricted
stock held by Borrower's officers, directors or employees upon termination of
employment of such officers, directors or employees, PROVIDED THAT the aggregate
purchase price shall not exceed $400,000 for all such repurchases, or (B) the
payment of dividends by any subsidiary of Borrower to the Borrower.
ix. TRANSACTIONS WITH ASSOCIATED PERSONS. Engage in any transactions with
any Associated Person, EXCEPT transactions in the ordinary and normal course of
business which (A) include only terms and conditions that are fair and equitable
to Borrower, (B) do not violate or otherwise conflict with any of the terms and
provisions of this Agreement or any of the Loan Documents, (C) require the
payment of no fees, charges or commissions by Borrower to any Associated Person,
and (D) involve terms no less favorable to Borrower than would be the terms of a
similar transaction with any person other than an Associated Person.
x. CHANGE OF CONTROL TRIGGERING EVENTS. Enter into or undertake any
transaction, arrangement or agreement (whether a consolidation, merger, issue or
sale of capital stock or other securities, reorganization, voting agreement or
otherwise) that will or could reasonably be expected to result in a Change of
Control.
xi. FORMATION OF NEW SUBSIDIARIES. Form any new subsidiaries unless
Borrower shall have notified Bank at least 30 days prior to the formation of
such subsidiary and Borrower and such subsidiary shall have executed such
security documents, guaranties, and other documents as Bank shall request, and
PROVIDED FURTHER, that on the date of formation of such subsidiary no Default or
Event of Default shall be continuing. It is the understanding of Borrower and
Bank that Bank will not require any guaranties from or security provided by any
foreign subsidiary so long as no Default or Event of Default are continuing at
the time of formation or acquisition of such foreign subsidiary.
xii. AMENDMENT OF CERTAIN DOCUMENTS. Amend, restate or otherwise modify, or
waive any of its rights under, (A) any agreements, instruments or contracts
(whether written or oral) between Borrower and any Associated Person, or (B) any
Ancillary Documents.
13. EVENTS OF DEFAULT; REMEDIES. Should any of the following events occur
(any such event being referred to as an "Event of Default"): (i) Default by
Borrower in the payment of any obligation of Borrower under this Agreement or
any of the other Loan Documents; (ii) default by Borrower of any agreement,
promise or covenant of Borrower under Section 12.a(iii) or (vi) or 12.b; (iii)
default by Borrower in the due performance or observance of any of the
agreements, promises or covenants of Borrower under any of the Loan Documents,
other than any such agreements, promises or covenants described in clause (i) or
(ii) above, which default shall continue unremedied for ten or more days; (iv)
any default or event of default by Borrower under any Ancillary Document; (v)
any material representation or warranty of Borrower set forth in any of the Loan
Documents, or in any certificate, instrument or statement delivered to Bank
pursuant to any Loan Documents, shall be untrue or incorrect in any material
respect when made; (vi) Borrower shall default in the payment when due (whether
at stated maturity, by acceleration or otherwise) of $100,000 or more of any
Indebtedness for Borrowed Money; (vii) Borrower shall default in the observance
or performance of any term, covenant or agreement contained in any instrument
governing or evidencing any Indebtedness for Borrowed Money, and such default
shall permit the holders of such Indebtedness for Borrower Money to declare
immediately due and payable or otherwise accelerate Indebtedness for Borrowed
Money in an aggregate amount exceeding $100,000; (viii) any Change of Control
shall occur; (ix) Borrower shall become insolvent or make an assignment for the
benefit of creditors; (x) Borrower shall apply for or consent to or shall permit
or suffer to exist the voluntary or involuntary appointment of a trustee,
receiver, custodian, or liquidator of all or any material part of its or his
property; (xi) Borrower shall have commenced against it, or shall voluntarily
commence, any bankruptcy, reorganization or other similar proceeding under
bankruptcy or insolvency laws or any dissolution, winding up or liquidation
proceeding, which, in the case of any such involuntary proceeding, shall have
been consented to by Borrower, as applicable, shall have resulted in entry of an
order for relief against Borrower, as applicable, or shall have remained
undismissed, undischarged or unbonded for a period of more than 60 days; or
(xii) any other event or circumstance shall occur or arise which has had a
Materially Adverse Effect; THEN, in any such event, Bank may, at its option and
without demand first made and without notice to Borrower, do any one or more of
the following: (a) terminate its obligation to make loans (including, without
limitation, any Revolving Loans or Equipment Loans) to Borrower; (b) declare all
obligations of Borrower to Bank under this Agreement and the other Loan
Documents immediately due and payable; and (c) proceed to enforce all or any of
its rights under any of the Loan Documents or available at law or in equity. In
the event Bank sells or disposes of any Collateral upon the exercise of any such
rights or remedies, and a sufficient sum is not realized from any such sale or
disposition to pay
Page 10 of 12
<PAGE> 11
all obligations of Borrower to Bank under this Agreement, any of the other Loan
Documents or otherwise, Borrower shall be liable to Bank for any deficiency.
14. ATTACHMENT, ETC. If any writ of attachment, garnishment, execution or
other legal process be issued against any property of Borrower, or if any
assessment for taxes against Borrower, other than real property, is made by any
Federal or State government or any department thereof relating to an amount
unpaid or in dispute in excess of $100,000, the commitment of Bank to make loans
(including, without limitation, any Revolving Loans or Equipment Loans) to
Borrower hereunder shall immediately terminate and all obligations hereunder or
under any of the Loan Documents shall immediately become due and payable without
demand, presentment or notice of any kind.
15. SETOFF. Regardless of the adequacy of any Collateral, during the
continuance of any Event of Default, any deposits or other sums credited by or
due from Bank to Borrower, and any securities or other investments or property
of Borrower in the possession of Bank, may be applied to or set off against any
obligations of Borrower to Bank under this Agreement or any other Loan Document.
16. FEES. Borrower shall pay to Bank a non-refundable arrangement fee in
an amount equal to $2,500.
17. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
Bank, in the exercise of any power, right or privilege hereunder or under any
Loan Document, shall operate as a waiver thereof, nor shall any single or
partial exercise thereof or of any other right, power or privilege preclude
other or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing hereunder are cumulative to, not exclusive of, any
other rights or remedies provided in any of the Loan Documents or at law or in
equity.
18. CHOICE OF LAW; WAIVER OF JURY TRIAL. THIS AGREEMENT AND EACH OF THE
OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF CALIFORNIA (EXCEPT ITS CONFLICTS OF LAWS). BORROWER AGREES
THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR ANY FEDERAL
COURT SITTING THEREIN, AND CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH
COURTS AND TO SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON BORROWER IN
ANY MANNER PERMITTED BY CALIFORNIA LAW. EACH PARTY WAIVES ITS RIGHT TO A JURY
TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR
OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF ANY SUCH RIGHTS OR
OBLIGATIONS.
19. AMENDMENT AND WAIVER. This Agreement is subject to modification only
by a writing signed by Bank and Borrower. Bank shall not be deemed to have
waived any right hereunder unless such waiver shall be in writing and signed by
Bank. A waiver on any one occasion shall not be construed as a bar to or waiver
of any right on any future occasion.
Page 11 of 12
<PAGE> 12
20. DATE OF AGREEMENT. This Agreement is executed by and on behalf of the
parties as of June 22, 1998.
ASPECT MEDICAL SYSTEMS, INC. IMPERIAL BANK
"BORROWER" "BANK"
By: /s/ J. Neal Armstrong By: Oscar C. Jazdowski
______________________________ ______________________________
Title: Chief Financial Officer Title: SVP
___________________________ ___________________________
By: /s/ Richard D. Aidala
_____________________________
Title: AVP
_____________________________
Page 12 of 12
<PAGE> 13
IMPERIAL BANK
MEMBER FDIC
PROMISSORY NOTE
(REVOLVING LOANS)
$5,000,000 June 22, 1998
On December 22, 1999 (the "Maturity Date"), and as hereinafter provided, for
value received, ASPECT MEDICAL SYSTEMS, INC., a Delaware corporation
("Borrower"), promises to pay to IMPERIAL BANK, a California banking corporation
("Bank"), or order, the principal sum of $5,000,000 or such sums up to the
maximum if so stated, as Bank may now or hereafter advance to or for the benefit
of the undersigned in the form of Revolving Loans in accordance with the terms
of the Loan Agreement defined below, together with interest from the date of
disbursement on the unpaid principal balance (A) prior to October 1, 1998, at
the rate of one half of one percent (0.5%) per year in excess of the rate of
interest which Bank announces from time to time as its prime lending rate (the
"Prime Rate"), and (B) after October 1, 1998, at a rate of one quarter of one
percent (0.25%) per annum in excess of the Prime Rate, which shall vary
concurrently with any change in such Prime Rate. Interest shall be computed at
the above rate on the basis of the actual number of days elapsed, divided by
360, which shall, for interest computation purposes, be considered one year.
Interest shall be payable in arrears on the last day of each calendar month and
on the Maturity Date. All of the obligations evidenced by this Note shall, if
not sooner paid, in any event become and be absolutely and unconditionally due
and payable in full to Bank by Borrower on the Maturity Date.
This Promissory Note is the Revolving Note referred to in the Loan
Agreement, dated as of June 22, 1998, between Borrower and Bank ("Loan
Agreement"). Capitalized terms used herein without definition shall have the
meanings given to such terms in the Loan Agreement. Reference is made to the
Loan Agreement for a statement of the terms and conditions on which Borrower is
required to repay or prepay principal of the Revolving Loans made by Bank to
Borrower, on which all the obligations of Borrower to Bank under the Loan
Agreement and the other Loan Documents, or any part thereof, may be declared to
be, or shall become, immediately due and payable, and on which interest on
overdue amounts payable hereunder shall accrue and shall be due and payable. All
payments by Borrower to Bank hereunder shall be made without set-off or
counterclaim, and in immediately available funds, at the location specified from
time to time in the Loan Agreement. All partial payments of any of Borrower's
obligations hereunder shall be applied in the manner set forth in the Loan
Agreement.
Borrower irrevocably authorizes Bank to make appropriate notations on any
SCHEDULE attached to this Promissory Note to evidence the date and principal
amounts of Revolving Loans made to Borrower under the Loan Agreement, and
repayments thereof. Any such notations indicating the outstanding principal
amount of Revolving Loans under the Loan Agreement shall be rebuttable
presumptive evidence of the principal amount of such Revolving Loans
outstanding, but the failure to make any such notation or any error in making
any such notations, shall not limit or affect the obligations of Borrower
hereunder or under the other Loan Documents.
Borrower waives diligence, presentment, demand, notice, protest and all
other notices in connection with the delivery, acceptance, performance or
enforcement of this Promissory Note except to the extent provided in the Loan
Agreement, and assents to all extensions of time for payment, forbearances and
other indulgences without notice. In any action brought under or arising out of
this Promissory Note, the Borrower, including its successor(s) or assign(s),
hereby consents to the application of California law (except its conflict of
laws).
This Promissory Note is one of the Loan Documents. This Promissory Note and
all the obligations of Borrower hereunder are entitled to the benefits of and
are secured by certain Collateral, all as more fully described in the Loan
Documents. No single or partial exercise of any power hereunder or under any of
the other Loan Documents shall preclude other or further exercises thereof or
the exercise of any other such power. The holder hereof shall at all times
<PAGE> 14
have the right to proceed against any portion of the Collateral in such order
and in such manner as such holder may consider appropriate, without waiving any
rights with respect to any of the Collateral. Any delay or omission on the part
of the holder hereof in exercising any right hereunder or under any other Loan
Document shall not operate as a waiver of such right, or of any other right,
under this Promissory Note or any other Loan Document.
Executed this 22nd day of June, 1998.
ASPECT MEDICAL SYSTEMS, INC.
BY: /s/ J. Neal Armstrong
----------------------------------
Title: Chief Financial Officer
<PAGE> 15
IMPERIAL BANK
MEMBER FDIC
PROMISSORY NOTE
(EQUIPMENT LOANS)
$5,000,000 June 22, 1998
On December 22, 2001 (the "Maturity Date"), and as hereinafter provided, for
value received, ASPECT MEDICAL SYSTEMS, INC., a Delaware corporation
("Borrower"), promises to pay to IMPERIAL BANK, a California banking corporation
("Bank"), or order, the principal sum of $5,000,000 or such sums up to the
maximum if so stated, as Bank may now or hereafter advance to or for the benefit
of the undersigned in the form of Equipment Loans in accordance with the terms
of the Loan Agreement defined below, together with interest from the date of
disbursement on the unpaid principal balance at the rate of one percent (1%) per
year in excess of the rate of interest which Bank announces from time to time as
its prime lending rate (the "Prime Rate"), which shall vary concurrently with
any change in such Prime Rate, reduced to Prime Rate upon an initial public
offering by the Borrower. Interest shall be computed at the above rate on the
basis of the actual number of days elapsed, divided by 360, which shall, for
interest computation purposes, be considered one year. Interest shall be payable
in arrears on the last day of each calendar month and on the Maturity Date.
Alternatively, the obligations under this Note may become subject to a fixed
interest rate in accordance with the terms as set forth in PARAGRAPH 2 of
Section 5 of the Loan Agreement (as defined below). All of the obligations
evidenced by this Note shall, if not sooner paid, in any event become and be
absolutely and unconditionally due and payable in full to Bank by Borrower on
the Maturity Date.
This Promissory Note is the Equipment Note referred to in the Loan
Agreement, dated as of June 22, 1998, between Borrower and Bank ("Loan
Agreement"). Capitalized terms used herein without definition shall have the
meanings given to such terms in the Loan Agreement. Reference is made to the
Loan Agreement for a statement of the terms and conditions on which Borrower is
required to repay or prepay principal of the Equipment Loans made by Bank to
Borrower, on which all the obligations of Borrower to Bank under the Loan
Agreement and the other Loan Documents, or any part thereof, may be declared to
be, or shall become, immediately due and payable, and on which interest on
overdue amounts payable hereunder shall accrue and shall be due and payable. All
payments by Borrower to Bank hereunder shall be made without set-off or
counterclaim, and in immediately available funds, at the location specified from
time to time in the Loan Agreement. All partial payments of any of Borrower's
obligations hereunder shall be applied in the manner set forth in the Loan
Agreement.
Borrower irrevocably authorizes Bank to make appropriate notations on any
SCHEDULE attached to this Promissory Note to evidence the date and principal
amounts of Equipment Loans made to Borrower under the Loan Agreement, and
repayments thereof. Any such notations indicating the outstanding principal
amount of Equipment Loans under the Loan Agreement shall be rebuttable
presumptive evidence of the principal amount of such Equipment Loans
outstanding, but the failure to make any such notation or any error in making
any such notations, shall not limit or affect the obligations of Borrower
hereunder or under the other Loan Documents.
Borrower waives diligence, presentment, demand, notice, protest and all
other notices in connection with the delivery, acceptance, performance or
enforcement of this Promissory Note except to the extent provided in the Loan
Agreement, and assents to all extensions of time for payment, forbearances and
other indulgences without notice. In any action brought under or arising out of
this Promissory Note, the Borrower, including its successor(s) or assign(s),
hereby consents to the application of California law (except its conflicts of
laws).
This Promissory Note is one of the Loan Documents. This Promissory Note and
all the obligations of Borrower hereunder are entitled to the benefits of and
are secured by certain Collateral, all as more fully described in the Loan
Documents. No single or partial exercise of
<PAGE> 16
any power hereunder or under any of the other Loan Documents shall preclude
other or further exercises thereof or the exercise of any other such power. The
holder hereof shall at all times have the right to proceed against any portion
of the Collateral in such order and in such manner as such holder may consider
appropriate, without waiving any rights with respect to any of the Collateral.
Any delay or omission on the part of the holder hereof in exercising any right
hereunder or under any other Loan Document shall not operate as a waiver of such
right, or of any other right, under this Promissory Note or any other Loan
Document.
Executed this 22nd day of June, 1998.
ASPECT MEDICAL SYSTEMS, INC.
BY: /s/ J. Neal Armstrong
- ------------------------------------
Title: Chief Financial Officer
<PAGE> 17
IMPERIAL BANK
MEMBER FDIC
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is entered into as of June 22, 1998 between (i)
ASPECT MEDICAL SYSTEMS, INC., a Delaware corporation ("Borrower"), and (ii)
IMPERIAL BANK, a California banking corporation ("Bank").
RECITALS
Pursuant to the Loan Agreement, dated as of June 22, 1998 (the "Loan
Agreement"), between the Borrower and the Bank, the Bank agreed to make loans to
the Borrower.
It is a condition precedent to the making of loans under the Loan
Agreement, that the Borrower agrees to grant to the Bank a continuing pledge of
and security interest in the Security Agreement Collateral (as defined below) to
secure the Borrower's obligations under the Loan Agreement.
Accordingly, for good and valuable consideration, the receipt of which is
hereby acknowledged, and in order to induce the Bank to make and maintain loans
to the Borrower pursuant to the Loan Agreement, the Borrower agrees with the
Bank as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. CERTAIN TERMS. The following terms when used in this
Agreement, including the introductory paragraph and RECITALS hereto, shall,
except where the context otherwise requires, have the following meanings :
"AGREEMENT" means this Security Agreement.
"BORROWER" is defined in the introductory paragraph hereto.
"COMPUTER HARDWARE AND SOFTWARE COLLATERAL" means all of the following
property of the Borrower, whether currently existing or hereafter arising or
acquired:
(a) all computer and other electronic data processing hardware,
integrated computer systems, central processing units, memory units,
display terminals, printers, features, computer elements, card readers,
tape drives, hard and soft disk drives, cables, electrical supply hardware,
generators, power equalizers, accessories and all peripheral devices and
other related computer hardware;
(b) all software programs (including both source code and object
code and all related applications and data files if available), whether now
owned, licensed or leased or hereafter acquired by the Borrower, whether or
not intended or designed for use on the computers and electronic data
processing hardware described in CLAUSE (a);
(c) all firmware associated therewith;
(d) all documentation (including flow charts, logic diagrams,
manuals, guides and specifications) with respect to such hardware, software
and firmware described in CLAUSES (a) through (c);
(e) all rights of the Borrower with respect to any of the foregoing,
including, without limitation, any and all copyrights, licenses, options,
warranties, service contracts, program services,
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test rights, maintenance rights, support rights, improvement rights,
renewal rights and indemnifications and any substitutions, replacements,
additions or model conversions of any of the foregoing; and
(f) all products and proceeds of any of the foregoing.
"COPYRIGHT COLLATERAL" means all copyrights of the Borrower, whether
statutory or common law, registered or unregistered, now or hereafter in force
throughout the world, currently existing or hereafter arising or acquired,
including, without limitation, all of the Borrower's right, title and interest
in and to all copyrights registered in the United States Copyright Office or
anywhere else in the world (all of the foregoing being collectively called
"COPYRIGHTS"), and all applications for registration thereof, whether pending or
in preparation, all copyright licenses, all rights corresponding thereto
throughout the world, all extensions and renewals of any thereof, the right to
sue for past, present and future infringements of any thereof and all proceeds
of the foregoing, including, without limitation, licenses, royalties, income,
payments, claims, damages and proceeds of suit.
"EQUIPMENT" is defined in CLAUSE (a) of SECTION 2.1.
"INTELLECTUAL PROPERTY COLLATERAL" means, collectively, all of the
Borrower's Computer Hardware and Software Collateral, Copyright Collateral,
Trade Secrets Collateral, Trademark Collateral, and all, if any, patents, patent
applications and other patent rights.
"INVENTORY" is defined in CLAUSE (b) of SECTION 2.1.
"LOAN AGREEMENT" is defined in the first paragraph of the RECITALS hereto.
"LOAN DOCUMENTS" is defined in the Loan Agreement.
"OBLIGATIONS" means, collectively, all of the indebtedness, obligations and
liabilities existing on the date of this Agreement or arising from time to time
thereafter, whether direct or indirect, joint or several, actual, absolute or
contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, of the Borrower
under or in respect of the Loan Agreement, the Revolving Note, the Equipment
Note or any other Loan Document.
"RECEIVABLES" is defined in CLAUSE (c) of SECTION 2.1.
"RELATED CONTRACTS" is defined in CLAUSE (c) of SECTION 2.1.
"SECURITY AGREEMENT COLLATERAL" is defined in SECTION 2.1.
"TRADEMARK COLLATERAL" means all of the following property of the Borrower,
whether currently existing or hereafter arising or acquired:
(i) all trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles,
service marks, logos, other source of business identifiers, prints
and labels on which any of the foregoing have appeared or appear,
designs and general intangibles of a like nature (all of the
foregoing items in this CLAUSE (i), being collectively called
"TRADEMARKS"), all registrations and recordings thereof, and in
connection therewith, all applications in the United States Patent
and Trademark Office or in any similar office or agency of the
United States or any state thereof;
(ii) all Trademark licenses and other agreements providing
the Borrower with rights to use Trademarks;
(iii) all reissues, extensions, or renewals of any of the
items described in the foregoing CLAUSES (i) and (ii);
(iv) all of the goodwill of the business connected with the
use of, and symbolized by the items described in, CLAUSES (i) and
(iii); and
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(v) all proceeds of, and rights associated with, the
foregoing, including any claim by the Borrower (and the right to
sue thereunder) against third parties for past, present, or future
infringement or dilution of any Trademark, Trademark registration,
or Trademark license, including any Trademark, Trademark
registration, Trademark license, or for any injury to the goodwill
associated with any Trademark, Trademark registration, Trademark
license, or trade name.
"TRADE SECRETS COLLATERAL" means all common law and statutory trade secrets
and all other confidential or proprietary or useful information and all know-how
obtained by or used in or contemplated at any time for use in the business of
the Borrower (all of the foregoing being collectively called "TRADE SECRETS"),
whether or not such Trade Secrets have been reduced to a writing or other
tangible form, and whether currently existing or hereafter arising or acquired,
including all documents and things embodying, incorporating or referring in any
way to such Trade Secrets, all Trade Secret licenses, and including the right to
sue for and to enjoin and to collect damages for the actual or threatened
misappropriation of any Trade Secret and for the breach or enforcement of any
such Trade Secret license.
"U.C.C." means the Uniform Commercial Code as in effect in the Commonwealth
of Massachusetts.
SECTION 1.2. LOAN AGREEMENT DEFINITIONS. Unless otherwise defined herein or
the context otherwise requires, terms used in this Agreement, including the
introductory paragraph and RECITALS hereto, that are defined in the Loan
Agreement have the meanings given to such terms in the Loan Agreement.
SECTION 1.3. U.C.C. DEFINITIONS. Unless otherwise defined herein or the
context otherwise requires, terms for which meanings are provided in the U.C.C.
are used in this Agreement, including the introductory paragraph and RECITALS
hereto, with such meanings.
SECTION 1.4. GENERAL PROVISIONS RELATING TO DEFINITIONS. Terms for which
meanings are defined in this Agreement shall apply equally to the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The term
"including" means including, without limiting the generality of any description
preceding such term. Each reference herein to any person shall include a
reference to such person's successors and assigns. References to any instrument
defined in this Agreement refer to such instrument as originally executed or, if
subsequently amended or supplemented from time to time, as so amended or
supplemented and in effect at the relevant time of reference thereto.
ARTICLE II
SECURITY INTEREST
SECTION 2.1. GRANT OF SECURITY INTEREST. The Borrower hereby pledges and
assigns to the Bank and hereby grants to the Bank a continuing security interest
in and to, all of its right, title and interest in and to all of the following
property, wherever located, whether now owned or hereafter acquired or existing
(all of such property being the "SECURITY AGREEMENT Collateral"):
(a) all of the Borrower's equipment in all of its forms, and all
substitutions therefor, replacements thereof and additions thereto and all
attachments, components, parts, and accessories installed thereon or
affixed thereto (any and all of the foregoing being the "EQUIPMENT");
(b) all of the Borrower's inventory in all of its forms, including
(i) all inventory, merchandise, goods and other personal property
which are held for sale or lease by the Borrower, all raw materials,
work in process, unfinished and finished goods with respect thereto,
and all materials used or consumed in the manufacture or production
thereof;
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(ii) all goods in which the Borrower has an interest in mass or a
joint or other interest or right of any kind (including goods in which
the Borrower has an interest or right as consignee); and
(iii) all goods which are returned to or repossessed by the
Borrower;
together with, in each case, all accessions thereto and products and proceeds
thereof and documents therefor (any and all such inventory, accessions,
products, proceeds and documents being the "INVENTORY");
(c) all accounts, accounts receivable, contracts, contract rights,
chattel paper, documents, instruments, general intangibles, and other
obligations and rights of the Borrower of any kind, whether or not arising out
of or in connection with the sale or lease of goods or the rendering of services
by the Borrower, including all of the following:
(i) all of the Borrower's Intellectual Property Collateral;
(ii) all rights and remedies in and to all security instruments,
leases, and other instruments securing or otherwise relating to any
such accounts, accounts receivable, contracts, contract rights,
chattel paper, documents, instruments, general intangibles, or other
obligations; and
(iii) all instruments evidencing any of the foregoing accounts,
accounts receivable, contracts, contract rights, chattel paper,
documents, instruments, general intangibles, or other obligations (all
such instruments being the "RELATED CONTRACTS");
(any and all such accounts, accounts receivable, contracts, contract rights,
chattel paper, documents, instruments, general intangibles, Related Contracts,
other obligations, and other property being the "RECEIVABLES");
(d) all claims, demands, judgments, rights, chooses in action,
equities, credits, bank accounts, cash on hand and in banks, securities, bonds,
shares of capital stock and other securities of every description, investments,
partnership interests, insurance policies, including the cash surrender value
thereof and all proceeds thereof, and all federal, state and local tax refunds
and/or abatements to which the Borrower is or may from time to time become
entitled, no matter how or when arising, including, but not limited to, any loss
carryback tax refunds;
(e) to the maximum extent permitted by applicable law, the Borrower's
federal or state licenses, permits, authorizations and consents and all
renewals, extensions and proceeds thereof;
(f) all rights of the Borrower with respect to any leasehold
interests, any leasehold improvements, and any proceeds thereof;
(g) all other property of the Borrower of every kind and description
(including all rights, permits and licenses of every kind and description),
including fixtures;
(h) any ownership or other beneficial interest in any joint venture
or similar person;
(i) all books, records, writings, data bases, information and other
property relating to, used or useful in connection with, evidencing, embodying,
incorporating or referring to, any of the foregoing Security Agreement
Collateral; and
(j) all products, offspring, rents, issues, profits, returns, income
and proceeds of or rights with respect to any and all of the foregoing Security
Agreement Collateral, including proceeds which constitute property of the types
described in CLAUSES (a) through (i) and, to the extent not otherwise included,
all payments under any indemnity, warranty, or guaranty, payable by reason of
loss or damage to or otherwise with respect to any of the foregoing Security
Agreement Collateral.
Notwithstanding the foregoing, the term "SECURITY AGREEMENT COLLATERAL" shall
not include:
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(i) any governmental license or permit to the extent that
such license or permit prohibits a grant of a security interest
hereunder, unless any required consents shall be obtained or such
provision shall be or shall have been rendered ineffective by
reason of applicable law, any proceeding or otherwise;
(ii) any contract of any kind existing as of the date hereof
that has valid and enforceable provisions for termination upon
the grant of a security interest hereunder, unless any required
consents shall be obtained or such provision shall be or shall
have been rendered ineffective by reason of applicable law, any
proceeding or otherwise; and
(iii) any equipment that is subject to liens permitted by
the Loan Agreement securing capitalized lease obligations or
purchase money obligations of the Borrower permitted by the Loan
Agreement.
SECTION 2.2. SECURITY FOR OBLIGATIONS. This Agreement (and the Security
Agreement Collateral) secures the prompt payment in full and performance when
due of all and each of the Obligations of the Borrower under the Loan Agreement
and the other Loan Documents. In addition, all advances, charges, costs and
expenses, including reasonable attorneys' fees, incurred or paid by the Bank in
exercising any right, power or remedy conferred by this Agreement, or in the
enforcement hereof, shall, to the extent lawful, become a part of the
Obligations secured hereby.
SECTION 2.3. COMPANIES REMAIN LIABLE. Anything herein to the contrary
notwithstanding:
(a) the Borrower shall remain liable under all instruments
included in the Security Agreement Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed;
(b) the exercise by the Bank of any rights hereunder shall not
release the Borrower from any of its duties or obligations under any
instruments included in the Security Agreement Collateral; and
(c) the Bank shall not have any obligation or liability under
any instrument included in the Security Agreement Collateral by reason
of this Agreement, nor shall the Bank be obligated to perform any of
the obligations or duties of the Borrower thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
SECTION 2.4. SECURITY INTEREST ABSOLUTE. All rights and security
interests of the Bank granted hereunder, and all obligations of the Borrower
hereunder, shall be absolute and unconditional, irrespective of, and shall not
be impaired or affected by:
(a) any lack of validity or enforceability of the Loan
Agreement, any other Loan Document or any other instrument relating to
any thereof or to any of the Obligations;
(b) any change in the corporate existence, structure or
ownership of the Borrower, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting Borrower or any
property of Borrower or any resulting release or discharge of any
Obligation contained in the Loan Agreement or any other Loan Document;
(c) any change in the time, manner, or place of payment of, or
in any other term of all or any Obligations, or any other compromise,
renewal, extension, acceleration or release with respect thereto or
with respect to any of the collateral, or any other amendment to,
rescission, waiver or other modification of, or any consent to any
departure from any of the terms of the Loan Agreement, any other Loan
Document or any other instrument relating to any thereof; or
(d) any defense, set-off or counterclaim which may at any time
be available to or be asserted by the Borrower against the Bank.
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SECTION 2.5. ATTORNEY-IN-FACT. Upon and during continuance of any Default
or Event of Default (but for items (a), (b) and (c) below, upon and during
continuance of any Event of Default only), the Borrower hereby irrevocably
appoints the Bank, and any officer or agent thereof, the Borrower's
attorney-in-fact, with full authority in the place and stead of the Borrower and
in the name of the Borrower or otherwise, from time to time in the Bank's
discretion, to take any and all action and to execute any instrument or other
assurance which the Bank may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the rights of the Borrower under SECTION
4.4), including, without limitation:
(a) to obtain and adjust insurance required to be maintained by
the Borrower pursuant to SECTION 4.3;
(b) to ask, demand, collect, sue for, recover, compromise,
receive, and give acquittance and receipts for moneys due and to
become due under or in respect of any of the Borrower's Security
Agreement Collateral;
(c) to receive, endorse and collect any drafts or other
instruments and chattel paper in connection with CLAUSE (a) or (b);
(d) to execute and do all such assurances, acts and things
which the Borrower ought to do under the covenants and provisions of
this Agreement;
(e) to take any and all such actions as the Bank may, in its
sole and absolute discretion, determine to be necessary or advisable
for the purpose of maintaining, preserving or protecting the security
constituted by this Agreement or any of the rights, remedies, powers
or privileges of the Bank under this Agreement;
(f) generally, in the name of the Borrower or in the name of
the Bank to exercise all or any of the powers, authorities and
discretions conferred on or reserved to the Bank pursuant to this
Agreement;
(g) to maintain and preserve all of the Borrower's Intellectual
Property Collateral; and
(h) to file such financing statements with respect hereto, with
or without the Borrower's signature, or a photocopy of this Agreement
in substitution for a financing statement, as the Bank may deem
appropriate, and to execute in the Borrower's name such financing
statements and continuation statements which may require the
Borrower's signature.
The Borrower hereby acknowledges, consents, and agrees that the power of
attorney granted pursuant to this SECTION is irrevocable and coupled with an
interest until this Agreement is terminated.
SECTION 2.6. PROTECTION OF COLLATERAL. The Bank may from time to time, at
its option, perform any act which the Borrower agrees hereunder to perform and
which the Borrower shall fail to perform after being requested in writing to so
perform (it being understood that no such request need be given during the
continuance of any Default or Event of Default), and the Bank may from time to
time take any other action which the Bank reasonably deems necessary for the
maintenance, preservation or protection of any of the Security Agreement
Collateral or of the security interests therein consistent with this Agreement
and the other Loan Documents. The Bank will exercise reasonable care in the
custody and preservation of the Borrower's Security Agreement Collateral in its
possession; PROVIDED, HOWEVER, that the Bank shall be deemed to have exercised
reasonable care in the custody and preservation of such Security Agreement
Collateral if it takes such action for that purpose as the Borrower reasonably
requests in writing at times other than during the continuance of any Default or
Event of Default, but failure of the Bank to comply with any such request at any
time shall not in itself be deemed a failure to exercise reasonable care.
SECTION 2.7. BANK HAS NO DUTY. The powers conferred on the Bank
hereunder are solely to protect its interest in the Security Agreement
Collateral and shall not impose any duty upon it to exercise any such powers.
Except as provided in SECTION 2.6, the accounting for moneys actually received
by it hereunder and other duties imposed by the U.C.C. upon secured creditors
(unless otherwise modified hereby), the Bank shall have no duty as to any
Security Agreement Collateral or responsibility for taking any necessary steps
to preserve rights against prior parties or any other rights pertaining to any
Security Agreement Collateral.
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SECTION 2.8. CONTINUING SECURITY INTEREST. This Agreement has created and
shall create a continuing security interest in all of the Security Agreement
Collateral and shall (a) remain in full force and effect until the later of the
termination of the commitments of the Bank to make loans to the Borrower under
the Loan Agreement or the payment in full in cash of all the Obligations and (b)
be binding upon the Borrower and its respective successors and assigns (PROVIDED
that the Borrower may not assign any of its obligations hereunder without the
prior written consent of the Bank). Upon the later of the termination of the
commitments of the Bank to make loans to the Borrower under the Loan Agreement
or the payment in full in cash of all of the Obligations, the security interest
granted hereby by the Borrower shall terminate and all rights to the Security
Agreement Collateral of the Borrower shall revert to the Borrower. Upon any such
termination of the security interest, the Bank will, at the sole expense of the
Borrower, promptly execute and deliver to the Borrower such instruments and
other assurances as the Borrower shall reasonably request to evidence such
termination, including properly completed UCC-3 Financing Statements.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Bank as set forth in this
ARTICLE.
SECTION 3.1. LOCATIONS. The chief place of business and chief executive
office of the Borrower and the office where the Borrower keeps its records
concerning its Security Agreement Collateral are specified opposite the name of
the Borrower in ITEM A of ATTACHMENT 1. As of the date hereof, the Security
Agreement Collateral owned by the Borrower is kept at the Borrower's chief
executive office and at the other locations specified opposite the name of the
Borrower in ITEM B of ATTACHMENT 1.
SECTION 3.2. OWNERSHIP, POSSESSION, ETC. The Borrower owns its Security
Agreement Collateral free and clear of all liens except for liens permitted by
SECTION 12(b)(v) of the Loan Agreement. No effective financing statements or
other security instruments similar in effect covering all or any part of the
Security Agreement Collateral of the Borrower are on file in any recording
office, except such as may have been filed in favor of the Bank relating to this
Agreement and except as set forth on SCHEDULE 12(b)(v) of the Loan Agreement.
The Borrower does not do business in the United States under any trade name
other than those listed in ITEM C of ATTACHMENT 1. No item of Security Agreement
Collateral consists of chattel paper which evidences Receivables, and no item of
Security Agreement Collateral is evidenced by a promissory note or other
instrument.
SECTION 3.3. CONTRACTS, ETC. Each Related Contract and other contract (and
all agreements and contract rights embodied therein) which constitutes Security
Agreement Collateral has been duly authorized, executed, and delivered by the
Borrower, and to the best of the Borrower's knowledge, the other parties
thereto, has not been amended or modified in any manner which would have a
Materially Adverse Effect, is in full force and effect, and is binding upon and
enforceable against the Borrower, and to the best of the Borrower's knowledge,
the other parties thereto in accordance with its terms, subject, as to
enforcement, only to bankruptcy, insolvency, reorganization, moratorium, or
similar applicable laws affecting the enforceability of the rights of creditors
generally. There exists no default or other condition which, after notice or
lapse of time, would become a default under any such Related Contract or other
contract. As to all such Related Contracts and other contracts, if any, pursuant
to which any governmental authority is an obligor, the Borrower will, promptly
upon the request of the Bank, use its best efforts to comply with all
requirements of the Assignment of Claims Act of 1940 (or any similar law), and
appropriately complete and deliver to the Bank notices of assignment (in favor
of the Bank) for all such contracts.
SECTION 3.4. PERFECTION, ETC. The execution and delivery of this Agreement
together with the filing of the UCC-1 Financing Statements in the appropriate
jurisdictions create a valid, enforceable and perfected security interest in all
the Security Agreement Collateral as to which a security interest may be
perfected by filing, securing the Obligations, which security interest will be a
first priority security interest (except as to any Security Agreement Collateral
in which another person has a prior security interest).
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ARTICLE IV
COVENANTS
SECTION 4.1. FURTHER ASSURANCES GENERALLY. The Borrower hereby covenants
and agrees that it will, from time to time at its own expense, promptly execute
and deliver all further instruments and other assurances, and take all further
action, that may be reasonably necessary or desirable, or that the Bank may
reasonably request, in order to perfect and protect any security interest
purported to be granted by the Borrower under this Agreement or to enable the
Bank to exercise and enforce its rights and remedies hereunder with respect to
the Borrower's Security Agreement Collateral. Without limitation of the
foregoing, the Borrower will, with respect to all of the following property
constituting Security Agreement Collateral:
(a) at the request of the Bank at any time when any Event of Default
is continuing, immediately mark conspicuously each document included in the
Inventory, each chattel paper included in the Receivables, each Related
Contract, each account and each of its records pertaining to its Security
Agreement Collateral with a legend, in form and substance satisfactory to
the Bank, indicating that such account, document, chattel paper, Related
Contract or Security Agreement Collateral is subject to the security
interest granted hereby;
(b) at the request of the Bank, if any Receivable shall be evidenced
by a security or chattel paper, immediately deliver and pledge to the Bank
hereunder such security or chattel paper duly endorsed and accompanied by
duly executed instruments of transfer or assignment, all in form and
substance satisfactory to the Bank; and
(c) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments and notices, as may be
necessary or desirable, or as the Bank may request, in order to perfect and
preserve the security interests granted or purported to be granted hereby.
The Borrower hereby further authorizes the Bank to file one or more financing or
continuation statements, and amendments thereto, relative to all or any part of
its Security Agreement Collateral without the signature of The Borrower where
permitted by applicable law. A copy of this Agreement shall be sufficient as a
financing statement where permitted by applicable law. The Borrower will furnish
to the Bank from time to time statements and schedules further identifying and
describing its Security Agreement Collateral and such other reports in
connection with its Security Agreement Collateral as the Bank may request, all
in reasonable detail.
SECTION 4.2. AS TO EQUIPMENT AND INVENTORY. The Borrower hereby covenants
and agrees that it will, with respect to all of the following property
constituting its Security Agreement Collateral:
(a) keep the Equipment and Inventory (other than (i) worn-out and no
longer used or useful Equipment, (ii) Inventory sold or leased in the
ordinary course of business, (iii) other immaterial amounts stored at
subcontractors' places of business, and (iv) evaluation, clinical,
research, rental and demonstration units distributed to users in the
ordinary course of business) at the places therefor specified in SECTION
3.1 or, upon 30 days' prior written notice to the Bank, at such other
places in jurisdictions where all action required by the Bank pursuant to
SECTION 4.1 shall have been taken with respect to the Equipment and
Inventory;
(b) cause the Equipment to be maintained and preserved in the same
condition, repair, and working order as when new, ordinary wear and tear
and worn-out and no longer used or useful Equipment excepted, and shall, in
the case of any loss or damage to any of the Equipment (of which notice
shall be given to the Bank promptly, if such loss or damage is material) as
quickly as practicable after the occurrence thereof, make or cause to be
made all repairs, replacements and other improvements in connection
therewith which are necessary or desirable to such end;
(c) pay promptly prior to the date they become delinquent all
property and other taxes, assessments, and governmental charges or levies
in the aggregate imposed upon, and all claims against, the Equipment and
Inventory, except to the extent the validity thereof is being contested in
good faith; and
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(d) permit representatives of the Bank at any time during normal
business hours to enter on the premises where its Security Agreement
Collateral is located for the purpose of inspecting the books and records
and its Security Agreement Collateral, observing its use or otherwise
protecting the Bank's interests therein PROVIDED THAT prior to an Event of
Default, the foregoing shall occur not more than once in any 3 month
period.
SECTION 4.3. INSURANCE. The Borrower will, at its own expense, maintain
insurance with respect to its Equipment and Inventory in such amounts, against
such risks, in such form, and with such insurers, as shall be customary in the
case of similar businesses and reasonably satisfactory to the Bank, including
without limitation, public liability, property damage and workers' compensation
insurance, and naming the Bank as loss payee. The Borrower will, if so requested
by the Bank, deliver to the Bank original or duplicate policies of such
insurance and, as often as the Bank may reasonably request, a report of a
reputable insurance broker with respect to the adequacy of such insurance.
During the continuance of any Default or Event of Default, all insurance
payments otherwise payable to the Borrower under policies of property damage
insurance with respect to property constituting Security Agreement Collateral
shall instead be paid to and applied by the Bank as specified in SECTION 5.2.
SECTION 4.4. AS TO RECEIVABLES. The Borrower will, with respect to all of
the following property constituting Security Agreement Collateral:
(a) keep its chief place of business and chief executive office and
the office where it keeps its records concerning the Receivables, and all
originals of all chattel paper which evidence Receivables, at the location
therefor specified in SECTION 3.1 or, upon thirty (30) days' prior written
notice to the Bank, at such other locations; PROVIDED, that all action
required by the Bank pursuant to SECTION 4.1 shall have been taken;
(b) hold and preserve such records and chattel paper and permit
representatives of the Bank at any time during normal business hours to
inspect and make abstracts from such records and chattel paper PROVIDED
THAT prior to an Event of Default, the foregoing shall occur not more than
once in any 3 month period. Unless any Event of Default is continuing and
the Bank has instructed the Borrower otherwise, the Borrower shall continue
to collect, at its own expense, all amounts due or to become due to the
Borrower under the Receivables. In connection with such collections, the
Borrower may take such action as the Borrower may deem necessary or
advisable to enforce collection of the Receivables; PROVIDED, HOWEVER, that
the Bank shall have the right, at any time during the continuance of any
Event of Default, to notify the account debtors or obligors under any
Receivables of the assignment of such Receivables to the Bank and to direct
such account debtors or obligors to make payment of all amounts due or to
become due to the Borrower thereunder directly to the Bank and, upon such
notification and at the expense of the Borrower, to enforce collection of
any such Receivables, and to adjust, settle or compromise the amount or
payment thereof, in the same manner and to the same extent as the Borrower
might have done. During the continuance of any Default or Event of Default
and after receipt by the Borrower of notice from the Bank instructing the
Borrower to comply with the following provisions of this SECTION 4.4(B):
(i) all amounts and proceeds (including any instruments) received by the
Borrower in respect of any Receivables shall be received in trust for the
benefit of the Bank hereunder, shall be segregated from other funds of the
Borrower, and shall be forthwith paid over to the Bank in the same form as
so received (with any necessary endorsements) to be held as cash collateral
and applied in accordance with SECTION 5.2; and (ii) the Borrower will not,
without the consent of the Bank, adjust, settle, or compromise the amount
or payment of any Receivable, or release wholly or partly any account
debtor or obligor thereof, or allow any credit or discount thereon.
SECTION 4.5. NOTICES. The Borrower hereby covenants and agrees that it
will, upon obtaining knowledge thereof, advise the Bank promptly, in reasonable
detail, (a) of any lien made or asserted against any of its Security Agreement
Collateral (except for liens permitted under SECTION 12(b)(v) of the Loan
Agreement), (b) of any material change in the composition of its Security
Agreement Collateral, (c) of the occurrence of any other event which would have
a materially adverse effect on the aggregate value of its Security Agreement
Collateral or on the security interests created by it hereunder, and (d) any
other matters relating to its Security Agreement Collateral that the Bank may
reasonably request in writing.
<PAGE> 26
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SECTION 4.6. TRANSFERS AND OTHER LIENS.
(a) The Borrower hereby covenants and agrees that it will not:
(i) sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Security Agreement Collateral, except for
dispositions of property permitted by SECTION 12(b)(vii) of the Loan
Agreement; or
(ii) create or suffer to exist any lien upon or with respect to
any of its Security Agreement Collateral, except for (A) the security
interest created by this Agreement and (B) any other lien permitted by
SECTION 12(b)(v) of the Loan Agreement, to attach to any Security
Agreement Collateral.
(b) The Borrower hereby covenants and agrees that it will defend the
right, title and interest of the Bank in and to its Security Agreement
Collateral and in and to the proceeds and products thereof against the
claims and demands of all other persons.
SECTION 4.7. CONTINUOUS PERFECTION. The Borrower hereby covenants and
agrees that it will not change its name, identity or corporate structure in any
manner which might make any financing or continuation statement filed hereunder
seriously misleading within the meaning of Section 9-402(7) of the U.C.C. (or
any other then applicable provision of the U.C.C.) unless the Borrower shall
have given the Bank at least thirty (30) days' prior written notice thereof and
shall have taken all action (or made arrangements to take such action
substantially simultaneously with such change if it is impossible to take such
action in advance) necessary or reasonably requested by the Bank to amend such
financing statement or continuation statement so that it is not seriously
misleading.
ARTICLE V
REMEDIES
SECTION 5.1. EXERCISE.
(a) If any Event of Default is continuing, the Bank may exercise in
respect of all or any of the Security Agreement Collateral, in addition to
all other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party upon default under the
U.C.C. (whether or not the U.C.C. applies to the affected Security
Agreement Collateral) and other applicable law. Without limitation of the
above, the Bank may, whenever an Event of Default is continuing, without
(to the extent permitted by applicable law) notice to the Borrower, take
all or any of the following actions:
(i) transfer all or any part of the Security Agreement
Collateral into the name of the Bank or its nominee, with or without
disclosing that such Security Agreement Collateral is subject to the
lien hereunder;
(ii) notify the parties obligated in respect of any of the
Security Agreement Collateral to make payment to the Bank of any
amount due or to become due thereunder;
(iii) enforce collection of any of the Security Agreement
Collateral by suit or otherwise, and surrender, release or exchange
all or any part thereof, or compromise or extend or renew for any
period (whether or not longer than the original period) any
obligations of any nature of any party with respect thereto;
(iv) take control of any proceeds of the Security Agreement
Collateral;
(v) execute (in the name, place, and stead of the Borrower)
endorsements, assignments, stock powers, and other instruments of
conveyance or transfer with respect to all or any of the Security
Agreement Collateral; and
<PAGE> 27
-11-
(vi) generally, to do all such other acts and things as may be
considered incidental or conducive to any of the matters or powers
mentioned in the foregoing provisions of this SECTION and which the
Bank may or can do lawfully and to use the name of the Borrower for
such purposes and in any proceedings arising therefrom.
In furtherance of, and not in limitation of, the foregoing, the Bank,
without demand of performance or other demand, advertisement or notice of
any kind (except the notice specified below of time and place of public or
private sale) to or upon the Borrower or any other person except as
required under applicable law (all and each of which demands,
advertisements and/or notices are hereby expressly waived), may, whenever
an Event of Default is continuing, in a commercially reasonable manner,
collect, receive, appropriate and realize upon the Security Agreement
Collateral, or any part thereof, and may sell, assign, give option or
options to purchase, contract to sell or otherwise dispose of and deliver
the Security Agreement Collateral, or any part thereof, in one or more
parcels at public or private sale or sales, at any exchange, at any
broker's board or at any of the Bank's offices or elsewhere upon such terms
and conditions as it may deem advisable and at such prices as it may deem
best, for cash or on credit or for future delivery without assumption of
any credit risk, with the right to the Bank upon any such sale or sales,
public or private, to purchase the whole or any part of the Security
Agreement Collateral so sold, free of any right or equity of redemption in
the Borrower, which right or equity is hereby expressly waived and released
by the Borrower. Unless Security Agreement Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on
a recognized market, in which event no notification is required, the
Borrower agrees that the Bank need not give it more than ten (10) days'
notice of the time and place of any public sale or of the time after which
a private sale or other intended disposition is to take place and that such
notice is reasonable notification of such matters.
(b) So long as any Event of Default is continuing, the Borrower
shall, upon the request of the Bank, take or cause to be taken (or, if the
Borrower does not have the legal right to take such action or cause such
action to be taken, the Borrower will use its best efforts to cause such
action to be taken), in good faith and promptly, and without any cost or
expense to the Bank, all such action as may be necessary or desirable, as
soon as reasonably practicable, to sell or to effect the sale of all or
part of the Security Agreement Collateral.
(c) Anything in this Agreement to the contrary notwithstanding, no
sale of the Security Agreement Collateral or transfer thereof to the Bank
or to the Bank's nominees shall be made without such (if any) approval of
any governmental authorities as may be required by any applicable laws. In
the event any such approval shall be required, the Borrower absolutely and
unconditionally agrees to execute, upon the request of the Bank, and
absolutely and unconditionally agrees to use its best efforts, upon the
request of the Bank, to cause the execution of, all such applications and
other instruments as may be necessary to obtain promptly any such approval.
SECTION 5.2. APPLICATION OF PROCEEDS. All cash proceeds received by the
Bank in respect of any sale of, collection from, or other realization upon, all
or any part of the Security Agreement Collateral shall be applied by the Bank to
the Obligations. Any surplus of such cash proceeds held by the Bank and
remaining after payment in full of all the Obligations shall be paid over to
whomsoever else may be lawfully entitled to receive such surplus. The Borrower
shall remain liable for any deficiency.
SECTION 5.3. NO WAIVER; REMEDIES CUMULATIVE. No delay, act or omission on
the part of the Bank of any of its rights hereunder shall be deemed a waiver of
any rights hereunder unless also contained in a writing signed by the Bank, nor
shall any single or partial exercise of, or any failure to exercise, any right,
power or privilege preclude any other or further or initial exercise thereof of
any other right, power or privilege. The rights and remedies provided herein are
cumulative, and not exclusive of rights and remedies which may be granted or
provided by applicable law.
SECTION 5.4. MARSHALLING. The Bank shall not be required to marshal any
present or future collateral security (including but not limited to this
Agreement and the Security Agreement Collateral) for, or other assurances of
payment of, the Obligations or any of them or to resort to such collateral
security or other assurances of payment in any particular order, and all of the
rights of the Bank hereunder in respect of such collateral security and other
assurances of payment shall be cumulative and in addition to all other rights,
however existing or arising.
<PAGE> 28
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ARTICLE VI
MISCELLANEOUS
SECTION 6.1. AMENDMENTS, ETC. No amendment or waiver of any provision of
this Agreement nor consent to any departure by the Borrower herefrom shall in
any event be effective unless the same shall be in writing and signed by the
Bank, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it is given.
SECTION 6.2. CONSENT TO JURISDICTION. THE BORROWER BY ITS EXECUTION HEREOF
HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE STATE COURTS
OF THE STATE OF CALIFORNIA AND TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED
STATES DISTRICT COURT FOR THE DISTRICT OF CALIFORNIA FOR THE PURPOSE OF ANY
SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF, AND HEREBY
CONSENTS TO SERVICE OF PROCESS IN ANY SUCH PROCEEDING IN ANY MANNER PERMITTED BY
THE LAWS OF THE STATE OF CALIFORNIA.
SECTION 6.3. GOVERNING LAW. THIS AGREEMENT SHALL IN ALL RESPECTS BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA (EXCEPT ITS CONFLICTS OF LAW).
SECTION 6.4. COUNTERPARTS. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
SECTION 6.5. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, THE BANK AND THE BORROWER HEREBY WAIVES,
AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR
ANY OBLIGATION OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE BANK OR THE BORROWER IN CONNECTION WITH ANY OF THE ABOVE, IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT OR
TORT OR OTHERWISE.
<PAGE> 29
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
ASPECT MEDICAL SYSTEMS, INC.
By: /s/ J. Neal Armstrong
-------------------------------
Title: Chief Financial Officer
Address: 2 Vision Drive
Natick, MA 01760-2059
Telecopy No.: 508-653-6788
Attention: President
IMPERIAL BANK
By: /s/ Oscar C. Jazdowski
-------------------------------
Title: SVP
By: /s/ Richard D. Aidala
-------------------------------
Title: AVP
<PAGE> 30
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ATTACHMENT 1
(to the Security Agreement)
ITEM A. LOCATIONS OF CHIEF PLACE OF BUSINESS, CHIEF EXECUTIVE OFFICE AND
RECORDS.
2 Vision Drive
Natick, MA
ITEM B. LOCATIONS OF COLLATERAL.
2 Vision Drive
Natick, MA
With the exceptions of evaluation, clinical, research, rental and
demonstration units distributed to users, and other immaterial
amounts stored at subcontractors' places of business.
ITEM C. TRADE NAMES.
<PAGE> 31
IMPERIAL BANK
MEMBER FDIC
TRADEMARK COLLATERAL SECURITY AND PLEDGE AGREEMENT
TRADEMARK COLLATERAL SECURITY AND PLEDGE AGREEMENT, dated as of June 22,
1998, between ASPECT MEDICAL SYSTEMS, INC., a Delaware corporation (the
"Assignor"), and IMPERIAL BANK, a bank organized under the laws of the State of
California (the "Bank").
WHEREAS, the Assignor and the Bank are parties to the Loan Agreement (the
"Loan Agreement"), dated as of June 22, 1998, pursuant to the terms and
conditions of which (i) the Bank has agreed to make loans to the Assignor and
(ii) the Assignor has promised, among other things, to pay to the Bank the
unpaid principal balance of the loans and interest thereon.
WHEREAS, the Assignor has executed and delivered to the Bank the Security
Agreement of even date herewith (the "Security Agreement"), pursuant to which
the Assignor has granted to the Bank, a security interest in certain of the
Assignor's personal property and fixture assets, including without limitation
the trademarks, service marks, trademark and service mark registrations, and
trademark and service mark registration applications listed on SCHEDULE A
attached hereto, all to secure the payment and performance of the obligations of
the Assignor under the Loan Agreement and the other Loan Documents (as defined
in the Loan Agreement) (the "Obligations"); and
WHEREAS, this Trademark Agreement is supplemental to the provisions
contained in the Security Agreement;
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS.
Capitalized terms used herein and not otherwise defined herein shall have
the same meanings given to such terms in the Loan Agreement and the Security
Agreement. In addition, the following terms shall have the meanings set forth in
this ss.1:
ASSIGNMENT OF MARKS. See ss.2.1.
ASSOCIATED GOODWILL. All goodwill of the Assignor and its business,
products and services appurtenant to, associated with or symbolized by the
Trademarks and the use thereof.
PLEDGED TRADEMARKS. All of the Assignor's right, title and interest in and
to all of the Trademarks, the Trademark Registrations, the Trademark License
Rights, the Trademark Rights, the Associated Goodwill, and all accessions to,
substitutions for, replacements of, and all products and proceeds of any and all
of the foregoing.
PTO. The United States Patent and Trademark Office.
TRADEMARK AGREEMENT. This Trademark Collateral Security and Pledge
Agreement, as amended and in effect from time to time.
TRADEMARK LICENSE RIGHTS. Any and all present or future rights and
interests of the Assignor pursuant to any and all present and future franchising
or licensing agreements in favor of the Assignor, or to which the Assignor is a
party, pertaining to any Trademarks, Trademark Registrations, or Trademark
Rights owned or used by third parties, including the right (but not the
obligation) in the name of the Assignor or the Bank to enforce, and sue and
recover for, any breach or violation of any such agreement to which the Assignor
is a party.
TRADEMARK REGISTRATIONS. All present or future federal, state, local and
foreign registrations of the Trademarks, all present and future applications for
any such registrations (and any such registrations thereof upon approval of such
applications), together with the right (but not the obligation) to apply for
such registrations (and prosecute such applications) in the name of the Assignor
or the Bank, and to take any and all actions necessary or appropriate to
maintain such registrations in effect and renew and extend such registrations.
<PAGE> 32
TRADEMARK RIGHTS. Any and all present or future rights in, to and
associated with the Trademarks throughout the world, whether arising under
federal law, state law, common law, foreign law or otherwise, including the
following: the right (but not the obligation) to register claims under any
state, federal or foreign trademark law or regulation; the right (but not the
obligation) to sue or bring opposition or cancellation proceedings in the name
of the Assignor or the Bank for any and all past, present and future
infringements or dilution of or any other damages or injury to the Trademarks,
the Trademark Rights, or the Associated Goodwill, and the rights to damages or
profits due or accrued arising out of or in connection with any such past,
present or future infringement, dilution, damage or injury; and the Trademark
License Rights.
TRADEMARKS. All of the trademarks, service marks, designs, logos, indicia,
trade names, corporate names, company names, business names, fictitious business
names, trade styles, elements of package or trade dress, and other source and
product or service identifiers, used or associated with or appurtenant to the
products, services and businesses of the Assignor, that (i) are set forth on
SCHEDULE A hereto, or (ii) have been adopted, acquired, owned, held or used by
the Assignor or are now owned, held or used by the Assignor, in the Assignor's
business, or with the Assignor's products and services, or in which the Assignor
has any right, title or interest, or (iii) are in the future adopted, acquired,
owned, held and used by the Assignor in the Assignor's business or with the
Assignor's products and services, or in which the Assignor in the future
acquires any right, title or interest.
2. GRANT OF SECURITY INTEREST.
2.1. SECURITY INTEREST; ASSIGNMENT OF MARKS. As collateral security
for the payment and performance in full of all of the Obligations, the
Assignor hereby pledges and collaterally assigns to the Bank and hereby
unconditionally grants to the Bank a continuing security interest in and
first priority lien on the Pledged Trademarks. In addition, the Assignor
has executed in blank and delivered to the Bank an assignment of federally
registered trademarks in substantially the form of EXHIBIT 1 hereto (the
"Assignment of Marks"). The Assignor hereby authorizes the Bank to complete
as assignee and record with the PTO the Assignment of Marks only upon the
occurrence and during the continuance of an Event of Default and the proper
exercise of the Bank's remedies under this Trademark Agreement and the
Security Agreement.
2.2. SUPPLEMENTAL TO SECURITY AGREEMENT. Pursuant to the Security
Agreement the Assignor has granted to the Bank a continuing security
interest in and lien on the Collateral (including the Pledged Trademarks).
Any and all rights and interests of the Bank in and to the Pledged
Trademarks (and any and all obligations of the Assignor with respect to the
Pledged Trademarks) provided herein, or arising hereunder or in connection
herewith, shall only supplement and be cumulative and in addition to the
rights and interests of the Bank (and the obligations of the Assignor) in,
to or with respect to the Collateral (including the Pledged Trademarks)
provided in or arising under or in connection with the Security Agreement
and shall not be in derogation thereof.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Assignor represents, warrants and covenants that: (i) SCHEDULE A sets
forth a true and complete list of all Trademarks and Trademark Registrations now
owned, licensed, controlled or used by the Assignor; (ii) to the best of
Assignor's knowledge, the Trademarks and Trademark Registrations are subsisting
and have not been adjudged invalid or unenforceable, in whole or in part, and
there is no litigation or proceeding pending concerning the validity or
enforceability of the Trademarks or Trademark Registrations; (iii) to the best
of the Assignor's knowledge, each of the Trademarks and Trademark Registrations
is valid and enforceable; (iv) to the best of the Assignor's knowledge, there is
no infringement by others of the Trademarks, Trademark Registrations or
Trademark Rights; (v) no claim has been made that the use of any of the
Trademarks does or may violate the rights of any third person, and to the best
of the Assignor's knowledge, there is no infringement by the Assignor of the
trademark rights of others; and (vi) the Assignor is the sole and exclusive
owner of the entire and unencumbered right, title and interest in and to each of
the Trademarks (other than ownership and other rights reserved by third party
owners with respect to Trademarks that the Assignor is licensed to use or under
licenses granted by Assignor in the ordinary course of business), free and clear
of any liens, charges, encumbrances and adverse claims, including pledges,
assignments, licenses, registered user agreements and covenants by the Assignor
not to sue third persons, other than the lien created by the Security Agreement
and this Trademark Agreement or permitted thereunder.
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<PAGE> 33
4. NO TRANSFER OR INCONSISTENT AGREEMENTS.
Without the Bank's prior written consent, the Assignor will not (i)
mortgage, pledge, assign, encumber, grant a security interest in, transfer,
license or alienate any of the Pledged Trademarks, or (ii) enter into any
agreement (for example, a license agreement) that is inconsistent with the
Assignor's obligations under this Trademark Agreement or the Security Agreement.
5. AFTER-ACQUIRED TRADEMARKS, ETC.
5.1. AFTER-ACQUIRED TRADEMARKS. If, before the Obligations shall have
been finally paid and satisfied in full, and all of the commitments shall
have terminated, the Assignor shall obtain any right, title or interest in
or to any other or new Trademarks, Trademark Registrations or Trademark
Rights, the provisions of this Trademark Agreement shall automatically
apply thereto and the Assignor shall promptly provide to the Bank notice
thereof in writing and execute and deliver to the Bank such documents or
instruments as the Bank may reasonably request further to implement,
preserve or evidence the Bank's interest therein.
5.2. AMENDMENT TO SCHEDULE. The Assignor authorizes the Bank to modify
this Trademark Agreement and the Assignment of Marks, without the necessity
of the Assignor's further approval or signature, by amending EXHIBIT A
hereto and the ANNEX to the Assignment of Marks to include any future or
other Trademarks, Trademark Registrations or Trademark Rights under ss.2 or
ss.5.
6. TRADEMARK PROSECUTION.
6.1. ASSIGNOR RESPONSIBLE. The Assignor shall assume full and complete
responsibility for the prosecution, defense, enforcement or any other
necessary or desirable actions in connection with the Pledged Trademarks.
6.2. PROTECTION OF TRADEMARKS, ETC. In general, the Assignor shall
take any and all such actions (including institution and maintenance of
suits, proceedings or actions) as may be necessary or appropriate to
properly maintain, protect, preserve, care for and enforce the Pledged
Trademarks. The Assignor shall not take or fail to take any action, nor
permit any action to be taken or not taken by others under its control,
that would adversely affect the validity, grant or enforcement of the
Pledged Trademarks except to the extent in Assignor's reasonable business
judgment it would be in the Assignor's best interests to continue.
7. REMEDIES.
Upon the occurrence and during the continuance of an Event of Default, the
Bank shall have, in addition to all other rights and remedies given it by this
Trademark Agreement, the Loan Agreement, the Security Agreement and the other
Loan Documents, those allowed by law and the rights and remedies of a secured
party under the Uniform Commercial Code as enacted in the Commonwealth of
Massachusetts, and, without limiting the generality of the foregoing, the Bank
may immediately, without demand of performance and without other notice (except
as required by law or required in the foregoing documents) or demand whatsoever
to the Assignor, all of which are hereby expressly waived, sell or license at
public or private sale or otherwise realize upon the whole or from time to time
any part of the Pledged Trademarks, or any interest that the Assignor may have
therein, and after deducting from the proceeds of sale or other disposition of
the Pledged Trademarks all reasonable expenses incurred by the Bank in
attempting to enforce this Trademark Agreement (including all reasonable
expenses for broker's fees and legal services), shall apply the residue of such
proceeds toward the payment of the Obligations. At any such sale or other
disposition, the Bank may, to the extent permitted under applicable law,
purchase or license the whole or any part of the Pledged Trademarks or interests
therein sold, licensed or otherwise disposed of.
8. POWER OF ATTORNEY.
If any Event of Default shall have occurred and be continuing, the Assignor
does hereby make, constitute and appoint the Bank (and any officer or agent of
the Bank as the Bank may select in its exclusive discretion) as the Assignor's
true and lawful attorney-in-fact, with full power of substitution and with the
power to endorse the Assignor's name on all applications, documents, papers and
instruments necessary for the Bank to use the Pledged Trademarks, or to grant or
issue any exclusive or nonexclusive license of any of the Pledged Trademarks to
any third person, or to take any and all actions necessary for the Bank to
assign, pledge, convey or otherwise transfer title in or dispose of any of the
Pledged Trademarks or any interest of the Assignor therein to any third person,
and, in general, to execute and deliver any instruments or documents and do all
other acts that the Assignor is obligated to execute and do hereunder. The
Assignor hereby releases the Bank from any claims, liabilities, causes of action
or demands arising out of or in connection with any action taken or omitted to
be taken by the Bank under this power of attorney
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<PAGE> 34
(except for the Bank's gross negligence or willful misconduct). This power of
attorney is coupled with an interest and shall be irrevocable for the duration
of this Trademark Agreement.
9. FURTHER ASSURANCES.
The Assignor shall, at any time and from time to time, and at its expense,
make, execute, acknowledge and deliver, and file and record as necessary or
appropriate with governmental or regulatory authorities, agencies or offices,
such agreements, assignments, documents and instruments, and do such other and
further acts and things (including, without limitation, obtaining consents of
third parties), as the Bank may reasonably request or as may reasonably be
necessary or appropriate in order to implement and effect fully the intentions,
purposes and provisions of this Trademark Agreement, or to assure and confirm to
the Bank the grant, perfection and priority of the Bank's security interest in
the Pledged Trademarks.
10. TERMINATION.
At such time as all of the Obligations have been finally paid and satisfied
in full, and all the commitments of the Bank to make loans to the Assignor shall
have terminated, this Trademark Agreement shall terminate and the Bank shall,
upon the written request and at the expense of the Assignor, execute and deliver
to the Assignor all deeds, assignments and other instruments as may be necessary
or proper to reassign and reconvey to and re-vest in the Assignor the entire
right, title and interest to the Pledged Trademarks previously granted,
assigned, transferred and conveyed to the Bank by the Assignor pursuant to this
Trademark Agreement, as fully as if this Trademark Agreement had not been made,
subject to any disposition of all or any part thereof that may have been made by
the Bank pursuant hereto or the Security Agreement.
11. NO ASSUMPTION OF LIABILITY; INDEMNIFICATION.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, THE BANK ASSUMES
NO LIABILITIES OF THE ASSIGNOR WITH RESPECT TO ANY CLAIM OR CLAIMS REGARDING THE
ASSIGNOR'S OWNERSHIP OR PURPORTED OWNERSHIP OF, OR RIGHTS OR PURPORTED RIGHTS
ARISING FROM, ANY OF THE PLEDGED TRADEMARKS OR ANY USE, LICENSE OR SUBLICENSE
THEREOF, WHETHER ARISING OUT OF ANY PAST, CURRENT OR FUTURE EVENT, CIRCUMSTANCE,
ACT OR OMISSION OR OTHERWISE. ALL OF SUCH LIABILITIES SHALL BE EXCLUSIVELY THE
RESPONSIBILITY OF THE ASSIGNOR, AND THE ASSIGNOR SHALL INDEMNIFY THE BANK FOR
ANY AND ALL COSTS, EXPENSES, DAMAGES AND CLAIMS, INCLUDING LEGAL FEES, INCURRED
BY THE BANK WITH RESPECT TO SUCH LIABILITIES.
12. AMENDMENT AND WAIVER.
This Trademark Agreement is subject to modification only by a writing
signed by the Bank and the Assignor, except as provided in ss.5.2. The Bank
shall not be deemed to have waived any right hereunder unless such waiver shall
be in writing and signed by the Bank. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right on any future occasion.
13. GOVERNING LAW; CONSENT TO JURISDICTION.
THIS TRADEMARK AGREEMENT IS GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF CALIFORNIA EXCEPT CONFLICTS OF LAWS.
14. WAIVER OF JURY TRIAL.
EACH OF THE BANK AND THE ASSIGNOR WAIVES ITS RIGHT TO A JURY TRIAL WITH
RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH
THIS TRADEMARK AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE
OF ANY SUCH RIGHTS OR OBLIGATIONS.
15. MISCELLANEOUS.
The headings of each section of this Trademark Agreement are for
convenience only and shall not define or limit the provisions thereof. This
Trademark Agreement and all rights and obligations hereunder shall be binding
upon the Assignor and its respective successors and assigns, and shall inure to
the benefit of the Bank and its respective successors and assigns. In the event
of any irreconcilable conflict between the provisions of this Trademark
Agreement and the Loan Agreement, or between this Trademark Agreement and the
Security Agreement, the provisions of the Loan Agreement or the Security
Agreement, as the case may be, shall control. If any term of
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<PAGE> 35
this Trademark Agreement shall be held to be invalid, illegal or unenforceable,
the validity of all other terms hereof shall in no way be affected thereby, and
this Trademark Agreement shall be construed and be enforceable as if such
invalid, illegal or unenforceable term had not been included herein. The
Assignor acknowledges receipt of a copy of this Trademark Agreement.
-5-
<PAGE> 36
IN WITNESS WHEREOF, this Trademark Agreement has been executed as of the
day and year first above written.
ASPECT MEDICAL SYSTEMS, INC.
ASPECT MEDICAL SYSTEMS, INC.
By: /s/ J. Neal Armstrong
-------------------------------
Name: J. Neal Armstrong
Title: Chief Financial Officer
IMPERIAL BANK
By: /s/ Oscar C. Jazdowski
-------------------------------
Name: Oscar C. Jazdowski
Title: SVP
By: /s/ Richard D. Aidala
-------------------------------
Name: Richard D. Aidala
Title: AVP
CERTIFICATE OF ACKNOWLEDGMENT
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
Before me, the undersigned, a Notary Public in and for the county
aforesaid, on this 22nd day of June, 1998, personally appeared J. Neal Armstrong
known personally, and who, being by me duly sworn, deposes and says that he is
the Chief Financial Officer of Aspect Medical Systems, Inc. and that said
instrument was signed and sealed on behalf of said corporation by authority of
its Board of Directors, and said J. Neal Armstrong, acknowledged said instrument
to be the free act and deed of said corporation.
Angela M. Ray
--------------------------
Notary Public
My commission expires: 2/3/2000
-6-
<PAGE> 37
SCHEDULE A
TRADEMARKS AND TRADEMARK REGISTRATIONS
Trademark Registrations --
or United States Patent and Trademark Office
Service Mark Registration No. Registration Date
------------ ---------------- -----------------
Trademark Pending Applications --
or United States Patent and Trademark Office
Service Mark Serial No. Filing Date
------------ ---------- -----------
<PAGE> 38
EXHIBIT 1
ASSIGNMENT OF TRADEMARKS AND SERVICE MARKS (U.S.)
WHEREAS, ASPECT MEDICAL SYSTEMS, INC., a corporation existing under the
laws of the state of Delaware (the "Assignor"), has adopted and used and is
using the trademarks and service marks (the "Marks") identified on the ANNEX
hereto, and is the owner of the registrations of and pending registration
applications for such Marks in the United States Patent and Trademark Office
identified on such ANNEX; and
WHEREAS, IMPERIAL BANK, a bank organized under the laws of the State of
California, having a place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Assignee"), is desirous of acquiring the Marks and the
registrations thereof and registration applications therefor;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the Assignor does hereby assign, sell and transfer unto the
Assignee all right, title and interest in and to the Marks, together with (i)
the registrations of and registration applications for the Marks, (ii) the
goodwill of the business symbolized by and associated with the Marks and the
registrations thereof, and (iii) the right to sue and recover for, and the right
to profits or damages due or accrued arising out of or in connection with, any
and all past, present or future infringements or dilution of or damage or injury
to the Marks or the registrations thereof or such associated goodwill.
This Assignment of Trademarks and Service Marks (U.S.) is intended to and
shall take effect as a sealed instrument at such time as the Assignee shall
complete this instrument by inserting its name in the second paragraph above and
signing its acceptance of this Assignment of Trademarks and Service Marks (U.S.)
below.
IN WITNESS WHEREOF, the Assignor, by its duly authorized officer, has
executed this assignment, as an instrument under seal, on this ______ day of
June, 1998.
ASPECT MEDICAL SYSTEMS, INC.
By:________________________________
Title:
The foregoing assignment of the Marks and the registrations thereof and
registration applications therefor by the Assignor to the Assignee is hereby
accepted as of the __ day of __________, ____.
IMPERIAL BANK
By:________________________________
Title:
By:________________________________
Title:
<PAGE> 39
-2-
THE STATE/COMMONWEALTH OF _____________ )
) ss.
COUNTY OF ___________ )
On this the ______ day of June, 1998, before me appeared
________________________, the person who signed this instrument, who
acknowledged that (s)he is the _________________________ of Aspect Medical
Systems, Inc. and that being duly authorized (s)he signed such instrument as a
free act on behalf of ________________
------------------------------
Notary Public
[Seal] My commission expires:
<PAGE> 40
ANNEX
Trademark Registrations --
or United States Patent and Trademark Office
Service Mark Registration No. Registration Date
------------ ---------------- -----------------
Trademark Pending Applications --
or United States Patent and Trademark Office
Service Mark Serial No. Filing Date
------------ ---------- -----------
<PAGE> 41
ASSIGNMENT OF TRADEMARKS AND SERVICE MARKS (U.S.)
WHEREAS, ASPECT MEDICAL SYSTEMS, INC., a corporation existing under the
laws of the state of Delaware (the "Assignor"), has adopted and used and is
using the trademarks and service marks (the "Marks") identified on the ANNEX
hereto, and is the owner of the registrations of and pending registration
applications for such Marks in the United States Patent and Trademark Office
identified on such ANNEX; and
WHEREAS, IMPERIAL BANK, a bank organized under the laws of the State of
California, having a place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Assignee"), is desirous of acquiring the Marks and the
registrations thereof and registration applications therefor;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the Assignor does hereby assign, sell and transfer unto the
Assignee all right, title and interest in and to the Marks, together with (i)
the registrations of and registration applications for the Marks, (ii) the
goodwill of the business symbolized by and associated with the Marks and the
registrations thereof, and (iii) the right to sue and recover for, and the right
to profits or damages due or accrued arising out of or in connection with, any
and all past, present or future infringements or dilution of or damage or injury
to the Marks or the registrations thereof or such associated goodwill.
This Assignment of Trademarks and Service Marks (U.S.) is intended to and
shall take effect as a sealed instrument at such time as the Assignee shall
complete this instrument by inserting its name in the second paragraph above and
signing its acceptance of this Assignment of Trademarks and Service Marks (U.S.)
below.
IN WITNESS WHEREOF, the Assignor, by its duly authorized officer, has
executed this assignment, as an instrument under seal, on this 22nd day of
June, 1998.
ASPECT MEDICAL SYSTEMS, INC.
By: J. Neal Armstrong
-------------------------------
Title: Chief Financial Officer
The foregoing assignment of the Marks and the registrations thereof and
registration applications therefor by the Assignor to the Assignee is hereby
accepted as of the __ day of __________, ____.
IMPERIAL BANK
By:________________________________
Title:
By:________________________________
Title:
<PAGE> 42
-2-
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
On this the 22nd day of June, 1998, before me appeared J. Neal Armstrong,
the person who signed this instrument, who acknowledged that (s)he is the Chief
Financial Officer of Aspect Medical Systems, Inc. and that being duly authorized
(s)he signed such instrument as a free act on behalf of Aspect Medical Systems,
Inc.
Angela M. Ray
------------------------------
Notary Public
[Seal] My commission expires: 2/3/2000
<PAGE> 43
IMPERIAL BANK
MEMBER FDIC
PATENT COLLATERAL SECURITY AND PLEDGE AGREEMENT
PATENT COLLATERAL SECURITY AND PLEDGE AGREEMENT, dated as of June 22, 1998,
between ASPECT MEDICAL SYSTEMS, INC., a Delaware corporation (the "Assignor"),
and IMPERIAL BANK, a bank organized under the laws of the State of California
(the "Bank").
WHEREAS, the Assignor and the Bank are parties to a Loan Agreement, dated
as of June 22, 1998 (as amended and in effect from time to time, the "Loan
Agreement"), between the Assignor and the Bank, pursuant to the terms and
conditions of which (i) the Bank has agreed to make loans to the Assignor and
(ii) the Assignor has promised, among other things, to pay to the Bank the
unpaid principal balance of the loans and interest thereon.
WHEREAS, the Assignor has executed and delivered to the Bank the General
Security Agreement of even date herewith (the "Security Agreement"), pursuant to
which the Assignor has granted to the Bank a security interest in certain of the
Assignor's personal property and fixture assets, including without limitation
the patents and patent applications listed on SCHEDULE A attached hereto, all to
secure the payment and performance of the Assignor's obligations under the Loan
Agreement and the other Loan Documents (as defined in the Loan Agreement) (the
"Obligations"); and
WHEREAS, this Patent Agreement is supplemental to the provisions contained
in the Security Agreement;
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS.
Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings provided therefor in the Loan Agreement and the Security
Agreement. In addition, the following terms shall have the meanings set forth in
this ss.1:
PATENT AGREEMENT. This Patent Collateral Security and Pledge Agreement, as
amended and in effect from time to time.
PATENT COLLATERAL. All of the Assignor's right, title and interest in and
to all of the Patents, the Patent License Rights, and all other Patent Rights,
and all additions, improvements, and accessions to, all substitutions for and
replacements of, and all products and Proceeds (including insurance proceeds) of
any and all of the foregoing, and all books and records and technical
information and data describing or used in connection with any and all such
rights, interests, assets or property; PROVIDED, HOWEVER, the term "Patent
Collateral" shall not include any Patent License Rights which are now or
hereafter held by the Assignor as licensee to the extent that (i) any licensing
arrangement in favor of the Assignor, or to which the Assignor is a party, is
not assignable or capable of being encumbered as a matter of law or under the
terms of such licensing arrangement (but solely to the extent that any such
restriction shall be enforceable under applicable law), without the consent of
the licensor or lessor thereof and (ii) such consent has not been obtained;
PROVIDED, FURTHER, THAT, the term "Patent Collateral" shall include (A) any and
all proceeds of such licensing arrangements to the extent it is not so
restricted and (B) upon any such licensor or lessor consent with respect to any
such otherwise excluded licensing arrangements being obtained, thereafter such
Patent License Rights as well as any proceeds thereof that might have been
excluded from such term.
<PAGE> 44
PATENT LICENSE RIGHTS. Any and all present or future rights and interests
of the Assignor pursuant to any and all present and future licensing agreements
in favor of the Assignor, or to which the Assignor is a party, pertaining to any
Patents or Patent Rights, owned or used by third parties in the present or
future, including the right in the name of the Assignor or the Bank to enforce,
and sue and recover for, any present or future breach or violation of any such
agreement.
PATENT RIGHTS. Any and all present or future rights in, to and associated
with the Patents throughout the world, whether arising under federal law, state
law, common law, foreign law, or otherwise, including but not limited to the
following: the right (but not the obligation) to register claims under any
federal, state or foreign patent law or regulation; the right (but not the
obligation) to sue or bring opposition or bring cancellation proceedings in the
name of the Assignor or the Bank for any and all present and future
infringements of or any other damages or injury to the Patents or the Patent
Rights; the right to damages or profits due or accrued arising out of or in
connection with any such present or future infringement, damage or injury; and
the Patent License Rights.
PATENTS. All patents and patent applications, whether United States or
foreign, that are owned by the Assignor or in which the Assignor has any right,
title or interest, now or in the future, including but not limited to:
(a) the patents and patent applications listed on SCHEDULE A hereto
(as the same may be amended pursuant hereto from time to time);
(b) all letters patent of the United States or any other country, and
all applications for letters patent of the United States or any other
country;
(c) all re-issues, continuations, divisions, continuations-in-part,
renewals or extensions thereof;
(d) the inventions disclosed or claimed therein, including the right
to make, use, practice and/or sell (or license or otherwise transfer or
dispose of) the inventions disclosed or claimed therein; and
(e) the right (but not the obligation) to make and prosecute
applications for such Patents.
PROCEEDS. Any consideration received from the sale, exchange, license,
lease or other disposition or transfer of any right, interest, asset or property
which constitutes all or any part of the Patent Collateral, any value received
as a consequence of the ownership, possession, use or practice of any Patent
Collateral, and any payment received from any insurer or other person or entity
as a result of the destruction or the loss, theft or other involuntary
conversion of whatever nature of any right, interest, asset or property which
constitutes all or any part of the Patent Collateral.
PTO. The United States Patent and Trademark Office.
2. GRANT OF SECURITY INTEREST.
To secure the payment and performance in full of all of the Obligations,
the Assignor hereby pledges and hereby grants to the Bank a security interest in
all of the Patent Collateral. THE BANK ASSUMES NO LIABILITY ARISING IN ANY WAY
BY REASON OF ITS HOLDING SUCH COLLATERAL.
-2-
<PAGE> 45
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Assignor represents, warrants and covenants that: (i) SCHEDULE A
attached hereto sets forth a true and complete list of all the patents, rights
to patents and patent applications now owned, licensed, controlled or used by
the Assignor; (ii) the issued Patents are subsisting and have not been adjudged
invalid or unenforceable, in whole or in part, and there is no litigation or
proceeding pending concerning the validity or enforceability of the issued
Patents; (iii) to the best of the Assignor's knowledge, each of the issued
Patents is valid and enforceable; (iv) to the best of the Assignor's knowledge,
there is no infringement by others of the issued Patents or Patent Rights; (v)
to the Assignor's knowledge no claim has been made that the use of any of the
Patents does or may violate the rights of any third person, and to the best of
the Assignor's knowledge there is no infringement by the Assignor of the patent
rights of others; and (vi) the Assignor is the sole and exclusive owner of the
entire and unencumbered right, title and interest in and to each of the Patents
(other than ownership and other rights reserved by third party owners with
respect to Patents which the Assignor is licensed to practice or use or under
licenses granted by Assignor in the ordinary course of business), free and clear
of any liens, charges, encumbrances and adverse claims, other than the liens
created by the Security Agreement and this Patent Agreement or permitted under
the Loan Agreement.
4. NO TRANSFER OR INCONSISTENT AGREEMENTS.
Without the Bank's prior written consent, the Assignor will not (i)
mortgage, pledge, assign, encumber, grant a security interest in, transfer,
license or alienate any of the Patent Collateral, or (ii) enter into any
agreement (for example, a license agreement) that is inconsistent with the
Assignor's obligations under this Patent Agreement or the Security Agreement
other than the licensing of Patent Collateral by the Assignor in the ordinary
course of its business.
5. AFTER-ACQUIRED PATENTS, ETC.
5.1. AFTER-ACQUIRED PATENTS. If, before the Obligations shall have
been finally paid and satisfied in full, the Assignor shall obtain any
right, title or interest in or to any other or new patents or patent
applications, or become entitled to the benefit of any patent application
or patent or any reissue, division, continuation, renewal, extension, or
continuation-in-part of any of the Patent Collateral or any improvement on
any of the Patent Collateral, the provisions of this Patent Agreement shall
automatically apply thereto and the Assignor shall promptly give to the
Bank notice thereof in writing and execute and deliver to the Bank such
documents or instruments as the Bank may reasonably request further to
transfer title thereto to the Bank.
5.2. AMENDMENT TO SCHEDULE. The Assignor authorizes the Bank to modify
this Patent Agreement, without the necessity of the Assignor's further
approval or signature, by amending SCHEDULE A hereto to include any future
or other Patents or Patent Rights under ss.2 or ss.5 hereof.
6. PATENT PROSECUTION.
6.1. ASSIGNOR RESPONSIBLE. The Assignor shall assume full and complete
responsibility for the prosecution, grant, enforcement or any other
necessary or desirable actions in connection with the Patent Collateral.
6.2. PROTECTION OF PATENTS, ETC. In general, the Assignor shall take
any and all such actions (including but not limited to institution and
maintenance of suits, proceedings or actions) as may be necessary or
appropriate to properly maintain, protect, preserve, care for and enforce
the Patent Collateral, except if and to the extent that, in the reasonable
business judgment of the Assignor, the Assignor believes that such action
would not be in the best interests of the Assignor. The Assignor shall not
take or fail to take any action, nor permit any action to be taken or not
taken by others under its control, which would affect the validity, grant
or enforcement in any material respect of
-3-
<PAGE> 46
any of the Patent Collateral, except if, and to the extent that, in the
reasonable business judgment of the Assignor, the Assignor believes that
such action would not be in the best interests of the Assignor.
7. REMEDIES.
If any Event of Default shall have occurred and be continuing, then upon
notice by the Bank to the Assignor: (i) the Assignor's license with respect to
the Patents as set forth in ss.7 shall terminate; (ii) the Assignor shall
immediately cease and desist from the practice, manufacture, use and sale of the
inventions claimed, disclosed or covered by the Patents; and (iii) the Bank
shall have, in addition to all other rights and remedies given it by this Patent
Agreement, the Loan Agreement, the Security Agreement, and the other Loan
Documents, those allowed by law and the rights and remedies of a secured party
under the Uniform Commercial Code as enacted in the Commonwealth of
Massachusetts and, without limiting the generality of the foregoing, the Bank
may immediately, without demand of performance and without other notice (except
as provided by law or the Loan Documents) or demand whatsoever to the Assignor,
all of which are hereby expressly waived, and without advertisement, sell or
license at public or private sale or otherwise realize upon the whole or from
time to time any part of the Patent Collateral, or any interest which the
Assignor may have therein, and after deducting from the proceeds of sale or
other disposition of the Patent Collateral all reasonable expenses (including
all reasonable expenses for brokers' fees and legal services), shall apply the
residue of such proceeds toward the payment of the Obligations. At any such sale
or other disposition, the Bank may, to the extent permitted under applicable
law, purchase or license the whole or any part of the Patent Collateral or
interests therein sold, licensed or otherwise disposed of.
8. POWER OF ATTORNEY.
If any Event of Default shall have occurred and be continuing, the Assignor
does hereby make, constitute and appoint the Bank (and any officer or agent of
the Bank as the Bank may select in its exclusive discretion) as the Assignor's
true and lawful attorney-in-fact, with the power to endorse the Assignor's name
on all applications, documents, papers and instruments necessary for the Bank to
use any of the Patent Collateral, to practice, make, use or sell the inventions
disclosed or claimed in any of the Patent Collateral, to grant or issue any
exclusive or nonexclusive license of any of the Patent Collateral to any third
person, or necessary for the Bank to assign, pledge, convey or otherwise
transfer title in or dispose of the Patent Collateral or any part thereof or
interest therein to any third person, and, in general, to execute and deliver
any instruments or documents and do all other acts which the Assignor is
obligated to execute and do hereunder. The Assignor releases the Bank from any
claims, liabilities, causes of action or demands arising out of or in connection
with any action taken or omitted to be taken by the Bank under this power of
attorney (except for the Bank's gross negligence or willful misconduct). This
power of attorney shall be irrevocable for the duration of this Patent
Agreement.
9. FURTHER ASSURANCES.
The Assignor shall, at any time and from time to time, and at its expense,
make, execute, acknowledge and deliver, and file and record as necessary or
appropriate with governmental or regulatory authorities, agencies or offices,
such agreements, assignments, documents and instruments, and do such other and
further acts and things (including, without limitation, obtaining consents of
third parties), as the Bank may reasonably request or as may be reasonably
necessary or appropriate in order to implement and effect fully the intentions,
purposes and provisions of this Patent Agreement, or to assure and confirm to
the Bank the grant, perfection and priority of the Bank's security interest in
any of the Patent Collateral.
10. TERMINATION.
-4-
<PAGE> 47
At such time as all of the Obligations have been finally and indefeasibly
paid and satisfied in full and the commitments of the Bank to make loans to the
Assignor shall have terminated, this Patent Agreement shall terminate.
11. NO ASSUMPTION OF LIABILITY; INDEMNIFICATION.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, THE BANK ASSUMES
NO LIABILITIES OF THE ASSIGNOR WITH RESPECT TO ANY CLAIM OR CLAIMS REGARDING THE
ASSIGNOR'S OWNERSHIP OR PURPORTED OWNERSHIP OF, OR RIGHTS OR PURPORTED RIGHTS
ARISING FROM, ANY OF THE PATENT COLLATERAL OR ANY PRACTICE, USE, LICENSE OR
SUBLICENSE THEREOF, OR ANY PRACTICE, MANUFACTURE, USE OR SALE OF ANY OF THE
INVENTIONS DISCLOSED OR CLAIMED THEREIN, WHETHER ARISING OUT OF ANY PAST,
CURRENT OR FUTURE EVENT, CIRCUMSTANCE, ACT OR OMISSION OR OTHERWISE. ALL OF SUCH
LIABILITIES SHALL BE EXCLUSIVELY BORNE BY THE ASSIGNOR, AND THE ASSIGNOR SHALL
INDEMNIFY THE BANK FOR ANY AND ALL COSTS, EXPENSES, DAMAGES AND CLAIMS,
INCLUDING LEGAL FEES, INCURRED BY THE BANK WITH RESPECT TO SUCH LIABILITIES.
12. RIGHTS AND REMEDIES CUMULATIVE.
All of the Bank's rights and remedies with respect to the Patent
Collateral, whether established hereby or by the Security Agreement or by any
other agreements or by law, shall be cumulative and may be exercised singularly
or concurrently. This Patent Agreement is supplemental to the Security
Agreement, and nothing contained herein shall in any way derogate from any of
the rights or remedies of the Bank contained therein. Nothing contained in this
Patent Agreement shall be deemed to extend the time of attachment or perfection
of or otherwise impair the security interest in any of the Patent Collateral
granted to the Bank under the Security Agreement.
13. AMENDMENT AND WAIVER.
This Patent Agreement is subject to modification only by a writing signed
by the Bank and the Assignor, except as provided in ss.5.2. The Bank shall not
be deemed to have waived any right hereunder unless such waiver shall be in
writing and signed by the Bank. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right on any future occasion.
14. GOVERNING LAW.
THIS PATENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF CALIFORNIA.
15. WAIVER OF JURY TRIAL.
THE ASSIGNOR WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR
CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS PATENT AGREEMENT, ANY
RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF ANY SUCH RIGHTS OR
OBLIGATIONS.
16. MISCELLANEOUS.
The headings of each section of this Patent Agreement are for convenience
only and shall not define or limit the provisions thereof. This Patent Agreement
and all rights and obligations hereunder shall be binding upon the Assignor and
its successors and assigns, and shall inure to the benefit of the Bank and its
successors and assigns. In the event of any irreconcilable conflict between the
provisions of this Patent Agreement and the Loan Agreement, or between this
Patent Agreement and the Security Agreement, the provisions of the Loan
Agreement or the Security Agreement, as the case may be, shall control. If any
term of this Patent Agreement
-5-
<PAGE> 48
shall be held to be invalid, illegal or unenforceable, the validity of all other
terms hereof shall in no way be affected thereby, and this Patent Agreement
shall be construed and be enforceable as if such invalid, illegal or
unenforceable term had not been included herein. The Assignor acknowledges
receipt of a copy of this Patent Agreement.
-6-
<PAGE> 49
IN WITNESS WHEREOF, this Patent Agreement has been executed as of the day
and year first above written.
ASPECT MEDICAL SYSTEMS, INC.
By: /s/ J. Neal Armstrong
-------------------------------
Name: J. Neal Armstrong
Title: Chief Financial Officer
IMPERIAL BANK
By: /s/ Oscar C. Jazdowski
-------------------------------
Name: Oscar C. Jazdowski
Title: SVP
By: /s/ Richard D. Aidala
-------------------------------
Name: Richard D. Aidala
Title: AVP
-7-
<PAGE> 50
CERTIFICATE OF ACKNOWLEDGMENT
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
Before me, the undersigned, a Notary Public in and for the county
aforesaid, on this 22nd day of June, 1998 personally appeared J. Neal Armstrong
to me known personally, and who, being by me duly sworn, deposes and says that
he is the Chief Financial Officer of Aspect Medical Systems, Inc. and that said
instrument was signed and sealed on behalf of said corporation by authority of
its Board of Directors, and said J. Neal Armstrong acknowledged said instrument
to be the free act and deed of said corporation.
Angela M. Ray
-------------------------------
Notary Public
My commission expires: 2/3/2000
-8-
<PAGE> 51
IMPERIAL BANK
MEMBER FDIC
AGREEMENT TO PROVIDE INSURANCE
(REAL OR PERSONAL PROPERTY)
TO: Imperial Bank Date: June 22, 1998
225 Franklin Street, Suite 2900 Borrower: Aspect Medical Systems, Inc.
Boston, MA 02110
Attention: Oscar Jazdowski
Senior Vice President
In consideration of loans in the aggregate amount of up to $5,000,000, secured
by all of Borrower's assets, we agree to obtain adequate insurance coverage to
remain in force during the term of the financing arrangements.
We also agree to advise the below named agent to add Imperial Bank as loss payee
on the new or existing insurance policy, and to furnish Bank at above address
with a copy of said policy/endorsements and any subsequent renewal policies.
1. We understand that the policy must contain fire and extended coverage in an
amount sufficient to cover:
a) The amount of the Bank's commitments to make loans or the outstanding
amount of loans, whichever is greater, AND
b) All existing encumbrances.
But not in excess of the replacement value of the improvements on the real
property.
2. We will cause our insurance agent to deliver to Bank a "Loss Payable"
Endorsement Form, acceptable to Bank, completed and executed in favor of Bank.
INSURANCE INFORMATION
Insurance Co./Agent: Telephone No.:
Agent's Address:
ASPECT MEDICAL SYSTEMS, INC.
Signature of Obligor: /s/ J. Neal Armstrong
--------------------------------
Title: Chief Financial Officer
================================================================================
- -------------------------------------------
FOR BANK USE ONLY
INSURANCE VERIFICATION: Date:________
Person Spoken to:_______________________
Policy Number:__________________________
Effective Form:_________________________
Verified By:____________________________
- -------------------------------------------
<PAGE> 1
EXHIBIT 10.10
PROMISSORY NOTE
$68,213.57 February 18, 1997
As Amended April 14, 1997
Natick, Massachusetts
FOR VALUE RECEIVED, Nassib G. Chamoun (the "Maker"), promises to pay to
Aspect Medical Systems, Inc., or order, at the offices of Aspect Medical
Systems, Inc. or at such other place as the holder of this Note may designate,
the principal sum of $68,213.57, together with interest on the unpaid principal
balance of this Note from time to time outstanding at the rate of 8% per year
until paid in full. Principal and interest shall be paid as follows: principal
and interest shall be paid by the Maker in four equal annual installments in the
amount of $7,579.29 each, with the first such installment due and payable on
February 18, 1998 and the next three installments due and payable on February 18
of each year thereafter, plus a final principal payment equal to the remaining
principal balance plus all accrued but unpaid interest and other amounts then
due and payable, with such final payment due and payable on February 18, 2002.
Interest on this Note shall be computed on the basis of a year of 365
days for the actual number of days elapsed, compounded annually. All payments by
the Maker under this Note shall be in immediately available funds.
Payment of this Note is secured by a security interest in certain
property of the Maker (the "Collateral") pursuant to a pledge agreement of even
date herewith between the Maker and Aspect Medical Systems, Inc. (the "Pledge
Agreement").
This Note shall become immediately due and payable without notice or
demand upon the occurrence at any time of any of the following events of default
(individually, "an Event of Default" and collectively, "Events of Default"):
(1) default in the payment when due of any principal, premium or
interest under this Note;
(2) the occurrence of any event of default under the Pledge
Agreement; or
(3) the institution by or against the Maker of this Note of any
proceedings under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization,
receivership, insolvency or other similar law affecting the
rights of creditors generally or the making by the Maker or
any indorser or guarantor of this Note of a composition or an
assignment or trust mortgage for the benefit of creditors.
Upon the occurrence of an Event of Default, the holder shall have then,
or at
<PAGE> 2
any time thereafter, all of the rights and remedies afforded by the Uniform
Commercial Code as from time to time in effect in the Commonwealth of
Massachusetts or afforded by other applicable law.
Every amount overdue under this Note shall bear interest from and after
the date on which such amount first became overdue at an annual rate which is
two percentage points above the rate per year specified in the first paragraph
of this Note. Such interest on overdue amounts under this Note shall be payable
on demand and shall accrue and be compounded monthly until the obligation of the
Maker with respect to the payment of such interest has been discharged (whether
before or after judgment).
All payments by the Maker under this Note shall be made without set-off
or counterclaim and be free and clear and without any deduction or withholding
for any taxes or fees of any nature whatever, unless the obligation to make such
deduction or withholding is imposed by law. The Maker shall pay and save the
holder harmless from all liabilities with respect to or resulting from any delay
or omission to make any such deduction or withholding required by law.
Whenever any amount is paid under this Note, all or part of the amount
paid may be applied to principal, premium or interest in such order and manner
as shall be determined by the holder in its discretion.
No reference in this Note to the Pledge Agreement or any guaranty shall
impair the obligation of the Maker, which is absolute and unconditional, to pay
all amounts under this Note strictly in accordance with the terms of this Note.
The Maker agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the holder in enforcing the obligations
of the Maker under this Note.
No delay or omission on the part of the holder in exercising any right
under this Note or the Pledge Agreement shall operate as a waiver of such right
or of any other right of such holder, nor shall any delay, omission or waiver on
any one occasion be deemed a bar to or waiver of the same or any other right on
any future occasion.
This Note may be prepaid in whole or in part at any time or from time
to time in the sole discretion of the holder. Any such prepayment shall be
without premium or penalty.
None of the terms or provisions of this Note may be excluded, modified
or amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so excluded,
modified or amended.
<PAGE> 3
All rights and obligations hereunder shall be governed by the laws of
the Commonwealth of Massachusetts and this Note is executed as an instrument
under seal.
ATTEST:
By: /s/ J. Neal Armstrong By: /s/ Nassib G. Chamoun
----------------------------- -------------------------------
Nassib G. Chamoun
<PAGE> 4
PLEDGE AGREEMENT
This is a pledge agreement made as of the 18th day of February, 1997
and revised on the 14th day of April, 1997 between Mr. Nassib G. Chamoun, an
individual residing at 8 Furbush Road, West Roxbury, Massachusetts 02132, (the
"Pledgor"), and Aspect Medical Systems, Inc., a Delaware corporation with its
principal place of business at Two Vision Drive, Natick, Massachusetts 01760
(the "Pledgee").
1. PLEDGE OF COLLATERAL. For good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Pledgor hereby grants
Pledgee a security interest in the capital stock identified in EXHIBIT A annexed
hereto, the certificates for which Pledgor has delivered to Pledgee together
with a stock transfer power executed in blank (the "Collateral").
2. OBLIGATIONS SECURED. The security interest in the Collateral
granted hereby secures payment and performance of the obligations of Pledgor to
Pledgee, whether now existing or hereafter arising, including but not limited to
those obligations described in that certain promissory note from Pledgor to
Pledgee of even date herewith in the principal amount of $68,213.57 (the
"Note"), together with all interest, with respect to such debt (the
"Obligations").
3. PLEDGEE'S RIGHTS AND DUTIES WITH RESPECT TO THE COLLATERAL.
Pledgee's only duty with respect to the Collateral shall be to exercise
reasonable care to secure the safe custody thereof. Pledgee shall have the right
but not the obligation to (a) demand, sue for, receive and collect all money or
money damages payable on account of any Collateral, (b) protect, preserve or
assert any other rights of Pledgor or take any other action with respect to the
Collateral, and (c) pay any taxes, liens, assessments, insurance premiums or
other charges pertaining to the Collateral. Any expenses incurred by Pledgee
under the preceding sentence shall be paid by Pledgor upon demand, become part
of the Obligations secured by the Collateral and bear interest at the rate
provided in the Note until paid. Pledgee shall be relieved of all responsibility
for the Collateral upon surrendering it to Pledgor.
4. PLEDGOR'S WARRANTIES AND INDEMNITY. Pledgor represents,
warrants and covenants (a) that it is and will be the lawful owner of the
Collateral, (b) that the Collateral is and will remain free and clear of all
liens, encumbrances and security interests other than the security interest
granted by Pledgor hereunder, and (c) that Pledgor has the sole right and lawful
authority to pledge the Collateral and otherwise to comply with the provisions
hereof. In the event that any adverse claim is asserted in respect of the
Collateral or any portion thereof, except such as may result from an act of
Pledgee not authorized hereunder, Pledgor promises and agrees to indemnify
Pledgee and hold Pledgee harmless from and against any losses, liabilities,
damages, expenses, costs and reasonable counsel fees incurred by Pledgee in
exercising any right, power or remedy of Pledgee hereunder or defending,
protecting or enforcing
<PAGE> 5
the security interests created hereunder. Any such loss, liability or expense so
incurred shall be paid by Pledgor upon demand, become .part of the obligations
secured by the Collateral and bear interest at the rate provided in the Note
until paid.
5. VOTING OF COLLATERAL. While Pledgor is not in default
hereunder, Pledgor may vote the capital stock and other securities, if any,
pledged as Collateral.
6. DIVIDENDS AND OTHER DISTRIBUTIONS. While Pledgor is not in
default hereunder, Pledgor may receive cash dividends, and other distributions
payable with respect to the Collateral, PROVIDED, HOWEVER, that Pledgor shall
immediately inform Pledgee of the receipt of any such dividend, payment or other
distribution and shall hold the amount thereof in trust for Pledgee unless and
until Pledgee shall in writing release Pledgor from such trust. Pledgor shall
cause all non-cash dividends and distributions with respect to the Collateral to
be distributed directly to Pledgee, to be held by Pledgee as additional
Collateral, and if any such distribution is made to Pledgor it shall receive
such distribution in trust for Pledgee and shall immediately transfer it to
Pledgee.
7. PLEDGOR'S DEFAULT. Pledgor shall be in default hereunder upon
the occurrence of any of the following events:
(a) If any event of default by the Pledgor shall occur under
the Note;
(b) If any lien, encumbrance or adverse claim of any nature
whatsoever is asserted with respect to any Collateral and such lien, encumbrance
or adverse claim is not removed within sixty (60) days or if Pledgor attempts to
transfer the Collateral;
(c) If Pledgor fails to fulfill any obligation hereunder and
such obligation shall not be fulfilled within sixty (60) days thereafter; or
8. PLEDGEE'S RIGHTS UPON DEFAULT. Upon the occurrence of any
default as defined in the preceding section, Pledgee may, if Pledgee so elects
in its sole option:
(a) at any time and from time to time, sell, assign and
deliver the whole or any part of the Collateral at a sale through a broker in a
public market where securities of the type constituting such Collateral are
usually traded, without any advertisement, presentment, demand or performance,
protest, notice of protest, notice of dishonor or any other notice;
(b) at any time and from time to time sell, assign and deliver
all or any part of the Collateral, or any interest therein, at any other public
or private sale, for cash, on credit or for other property, for immediate or
future delivery without such assumption of credit risk, and for such price or
prices and on such terms as Pledgee in its absolute discretion may determine,
provided that (i) at least ten days' notice of the time and place any such sale
shall be given to Pledgor, and (ii) in the case of any private sale, such notice
shall also contain the terms of the proposed sale
<PAGE> 6
and Pledgee shall sell the Collateral proposed to be sold to any purchaser
procured by Pledgor who is ready, willing and able to purchase, and who prior to
the time of such sale tenders the purchase price of, such Collateral on terms
more favorable to Pledgee than the terms contained in such notice;
(c) exercise the right to vote, the right to receive cash
dividends and other distributions, and all other rights with respect to the
Collateral as though Pledgee were the absolute owner thereof, whether or not
such rights were retained by Pledgor as against Pledgee before default;
(d) at Pledgee's option, take title to the Collateral; and
(e) exercise all other rights available to a secured party
under the Uniform Commercial Code and other applicable law.
9. APPLICATION OF SALE PROCEEDS. In the event of a sale of the
Collateral, the proceeds shall first be applied to the payment of the expenses
of the sale, including broker's commissions, counsel fees, any taxes or other
charges imposed by law upon the Collateral or the transfer thereof and all other
charges paid or incurred by Pledgee pertaining to the sale; and, second, to
satisfy outstanding Obligations, in the order in which Pledgee elects in its
sole discretion; and, third, the surplus (if any) shall be paid to Pledgor.
10. TERMINATION. This Agreement shall terminate in its entirety
upon full payment of the Obligations to Pledgee, and Pledgee shall return any
remaining Collateral to Pledgor within thirty days after such termination.
11. NOTICES. All notices made or required to be made hereunder
shall be sent by United States first class or certified or registered mail, with
postage prepaid, or delivered by telecopy or by hand to Pledgee or to Pledgor at
the addresses first above written. Notice by mail shall be deemed to have been
made on the date when the Notice is deposited in the mail.
12. HEIRS, SUCCESSORS, ETC. This Pledge Agreement and all of its
terms and provisions shall benefit and bind the heirs, successors, assigns,
transferees, executors and administrators of each of the parties hereto.
13. PLEDGEE'S FORBEARANCE. Any forbearance, failure or delay by
Pledgee in exercising any right, power or remedy hereunder shall not be deemed a
waiver of such right, power or remedy.
14. Governing Law. This Pledge Agreement shall be governed by the
laws of the Commonwealth of Massachusetts.
<PAGE> 7
EXECUTED under seal at Natick, Massachusetts as of the date first above
written.
PLEDGOR: PLEDGEE:
ASPECT MEDICAL SYSTEMS, INC.
/s/ Nassib G. Chamoun By: /s/ J. Neal Armstrong
- ----------------------------------- --------------------------------
Nassib G. Chamoun
<PAGE> 8
EXHIBIT A
341,068 shares of Common Stock
represented by Certificate No. 111
<PAGE> 1
EXHIBIT 10.11
PROMISSORY NOTE
$45,000 May 1, 1997
Natick, Massachusetts
FOR VALUE RECEIVED, Nassib G. Chamoun (the "Maker"), promises to pay to
Aspect Medical Systems, Inc., or order, at the offices of Aspect Medical
Systems, Inc. or at such other place as the holder of this Note may designate,
the principal sum of $45,000, together with interest on the unpaid principal
balance of this Note from time to time outstanding at the rate of 6.42% per year
until paid in full. Principal and interest shall be paid as follows: principal
and interest shall be paid by the Maker in five equal annual installments in the
amount of $10,805.18 each, with the first such installment due and payable on
May 1, 1998 and the remaining installments due and payable on May 1 of each year
thereafter, plus a final principal payment equal to the remaining principal
balance plus all accrued but unpaid interest and other amounts then due and
payable, with such final payment due and payable on May 1, 2002.
Interest on this Note shall be computed on the basis of a year of 365
days for the actual number of days elapsed, compounded annually. All payments by
the Maker under this Note shall be in immediately available funds.
Payment of this Note is secured by a security interest in certain
property of the Maker (the "Collateral") pursuant to a pledge agreement of even
date herewith between the Maker and Aspect Medical Systems, Inc. (the "Pledge
Agreement").
This Note shall become immediately due and payable without notice or
demand upon the occurrence at any time of any of the following events of default
(individually, "an Event of Default" and collectively, "Events of Default"):
(1) default in the payment when due of any principal, premium or
interest under this Note;
(2) the occurrence of any event of default under the Pledge
Agreement; or
(3) the institution by or against the Maker of this Note of any
proceedings under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization,
receivership, insolvency or other similar law affecting the
rights of creditors generally or the making by the Maker or
any indorser or guarantor of this Note of a composition or an
assignment or trust mortgage for the benefit of creditors.
Upon the occurrence of an Event of Default, the holder shall have then,
or at any time thereafter, all of the rights and remedies afforded by the
Uniform
<PAGE> 2
Commercial Code as from time to time in effect in the Commonwealth of
Massachusetts or afforded by other applicable law.
Every amount overdue under this Note shall bear interest from and after
the date on which such amount first became overdue at an annual rate which is
two percentage points above the rate per year specified in the first paragraph
of this Note. Such interest on overdue amounts under this Note shall be payable
on demand and shall accrue and be compounded monthly until the obligation of the
Maker with respect to the payment of such interest has been discharged (whether
before or after judgment).
All payments by the Maker under this Note shall be made without set-off
or counterclaim and be free and clear and without any deduction or withholding
for any taxes or fees of any nature whatever, unless the obligation to make such
deduction or withholding is imposed by law. The Maker shall pay and save the
holder harmless from all liabilities with respect to or resulting from any delay
or omission to make any such deduction or withholding required by law.
Whenever any amount is paid under this Note, all or part of the amount
paid may be applied to principal, premium or interest in such order and manner
as shall be determined by the holder in its discretion.
No reference in this Note to the Pledge Agreement or any guaranty shall
impair the obligation of the Maker, which is absolute and unconditional, to pay
all amounts under this Note strictly in accordance with the terms of this Note.
The Maker agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the holder in enforcing the obligations
of the Maker under this Note.
No delay or omission on the part of the holder in exercising any right
under this Note or the Pledge Agreement shall operate as a waiver of such right
or of any other right of such holder, nor shall any delay, omission or waiver on
any one occasion be deemed a bar to or waiver of the same or any other right on
any future occasion.
This Note may be prepaid in whole or in part at any time or from time
to time in the sole discretion of the holder. Any such prepayment shall be
without premium or penalty.
None of the terms or provisions of this Note may be excluded, modified
or amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so excluded,
modified or amended.
<PAGE> 3
All rights and obligations hereunder shall be governed by the laws of
the Commonwealth of Massachusetts and this Note is executed as an instrument
under seal.
ATTEST:
By: /s/ J. Neal Armstrong By: /s/ Nassib G. Chamoun
------------------------------- -------------------------------
CFO Nassib G. Chamoun
<PAGE> 4
PLEDGE AGREEMENT
This is a pledge agreement made as of the 1st day of May, 1997 between
Mr. Nassib G. Chamoun, an individual residing at 8 Furbush Road, West Roxbury,
Massachusetts 02132, (the "Pledgor"), and Aspect Medical Systems, Inc., a
Delaware corporation with its principal place of business at Two Vision Drive,
Natick, Massachusetts 01760 (the "Pledgee").
1. PLEDGE OF COLLATERAL. For good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Pledgor hereby grants
Pledgee a security interest in the capital stock identified in EXHIBIT A annexed
hereto, the certificates for which Pledgor has delivered to Pledgee together
with a stock transfer power executed in blank (the "Collateral").
2. OBLIGATIONS SECURED. The security interest in the Collateral
granted hereby secures payment and performance of the obligations of Pledgor to
Pledgee, whether now existing or hereafter arising, including but not limited to
those obligations described in that certain promissory note from Pledgor to
Pledgee of even date herewith in the principal amount of $45,000 (the "Note"),
together with all interest, with respect to such debt (the "Obligations").
3. PLEDGEE'S RIGHTS AND DUTIES WITH RESPECT TO THE COLLATERAL.
Pledgee's only duty with respect to the Collateral shall be to exercise
reasonable care to secure the safe custody thereof. Pledgee shall have the right
but not the obligation to (a) demand, sue for, receive and collect all money or
money damages payable on account of any Collateral, (b) protect, preserve or
assert any other rights of Pledgor or take any other action with respect to the
Collateral, and (c) pay any taxes, liens, assessments, insurance premiums or
other charges pertaining to the Collateral. Any expenses incurred by Pledgee
under the preceding sentence shall be paid by Pledgor upon demand, become part
of the Obligations secured by the Collateral and bear interest at the rate
provided in the Note until paid. Pledgee shall be relieved of all responsibility
for the Collateral upon surrendering it to Pledgor.
4. PLEDGOR'S WARRANTIES AND INDEMNITY. Pledgor represents,
warrants and covenants (a) that it is and will be the lawful owner of the
Collateral, (b) that the Collateral is and will remain free and clear of all
liens, encumbrances and security interests other than the security interest
granted by Pledgor hereunder, and (c) that Pledgor has the sole right and lawful
authority to pledge the Collateral and otherwise to comply with the provisions
hereof. In the event that any adverse claim is asserted in respect of the
Collateral or any portion thereof, except such as may result from an act of
Pledgee not authorized hereunder, Pledgor promises and agrees to indemnify
Pledgee and hold Pledgee harmless from and against any losses, liabilities,
damages, expenses, costs and reasonable counsel fees incurred by Pledgee in
exercising any right, power or remedy of Pledgee hereunder or defending,
protecting or enforcing the security interests created hereunder. Any such loss,
liability or expense so
<PAGE> 5
incurred shall be paid by Pledgor upon demand, become part of the obligations
secured by the Collateral and bear interest at the rate provided in the Note
until paid.
5. VOTING OF COLLATERAL. While Pledgor is not in default
hereunder, Pledgor may vote the capital stock and other securities, if any,
pledged as Collateral.
6. DIVIDENDS AND OTHER DISTRIBUTIONS. While Pledgor is not in
default hereunder, Pledgor may receive cash dividends, and other distributions
payable with respect to the Collateral, PROVIDED, HOWEVER, that Pledgor shall
immediately inform Pledgee of the receipt of any such dividend, payment or other
distribution and shall hold the amount thereof in trust for Pledgee unless and
until Pledgee shall in writing release Pledgor from such trust. Pledgor shall
cause all non-cash dividends and distributions with respect to the Collateral to
be distributed directly to Pledgee, to be held by Pledgee as additional
Collateral, and if any such distribution is made to Pledgor it shall receive
such distribution in trust for Pledgee and shall immediately transfer it to
Pledgee.
7. PLEDGOR'S DEFAULT. Pledgor shall be in default hereunder upon
the occurrence of any of the following events:
(a) If any event of default by the Pledgor shall occur under
the Note;
(b) If any lien, encumbrance or adverse claim of any nature
whatsoever is asserted with respect to any Collateral and such lien, encumbrance
or adverse claim is not removed within sixty (60) days or if Pledgor attempts to
transfer the Collateral;
(c) If Pledgor fails to fulfill any obligation hereunder and
such obligation shall not be fulfilled within sixty (60) days thereafter; or
8. PLEDGEE'S RIGHTS UPON DEFAULT. Upon the occurrence of any
default as defined in the preceding section, Pledgee may, if Pledgee so elects
in its sole option:
(a) at any time and from time to time, sell, assign and
deliver the whole or any part of the Collateral at a sale through a broker in a
public market where securities of the type constituting such Collateral are
usually traded, without any advertisement, presentment, demand or performance,
protest, notice of protest, notice of dishonor or any other notice;
(b) at any time and from time to time sell, assign and deliver
all or any part of the Collateral, or any interest therein, at any other public
or private sale, for cash, on credit or for other property, for immediate or
future delivery without such assumption of credit risk, and for such price or
prices and on such terms as Pledgee in its absolute discretion may determine,
provided that (i) at least ten days' notice of the time and place any such sale
shall be given to Pledgor, and (ii) in the case of any private sale, such notice
shall also contain the terms of the proposed sale and Pledgee shall sell the
Collateral proposed to be sold to any purchaser procured by Pledgor who is
ready, willing and able to purchase, and who prior to the time of
<PAGE> 6
such sale tenders the purchase price of, such Collateral on terms more favorable
to Pledgee than the terms contained in such notice;
(c) exercise the right to vote, the right to receive cash
dividends and other distributions, and all other rights with respect to the
Collateral as though Pledgee were the absolute owner thereof, whether or not
such rights were retained by Pledgor as against Pledgee before default;
(d) at Pledgee's option, take title to the Collateral; and
(e) exercise all other rights available to a secured party
under the Uniform Commercial Code and other applicable law.
9. APPLICATION OF SALE PROCEEDS. In the event of a sale of the
Collateral, the proceeds shall first be applied to the payment of the expenses
of the sale, including broker's commissions, counsel fees, any taxes or other
charges imposed by law upon the Collateral or the transfer thereof and all other
charges paid or incurred by Pledgee pertaining to the sale; and, second, to
satisfy outstanding Obligations, in the order in which Pledgee elects in its
sole discretion; and, third, the surplus (if any) shall be paid to Pledgor.
10. TERMINATION. This Agreement shall terminate in its entirety
upon full payment of the Obligations to Pledgee, and Pledgee shall return any
remaining Collateral to Pledgor within thirty days after such termination.
11. NOTICES. All notices made or required to be made hereunder
shall be sent by United States first class or certified or registered mail, with
postage prepaid, or delivered by telecopy or by hand to Pledgee or to Pledgor at
the addresses first above written. Notice by mail shall be deemed to have been
made on the date when the Notice is deposited in the mail.
12. HEIRS, SUCCESSORS, ETC. This Pledge Agreement and all of its
terms and provisions shall benefit and bind the heirs, successors, assigns,
transferees, executors and administrators of each of the parties hereto.
13. PLEDGEE'S FORBEARANCE. Any forbearance, failure or delay by
Pledgee in exercising any right, power or remedy hereunder shall not be deemed a
waiver of such right, power or remedy.
14. GOVERNING LAW. This Pledge Agreement shall be governed by the
laws of the Commonwealth of Massachusetts.
<PAGE> 7
EXECUTED under seal at Natick, Massachusetts as of the date first above
written.
PLEDGOR: PLEDGEE:
ASPECT MEDICAL SYSTEMS, INC.
/s/ Nassib G. Chamoun By: /s/ J. Neal Armstrong
- ---------------------------- --------------------------------
Nassib G. Chamoun CFO
<PAGE> 8
EXHIBIT A
15,390 shares of Common Stock
represented by Certificate No. 111
<PAGE> 1
EXHIBIT 10.12
PROMISSORY NOTE
$35,000 May 1, 1997
Natick, Massachusetts
FOR VALUE RECEIVED, Nassib G. Chamoun (the "Maker"), promises to pay to
Aspect Medical Systems, Inc., or order, at the offices of Aspect Medical
Systems, Inc. or at such other place as the holder of this Note may designate,
the principal sum of $35,000, together with interest on the unpaid principal
balance of this Note from time to time outstanding at the rate of 6.42% per year
until paid in full. Principal and interest shall be paid as follows: principal
and interest shall be paid by the Maker in five equal annual installments in the
amount of $8,404.03 each, with the first such installment due and payable on May
1, 1998 and the remaining installments due and payable on May 1 of each year
thereafter, plus a final principal payment equal to the remaining principal
balance plus all accrued but unpaid interest and other amounts then due and
payable, with such final payment due and payable on May 1, 2002.
Interest on this Note shall be computed on the basis of a year of 365
days for the actual number of days elapsed, compounded annually. All payments by
the Maker under this Note shall be in immediately available funds.
Payment of this Note is secured by a security interest in certain
property of the Maker (the "Collateral") pursuant to a pledge agreement of even
date herewith between the Maker and Aspect Medical Systems, Inc. (the "Pledge
Agreement").
This Note shall become immediately due and payable without notice or
demand upon the occurrence at any time of any of the following events of default
(individually, "an Event of Default" and collectively, "Events of Default"):
(1) default in the payment when due of any principal, premium or
interest under this Note;
(2) the occurrence of any event of default under the Pledge
Agreement; or
(3) the institution by or against the Maker of this Note of any
proceedings under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization,
receivership, insolvency or other similar law affecting the
rights of creditors generally or the making by the Maker or
any indorser or guarantor of this Note of a composition or an
assignment or trust mortgage for the benefit of creditors.
Upon the occurrence of an Event of Default, the holder shall have then,
or at any time thereafter, all of the rights and remedies afforded by the
Uniform
<PAGE> 2
Commercial Code as from time to time in effect in the Commonwealth of
Massachusetts or afforded by other applicable law.
Every amount overdue under this Note shall bear interest from and after
the date on which such amount first became overdue at an annual rate which is
two percentage points above the rate per year specified in the first paragraph
of this Note. Such interest on overdue amounts under this Note shall be payable
on demand and shall accrue and be compounded monthly until the obligation of the
Maker with respect to the payment of such interest has been discharged (whether
before or after judgment).
All payments by the Maker under this Note shall be made without set-off
or counterclaim and be free and clear and without any deduction or withholding
for any taxes or fees of any nature whatever, unless the obligation to make such
deduction or withholding is imposed by law. The Maker shall pay and save the
holder harmless from all liabilities with respect to or resulting from any delay
or omission to make any such deduction or withholding required by law.
Whenever any amount is paid under this Note, all or part of the amount
paid may be applied to principal, premium or interest in such order and manner
as shall be determined by the holder in its discretion.
No reference in this Note to the Pledge Agreement or any guaranty shall
impair the obligation of the Maker, which is absolute and unconditional, to pay
all amounts under this Note strictly in accordance with the terms of this Note.
The Maker agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the holder in enforcing the obligations
of the Maker under this Note.
No delay or omission on the part of the holder in exercising any right
under this Note or the Pledge Agreement shall operate as a waiver of such right
or of any other right of such holder, nor shall any delay, omission or waiver on
any one occasion be deemed a bar to or waiver of the same or any other right on
any future occasion.
This Note may be prepaid in whole or in part at any time or from time
to time in the sole discretion of the holder. Any such prepayment shall be
without premium or penalty.
None of the terms or provisions of this Note may be excluded, modified
or amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so excluded,
modified or amended.
<PAGE> 3
All rights and obligations hereunder shall be governed by the laws of
the Commonwealth of Massachusetts and this Note is executed as an instrument
under seal.
ATTEST:
By: /s/ J. Neal Armstrong By: /s/ Nassib G. Chamoun
------------------------------ ----------------------------------
CFO Nassib G. Chamoun
<PAGE> 4
PLEDGE AGREEMENT
This is a pledge agreement made as of the 1st day of May, 1997 between
Mr. Nassib G. Chamoun, an individual residing at 8 Furbush Road, West Roxbury,
Massachusetts 02132, (the "Pledgor"), and Aspect Medical Systems, Inc., a
Delaware corporation with its principal place of business at Two Vision Drive,
Natick, Massachusetts 01760 (the "Pledgee").
1. PLEDGE OF COLLATERAL. For good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Pledgor hereby grants
Pledgee a security interest in the capital stock identified in EXHIBIT A annexed
hereto, the certificates for which Pledgor has delivered to Pledgee together
with a stock transfer power executed in blank (the "Collateral").
2. OBLIGATIONS SECURED. The security interest in the Collateral
granted hereby secures payment and performance of the obligations of Pledgor to
Pledgee, whether now existing or hereafter arising, including but not limited to
those obligations described in that certain promissory note from Pledgor to
Pledgee of even date herewith in the principal amount of $35,000 (the "Note"),
together with all interest, with respect to such debt (the "Obligations").
3. PLEDGEE'S RIGHTS AND DUTIES WITH RESPECT TO THE COLLATERAL.
Pledgee's only duty with respect to the Collateral shall be to exercise
reasonable care to secure the safe custody thereof. Pledgee shall have the right
but not the obligation to (a) demand, sue for, receive and collect all money or
money damages payable on account of any Collateral, (b) protect, preserve or
assert any other rights of Pledgor or take any other action with respect to the
Collateral, and (c) pay any taxes, liens, assessments, insurance premiums or
other charges pertaining to the Collateral. Any expenses incurred by Pledgee
under the preceding sentence shall be paid by Pledgor upon demand, become part
of the Obligations secured by the Collateral and bear interest at the rate
provided in the Note until paid. Pledgee shall be relieved of all responsibility
for the Collateral upon surrendering it to Pledgor.
4. PLEDGOR'S WARRANTIES AND INDEMNITY. Pledgor represents,
warrants and covenants (a) that it is and will be the lawful owner of the
Collateral, (b) that the Collateral is and will remain free and clear of all
liens, encumbrances and security interests other than the security interest
granted by Pledgor hereunder, and (c) that Pledgor has the sole right and lawful
authority to pledge the Collateral and otherwise to comply with the provisions
hereof. In the event that any adverse claim is asserted in respect of the
Collateral or any portion thereof, except such as may result from an act of
Pledgee not authorized hereunder, Pledgor promises and agrees to indemnify
Pledgee and hold Pledgee harmless from and against any losses, liabilities,
damages, expenses, costs and reasonable counsel fees incurred by Pledgee in
exercising any right, power or remedy of Pledgee hereunder or defending,
protecting or enforcing the security interests created hereunder. Any such loss,
liability or expense so
<PAGE> 5
incurred shall be paid by Pledgor upon demand, become part of the obligations
secured by the Collateral and bear interest at the rate provided in the Note
until paid.
5. VOTING OF COLLATERAL. While Pledgor is not in default
hereunder, Pledgor may vote the capital stock and other securities, if any,
pledged as Collateral.
6. DIVIDENDS AND OTHER DISTRIBUTIONS. While Pledgor is not in
default hereunder, Pledgor may receive cash dividends, and other distributions
payable with respect to the Collateral, PROVIDED, HOWEVER, that Pledgor shall
immediately inform Pledgee of the receipt of any such dividend, payment or other
distribution and shall hold the amount thereof in trust for Pledgee unless and
until Pledgee shall in writing release Pledgor from such trust. Pledgor shall
cause all non-cash dividends and distributions with respect to the Collateral to
be distributed directly to Pledgee, to be held by Pledgee as additional
Collateral, and if any such distribution is made to Pledgor it shall receive
such distribution in trust for Pledgee and shall immediately transfer it to
Pledgee.
7. PLEDGOR'S DEFAULT. Pledgor shall be in default hereunder upon
the occurrence of any of the following events:
(a) If any event of default by the Pledgor shall occur under
the Note;
(b) If any lien, encumbrance or adverse claim of any nature
whatsoever is asserted with respect to any Collateral and such lien, encumbrance
or adverse claim is not removed within sixty (60) days or if Pledgor attempts to
transfer the Collateral;
(c) If Pledgor fails to fulfill any obligation hereunder and
such obligation shall not be fulfilled within sixty (60) days thereafter; or
8. PLEDGEE'S RIGHTS UPON DEFAULT. Upon the occurrence of any
default as defined in the preceding section, Pledgee may, if Pledgee so elects
in its sole option:
(a) at any time and from time to time, sell, assign and
deliver the whole or any part of the Collateral at a sale through a broker in a
public market where securities of the type constituting such Collateral are
usually traded, without any advertisement, presentment, demand or performance,
protest, notice of protest, notice of dishonor or any other notice;
(b) at any time and from time to time sell, assign and deliver
all or any part of the Collateral, or any interest therein, at any other public
or private sale, for cash, on credit or for other property, for immediate or
future delivery without such assumption of credit risk, and for such price or
prices and on such terms as Pledgee in its absolute discretion may determine,
provided that (i) at least ten days' notice of the time and place any such sale
shall be given to Pledgor, and (ii) in the case of any private sale, such notice
shall also contain the terms of the proposed sale and Pledgee shall sell the
Collateral proposed to be sold to any purchaser procured by Pledgor who is
ready, willing and able to purchase, and who prior to the time of
<PAGE> 6
such sale tenders the purchase price of, such Collateral on terms more favorable
to Pledgee than the terms contained in such notice;
(c) exercise the right to vote, the right to receive cash
dividends and other distributions, and all other rights with respect to the
Collateral as though Pledgee were the absolute owner thereof, whether or not
such rights were retained by Pledgor as against Pledgee before default;
(d) at Pledgee's option, take title to the Collateral; and
(e) exercise all other rights available to a secured party
under the Uniform Commercial Code and other applicable law.
9. APPLICATION OF SALE PROCEEDS. In the event of a sale of the
Collateral, the proceeds shall first be applied to the payment of the expenses
of the sale, including broker's commissions, counsel fees, any taxes or other
charges imposed by law upon the Collateral or the transfer thereof and all other
charges paid or incurred by Pledgee pertaining to the sale; and, second, to
satisfy outstanding Obligations, in the order in which Pledgee elects in its
sole discretion; and, third, the surplus (if any) shall be paid to Pledgor.
10. TERMINATION. This Agreement shall terminate in its entirety
upon full payment of the Obligations to Pledgee, and Pledgee shall return any
remaining Collateral to Pledgor within thirty days after such termination.
11. NOTICES. All notices made or required to be made hereunder
shall be sent by United States first class or certified or registered mail, with
postage prepaid, or delivered by telecopy or by hand to Pledgee or to Pledgor at
the addresses first above written. Notice by mail shall be deemed to have been
made on the date when the Notice is deposited in the mail.
12. HEIRS, SUCCESSORS, ETC. This Pledge Agreement and all of its
terms and provisions shall benefit and bind the heirs, successors, assigns,
transferees, executors and administrators of each of the parties hereto.
13. PLEDGEE'S FORBEARANCE. Any forbearance, failure or delay by
Pledgee in exercising any right, power or remedy hereunder shall not be deemed a
waiver of such right, power or remedy.
14. GOVERNING LAW. This Pledge Agreement shall be governed by the
laws of the Commonwealth of Massachusetts.
<PAGE> 7
EXECUTED under seal at Natick, Massachusetts as of the date first above
written.
PLEDGOR: PLEDGEE:
ASPECT MEDICAL SYSTEMS, INC.
/s/ Nassib G. Chamoun By: /s/ J. Neal Armstrong
- ----------------------------- --------------------------------
Nassib G. Chamoun CFO
<PAGE> 8
EXHIBIT A
11,610 shares of Common Stock
represented by Certificate No. 111
<PAGE> 1
Exhibit 10.13
SCHEDULE OF MATERIAL TERMS
<TABLE>
<CAPTION>
Shares of
Common
Final Payment Stock
NAME Amount Interest Rate Due and Payable Pledge
---- ------ ------------- --------------- ------
<S> <C> <C> <C> <C>
Philip H. Devlin $ 13,642.74 8% May 5, 2002 75,793
J. Breckenridge Eagle $ 34,106.76 8% May 5, 2002 189,482
Steven H. Kane $ 60,750 8% May 5, 2002 180,000
Lester John Lloyd $ 7,875 8% May 5, 2002 43,750
Peter J. Manberg $ 14,617.19 8% May 5, 2002 81,207
Jean M. Nelson $ 12,180.76 8% May 5, 2002 67,672
J. Neal Armstrong $ 21,600 8% May 5, 2002 120,000
</TABLE>
<PAGE> 2
PROMISSORY NOTE
$ May 6, 1997
--------------------------------- Natick, Massachusetts
FOR VALUE RECEIVED, (the "Maker"), promises to pay
to Aspect Medical Systems, Inc., or order, at the offices of Aspect Medical
Systems, Inc. or at such other place as the holder of this Note may designate,
the principal sum of $ , together with interest on the unpaid principal
balance of this Note from time to time outstanding at the rate of 8% per year
until paid in full. Principal and interest shall be paid as follows: principal
shall be paid by the Maker in four equal annual installments in the amount of
$ each, plus interest accrued, with the first such installment due and
payable on May 5, 1998 and the next three installments due and payable on May 5,
of each year thereafter, plus a final principal payment equal to the remaining
principal balance plus all accrued but unpaid interest and other amounts then
due and payable, with such final payment due and payable on May 5, 2002.
Interest on this Note shall be computed on the basis of a year of 365
days for the actual number of days elapsed, compounded annually. All payments by
the Maker under this Note shall be in immediately available funds.
Payment of this Note is secured by a security interest in certain
property of the Maker (the "Collateral") pursuant to a pledge agreement of even
date herewith between the Maker and Aspect Medical Systems, Inc. (the "Pledge
Agreement").
This Note shall become immediately due and payable without notice or
demand upon the occurrence at any time of any of the following events of default
(individually, "an Event of Default" and collectively, "Events of Default"):
(1) default in the payment when due of any principal, premium or
interest under this Note;
(2) the occurrence of any event of default under the Pledge
Agreement; or
(3) the institution by or against the Maker of this Note of any
proceedings under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization,
receivership, insolvency or other similar law affecting the
rights of creditors generally or the making by the Maker or
any indorser or guarantor of this Note of a composition or an
assignment or trust mortgage for the benefit of creditors.
<PAGE> 3
Upon the occurrence of an Event of Default, the holder shall have then,
or at any time thereafter, all of the rights and remedies afforded by the
Uniform Commercial Code as from time to time in effect in the Commonwealth of
Massachusetts or afforded by other applicable law.
Every amount overdue under this Note shall bear interest from and after
the date on which such amount first became overdue at an annual rate which is
two percentage points above the rate per year specified in the first paragraph
of this Note. Such interest on overdue amounts under this Note shall be payable
on demand and shall accrue and be compounded monthly until the obligation of the
Maker with respect to the payment of such interest has been discharged (whether
before or after judgment).
All payments by the Maker under this Note shall be made without set-off
or counterclaim and be free and clear and without any deduction or withholding
for any taxes or fees of any nature whatever, unless the obligation to make such
deduction or withholding is imposed by law. The Maker shall pay and save the
holder harmless from all liabilities with respect to or resulting from any delay
or omission to make any such deduction or withholding required by law.
Whenever any amount is paid under this Note, all or part of the amount
paid may be applied to principal, premium or interest in such order and manner
as shall be determined by the holder in its discretion.
No reference in this Note to the Pledge Agreement or any guaranty shall
impair the obligation of the Maker, which is absolute and unconditional, to pay
all amounts under this Note strictly in accordance with the terms of this Note.
The Maker agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the holder in enforcing the obligations
of the Maker under this Note.
No delay or omission on the part of the holder in exercising any right
under this Note or the Pledge Agreement shall operate as a waiver of such right
or of any other right of such holder, nor shall any delay, omission or waiver on
any one occasion be deemed a bar to or waiver of the same or any other right on
any future occasion.
This Note may be prepaid in whole or in part at any time or from time
to time in the sole discretion of the holder. Any such prepayment shall be
without premium or penalty.
None of the terms or provisions of this Note may be excluded, modified
or amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so excluded,
modified or amended.
All rights and obligations hereunder shall be governed by the laws of
the Commonwealth of Massachusetts and this Note is executed as an instrument
under seal.
<PAGE> 4
ATTEST:
By: _______________________________ By: ______________________________
<PAGE> 5
PLEDGE AGREEMENT
This is a pledge agreement made as of the 6th of May , 1997 between
____________________________, an individual residing at
_________________________________, (the "Pledgor"), and Aspect Medical Systems,
Inc., a Delaware corporation with its principal place of business at Two Vision
Drive, Natick, Massachusetts 01760 (the "Pledgee").
1. Pledge of Collateral. For good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Pledgor hereby grants
Pledgee a security interest in the capital stock identified in Exhibit A annexed
hereto, the certificates for which Pledgor has delivered to Pledgee together
with a stock transfer power executed in blank (the "Collateral").
2. Obligations Secured. The security interest in the Collateral granted
hereby secures payment and performance of the obligations of Pledgor to Pledgee,
whether now existing or hereafter arising, including but not limited to those
obligations described in that certain promissory note from Pledgor to Pledgee of
even date herewith in the principal amount of $__________ (the "Note"), together
with all interest, with respect to such debt (the "Obligations").
3. Pledgee's Rights and Duties with respect to the Collateral.
Pledgee's only duty with respect to the Collateral shall be to exercise
reasonable care to secure the safe custody thereof. Pledgee shall have the right
but not the obligation to (a) demand, sue for, receive and collect all money or
money damages payable on account of any Collateral, (b) protect, preserve or
assert any other rights of Pledgor or take any other action with respect to the
Collateral, and (c) pay any taxes, liens, assessments, insurance premiums or
other charges pertaining to the Collateral. Any expenses incurred by Pledgee
under the preceding sentence shall be paid by Pledgor upon demand, become part
of the Obligations secured by the Collateral and bear interest at the rate
provided in the Note until paid. Pledgee shall be relieved of all responsibility
for the Collateral upon surrendering it to Pledgor.
4. Pledgor's Warranties and Indemnity. Pledgor represents, warrants and
covenants (a) that it is and will be the lawful owner of the Collateral, (b)
that the Collateral is and will remain free and clear of all liens, encumbrances
and security interests other than the security interest granted by Pledgor
hereunder, and (c) that Pledgor has the sole right and lawful authority to
pledge the Collateral and otherwise to comply with the provisions hereof. In the
event that any adverse claim is asserted in respect of the Collateral or any
portion
<PAGE> 6
thereof, except such as may result from an act of Pledgee not authorized
hereunder, Pledgor promises and agrees to indemnify Pledgee and hold Pledgee
harmless from and against any losses, liabilities, damages, expenses, costs and
reasonable counsel fees incurred by Pledgee in exercising any right, power or
remedy of Pledgee hereunder or defending, protecting or enforcing the security
interests created hereunder. Any such loss, liability or expense so incurred
shall be paid by Pledgor upon demand, become part of the obligations secured by
the Collateral and bear interest at the rate provided in the Note until paid.
5. Voting of Collateral. While Pledgor is not in default hereunder,
Pledgor may vote the capital stock and other securities, if any, pledged as
Collateral.
6. Dividends and Other Distributions. While Pledgor is not in default
hereunder, Pledgor may receive cash dividends, and other distributions payable
with respect to the Collateral, provided, however, that Pledgor shall
immediately inform Pledgee of the receipt of any such dividend, payment or other
distribution and shall hold the amount thereof in trust for Pledgee unless and
until Pledgee shall in writing release Pledgor from such trust. Pledgor shall
cause all non-cash dividends and distributions with respect to the Collateral to
be distributed directly to Pledgee, to be held by Pledgee as additional
Collateral, and if any such distribution is made to Pledgor it shall receive
such distribution in trust for Pledgee and shall immediately transfer it to
Pledgee.
7. Pledgor's Default. Pledgor shall be in default hereunder upon the
occurrence of any of the following events:
(a) If any event of default by the Pledgor shall occur under
the Note;
(b) If any lien, encumbrance or adverse claim of any nature
whatsoever is asserted with respect to any Collateral and such lien, encumbrance
or adverse claim is not removed within sixty (60) days or if Pledgor attempts to
transfer the Collateral;
(c) If Pledgor fails to fulfill any obligation hereunder and
such obligation shall not be fulfilled within sixty (60) days thereafter; or
(d) If the "fair market value" per share of the Collateral is
at or below $.20 per share. For purposes of this Section 7(d), the "fair market
value" per share of the Collateral shall be the price determined in good faith
by the Board of Directors of the Company.
8. Pledgee's Rights upon Default. Upon the occurrence of any default as
defined in the preceding section, Pledgee may, if Pledgee so elects in its sole
option:
<PAGE> 7
(a) at any time and from time to time, sell, assign and
deliver the whole or any part of the Collateral at a sale through a broker in a
public market where securities of the type constituting such Collateral are
usually traded, without any advertisement, presentment, demand or performance,
protest, notice of protest, notice of dishonor or any other notice;
(b) at any time and from time to time sell, assign and deliver
all or any part of the Collateral, or any interest therein, at any other public
or private sale, for cash, on credit or for other property, for immediate or
future delivery without such assumption of credit risk, and for such price or
prices and on such terms as Pledgee in its absolute discretion may determine,
provided that (i) at least ten days' notice of the time and place any such sale
shall be given to Pledgor, and (ii) in the case of any private sale, such notice
shall also contain the terms of the proposed sale and Pledgee shall sell the
Collateral proposed to be sold to any purchaser procured by Pledgor who is
ready, willing and able to purchase, and who prior to the time of such sale
tenders the purchase price of, such Collateral on terms more favorable to
Pledgee than the terms contained in such notice;
(c) exercise the right to vote, the right to receive cash
dividends and other distributions, and all other rights with respect to the
Collateral as though Pledgee were the absolute owner thereof, whether or not
such rights were retained by Pledgor as against Pledgee before default;
(d) at Pledgee's option, take title to the Collateral; and
(e) exercise all other rights available to a secured party
under the Uniform Commercial Code and other applicable law.
9. Application of Sale Proceeds. In the event of a sale of the
Collateral, the proceeds shall first be applied to the payment of the expenses
of the sale, including broker's commissions, counsel fees, any taxes or other
charges imposed by law upon the Collateral or the transfer thereof and all other
charges paid or incurred by Pledgee pertaining to the sale; and, second, to
satisfy outstanding Obligations, in the order in which Pledgee elects in its
sole discretion; and, third, the surplus (if any) shall be paid to Pledgor.
10. Termination. This Agreement shall terminate in its entirety upon
full payment of the Obligations to Pledgee, and Pledgee shall return any
remaining Collateral to Pledgor within thirty days after such termination.
11. Notices. All notices made or required to be made hereunder shall be
sent by United States first class or certified or registered mail, with postage
prepaid, or delivered by telecopy or by hand to Pledgee or to Pledgor at the
addresses first above written. Notice by
<PAGE> 8
mail shall be deemed to have been made on the date when the Notice is deposited
in the mail.
12. Heirs, Successors, Etc. This Pledge Agreement and all of its terms
and provisions shall benefit and bind the heirs, successors, assigns,
transferees, executors and administrators of each of the parties hereto.
13. Pledgee's Forbearance. Any forbearance, failure or delay by Pledgee
in exercising any right, power or remedy hereunder shall not be deemed a waiver
of such right, power or remedy.
14. Governing Law. This Pledge Agreement shall be governed by the laws
of the Commonwealth of Massachusetts.
EXECUTED under seal at Natick, Massachusetts as of the date first above
written.
PLEDGOR: PLEDGEE:
ASPECT MEDICAL SYSTEMS, INC.
________________________ By: _________________________
[Insert Name of Pledgor]
Exhibit A
_________________________ shares of Common Stock
represented by Certificate No. ______
<PAGE> 1
EXHIBIT 10.14
PROMISSORY NOTE
$27,000.00 September 24, 1997
Natick, Massachusetts
FOR VALUE RECEIVED, Jeffrey L. Barrett (the "Maker"), promises to pay
to Aspect Medical Systems, Inc. ("Aspect"), or order, at the offices of Aspect
Medical Systems, Inc. or at such other place as the holder of this Note may
designate, the principal sum of $27,000.00, together with interest on the unpaid
principal balance of this Note from time to time outstanding at the rate of 8%
per year until paid in full. Principal and interest shall be paid as follows:
principal and interest shall be paid by the Maker in four equal annual
installments in the amount of $8,151.86 each, with the first such installment
(the "First Payment") due and payable on September 24, 1998 (the "First Payment
Date") and the next three installments (each a "Subsequent Payment") due and
payable on September 24 of each year thereafter (each a "Subsequent Payment
Date"), with such final payment due and payable on September 24, 2001.
Notwithstanding any other provision in this Promissory Note, in the event that
the Maker is employed by Aspect on the First Payment Date, Aspect shall forgive
the amount of the First Payment and such amount shall be considered and treated
as compensation to the Maker by Aspect. In the event that the Maker is employed
by Aspect on a Subsequent Payment Date, Aspect shall forgive the amount of the
Subsequent Payment relating to such Subsequent Payment Date and any and all such
amounts shall be considered and treated as compensation to the Maker by Aspect
such that in the event that the Maker is still employed by Aspect on September
24, 2001, this Promissory Note will be considered cancelled with all principal
and interest forgiven by Aspect.
Interest on this Note shall be computed on the basis of a year of 365
days for the actual number of days elapsed, compounded annually. All payments by
the Maker under this Note shall be in immediately available funds.
This Note shall become immediately due and payable without notice or
demand upon the occurrence at any time of any of the following events of default
(individually, "an Event of Default" and collectively, "Events of Default"):
(1) default in the payment when due of any principal, premium or
interest under this Note; or
(2) the occurrence of the termination or other cessation of the
Maker's full-time employment at Aspect, for any reason whether
by the Maker or by Aspect.
Upon the occurrence of an Event of Default, the holder shall have then,
or at any time thereafter, all of the rights and remedies afforded by the
Uniform Commercial Code as from time to time in effect in the Commonwealth of
Massachusetts or afforded by other applicable law.
Every amount overdue under this Note shall bear interest from and after
the date on which such amount first became overdue at an annual rate which is
two percentage points above the rate per year specified in the first paragraph
of this Note. Such interest on overdue amounts under this Note shall be payable
on demand and shall accrue and be compounded monthly until the obligation of the
Maker with respect to the payment of such interest has been discharged (whether
before or after judgment).
<PAGE> 2
Promissory Note
September 24, 1997
Page 2
All payments by the Maker under this Note shall be made without set-off
or counterclaim and be free and clear and without any deduction or withholding
for any taxes or fees of any nature whatever, unless the obligation to make such
deduction or withholding is imposed by law. The Maker shall pay and save the
holder harmless from all liabilities with respect to or resulting from any delay
or omission to make any such deduction or withholding required by law.
Whenever any amount is paid under this Note, all or part of the amount
paid may be applied to principal, premium or interest in such order and manner
as shall be determined by the holder in its discretion.
The Maker agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the holder in enforcing the obligations
of the Maker under this Note.
No delay or omission on the part of the holder in exercising any right
under this Note shall operate as a waiver of such right or of any other right of
such holder, nor shall any delay, omission or waiver on any one occasion be
deemed a bar to or waiver of the same or any other right on any future occasion.
This Note may be prepaid in whole or in part at any time or from time
to time in the sole discretion of the holder. Any such prepayment shall be
without premium or penalty.
None of the terms or provisions of this Note may be excluded, modified
or amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so excluded,
modified or amended.
All rights and obligations hereunder shall be governed by the laws of
the Commonwealth of Massachusetts and this Note is executed as an instrument
under seal.
ATTEST:
By: /s/ J. Neal Armstrong By: /s/ Jeffrey L. Barrett
---------------------------- -------------------------------
Jeffrey L. Barrett
Tax ID# ###-##-####
------------------
<PAGE> 1
EXHIBIT 10.15
PROMISSORY NOTE
$63,000 April 10, 1998
Natick, Massachusetts
FOR VALUE RECEIVED, Jeffrey Barrett (the "Maker"), promises to pay to
Aspect Medical Systems, Inc., or order, at the offices of Aspect Medical
Systems, Inc. or at such other place as the holder of this Note may designate,
the principal sum of $63,000, together with interest on the unpaid principal
balance of this Note from time to time outstanding at the rate of 8% per year
until paid in full. Principal and interest shall be paid as follows: principal
and interest shall be paid by the Maker in four equal annual installments in the
amount of $6,300 each, plus all accrued interest, with the first such
installment due and payable on April 10, 1999 and the remaining installments due
and payable on April 10 of each year thereafter, plus a final principal payment
equal to the remaining principal balance plus all accrued but unpaid interest
and other amounts then due and payable, with such final payment due and payable
on April 10, 2003.
Interest on this Note shall be computed on the basis of a year of 365
days for the actual number of days elapsed, compounded annually. All payments by
the Maker under this Note shall be in immediately available funds.
Payment of this Note is secured by a security interest in certain
property of the Maker (the "Collateral") pursuant to a pledge agreement of even
date herewith between the Maker and Aspect Medical Systems, Inc. (the "Pledge
Agreement").
This Note shall become immediately due and payable without notice or
demand upon the occurrence at any time of any of the following events of default
(individually, "an Event of Default" and collectively, "Events of Default"):
(1) default in the payment when due of any principal, premium or
interest under this Note;
(2) the occurrence of any event of default under the Pledge
Agreement; or
(3) the institution by or against the Maker of this Note of any
proceedings under the United States Bankruptcy Code or any
other federal or state bankruptcy, reorganization,
receivership, insolvency or other similar law affecting the
rights of creditors generally or the making by the Maker or
any indorser or guarantor of this Note of a composition or an
assignment or trust mortgage for the benefit of creditors.
Upon the occurrence of an Event of Default, the holder shall have then,
or at any time thereafter, all of the rights and remedies afforded by the
Uniform
<PAGE> 2
Commercial Code as from time to time in effect in the Commonwealth of
Massachusetts or afforded by other applicable law.
Every amount overdue under this Note shall bear interest from and after
the date on which such amount first became overdue at an annual rate which is
two percentage points above the rate per year specified in the first paragraph
of this Note. Such interest on overdue amounts under this Note shall be payable
on demand and shall accrue and be compounded monthly until the obligation of the
Maker with respect to the payment of such interest has been discharged (whether
before or after judgment).
All payments by the Maker under this Note shall be made without set-off
or counterclaim and be free and clear and without any deduction or withholding
for any taxes or fees of any nature whatever, unless the obligation to make such
deduction or withholding is imposed by law. The Maker shall pay and save the
holder harmless from all liabilities with respect to or resulting from any delay
or omission to make any such deduction or withholding required by law.
Whenever any amount is paid under this Note, all or part of the amount
paid may be applied to principal, premium or interest in such order and manner
as shall be determined by the holder in its discretion.
No reference in this Note to the Pledge Agreement or any guaranty shall
impair the obligation of the Maker, which is absolute and unconditional, to pay
all amounts under this Note strictly in accordance with the terms of this Note.
The Maker agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the holder in enforcing the obligations
of the Maker under this Note.
No delay or omission on the part of the holder in exercising any right
under this Note or the Pledge Agreement shall operate as a waiver of such right
or of any other right of such holder, nor shall any delay, omission or waiver on
any one occasion be deemed a bar to or waiver of the same or any other right on
any future occasion.
This Note may be prepaid in whole or in part at any time or from time
to time in the sole discretion of the holder. Any such prepayment shall be
without premium or penalty.
None of the terms or provisions of this Note may be excluded, modified
or amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so excluded,
modified or amended.
<PAGE> 3
All rights and obligations hereunder shall be governed by the laws of
the Commonwealth of Massachusetts and this Note is executed as an instrument
under seal.
ATTEST:
By: /s/ Catherine G. Kornyei By: /s/ Jeffrey L. Barrett
-------------------------------- --------------------------------
Jeffrey Barrett
<PAGE> 4
PLEDGE AGREEMENT
This is a pledge agreement made as of the 10th day of February, 1998
between Mr. Jeffrey Barrett, an individual residing at 20 Tavern Circle,
Sudbury, Massachusetts, (the "Pledgor"), and Aspect Medical Systems, Inc., a
Delaware corporation with its principal place of business at Two Vision Drive,
Natick, Massachusetts 01760 (the "Pledgee").
1. PLEDGE OF COLLATERAL. For good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Pledgor hereby grants
Pledgee a security interest in the capital stock identified in EXHIBIT A annexed
hereto, the certificates for which Pledgor has delivered to Pledgee together
with a stock transfer power executed in blank (the "Collateral").
2. OBLIGATIONS SECURED. The security interest in the Collateral
granted hereby secures payment and performance of the obligations of Pledgor to
Pledgee, whether now existing or hereafter arising, including but not limited to
those obligations described in that certain promissory note from Pledgor to
Pledgee of even date herewith in the principal amount of $63,000 (the "Note"),
together with all interest, with respect to such debt (the "Obligations").
3. PLEDGEE'S RIGHTS AND DUTIES WITH RESPECT TO THE COLLATERAL.
Pledgee's only duty with respect to the Collateral shall be to exercise
reasonable care to secure the safe custody thereof. Pledgee shall have the right
but not the obligation to (a) demand, sue for, receive and collect all money or
money damages payable on account of any Collateral, (b) protect, preserve or
assert any other rights of Pledgor or take any other action with respect to the
Collateral, and (c) pay any taxes, liens, assessments, insurance premiums or
other charges pertaining to the Collateral. Any expenses incurred by Pledgee
under the preceding sentence shall be paid by Pledgor upon demand, become part
of the Obligations secured by the Collateral and bear interest at the rate
provided in the Note until paid. Pledgee shall be relieved of all responsibility
for the Collateral upon surrendering it to Pledgor.
4. PLEDGOR'S WARRANTIES AND INDEMNITY. Pledgor represents,
warrants and covenants (a) that it is and will be the lawful owner of the
Collateral, (b) that the Collateral is and will remain free and clear of all
liens, encumbrances and security interests other than the security interest
granted by Pledgor hereunder, and (c) that Pledgor has the sole right and lawful
authority to pledge the Collateral and otherwise to comply with the provisions
hereof. In the event that any adverse claim is asserted in respect of the
Collateral or any portion thereof, except such as may result from an act of
Pledgee not authorized hereunder, Pledgor promises and agrees to indemnify
Pledgee and hold Pledgee harmless from and against any losses, liabilities,
damages, expenses, costs and reasonable counsel fees incurred by Pledgee in
exercising any right, power or remedy of Pledgee hereunder or defending,
protecting or enforcing the security interests created hereunder. Any such loss,
liability or expense so
<PAGE> 5
incurred shall be paid by Pledgor upon demand, become part of the obligations
secured by the Collateral and bear interest at the rate provided in the Note
until paid.
5. VOTING OF COLLATERAL. While Pledgor is not in default
hereunder, Pledgor may vote the capital stock and other securities, if any,
pledged as Collateral.
6. DIVIDENDS AND OTHER DISTRIBUTIONS. While Pledgor is not in
default hereunder, Pledgor may receive cash dividends, and other distributions
payable with respect to the Collateral, PROVIDED, HOWEVER, that Pledgor shall
immediately inform Pledgee of the receipt of any such dividend, payment or other
distribution and shall hold the amount thereof in trust for Pledgee unless and
until Pledgee shall in writing release Pledgor from such trust. Pledgor shall
cause all non-cash dividends and distributions with respect to the Collateral to
be distributed directly to Pledgee, to be held by Pledgee as additional
Collateral, and if any such distribution is made to Pledgor it shall receive
such distribution in trust for Pledgee and shall immediately transfer it to
Pledgee.
7. PLEDGOR'S DEFAULT. Pledgor shall be in default hereunder upon
the occurrence of any of the following events:
(a) If any event of default by the Pledgor shall occur under
the Note;
(b) If any lien, encumbrance or adverse claim of any nature
whatsoever is asserted with respect to any Collateral and such lien, encumbrance
or adverse claim is not removed within sixty (60) days or if Pledgor attempts to
transfer the Collateral;
(c) If Pledgor fails to fulfill any obligation hereunder and
such obligation shall not be fulfilled within sixty (60) days thereafter; or
(d) If the "fair market value" per share of the Collateral is
at or below [$.80] per share. For purposes of this Section 7(d), the "fair
market value" per share of the Collateral shall be the price determined in good
faith by the Board of Directors of the Company.
8. PLEDGEE'S RIGHTS UPON DEFAULT. Upon the occurrence of any
default as defined in the preceding section, Pledgee may, if Pledgee so elects
in its sole option:
(a) at any time and from time to time, sell, assign and
deliver the whole or any part of the Collateral at a sale through a broker in a
public market where securities of the type constituting such Collateral are
usually traded, without any advertisement, presentment, demand or performance,
protest, notice of protest, notice of dishonor or any other notice;
(b) at any time and from time to time sell, assign and deliver
all or any part of the Collateral, or any interest therein, at any other public
or private sale, for cash, on credit or for other property, for immediate or
future delivery without such assumption of credit risk, and for such price or
prices and on such terms as
<PAGE> 6
Pledgee in its absolute discretion may determine, provided that (i) at least ten
days' notice of the time and place any such sale shall be given to Pledgor, and
(ii) in the case of any private sale, such notice shall also contain the terms
of the proposed sale and Pledgee shall sell the Collateral proposed to be sold
to any purchaser procured by Pledgor who is ready, willing and able to purchase,
and who prior to the time of such sale tenders the purchase price of, such
Collateral on terms more favorable to Pledgee than the terms contained in such
notice;
(c) exercise the right to vote, the right to receive cash
dividends and other distributions, and all other rights with respect to the
Collateral as though Pledgee were the absolute owner thereof, whether or not
such rights were retained by Pledgor as against Pledgee before default;
(d) at Pledgee's option, take title to the Collateral; and
(e) exercise all other rights available to a secured party
under the Uniform Commercial Code and other applicable law.
9. APPLICATION OF SALE PROCEEDS. In the event of a sale of the
Collateral, the proceeds shall first be applied to the payment of the expenses
of the sale, including broker's commissions, counsel fees, any taxes or other
charges imposed by law upon the Collateral or the transfer thereof and all other
charges paid or incurred by Pledgee pertaining to the sale; and, second, to
satisfy outstanding Obligations, in the order in which Pledgee elects in its
sole discretion; and, third, the surplus (if any) shall be paid to Pledgor.
10. TERMINATION. This Agreement shall terminate in its entirety
upon full payment of the Obligations to Pledgee, and Pledgee shall return any
remaining Collateral to Pledgor within thirty days after such termination.
11. NOTICES. All notices made or required to be made hereunder
shall be sent by United States first class or certified or registered mail, with
postage prepaid, or delivered by telecopy or by hand to Pledgee or to Pledgor at
the addresses first above written. Notice by mail shall be deemed to have been
made on the date when the Notice is deposited in the mail.
12. HEIRS, SUCCESSORS, ETC. This Pledge Agreement and all of its
terms and provisions shall benefit and bind the heirs, successors, assigns,
transferees, executors and administrators of each of the parties hereto.
13. PLEDGEE'S FORBEARANCE. Any forbearance, failure or delay by
Pledgee in exercising any right, power or remedy hereunder shall not be deemed a
waiver of such right, power or remedy.
14. GOVERNING LAW. This Pledge Agreement shall be governed by the
laws of the Commonwealth of Massachusetts.
<PAGE> 7
EXECUTED under seal at Natick, Massachusetts as of the date first above
written.
PLEDGOR: PLEDGEE:
ASPECT MEDICAL SYSTEMS, INC.
/s/ Jeffrey L. Barrett By: /s/ J. Neal Armstrong
- ------------------------------------- --------------------------------
Jeffrey Barrett
<PAGE> 8
EXHIBIT A
87,500 shares of Common Stock
represented by Certificate No. 137
<PAGE> 1
EXHIBIT 10.16
SERIES D CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
between
ASPECT MEDICAL SYSTEMS, INC.
and
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
Dated as of February 13, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. AUTHORIZATION AND SALE OF SHARES ...................................... 1
1.01 AUTHORIZATION .................................................. 1
1.02 SALE OF SHARES ................................................. 1
1.03 USE OF PROCEEDS ................................................ 1
2. CLOSING ............................................................... 1
3. REPRESENTATIONS OF THE COMPANY ........................................ 2
3.01 ORGANIZATION AND STANDING ...................................... 2
3.02 CAPITALIZATION ................................................. 2
3.03 SUBSIDIARIES ................................................... 3
3.04 STOCKHOLDER LIST AND AGREEMENTS ................................ 3
3.05 ISSUANCE OF SHARES ............................................. 4
3.06 AUTHORITY FOR AGREEMENTS, ETC .................................. 4
3.07 GOVERNMENTAL AND OTHER CONSENTS ................................ 5
3.08 LITIGATION; COMPLIANCE WITH LAW ................................ 5
3.09 TAXES .......................................................... 6
3.10 FINANCIAL STATEMENTS ........................................... 6
3.11 BOOKS AND RECORDS .............................................. 7
3.12 TITLE TO PROPERTIES, LEASEHOLD INTERESTS, LIENS AND ENCUMBRANCES 7
3.13 COMPLIANCE WITH OTHER INSTRUMENTS .............................. 7
3.14 INDEBTEDNESS TO AFFILIATES ..................................... 7
3.15 CONTRACTS ...................................................... 8
3.16 U.S. REAL PROPERTY HOLDING CORPORATION ......................... 8
3.17 INSURANCE ...................................................... 8
3.18 PATENTS, TRADEMARKS, ETC ....................................... 8
3.19 PROPRIETARY INFORMATION OF THIRD PARTIES ....................... 9
3.20 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS .............. 9
3.21 KEY EMPLOYEES .................................................. 10
3.22 BROKERS ........................................................ 10
3.23 DISCLOSURE ..................................................... 10
3.24 COMPLIANCE WITH ENVIRONMENTAL AND SAFETY LAWS .................. 10
4. REPRESENTATION AND WARRANTIES OF THE PURCHASERS ....................... 13
4.01 INVESTMENT ..................................................... 13
4.02 AUTHORITY ...................................................... 13
4.03 EXPERIENCE ..................................................... 13
4.04 ACCREDITED INVESTOR ............................................ 13
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
5. CONDITIONS TO OBLIGATIONS OF THE PURCHASERS AT THE CLOSING ........... 13
5.01 ISSUANCE OF SHARES ............................................ 13
5.02 ACCURACY OF REPRESENTATIONS AND WARRANTIES .................... 14
5.03 PERFORMANCE ................................................... 14
5.04 ALL PROCEEDINGS TO BE SATISFACTORY ............................ 14
5.05 COMPLIANCE CERTIFICATE ........................................ 14
5.06 CONSENTS; FILINGS ............................................. 14
5.07 OPINION OF COUNSEL ............................................ 14
5.08 FILING OF CHARTER ............................................. 14
5.09 CERTIFICATES AND DOCUMENTS .................................... 14
5.10 VOTING AGREEMENT .............................................. 15
5.11 CO-SALE AGREEMENT ............................................. 15
5.12 RIGHTS OF FIRST REFUSAL ....................................... 15
5.13 REGISTRATION RIGHTS AGREEMENT ................................. 15
5.14 MINIMUM SALES ................................................. 15
5.15 LEGAL FEES .................................................... 16
5.16 NO ADVERSE CHANGES ............................................ 16
6. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY ......................... 16
6.01 ACCURACY OF REPRESENTATIONS AND WARRANTIES .................... 16
7. COVENANTS OF THE COMPANY ............................................. 16
7.01 INSPECTION .................................................... 16
7.02 FINANCIAL STATEMENTS AND OTHER INFORMATION .................... 16
7.03 MATERIAL CHANGES AND LITIGATION ............................... 17
7.04 KEY MAN INSURANCE ............................................. 17
7.05 OTHER INSURANCE ............................................... 18
7.06 ACCOUNTS AND RECORDS .......................................... 18
7.07 AVAILABILITY OF COMMON STOCK FOR CONVERSION ................... 18
7.08 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS ............. 19
7.09 NON-COMPETITION ............................................... 19
7.10 USE OF PROCEEDS ............................................... 19
7.11 PREPAYMENT OF TAXES; CORPORATE EXISTENCE ...................... 19
7.12 SPECIAL COVENANTS ............................................. 20
7.13 BOARD OF DIRECTORS ............................................ 21
7.14 RIGHT OF FIRST REFUSAL ........................................ 22
7.15 TERMINATION OF COVENANTS ...................................... 23
7.16 WAIVER OF COVENANTS ........................................... 24
8. WAIVER OF PRIOR PREEMPTIVE RIGHTS; TERMINATION OF COVENANTS .......... 24
9. SUCCESSORS AND ASSIGNS ............................................... 24
10. TRANSFERS OF CERTAIN RIGHTS .......................................... 24
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
11. CONFIDENTIALITY ...................................................... 25
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES ........................... 25
13. NOTICES .............................................................. 25
14. BROKERS .............................................................. 26
15. ENTIRE AGREEMENT ..................................................... 26
16. AMENDMENTS AND WAIVERS ............................................... 26
17. CONSENTS ............................................................. 26
18. COUNTERPARTS ......................................................... 26
19. HEADINGS ............................................................. 26
20. SEVERABILITY ......................................................... 27
21. GOVERNING LAW ........................................................ 27
INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
SCHEDULE III Stockholders List
INDEX TO EXHIBITS
EXHIBIT A Third Restated Certificate of Incorporation
EXHIBIT B Third Amended and Restated Right of First Refusal and Co-Sale
Agreement
EXHIBIT C Third Amended and Restated Registration Rights Agreement
EXHIBIT D Third Amended and Restated Voting Agreement
EXHIBIT E Non-Disclosure and Assignment of Inventions Agreement
EXHIBIT F Opinion of Hale and Dorr LLP
</TABLE>
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<PAGE> 5
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This Agreement dated as of February 13, 1998 is entered into by and
among Aspect Medical Systems, Inc., a Delaware corporation (the "Company"), and
the several purchasers listed on SCHEDULE I hereto (individually a "Purchaser"
and collectively the "Purchasers").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. AUTHORIZATION AND SALE OF SHARES.
1.01 AUTHORIZATION. The Company has, on or before the Closing
(as defined in Section 2 below), duly authorized the sale and issuance of up to
1,714,286 shares (the "Preferred Shares") of its Series D Convertible Preferred
Stock, $.01 par value per share (the "Series D Preferred Stock"), having the
rights, restrictions, privileges and preferences as set forth in the Third
Restated Certificate of Incorporation attached as EXHIBIT A hereto (the
"Charter"). The Company has, on or before the Closing, adopted and filed the
Charter with the Secretary of State of the State of Delaware.
1.02 SALE OF SHARES. Subject to the terms and conditions of this
Agreement, at the Closing, the Company agrees to sell and issue to each of the
Purchasers, and each of the Purchasers acting severally and not jointly agrees
to purchase from the Company, the number of shares of Series D Preferred Stock
set forth opposite the name of such Purchaser on SCHEDULE I hereto under the
heading "Preferred Shares to be Purchased" for a purchase price of $7.00 per
share.
1.03 USE OF PROCEEDS. The Company will use the proceeds from the
sale of the Preferred Shares primarily for research and development and working
capital, to purchase capital equipment and for sales and marketing efforts.
2. CLOSING. (a) The closing of the sale and purchase of the Preferred
Shares shall take place at the offices of Testa, Hurwitz & Thibeault, LLP, High
Street Tower, 125 High Street, Boston, Massachusetts at 10:00 a.m. on February
__, 1998, or at such other time, date and location as are agreeable to the
Company and the Purchasers (the "Closing"). The date on which the Closing occurs
shall hereinafter be referred to as the "Closing Date."
(b) At the Closing (i) the Company shall deliver to each
Purchaser a certificate evidencing the shares of Series D Preferred Stock
purchased by such Purchaser pursuant to Section 1.02 hereof, with such
certificates registered in the name of such Purchaser, and (ii) each Purchaser
shall deliver to the Company the dollar amount set forth opposite such
Purchaser's name on SCHEDULE I hereto under the heading "Aggregate Purchase
Price For Preferred Shares," (i) in cash, (ii) by
<PAGE> 6
certified check payable to the order of the Company, (iii) by wire transfer or
(iv) any combination of such methods.
(c) If at the Closing, any of the conditions specified in
Section 5 have not been met, each of the Purchasers may elect to be relieved of
any obligations under this Agreement with respect to the Closing without waiving
any of the rights or remedies such Purchaser may have by reason of such failure
to meet such conditions.
3. REPRESENTATIONS OF THE COMPANY. Except as disclosed by the Company
in SCHEDULE II hereto, the Company hereby represents and warrants to each of the
Purchasers as follows:
3.01 ORGANIZATION AND STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to conduct its
business as presently conducted and as proposed to be conducted by it, to enter
into and perform this Agreement and any agreements contemplated by this
Agreement and to carry out the transactions and perform the obligations
contemplated herein. The Company is duly qualified to do business as a foreign
corporation and is in good standing in every jurisdiction in which the failure
to so qualify would have a material adverse effect on the operations or
financial condition of the Company. The Company has delivered to the Purchasers
true and complete copies of its Charter and By-Laws, each as amended to date.
3.02 CAPITALIZATION. Effective immediately after the Closing,
the authorized capital stock of the Company will consist of (i) 14,500,000
shares of Common Stock, $.01 par value per share (the "Common Stock"), of which
1,553,874 shares are issued and outstanding; and (ii) 18,843,224 shares of
Preferred Stock, $.01 par value per share (the "Preferred Stock"), of which (a)
406,898 shares have been designated Series A-1 Convertible Preferred Stock (the
"Series A-1 Preferred Stock"), 406,898 of which are issued and outstanding, (b)
406,898 shares have been designated Series A-2 Convertible Preferred Stock (the
"Series A-2 Preferred Stock"), none of which are issued and outstanding, (c)
3,800,428 shares have been designated Series B-1 Convertible Preferred Stock
(the "Series B-1 Preferred Stock"), 3,800,428 of which are issued and
outstanding, (d) 3,800,428 shares have been designated Series B-2 Convertible
Preferred Stock (the "Series B-2 Preferred Stock"), none of which are issued and
outstanding, (e) 3,500,000 have been designated Series C Convertible Preferred
Stock (the "Series C Preferred Stock"), 3,439,949 of which shares are issued and
outstanding, (f) 3,500,000 have been designated Series C- 2 Convertible
Preferred Stock (the "Series C-2 Preferred Stock"), none of which are issued and
outstanding, (g) 1,714,286 have been designated Series D Preferred Stock,
1,666,234 of which are issued and outstanding, and (h) 1,714,286 have been
designated Series D-2 Convertible Preferred Stock (the "Series D-2 Preferred
Stock"),
-2-
<PAGE> 7
none of which are issued and outstanding. All of the issued and outstanding
shares of Common Stock, Series A-1 Preferred Stock, Series A-2 Preferred Stock,
Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series C Preferred
Stock, Series C-2 Preferred Stock, Series D Preferred Stock and Series D-2
Preferred Stock have been duly authorized and validly issued and, when the
Series D Preferred Stock is issued in accordance with the terms of this
Agreement or the Charter, the issued and outstanding shares of Preferred Stock
will be fully paid and nonassessable. Except as set forth in SCHEDULE II hereto
or as provided in this Agreement, (i) no subscription, warrant, option,
convertible security or other right (contingent or otherwise) to purchase or
acquire any share of capital stock of the Company is authorized or outstanding;
(ii) there is not any commitment of the Company to issue any subscription,
warrant, option, convertible security or other such right or to issue or
distribute to holders of any shares of its capital stock any evidences of
indebtedness or assets of the Company; and (iii) the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or to make any
other distribution in respect thereof. Except as set forth in the Second Amended
and Restated Registration Rights Agreement dated as of February 26, 1997 by and
among the Company and the several parties named in the signature pages thereto
(the "Old Registration Rights Agreement") or as otherwise set forth in SCHEDULE
II or as provided in this Agreement, no person or entity is entitled to (i) any
preemptive or similar right with respect to the issuance of any capital stock of
the Company, or (ii) any rights with respect to the registration of any capital
stock of the Company under the Securities Act of 1933, as amended (the
"Securities Act"). All of the issued and outstanding shares of Common Stock and
Preferred Stock have been offered, issued and sold by the Company in compliance
with applicable federal and state securities laws. To the best of the Company's
knowledge, no stockholder of the Company has granted options or other rights to
purchase any shares of Common Stock.
3.03 SUBSIDIARIES. The Company has no subsidiaries and does not
own or control, directly or indirectly, any shares of capital stock of any other
corporation, or any interest in any partnership, joint venture or other
non-corporate business enterprise.
3.04 STOCKHOLDER LIST AND AGREEMENTS. Attached as SCHEDULE III
is a true and complete list of the stockholders of the Company, showing the
number of shares of Common Stock or other securities of the Company held by each
stockholder as of the date of this Agreement. Except as set forth in the By-Laws
of the Company, the Second Amended and Restated Voting Agreement dated as of
February 26, 1997 by and among the Company and the several parties named in the
signature pages thereto (the "Old Voting Agreement") and the Second Amended and
Restated Right of First Refusal and Co-Sale Agreement dated as of February 26,
1997 by and among the Company and the several parties named in the signature
pages thereto (the "Old Co-Sale Agreement") or as otherwise set forth in
SCHEDULE II, there are no
-3-
<PAGE> 8
agreements, written or oral, between the Company and any holder of its capital
stock, or, to the best knowledge of the Company, among any holders of its
capital stock, relating to the acquisition, disposition or voting of the capital
stock of the Company.
3.05 ISSUANCE OF SHARES. The issuance, sale and delivery of the
Preferred Shares in accordance with this Agreement, the issuance and delivery of
the Series A-2 Preferred Stock, the Series B-2 Preferred Stock, the Series C-2
Preferred Stock and the Series D-2 Preferred Stock (collectively, the "Special
Preferred Stock") and the issuance and delivery of the shares of Common Stock
issuable upon conversion of the shares of Preferred Shares (the "Conversion
Shares") and the Special Preferred Stock, have been duly authorized and reserved
for issuance, as the case may be, by all necessary corporate action on the part
of the Company, and the Preferred Shares when so issued, sold and delivered
against payment therefor in accordance with the provisions of this Agreement,
the Special Preferred Stock when issued in accordance with the terms of Article
Fourth, Paragraph B, Subparagraph 6 as set forth in the Charter (a "Special
Mandatory Conversion"), and the Conversion Shares when issued upon such
conversion and the shares of Common Stock when issued upon conversion of the
Special Preferred Stock, will be duly and validly issued, fully paid and
non-assessable.
3.06 AUTHORITY FOR AGREEMENTS, ETC. The execution and delivery
by the Company of this Agreement; the Third Amended and Restated Right of First
Refusal and Co-Sale Agreement in the form attached as EXHIBIT B (the "Amended
and Restated Co-Sale Agreement"); the Third Amended and Restated Registration
Rights Agreement in the form attached as EXHIBIT C (the "Amended and Restated
Registration Rights Agreement"), and the Third Amended and Restated Voting
Agreement in the form attached as EXHIBIT D (the "Amended and Restated Voting
Agreement") and the performance by the Company of its obligations hereunder and
thereunder have been duly authorized by all necessary corporate action by the
Company, its officers, directors and stockholders. This Agreement, the Amended
and Restated Co-Sale Agreement, the Amended and Restated Registration Rights
Agreement, and the Amended and Restated Voting Agreement have been duly executed
and delivered by the Company and constitute the legal, valid and binding
obligation of the Company, enforceable in accordance with their terms. The
execution of this Agreement, the Amended and Restated Co-Sale Agreement, the
Amended and Restated Registration Rights Agreement, and the Amended and Restated
Voting Agreement by the Company and the performance of its obligations hereunder
and thereunder will not violate any provision of law or any order of any court
or other agency of government, will not conflict with or result in any breach
of, or constitute a default under, any of the terms, conditions or provisions of
its Charter or By-Laws, each as amended to date, or any indenture, lease,
agreement or other instrument to which the Company is a party or by which it or
any of its properties is bound, or any decree, judgment, order, statute, rule or
regulation applicable to the Company and will not result in the creation or
imposition of any lien, charge,
-4-
<PAGE> 9
restriction, claim or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company.
3.07 GOVERNMENTAL AND OTHER CONSENTS. No consent, approval,
order or authorization of, or registration, qualification, designation,
declaration or filing with, any person or any governmental authority is or will
be required for the valid execution and delivery of this Agreement, the Amended
and Restated Co-Sale Agreement, the Amended and Restated Registration Rights
Agreement, and the Amended and Restated Voting Agreement, the offer, issue, sale
and delivery by the Company of the Preferred Shares, or any other transaction
contemplated by this Agreement, except such consents or waivers as shall have
been obtained on or prior to the Closing or such filings as shall have been made
pursuant to state securities laws effective on and as of the Closing (copies of
which have been provided to the Purchasers). Based in part on the
representations made by each of the Purchasers in Section 4 of this Agreement,
the offer and sale of the Preferred Shares to each of the Purchasers will be in
compliance with applicable Federal and state securities laws.
3.08 LITIGATION; COMPLIANCE WITH LAW. There is no (i) action,
suit, claim, proceeding or investigation pending or, to the best of the
Company's knowledge, threatened against or affecting the Company, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign; or (ii) governmental inquiry pending or, to the best of the Company's
knowledge, threatened against or affecting the Company (including without
limitation any inquiry as to the qualification of the Company to hold or receive
any license or permit); and to the best knowledge of the Company, there is no
basis for any of the foregoing. The Company is not in default with respect to
any order, writ, injunction or decree, known to or served upon the Company, of
any court or of any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign. There
is no action or suit by the Company pending or threatened against others. The
Company has materially complied with all laws, rules, regulations and orders
applicable to its business, operations, properties, assets, products and
services, and except as otherwise set forth in SCHEDULE II, the Company has all
necessary permits, licenses and other authorizations required to conduct its
business as conducted and as proposed to be conducted (including, without
limitation, the U.S. Food and Drug Administration and its foreign equivalents).
There is no existing law, rule, regulation or order, and the Company is not
aware of any proposed law, rule, regulation or order, whether Federal or state,
which would prohibit or restrict the Company from, or otherwise materially
adversely affect the Company in, conducting its business in any jurisdiction in
which its is now conducting business or in which it proposes to conduct
business.
-5-
<PAGE> 10
3.09 TAXES. The Company has filed or has obtained presently
effective extensions with respect to all Federal, state, county and local tax
returns which are required to be filed by it, such returns are true and correct
and the Company has paid all taxes shown to be due by such returns as well as
all other taxes, assessments and governmental charges which have become due or
payable. All such taxes with respect to which the Company has become obligated
pursuant to elections made by the Company in accordance with generally accepted
practice have been paid and adequate reserves have been established for all
taxes accrued but not yet payable. The Federal income tax returns of the Company
have never been audited by the Internal Revenue Service. No deficiency
assessment with respect to or proposed adjustment of the Company's Federal,
state, county or local taxes is pending or, to the best of the Company's
knowledge, threatened. There is no tax lien, whether imposed by any Federal,
state, county or local taxing authority, outstanding against the assets,
properties or business of the Company. Neither the Company nor its stockholders
has ever filed (a) an election pursuant to Section 1362 of the Internal Revenue
Service Code of 1986, as amended (the "Code"), that the Company be taxed as an S
Corporation or (b) consent pursuant to Section 341(f) of the Code, relating to
collapsible corporations.
3.10 FINANCIAL STATEMENTS. The Company has furnished to each of
the Purchasers complete and correct copies of its audited balance sheet as of
December 31, 1996 (the "Balance Sheet") and the related statements of
operations, cash flows and stockholders' equity for the year ended December 31,
1996 and the unaudited consolidated balance sheet of the Company as of September
30, 1997 and the related unaudited statement of operations, cash flows and
stockholders' equity for the nine months ended September 30, 1997. All such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied and fairly present (i) the financial
position of the Company as of December 31, 1996 and the results of its
operations and cash flows for the year ended December 31, 1996 and (ii) the
consolidated financial position of the Company and its subsidiaries as of
September 30, 1997 and the results of their operations and cash flows for the
nine months ended September 30, 1997. Except as set forth in SCHEDULE II hereto,
since the date of the Balance Sheet, the Company has not (i) issued any stock,
bond or other corporate security; (ii) borrowed any amount or incurred or become
subject to any liability (absolute, accrued or contingent), except current
liabilities incurred and liabilities under contracts entered into in the
ordinary course of business; (iii) discharged or satisfied any lien or
encumbrance or incurred or paid any obligation or liability (absolute, accrued
or contingent) other than current liabilities shown on the Balance Sheet and
current liabilities incurred since the date of the Balance Sheet in the ordinary
course of business; (iv) declared or made any payment or distribution to
stockholders or purchased or redeemed any share of its capital stock or other
security; (v) mortgaged, pledged or subjected to lien any of its assets,
tangible or intangible, other than liens of current real property taxes not yet
due and payable; (vi) sold, assigned or transferred any of its tangible assets
except in
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the ordinary course of business, or canceled any debt or claim; (vii) sold,
assigned, transferred or granted any exclusive license with respect to any
patent, trademark, trade name, service mark, copyright, trade secret or other
intangible asset; (viii) suffered any loss of property or waived any right of
substantial value whether or not in the ordinary course of business, (ix) made
any change in officer compensation except in the ordinary course of business and
consistent with past practice; (x) made any material change in the manner of
business or operations of the Company; (xi) entered into any transaction except
in the ordinary course of business or as otherwise contemplated hereby; or (xii)
entered into any commitment (contingent or otherwise) to do any of the
foregoing.
3.11 BOOKS AND RECORDS. The minute books of the Company contain
complete and accurate records of all meetings and other corporate actions of its
stockholders and its board of directors and committees thereof. The stock ledger
of the Company is complete and reflects all issuances, transfers, repurchases
and cancellations of shares of capital stock of the Company.
3.12 TITLE TO PROPERTIES, LEASEHOLD INTERESTS, LIENS AND
ENCUMBRANCES. The Company has good and marketable title to all the property and
assets recorded on the Balance Sheet or acquired by them since the date of the
Balance Sheet, free from all material mortgages, pledges, liens, security
interests, conditional sale agreements, charges, and other encumbrances except
liens for taxes not yet due or payable. Each lease or agreement to which the
Company is a party under which it is a lessee of any property, real or personal,
is a valid and subsisting agreement without any default of the Company
thereunder and, to the best of the Company's knowledge, without any default
thereunder of any other party thereto. No event has occurred and is continuing
which, with due notice or lapse of time or both, would constitute a default or
event of default by the Company under any such lease or agreement or, to the
best of the Company's knowledge, by any other party thereto. The Company's
possession of such property has not been disturbed and, to the best of the
Company's knowledge, no claim has been asserted against the Company adverse to
its rights in such leasehold interests.
3.13 COMPLIANCE WITH OTHER INSTRUMENTS. Except as otherwise set
forth in SCHEDULE II, the Company is not in violation of any term of its Charter
or ByLaws, as amended to date. The Company is not in violation of any term of
mortgage, indenture, contract, agreement, instrument, judgment, decree, order,
statute, rule or regulation to which the Company is subject, which violation
would have a material adverse effect on the condition, financial or otherwise,
or operations of the Company.
3.14 INDEBTEDNESS TO AFFILIATES. Except as otherwise set forth
on SCHEDULE II, the Company has no outstanding indebtedness to any of its
directors or stockholders, or affiliates thereof, except for payment of accrued
salary and
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reimbursement of travel and other expenses incurred in the ordinary course of
business.
3.15 CONTRACTS. Except for this Agreement, the Amended and
Restated Voting Agreement, the Amended and Restated Co-Sale Agreement, the
Amended and Restated Registration Rights Agreement, the Amended and Restated
Voting Agreement, and the Series C Convertible Preferred Stock Purchase
Agreement dated as of February 26, 1997, as amended, by and among the Company
and the parties named on SCHEDULE I thereto (the "1997 Agreement"), or as
otherwise set forth on SCHEDULE II, there are no material indentures, leases,
agreements or other instruments to which the Company is a party or by which it
or any of its properties is bound. All of the contracts and agreements of the
Company which are material to its business are valid, binding and in full force
and effect, and neither the Company nor, to its knowledge, any other party to
such contracts and agreements is in default thereof. The Company is not a party
to or otherwise bound by any written or oral contract or instrument or other
restriction which individually or in the aggregate could materially adversely
affect the business, prospects, financial condition, operating property or
affairs of the Company.
3.16 U.S. REAL PROPERTY HOLDING CORPORATION. The Company is not
now and has never been a "United States real property holding corporation," as
such term in defined in Section 897(c)(2) of the Code, and Section 1.897-2(b) of
the Regulations promulgated by the Internal Revenue Service, and the Company has
filed with the Internal Revenue Service all statements, if any, with its Federal
income tax returns which are required under Section 1.897(2)(h) of such
Regulations.
3.17 INSURANCE. The Company has liability, fire and casualty
insurance policies, with extended coverage, sufficient in amount to allow it to
replace any of its properties which might be damaged or destroyed, and is
otherwise insured against all risks usually insured against by companies of
similar size operating similar businesses.
3.18 PATENTS, TRADEMARKS, ETC. Set forth in SCHEDULE II is a
list and brief description of all patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names and copyrights, and all applications for such, which are owned by or
registered in the name of the Company or are in the process of being prepared or
of which the Company is a licensor or licensee or in which the Company has any
right, and in each case a brief description of the nature of such right. The
Company owns or possesses adequate licenses or other rights to use all patents,
patent applications, trademarks, trademark applications, service marks, service
mark applications, trade names, copyrights, formulae, trade secrets and know how
(collectively, "Intellectual Property") necessary or desirable to the conduct of
its business as conducted and as proposed to be conducted, and no claim is
pending or, to the best of the Company's
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<PAGE> 13
knowledge, threatened, to the effect that the operation of the Company infringes
upon or conflicts with the asserted rights of any other person under any
Intellectual Property, and there is no basis for any such claim (whether or not
pending or threatened). No claim is pending or threatened to the effect that any
such Intellectual Property owned or licensed by the Company, or which the
Company otherwise has the right to use, is invalid or unenforceable by the
Company, and, to the best of the Company's knowledge, there is no basis for any
such claim (whether or not pending or threatened). To the best of the Company's
knowledge, all material technical information developed by and belonging to the
Company which has not been patented has been kept confidential. The Company has
not granted or assigned to any other person or entity any right to manufacture,
have manufactured, assemble or sell the products or proposed products or to
provide the services or proposed services of the Company except as set forth in
SCHEDULE II.
3.19 PROPRIETARY INFORMATION OF THIRD PARTIES. Except as
otherwise set forth on SCHEDULE II, to the best of the Company's knowledge, no
third party has claimed or has reason to claim that any person employed by or
affiliated with the Company has (a) violated or may be violating any of the
terms or conditions of an employment, non-competition or non-disclosure
agreement with such third party, (b) disclosed, may be disclosing or utilized or
may be utilizing any trade secret or proprietary information or documentation of
such third party or (c) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from the Company which
suggests that such a claim might be contemplated. To the best of the Company's
knowledge, no person employed by or affiliated with the Company has employed or
proposes to employ any trade secret or any information or documentation
proprietary to any former employer, and to the best of the Company's knowledge,
no person employed by or affiliated with the Company has violated any
confidential relationship which such person may have had with any third party,
in connection with the development, manufacture or sale of any product or
proposed product or the development or sale of any service or proposed service
of the Company, and the Company has no reason to believe there will be any such
employment or violation. To the best of the Company's knowledge, none of the
execution or delivery of this Agreement, or the carrying on of the business of
the Company as officers, employees or agents by any officer, director or key
employee of the Company, or the conduct or proposed conduct of the business of
the Company, will conflict with or result in a breach of the terms, conditions
or provisions of or constitute a default under any contract, covenant or
instrument under which any such person in obligated.
3.20 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. The
Company and each person now employed by it with access to confidential
information have entered into a non-disclosure and assignment of inventions
agreement in substantially the form of EXHIBIT E hereto.
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<PAGE> 14
3.21 KEY EMPLOYEES. Nassib G. Chamoun and any other employees of
the Company determined by the board of directors of the Company to be key
employees, if any (the "Key Employees"), have signed agreements not to compete
with the Company during the term of their employment and for a period of two
years after termination of their employment. Such non-competition agreements
contain substantially the terms set forth in Section 5 of EXHIBIT E hereto.
3.22 BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
3.23 DISCLOSURE. Neither this Agreement nor any Schedule or
Exhibit hereto, nor any other agreement, document, written statement or
certificate furnished or to be furnished to the Purchasers through the Closing
pursuant hereto or in connection with the transactions contemplated hereby,
taken as a whole, contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein not misleading in light of the circumstances under which they were
made. There is no fact which the Company has not disclosed to the Purchasers and
their counsel in writing and of which the Company is aware which materially and
adversely affects or could materially and adversely affect the business,
prospects, financial condition, operation, property or affairs of the Company.
3.24 COMPLIANCE WITH ENVIRONMENTAL AND SAFETY LAWS.
(a) ENVIRONMENTAL DEFINITIONS. The following terms, as used
herein, have the following meanings:
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Environment" means any and all environmental media, including
without limitation ambient air, surface water, ground water, drinking water
supply, land surface or subsurface strata, and also means any indoor location.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws (including common or case law), regulations, ordinances,
rules, judgments, judicial decisions, orders, decrees, codes, plans,
injunctions, Environmental Permits, or governmental restrictions, relating to
the protection of human health or safety or the Environment or to emissions,
discharges or Releases of any Hazardous Substance into the Environment, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of any Hazardous Substance or the
containment, removal or remediation thereof.
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<PAGE> 15
"Environmental Liabilities" means any and all liabilities arising
in connection with or in any way relating to the Company's business, whether
vested or unvested, contingent or fixed, actual or potential, known or unknown,
which (i) arise under or relate to matters governed by Environmental Laws or
arise in connection with or relate to any matter disclosed or required to be
disclosed in EXHIBIT 3.24 and (ii) arise from or relate in any way to actions
occurring or conditions existing before the Closing Date.
"Environmental Permits" means any and all governmental permits,
licenses, concessions, grants, franchises, agreements, authorizations,
registrations or other governmental approvals issued or required under any
Environmental Laws.
"Hazardous Substance" means any and all pollutants and
contaminants, and any and all toxic, caustic, radioactive, biohazardous or
otherwise hazardous materials, substances or wastes that are regulated under any
Environmental Laws, and includes, without limitation, petroleum and its
derivatives and by-products, and any other hydrocarbons.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing into
the Environment (including, without limitation, the abandonment or discarding of
barrels, containers and other closed receptacles containing any Hazardous
Substance).
(b) ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. Except as
expressly and fully disclosed on EXHIBIT 3.24:
(i) The Company has complied in all material respects with all
Environmental Laws.
(ii) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending, or to the
Company's knowledge, threatened by any governmental or other entity with respect
to any (A) alleged violation by the Company of any Environmental Law, or any
liability thereunder, (B) alleged failure by the Company to have any
Environmental Permit required in connection with the conduct of the Company's
business or (C) the use, generation, treatment, storage, recycling,
transportation or disposal or Release of any Hazardous Substance by the Company.
(iii) To the Company's knowledge, (A) no urea formaldehyde or
polychlorinated biphenyls are or have been present at any property owned or
operated by the Company; (B) no asbestos or asbestos-containing materials are or
have been present at any property owned or operated by the Company; (D) there
are no and have been no underground storage tanks or related piping for
Hazardous
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<PAGE> 16
Substances, active or abandoned, at any property owned or operated by the
Company; (E) no Hazardous Substance has been Released at, on or under any
property owned or operated by the Company and (F) no Hazardous Substance has
been Released or is present, at, on or under any property owned or operated by
the Company in a reportable or threshold planning quantity, where such a
quantity has been established by any Environmental Law except in compliance with
any Environmental Law.
(iv) The Company has not transported or arranged for the
transportation (directly or indirectly) of any Hazardous Substance to any
location which is (A) listed or proposed for listing on the National Priorities
List promulgated pursuant to CERCLA or on any similar state list of sites
requiring investigation or clean-up or (B) the subject of federal, state or
local enforcement actions or other investigations which may lead to claims
against the Purchaser for any Environmental Liabilities including, without
limitation, clean-up costs, remedial work, damages to natural resources or for
personal injury claims, and claims under CERCLA.
(v) No oral or written notification of a Release of a Hazardous
Substance has been filed by or on behalf of the Company and no property owned or
operated by the Company is listed or, to the Company's knowledge, proposed for
listing, on the National Priorities List promulgated pursuant to CERCLA or on
any similar state list of sites requiring investigation or clean-up.
(vi) To the Company's knowledge, no notice, lien or other
restriction relating to the presence of Hazardous Substances or otherwise
arising under any Environmental Law has been placed on any property or facility
owned or operated by the Company, and no governmental actions have been taken or
are in process that could subject any such property or facility to such a
notice, lien or other restriction. The Company is not required to place any
notice, lien or other restriction, relating to the presence of Hazardous
Substances, at any property used in connection with the operation of the
Company's business or in any deed to such property.
(vii) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by or for the Company, or
which are in the Company's possession, in relation to any property or facility
now or previously owned or operated by the Company, which have not been
delivered to Purchaser at least ten (10) business days prior to the date hereof.
(viii) The Company has applied for and received all material
Environmental Permits required in connection with the operation of its business.
SCHEDULE 3.24 sets forth a list of all such Environmental Permits, each of which
is in full force and effect. No suspension or cancellation is threatened and
there is no basis for believing that any such Environmental Permit will not be
renewable upon expiration. Except as set forth in SCHEDULE 3.24, each such
Environmental Permit will
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continue to be in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect immediately prior to the Closing,
and the consummation of the transactions contemplated herein will not conflict
with, result in a violation or breach of or constitute a default under (or would
result in a violation, breach or default with the giving of notice or the
passage of time or both) any such Environmental Permit.
4. REPRESENTATION AND WARRANTIES OF THE PURCHASERS. Each of the
Purchasers severally represents and warrants to the Company as follows:
4.01 INVESTMENT. Each Purchaser is acquiring the Preferred
Shares and the Conversion Shares for such Purchaser's own account for the
purpose of investment and not with a view to, or for sale in connection with,
any distribution thereof, and, except as contemplated by this Agreement and the
Exhibits hereto, such Purchaser has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof.
4.02 AUTHORITY. Such Purchaser has full power and authority to
enter into and to perform this Agreement in accordance with its terms. Any
Purchaser which is a corporation, partnership or trust represents that it has
not been organized, reorganized or recapitalized specifically for the purpose of
investing in the Company.
4.03 EXPERIENCE. Each Purchaser has carefully reviewed the
representations concerning the Company contained in this Agreement, and has made
detailed inquiry concerning the Company, its business and its personnel; the
officers of the Company have made available to each Purchaser any and all
written information requested including all items outlined in SCHEDULE II and
have answered all inquiries to such Purchaser's satisfaction; such Purchaser has
sufficient business experience to evaluate the merits and risks of this
investment; such Purchaser has adequate net worth and means of providing for
current needs and personal contingencies to sustain a complete loss of
investment in the Company; and such Purchaser's overall commitment to
investments which are not readily marketable is not disproportionate to such
Purchaser's net worth.
4.04 ACCREDITED INVESTOR. Each Purchaser is an Accredited
Investor as defined in Rule 501 of Regulation D promulgated under the Securities
Act.
5. CONDITIONS TO OBLIGATIONS OF THE PURCHASERS AT THE CLOSING. The
obligation of each of the Purchasers under this Agreement is subject to the
fulfillment, or the waiver by such Purchaser, of the following conditions on or
before the Closing:
5.01 ISSUANCE OF SHARES. The Company shall have duly issued and
delivered certificates representing the Preferred Shares to the Purchasers.
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<PAGE> 18
5.02 ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each
representation and warranty contained in Section 3 shall be true, complete and
correct on and as of the Closing Date with the same effect as though such
representation and warranty had been made on as of that date.
5.03 PERFORMANCE. The Company shall have performed and complied
with all agreements and conditions contained in this Agreement required to be
performed or complied with by the Company prior to or at the Closing and shall
have executed in satisfactory form all agreements required to be executed
hereunder prior to or at the Closing.
5.04 ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other
proceedings to be taken by the Company in connection with the transaction
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchasers and their special counsel.
5.05 COMPLIANCE CERTIFICATE. The Company shall have delivered to
the Purchasers a certificate, executed by the President of the Company, dated as
of the Closing Date, certifying to the fulfillment of the conditions specified
in subsections 5.02, 5.03, and 5.04 of this Agreement.
5.06 CONSENTS; FILINGS. All necessary consents shall have been
obtained and all necessary filings shall have been made to permit the
consummation of the transactions contemplated by this Agreement.
5.07 OPINION OF COUNSEL. Each Purchaser shall have received an
opinion from Hale and Dorr LLP, counsel for the Company, dated as of the Closing
Date, addressed to the Purchasers in substantially the form of EXHIBIT F hereto.
5.08 FILING OF CHARTER. The Company's Charter in the form of
EXHIBIT A hereto shall have been filed with and accepted by the Secretary of
State of the State of Delaware prior to the Closing.
5.09 CERTIFICATES AND DOCUMENTS. The Company shall have
delivered to the special counsel to the Purchasers:
(i) The Certificate of Incorporation of the Company, as
amended and restated, and in effect immediately prior to the Closing,
certified by the Secretary of State of the State of Delaware;
(ii) Certificate, as of the most recent practicable date,
as to the corporate good standing of the Company issued by the
Secretary of State of the State of Delaware;
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(iii) By-Laws of the Company, as amended, certified by its
Secretary as of the Closing Date;
(iv) Resolutions of the Board of Directors of the
Company, authorizing and approving all matters in connection with this
Agreement and the transactions contemplated hereby, certified by the
Secretary of the Company, dated as of the Closing Date; and
(v) Such other documents as special counsel to the
Purchasers may have reasonably requested.
5.10 VOTING AGREEMENT. The Purchasers and (i) holders of at
least 85% of the outstanding shares of the Company's Series A-1 Preferred Stock,
Series B-1 Preferred Stock and Series C Preferred Stock, voting together as a
single class, and (ii) holders of a majority of the outstanding shares of Common
Stock of the Company held by those who are a party to the Old Voting Agreement,
shall have authorized, in accordance with Section 6(a) of the Old Voting
Agreement, and shall have executed, the Amended and Restated Voting Agreement.
5.11 CO-SALE AGREEMENT. The Purchasers and holders of at least
55% of the issued and outstanding shares of the Series A-1 Preferred Stock,
Series B-1 Preferred Stock of the Company, and Series C Preferred Stock
(including shares of Common Stock into which any such shares may have been
converted), voting together as a single class, then held or deemed to be held by
those who are a party to the Old Co-Sale Agreement shall have authorized, in
accordance with Section 11 of the Old Co-Sale Agreement, and shall have executed
the Amended and Restated Co-Sale Agreement.
5.12 RIGHTS OF FIRST REFUSAL. All preemptive rights, rights of
first refusal or other rights with respect to the issuance of the Preferred
Shares or Conversion Shares, of any stockholders of the Company, shall have been
irrevocably waived in writing.
5.13 REGISTRATION RIGHTS AGREEMENT. The Company and the holders
of at least 55% of the shares of Common Stock issuable upon conversion of
Preferred Stock held by those who are a party to the Old Registration Rights
Agreement shall have authorized, in accordance with Sections 12 and 16(d) of the
Old Registration Rights Agreement, and shall have executed the Amended and
Restated Registration Rights Agreement.
5.14 MINIMUM SALES. The Company shall have raised a minimum of
$10,000,000 from the sale of the Series D Preferred Stock pursuant to the
Closing hereunder.
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<PAGE> 20
5.15 LEGAL FEES. The Company shall have paid the reasonable
legal fees and expenses of Testa, Hurwitz & Thibeault, LLP as special counsel to
the Purchasers in the transactions contemplated hereby, provided that the
Company shall not be obligated to pay any such fees and expenses in excess of
$17,000.
5.16 NO ADVERSE CHANGES. Prior to the Closing, there shall be no
present or anticipated material adverse change in the condition (financial or
otherwise), properties, proposed business operations, management, potential
competition of, or any matter affecting, the Company or its prospects.
All such documents shall be satisfactory in form and substance to the
Purchasers and their special counsel.
6. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations of
the Company under Section 1.02 of this Agreement are subject to fulfillment, on
or before the Closing, of the following condition:
6.01 ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each
representation and warranty of the Purchasers contained in Section 4 shall be
true, complete and correct on and as of the Closing Date with the same effect as
though such representation and warranty had been made on and as of such date.
7. COVENANTS OF THE COMPANY. The Company covenants and agrees with
each of the Purchasers that, subject to earlier termination as set forth in
Section 7.16 below, so long as any of the Preferred Shares or the Conversion
Shares are outstanding:
7.01 INSPECTION. The Company shall permit each Purchaser holding
at least 2% of the outstanding shares of Preferred Stock of the Company on a
fully diluted basis (a "2% Holder"), or any authorized representative thereof,
to visit and inspect the properties of the Company, to examine and copy its
corporate and financial records, to discuss its business and finances with
officers, directors, Key Employees and accountants of the Company, during normal
business hours following reasonable notice and as often as may be reasonably
requested, and at any time to audit the Company at the expense of such
Purchaser.
7.02 FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company
shall prepare and deliver to each 2% Holder (i) within thirty (30) days after
the close of each month, unless otherwise agreed to by the holders of a majority
of the outstanding shares of Preferred Stock, unaudited income statements,
balance sheets and summaries of bookings and backlogs, (ii) within thirty (30)
days after the end of each of the first three fiscal quarters of each year,
unless otherwise agreed to by the holders of a majority of the outstanding
shares of Preferred Stock, quarterly unaudited financial statements (including
income statements, summaries, balance
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<PAGE> 21
sheets, cash flow statements and summaries of bookings and backlogs); (iii) as
soon as available, but in any event during the fourth fiscal quarter of each new
fiscal year, unless otherwise agreed to by the holders of a majority of the
outstanding shares of Preferred Stock, an annual strategic and operation plan,
and promptly after preparation, any revisions to any forecasts contained
therein. The Company shall deliver to each 2% Holder within (90) days after the
end of each fiscal year, unless otherwise agreed to by the holders of a majority
of the outstanding shares of Preferred Stock audited financial statements of the
Company (which shall be audited by a nationally recognized accounting firm which
shall be approved annually by a majority of the members of the board of
directors). The Company shall prepare and deliver to each Purchaser holding less
than 2% of the outstanding shares of Preferred Stock who shall request in
writing the monthly and quarterly financial information described in clauses (i)
and (ii) of the first sentence of this Section 7.02 and the annual audited
financial statements. The financial statements to be delivered pursuant to this
Section 7.02 shall be prepared in accordance with generally accepted accounting
principles consistently applied, subject only, in the case of the audited
financial statements, to the matters described in the accountant's report
attached thereto and, in the case of the financial statements to be delivered
pursuant to clauses (i) and (ii) of the first sentence of this Section 7.02, to
the fact that they have been prepared for the internal use of management and may
not be in accordance with generally accepted accounting principles because of
the absence of footnotes normally contained therein and are subject to normal
year-end audit adjustments. The financial statements delivered pursuant to this
Section 7.02 shall be accompanied by a certificate signed by the then-acting
chief financial officer of the Company or person performing comparable functions
that such statements fairly present the financial condition and results of
operations for the periods covered thereby except as noted therein. In addition,
the Company will provide each 2% Holder other customary information and
materials, including without limitation reports of adverse developments, copies
of any management letters, communications with stockholders or directors, press
releases and registration statements.
7.03 MATERIAL CHANGES AND LITIGATION. The Company will promptly
notify the Purchasers of any material adverse change in the business,
properties, assets or condition, financial or otherwise, of the Company and of
any litigation or governmental proceeding or investigation pending or, to the
best knowledge of the Company, threatened against the Company, or against any
officer, director, Key Employee or principal stockholder of the Company, which
materially affects or which, if adversely determined, would materially adversely
affect its present or proposed business properties, assets or condition taken as
a whole.
7.04 KEY MAN INSURANCE. The Company shall have obtained a "Key
Man" life insurance policy, payable to the Company, in the amount of exactly
$1,500,000 on the life of Nassib G. Chamoun. The Company shall not cause or
permit any assignment or change in beneficiary and shall not borrow against such
policy.
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7.05 OTHER INSURANCE. The Company will use its best efforts to
keep all its insurable properties properly insured against loss or damage by
fire and other risks; maintain public liability insurance against claims for
personal injury, death or property damage suffered by others upon or in or about
any premises occupied by it or arising from equipment owned by the Company and
leased to and located upon or in or about any premises occupied by any other
person; maintain all such worker's compensation or similar insurance as may be
required under the laws of any state or jurisdiction in which it may be engaged
in business; and maintain such other insurance as is usually maintained by
persons engaged in the same or similar business as is the Company; PROVIDED,
HOWEVER, that the Company shall not be required to maintain product liability
insurance if the board of directors determines that it is not in the best
interests of the Company to obtain such product liability insurance. All such
insurance shall be maintained against such risks and in at least such amounts as
such insurance is usually carried by persons engaged in the same or similar
businesses, and all insurance herein provided for shall be effected and
maintained in force under a policy or policies issued by insurers or recognized
responsibility, except that the Company may effect worker's compensation or
similar insurance in respect of operations in any state or other jurisdiction
either through an insurance fund operated by such state or other jurisdiction or
by causing to be maintained a system or systems of self-insurance which is in
accord with applicable laws.
7.06 ACCOUNTS AND RECORDS. The Company will keep true, complete
and accurate records and books of account in which true, complete and accurate
entries will be made of all dealings or transactions in relation to its business
and affairs in accordance with generally accepted accounting principles applied
on a consistent basis.
7.07 AVAILABILITY OF COMMON STOCK FOR CONVERSION. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, for the purpose of effecting the conversion of the
Preferred Stock and otherwise complying with the terms of this Agreement, such
number of its duly authorized shares of Common Stock as shall be sufficient to
effect the conversion of the Preferred Stock from time to time outstanding or
otherwise to comply with the terms of this Agreement. If at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the Preferred Stock or otherwise to comply with the
terms of this Agreement, the Company will forthwith take such corporate action
as may be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes. The
Company will obtain any authorization, consent, approval or other action by or
make any filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon conversion of the Preferred Stock.
-18-
<PAGE> 23
7.08 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. The
Company and each person hereafter employed by it or any subsidiary with access
to confidential information of the Company will enter into a non-disclosure and
assignment of inventions agreement in substantially the form of EXHIBIT E
hereto.
7.09 NON-COMPETITION. The Company shall cause each of its Key
Employees hereafter employed by the Company promptly to execute a
non-competition agreement substantially in the form of EXHIBIT E hereto.
7.10 USE OF PROCEEDS. The Company will use the proceeds from the
sale of the Preferred Shares primarily for research and development, working
capital, to purchase capital equipment and for sales and marketing efforts. The
approximate percentage of the proceeds to be used for each such use is as set
forth on Schedule II, and may be amended if approved by the Board of Directors
of the Company.
7.11 PREPAYMENT OF TAXES; CORPORATE EXISTENCE. The Company will:
(a) pay and discharge promptly, or cause to be paid and
discharged promptly, when due and payable, all taxes, assessment and
governmental charges or levies imposed upon it or upon its income or upon any of
its property, real, personal and mixed, or upon any part thereof, as well as all
claims of any kind (including claims for labor, materials and supplies) which,
if unpaid might by law become a lien or charge upon its property; PROVIDED,
HOWEVER, that the Company shall not be required to pay any tax, assessment,
charge, levy or claim if the amount, applicability or validity thereof currently
shall be contested in good faith by appropriate proceedings and if the Company
shall have set aside on its books reserves (classified to the extent required by
generally accepted accounting principles) deemed by it adequate with respect
thereto; and PROVIDED FURTHER, that the Company shall have no obligation to make
any payments under this paragraph (a) with respect to property subject to leases
pursuant to the terms of which the lessees thereof have undertaken to make such
payments;
(b) do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence, rights and
franchises, provided, however, that nothing in this paragraph (b) shall (i)
prevent the abandonment or termination of the Company's authorization to do
business in any foreign state or jurisdiction if, in the opinion of the
Company's Board of Directors, such abandonment or termination is in the interest
of the Company and not disadvantageous in any material respect to the holders of
the Preferred Shares or (ii) require compliance with any law so long as the
validity or applicability thereof shall be contested in good faith; and
(c) maintain and keep, or cause to be maintained and
kept, its properties in good repair, or working order and condition, and from
time to time
-19-
<PAGE> 24
make, or cause to be made, all repairs, renewals and replacement which in the
opinion of the Company are necessary and proper so that the business carried on
in connection therewith may be properly and advantageously conducted at all
times.
7.12 SPECIAL COVENANTS. The Corporation shall not, without the
prior approval of the holders of a majority of the Preferred Stock (or by such
holders as may be otherwise required in the Charter), given in writing or by
vote at a meeting, consenting or voting (as the case may be) together as a
single class:
(a) amend, repeal or add any provision to the Charter or
By-Laws of the Company.
(b) authorize, create or issue any debt or equity
securities, except for: (i) shares of Common Stock which may be issued to
employees, directors, consultants, scientific advisors or other persons pursuant
to arrangements, contracts or plans as are recommended by management and
approved by the vote of a majority of the members of the Board of Directors
(which number of shares shall be appropriately adjusted for stock splits, stock
dividends, combinations, reorganizations, recapitalizations and other similar
events involving a change in the capital structure of the Company) (the
"Reserved Employee Shares"); and (ii) indebtedness for borrowed money from a
bank or other institutional lender or indebtedness in connection with a capital
equipment leasing arrangement, other lease financing arrangement or for
operating capital purposes; in each case under this subsection (ii) approved by
a vote of a majority of the members of the board of directors.
(c) merge or consolidate with, or sell, assign, lease or
otherwise dispose of or voluntarily part with the control of (whether in one
transaction or in a series of transactions) substantially all of its assets
(whether now owned or hereafter acquired) or permit any subsidiary to do any of
the foregoing, except for sales or other dispositions of assets in the ordinary
course of business EXCEPT that (1) any wholly-owned subsidiary may merge into or
consolidate with or transfer assets to any other wholly-owned subsidiary, (2)
any wholly-owned subsidiary may merge into or transfer assets to the Company,
and (3) the Company may merge another entity into it or otherwise acquire such
entity so long as the Company is the surviving entity, the holders of voting
stock of the Company immediately prior to such merger are the holders of not
less than a majority of the Company immediately following such merger, such
merger or acquisition does not result in the violation of any of the provisions
of this Agreement and no such violation exists at the time of such merger or
acquisition;
(d) sell, transfer or license any intellectual property
rights of the Company, except in connection with clinical testing or in the
ordinary course of business;
-20-
<PAGE> 25
(e) file a registration statement with the Securities and
Exchange Commission with respect to any securities (except with respect to a
registration statement filed in connection with a demand registration right);
(f) increase or decrease the authorized number of
directors constituting the Board of Directors;
(g) declare or pay any dividends, or purchase, redeem,
retire, or otherwise acquire for value any of its capital stock (or rights,
options or warrants to purchase such shares) now or hereafter outstanding,
return any capital to its stockholders as such, or make any distribution of
assets to its stockholders as such, or permit any subsidiary to do any of the
foregoing, PROVIDED, HOWEVER, that nothing herein contained shall prevent the
Company from:
(i) effecting a stock split (except for a reverse
stock split) or declaring or paying any dividends consisting of shares
of any class or series of capital stock to the holders of shares of
such class or series of capital stock, as the case may be;
(ii) complying with any specific provisions of the
terms of the Preferred Stock or the terms of this Agreement; or
(iii) repurchasing any stock at cost pursuant to
restricted stock agreements with employees, consultants, directors,
scientific advisors and others under restricted stock agreements
previously approved by the board of directors;
(h) create any subsidiary that is not a wholly-owned
subsidiary;
(i) reclassify any securities into shares having
preferences or priority equal to or superior to the Preferred Stock; or
(j) grant to any of its employees options to purchase
Reserved Employee Shares which shall become exercisable at a rate in excess of
25% per annum from the date of such grant (unless such vesting schedule is
approved by a majority of the members of the board of directors).
The provisions of this Section 7.12 shall not apply to actions taken by the
Company to effect a Special Mandatory Conversion.
7.13 BOARD OF DIRECTORS. The Company shall use its best efforts
to ensure that meetings of its board of directors are held at least four times
each year and at least once each quarter. The Company shall at all times
maintain provisions
-21-
<PAGE> 26
in its By-laws and/or Charter indemnifying all directors against liability to
the maximum extent permitted under the laws of the State of Delaware.
7.14 RIGHT OF FIRST REFUSAL.
(a) The Company hereby grants to each of the holders of
the Company's Preferred Stock (individually a "Preferred Shareholder" and
collectively the "Preferred Shareholders") a right of first refusal to purchase,
on a pro rata basis, all or any part of New Securities (as defined below) which
the Company may, from time to time, propose to sell and issue, subject to the
terms and conditions set forth below; PROVIDED HOWEVER, that the right of first
refusal set forth in this Section 7.14 shall only be granted to Preferred
Shareholders who have certified to the Company upon request by the Company from
time to time (and provided such substantiation as the Company requests) that
such person is an "accredited investor" within the meaning of Rule 501(a) under
the Securities Act of 1933, as amended. Notwithstanding any other provision in
this Agreement, the Company has no obligations under this Section 7.14 to any
that has not so certified to the Company that such person is an accredited
investor. A Preferred Shareholder's pro rata share, for purposes of this Section
7.14, shall equal a fraction, the numerator of which is the number of shares of
Common Stock then held by such Preferred Shareholder or issuable upon conversion
or exercise of any shares of Preferred Stock, convertible securities, options,
rights or warrants then held by such Preferred Shareholder, and the denominator
of which is the total number of shares of Common Stock then held by all
Preferred Shareholders or issuable upon conversion or exercise of then
outstanding shares of Preferred Stock, convertible securities, options, rights
or warrants then held by all Preferred Shareholders.
(b) "New Securities" shall mean any capital stock of the
Company whether now authorized or not, and rights, options or warrants to
purchase capital stock, and securities of any type whatsoever which are, or may
become, convertible into capital stock; PROVIDED, HOWEVER, that the term "New
Securities" does not include (i) the Preferred Shares issuable under this
Agreement, the Special Preferred Stock, the Conversion Shares, the shares of
Common Stock issuable upon conversion of the Special Preferred Stock or any
other convertible securities or the shares of Common Stock issuable upon
conversion of such convertible securities outstanding or committed for issuance
on the date hereof as shown on SCHEDULE III; (ii) securities offered to the
public pursuant to a registration statement filed by the Company with the
Securities and Exchange Commission for a public offering and sale of securities
of the Company (other than a registration statement on Form S-8 or Form S-4, or
their successors, or any registration statement covering only securities
proposed to be issued in exchange for securities or assets of another
corporation), in connection with a Qualified Public Offering (as defined in
Section 7.15); (iii) securities issued for the acquisition of another
corporation by the Company by merger, purchase of substantially all the assets
of such corporation or
-22-
<PAGE> 27
other reorganization resulting in the ownership by the Company of not less than
a majority of the voting power of such corporation; (iv) the Reserved Employee
Shares; or (v) securities issued as a result of any stock split, stock dividend
or reclassification of Common Stock, distributable on a pro rata basis to all
holders of Common Stock.
(c) In the event the Company intends to issue New
Securities, it shall give each Preferred Shareholder written notice of such
intention, describing the type of new Securities to be issued, the price thereof
and the general terms upon which the Company proposes to effect such issuance.
Each Preferred Shareholder shall have twenty (20) days from the date of receipt
of any such notice to agree to purchase all or part of such Preferred
Shareholder's pro rata share of such New Securities by giving written notice to
the Company stating the quantity of New Securities to be so purchased for the
price and upon the general terms and conditions specified in the Company's
notice.
(d) In the event any Preferred Shareholder or Preferred
Shareholders fails to exercise the foregoing right of first refusal with respect
to any New Securities within such twenty (20)-day period, the Company may within
120 days thereafter sell any or all of such New Securities not agreed to be
purchased by the Preferred Shareholders to any third party or parties at a price
and upon general terms no more favorable than specified in the notice given to
each Preferred Shareholder pursuant to paragraph (c) above. In the event the
Company has not sold such New Securities within such 120-day period, the Company
shall not thereafter issue or sell any New Securities without first offering
such New Securities to the Preferred Shareholders in the manner provided above.
(e) For purposes of this Section 7.14, the term
"Preferred Shareholder" shall include the general partners, officers or other
affiliates of a Preferred Shareholder, and a Preferred Shareholder may apportion
its pro rata share among itself and such general partners, officers and other
affiliates in such proportions as it deems appropriate.
(f) Anything contained in this Section 7.14 to the
contrary notwithstanding, in the event that the Preferred Stock held by a
Preferred Shareholder or its successor or assign shall have been converted
pursuant to the Special Mandatory Conversion, then in such case, the rights
pursuant to this Section 7.14 as to any series of Preferred Stock shall
terminate immediately upon the occurrence of such conversion, and such Preferred
Shareholder's (or its successor's or assign's as the case may be) pro rata share
as determined under Section 7.14(a) shall be calculated without taking into
account such Preferred Shareholder's or its successor's or assign's Preferred
Stock.
7.15 TERMINATION OF COVENANTS. The covenants of the Company
contained in Section 7.14 shall terminate upon the closing of a firm
underwritten
-23-
<PAGE> 28
public offering of shares of Common Stock of the Company which (i) results in
aggregate gross proceeds of at least $20,000,000, and (ii) is at a price per
share of at least $12.00, which number shall be appropriately adjusted for stock
splits, stock dividends, combinations, reorganizations, recapitalizations and
other similar events involving a change in the capital structure of the Company
(the "Qualified Public Offering").
7.16 WAIVER OF COVENANTS. Any provision in the covenants of the
Company contained in this Section 7 may be waived or amended by the written
consent of a majority of the outstanding shares of Common Stock issued or
issuable upon the conversion of the Preferred Stock.
8. WAIVER OF PRIOR PREEMPTIVE RIGHTS; TERMINATION OF COVENANTS.
(a) The Company and certain of the Purchasers who hold
Series A-1 Preferred Stock, Series B-1 Preferred Stock and/or Series C Preferred
Stock (the "Old Investors"), it being acknowledged that such Old Investors
collectively hold at least 55% of the Preferred Stock (as such term is defined
in the Series C Convertible Preferred Stock Purchase Agreement, dated as of
February 26, 1997 (the "1997 Agreement")), hereby agree that the operation of
Section 7.14 of the 1997 Agreement is hereby waived as it may apply to the
authorization, offer, issuance and sale by the Company of the Preferred Shares
and the Conversion Shares, as applicable.
(b) In addition, the Company and each Old Investor signatory to
this Agreement, it being acknowledged that such Old Investors collectively hold
at least 55% of the shares of Preferred Shares (as defined in the 1997
Agreement) hereby agree that the 1997 Agreement be amended by deleting Section
7.14 of the 1997 Agreement in its entirety, such that such Section 7.14 of the
1997 Agreement shall be of no further force and effect.
9. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon, and inure to the benefit of, the respective successors, assigns,
heirs, executors and administrators of the parties hereto.
10. TRANSFERS OF CERTAIN RIGHTS.
(a) The rights granted to a Purchaser under Section 7 may be
transferred by such Purchaser to a Purchaser, to any affiliate of the transferor
or to any person or entity acquiring at least 25,000 shares of Series D
Preferred Stock or Conversion Shares; PROVIDED, HOWEVER, that the Company is
given written notice by the transferee at the time of such transfer stating the
name and address of the transferee and identifying the securities with respect
to which such rights are being assigned.
-24-
<PAGE> 29
(b) A transferee to whom rights are transferred pursuant to this
Section 10 may not again transfer such rights to any other person or entity,
other than as provided in paragraph (a) above.
(c) Notwithstanding anything to the contrary herein, any
Purchaser which is a partnership or corporation may transfer rights granted to
such Purchaser under Section 7 to any partner or stockholder thereof to whom
Preferred Shares are transferred pursuant to and in accordance with the Amended
and Restated Registration Rights Agreement, provided that in addition to any
transfer requirements set forth in the Amended and Restated Registration Rights
Agreement, such Purchaser delivers to the Company a written instrument
containing a representation that the transfer is exempt from registration under
the Securities Act of 1933, as amended. In the event of such transfer, such
transferee partner or stockholder shall be deemed a Purchaser for purposes of
this Section 10 and may again transfer such rights to any other person or entity
which acquires shares of Preferred Stock from such partner or stockholder, in
accordance with, and subject to, the provisions of this Section 10.
11. CONFIDENTIALITY. Each Purchaser agrees to keep confidential and
not to disclose or divulge any confidential, proprietary or secret information
which such Purchaser may obtain from the Company pursuant to financial
statements, reports and other materials submitted by the Company to such
purchaser pursuant to this Agreement, or pursuant to visitation or inspection
rights granted hereunder, unless such information is known, or until such
information becomes known, to the public.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All agreements,
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the closing of the transactions contemplated
hereby.
13. NOTICES. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be delivered by hand or
mailed by first class certified or registered mail, return receipt requested,
postage prepaid:
If to the Company: 2 Vision Drive, Natick MA 01760, Attention:
President, or at such other address or addresses as may have been furnished in
writing by the Company to the Purchasers, with a copy to Hale and Dorr LLP, 60
State Street, Boston, MA 02109, Attention: Susan W. Murley, Esq.
If to a Purchaser: at the address set forth opposite such
Purchaser's name on SCHEDULE I hereto, respectively, or at such other address or
addresses as may have been furnished to the Company in writing by such
Purchaser, with a copy to Testa, Hurwitz & Thibeault, LLP, High Street Tower,
125 High Street, Boston, MA 02110, Attention: Lawrence S. Wittenberg, Esq.
-25-
<PAGE> 30
14. BROKERS. The Company and each Purchaser (i) represents and
warrants to the other parties hereto that no finder or broker has been retained
in connection with the transactions contemplated by this Agreement, and (ii)
will indemnify and save the other parties harmless from and against any and all
claims, liabilities or obligations with respect to brokerage or finders' fees or
commissions, or consulting fees in connection with the transactions contemplated
by this Agreement asserted by any person on the basis of any statement or
representation alleged to have been made by such indemnifying party.
15. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
16. AMENDMENTS AND WAIVERS.
(a) Except as otherwise expressly set forth in this Agreement,
the terms of this Agreement may be amended and the observance of any term of
this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively), with the written consent of the Company
and the holders of at least 55% of the outstanding Preferred Shares, PROVIDED,
that no condition set forth in Section 5 may be waived with respect to any
Purchaser who does not consent thereto.
(b) Any amendment or waiver effected in accordance with this
Section 16 shall be binding upon each holder of Preferred Shares or Conversion
Shares, and each future holder of all such securities and the Company. No
waivers of or exceptions to any term, condition or provision of this Agreement,
in any one or more instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such term, condition or provision.
17. CONSENTS. The Purchasers hereby consent to the transactions
contemplated by this Agreement to the extent that such consent is required by
the terms of the Company's Charter or the instruments delivered under this
Agreement.
18. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
19. HEADINGS. The headings of the sections, subsections, and
paragraphs of this Agreement have been added for convenience only and shall not
be deemed to be a part of this Agreement.
-26-
<PAGE> 31
20. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision.
21. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
-27-
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
ASPECT MEDICAL SYSTEMS, INC.
By: /s/ Nassib G. Chamoun
----------------------------------------
Nassib G. Chamoun
President
/s/
--------------------------------------------
Henry L. Hillman, Elsie Hilliard Hillman and
C. G. Grefenstette, Trustees of the Henry L.
Hillman Trust U/A dated 11/18/85
/s/
--------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for
Juliet Lea Hillman
/s/
--------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for
Audrey Hilliard Hillman
/s/
--------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for
William Talbott Hillman
[Preferred Stock Purchase Agreement]
Aspect - Series D -28-
<PAGE> 33
/s/
--------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for
Henry L. Hillman, Jr.
VENHILL LIMITED PARTNERSHIP
By: /s/
----------------------------------------
Name:
Title:
JULIET CHALLENGER, INC.
By: /s/
----------------------------------------
Name:
Title:
BT ALEX BROWN EMPLOYEE VENTURE FUND
By: /s/
----------------------------------------
Name:
Title:
SECOND CENTURY GROWTH DEFERRED
COMPENSATION PLAN: Piper Jaffray, Inc.
By: /s/
----------------------------------------
Name:
Title:
[Preferred Stock Purchase Agreement]
Aspect - Series D -29-
<PAGE> 34
THE JOHN BURROUGHS SCHOOL ENDOWMENT FUND
By: /s/
----------------------------------------
Name:
Title:
/s/ Noubar Afeyan
--------------------------------------------
Noubar Afeyan
/s/ Stanley Lapidus
--------------------------------------------
Stanley Lapidus
POLARIS VENTURE PARTNERS, L.P.
By: Polaris Venture Management Co., LLC
Its General Partner
By: /s/
----------------------------------------
Member
ONE LIBERTY FUND III, L.P.
By: One Liberty Partners III, L.P.,
Its General Partner
By: /s/ Edwin M. Kania, Jr.
----------------------------------------
Edwin M. Kania, Jr.
General Partner
[Preferred Stock Purchase Agreement]
Aspect - Series D -30-
<PAGE> 35
CHARLES RIVER PARTNERSHIP VII,
LIMITED PARTNERSHIP
By: /s/
----------------------------------------
Name:
Title:
HIGHLAND CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By: /s/
----------------------------------------
Name:
Title:
MAYFIELD MEDICAL PARTNERS MAYFIELD VI
By: /s/ By: /s/
-------------------------- ----------------------------------------
Name: Name:
Title: Title:
MAYFIELD ASSOCIATES
By: /s/
----------------------------------------
Name:
Title:
MERRILL, PICKARD, ANDERSON & EYRE IV,
LIMITED PARTNERSHIP
By: MPAE IV Management Co., L.P.
By: /s/
----------------------------------------
Name:
Title:
[Preferred Stock Purchase Agreement]
Aspect - Series D -31-
<PAGE> 36
ORCHID & CO., nominee for
T. Rowe Price Threshold Fund III, L.P.
By: T. Rowe Price Threshold Fund Associates, Inc.
General Partner
By: /s/
---------------------------------------------
Name:
Title:
HLM PARTNERS VII, L.P.
By: /s/
---------------------------------------------
Name:
Title:
SUTTER HILL VENTURES, A CALIFORNIA LIMITED
PARTNERSHIP
By: /s/
---------------------------------------------
Name:
Title:
[Preferred Stock Purchase Agreement]
Aspect - Series D -32-
<PAGE> 37
/s/ Steven H. Kane
-------------------------------------------------
Steven H. Kane
/s/ Stephen E. Coit
-------------------------------------------------
Stephen E. Coit
/s/ Philip G. Aberizk
-------------------------------------------------
Philip G. Aberizk
/s/ Robert Carpenter
-------------------------------------------------
Robert Carpenter
/s/ Theodore and Mary Stanley
-------------------------------------------------
Theodore and Mary Stanley
THE STANLEY RESEARCH FOUNDATION
By: /s/
---------------------------------------------
Name:
Title:
/s/ Vikas Saini
-------------------------------------------------
Vikas Saini
/s/ Douglas Schair
-------------------------------------------------
Douglas Schair
/s/ J. Neal Armstrong
-------------------------------------------------
J. Neal Armstrong
[Preferred Stock Purchase Agreement]
Aspect - Series D -33-
<PAGE> 38
/s/ Timothy J. Crowley
-------------------------------------------------
Timothy J. Crowley
/s/ Anne De Gheest
-------------------------------------------------
Anne De Gheest
/s/ Glen E. Wegner
-------------------------------------------------
Glen E. Wegner
ZED INTERNATIONAL, INC.
By: /s/
---------------------------------------------
Name:
Title:
SVM STAR VENTURES
MANAGEMENTGESELLSCHAFT MBH NR.
3 & CO. BETEILIGUNGS KG
By: SVM Star Ventures
Managementgesellschaft mbH Nr. C
By: /s/
---------------------------------------------
Authorized Signatory
[Preferred Stock Purchase Agreement]
Aspect - Series D -34-
<PAGE> 39
SVE STAR VENTURE ENTERPRISES NO. V,
A GERMAN CIVIL LAW PARTNERSHIP
(WITH LIMITATION OF LIABILITY)
By: SVM Star Ventures
Managementgesellschaft mbH Nr. C
By: /s/
---------------------------------------------
Authorized Signatory
UNTERSTOCK ANSTALT FUR VERMOGENS UND TRUST
VERWALTUNG
By: /s/
---------------------------------------------
Authorized Signatory
/s/ Richard and Julie Rogers
-------------------------------------------------
Richard and Julie Rogers
/s/ Theodore H. Ashford
-------------------------------------------------
Theodore H. Ashford
CITIVENTURE 96 PARTNERSHIP, L.P.
By: Chancellor LGT Asset Management, Inc.
as investment advisor
By: /s/
---------------------------------------------
Name:
Title:
[Preferred Stock Purchase Agreement]
Aspect - Series D -35-
<PAGE> 40
GENSTAR INVESTMENT CORPORATION
By: /s/
---------------------------------------------
Name:
Title:
TOW PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP
By: /s/
---------------------------------------------
Name:
Title:
/s/
-------------------------------------------------
William H. Younger, Jr., Trustee of the
Younger Living Trust
/s/
-------------------------------------------------
Paul M. and Marsha R. Wythes, Trustees of
the Wythes Living Trust
/s/
-------------------------------------------------
G. Leonard Baker
/s/ Ronald L. Perkins
-------------------------------------------------
Ronald L. Perkins
/s/ James C. Gaither
-------------------------------------------------
James C. Gaither
[Preferred Stock Purchase Agreement]
Aspect - Series D -36-
<PAGE> 41
WELLS FARGO BANK, TRUSTEE SHV
M/P/T FBO DAVID L. ANDERSON
By: /s/
---------------------------------------------
Name:
Title:
WELLS FARGO BANK, TRUSTEE SHV
M/P/T FBO TENCH COXE
By: /s/
---------------------------------------------
Name:
Title:
/s/ Lester J. Lloyd
-------------------------------------------------
Lester J. Lloyd
CHANCELLOR LGT PRIVATE CAPITAL PARTNERS III, L.P.
By: CPCP Associates, L.P.,
its general partner
By: Chancellor LGT Venture Partners, Inc.,
its general partner
By: /s/
---------------------------------------------
Name: Johnston L. Evans
Title: Managing Director
[Preferred Stock Purchase Agreement]
Aspect - Series D -37-
<PAGE> 42
POLARIS VENTURE PARTNERS FOUNDERS' FUND, L.P.
By: Polaris Venture Management Co., LLC
Its General Partner
By: /s/
---------------------------------------------
Member
[Preferred Stock Purchase Agreement]
Aspect - Series D -38-
<PAGE> 43
SCHEDULE I
----------
<TABLE>
<CAPTION>
Preferred Shares Purchase Price for
Name and Address of Purchaser to be Purchased Preferred Shares
----------------------------- --------------- ----------------
<S> <C> <C>
Juliet Challenger, Inc.
824 Market Street, Suite 900
Wilmington, DE 19801 357,143 $ 2,500,001.00
Attn: Andrew McQuarrie
Orchid & Co., nominee for
T. Rowe Price Threshold
Fund III, L.P.
c/o Junerose Sordoni 335,715 $ 2,350,005.00
T. Rowe Price Assoc. Inc.
100 East Pratt
Baltimore, MD 21202
Polaris Venture Partners, L.P.
Bay Colony Corporate Center
1000 Winter Street, Suite 3350 195,450 $ 1,368,150.00
Waltham, MA 02154
Charles River Partnership VII,
Limited Partnership
1000 Winter Street, 114,286 $ 800,002.00
Suite 3300
Waltham, MA 02254
Venhill Limited Partnership
c/o Howard B. Hillman
Autotrol Technology
12500 N. Washington Street
Denver, CO 80241-2404 107,143 $ 750,001.00
with copy to: Irene Riebe
Taconic Group, Inc.
158 Main Street
New Canaan, CT 06840
Henry L. Hillman, Elsie Hilliard Hillman
and C. G. Grefenstette, Trustees of the
Henry L. Hillman Trust U/A dated
11/18/85 107,143 $ 750,001.00
1800 Grant Building
Pittsburgh, PA 15219
</TABLE>
Aspect - Series D -39-
<PAGE> 44
SCHEDULE I
----------
<TABLE>
<CAPTION>
Preferred Shares Purchase Price for
Name and Address of Purchaser to be Purchased Preferred Shares
----------------------------- --------------- ----------------
<S> <C> <C>
One Liberty Fund III, L.P.
One Liberty Ventures
One Liberty Square 71,429 $ 500,003.00
Boston, MA 02109
C. G. Grefenstette and Thomas G. Bigley,
Trustees U/A/T dated 8/28/68 for
William Talbott Hillman 35,715 $ 250,005.00
1800 Grant Building
Pittsburgh, PA 15219
C. G. Grefenstette and Thomas G. Bigley, $ 250,005.00
Trustees U/A/T dated 8/28/68 for
Audrey Hilliard Hillman 35,715
1800 Grant Building
Pittsburgh, PA 15219
C. G. Grefenstette and Thomas G. Bigley,
Trustees U/A/T dated 8/28/68 for
Henry L. Hillman, Jr. 35,715 $ 250,005.00
1800 Grant Building
Pittsburgh, PA 15219
C. G. Grefenstette and Thomas G. Bigley,
Trustees U/A/T dated 8/28/68 for
Juliet Lea Hillman 35,715 $ 250,005.00
1800 Grant Building
Pittsburgh, PA 15219
Interstock Anstalt fur Vermogens
und Trust Verwaltung
c/o Ernst Bloathlinger
Herrengasse 21 23,429 $ 164,003.00
FL-9490 Vaduz
Liechtenstein
HLM Partners VII, L.P.
HLM Management Company
c/o Peter Grua 21,429 $ 150,003.00
222 Berkeley Street, #2150
Boston, MA 02116
</TABLE>
Aspect - Series D -40-
<PAGE> 45
SCHEDULE I
----------
<TABLE>
<CAPTION>
Preferred Shares Purchase Price for
Name and Address of Purchaser to be Purchased Preferred Shares
----------------------------- --------------- ----------------
<S> <C> <C>
Douglas Schair
601 Chandlers Wharf 21,429 $ 150,003.00
Portland, ME 04101
Sutter Hill Ventures,
a California Limited Partnership
c/o Sutter Hill Ventures
755 Page Mill Road 18,166 $ 127,162.00
Suite A-200
Palo Alto, CA 94304
ABS Employees' Venture Fund Limited
Partnership
Attn: Dan Gunter 14,286 $ 100,002.00
375 West Padonia Road
Timonium, MD 21093
Merrill, Pickard, Anderson &
Eyre IV Limited Partnership
1000 Winter Street 14,286 $ 100,002.00
Suite 1080
Waltham, MA 02154
Second Century Growth Deferred
Compensation Plan:
Piper Jaffray Inc.
Attn: Buzz Benson, Managing Director 14,286 $ 100,002.00
222 South 9th Street, 13th Floor
Minneapolis, MN 55402
Polaris Venture Partners Founders'
Fund, L.P.
Bay Colony Corporate Center 11,693 $ 81,851.00
1000 Winter Street, Suite 3350
Waltham, MA 02154
</TABLE>
Aspect - Series D -41-
<PAGE> 46
SCHEDULE I
----------
<TABLE>
<CAPTION>
Preferred Shares Purchase Price for
Name and Address of Purchaser to be Purchased Preferred Shares
----------------------------- --------------- ----------------
<S> <C> <C>
SVE Star Venture Enterprises
No. V, A German Civil Law
Partnership (with limitation of liability)
c/o Andreas Hofbauer
Star Venture Managment 10,029 $ 70,203.00
Possartstr. 9
D-81679 Munich
Germany
Citiventure 96 Partnership, L.P.
c/o Mark Radovanovich
1166 Avenue of the Americas 9,963 $ 69,741.00
New York, NY 16636
The John Burroughs School Endowment
Fund
c/o Keith Shahan 7,143 $ 50,001.00
755 South Price Road
St. Louis, MO 63124
Vikas Saini, M.D.
24 Brook Street 7,143 $ 50,001.00
Brookline, MA 02146
Richard & Julie Rogers
4 Fordyce Lane 7,143 $ 50,001.00
Ladue, MO 63124
Highland Capital Partners II,
Limited Partnership
Two International Place 4,286 $ 30,002.00
Boston, MA 02110
Mayfield VI
2800 Sand Hill Road 3,927 $ 27,489.00
Menlo Park, CA 94025
Noubar Afeyen
c/o PerSeptive BioSystems
500 Old Connecticut Pass 3,572 $ 25,004.00
Frammingham, MA 01701
</TABLE>
Aspect - Series D -42-
<PAGE> 47
SCHEDULE I
----------
<TABLE>
<CAPTION>
Preferred Shares Purchase Price for
Name and Address of Purchaser to be Purchased Preferred Shares
----------------------------- --------------- ----------------
<S> <C> <C>
J. Neal Armstrong
20 Cedar Ridge Road 3,572 $ 25,004.00
N. Attleboro, MA 02760
Theodore H. Ashford
3801 Kennett Pike B107 3,572 $ 25,004.00
Greenville, DE 19807
Stephen E. Coit
32 Vinebrook Road 3,572 $ 25,004.00
Lexington, MA 02173
Timothy J. Crowley, M.D.
42 Candy Hill Lane 3,572 $ 25,004.00
Sudbury, MA 01776
Steven H. Kane
2 Ben Arthur's Way 3,572 $ 25,004.00
Dover, MA 02030
Lester J. Lloyd
7 Haciendas Road 3,572 $ 25,004.00
Orinda, CA 94563
Theodore H. Stanley &
Mary O. Stanley
4800 Oak Terrace 2,988 $ 20,916.00
Salt Lake City, Utah 84124
Chancellor LGT Private Capital Partners
III, L.P.
c/o Mark Radovonovich 2,491 $ 17,437.00
1166 Avenue of the Americas
New York, NY 16636
Tow Partners, a California Limited
Partnership
c/o Sutter Hill Ventures
755 Page Mill Road 2,477 $ 17,339.00
Suite A-200
Palo Alto, CA 94304
</TABLE>
Aspect - Series D -43-
<PAGE> 48
SCHEDULE I
----------
<TABLE>
<CAPTION>
Preferred Shares Purchase Price for
Name and Address of Purchaser to be Purchased Preferred Shares
----------------------------- --------------- ----------------
<S> <C> <C>
G. Leonard Baker, Jr.
c/o Sutter Hill Ventures
755 Page Mill Road 2,386 $ 16,702.00
Suite A-200
Palo Alto, CA 94304
Wells Fargo Bank, Trustee
SHV M/P/T FBO David L. Anderson
Attention: Janet Greenbaum
MAC #0101-021 2,386 $ 16,702.00
420 Montgomery Street, 2nd Floor
San Francisco, CA 94104
SVM StarVentures
Managementgesellschaft mbH Nr.3 & Co.
Beteiligungs KG
c/o Andreas Hofbauer
Star Venture Managment 2,257 $ 15,799.00
Possartstr. 9
D-81679 Munich
Germany
Stanley Lapidus
c/o Exact Laboratories, Inc.
63 Great Road 1,429 $ 10,003.00
Maynard, MA 01754
William H. Younger, Jr., Trustee
Younger Living Trust
c/o Sutter Hill Ventures
755 Page Mill Road 1,303 $ 9,121.00
Suite A-200
Palo Alto, CA 94304
Wells Fargo Bank, Trustee
SHV M/P/T FBO Tench Coxe
Attention: Janet Greenbaum
MAC #0101-021 663 $ 4,641.00
420 Montgomery Street, 2nd Floor
San Francisco, CA 94104
</TABLE>
Aspect - Series D -44-
<PAGE> 49
SCHEDULE I
----------
<TABLE>
<CAPTION>
Preferred Shares Purchase Price for
Name and Address of Purchaser to be Purchased Preferred Shares
----------------------------- --------------- ----------------
<S> <C> <C>
Stanley Research Foundation
4800 Oak Terrace 584 $ 4,088.00
Salt Lake City, Utah 84124
Mayfield Medical Partners
2800 Sand Hill Road 566 $ 3,962.00
Menlo Park, CA 94025
Genstar Investement Corporation
Metro Tower, Suite 1170
Foster City, CA 94404 517 $ 3,619.00
Attention: Mr. R.D. Paterson
Robert Carpenter
9 Lowell Road 452 $ 3,164.00
Wellesley Hills, MA 02181
Paul M. and Martha R. Wythes,
Trustees of the Wythes Living Trust
c/o Sutter Hill Ventures
755 Page Mill Road 417 $ 2,919.00
Suite A-200
Palo Alto, CA 94304
Ronald L. Perkins
c/o Sutter Hill Ventures
755 Page Mill Road 188 $ 1,316.00
Suite A-200
Palo Alto, CA 94304
Mayfield Associates
2800 Sand Hill Road 187 $ 1,309.00
Menlo Park, CA 94025
James C. Gaither
c/o Sutter Hill Ventures
755 Page Mill Road 69 $ 483.00
Suite A-200
Palo Alto, CA 94304
Glen Wegner, M.D.
22 Lathrop Road 42 $ 294.00
Wellesley, MA 02181
</TABLE>
Aspect - Series D -45-
<PAGE> 50
SCHEDULE I
----------
<TABLE>
<CAPTION>
Preferred Shares Purchase Price for
Name and Address of Purchaser to be Purchased Preferred Shares
----------------------------- --------------- ----------------
<S> <C> <C>
Zed International, Inc.
c/o Thomas J. Landergan
BankBoston, N.A.
01-05-03 11 $ 77.00
P.O. Box 1890
Boston, MA 02105
Anne DeGheest
12133 Foothill Land 6 $ 42.00
Los Altos, CA 94022
Philip G. Aberizk
111 Neck Road 4 $ 28.00
Haverhill, MA 01835
TOTAL 1,666,234 $11,663,638.00
</TABLE>
Aspect - Series D -46-
<PAGE> 1
EXHIBIT 10.17
THIRD AMENDED AND RESTATED RIGHT OF FIRST REFUSAL
AND CO-SALE AGREEMENT
AGREEMENT, dated as of February 13, 1998 by and among Aspect Medical
Systems, Inc., a Delaware corporation (the "Company"), those persons whose names
are set forth under the heading "Preferred Shareholders" on SCHEDULE I hereto
(the "Preferred Shareholders"); and each of the persons who is currently a
holder of the Common Stock, $.01 par value per share (the "Common Stock"), of
the Company, or a holder of options to purchase shares of the Common Stock, and
whose name is listed under the heading "Key Stockholders" on SCHEDULE II hereto,
and each of the persons who shall, after the date hereof, acquire shares of
Common Stock of the Company or options to purchase Common Stock and join in and
become a party to this Agreement by executing and delivering to the Company an
Instrument of Accession in the form of SCHEDULE III hereto (such persons being
hereinafter referred to collectively as the "Key Stockholders").
WHEREAS, certain of the Preferred Shareholders and the Key
Stockholders, are parties to a Second Amended and Restated Right of First
Refusal and Co-Sale Agreement dated as of February 26, 1997 (the "Old Co-Sale
Agreement"), pursuant to which such Key Stockholders agreed to certain
restrictions with respect to the transfer of their equity securities of the
Company;
WHEREAS, pursuant to a Series D Convertible Preferred Stock Agreement
dated as of the date hereof (the "Series D Purchase Agreement") certain of the
Preferred Shareholders identified in SCHEDULE I are purchasing Series D
Convertible Preferred Stock, $.01 par value per share (the "Series D Preferred
Stock"); and
WHEREAS, it is a condition to the obligations of such Preferred
Shareholders under the Series D Purchase Agreement that this Agreement be
executed by the parties hereto to amend and restate the Old Co-Sale Agreement as
set forth herein, and the parties are willing to execute this Agreement and to
be bound by the provisions hereof.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
1. AMENDMENT TO OLD CO-SALE AGREEMENT. The Old Co-Sale Agreement is
hereby amended and restated upon the terms and conditions contained in this
Agreement to read in its entirety as provided herein.
2. DEFINITION OF SHARES. The term "Shares" shall mean and include all
equity securities owned by the Key Stockholders, whether presently held or
hereafter acquired.
<PAGE> 2
3. FIRST OFFER. (a) If at any time any of the Key Stockholders wishes
to sell, assign, transfer or otherwise dispose of any or all of such Key
Stockholder's Shares pursuant to the terms of a bona fide offer received from a
third party, such Key Stockholder shall submit a written offer to sell such
Shares to the Company on terms and conditions, including price, not less
favorable to the Company than those on which such Key Stockholder proposes to
sell such Shares to such third party (the "First Offer"). The First Offer shall
disclose the identity of the proposed purchaser or transferee, the Shares
proposed to be sold or transferred (the "Offered Shares"), the agreed terms of
the sale or transfer and any other material facts relating to the sale or
transfer. Within fifteen (15) days after receipt of the First Offer, the Company
shall give notice to the Key Stockholder of its intent to purchase all or any
portion of the Offered Shares on the same terms and conditions as set forth in
the First Offer. If the Company does not elect to purchase all of the Offered
Shares, then there shall be no right to purchase shares pursuant to this Section
3(a). The Company shall act upon the First Offer as soon as practicable after
receipt of the First Offer, and in any event within fifteen (15) days after
receipt thereof. In the event that the Company shall elect to purchase all or
part of the Offered Shares covered by the First Offer, the Company shall
communicate in writing such election to purchase to whichever of the Key
Stockholders has made the First Offer, which communication shall be delivered by
hand or mailed to such Key Stockholder at the address set forth on SCHEDULE II
hereto and as described in Section 7 below and shall, when taken in conjunction
with the First Offer be deemed to constitute a valid, legally binding and
enforceable agreement for the sale and purchase of the Shares covered thereby.
In the event that the Company does not purchase all of the Offered
Shares offered by the Key Stockholder pursuant to and within thirty (30) days
after the First Offer, the agreement to purchase the Offered Shares shall be
deemed null and void. Notwithstanding the provisions of this subsection (a), the
Key Stockholder proposing to sell the Offered Shares shall have the discretion
to allow the Company to buy a portion of such Offered Shares.
(b) If the Company fails to purchase all or, subject to the Key
Stockholder's consent, any part of the Offered Shares, the Key Stockholder shall
submit a written offer (the "Second Offer") to sell such Offered Shares (the
"Remaining Shares") to the Preferred Shareholders on terms and conditions,
including price, not less favorable to the Preferred Shareholders than those on
which such Key Stockholder proposes to sell such Remaining Shares to the third
party. The Second Offer shall also disclose the identity of the proposed
purchaser or transferee, the Remaining Shares proposed to be sold or
transferred, the agreed terms of the sale or transfer and any other material
facts relating to the sale or transfer. Within fifteen (15) days after receipt
of the Second Offer, the Preferred Shareholders shall give notice to the Key
Stockholder of their intent to purchase all or any portion of the Remaining
Shares on the same terms and conditions as set forth in the Second Offer. Each
Preferred Shareholder shall have the right to purchase that number of the
Remaining Shares as shall be
-2-
<PAGE> 3
equal to the aggregate Remaining Shares multiplied by a fraction, the numerator
of which is the number of shares of Common Stock of the Company then owned by
such Preferred Shareholder (including any shares of Common Stock deemed to be
owned hereunder, being a number of shares equal to that into which the Series
A-1 Convertible Preferred Stock, $.01 par value per share (the "Series A-1
Preferred Stock"), Series B-1 Convertible Preferred Stock, $.01 par value per
share (the "Series B-1 Preferred Stock"), Series C Convertible Preferred Stock,
$.01 par value per share (the "Series C Preferred Stock"), Series D Preferred
Stock, Series A-2 Convertible Preferred Stock, $.01 par value per share (the
"Series A-2 Preferred Stock"), Series B-2 Convertible Preferred Stock, $.01 par
value per share (the "Series B-2 Preferred Stock"), Series C-2 Convertible
Preferred Stock, $.01 par value per share (the "Series C-2 Preferred Stock"),
and Series D-2 Convertible Preferred Stock, $.01 par value per share (the
"Series D-2 Preferred Stock"), held by such Preferred Shareholder is convertible
on the date of the Second Offer) and the denominator of which is the aggregate
number of shares of said Common Stock then issued and outstanding and held by
(and deemed to be held by) all the Preferred Shareholders. (The amount of shares
each Preferred Shareholder or Qualified Transferee, as that term is defined
below, is entitled to purchase under this Section 3 shall be referred to as its
"Pro Rata Fraction"). Each Preferred Shareholder shall have the right to
transfer its right to any Pro Rata Fraction or part thereof to any Qualified
Transferee. In the event a Preferred Shareholder does not wish to purchase or to
transfer its right to purchase its Pro Rata Fraction, then any Preferred
Shareholders who so elect shall have the right to purchase, on a pro rata basis
with any other Preferred Shareholders who so elect, any Pro Rata Fraction not
purchased by a Preferred Shareholder or Qualified Transferee. If the Preferred
Shareholders do not elect to purchase all of the Offered Shares, then there
shall be no right to purchase shares pursuant to this Section 3(b). Each
Preferred Shareholder shall act upon the Second Offer as soon as practicable
after receipt of the Second Offer, and in all events within fifteen (15) days
after receipt thereof. Each Preferred Shareholder shall have the right to accept
the Second Offer as to all or part of the Remaining Shares offered thereby. In
the event that a Preferred Shareholder shall elect to purchase all or part of
the Remaining Shares covered by the Second Offer, said Preferred Shareholder
shall individually communicate in writing such election to purchase to whichever
of the Key Stockholders has made the Second Offer, which communication shall be
delivered by hand or mailed to such Key Stockholder at the address set forth on
SCHEDULE II hereto and as described in Section 7 below and shall, when taken in
conjunction with the Second Offer be deemed to constitute a valid, legally
binding and enforceable agreement for the sale and purchase of the Shares
covered thereby.
In the event that the Preferred Shareholders do not purchase all of the
Remaining Shares offered by the Key Stockholder pursuant to and within thirty
(30) days after the Second Offer, each such agreement to purchase the Remaining
Shares shall be deemed null and void, and such Remaining Shares may be sold by
such Key Stockholder at any time within ninety (90) days after the expiration of
the Second
-3-
<PAGE> 4
Offer. Any such sale shall be at not less than the price and upon other terms
and conditions, if any, not more favorable to the purchaser than those specified
in the Second Offer. Notwithstanding the provisions of this subsection (b), the
Key Stockholder proposing to sell the Remaining Shares shall have the discretion
to allow the Preferred Shareholders to buy a portion of such Remaining Shares.
Any Remaining Shares not sold within such 90-day period shall continue to be
subject to the requirements of a prior offer and re-sale pursuant to this
section.
For the purposes of this Agreement, a "Qualified Transferee" shall mean
any person (i) who is a Preferred Shareholder, (ii) who is an affiliate, as that
term is defined in Section 405 of the Securities Act of 1933, as amended, of a
Preferred Shareholder, (iii) who is a partner, member or stockholder of a
Preferred Shareholder, (provided that if such Preferred Shareholder is
publicly-traded, then such transferee must hold at least 10% of the outstanding
voting securities of such Preferred Shareholder), or (iv) who acquires at least
25,000 shares of Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series A-2 Preferred Stock, Series
B-2 Preferred Stock, Series C-2 Preferred Stock or Series D-2 Preferred Stock of
the Company (appropriately adjusted for stock splits, stock dividends,
reclassifications, recapitalizations or other similar events).
4. RIGHT OF PARTICIPATION IN SALES BY KEY STOCKHOLDERS. If at any
time any Key Stockholder wishes to sell, or otherwise dispose of any of its
Shares to any person (the "Purchaser") in a transaction which is subject to the
provisions of Section 3 hereof, each Preferred Shareholder shall have the right
to require, as a condition to such sale or disposition, that the Purchaser
purchase from said Preferred Shareholder at the same price per Share and on the
same terms and conditions as involved in such sale or disposition by the Key
Stockholder the same percentage of shares owned (and deemed to be owned
hereunder) by such Preferred Shareholder as such sale or disposition (as finally
consummated) represents with respect to said Shares then owned by whichever of
the Key Stockholders is selling. Any purchase of less than all of such shares by
the Purchaser shall be made from the Key Stockholder and each participating
Preferred Shareholder pro rata based upon the relative amount of such Shares
that the Key Stockholder and each participating Preferred Shareholder is
otherwise entitled to sell pursuant to this Section 4. Each Preferred
Shareholder wishing so to participate in any such sale or disposition shall
notify the selling Key Stockholder of such intention as soon as practicable
after receipt of the Second Offer made pursuant to Section 3, and in all events
within fifteen (15) days after receipt thereof. In the event that a Preferred
Shareholder shall elect to participate in such sale or disposition, said
Preferred Shareholder shall individually communicate such election to the
selling Key Stockholder, which communication shall be delivered by hand or
mailed to such Key Stockholder at the address set forth on SCHEDULE II hereto
and as described in Section 7 below. The provisions of this Section 4 shall not
apply to the sale of any Shares by a Key Stockholder to the Company or a
Preferred Shareholder pursuant to an offer under Section 3.
-4-
<PAGE> 5
5. LIMITATIONS ON RIGHTS OF PREFERRED SHAREHOLDERS. Anything herein
to the contrary notwithstanding, the provisions of Sections 3 and 4 shall not
apply to any transfer of Shares by a Key Stockholder (i) by gift or bequest or
through inheritance to, or for the benefit of such Key Stockholder's spouse,
children, parents or siblings, or (ii) by gift to any third party, PROVIDED,
HOWEVER, such third party gift has been approved by a majority of the Board of
Directors (not including the vote of the applicable Key Stockholder if such Key
Stockholder is a member of the Board of Directors), and PROVIDED, FURTHER, that
all gifts pursuant to this clause (ii) shall not in the aggregate exceed 15% of
any such Key Stockholder's Shares. Anything herein to the contrary
notwithstanding, the provisions of Section 4 shall not apply to the transfer by
a Key Stockholder of no more than 15% of such Key Stockholder's Shares to a
third party in any calendar year.
6. TERMINATION. This Agreement, and the respective rights and
obligations of the parties hereto, shall terminate upon the completion of a firm
commitment underwritten public offering of shares of Common Stock in which the
aggregate gross proceeds shall be at least $20,000,000 and the price paid by the
public for such shares shall exceed $12.00 per share, which number shall be
proportionately adjusted for stock splits, stock dividends, combinations,
reorganizations and other similar events including a change in capital structure
of the Company.
7. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been given when delivered or mailed by
first class, registered or certified mail (air mail if to or from outside the
United States), return receipt requested, postage prepaid, if to each Key
Stockholder at the respective address set forth on SCHEDULE II hereto or on the
Instrument of Accession pursuant to which such Key Stockholder became a party to
this Agreement, if to the Preferred Shareholders, at their respective addresses
set forth on SCHEDULE I hereto or to such other addresses as the addressee shall
have furnished to the other parties hereto in the manner prescribed by this
Section 7.
8. SPECIFIC PERFORMANCE. The rights of the parties under this
Agreement are unique and, accordingly, the parties shall, in addition to such
other remedies as may be available to any of them at law or in equity, have the
right to enforce their rights hereunder by actions for specific performance to
the extent permitted by law.
9. ENTIRE AGREEMENT. This agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings between them or any of them as to such
subject matter.
10. WAIVERS AND FURTHER AGREEMENTS. Any of the provisions of this
Agreement for the benefit of the Preferred Shareholders may be waived with the
consent of the Preferred Shareholders holding at least 55% of the issued and
-5-
<PAGE> 6
outstanding shares of Series A-1 Preferred Stock, Series B-1 Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series A-2 Preferred Stock,
Series B-2 Preferred Stock, Series C-2 Preferred Stock and Series D-2 Preferred
Stock of the Company (including shares of Common Stock into which any such
shares may have been converted), voting together as a single class, then held or
deemed to be held by all Preferred Shareholders by an instrument in writing. Any
waiver by any party of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach of that provision
or of any other provision hereof. Each of the parties hereto agrees to execute
all such further instruments and documents and to take all such further action
as any other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
11. AMENDMENTS. Except as otherwise expressly provided herein, this
Agreement may not be amended except by an instrument in writing executed by
Preferred Shareholders holding at least 55% of the issued and outstanding shares
of Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series A-2 Preferred Stock, Series B-2
Preferred Stock, Series C-2 Preferred Stock and Series D-2 Preferred Stock of
the Company (including shares of Common Stock into which any such shares may
have been converted), voting together as a single class, then held or deemed to
be held by all Preferred Shareholders by an instrument in writing.
12. ASSIGNMENT, SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, legal representatives, successors and permitted
transferees, except as may be expressly provided otherwise herein.
13. SEVERABILITY. In case any one or more of the provisions contained
in this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and such invalid, illegal
and unenforceable provisions shall be reformed and construed so that it will be
valid, legal and enforceable to the maximum extent permitted by law.
14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15. SECTION HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
-6-
<PAGE> 7
16. GOVERNING LAW. This agreement shall be construed and enforced in
accordance with and governed by the laws of the Commonwealth of Massachusetts.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
ASPECT MEDICAL SYSTEMS, INC.
By: /s/ Nassib G. Chamoun
----------------------------------------
Nassib G. Chamoun
President
/s/
--------------------------------------------
Henry L. Hillman, Elsie Hilliard Hillman and
C. G. Grefenstette, Trustees of the Henry L.
Hillman Trust U/A dated 11/18/85
/s/
--------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Juliet Lea
Hillman
/s/
--------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Audrey
Hilliard Hillman
/s/
--------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for William
Talbott Hillman
/s/
--------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Henry L.
Hillman, Jr.
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-8-
<PAGE> 9
VENHILL LIMITED PARTNERSHIP
By: /s/
----------------------------------
Name:
Title:
JULIET CHALLENGER, INC.
By: /s/
----------------------------------
Name:
Title:
BT ALEX BROWN EMPLOYEE VENTURE FUND
By: /s/
----------------------------------
Name:
Title:
SECOND CENTURY GROWTH DEFERRED
COMPENSATION PLAN: Piper Jaffray, Inc.
By: /s/
----------------------------------
Name:
Title:
THE JOHN BURROUGHS SCHOOL
ENDOWMENT FUND
By: /s/
----------------------------------
Name:
Title:
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-9-
<PAGE> 10
/s/ Noubar Afeyan
---------------------------------------
Noubar Afeyan
/s/ Stanley Lapidus
---------------------------------------
Stanley Lapidus
POLARIS VENTURE PARTNERS, L.P.
By: Polaris Venture Management Co., LLC
Its General Partner
By: /s/
-----------------------------------
Member
POLARIS VENTURE PARTNERS
FOUNDERS' FUND, L.P.
By: Polaris Venture Management Co., LLC
Its General Partner
By: /s/
-----------------------------------
Member
ONE LIBERTY FUND III, L.P.
By: One Liberty Partners III, L.P.,
Its General Partner
By: /s/ Edwin M. Kania, Jr.
-----------------------------------
Edwin M. Kania, Jr.
General Partner
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-10-
<PAGE> 11
GILDE INTERNATIONAL B.V.
By: One Liberty Partners III, L.P.,
its Attorney-in-Fact
By: /s/ Edwin M. Kania, Jr.
----------------------------------
Title: Edwin M. Kania, Jr.
General Partner
CHARLES RIVER PARTNERSHIP VII,
LIMITED PARTNERSHIP
By: /s/
----------------------------------
Name:
Title:
NEW VENTURE PARTNERS III, LIMITED
PARTNERSHIP
By: /s/
----------------------------------
Name:
Title:
GENSTAR INVESTMENT CORPORATION
By: /s/
----------------------------------
Name:
Title:
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-11-
<PAGE> 12
HIGHLAND CAPITAL PARTNERS II, LIMITED
PARTNERSHIP
By: Highland Management Partners II Limited
Partnership, its General Partner
By: /s/
---------------------------------------
Name:
Title:
MAYFIELD ASSOCIATES
By: /s/
---------------------------------------
Name:
Title:
MAYFIELD MEDICAL PARTNERS
By: /s/
---------------------------------------
Name:
Title:
MAYFIELD VI
By: /s/
---------------------------------------
Name:
Title:
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-12-
<PAGE> 13
MERRILL, PICKARD, ANDERSON & EYRE IV,
LIMITED PARTNERSHIP
By: MPAE IV Management Co., L.P.
By: /s/
---------------------------------------------
Name:
Title:
NEW ENTERPRISE ASSOCIATES IV, LIMITED
PARTNERSHIP
By: New Enterprise Associates IV, Limited
Partnership
By: NEA Partners IV, Limited Partnership
By: /s/ Nancy Dorman
---------------------------------------------
Nancy Dorman
General Partner
ORCHID & CO., nominee for
T. Rowe Price Threshold Fund III, L.P.
By: T. Rowe Price Threshold Fund Associates, Inc.
General Partner
By: /s/
---------------------------------------------
Name:
Title:
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-13-
<PAGE> 14
CHANCELLOR LGT PRIVATE CAPITAL
PARTNERS III, L.P.
By: CPCP Associates, L.P.,
its general partner
By: Chancellor LGT Venture Partners, Inc.,
its general partner
By: /s/
---------------------------------------------
Name:
Title:
HLM PARTNERS VII, L.P.
By: /s/
---------------------------------------------
Name:
Title:
SUTTER HILL VENTURES, A CALIFORNIA LIMITED
PARTNERSHIP
By: /s/
---------------------------------------------
Name:
Title:
TOW PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP
By: /s/
---------------------------------------------
Name:
Title:
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-14-
<PAGE> 15
/s/
---------------------------------------------
William H. Younger, Jr., Trustee of the
Younger Living Trust
/s/
---------------------------------------------
Paul M. and Marsha R. Wythes, Trustees of
the Wythes Living Trust
/s/ G. Leonard Baker
---------------------------------------------
G. Leonard Baker
/s/ Ronald L. Perkins
---------------------------------------------
Ronald L. Perkins
/s/ James C. Gaither
---------------------------------------------
James C. Gaither
/s/ David L. Anderson
---------------------------------------------
David L. Anderson
/s/ Tench Coxe
---------------------------------------------
Tench Coxe
/s/ Robert Carpenter
---------------------------------------------
Robert Carpenter
/s/ Theodore and Mary Stanley
---------------------------------------------
Theodore and Mary Stanley
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-15-
<PAGE> 16
H&D INVESTMENTS II
By: /s/
-----------------------------------------
Name: Paul P. Brountas
Title: Partner
/s/ J. Breckenridge Eagle
---------------------------------------------
J. Breckenridge Eagle
/s/ Vijay J. Shah
---------------------------------------------
Vijay J. Shah
/s/ Vikas Saini
---------------------------------------------
Vikas Saini
/s/ J. Neal Armstrong
---------------------------------------------
J. Neal Armstrong
/s/ Timothy J. Crowley
---------------------------------------------
Timothy J. Crowley
/s/ Anne De Gheest
---------------------------------------------
Anne De Gheest
/s/ Robert R. Everett
---------------------------------------------
Robert R. Everett
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-16-
<PAGE> 17
THE LOWN CARDIOVASCULAR RESEARCH FOUNDATION
By: /s/
---------------------------------------------
Name:
Title:
/s/ Glen E. Wegner
-------------------------------------------------
Glen E. Wegner
ZED INTERNATIONAL, INC.
By: /s/
---------------------------------------------
Name:
Title:
BAYVIEW INVESTORS, LTD.
By: /s/
---------------------------------------------
Name:
Title:
INTERSTOCK ANSTALT FUR VERMOGENS UND TRUST
VERWALTUNG
By: /s/
---------------------------------------------
Authorized Signatory
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-17-
<PAGE> 18
SVE STAR VENTURE ENTERPRISES NO. V,
A GERMAN CIVIL LAW PARTNERSHIP
(WITH LIMITATION OF LIABILITY)
By: SVM Star Ventures
Managementgesellschaft mbH Nr. C
By: /s/
---------------------------------------------
Authorized Signatory
SVM STAR VENTURES
MANAGEMENTGESELLSCHAFT MBH NR.
3 & CO. BETEILIGUNGS KG
By: SVM Star Ventures
Managementgesellschaft mbH Nr. C
By: /s/
---------------------------------------------
Authorized Signatory
/s/ Richard and Julie Rogers
-------------------------------------------------
Richard and Julie Rogers
/s/ Theodore H. Ashford
-------------------------------------------------
Theodore H. Ashford
AENEAS VENTURE CORPORATION
By: /s/
---------------------------------------------
Name:
Title:
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-18-
<PAGE> 19
CATALYST VENTURES, LIMITED PARTNERSHIP
By: New Enterprise Associates IV, Limited
Partnership
By: NEA Partners IV, Limited Partnership
By: /s/
---------------------------------------------
Name:
Title:
WELLS FARGO BANK, TRUSTEE SHV M/P/T FBO
DAVID L. ANDERSON
By: /s/
---------------------------------------------
Name:
Title:
WELLS FARGO BANK, TRUSTEE SHV M/P/T FBO
TENCH COXE
By: /s/
---------------------------------------------
Name:
Title:
/s/ Caroline Z. Pratt
-------------------------------------------------
Caroline Z. Pratt
/s/ David C. Zraket
-------------------------------------------------
David C. Zraket
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-19-
<PAGE> 20
/s/ Suzanne M. Otterbein
-------------------------------------------------
Suzanne M. Otterbein
/s/ Elizabeth Z. Callahan
-------------------------------------------------
Elizabeth Z. Callahan
/s/ William H. Younger, Jr.
-------------------------------------------------
William H. Younger, Jr.
THE STANLEY RESEARCH FOUNDATION
By: /s/
---------------------------------------------
Name:
Title:
FISHERS ISLAND PARTNERS
By: /s/
---------------------------------------------
Name:
Title:
/s/ Philip G. Aberizk
-------------------------------------------------
Philip G. Aberizk
/s/ Nassib G. Chamoun
-------------------------------------------------
Nassib G. Chamoun
-------------------------------------------------
Ziad and Lori Chamoun
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-20-
<PAGE> 21
/s/ Philip Devlin
-------------------------------------------------
Philip Devlin as Custodian for Michael
Travers Devlin
/s/ Farhat N. Homsy, M.D.
-------------------------------------------------
Farhat N. Homsy, M.D.
-------------------------------------------------
Veena C. Saini
-------------------------------------------------
Douglas N. Young
-------------------------------------------------
Mary Lee Young
/s/ Donald Stanski
-------------------------------------------------
Donald Stanski
LANDMARK VENTURES, LIMITED PARTNERSHIP
By: /s/
---------------------------------------------
Name:
Title:
/s/ Nina S. Rohrbasser
-------------------------------------------------
Nina S. Rohrbasser
/s/ Victoria Shah
-------------------------------------------------
Victoria Shah
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-21-
<PAGE> 22
/s/ Douglas Schair
-------------------------------------------------
Douglas Schair
CITIVENTURE 96 PARTNERSHIP, L.P.
By: Chancellor LGT Asset Management, Inc.
as investment advisor
By: /s/
---------------------------------------------
Name:
Title:
/s/ Jeffrey L. Barrett
-------------------------------------------------
Jeffrey L. Barrett
/s/ Stephen E. Coit
-------------------------------------------------
Stephen E. Coit
/s/ Steven H. Kane
-------------------------------------------------
Steven H. Kane
/s/ Lester J. Lloyd
-------------------------------------------------
Lester J. Lloyd
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-22-
<PAGE> 23
<TABLE>
<S> <C>
SCHEDULE I
PREFERRED SHAREHOLDERS
Henry L. Hillman, Elsie Hilliard Hillman
and C. G. Grefenstette, Trustees of the
Henry L. Hillman Trust U/A dated
11/18/85
1800 Grant Building
Pittsburgh, PA 15219
C. G. Grefenstette and Thomas C. Bigley, C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Juliet Trustees U/A/T dated 8/28/68 for
Lea Hillman Audrey Hilliard Hillman
1800 Grant Building 1800 Grant Building
Pittsburgh, PA 15219 Pittsburgh, PA 15219
C. G. Grefenstette and Thomas C. Bigley, C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Trustees U/A/T dated 8/28/68 for
William Talbott Hillman Henry L. Hillman, Jr.
1800 Grant Building 1800 Grant Building
Pittsburgh, PA 15219 Pittsburgh, PA 15219
Venhill Limited Partnership Juliet Challenger, Inc.
c/o Howard B. Hillman 824 Market Street, Suite 900
Autotrol Technology Wilmington, DE 19801
12500 N. Washington Street Attn: Andrew McQuarrie
Denver, CO 80241-2404
with copy to:
Irene Riebe
Taconic Group, Inc.
158 Main Street
New Canaan, CT 06840
</TABLE>
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-23-
<PAGE> 24
<TABLE>
<S> <C>
ABS Employees' Venture Fund Limited Second Century Growth Deferred
Partnership Compensation Plan: Piper Jaffray, Inc.
c/o Dan Gunter c/o Buzz Benson
375 West Padonia Rd. 222 South 9th St., 13th Floor
Timonium, MD 21093 Minneapolis, MN 55402
The John Burroughs School Endowment Noubar Afeyen
Fund c/o PerSeptive Biosystems
c/o Keith Shahan 500 Old Connecticut Pass
755 South Price Road Framingham, MA 01701
St. Louis, MO 63124
Stanley Lapidus Douglas Schair
c/o Exact Laboratories, Inc. 601 Chandlers Wharf
63 Great Road Portland, ME 04101
Maynard, MA 01754
Polaris Venture Partners, L.P. Landmark Ventures, Limited Partnership
Bay Colony Corporate Center 1119 St. Paul Street
1000 Winter Street, Suite 3350 Baltimore, MD 21202
Waltham, MA 02154
Polaris Venture Partners Founders' Fund, Aeneas Venture Corporation
L.P. c/o Harvard Management
Bay Colony Corporate Center Company, Inc.
1000 Winter Street, Suite 3350 600 Atlantic Avenue
Waltham, MA 02154 Boston, MA 02210
One Liberty Fund III, L.P. William H. Younger, Jr.
One Liberty Square c/o Sutter Hill Ventures
Boston, MA 02109 755 Page Mill Road
Suite A200
Palo Alto, CA 94304
</TABLE>
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-24-
<PAGE> 25
Gilde International B.V. Genstar Investment Corporation
c/o One Liberty Metro Tower, Suite 1170
Partners III, L.P. Foster City, CA 94404
One Liberty Square Attn: Mr. R. D. Paterson
Boston, MA 02109
Charles River Partnership VII, Wells Fargo Bank, Trustee
Limited Partnership SHV M/P/T FBO David L. Anderson
Ten Post Office Square, Attn: Annik Prasad
Suite 1330 MAC #0101-021
Boston, MA 02109 420 Montgomery Street, 2nd Floor
San Francisco, CA 94104
New Enterprise Associates IV, Wells Fargo Bank, Trustee
Limited Partnership SHV M/P/T FBO Tench Coxe
1119 St. Paul Street Attn: Annik Prasad
Baltimore, MD 21202 MAC #0101-021
420 Montgomery Street, 2nd Floor
San Francisco, CA 94104
New Venture Partners III, Limited Catalyst Ventures, Limited
Partnership Partnership
1119 St. Paul Street 1119 St. Paul Street
Baltimore, MD 21202 Baltimore, MD 21202
Highland Capital Partners II, The Stanley Research Foundation
Limited Partnership Dr. Theodore H. Stanley
One International Place Professor of Anesthesia
Boston, MA 02110 University of Utah
Medical School
Department of Anesthesia
50 North Medical Drive
Salt Lake City, Utah 84132
Mayfield Associates Philip G. Aberizk
2800 Sand Hill Road 89 River Road
Menlo Park, CA 94025 W. Newbury, MA 01985
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-25-
<PAGE> 26
Mayfield Medical Partners Ziad and Lori Chamoun
2800 Sand Hill Road 100A Green Street
Menlo Park, CA 94025 Milton, MA 02186
Mayfield VI Stephen C. Coit
2800 Sand Hill Road 32 Vinebrook Road
Menlo Park, CA 94025 Lexington, MA 02173
Sutter Hill Ventures, Anne De Gheest
a California Limited Upstar Consulting
Partnership 12133 Foothill Lane
c/o Sutter Hill Ventures Los Altos, CA 94022
755 Page Mill Road
Suite A200
Palo Alto, CA 94304
Tow Partners, a California Philip Devlin as Custodian for
Limited Partnership Michael Travers Devlin
c/o Sutter Hill Ventures 33 Clearwater Road
755 Page Mill Road Brookline, MA 02167
Suite A200
Palo Alto, CA 94304
Paul M. and Martha R. Wythes, Farhat N. Homsy, M.D.
Trustees of the Wythes Living Trust 2 South Street
c/o Sutter Hill Ventures Chestnut Hill, MA 02167
755 Page Mill Road
Suite A200
Palo Alto, CA 94304
G. Leonard Baker, Jr. Veena C. Saini
c/o Sutter Hill Ventures 24 Brook Street
755 Page Mill Road Brookline, MA 02146
Suite A200
Palo Alto, CA 94304
[Third Amended and Restated Voting Agreement]
-26-
<PAGE> 27
William H. Younger, Jr., Mary Lee Young
Trustee of the Younger Living Trust 123 Balboa Circle
c/o Sutter Hill Ventures Oak Ridge, TN 37830
755 Page Mill Road
Suite A200
Palo Alto, CA 94304
Tench Coxe Zed International, Inc.
c/o Sutter Hill Ventures c/o Thomas J. Landergan
755 Page Mill Road BankBoston, N.A.
Suite A200 01-05-03
Palo Alto, Ca 94304 P.O. Box 1890
Boston, MA 02105
David L. Anderson Theodore H. Stanley &
c/o Sutter Hill Ventures Mary O. Stanley
755 Page Mill Road 4800 Oak Terrace
Suite A200 Salt Lake City, Utah 84124
Palo Alto, Ca 94304
James C. Gaither The Lown Cardiovascular Fdn.
c/o Sutter Hill Ventures Louise Lown, Treasurer
755 Page Mill Road 194 Hobart Road
Suite A200 Chestnut Hill, MA 02167
Palo Alto, Ca 94304
Ronald L. Perkins Steven H. Kane
c/o Sutter Hill Ventures 2 Ben Arthur's Way
755 Page Mill Road Dover, MA 02030
Suite A200
Palo Alto, Ca 94304
Genstar Investment Corporation J. Neal Armstrong
Metro Tower # 1170 20 Cedar Ridge Road
950 Tower Lane N. Attleboro, MA 02760
Foster City, CA 94404-2121
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-27-
<PAGE> 28
Merrill, Pickard, Anderson & J. Breckenridge Eagle
Eyre IV Limited Partnership Box 1197
1000 Winter Street Mattapoisett, MA 02739
Suite 1080
Waltham, MA 02154
H&D Investments II Glen Wegner, MD
c/o Hale and Dorr LLP 22 Lathrop Road
60 State Street Wellesley, MA 02181
Boston, MA 02109
Robert Carpenter Timothy J. Crowley, MD
9 Lowell Road 42 Candy Hill Lane
Wellesley Hills, MA 02181 Sudbury, MA 01776
Vikas Saini, M.D. Interstock Anstalt fur Vermogens und
24 Brook Street Trust Verwaltung
Brookline, MA 02146 c/o Ernst Bloathlinger
Herrengasse 21
FL-9490 Vaduz
Liechtenstein
Vijay J. Shah Richard & Julie Rogers
7 Fanueil Hall 4 Fordyce Lane
Boston, MA 02159 Ladue, MO 63124
Jeffrey L. Barrett Bayview Investors, Limited
20 Tavern Circle Robertson Stephens & Co.
Sudbury, MA 01776 555 California Street
San Francisco, CA 94104
Robert R Everett Theodore H. Ashford
80 Rollingwood Land 3801 Kennett Pike B107
Concord, MA 01742 Greenville, DE 19807
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-28-
<PAGE> 29
<TABLE>
<S> <C>
HLM Partners VII, L.P. Orchid & Co., nominee for
HLM Management T. Rowe Price Threshold
c/o Peter Grua Fund III, L.P.
222 Berkeley Street, #2150 c/o Junerose Sordoni
Boston, MA 02116 T. Rowe Price Assoc. Inc.
100 East Pratt
Baltimore, MD 21202
SVE Star Venture Enterprises Nassib G. Chamoun
No. V A German Civil Law c/o Aspect Medical Systems, Inc.
Partnership (with limitation of 2 Vision Drive
liability) Natick, MA 01760
c/o Andreas Hofbauer
Star Venture Management
Possartstr. 9
D-81679 Munich
Germany
SVM StarVentures Chancellor LGT Private Capital Partners
Managementgesellschaft mbH Nr.3 III, L.P.
& Co. Beteilungs KG c/o Mark Radovanovich
c/o Andreas Hofbauer 1166 Avenue of the Americas
Star Venture Management New York, NY 16636
Possartstr. 9
D-81679 Munich
Germany
Citiventure 96 Partnership, L.P. Fishers Island Partners
c/o Mark Radovanovich c/o Nathan Saint-Amand, M.D.
1166 Avenue of the Americas 2 East 88th Street
New York, NY 16636 New York, NY 10128
Suzanne M. Otterbein Douglas N. Young
23 Common Street 10020 Park Royal Drive
Charlestown, MA 02129 Great Falls, VA 22066-1856
David C. Zraket Caroline Zraket Pratt
57 Meacham Road 100 Kelsey Place
Somerville, MA 02144 Madison, CT 06443
</TABLE>
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-29-
<PAGE> 30
Donald R. Stanski, M.D. Victoria J. Shah
c/o Dept. of Anesthesia, Rm H-3584A c/o V. J. Shah & Co.
Stanford University Hospital 7 Fanueil Hall
Stanford, CA 04305 Boston, MA 02109
Nina Rohrbasser Lester J. Lloyd
c/o V. J. Shah & Co. 7 Haciendas Road
7 Fanueil Hall Orinda, CA 94563
Boston, MA 02109
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-30-
<PAGE> 31
SCHEDULE II
KEY STOCKHOLDERS
Nassib G. Chamoun
78 Bingham Avenue
Dedham, MA 02026
The Lown Cardiovascular
Research Foundation
c/o Bernard Lown, M.D.
194 Hobart Road
Chestnut Hill, MA 02167
Vikas Saini
24 Brook Street
Brookline, MA 02146
Charles A. Zraket
71 Sylvan Lane
Weston, MA 02193
David C. Zraket
76 Lexington Avenue, #2
Somerville, MA 02144
[Third Amended and Restated Right of Refusal and Co-Sale Agreement]
-31-
<PAGE> 32
Schedule III
ASPECT MEDICAL SYSTEMS, INC.
INSTRUMENT OF ACCESSION
The undersigned, _______________________, as a condition precedent to
becoming the owner or holder of record of _________________ ( ) shares
of the Common Stock, $.01 par value per share, of Aspect Medical Systems, Inc.,
a Delaware corporation (the "Corporation"), hereby agrees to become a party to
and bound by that certain Third Amended and Restated Right of First Refusal and
Co-Sale Agreement, dated as of February __, 1998, by and among the Corporation
and other shareholders of the Corporation. This Instrument of Accession shall
take effect and shall become an integral part of the said Third Amended and
Restated Right of First Refusal and Co-Sale Agreement immediately upon execution
and delivery to the Corporation of this Instrument.
IN WITNESS WHEREOF, this INSTRUMENT OF ACCESSION has been duly executed
by or on behalf of the undersigned, as a sealed instrument under the laws of the
Commonwealth of Massachusetts, as of the date below written.
Signature: _____________________________
Address: _______________________________
_______________________________
Date: __________________________________
Accepted by:
ASPECT MEDICAL SYSTEM, INC.
By: __________________________
Date: ________________________
-32-
<PAGE> 1
EXHIBIT 10.18
THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
As of February 13, 1998
To each of the Several Purchasers
(the "Purchasers") named on the
signature pages of this Third Amended and
Restated Registration Rights Agreement
Dear Sirs:
Pursuant to the Second Amended and Restated Registration Rights
Agreement dated as of February 26, 1997 (the "Old Registration Rights
Agreement") by and among Aspect Medical Systems, Inc., a Delaware corporation
(the "Company"), and certain of its investors, the Company granted certain
registration rights to the holders of the Company's Series A-1 Convertible
Preferred Stock, $.01 par value per share (the "Series A-1 Preferred Stock"),
Series B-1 Convertible Preferred Stock, $.01 par value per share (the "Series
B-1 Preferred Stock") and Series C Convertible Preferred Stock, $.01 par value
per share (the "Series C Preferred Stock"). The Series A-1 Preferred Stock,
Series B-1 Preferred Stock and Series C Preferred Stock are referred to
hereinafter as the "Existing Preferred Stock." In order to attract additional
investment in the Company, pursuant to this Third Amended and Restated
Registration Rights Agreement (this "Agreement"), the Company is granting
registration rights to the purchasers of the Company's Series D Convertible
Preferred Stock, $.01 par value per share (the "Series D Preferred Stock"), who
are purchasing such shares pursuant to the Series D Convertible Preferred Stock
Purchase Agreement of even date herewith (the "Series D Purchase Agreement"),
and to the holders of Existing Preferred Stock who become parties to this
Agreement. In addition, the Company intends that, upon execution of this
Agreement, the Old Registration Rights Agreement shall be terminated and
superseded in its entirety by this Agreement. The Company covenants and agrees
with each of you as follows:
1. TERMINATION OF OLD REGISTRATION RIGHTS AGREEMENT. The Old
Registration Rights Agreement is hereby amended and restated upon the terms and
conditions contained in this Agreement to read in its entirety as provided
herein.
2. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission, or
any other Federal agency at the time administering the Securities Act
(as defined below).
<PAGE> 2
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations
of the Commission issued under such Act, as they each may, from time to
time, be in effect.
"HOLDERS" means the Preferred Shareholders, any persons or
entities to whom the rights granted under this Agreement are
transferred by the Preferred Shareholders, their successors or assigns
pursuant to Section 3 and 16 (a) hereof.
"PREFERRED SHARES" shall mean the Company's Series A-1 Preferred
Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series A-2 Preferred Stock, Series B-2 Preferred
Stock, Series C-2 Preferred Stock and Series D-2 Preferred Stock.
"PREFERRED SHAREHOLDERS" means the holders of the Preferred
Shares.
"REGISTRABLE SHARES" means (i) the shares of Common Stock issuable
upon conversion of Preferred Shares and (ii) any other shares of Common
Stock of the Company issued in respect of such shares (because of stock
splits, stock dividends, reclassifications, recapitalizations, or
similar events); PROVIDED, HOWEVER, that the shares of Common Stock
which are Registrable Shares shall cease to be Registrable Shares upon
any sale pursuant to a Registration Statement, or Rule 144 under the
Securities Act or any sale in any manner to a person or entity which,
by virtue of Section 3 and/or 16 (a) of this Agreement, is not entitled
to the rights provided by this Agreement. Wherever reference is made to
this Agreement to a request or consent of holders of a certain
percentage of Registrable Shares, the determination of such percentage
shall include shares of Common Stock issuable upon conversion of the
Preferred Shares even if such conversion has not yet been effected.
"REGISTRATION EXPENSES" means the expenses described in Section 7.
"REGISTRATION STATEMENT" means a registration statement filed by
the Company with the Commission for a public offering and sale of
securities of the Company (other than a registration statement on Form
S-8 or Form S-4, or their successors, or any registration statement
covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the
Commission issued under the Securities Act, as they each may, from time
to time, be in effect.
-2-
<PAGE> 3
3. SALE OR TRANSFER OF SHARES AND RIGHTS; LEGEND.
a. The Preferred Shares and shares issued in respect of the
Preferred Shares shall not be sold or transferred unless either (i) they first
shall have been registered under the Securities Act, or (ii) the Company first
shall have been furnished with an opinion of legal counsel, reasonably
satisfactory to the Company, to the effect that such sale or transfer is exempt
from the registration requirements of the Securities Act.
b. Any transferee (other than a transferee who is already a
"Holder" hereunder prior to the subject transfer) to whom rights under this
Agreement are transferred shall, as a condition to such transfer, deliver to the
Company a written instrument by which such transferee agrees to be bound by the
obligations set forth herein with respect to the Holders and to the provisions
regarding confidentiality set forth in Section 11 of the Series D Purchase
Agreement, PROVIDED, HOWEVER, that the right to transfer rights under this
Agreement is subject to Section 16(a) hereof.
c. Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Holder which is a partnership
to a partner of such partnership or a retired partner of such partnership who
retires after the date hereof, or to the estate of any such partner or retired
partner; (ii) a transfer by a Holder which is a corporation to a stockholder
thereof, to a wholly-owned subsidiary corporation, to a parent corporation which
wholly-owns such Holder, or to a corporation which is wholly-owned by such a
parent corporation; or (iii) a transfer made in accordance with Rule 144 under
the Securities Act; PROVIDED, HOWEVER, that in the case of any transfer pursuant
to clause (i) of this paragraph (c), the transferee must agree in writing to be
subject to this Agreement to the same extent as a Holder hereunder.
d. Each certificate representing the Preferred Shares and shares
issued in respect of the Preferred Shares shall bear a legend substantially in
the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be offered,
sold or otherwise transferred, pledged or hypothecated unless and until
such shares are registered under such Act or an opinion of counsel
satisfactory to the Company is obtained to the effect that such
registration is not required."
The foregoing legend shall be removed from such certificates, at the
request of the holder thereof, at such time as they become eligible for
resale pursuant to Rule 144(k) under the Securities Act.
-3-
<PAGE> 4
4. REQUIRED REGISTRATIONS.
a. At any time after the earlier to occur of (i) one year after
the closing of the Company's first underwritten public offering of shares of
Common Stock pursuant to a Registration Statement or (ii) the third anniversary
of the date of this Agreement, the Holders of not less than 35% of the
Registrable Shares then outstanding may request, in writing, that the Company
effect the registration on Form S-1 or Form S-2 (or any successor form) of
Registrable Shares held by such Holders. If the Holders initiating the
registration intend to distribute the Registrable Shares by means of an
underwriting, they shall so advise the Company in their request. In the event
such registration is underwritten, the right of other Holders to participate
shall be conditioned on such Holders' participation in such underwriting. Upon
receipt of any such request, the Company shall promptly give written notice of
such proposed registration to all Holders. Such Holders shall have the right, by
giving written notice to the Company within 30 days after the Company provides
its notice, to elect to have included in such registration such of its
Registrable Shares as such Holders may request in such notice of election,
subject to the approval of the underwriter managing the offering. If in the
opinion of such managing underwriter the inclusion of all shares requested to be
registered by the Holders would adversely affect the marketing of the securities
to be sold, then the Registrable Shares to be included in such an underwriting
may be reduced (pro rata among the requesting Holders based upon the Registrable
Shares owned by such Holders). Thereupon, the Company shall, as expeditiously as
possible, use its best efforts to effect the registration, on Form S-1 or Form
S-2 (or any successor form), for all Registrable Shares which the Company has
been requested to so register. No other holder of capital stock of the Company
may participate in any registered offering made pursuant to this section without
the consent of a majority of the Registrable Shares held by participating
Holders.
b. At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), a Holder or Holders may request the Company, in writing, to effect
the registration on Form S-3 (or such successor form) of Registrable Shares
having an aggregate offering price, net of underwriting discounts and
commission, if any, of at least $250,000 (based on the current public market
price). Upon receipt of any such request, the Company shall promptly give
written notice of such proposed registration to all Holders. Such Holders shall
have the right, by giving written notice to the Company within 30 days after the
Company provides its notice, to elect to have included in such registration such
of their Registrable Shares as such Holders may request in such notice of
election. Thereupon, the Company shall, as expeditiously as possible, use its
best efforts to effect the registration on Form S-3, or such successor form, of
all Registrable Shares which the Company has been requested to register.
-4-
<PAGE> 5
c. The Company shall not be required to effect more than three
registrations pursuant to paragraph (a) above requested by the holders of
Registrable Shares. A registration will not count as a required registration
under paragraph (a) unless it becomes effective and the Holders requesting
registration are able to sell at least 50% of the Registrable Shares sought to
be included in the registration.
d. If at the time of any request to register Registrable Shares
pursuant to this Section 4, the Company is engaged or has fixed plans to engage,
within 30 days of the time of the request, in a registered public offering as to
which the Holders may include Registrable Shares pursuant to Section 5 or is
engaged in any other activity which, in the good faith determination of the
Company's board of directors, would be adversely affected by the requested
registration to the material detriment of the Company, then the Company may at
its option direct that such request be delayed for a period not to exceed six
months from the effective date of such offering or the date of commencement of
such other material activity, as the case may be, such right to delay a request
to be exercised by the Company not more than once in any two-year period.
5. INCIDENTAL REGISTRATION.
a. Whenever the Company proposes to file a Registration
Statement at any time and from time to time, it will, prior to such filing, give
written notice to all Holders of its intention to do so and, upon the written
request of a Holder given within 20 days after receipt of such notice (which
request shall state the intended method of disposition of such Registrable
Shares), the Company shall use its best efforts to cause all Registrable Shares
which the Company has been requested by such Holder or Holders to register to be
registered under the Securities Act to the extent necessary to permit their sale
or other disposition in accordance with the intended methods of distribution
specified in the request of such Holder or Holders; PROVIDED that the Company
shall have the right to postpone or withdraw any registration effected pursuant
to this Section 5 without obligation to any Holder.
b. In connection with any offering under this Section 5
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such underwriting unless the Holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it. If in the opinion of the managing underwriter it is
appropriate because of marketing factors to limit the number of Registrable
Shares to be included in the offering, then the Company shall be required to
include in the registration only that number or Registrable Shares, if any,
which the managing underwriter believes should be included therein; PROVIDED,
that in no event shall the number of Registrable Shares included in the offering
(other than in the Company's initial public offering) be reduced below 25% of
the total number of shares of Common Stock (giving effect to conversion into
Common Stock of all securities convertible thereinto) included in the
-5-
<PAGE> 6
offering. If the number of Registrable Shares to be included in the offering in
accordance with the foregoing is less than the total number of shares which the
holders of Registrable Shares have requested to be included, then each Holder
shall be entitled to register its pro rata portion of the Registrable Shares
being registered (based upon the Registrable Shares owned by such Holders in
relation to all the Registrable Shares held by all Holders).
6. REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
a. as expeditiously as possible file with the Commission a
Registration Statement with respect to such Registrable Shares and use
its best efforts to cause that Registration Statement to become and
remain effective;
b. as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement
and the prospectus included in the Registration Statement as may be
necessary to keep the Registration Statement effective for a period of
not less than 120 days from the effective date;
c. as expeditiously as possible furnish to each selling Holder
such reasonable numbers of copies of the prospectus, including a
preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as the selling Holder may
reasonably request in order to facilitate the public sale or other
disposition of the Registrable Shares held by the selling Holder; and
d. as expeditiously as possible use its best efforts to register
or qualify the Registrable Shares covered by the Registration Statement
under the securities or Blue Sky laws of such states as the selling
Holders shall reasonably request, and do any and all other acts and
things that may be necessary or desirable to enable the selling Holders
to consummate the public sale or other disposition in such states of
the Registrable Shares owned by the selling Holder; PROVIDED, HOWEVER,
that the Company shall not be required in connection with this
paragraph (d) to qualify as a foreign corporation or execute a general
consent to service of process in any jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
selling Holders and after having done so the prospectus is amended to comply
with the requirements of the Securities Act, the Company shall promptly notify
the selling Holders and, if requested by the Company, the selling Holders shall
immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the selling
Holders with revised
-6-
<PAGE> 7
prospectuses and, following receipt of the revised prospectuses, the selling
Holders shall be free to resume making offers of the Registrable Shares.
7. ALLOCATION OF EXPENSES. The Company will pay all Registration
Expenses of all registrations under this Agreement. For purposes of this
Section, the term "Registration Expenses" shall mean all expenses incurred by
the Company in complying with this Agreement, including, without limitation, all
registration and filing fees, fees and expenses of counsel for the Company and
the fees and expenses of one counsel selected by the selling Holders to
represent the selling Holders, state Blue Sky fees and expenses, and the expense
of any special audits incident to or required by any such registration, but
excluding underwriter discounts and commissions and the fees and expenses of
selling Holders' own counsel (other than the counsel selected to represent all
selling Holders). All other expenses of registered offerings shall be borne pro
rata amount the selling Holders and, if it participates, the Company.
8. INDEMNIFICATION. In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company will indemnify and hold harmless each Holder of the Registrable Shares
so registered, each officer and director of such Holder, each underwriter of
such Registrable Shares, and each other person, if any, who controls such Holder
or underwriter within the meaning of the Securities Act or the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
such Holder, officer, director, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such Holder,
officer, director, underwriter and each such controlling person for any legal or
any other expenses reasonably incurred by such Holder, officer, director,
underwriter or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or omission made in such Registration Statement, preliminary prospectus or
prospectus, or any such amendment or supplement thereto, in reliance upon and in
conformity with information furnished to the Company, in writing, by or on
behalf of such Holder, officer, director, underwriter or controlling person
specifically for use in the preparation thereof.
-7-
<PAGE> 8
In the event of any registration of any of the Registrable Shares under
the Securities Act pursuant to this Agreement, each Holder of Registrable Shares
so registered, severally and not jointly, will indemnify and hold harmless the
Company, each of its directors and officers and each underwriter (if any) and
each person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which the Company, such directors
and officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of such Holder, specifically for use in connection with the preparation
of such Registration Statement, preliminary prospectus or prospectus, or any
such amendment or supplement thereto, in reliance upon and in conformity with
information furnished to the Company, in writing, by or on behalf of such
Holder, officer, director, underwriter or controlling person specifically for
use in the preparation thereof; PROVIDED, HOWEVER, that the obligation of such
Holder hereunder shall be limited to an amount equal to the net proceeds to each
Holder of Registrable Shares sold as contemplated herein.
Each party entitled to indemnification under this Section 8 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, PROVIDED, FURTHER, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement unless and only to the extent such failure
adversely affects the ability of such Indemnifying Party to defend or settle
such claim or litigation. The Indemnified Party may participate in such defense
at such party's expense; PROVIDED, HOWEVER, that the Indemnifying Party shall
pay such expense if representation of such Indemnified Party by the counsel
retained by the Indemnifying Party would be inappropriate due to actual or
potential differing interests between the Indemnified Party and any other party
represented by such counsel in such proceeding. No Indemnifying Party, in the
defense of any such
-8-
<PAGE> 9
claim or litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect of such
claim or litigation, and no Indemnified Party shall consent to entry of any
judgment or settle such claim or litigation without the prior written consent of
the Indemnifying Party.
9. INDEMNIFICATION WITH RESPECT TO UNDERWRITTEN OFFERING. In the
event that Registrable Shares are sold pursuant to a Registration Statement in
an underwritten offering pursuant to Section 4 (a), the Company agrees to enter
into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered and customary covenants and agreements to be
performed by such issuer, including without limitation customary provisions with
respect to indemnification by the Company of the underwritings of such offering.
10. INFORMATION BY HOLDER. Each Holder of Registrable Shares that are
included in any registration shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
11. "STAND-OFF" AGREEMENT. Each Holder, if requested by the Company
and an underwriter of Common Stock or other securities of the Company, shall
agree not to sell or otherwise transfer or dispose of any Registrable Shares or
other securities of the Company held by such Holder for a specified period of
time (not to exceed 120 days) following the effective date of a Registration
Statement; PROVIDED, that:
a. such agreement shall only apply to the first such
Registration Statement covering Common Stock of the Company to be sold on its
behalf to the public in an underwritten offering; and
b. all other Holders holding not less than the number of shares
of Common Stock held by such Holder (including shares of Common Stock issuable
upon the conversion of Preferred Shares, or other convertible securities, or
upon the exercise of options, warrants or rights) and all executive officers and
directors of the Company enter into similar agreement.
Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the Registrable Shares or other securities subject to the
foregoing restriction until the end of the stand-off period.
-9-
<PAGE> 10
12. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. The Company shall
not, without the prior written consent of Holders holding at least a majority of
the Registrable Shares, enter into any agreement (other than this Agreement)
with any holder or prospective holder of any securities of the Company which
would allow such holder or prospective holder to include securities of the
Company in any registration filed under Sections 4 or 5, if, under the terms of
such agreement, such holder or prospective holder's rights are superior or may
be exercised prior to the rights of the Holder contained herein.
13. RULE 144 REQUIREMENTS. After the earliest of (i) the closing of
the sale of securities of the Company pursuant to a Registration Statement, (ii)
the registration by the Company of a class of securities under Section 12 of the
Exchange Act, or (iii) the issuance by the Company of an offering circular
pursuant to Regulation A under the Securities Act, the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
b. use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements); and
c. furnish to any Holder of Registrable Shares under request a
written statement by the Company as to its compliance with the
reporting requirements of said Rule 144 (at any time after 90 days
following the closing of the first sale of securities by the Company
pursuant to a Registration Statement), and of the Securities Act and
the Exchange Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the
Company as such holder may reasonably request to avail itself of any
similar rule or regulation of the Commission allowing it to sell any
such securities without registration.
14. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to you as follows:
a. The execution, delivery and performance of this Agreement by
the Company have been duly authorized by all requisite corporate action
and will not violate any provision of law, any order of any court or
other agency of government, the Certificate of Incorporation or By-laws
of the Company, each as amended to date, or any provision of any
indenture, agreement or other instrument to which it or any of its
properties or assets is bound, conflict with, result in a breach of or
institute (with due notice or lapse of time or both) a
-10-
<PAGE> 11
default under any such indenture, agreement or other instrument or
result in the creation or imposition of any lien, charge or encumbrance
of any nature whatsoever upon any of the properties or assets of the
Company.
b. This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms.
15. CHANGES IN COMMON STOCK OR PREFERRED SHARES. If, and as often as,
there is any change in the Common Stock of the Company or the Preferred Shares
by way of a stock split, stock dividend, combination or reclassification, or
through a merger, consolidation, reorganization or recapitalization, or by any
other means, appropriate adjustment shall be made in the provisions hereof so
that the rights and privileges granted hereby shall continue with respect to the
Preferred Shares and the shares of Common Stock issuable upon conversion
thereof, as so changed.
16. MISCELLANEOUS.
a. All covenants and agreements contained in this Agreement by
or on behalf of any of the parties hereto shall bind and inure to the
benefit of the respective successors and assigns of the parties hereto
(including without limitation transferees of any Registrable Shares or
Preferred Shares, whether so expressed or not), PROVIDED, HOWEVER, that
registration rights conferred herein on the holders of Preferred Shares
or Registrable Shares shall only inure to the benefit of a transferee
of Preferred Shares or Registrable Shares if there is transferred to
such transferee at least 25,000 shares of Preferred Shares or
Registrable Shares (other than transfer of registration rights to an
entity under common control with or to a shareholder, partner, former
partner or subsidiary of any Holder which will be without restriction
as to minimum shares), and PROVIDED, FURTHER, that the Company is given
written notice by the transferee at the time of the transfer stating
the name and address of the transferee and identifying the securities
with respect to which such rights are being assigned.
b. All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by certified or
registered mail, return receipt requested, postage prepaid, or telexed,
in the case of non-U.S. residents, addressed as follows:
if to the Company or any other party hereto, at the address
of such party set forth in the stock records of the Company, as the
case may be;
if to any subsequent holder of Preferred Shares or
Registrable Shares, to it at such address as may have been furnished to
the Company in writing by such holder;
-11-
<PAGE> 12
or, in any case, at such other address or addresses as shall have been
furnished in writing to the Company (in the case of a holder of
Preferred Shares or Registrable Shares) or to the holders of Preferred
Shares or Registrable Shares (in the case of the Company) in accordance
with the provisions of this paragraph.
c. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
d. The terms of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of at least 55%
of the Registrable Shares.
e. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
f. The obligations of the Company to register shares of the
Registrable Shares under this Agreement shall terminate on the sixth
anniversary of the date of the consummation of a firm commitment
underwritten public offering of shares of Common Stock of the Company
which (i) results in aggregate gross proceeds of at least $20,000,000
and (ii) is at a price per share of at least $12.00.
g. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in
any manner affect or render illegal, invalid or unenforceable any other
provisions of this Agreement, and this Agreement shall be carried out
as if any such illegal, invalid or unenforceable provision were not
contained herein.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-12-
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
ASPECT MEDICAL SYSTEMS, INC.
By: /s/ Nassib G. Chamoun
----------------------------------------
President
/s/
--------------------------------------------
Henry L. Hillman, Elsie Hilliard Hillman and
C. G. Grefenstette, Trustees of the Henry L.
Hillman Trust U/A dated 11/18/85
/s/
--------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Juliet Lea
Hillman
/s/
--------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Audrey
Hilliard Hillman
/s/
--------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for William
Talbott Hillman
/s/
--------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Henry L.
Hillman, Jr.
[Third Amended and Restated Registration Rights Agreement]
-13-
<PAGE> 14
VENHILL LIMITED PARTNERSHIP
By: /s/
----------------------------------------
Name:
Title:
JULIET CHALLENGER, INC.
By: /s/
----------------------------------------
Name:
Title:
BT ALEX BROWN EMPLOYEE VENTURE FUND
By: /s/
----------------------------------------
Name:
Title:
SECOND CENTURY GROWTH DEFERRED
COMPENSATION PLAN: Piper Jaffray, Inc.
By: /s/
----------------------------------------
Name:
Title:
THE JOHN BURROUGHS SCHOOL ENDOWMENT FUND
By: /s/
----------------------------------------
Name:
Title:
[Third Amended and Restated Registration Rights Agreement]
-14-
<PAGE> 15
/s/ Noubar Afeyan
--------------------------------------------
Noubar Afeyan
/s/ Stanley Lapidus
--------------------------------------------
Stanley Lapidus
POLARIS VENTURE PARTNERS, L.P.
By: Polaris Venture Management Co., LLC
Its General Partner
By: /s/
----------------------------------------
Member
POLARIS VENTURE PARTNERS
FOUNDERS' FUND, L.P.
By: Polaris Venture Management Co., LLC
Its General Partner
By: /s/
----------------------------------------
Member
ONE LIBERTY FUND III, L.P.
By: One Liberty Partners III, L.P.,
Its General Partner
By: /s/ Edwin M. Kania, Jr.
----------------------------------------
Edwin M. Kania, Jr.
General Partner
[Third Amended and Restated Registration Rights Agreement]
-15-
<PAGE> 16
GILDE INTERNATIONAL B.V.
By: One Liberty Partners III, L.P.,
its Attorney-in-Fact
By: /s/ Edwin M. Kania, Jr.
----------------------------------------
Title: Edwin M. Kania, Jr.
General Partner
CHARLES RIVER PARTNERSHIP VII,
LIMITED PARTNERSHIP
By: /s/
----------------------------------------
Name:
Title:
NEW VENTURE PARTNERS III, LIMITED
PARTNERSHIP
By: /s/
----------------------------------------
Name:
Title:
GENSTAR INVESTMENT CORPORATION
By: /s/
----------------------------------------
Name:
Title:
[Third Amended and Restated Registration Rights Agreement]
-16-
<PAGE> 17
HIGHLAND CAPITAL PARTNERS II, LIMITED
PARTNERSHIP
By: Highland Management Partners II Limited
Partnership, its General Partner
By: /s/
----------------------------------------
Name:
Title:
MAYFIELD ASSOCIATES
By: /s/
----------------------------------------
Name:
Title:
MAYFIELD MEDICAL PARTNERS
By: /s/
----------------------------------------
Name:
Title:
MAYFIELD VI
By: /s/
----------------------------------------
Name:
Title:
[Third Amended and Restated Registration Rights Agreement]
-17-
<PAGE> 18
MERRILL, PICKARD, ANDERSON & EYRE IV,
LIMITED PARTNERSHIP
By: MPAE IV Management Co., L.P.
By: /s/
---------------------------------------------
Name:
Title:
NEW ENTERPRISE ASSOCIATES IV, LIMITED
PARTNERSHIP
By: New Enterprise Associates IV, Limited
Partnership
By: NEA Partners IV, Limited Partnership
By: /s/ Nancy Dorman
---------------------------------------------
Nancy Dorman
General Partner
ORCHID & CO., nominee for
T. Rowe Price Threshold Fund III, L.P.
By: T. Rowe Price Threshold Fund Associates, Inc.
General Partner
By: /s/
---------------------------------------------
Name:
Title:
[Third Amended and Restated Registration Rights Agreement]
-18-
<PAGE> 19
CHANCELLOR LGT PRIVATE CAPITAL PARTNERS III, L.P.
By: CPCP Associates, L.P.,
its general partner
By: Chancellor LGT Venture Partners, Inc.,
its general partner
By: /s/
---------------------------------------------
Name:
Title:
HLM PARTNERS VII, L.P.
By: /s/
---------------------------------------------
Name:
Title:
SUTTER HILL VENTURES, A CALIFORNIA LIMITED
PARTNERSHIP
By: /s/
---------------------------------------------
Name:
Title:
TOW PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP
By: /s/
---------------------------------------------
Name:
Title:
[Third Amended and Restated Registration Rights Agreement]
-19-
<PAGE> 20
/s/
---------------------------------------------
William H. Younger, Jr., Trustee of the
Younger Living Trust
/s/
---------------------------------------------
Paul M. and Marsha R. Wythes, Trustees of
the Wythes Living Trust
/s/ G. Leonard Baker
---------------------------------------------
G. Leonard Baker
/s/ Ronald L. Perkins
---------------------------------------------
Ronald L. Perkins
/s/ James C. Gaither
---------------------------------------------
James C. Gaither
/s/ David L. Anderson
---------------------------------------------
David L. Anderson
/s/ Tench Coxe
---------------------------------------------
Tench Coxe
/s/ Robert Carpenter
---------------------------------------------
Robert Carpenter
/s/ Theodore and Mary Stanley
---------------------------------------------
Theodore and Mary Stanley
[Third Amended and Restated Registration Rights Agreement]
-20-
<PAGE> 21
H&D INVESTMENTS II
By: /s/
---------------------------------------------
Name: Paul P. Brountas
Title: Partner
/s/ J. Breckenridge Eagle
-------------------------------------------------
J. Breckenridge Eagle
/s/ Vijay J. Shah
-------------------------------------------------
Vijay J. Shah
/s/ Vikas Saini
-------------------------------------------------
Vikas Saini
/s/ J. Neal Armstrong
-------------------------------------------------
J. Neal Armstrong
/s/ Timothy J. Crowley
-------------------------------------------------
Timothy J. Crowley
/s/ Anne De Gheest
-------------------------------------------------
Anne De Gheest
/s/ Robert R. Everett
-------------------------------------------------
Robert R. Everett
[Third Amended and Restated Registration Rights Agreement]
-21-
<PAGE> 22
THE LOWN CARDIOVASCULAR RESEARCH FOUNDATION
By: /s/
---------------------------------------------
Name:
Title:
/s/ Glen E. Wegner
-------------------------------------------------
Glen E. Wegner
ZED INTERNATIONAL, INC.
By: /s/
---------------------------------------------
Name:
Title:
BAYVIEW INVESTORS, LTD.
By: /s/
---------------------------------------------
Name:
Title:
INTERSTOCK ANSTALT FUR VERMOGENS UND TRUST
VERWALTUNG
By: /s/
---------------------------------------------
Authorized Signatory
[Third Amended and Restated Registration Rights Agreement]
-22-
<PAGE> 23
SVE STAR VENTURE ENTERPRISES NO. V,
A GERMAN CIVIL LAW PARTNERSHIP
(WITH LIMITATION OF LIABILITY)
By: SVM Star Ventures
Managementgesellschaft mbH Nr. C
By: /s/
---------------------------------------------
Authorized Signatory
SVM STAR VENTURES
MANAGEMENTGESELLSCHAFT MBH NR.
3 & CO. BETEILIGUNGS KG
By: SVM Star Ventures
Managementgesellschaft mbH Nr. C
By: /s/
---------------------------------------------
Authorized Signatory
/s/ Richard and Julie Rogers
-------------------------------------------------
Richard and Julie Rogers
/s/ Theodore H. Ashford
-------------------------------------------------
Theodore H. Ashford
AENEAS VENTURE CORPORATION
By: /s/
---------------------------------------------
Name:
Title:
[Third Amended and Restated Registration Rights Agreement]
-23-
<PAGE> 24
CATALYST VENTURES, LIMITED PARTNERSHIP
By: New Enterprise Associates IV, Limited
Partnership
By: NEA Partners IV, Limited Partnership
By: /s/
---------------------------------------------
Name:
Title:
WELLS FARGO BANK, TRUSTEE SHV M/P/T FBO
DAVID L. ANDERSON
By: /s/
---------------------------------------------
Name:
Title:
WELLS FARGO BANK, TRUSTEE SHV M/P/T FBO
TENCH COXE
By: /s/
---------------------------------------------
Name:
Title:
/s/ Caroline Z. Pratt
-------------------------------------------------
Caroline Z. Pratt
/s/ David C. Zraket
-------------------------------------------------
David C. Zraket
[Third Amended and Restated Registration Rights Agreement]
-24-
<PAGE> 25
/s/ Suzanne M. Otterbein
-------------------------------------------------
Suzanne M. Otterbein
/s/ Elizabeth Z. Callahan
-------------------------------------------------
Elizabeth Z. Callahan
/s/ William H. Younger, Jr.
-------------------------------------------------
William H. Younger, Jr.
THE STANLEY RESEARCH FOUNDATION
By: /s/
---------------------------------------------
Name:
Title:
FISHERS ISLAND PARTNERS
By: /s/
---------------------------------------------
Name:
Title:
/s/ Philip G. Aberizk
-------------------------------------------------
Philip G. Aberizk
/s/ Nassib G. Chamoun
-------------------------------------------------
Nassib G. Chamoun
-------------------------------------------------
Ziad and Lori Chamoun
[Third Amended and Restated Registration Rights Agreement]
-25-
<PAGE> 26
/s/ Philip Devlin
-------------------------------------------------
Philip Devlin as Custodian for Michael
Travers Devlin
/s/ Farhat N. Homsy, M.D.
-------------------------------------------------
Farhat N. Homsy, M.D.
-------------------------------------------------
Veena C. Saini
-------------------------------------------------
Douglas N. Young
-------------------------------------------------
Mary Lee Young
/s/ Donald Stanski
-------------------------------------------------
Donald Stanski
LANDMARK VENTURES, LIMITED PARTNERSHIP
By: /s/
---------------------------------------------
Name:
Title:
/s/ Nina S. Rohrbasser
-------------------------------------------------
Nina S. Rohrbasser
/s/ Victoria Shah
-------------------------------------------------
Victoria Shah
[Third Amended and Restated Registration Rights Agreement]
-26-
<PAGE> 27
/s/ Douglas Schair
-------------------------------------------------
Douglas Schair
CITIVENTURE 96 PARTNERSHIP, L.P.
By: Chancellor LGT Asset Management, Inc.
as investment advisor
By: /s/
---------------------------------------------
Name:
Title:
/s/ Jeffrey L. Barrett
-------------------------------------------------
Jeffrey L. Barrett
/s/ Stephen E. Coit
-------------------------------------------------
Stephen E. Coit
/s/ Steven H. Kane
-------------------------------------------------
Steven H. Kane
/s/ Lester J. Lloyd
-------------------------------------------------
Lester J. Lloyd
[Third Amended and Restated Registration Rights Agreement]
-27-
<PAGE> 1
EXHIBIT 10.19
THIRD AMENDED AND RESTATED VOTING AGREEMENT
AGREEMENT, dated as of February 13, 1998 among Aspect Medical Systems,
Inc., a Delaware corporation (the "Company"); those persons whose names are set
forth under the heading "Preferred Shareholders" on SCHEDULE I hereto (the
"Preferred Shareholders"); those persons whose names are set forth under the
heading "Common Shareholders" on SCHEDULE I hereto (the "Common Shareholders");
and those persons who shall, after the date hereof, join in and become a party
to this Agreement by executing and delivering to the Company an Instrument of
Accession in the form of SCHEDULE II hereto.
WHEREAS, the Common Shareholders, certain of the Preferred Shareholders
and the Company are parties to a certain Second Amended and Restated Voting
Agreement dated February 26, 1997 (the "Old Voting Agreement"), pursuant to
which the Common Shareholders and certain of the Preferred Shareholders agreed
to vote their shares of capital stock of the Company in a certain manner with
respect to the election of the Board of Directors of the Company;
WHEREAS, pursuant to a Series D Convertible Preferred Stock Purchase
Agreement dated as of the date hereof between the Company and the purchasers
listed on SCHEDULE I thereto (the "Series D Purchase Agreement"), certain of the
Preferred Shareholders are purchasing Series D Convertible Preferred Stock, $.01
par value per share (the "Series D Preferred Stock"); and
WHEREAS, it is a condition to the obligations of the Preferred
Shareholders purchasing Series D Preferred Stock pursuant to the Series D
Purchase Agreement that this Agreement be executed by the parties hereto to
amend and restate the Old Voting Agreement as set forth herein, and the parties
are willing to execute this Agreement and to be bound by the provisions hereof.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
1. AMENDMENT TO OLD VOTING AGREEMENT. The Old Voting Agreement is
hereby amended and restated upon the terms and conditions contained in this
Agreement to read in its entirety as provided herein.
2. DEFINITIONS. As used in this Agreement, the term "Shares" shall
mean any voting securities of the Company currently owned (either beneficially
or of record) or subsequently acquired by any party to this Agreement, including
any securities which such party does not own (either beneficially or of record)
but as to
-1-
<PAGE> 2
which such party exercises voting control, and including, without limitation,
shares of Common Stock, $.01 par value per share, of the Company (the "Common
Stock") acquired upon conversion of shares of convertible preferred stock or
upon exercise of options or warrants to purchase Common Stock.
3. TERM. The term of this Agreement shall commence on the date hereof
and shall terminate upon the earlier of (i) the closing of a firm commitment
underwritten public offering of shares of Common Stock which (a) results in
aggregate gross proceeds of at least $20,000,000, and (b) is at a price per
share in excess of $12.00, which number shall be appropriately adjusted for
stock splits, stock dividends, combinations, reorganizations, recapitalizations
and other similar events involving a change in the capital structure of the
Company, or (ii) the tenth anniversary of the date of this Agreement.
4. BOARD OF DIRECTORS.
(a) Each party covenants and agrees that it shall vote all of
its Shares so that the Company's Board of Directors shall consist of no more
than eight members, unless the number of members of the Board of Directors of
the Company is expanded pursuant to paragraph (e) below.
(b) Each party covenants and agrees that at any and all meetings
(including any written action in lieu of a meeting of shareholders of the
Company at which directors are to be elected) each party shall at all such times
vote all of its Shares, to the extent permitted pursuant to the Company's Third
Restated Certificate of Incorporation (or successor thereto), to cause and
maintain the election to the Board of Directors of the Company of: (i) one
nominee selected by Nassib G. Chamoun ("Chamoun"), subject to paragraph (c)
below, (ii) two nominees designated by a majority of the Series B-1 Convertible
Preferred Stock, $.01 par value per share (the "Series B-1 Preferred Stock") and
the Series B-2 Convertible Preferred Stock, $.01 par value per share (the
"Series B-2 Preferred Stock"), voting together as a single series, (iii) one
nominee designated by a majority of the Series A-1 Convertible Preferred Stock,
$.01 par value per share (the "Series A-1 Preferred Stock") and the Series A-2
Preferred Stock, $.01 par value per share (the "Series A-2 Preferred Stock"),
voting together as a single series, and acceptable to both Aeneas Venture
Corporation (for so long as it holds shares of Series A-1 Preferred Stock or
Series A-2 Preferred Stock) and New Enterprise Associates IV, Limited
Partnership (for so long as it holds shares of Series A-1 Preferred Stock or
Series A-2 Preferred Stock), (iv) one nominee selected by Polaris Venture
Partners, L.P. ("Polaris") (for so long as it holds shares of Series C
Convertible Preferred Stock, $.01 par value per share (the "Series C Preferred
Stock") or Series C-2 Convertible Preferred Stock, $.01 par value per share (the
"Series C-2 Preferred Stock") or, in the event that Polaris no longer holds
shares of Series C Preferred Stock or Series C-2 Preferred Stock, by the holders
of a majority of shares of Series C Preferred Stock and Series C-2 Preferred
Stock), (v) one nominee selected by
-2-
<PAGE> 3
the holders of a majority of the shares of Series D Preferred Stock and Series
D-2 Convertible Preferred Stock, $.01 par value per share (the "Series D-2
Preferred Stock"), voting together as a single series, (vi) one nominee selected
by a majority of the directors designated pursuant to clauses (ii) through (v)
of this Section 4(b), and (vii) an additional nominee who shall be agreed upon
by the management of the Company and a majority of the directors designated
pursuant to clauses (ii) through (v) of this paragraph (b); PROVIDED, HOWEVER,
that the nominee selected pursuant to this clause (vii) shall not be any person
affiliated with the Company's management, the holders of Series B-1 Preferred
Stock, Series A-1 Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series A-2 Preferred Stock, Series B-2 Preferred Stock, Series C-2
Preferred Stock or Series D-2 Preferred Stock (a "NonAffiliated Director") ;
PROVIDED FURTHER that each party agrees to vote their Shares to remove such a
Non-Affiliated Director if such removal is recommended by a majority of the
directors designated pursuant to clauses (ii) through (v) of this paragraph (b).
(c) Notwithstanding paragraph (b) above, Chamoun shall be
entitled to designate one nominee to the Board of Directors of the Company only
if, at the time of any such nomination, he is then employed by the Company or
serving as a consultant to the Company at its request. Commencing with the date
Chamoun's relationship with the Company as an employee or consultant terminates
and thereafter, the nominee to which Chamoun would otherwise have been entitled
to designate pursuant to clause (i) of paragraph (b) above, shall be such person
who is designated by the Chief Executive Officer of the Company and approved by
a majority of nominees or directors who were nominees designated pursuant to
clauses (ii) through (v) of paragraph (b) above.
(d) The parties agree that (i) the initial nominee designated by
Chamoun is Chamoun, (ii) the initial nominees designated by the majority of the
Series B-1 Preferred Stock are Stephen D. Coit and Edwin M. Kania, Jr., (iii)
the initial nominee designated by the majority of the Series A-1 Preferred Stock
is J. Breckenridge Eagle, (iv) the initial nominee designated by a majority of
the holders of Series C Preferred Stock is Terrance McGuire, (v) the initial
nominee designated by the directors pursuant to clause (v) of Section 4(b) is
Terral Jordan, (vi) the initial nominee designated by the directors elected
pursuant to clauses (ii) through (v) of Section 4(b) above is Donald Stanski and
(vii) the initial nominee as a Non-Affiliated Director is Lester J. Lloyd.
(e) The Board of Directors shall be expanded by up to two
additional members if it is deemed desirable by a majority of the Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series A-2 Preferred Stock, Series B-2 Preferred Stock, Series
C-2 Preferred Stock and Series D-2 Preferred Stock, voting together. The
nominees to fill the directorship(s) created by the expansion of the Board of
Directors shall be designated by a majority of the directors elected pursuant to
clauses (ii) through (v) of Section 4(b) above, PROVIDED,
-3-
<PAGE> 4
HOWEVER, that the nominee(s) designated pursuant to this paragraph (e) shall not
be any person affiliated with the Company's management, the holders of Series
B-1 Preferred Stock, Series A-1 Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series A-2 Preferred Stock, Series B-2 Preferred
Stock, Series C-2 Preferred Stock or Series D-2 Preferred Stock. The Board of
Directors will be enlarged and the designated nominees will be elected in
accordance with the Company's By-laws.
5. VACANCIES. Subject to paragraph (c) of Section 4 above, any
vacancy in the Board of Directors of the Company (occurring due to the
resignation, death or removal of a director or due to the expansion of the Board
of Directors pursuant to paragraph (e) above) shall be filled by a nominee
elected by the parties who had the right to elect the nominee for such vacant
directorship pursuant to Section 4 (b) above or pursuant to paragraph (e) above,
as applicable.
6. MISCELLANEOUS.
(a) This Agreement sets forth the entire agreement of the
parties with respect to the subject matter hereof and may not be amended,
modified or terminated, and no rights or provisions herein may be waived,
without the written consent of (i) the holders of at least 85% of the then
outstanding shares of Series B-1 Preferred Stock, Series A-1 Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock, Series A-2 Preferred
Stock, Series B-2 Preferred Stock, Series C-2 Preferred Stock and Series D-2
Preferred Stock, voting together as a single class, and (ii) the holders of a
majority of the outstanding shares of Common Stock of the Company held by those
who are or have become a party to this Agreement.
(b) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Massachusetts. This
Agreement shall be binding upon and inure to the benefit of the parties
signatory hereto and their respective heirs, personal representatives,
successors or assigns and any transferee of any of the Shares.
(c) The parties acknowledge and agree that in the event of any
breach of this Agreement, remedies at law will be inadequate, and each of the
parties hereto shall be entitled to specific performance of the obligations of
the other parties hereto and to such appropriate injunctive relief as may be
granted by a court of competent jurisdiction.
(d) This Agreement may be executed in a number of
counterparts, all of which together shall for all purposes constitute one
Agreement, binding on all the parties hereto, notwithstanding that all such
parties have not signed the same counterpart.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
ASPECT MEDICAL SYSTEMS, INC.
By: /s/ Nassib G. Chamoun
----------------------------------------
Nassib G. Chamoun
President
/s/
--------------------------------------------
Henry L. Hillman, Elsie Hilliard Hillman and
C. G. Grefenstette, Trustees of the Henry L.
Hillman Trust U/A dated 11/18/85
/s/
--------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Juliet Lea
Hillman
/s/
--------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Audrey
Hilliard Hillman
/s/
--------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for William
Talbott Hillman
/s/
--------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Henry L.
Hillman, Jr.
[Third Amended and Restated Voting Agreement]
-5-
<PAGE> 6
VENHILL LIMITED PARTNERSHIP
By: /s/
----------------------------------
Name:
Title:
JULIET CHALLENGER, INC.
By: /s/
----------------------------------
Name:
Title:
BT ALEX BROWN EMPLOYEE VENTURE FUND
By: /s/
----------------------------------
Name:
Title:
SECOND CENTURY GROWTH DEFERRED
COMPENSATION PLAN: Piper Jaffray, Inc.
By: /s/
----------------------------------
Name:
Title:
THE JOHN BURROUGHS SCHOOL
ENDOWMENT FUND
By: /s/
----------------------------------
Name:
Title:
[Third Amended and Restated Voting Agreement]
-6-
<PAGE> 7
/s/ Noubar Afeyan
---------------------------------------
Noubar Afeyan
/s/ Stanley Lapidus
---------------------------------------
Stanley Lapidus
POLARIS VENTURE PARTNERS, L.P.
By: Polaris Venture Management Co., LLC
Its General Partner
By: /s/
-----------------------------------
Member
POLARIS VENTURE PARTNERS
FOUNDERS' FUND, L.P.
By: Polaris Venture Management Co., LLC
Its General Partner
By: /s/
-----------------------------------
Member
ONE LIBERTY FUND III, L.P.
By: One Liberty Partners III, L.P.,
Its General Partner
By: /s/ Edwin M. Kania, Jr.
-----------------------------------
Edwin M. Kania, Jr.
General Partner
[Third Amended and Restated Voting Agreement]
-7-
<PAGE> 8
GILDE INTERNATIONAL B.V.
By: One Liberty Partners III, L.P.,
its Attorney-in-Fact
By: /s/ Edwin M. Kania, Jr.
----------------------------------
Title: Edwin M. Kania, Jr.
General Partner
CHARLES RIVER PARTNERSHIP VII,
LIMITED PARTNERSHIP
By: /s/
----------------------------------
Name:
Title:
NEW VENTURE PARTNERS III, LIMITED
PARTNERSHIP
By: /s/
----------------------------------
Name:
Title:
GENSTAR INVESTMENT CORPORATION
By: /s/
----------------------------------
Name:
Title:
[Third Amended and Restated Voting Agreement]
-8-
<PAGE> 9
HIGHLAND CAPITAL PARTNERS II, LIMITED
PARTNERSHIP
By: Highland Management Partners II Limited
Partnership, its General Partner
By: /s/
---------------------------------------
Name:
Title:
MAYFIELD ASSOCIATES
By: /s/
---------------------------------------
Name:
Title:
MAYFIELD MEDICAL PARTNERS
By: /s/
---------------------------------------
Name:
Title:
MAYFIELD VI
By: /s/
---------------------------------------
Name:
Title:
[Third Amended and Restated Voting Agreement]
-9-
<PAGE> 10
MERRILL, PICKARD, ANDERSON & EYRE IV,
LIMITED PARTNERSHIP
By: MPAE IV Management Co., L.P.
By: /s/
---------------------------------------------
Name:
Title:
NEW ENTERPRISE ASSOCIATES IV, LIMITED
PARTNERSHIP
By: New Enterprise Associates IV, Limited
Partnership
By: NEA Partners IV, Limited Partnership
By: /s/ Nancy Dorman
---------------------------------------------
Nancy Dorman
General Partner
ORCHID & CO., nominee for
T. Rowe Price Threshold Fund III, L.P.
By: T. Rowe Price Threshold Fund Associates, Inc.
General Partner
By: /s/
---------------------------------------------
Name:
Title:
[Third Amended and Restated Voting Agreement]
-10-
<PAGE> 11
CHANCELLOR LGT PRIVATE CAPITAL
PARTNERS III, L.P.
By: CPCP Associates, L.P.,
its general partner
By: Chancellor LGT Venture Partners, Inc.,
its general partner
By: /s/
---------------------------------------------
Name:
Title:
HLM PARTNERS VII, L.P.
By: /s/
---------------------------------------------
Name:
Title:
SUTTER HILL VENTURES, A CALIFORNIA LIMITED
PARTNERSHIP
By: /s/
---------------------------------------------
Name:
Title:
TOW PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP
By: /s/
---------------------------------------------
Name:
Title:
[Third Amended and Restated Voting Agreement]
-11-
<PAGE> 12
/s/
---------------------------------------------
William H. Younger, Jr., Trustee of the
Younger Living Trust
/s/
---------------------------------------------
Paul M. and Marsha R. Wythes, Trustees of
the Wythes Living Trust
/s/ G. Leonard Baker
---------------------------------------------
G. Leonard Baker
/s/ Ronald L. Perkins
---------------------------------------------
Ronald L. Perkins
/s/ James C. Gaither
---------------------------------------------
James C. Gaither
/s/ David L. Anderson
---------------------------------------------
David L. Anderson
/s/ Tench Coxe
---------------------------------------------
Tench Coxe
/s/ Robert Carpenter
---------------------------------------------
Robert Carpenter
/s/ Theodore and Mary Stanley
---------------------------------------------
Theodore and Mary Stanley
[Third Amended and Restated Voting Agreement]
-12-
<PAGE> 13
H&D INVESTMENTS II
By: /s/
-----------------------------------------
Name: Paul P. Brountas
Title: Partner
/s/ J. Breckenridge Eagle
---------------------------------------------
J. Breckenridge Eagle
/s/ Vijay J. Shah
---------------------------------------------
Vijay J. Shah
/s/ Vikas Saini
---------------------------------------------
Vikas Saini
/s/ J. Neal Armstrong
---------------------------------------------
J. Neal Armstrong
/s/ Timothy J. Crowley
---------------------------------------------
Timothy J. Crowley
/s/ Anne De Gheest
---------------------------------------------
Anne De Gheest
/s/ Robert R. Everett
---------------------------------------------
Robert R. Everett
[Third Amended and Restated Voting Agreement]
-13-
<PAGE> 14
THE LOWN CARDIOVASCULAR RESEARCH FOUNDATION
By: /s/
---------------------------------------------
Name:
Title:
/s/ Glen E. Wegner
-------------------------------------------------
Glen E. Wegner
ZED INTERNATIONAL, INC.
By: /s/
---------------------------------------------
Name:
Title:
BAYVIEW INVESTORS, LTD.
By: /s/
---------------------------------------------
Name:
Title:
INTERSTOCK ANSTALT FUR VERMOGENS UND TRUST
VERWALTUNG
By: /s/
---------------------------------------------
Authorized Signatory
[Third Amended and Restated Voting Agreement]
-14-
<PAGE> 15
SVE STAR VENTURE ENTERPRISES NO. V,
A GERMAN CIVIL LAW PARTNERSHIP
(WITH LIMITATION OF LIABILITY)
By: SVM Star Ventures
Managementgesellschaft mbH Nr. C
By: /s/
---------------------------------------------
Authorized Signatory
SVM STAR VENTURES
MANAGEMENTGESELLSCHAFT MBH NR.
3 & CO. BETEILIGUNGS KG
By: SVM Star Ventures
Managementgesellschaft mbH Nr. C
By: /s/
---------------------------------------------
Authorized Signatory
/s/ Richard and Julie Rogers
-------------------------------------------------
Richard and Julie Rogers
/s/ Theodore H. Ashford
-------------------------------------------------
Theodore H. Ashford
AENEAS VENTURE CORPORATION
By: /s/
---------------------------------------------
Name:
Title:
[Third Amended and Restated Voting Agreement]
-15-
<PAGE> 16
CATALYST VENTURES, LIMITED PARTNERSHIP
By: New Enterprise Associates IV, Limited
Partnership
By: NEA Partners IV, Limited Partnership
By: /s/
---------------------------------------------
Name:
Title:
WELLS FARGO BANK, TRUSTEE SHV M/P/T FBO
DAVID L. ANDERSON
By: /s/
---------------------------------------------
Name:
Title:
WELLS FARGO BANK, TRUSTEE SHV M/P/T FBO
TENCH COXE
By: /s/
---------------------------------------------
Name:
Title:
/s/ Caroline Z. Pratt
-------------------------------------------------
Caroline Z. Pratt
/s/ David C. Zraket
-------------------------------------------------
David C. Zraket
[Third Amended and Restated Voting Agreement]
-16-
<PAGE> 17
/s/ Suzanne M. Otterbein
-------------------------------------------------
Suzanne M. Otterbein
/s/ Elizabeth Z. Callahan
-------------------------------------------------
Elizabeth Z. Callahan
/s/ William H. Younger, Jr.
-------------------------------------------------
William H. Younger, Jr.
THE STANLEY RESEARCH FOUNDATION
By: /s/
---------------------------------------------
Name:
Title:
FISHERS ISLAND PARTNERS
By: /s/
---------------------------------------------
Name:
Title:
/s/ Philip G. Aberizk
-------------------------------------------------
Philip G. Aberizk
/s/ Nassib G. Chamoun
-------------------------------------------------
Nassib G. Chamoun
-------------------------------------------------
Ziad and Lori Chamoun
[Third Amended and Restated Voting Agreement]
-17-
<PAGE> 18
/s/ Philip Devlin
-------------------------------------------------
Philip Devlin as Custodian for Michael
Travers Devlin
/s/ Farhat N. Homsy, M.D.
-------------------------------------------------
Farhat N. Homsy, M.D.
-------------------------------------------------
Veena C. Saini
-------------------------------------------------
Douglas N. Young
-------------------------------------------------
Mary Lee Young
/s/ Donald Stanski
-------------------------------------------------
Donald Stanski
LANDMARK VENTURES, LIMITED PARTNERSHIP
By: /s/
---------------------------------------------
Name:
Title:
/s/ Nina S. Rohrbasser
-------------------------------------------------
Nina S. Rohrbasser
/s/ Victoria Shah
-------------------------------------------------
Victoria Shah
[Third Amended and Restated Voting Agreement]
-18-
<PAGE> 19
/s/ Douglas Schair
-------------------------------------------------
Douglas Schair
CITIVENTURE 96 PARTNERSHIP, L.P.
By: Chancellor LGT Asset Management, Inc.
as investment advisor
By: /s/
---------------------------------------------
Name:
Title:
/s/ Jeffrey L. Barrett
-------------------------------------------------
Jeffrey L. Barrett
/s/ Stephen E. Coit
-------------------------------------------------
Stephen E. Coit
/s/ Steven H. Kane
-------------------------------------------------
Steven H. Kane
/s/ Lester J. Lloyd
-------------------------------------------------
Lester J. Lloyd
[Third Amended and Restated Voting Agreement]
-19-
<PAGE> 20
<TABLE>
<S> <C>
SCHEDULE I
PREFERRED SHAREHOLDERS
Henry L. Hillman, Elsie Hilliard Hillman
and C. G. Grefenstette, Trustees of the
Henry L. Hillman Trust U/A dated
11/18/85
1800 Grant Building
Pittsburgh, PA 15219
C. G. Grefenstette and Thomas C. Bigley, C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Juliet Trustees U/A/T dated 8/28/68 for
Lea Hillman Audrey Hilliard Hillman
1800 Grant Building 1800 Grant Building
Pittsburgh, PA 15219 Pittsburgh, PA 15219
C. G. Grefenstette and Thomas C. Bigley, C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Trustees U/A/T dated 8/28/68 for
William Talbott Hillman Henry L. Hillman, Jr.
1800 Grant Building 1800 Grant Building
Pittsburgh, PA 15219 Pittsburgh, PA 15219
Venhill Limited Partnership Juliet Challenger, Inc.
c/o Howard B. Hillman 824 Market Street, Suite 900
Autotrol Technology Wilmington, DE 19801
12500 N. Washington Street Attn: Andrew McQuarrie
Denver, CO 80241-2404
with copy to:
Irene Riebe
Taconic Group, Inc.
158 Main Street
New Canaan, CT 06840
</TABLE>
[Third Amended and Restated Voting Agreement]
-20-
<PAGE> 21
<TABLE>
<S> <C>
ABS Employees' Venture Fund Limited Second Century Growth Deferred
Partnership Compensation Plan: Piper Jaffray, Inc.
c/o Dan Gunter c/o Buzz Benson
375 West Padonia Rd. 222 South 9th St., 13th Floor
Timonium, MD 21093 Minneapolis, MN 55402
The John Burroughs School Endowment Noubar Afeyen
Fund c/o PerSeptive Biosystems
c/o Keith Shahan 500 Old Connecticut Pass
755 South Price Road Framingham, MA 01701
St. Louis, MO 63124
Stanley Lapidus Douglas Schair
c/o Exact Laboratories, Inc. 601 Chandlers Wharf
63 Great Road Portland, ME 04101
Maynard, MA 01754
Polaris Venture Partners, L.P. Landmark Ventures, Limited Partnership
Bay Colony Corporate Center 1119 St. Paul Street
1000 Winter Street, Suite 3350 Baltimore, MD 21202
Waltham, MA 02154
Polaris Venture Partners Founders' Fund, Aeneas Venture Corporation
L.P. c/o Harvard Management
Bay Colony Corporate Center Company, Inc.
1000 Winter Street, Suite 3350 600 Atlantic Avenue
Waltham, MA 02154 Boston, MA 02210
One Liberty Fund III, L.P. William H. Younger, Jr.
One Liberty Square c/o Sutter Hill Ventures
Boston, MA 02109 755 Page Mill Road
Suite A200
Palo Alto, CA 94304
</TABLE>
[Third Amended and Restated Voting Agreement]
-21-
<PAGE> 22
Gilde International B.V. Genstar Investment Corporation
c/o One Liberty Metro Tower, Suite 1170
Partners III, L.P. Foster City, CA 94404
One Liberty Square Attn: Mr. R. D. Paterson
Boston, MA 02109
Charles River Partnership VII, Wells Fargo Bank, Trustee
Limited Partnership SHV M/P/T FBO David L. Anderson
Ten Post Office Square, Attn: Annik Prasad
Suite 1330 MAC #0101-021
Boston, MA 02109 420 Montgomery Street, 2nd Floor
San Francisco, CA 94104
New Enterprise Associates IV, Wells Fargo Bank, Trustee
Limited Partnership SHV M/P/T FBO Tench Coxe
1119 St. Paul Street Attn: Annik Prasad
Baltimore, MD 21202 MAC #0101-021
420 Montgomery Street, 2nd Floor
San Francisco, CA 94104
New Venture Partners III, Limited Catalyst Ventures, Limited
Partnership Partnership
1119 St. Paul Street 1119 St. Paul Street
Baltimore, MD 21202 Baltimore, MD 21202
Highland Capital Partners II, The Stanley Research Foundation
Limited Partnership Dr. Theodore H. Stanley
One International Place Professor of Anesthesia
Boston, MA 02110 University of Utah
Medical School
Department of Anesthesia
50 North Medical Drive
Salt Lake City, Utah 84132
Mayfield Associates Philip G. Aberizk
2800 Sand Hill Road 89 River Road
Menlo Park, CA 94025 W. Newbury, MA 01985
[Third Amended and Restated Voting Agreement]
-22-
<PAGE> 23
Mayfield Medical Partners Ziad and Lori Chamoun
2800 Sand Hill Road 100A Green Street
Menlo Park, CA 94025 Milton, MA 02186
Mayfield VI Stephen C. Coit
2800 Sand Hill Road 32 Vinebrook Road
Menlo Park, CA 94025 Lexington, MA 02173
Sutter Hill Ventures, Anne De Gheest
a California Limited Upstar Consulting
Partnership 12133 Foothill Lane
c/o Sutter Hill Ventures Los Altos, CA 94022
755 Page Mill Road
Suite A200
Palo Alto, CA 94304
Tow Partners, a California Philip Devlin as Custodian for
Limited Partnership Michael Travers Devlin
c/o Sutter Hill Ventures 33 Clearwater Road
755 Page Mill Road Brookline, MA 02167
Suite A200
Palo Alto, CA 94304
Paul M. and Martha R. Wythes, Farhat N. Homsy, M.D.
Trustees of the Wythes Living Trust 2 South Street
c/o Sutter Hill Ventures Chestnut Hill, MA 02167
755 Page Mill Road
Suite A200
Palo Alto, CA 94304
G. Leonard Baker, Jr. Veena C. Saini
c/o Sutter Hill Ventures 24 Brook Street
755 Page Mill Road Brookline, MA 02146
Suite A200
Palo Alto, CA 94304
[Third Amended and Restated Voting Agreement]
-23-
<PAGE> 24
William H. Younger, Jr., Mary Lee Young
Trustee of the Younger Living Trust 123 Balboa Circle
c/o Sutter Hill Ventures Oak Ridge, TN 37830
755 Page Mill Road
Suite A200
Palo Alto, CA 94304
Tench Coxe Zed International, Inc.
c/o Sutter Hill Ventures c/o Thomas J. Landergan
755 Page Mill Road BankBoston, N.A.
Suite A200 01-05-03
Palo Alto, Ca 94304 P.O. Box 1890
Boston, MA 02105
David L. Anderson Theodore H. Stanley &
c/o Sutter Hill Ventures Mary O. Stanley
755 Page Mill Road 4800 Oak Terrace
Suite A200 Salt Lake City, Utah 84124
Palo Alto, Ca 94304
James C. Gaither The Lown Cardiovascular Fdn.
c/o Sutter Hill Ventures Louise Lown, Treasurer
755 Page Mill Road 194 Hobart Road
Suite A200 Chestnut Hill, MA 02167
Palo Alto, Ca 94304
Ronald L. Perkins Steven H. Kane
c/o Sutter Hill Ventures 2 Ben Arthur's Way
755 Page Mill Road Dover, MA 02030
Suite A200
Palo Alto, Ca 94304
Genstar Investment Corporation J. Neal Armstrong
Metro Tower # 1170 20 Cedar Ridge Road
950 Tower Lane N. Attleboro, MA 02760
Foster City, CA 94404-2121
[Third Amended and Restated Voting Agreement]
-24-
<PAGE> 25
Merrill, Pickard, Anderson & J. Breckenridge Eagle
Eyre IV Limited Partnership Box 1197
1000 Winter Street Mattapoisett, MA 02739
Suite 1080
Waltham, MA 02154
H&D Investments II Glen Wegner, MD
c/o Hale and Dorr LLP 22 Lathrop Road
60 State Street Wellesley, MA 02181
Boston, MA 02109
Robert Carpenter Timothy J. Crowley, MD
9 Lowell Road 42 Candy Hill Lane
Wellesley Hills, MA 02181 Sudbury, MA 01776
Vikas Saini, M.D. Interstock Anstalt fur Vermogens und
24 Brook Street Trust Verwaltung
Brookline, MA 02146 c/o Ernst Bloathlinger
Herrengasse 21
FL-9490 Vaduz
Liechtenstein
Vijay J. Shah Richard & Julie Rogers
7 Fanueil Hall 4 Fordyce Lane
Boston, MA 02159 Ladue, MO 63124
Jeffrey L. Barrett Bayview Investors, Limited
20 Tavern Circle Robertson Stephens & Co.
Sudbury, MA 01776 555 California Street
San Francisco, CA 94104
Robert R Everett Theodore H. Ashford
80 Rollingwood Land 3801 Kennett Pike B107
Concord, MA 01742 Greenville, DE 19807
[Third Amended and Restated Voting Agreement]
-25-
<PAGE> 26
<TABLE>
<S> <C>
HLM Partners VII, L.P. Orchid & Co., nominee for
HLM Management T. Rowe Price Threshold
c/o Peter Grua Fund III, L.P.
222 Berkeley Street, #2150 c/o Junerose Sordoni
Boston, MA 02116 T. Rowe Price Assoc. Inc.
100 East Pratt
Baltimore, MD 21202
SVE Star Venture Enterprises Nassib G. Chamoun
No. V A German Civil Law c/o Aspect Medical Systems, Inc.
Partnership (with limitation of 2 Vision Drive
liability) Natick, MA 01760
c/o Andreas Hofbauer
Star Venture Managment
Possartstr. 9
D-81679 Munich
Germany
SVM StarVentures Chancellor LGT Private Capital Partners
Managementgesellschaft mbH Nr.3 III, L.P.
& Co. Beteilungs KG c/o Mark Radovanovich
c/o Andreas Hofbauer 1166 Avenue of the Americas
Star Venture Managment New York, NY 16636
Possartstr. 9
D-81679 Munich
Germany
Citiventure 96 Partnership, L.P. Fishers Island Partners
c/o Mark Radovanovich c/o Nathan Saint-Amand, M.D.
1166 Avenue of the Americas 2 East 88th Street
New York, NY 16636 New York, NY 10128
Suzanne M. Otterbein Douglas N. Young
23 Common Street 10020 Park Royal Drive
Charlestown, MA 02129 Great Falls, VA 22066-1856
David C. Zraket Caroline Zraket Pratt
57 Meacham Road 100 Kelsey Place
Somerville, MA 02144 Madison, CT 06443
</TABLE>
[Third Amended and Restated Voting Agreement]
-26-
<PAGE> 27
Donald R. Stanski, M.D. Victoria J. Shah
c/o Dept. of Anesthesia, Rm H-3584A c/o V. J. Shah & Co.
Stanford University Hospital 7 Fanueil Hall
Stanford, CA 04305 Boston, MA 02109
Nina Rohrbasser Lester J. Lloyd
c/o V. J. Shah & Co. 7 Haciendas Road
7 Fanueil Hall Orinda, CA 94563
Boston, MA 02109
[Third Amended and Restated Voting Agreement]
-27-
<PAGE> 28
Schedule II
ASPECT MEDICAL SYSTEMS, INC.
INSTRUMENT OF ACCESSION
The undersigned, ______________________, as a condition precedent to
becoming the owner or holder of record of _________________ ( ) shares
of the capital stock, of Aspect Medical Systems, Inc., a Delaware corporation
(the "Corporation"), hereby agrees to become a party to and bound by that
certain Third Amended and Restated Voting Agreement, dated as of February __,
1998, by and among the Corporation and other shareholders of the Corporation.
This Instrument of Accession shall take effect and shall become an integral part
of the said Third Amended and Restated Voting Agreement immediately upon
execution and delivery to the Corporation of this Instrument.
IN WITNESS WHEREOF, this INSTRUMENT OF ACCESSION has been duly executed
by or on behalf of the undersigned, as a sealed instrument under the laws of the
Commonwealth of Massachusetts, as of the date below written.
Signature: _____________________________
Print Name: ____________________________
Date: __________________________________
Address: _______________________________
________________________________________
________________________________________
Accepted by:
ASPECT MEDICAL SYSTEMS, INC.
By: ___________________________
Date: __________________________
[Third Amended and Restated Voting Agreement]
-28-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Boston, Massachusetts
June 24, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 3, 1996, relating to
the financial statements of Aspect Medical Systems, Inc., which appears in such
Prospectus. We also consent to the references to us under the headings "Experts"
and "Selected Financial Information" in such Prospectus. However, it should be
noted that Price Waterhouse LLP has not prepared or certified such "Selected
Financial Information."
/s/ PRICE WATERHOUSE LLP
Boston, Massachusetts
June 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 368,507
<SECURITIES> 4,612,462
<RECEIVABLES> 781,572
<ALLOWANCES> 62,400
<INVENTORY> 387,479
<CURRENT-ASSETS> 6,469,974
<PP&E> 1,484,599
<DEPRECIATION> 561,040
<TOTAL-ASSETS> 7,602,607
<CURRENT-LIABILITIES> 3,417,552
<BONDS> 117,680
0
38,726,070
<COMMON> 15,480
<OTHER-SE> (34,674,175)
<TOTAL-LIABILITY-AND-EQUITY> 7,602,607
<SALES> 3,067,573
<TOTAL-REVENUES> 3,067,573
<CGS> 3,601,569
<TOTAL-COSTS> 3,601,569
<OTHER-EXPENSES> 9,774,317
<LOSS-PROVISION> 14,333
<INTEREST-EXPENSE> 78,027
<INCOME-PRETAX> (9,885,855)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,885,855)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,885,855)
<EPS-PRIMARY> (16.23)
<EPS-DILUTED> (16.23)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> APR-04-1998
<EXCHANGE-RATE> 1
<CASH> 6,277,269
<SECURITIES> 6,928,438
<RECEIVABLES> 1,238,711
<ALLOWANCES> 62,400
<INVENTORY> 482,397
<CURRENT-ASSETS> 15,451,472
<PP&E> 2,194,967
<DEPRECIATION> 610,235
<TOTAL-ASSETS> 17,456,280
<CURRENT-LIABILITIES> 4,502,573
<BONDS> 80,764
0
50,351,562
<COMMON> 15,487
<OTHER-SE> (37,494,196)
<TOTAL-LIABILITY-AND-EQUITY> 17,456,280
<SALES> 1,733,121
<TOTAL-REVENUES> 1,733,121
<CGS> 1,211,205
<TOTAL-COSTS> 1,211,205
<OTHER-EXPENSES> 3,462,915
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,779
<INCOME-PRETAX> (2,816,894)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,816,894)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,816,894)
<EPS-PRIMARY> (2.95)
<EPS-DILUTED> (2.95)
</TABLE>
