<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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)
------------------------
<TABLE>
<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>
------------------------
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
(508) 653-0603
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
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>
------------------------
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 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 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,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share(1)................. $40,250,000 $11,190.00
- ----------------------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended,
the number of shares being registered and the proposed maximum offering
price per share are not included in this table.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee.
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
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (Subject to Completion)
Issued ________ , 1999
Shares
LOGO
COMMON STOCK
------------------------
ASPECT MEDICAL SYSTEMS, INC. IS OFFERING SHARES OF COMMON STOCK. THIS IS OUR
INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE
ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND
$ PER SHARE.
------------------------
WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "ASPM."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 10.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS ASPECT
-------- ------------- -----------
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total.............................. $ $ $
</TABLE>
Aspect has granted the underwriters the right to purchase up to an additional
shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on
, 1999.
------------------------
MORGAN STANLEY DEAN WITTER
DEUTSCHE BANC ALEXM BROWN
U.S. BANCORP PIPER JAFFRAY
, 1999.
<PAGE> 3
[Company Logo]
Aspect has developed the only FDA-cleared, commercially available product
for use as a direct measure of the effects of anesthetics on the brain. 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 BIS monitors or BIS Module Kits and our single-use, disposable
BIS Sensors.
[Photograph depicting the Company's A-2000 BIS Monitor]
The A-2000 BIS Monitor is a compact, portable monitor designed to
accommodate the space limitations and positioning requirements of surgical
settings. The A-2000 displays the BIS index and supporting information.
[Photograph depicting the Company's A-2000 BIS Monitor product with BIS Sensor
affixed to model's forehead]
The BIS Sensor is a single-use, disposable product for use with the
A-2000, the A-1050 Monitor and the BIS Module Kit.
[Photograph depicting the Company's BIS Sensor, BIS Module Kit and digital
signal converter products]
In 1996, Aspect introduced the BIS Module Kit, which is designed to
facilitate the integration of the Company's BIS index into monitoring products
marketed by our OEM and distribution partners. The BIS Module Kit consists of
our proprietary digital signal converter and a small circuit board that resides
in the OEM equipment.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY.................... 5
RISK FACTORS.......................... 10
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS.......................... 18
USE OF PROCEEDS....................... 19
DIVIDEND POLICY....................... 19
CAPITALIZATION........................ 20
DILUTION.............................. 21
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 23
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
BUSINESS.............................. 32
MANAGEMENT............................ 47
CERTAIN TRANSACTIONS.................. 56
PRINCIPAL STOCKHOLDERS................ 58
DESCRIPTION OF CAPITAL STOCK.......... 61
SHARES ELIGIBLE FOR FUTURE SALE....... 64
UNDERWRITERS.......................... 66
LEGAL MATTERS......................... 68
EXPERTS............................... 68
WHERE YOU CAN FIND MORE INFORMATION... 68
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock and
seeking offers to buy shares of common stock only in jurisdictions where offers
and sales are permitted.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTION.
3
<PAGE> 5
[THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]
4
<PAGE> 6
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our consolidated financial statements and related notes appearing
elsewhere in this prospectus.
ASPECT MEDICAL SYSTEMS, INC.
We develop, manufacture and market an anesthesia-monitoring system that we
call the BIS system. The BIS system enables anesthesia providers to assess and
manage a patient's level of consciousness during surgery. Our proprietary BIS
system includes our BIS monitor or BIS Module Kit and our single-use, disposable
BIS Sensors. The BIS system is based on our patented core technology, the
Bispectral Index, which we refer to as the BIS index. The BIS index is the only
FDA-cleared, commercially available, direct measure of the effects of
anesthetics on the brain. We developed the BIS system over 10 years, and it is
the subject of 10 issued and six pending United States patents. As of July 3,
1999, more than 3,450 BIS monitors have been installed worldwide, including
3,226 BIS monitors in approximately 450 sites in the United States. These sites
include 29 of the 100 largest hospitals and 25% of teaching hospitals with
anesthesia residency programs. We believe that over 650,000 patients have been
monitored using the BIS index during surgery. Our latest generation monitor, the
A-2000 BIS Monitor, was cleared for marketing by the FDA in February 1998. We
market the BIS system in the United States primarily through a direct sales
organization and internationally through distributors and marketing partners. We
have also established OEM relationships with several patient monitoring and
anesthesia equipment companies to incorporate our BIS technology into their
equipment using the BIS Module Kit.
Clinical trials and routine clinical use of the BIS system have shown that
patient monitoring with the BIS system results in:
- a reduction in the amount of anesthetics used,
- faster wake-up from anesthesia,
- less patient time in the operating room and the post-anesthesia care unit
following surgery,
- higher rates of outpatients bypassing the post-anesthesia care unit and
proceeding to a less costly step-down recovery area directly from the
operating room,
- improvements in the quality of recovery, and
- improvements in the means to assess the risk of surgical awareness, the
unintentional regaining of consciousness during surgery.
MARKET OPPORTUNITY
Each year approximately 29 million patients in the United States and more
than 35 million patients in Europe and Japan receive anesthesia for surgical
procedures. We estimate that approximately 70% of these surgical patients in the
United States, or 20 million patients, receive general anesthesia or deep
sedation monitored by an anesthesia provider. In the United States, there are
more than 34,000 operating rooms in hospitals and 5,000 operating rooms in
outpatient surgical centers. We believe that the aggregate number of operating
rooms in Europe and Japan exceeds the number of operating rooms in the United
States. Operating rooms represent our initial market opportunity for the sale of
BIS monitors, and surgical procedures utilizing general anesthesia or deep
sedation represent our initial market opportunity for annual sales of BIS
Sensors. Additional market opportunities outside the operating room for patient
monitoring with the BIS system include sedation in the intensive care unit and
for diagnostic and therapeutic procedures performed in locations such as
hospital emergency rooms and physicians' offices.
Anesthesia providers historically have had no direct means of assessing a
patient's level of consciousness during surgery. The indirect measures used,
such as blood pressure and heart rate, are not reliable indicators of a
patient's level of consciousness. Consequently, historical approaches to
anesthesia
5
<PAGE> 7
may result in patients being undermedicated or overmedicated during surgery. We
believe that an effective tool for monitoring a patient's level of consciousness
will address these problems in anesthesia and sedation monitoring, and will
contribute to improving the quality, safety, and cost effectiveness of
anesthesia sedation.
THE ASPECT SOLUTION: PATIENT MONITORING WITH THE BIS SYSTEM
Our clinically validated BIS index assists anesthesia providers in
assessing levels of consciousness during surgery and minimizing the risk of
unintentional overmedication or undermedication. Aspect and others have
conducted numerous studies to evaluate the clinical utility of the BIS system.
For example, we conducted a 302-patient multicenter, prospective, randomized,
controlled clinical utility trial that demonstrated the following benefits from
using the BIS system:
- Cost-Effective Dosing of Anesthetic Drugs. Patients monitored with the
BIS system during surgery received 23% less anesthetic than patients who
were not monitored with the BIS system. Accordingly, based upon the
average cost of the anesthetic drugs used in this utility trial, the use
of the BIS system could result in drug cost savings of up to $18 per
surgical procedure.
- Faster and More Predictable Recovery From Anesthesia. Patients monitored
with the BIS system during surgery emerged from unconsciousness 35% to
40% faster than patients who were not monitored with the BIS system. Only
5% of patients monitored with the BIS system required more than 15
minutes to emerge from anesthesia compared with 16% of patients who were
not monitored with the BIS system. Moreover, patients who were monitored
with the BIS system were eligible for discharge from the post-anesthesia
care unit 16% faster than patients who were not monitored with the BIS
system.
- Improved Quality of Recovery. Patients received better clinical
assessments of their recovery in post-anesthesia care units when the BIS
system was used. In addition, 43% of patients monitored with the BIS
system were alert and oriented when admitted to the post-anesthesia care
unit, as compared to 23% of patients not monitored with the BIS system
during surgery.
STRATEGY
Our objective is to establish the BIS system as a global standard in
anesthesia and sedation monitoring. Key elements of our strategy to accomplish
our objective include the following:
- Accelerate Market Penetration Through a Direct Sales Force. We will
continue to capitalize on our first-to-market position by utilizing a
direct sales force in the United States to further penetrate the market.
We believe that a direct sales force is best able to convey to anesthesia
providers and administrators the clinical benefits and potential cost
savings achievable when patients are monitored with the BIS system. We
also intend to complement our direct sales force with specialty
distributors in selected markets, the sales organizations of our OEM
partners, and contracts with hospital group purchasing organizations.
- Educate and Promote the Use of the BIS System Through Clinical
Specialists. We intend to establish and maintain a ratio of
approximately 1.5 clinical specialists for each of our direct sales
representatives. The principal responsibilities of these clinical
specialists are to provide education, training and support for the
installed base and to promote use of BIS systems. As of July 3, 1999, we
estimate that more than 650,000 patients have been monitored using the
BIS system. As a result of the growth in the installed base and the
efforts of our clinical specialists, revenue from the sales of BIS
Sensors increased from 27% of revenue for the first six months of 1998 to
44% of revenue for the first six months of 1999. We expect that clinical
specialists will also play a key role in expanding patient monitoring
with the BIS system outside the operating room, including in the
intensive care unit and procedural sedation markets.
6
<PAGE> 8
- Broaden Distribution Channels Through OEM Relationships. We have entered
into OEM agreements with Drager Medizintechnik GmbH, Hewlett-Packard
GmbH, Nihon Kohden Corporation and Spacelabs Medical, Inc. Under these
agreements, our OEM partners integrate the BIS Module Kit into their
patient-monitoring or anesthesia delivery systems. These systems will
require the use of our BIS Sensor to generate the BIS index. We believe
that OEM relationships will accelerate market penetration of the BIS
technology and provide us with access to a large installed base of
patient monitoring and anesthesia equipment. We expect to enter into
additional OEM relationships over the next several years to expand the
channels for distribution of the BIS system, particularly in
international markets.
- Maintain Market Leadership Through Continuous Product Improvements and
Extensions. We intend to adapt the BIS technology for use in the
intensive care unit and for procedural sedation. We also plan to utilize
our core expertise in EEG signal processing and sensor technology to
continuously improve the performance of the BIS index in the presence of
noise and motion artifacts. We are developing a BIS Sensor that will
contain an electronic memory device and a smaller BIS Sensor that can be
used with children between the ages of two and eight years. We believe
that these improvements and extensions of the BIS technology will
strengthen our competitive position while providing our customers with
improved products.
- Target New Market Opportunities Through Technology Development. We
intend to continue to focus on new applications for our core technology,
including other neuromonitoring applications, such as the diagnosis of
Alzheimer's disease, and other uses, such as analysis of
electrocardiograms. Continued innovation and commercialization of new
proprietary products are essential elements in our long-term growth
strategy. We intend to protect our technology leadership position and
maintain our competitive advantage through product innovation,
acquisitions of new technologies, by defending our current patents and
other proprietary rights, and by seeking to obtain additional patents and
other proprietary rights.
We are a Delaware corporation. Our principal executive offices are located
at Two Vision Drive, Natick, Massachusetts 01760 and our telephone number is
(508) 653-0603. Our World Wide Web site address is www.aspectms.com. The
information in the Web site is not incorporated by reference into this
prospectus.
BIS, Bispectral Index, A-1050, A-2000 and Zipprep are our trademarks.
Aspect is a registered trademark licensed to us on a non-exclusive basis. This
prospectus also contains trademarks and trade names of other companies.
7
<PAGE> 9
THE OFFERING
<TABLE>
<S> <C>
Common stock offered................................. shares
Common stock to be outstanding after this offering... shares
Over-allotment option................................ shares
Use of proceeds...................................... For general corporate purposes, including
working capital and capital expenditures. For
more detailed information, see "Use of
Proceeds" on page 19.
Dividend policy...................................... We do not intend to pay cash dividends on our
common stock. We plan to retain any earnings
for use in the operation and expansion of our
business.
Proposed Nasdaq National Market symbol............... ASPM
</TABLE>
------------------------
Unless otherwise specifically stated, the information throughout this
prospectus does not take into account the possible issuance of additional shares
of common stock to the underwriters pursuant to their rights to purchase
additional shares to cover over-allotments. The information in this prospectus
reflects the conversion of all outstanding shares of our convertible preferred
stock into 11,067,238 shares of common stock.
The number of shares of our common stock that will be outstanding
immediately after the offering excludes 2,172,300 shares issuable upon the
exercise of stock options with a weighted average exercise price of $3.08 per
share and warrants to purchase 192,902 shares of common stock with an exercise
price of $12.50 per share.
8
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL DATA
The following is a summary of financial data included elsewhere in the
prospectus. The information provided for the six months ended July 4, 1998 and
July 3, 1999 and as of July 3, 1999 actual and pro forma as adjusted is
unaudited, but in the opinion of management contains all adjustments, consisting
only of normal, recurring adjustments, which are necessary for a fair statement
of the results of such periods. You should read the following data with the more
detailed information contained in "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and our consolidated financial statements appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, ------------------
------------------------------------------------- JULY 4, JULY 3,
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue......................... $ 852 $ 1,067 $ 1,389 $ 3,068 $ 11,238 $ 4,420 $11,712
Costs of revenue................ 525 704 1,096 3,602 5,880 2,662 4,236
Research and development........ 2,311 2,870 2,338 2,603 4,042 1,942 2,346
Sales and marketing............. 1,291 1,285 1,561 4,813 10,354 4,670 7,566
General and administrative...... 1,216 1,815 1,871 2,358 4,254 1,960 2,293
------- ------- ------- -------- -------- ------- -------
Loss from operations............ (4,491) (5,607) (5,477) (10,308) (13,292) (6,814) (4,729)
Interest income, net............ 231 61 81 422 459 297 644
Other expense................... -- -- -- -- (774) -- --
------- ------- ------- -------- -------- ------- -------
Net loss........................ $(4,260) $(5,546) $(5,396) $ (9,886) $(13,607) $(6,517) $(4,085)
======= ======= ======= ======== ======== ======= =======
Pro forma basic and diluted net
loss per share................ $ (1.31) $ (0.33)
======== =======
Shares used in computing pro
forma basic and diluted net
loss per share................ 10,352 12,530
</TABLE>
Shares used in computing pro forma basic and diluted net loss per share
above exclude unvested shares of common stock subject to repurchase rights,
which totaled 386,642 and 237,831 at December 31, 1998 and at July 3, 1999,
respectively, but include 11,067,238 shares of common stock issuable upon
conversion of our outstanding convertible preferred stock upon the closing of
this offering.
The pro forma as adjusted column in the consolidated balance sheet data
below gives effect to the conversion of our outstanding convertible preferred
stock into common stock upon the closing of this offering and the sale of
shares of common stock in this offering at an assumed initial public
offering price of $ per share, after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
JULY 3, 1999
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $ 16,111 $
Working capital............................................. 11,217
Total assets................................................ 27,083
Long-term debt.............................................. 1,081
Total stockholders' equity.................................. 15,750
</TABLE>
9
<PAGE> 11
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing our
company. Additional risks not presently known to us or that we currently deem
immaterial may also impair our business operations.
Our business, financial condition or operating results could be materially
adversely affected by any of these risks. The trading price of our common stock
could decline due to any of these risks, and you may lose all or part of your
investment.
RISKS RELATED TO OUR BUSINESS
HOSPITALS AND ANESTHESIA PROVIDERS MAY NOT BUY AND USE THE BIS SYSTEM IN
SUFFICIENT NUMBERS, WHICH WOULD PREVENT PROFITABILITY.
Hospitals and anesthesia providers may not accept the BIS system as
accurate, reliable and cost-effective. Factors that might prevent widespread
customer acceptance include:
- customers determining that costs of the BIS system exceed cost savings in
drugs, personnel and post-anesthesia care recovery resulting from use of
the BIS system,
- customers having inadequate financial resources to purchase our products,
- patients regaining consciousness during surgery while being monitored
with the BIS system and any resulting adverse publicity,
- our failing to provide the required training and education to our
customers, particularly small hospitals and other anesthesia sites,
because we lack sufficient resources, and
- hospitals and anesthesia providers believing the BIS system is unreliable
if extensive or frequent malfunctions were to occur.
WE DEPEND ON OUR BIS SYSTEM FOR SUBSTANTIALLY ALL OF OUR REVENUE, AND IT HAS
NOT GAINED WIDESPREAD MARKET ACCEPTANCE.
We began selling our current BIS system in early 1998. To date, we have not
achieved widespread market acceptance of the BIS system. Our failure to gain
widespread acceptance and use of BIS systems could prevent profitability because
we currently depend on our BIS system for substantially all of our revenue and
we have no other significant products.
WE HAVE NEVER BEEN PROFITABLE AND WE EXPECT TO INCUR CONTINUED LOSSES.
We have never been profitable. We incurred net losses of $5.4 million, $9.9
million, $13.6 million and $4.1 million during 1996, 1997, 1998 and the six
months ended July 3, 1999. As of July 3, 1999, we had an accumulated deficit of
$52.4 million. We expect to increase significantly our research and development,
sales and marketing and general and administrative expenses in future periods.
We will spend these amounts before we receive any incremental revenue from these
efforts. Therefore, our losses will be greater than the losses we would incur if
we developed our business more slowly. In addition, we may find that these
efforts are more expensive than we currently anticipate, which would further
increase our losses.
CASES OF SURGICAL AWARENESS DURING MONITORING WITH THE BIS SYSTEM COULD LIMIT
MARKET ACCEPTANCE OF BIS SYSTEMS AND COULD EXPOSE US TO PRODUCT LIABILITY
CLAIMS.
Clinicians have reported to us a total of 24 cases of possible surgical
awareness during surgical procedures monitored with the BIS system. Not all
cases of surgical awareness during surgical procedures monitored with the BIS
system may be reported to us, and we have not systematically solicited reports
of surgical awareness. Anesthesia providers and hospitals may elect not to
purchase and use BIS systems if there is adverse publicity resulting from the
report of cases of surgical awareness that were not detected during procedures
monitored with the BIS system. Although we do not claim that patient monitoring
with
10
<PAGE> 12
the BIS system will reduce the incidence of surgical awareness, we may be
subject to product liability claims for cases of surgical awareness during
surgical procedures monitored with the BIS system. These claims could require us
to spend significant time and money in litigation or to pay significant damages.
IF WE FAIL TO RESPOND TO RAPID TECHNOLOGICAL CHANGE, OUR PRODUCTS AND
TECHNOLOGIES MAY BECOME OBSOLETE.
The medical industry in which we market our products is characterized by
rapid product development and technological advances. If our products become
obsolete, our business and operating results will suffer. Our current or planned
products are at risk of obsolescence from:
- new monitoring products, based on new or improved technologies,
- new products or technologies used on patients or in the operating room
during surgery in lieu of monitoring devices,
- electrical or mechanical interference from new or existing products or
technologies,
- alternative techniques for evaluating the effects of anesthesia,
- significant changes in the methods of delivering anesthesia, and
- the development of new anesthetic agents.
OUR BUSINESS MAY SUFFER IF WE DO NOT SUCCESSFULLY DEVELOP AND INTRODUCE
ENHANCED OR NEW PRODUCTS.
As the market for our BIS system matures, we need to develop and introduce
new products for anesthesia monitoring or other applications. We face at least
the following risks:
- we may not successfully adapt the BIS system to function properly in the
intensive care unit, for procedural sedation, when used with anesthetics
we have not tested or with patient populations we have not studied, such
as infants and young children, and
- our technology is complex, and we may not be able to develop it further
for applications outside anesthesia monitoring.
IF WE DO NOT DEVELOP AND IMPLEMENT A SUCCESSFUL SALES AND MARKETING STRATEGY,
WE WILL NOT BE ABLE TO COMMERCIALIZE OUR PRODUCTS.
Our current sales and marketing operation is not sufficient to achieve the
level of market awareness and sales we need to achieve profitability. We have
only limited sales and marketing experience both in the United States and
internationally and may not be successful in developing and implementing our
strategy. We need to:
- add domestic and international distributors, OEMs and other sales
channels,
- hire and train more sales persons and clinical specialists,
- modify our products for foreign markets,
- manage geographically dispersed operations,
- increase sales through OEM and distributor relationships,
- encourage our customers to purchase our products prior to availability of
OEM products that incorporate our technology,
- provide or assure that distributors and OEMs provide the technical and
educational support customers need to use the BIS system successfully,
and
- promote frequent use of the BIS system so that sales of our disposable
BIS Sensors increase.
11
<PAGE> 13
OUR THIRD-PARTY DISTRIBUTION AND OEM RELATIONSHIPS COULD NEGATIVELY AFFECT OUR
BUSINESS.
Sales through distributors could be less profitable than direct sales.
Sales of our products through multiple channels could also confuse customers and
cause the sale of our products to decline. We do not control our OEM and
distribution partners. Our partners could sell competing products and may devote
insufficient sales efforts to our products.
Our partners are generally not required to purchase minimum quantities. As
a result, even if we are dissatisfied with the performance of our partners, we
may be unable to terminate our agreements with these partners or enter into
alternative arrangements.
OUR INTERNATIONAL OPERATIONS HAVE UNIQUE RISKS.
Outside the United States, we conduct business primarily in Europe and we
are attempting to increase the number of countries in which we do business. We
are increasingly subject to a number of risks associated with international
business activities. These risks generally include:
- higher costs related to complying with the laws and regulations of
different countries,
- failure of local laws to provide the same degree of protection against
infringement of our intellectual property,
- protectionist laws and business practices that favor local competitors,
- dependence on local distributors,
- multiple, conflicting and changing governmental laws and regulations,
- less acceptance of disposable products,
- longer sales cycles,
- difficulties and costs of staffing and managing our foreign operations,
and
- longer accounts receivable payment cycles and difficulties in collecting
accounts receivable.
OUR BUSINESS COULD SUFFER IF WE FAIL TO MANUFACTURE ENOUGH PRODUCTS TO MEET
OUR CUSTOMERS' DEMANDS.
We rely on third-party manufacturers to assemble and manufacture the
components of our BIS monitors and a portion of our BIS Sensors. We manufacture
substantially all BIS Sensors in our own manufacturing facility. Our business
could be interrupted by any termination or modification of any manufacturing
arrangement with a third party. We have only one manufacturing facility. Any
failure to produce enough products at our own manufacturing facility or at a
third-party manufacturing facility could have a material adverse effect on our
business. We expect to move our manufacturing facility to a new location in
December 1999. We may not be successful in relocating our facility to meet
demand in a timely manner or within budget.
OUR RELIANCE ON SOLE SUPPLIERS COULD ADVERSELY AFFECT OUR BUSINESS.
Certain components that are necessary for the assembly of our BIS system,
including certain components used in the BIS Sensor, are currently provided to
us by separate sole suppliers or a limited group of suppliers. We purchase
components through purchase orders rather than long-term supply agreements and
generally do not maintain large volumes of inventory. We have experienced
shortages and delays in obtaining certain components of our BIS systems in the
past, and we may experience similar delays or shortages in the future. The
disruption or termination of the supply of components could cause a significant
increase in the costs of these components or an inability to meet demand for our
products. Furthermore, if we are required to change the manufacturer of a key
component of the BIS system, we may be required to verify that the new
manufacturer maintains facilities and procedures that comply with quality
standards and with all applicable regulations and guidelines. The delays
associated with verification could delay our ability to manufacture BIS systems
in a timely manner or within budget.
12
<PAGE> 14
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY
RIGHTS.
We believe that the success of our business depends, in part, on:
- obtaining patent protection for our products,
- defending our patents once obtained,
- preserving our trade secrets, and
- operating without infringing upon patents and proprietary rights held by
third parties.
We rely on a combination of contractual provisions, confidentiality
procedures and patent, trademark and trade secret laws to protect the
proprietary aspects of our technology. These legal measures afford only limited
protection and competitors may gain access to our intellectual property and
proprietary information. Litigation may be necessary to enforce our intellectual
property rights, to protect our trade secrets and to determine the validity and
scope of our proprietary rights. Any litigation could result in substantial
expense and diversion of resources with no assurance of success and could
seriously harm our business and operating results.
In addition, we are a party to a license agreement with a third party under
which we have obtained the nonexclusive right to make, use or sell products
under the name "Aspect." The licensor of the Aspect name markets products for
use in the health care industry. There may be confusion in the market between
the licensor and us and this confusion would compromise the competitive
advantage, if any, we derive from our name.
WE COULD INCUR SUBSTANTIAL COSTS DEFENDING AGAINST CLAIMS OF INFRINGEMENT.
Other companies, including our competitors, may obtain patents or other
proprietary rights that would prevent, limit or interfere with our ability to
make, use or sell our products. In the event of a successful claim of
infringement against us and our failure or inability to license the infringed
technology, our business and operating results would be adversely affected.
There has been substantial litigation regarding patent and other intellectual
property rights in the medical device industry. The validity and breadth of
claims covered in medical technology patents involve complex legal and factual
questions for which important legal principles are unresolved. We have been
involved in patent litigation in the past. Any litigation or claims against us,
whether or not valid, could result in substantial costs and diversion of
resources with no assurance of success. Intellectual property litigation or
claims could force us to do one or more of the following:
- cease selling, incorporating or using any of our products that
incorporate the challenged intellectual property,
- obtain a license from the holder of the infringed intellectual property
right, which license may not be available on reasonable terms, if at all,
and
- redesign our products.
DISAPPOINTING QUARTERLY OPERATING RESULTS COULD CAUSE OUR STOCK PRICE TO
DECREASE.
Our operating results have varied significantly from quarter to quarter in
the past. We expect to continue to experience significant fluctuations in
quarterly operating results in the future, making it difficult to predict future
performance. Because of this difficulty in predicting future performance, our
operating results will likely fall below the expectations of securities analysts
or investors in some future quarter or quarters. Our failure to meet these
expectations would likely cause the market price of our common stock to
decrease. Our quarterly operating results will depend upon several factors, many
of which are beyond our control, including:
- commercial acceptance of our products, both in the United States and
internationally,
- timing and volume of customer orders,
13
<PAGE> 15
- cancellation of orders,
- cost of product upgrades,
- continued use by customers of BIS monitors, BIS modules and BIS Sensors,
- the introduction of new products by us or competitors,
- the mix between pilot production of new products and full scale
manufacturing of existing products,
- reductions in sales volume by our distribution partners,
- the timing and amount of our expenses,
- the timing and results of clinical trials, and
- the timing of regulatory approvals.
We do not have a significant backlog of customer orders, so revenue in any
quarter depends on orders received in that quarter. Our expenses are relatively
fixed and difficult to adjust in response to fluctuating revenue. In addition,
depending on the timing of new product introductions, competitive factors,
warranty claims and product returns, we may need to reserve amounts in excess of
those currently reserved for product obsolescence, excess inventory, warranty
claims and product returns. Such reserves may not be adequate to cover all costs
associated with such items. Our quarterly results may also be adversely affected
because some customers may have inadequate financial resources to purchase our
products or may fail to pay for our products after receiving them. In
particular, hospitals are increasingly experiencing financial constraints,
consolidations and reorganizations as a result of cost containment measures and
declining third-party reimbursement for services.
COMPETITION COULD RESULT IN PRICE REDUCTIONS AND DECREASED DEMAND FOR OUR
PRODUCTS.
We expect to face substantial competition and competitors may have greater
financial, technical, marketing and other resources than we do. Competition
could result in price reductions, fewer orders, reduced gross margins and loss
of market share. We may face substantial competition from companies developing
sensor products that compete with our proprietary BIS Sensors for use with our
BIS monitors or with third-party monitoring systems or anesthesia delivery
systems that incorporate the BIS index. We also expect to face competition from
companies currently marketing conventional electroencephalogram, or EEG,
monitors using standard and novel signal-processing techniques. Other companies
may develop anesthesia-monitoring systems that perform better than the BIS
system and/or sell for less. In addition, one or more of our competitors may
develop products that are substantially equivalent to our FDA-approved products,
in which case they may be able to use our products as predicate devices to more
quickly obtain FDA approval of their competing products.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO OBTAIN DOMESTIC AND FOREIGN
REGULATORY APPROVAL OF OUR PRODUCTS AND MANUFACTURING OPERATIONS.
Before we can market new products in the United States we must obtain
clearance from the United States Food and Drug Administration, or FDA. If the
FDA concludes that any of our products do not meet the requirements to obtain
clearance of a premarket notification under Section 510(k) of the Food, Drug and
Cosmetic Act, then we would be required to file a premarket approval
application. The approval process for a premarket approval application is
lengthy, expensive and typically requires extensive preclinical and clinical
trial data. We may not obtain clearance of a 510(k) notification or approval of
a premarket approval application with respect to any of our products on a timely
basis, if at all. If we fail to obtain timely clearance or approval for our
products, our business will be materially adversely affected. We may also be
required to obtain clearance of a 510(k) notification from the FDA before we can
market certain previously marketed products which we modify after they have been
cleared. We have made certain enhancements to our currently marketed products
which we have determined do not necessitate the filing of a new 510(k)
notification. However, if the FDA does not agree with our determination, it will
14
<PAGE> 16
require us to file a new 510(k) notification for the modification and we may be
prohibited from marketing the modified device until we obtain FDA clearance.
The FDA also requires us to adhere to current Good Manufacturing Practices
regulations, which include production design controls, testing, quality control,
storage and documentation procedures. The FDA may at any time inspect our
facilities to determine whether adequate compliance has been achieved.
Compliance with current Good Manufacturing Practices regulations for medical
devices is difficult and costly. In addition, we may not continue to be
compliant as a result of future changes in, or interpretations of, regulations
by the FDA or other regulatory agencies. If we do not achieve continued
compliance, the FDA may withdraw marketing clearance or require product recall.
When any change or modification is made to a device or its intended use, the
manufacturer may be required to reassess compliance with current Good
Manufacturing Practices regulations, which may cause interruptions or delays in
the marketing and sale of our products.
Sales of our products outside the United States are subject to foreign
regulatory requirements that vary from country to country. The time required to
obtain approvals from foreign countries may be longer or shorter than that
required for FDA approval, and requirements for foreign licensing may differ
from FDA requirements.
The Federal, state and foreign laws and regulations regarding the
manufacture and sale of our products are subject to future changes, as are
administrative interpretations of regulatory agencies. If we fail to comply with
applicable federal, state or foreign laws or regulations, we could be subject to
enforcement actions, including product seizures, recalls, withdrawal of
clearances or approvals and civil and criminal penalties.
WE MUST ATTRACT AND RETAIN KEY PERSONNEL IN ORDER TO BE SUCCESSFUL.
Our success is substantially dependent on the ability, experience and
performance of our senior management and other key personnel. If we lose one or
more of the members of our senior management or other key employees, our
business and operating results could be seriously harmed. In addition, our
future success will depend largely on our ability to continue to hire, train,
retain and motivate additional skilled personnel, particularly sales
representatives and clinical specialists who are responsible for customer
education and training and post-installation customer support. We continue to
experience difficulty in recruiting and retaining skilled personnel because the
pool of experienced persons is small and we compete for personnel with other
companies, many of which have greater resources than we do. Consequently, we may
not obtain the skilled personnel that we need to expand our business.
WE COULD BE EXPOSED TO SIGNIFICANT LIABILITY CLAIMS WHICH COULD ADVERSELY
AFFECT OUR BUSINESS.
The manufacture and sale of our products expose us to product liability
claims and product recalls, including those which may arise from misuse,
malfunction or design flaws. Product liability claims or product recalls,
regardless of their ultimate outcome, could require us to spend significant time
and money in litigation or to pay significant damages. We currently maintain
insurance; however, it might not cover the costs of any product liability claims
made against us. Furthermore, we may not be able to obtain insurance in the
future at satisfactory rates or in adequate amounts.
THIRD-PARTY REIMBURSEMENT WILL AFFECT THE MARKET FOR OUR PRODUCTS.
We expect that anesthesia providers will not be reimbursed separately for
patient monitoring activities utilizing the BIS system. For hospitals and
outpatient surgical centers, when reimbursement is based on charges or costs,
patient monitoring with the BIS system may reduce reimbursements for surgical
procedures, because charges or costs may decline as a result of monitoring with
the BIS system. Failure by hospitals and other users of the BIS system to obtain
adequate 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.
15
<PAGE> 17
FAILURE TO IDENTIFY AND REMEDIATE YEAR 2000 ISSUES COULD CAUSE DISRUPTION IN
OUR BUSINESS.
Many existing computer systems and software products do not properly
recognize dates after December 31, 1999. This year 2000 problem could result in
miscalculations, data corruption, system failures or disruptions of operations.
Our products, our internal systems, our customers' systems, our distributors'
systems and our suppliers' systems may experience year 2000 problems, any of
which could have a material adverse effect on our business, operating results
and financial condition. Under the reasonably likely worst case scenario our
suppliers, including our sole and limited source suppliers, may not be able to
supply us with critical components needed to make our products. Year 2000 errors
or defects in the internal systems of our suppliers could require us to incur
significant unanticipated expenses to remedy any problems or replace affected
vendors and could cause cancellations or delays in product shipments.
Year 2000 errors or defects in our products could give rise to warranty and
other claims by our customers. In addition, year 2000 errors or defects could be
discovered in our internal software systems and, if errors or defects are
present, the costs of making such systems year 2000 compliant could be material.
We have determined that some older versions of our products are not year 2000
compliant. Some of our other products or internal systems may contain undetected
errors or defects. If we are unable to make our products and internal systems
year 2000 compliant in a timely manner, our business, operating results and
financial condition could be seriously harmed.
Changing purchasing patterns of customers impacted by year 2000 issues may
result in reduced purchases of our products. In addition, any year 2000 errors
or defects in our distributors' systems or the products of our OEM partners
could cause a reduction in their orders from us.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE WILL FLUCTUATE AFTER THIS OFFERING AND YOUR INVESTMENT IN OUR
STOCK COULD SUFFER A DECLINE IN VALUE.
Prior to this offering, there has been no public market for our common
stock. After this offering, an active trading market in our stock might not
develop or continue. If you purchase shares of our common stock in the offering,
you will pay a price that was not established in a competitive market. Rather,
you will pay a price that we negotiated with the representatives of the
underwriters based upon several factors. See "Underwriters" on page 66. The
market price of our common stock may fluctuate significantly in response to a
number of factors, some of which are beyond our control. These factors include:
- quarterly variations in operating results,
- changes in financial estimates by securities analysts,
- announcements by us or our competitors of new products, significant
contracts, acquisitions or strategic relationships,
- publicity about our company, our products and services, our competitors
or the medical device industry in general,
- changes in or proposals to change governmental regulations affecting the
health care industry, including regulations affecting the funding of
health care-related products or services,
- additions or departures of key personnel,
- any future sales of our common stock or other securities, and
- stock market price and volume fluctuations of publicly-traded companies
in general and technology and medical device companies in particular.
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
and medical device companies have been extremely volatile, and have experienced
fluctuations that often have been unrelated or disproportionate to the
16
<PAGE> 18
operating performance of these companies. These broad market fluctuations could
adversely affect the market price of our common stock.
WE MAY INCUR SIGNIFICANT COSTS FROM CLASS ACTION LITIGATION DUE TO OUR
EXPECTED STOCK VOLATILITY.
Recently, when the market price of a stock has been volatile, holders of
that stock have occasionally instituted securities class action litigation
against the company that issued the stock. If any of our stockholders were to
bring such a lawsuit against us, even if the lawsuit is without merit, we could
incur substantial costs defending the lawsuit. The lawsuit could also divert the
time and attention of our management.
WE MAY NEED ADDITIONAL FINANCING WHICH COULD BE DIFFICULT TO OBTAIN.
We expect that the net proceeds from this offering and our existing capital
resources will be sufficient to fund our operations at least through 2000.
However, our future capital requirements will depend upon numerous factors,
including:
- the availability of capital resources required to fund future operating
losses, further develop our marketing and sales organization domestically
and internationally, expand manufacturing capacity, finance our
sales-type lease program, and meet market demand for our products,
- the progress of our research and development programs, including clinical
trials,
- the receipt of and the time required to obtain regulatory clearances and
approvals,
- the resources we devote to developing, manufacturing and marketing our
products, and
- the resources, if any, we may devote to the expansion of our business,
including through the possible acquisition of businesses, technologies or
other intellectual property rights.
We may require additional funds, and we cannot be certain that additional
funding will be available when needed or on terms acceptable to us. Further, if
we issue additional equity securities, stockholders may experience additional
dilution, or the new equity securities may have rights, preferences or
privileges senior to those of existing holders of common stock. If we cannot
raise funds on acceptable terms, if and when needed, we may not be able to
develop or enhance our products, take advantage of future opportunities, grow
our business or respond to competitive pressures or unanticipated requirements,
which could seriously harm our business.
OUR STOCK PRICE COULD BE ADVERSELY AFFECTED BY SHARES BECOMING AVAILABLE FOR
SALE.
Sales of a substantial number of shares of our common stock in the public
market after this offering could depress the market price of our common stock
and could impair our ability to raise capital through the sale of additional
equity securities. For a more detailed description, see "Shares Eligible for
Future Sale" on page 64.
INSIDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER ASPECT AFTER THIS
OFFERING AND COULD DELAY OR PREVENT A CHANGE IN CORPORATE CONTROL.
After this offering, our directors, executive officers and principal
stockholders, together with their affiliates, will beneficially own, in the
aggregate, approximately % of our outstanding common stock. As a result,
these stockholders, if acting together, would have the ability to exercise
control over all corporate actions requiring stockholder approval irrespective
of how our other stockholders may vote, including:
- the election of directors,
- the amendment of charter documents,
- the approval of certain mergers and other significant corporate
transactions, such as a sale of substantially all of our assets, or
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<PAGE> 19
- the defeat of any non-negotiated takeover attempt that might otherwise
benefit the public stockholders.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW COULD
PREVENT OR DELAY A CHANGE IN CONTROL.
Provisions in our restated certificate of incorporation and our amended and
restated by-laws, provisions of Delaware law and the automatic acceleration of
the vesting of options to purchase shares of our common stock and restricted
stock upon a change of control, may have the effect of delaying or preventing a
change of control or changes in our management that a stockholder might consider
favorable.
PURCHASERS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.
We expect that the initial public offering price per share will
significantly exceed the net tangible book value per share of the outstanding
common stock. Accordingly, purchasers of common stock in this offering will
suffer immediate and substantial dilution of their investment. In the past, we
have issued options to acquire common stock at prices below the initial public
offering price. To the extent these outstanding options are ultimately
exercised, there will be further dilution to investors in this offering.
WE HAVE BROAD DISCRETION TO USE THE PROCEEDS FROM THIS OFFERING AND THE
FAILURE OF MANAGEMENT TO APPLY SUCH FUNDS EFFECTIVELY COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
We plan to use the proceeds from this offering for general corporate
purposes. Therefore, we will have broad discretion as to how we will spend the
proceeds, and stockholders may not agree with the ways in which we use the
proceeds. We may not be successful in investing the proceeds from this offering
in our operations or external investments to yield a favorable return.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. In some cases you can identify these
statements by forward-looking words such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "should," "will" and "would" or similar
words. You should read statements that contain these words carefully because
they discuss our future expectations, contain projections of our future results
of operations or of our financial position or state other forward-looking
information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or control. The factors listed above in
the section captioned "Risk Factors," as well as any cautionary language in this
prospectus, provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock, you should be
aware that the occurrence of the events described in these risk factors and
elsewhere in this prospectus could have a material adverse effect on our
business, results of operations and financial position.
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<PAGE> 20
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the
shares of common stock will be approximately $ , assuming an initial
public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us. If the over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $ .
The principal purposes of this offering are to establish a public market
for our common stock, to increase our visibility in the marketplace, to
facilitate future access to public capital markets, to provide liquidity to
existing stockholders and to obtain additional working capital.
We currently intend to use a portion of the net proceeds from this offering
for general corporate purposes, including working capital, product development,
increasing our sales and marketing capabilities and expanding our international
operations. We may also use a portion of the net proceeds to acquire or invest
in complementary businesses or products or to obtain the right to use
complementary technologies. We have no specific understandings, commitments or
agreements with respect to any such acquisition or investment. Pending these
uses, we plan to invest the net proceeds of this offering in short-term,
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never paid or declared any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the foreseeable
future. We currently intend to retain all future earnings, if any, for use in
the operation and expansion of our business. Payment of future cash dividends,
if any, will be at the discretion of our board of directors after taking into
account various factors, including our financial condition, operating results,
current and anticipated cash needs and plans for expansion. We have a working
capital line of credit with a bank which prohibits the declaration or payment of
cash dividends without the consent of the lender.
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<PAGE> 21
CAPITALIZATION
The following table sets forth our capitalization as of July 3, 1999. The
as adjusted information gives effect to the conversion of all of our outstanding
convertible preferred stock into common stock upon the closing of this offering
and assumes the filing of our restated certificate of incorporation after the
closing of this offering authorizing shares of preferred stock
and shares of common stock. The as adjusted information also
gives effect to the issuance and sale of the shares of common
stock in this offering at an assumed initial public offering price of $ per
share, after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
<TABLE>
<CAPTION>
JULY 3, 1999
-----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt.............................................. $ 1,081 $
Stockholders' equity:
Preferred stock, $.01 par value; no shares authorized,
issued or outstanding (actual); shares
authorized, no shares issued or outstanding (as
adjusted).............................................. --
Convertible preferred stock, $.01 par value; 22,363,224
shares authorized (actual); 11,067,238 issued and
outstanding (actual); (liquidation
preference -- $58,962,591 (actual)); no shares
authorized, issued or outstanding (as adjusted);
(liquidation preference -- $0 (as adjusted))........... 67,560
Common stock, $.01 par value; 17,030,000 shares authorized
(actual); 1,789,905 shares issued and outstanding
(actual); shares authorized (as adjusted);
shares issued and outstanding (as
adjusted).............................................. 18
Additional paid-in capital................................ 1,056
Warrants.................................................. 146
Notes receivable from employees and directors............. (305)
Deferred compensation..................................... (290)
Accumulated other comprehensive income.................... (1)
Accumulated deficit....................................... (52,434)
--------
Total stockholders' equity........................ 15,750
--------
Total capitalization......................... $ 16,831 $
======== ========
</TABLE>
The outstanding share information excludes 2,170,666 shares of common stock
issuable upon exercise of outstanding options as of July 3, 1999 with a weighted
average exercise price of $3.03 and warrants to purchase 192,902 shares of
common stock with an exercise price of $12.50 per share.
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<PAGE> 22
DILUTION
Our pro forma net tangible book value as of July 3, 1999, after giving
effect to the conversion of all outstanding shares of convertible preferred
stock into common stock upon the closing of this offering, was approximately
$ million, or $ per share of common stock. Pro forma net tangible book
value per share represents our total assets less total liabilities and
intangibles, divided by the shares of common stock outstanding after giving
effect to the conversion of all outstanding shares of convertible preferred
stock into common stock. Net tangible book value dilution per share to new
investors is the difference between the amount per share paid by purchasers of
common stock in this offering and the pro forma net tangible book value per
share immediately following the offering. After giving effect to the issuance
and sale of the shares of common stock in this offering, at an assumed
offering price of $ per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us, our pro
forma net tangible book value as of July 3, 1999 would have been
$ million, or $ per share. This represents an immediate increase in
pro forma net tangible book value to existing stockholders of $ per share.
The initial public offering price per share will significantly exceed the net
tangible book value per share. Accordingly, new investors who purchase common
stock in this offering will suffer an immediate dilution of their investment of
$ per share. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of July 3,
1999................................................... $
Increase in pro forma net tangible book value 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, giving effect to the
conversion of all outstanding shares of convertible preferred stock into common
stock upon the closing of this offering, as of July 3, 1999, the difference
between the number of shares of common stock purchased from Aspect, the total
consideration paid to Aspect and the average price per share paid by existing
stockholders and by new investors. In accordance with the following table, new
investors will contribute % of the total consideration for, and own %
of the outstanding shares of, the common stock of Aspect. The calculation below
is based on an assumed initial public offering price of $ per share, before
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 12,857,143 % $ % $
New investors.......................... $
---------- ----- -------- ------
Total........................ 100.0% $ 100.0%
========== ========
</TABLE>
The table above assumes no exercise of stock options or warrants
outstanding at July 3, 1999. As of July 3, 1999, there were outstanding options
to purchase 2,170,666 shares of common stock with a weighted average exercise
price of $3.03 per share and warrants to purchase 192,902 shares of common stock
with an exercise price of $12.50 per share. To the extent all of such
outstanding options and warrants had been exercised as of July 3, 1999, pro
forma net tangible book value per share after this offering would be
$ and total dilution per share to new investors would be $ .
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will increase to shares, or % of the
total number of shares of common stock outstanding after this offering.
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<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and related
notes and other financial information included elsewhere in this prospectus. The
consolidated statements of operations data for the years ended December 31,
1996, 1997 and 1998 and the consolidated balance sheet data as of December 31,
1997 and 1998 are derived from our audited consolidated financial statements
included in this prospectus. The consolidated statements of operations data for
the years ended December 31, 1994 and 1995 and the consolidated balance sheet
data as of December 31, 1994, 1995 and 1996 are derived from our audited
consolidated financial statements not included in this prospectus. The
consolidated financial data as of July 3, 1999 and for the six-months ended July
4, 1998 and July 3, 1999 are derived from our unaudited consolidated financial
statements included in this prospectus and include all adjustments, which are
only normal, recurring adjustments, necessary for a fair statement of the
financial position and results of operations for the unaudited periods. The
historical results presented here are not necessarily indicative of future
results.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, -----------------
---------------------------------------------------- JULY 4, JULY 3,
1994 1995 1996 1997 1998 1998 1999
--------- -------- ------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue.......................... $ 852 $ 1,067 $ 1,389 $ 3,068 $ 11,238 $ 4,420 $11,712
Costs and expenses:
Costs of revenue............... 525 704 1,096 3,602 5,880 2,662 4,236
Research and development....... 2,311 2,870 2,338 2,603 4,042 1,942 2,346
Sales and marketing............ 1,291 1,285 1,561 4,813 10,354 4,670 7,566
General and administrative..... 1,216 1,815 1,871 2,358 4,254 1,960 2,293
--------- -------- ------- -------- -------- ------- -------
Total costs and expenses..... 5,343 6,674 6,866 13,376 24,530 11,234 16,441
Loss from operations............. (4,491) (5,607) (5,477) (10,308) (13,292) (6,814) (4,729)
Interest income, net............. 231 61 81 422 459 297 644
Other expense.................... -- -- -- -- (774) -- --
--------- -------- ------- -------- -------- ------- -------
Net loss......................... $ (4,260) $ (5,546) $(5,396) $ (9,886) $(13,607) $(6,517) $(4,085)
========= ======== ======= ======== ======== ======= =======
Net loss per share:
Basic and diluted.............. $ (822.34) $(281.65) $(57.76) $ (15.63) $ (11.70) $ (6.34) $ (2.79)
========= ======== ======= ======== ======== ======= =======
Pro forma basic and diluted.... $ (1.31) $ (0.33)
======== =======
Shares used in computing net loss
per share:
Basic and diluted.............. 5 20 93 632 1,163 1,028 1,463
Pro forma basic and diluted.... 10,352 12,530
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- JULY 3,
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities................................... $4,258 $3,329 $2,231 $4,981 $21,273 $16,111
Working capital................................ 4,273 3,054 1,029 3,052 17,286 11,217
Total assets................................... 5,719 4,552 3,973 7,603 28,589 27,083
Long-term debt................................. 423 333 270 118 1,441 1,081
Total stockholders' equity..................... 4,460 3,028 1,066 4,067 19,688 15,750
</TABLE>
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of financial
condition and results of operations together with our financial statements and
related notes appearing elsewhere in this prospectus.
OVERVIEW
We develop, manufacture and market an anesthesia monitoring system that we
call the BIS system. The BIS system enables anesthesia providers to assess and
manage a patient's level of consciousness during surgery. Our proprietary BIS
system includes our BIS monitor or BIS Module Kit and our disposable BIS
Sensors. The BIS system is based on our patented core technology, the Bispectral
Index, which we refer to as the BIS index. The BIS index is the only
FDA-cleared, commercially available, direct measure of the effects of
anesthetics on the brain. Our latest generation monitor, the A-2000 BIS Monitor,
was cleared for marketing by the FDA in February 1998. Our other monitor
products are the A-1000 Monitor, the A-1050 EEG Monitor with BIS and the BIS
Module Kit. After the introduction of the A-2000 BIS Monitor, we ceased active
marketing of the A-1050 Monitor domestically. In addition to the disposable BIS
Sensor, we offer the Zipprep EEG Electrode.
We follow 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 six months ended July 4, 1998 relate to the period from January 1, 1998 to
July 4, 1998, and all references to the six months ended July 3, 1999 relate to
the period from January 1, 1999 to July 3, 1999.
We offer 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 11%, 10% and 27% of
revenue in 1996, 1997 and 1998, respectively, and for approximately 30% and 21%
of revenue in the six months ended July 4, 1998 and the six months ended July 3,
1999, respectively.
We derive our revenue primarily from sales of monitors, including related
accessories and BIS Module Kits, and sales of disposable sensors. In 1996, 1997
and 1998, revenue from the sale of monitors represented approximately 87%, 80%
and 67%, respectively, of our revenue, and revenue from the sale of disposable
sensors represented approximately 13%, 20% and 33%, respectively, of our
revenue. In the six months ended July 4, 1998 and the six months ended July 3,
1999, revenue from the sale of monitors represented approximately 73% and 56%,
respectively, of our revenue, and revenue from the sale of disposable sensors
represented approximately 27% and 44%, respectively, of our revenue. We expect
that revenue from the sale of disposable sensors will continue to increase as a
percentage of revenue.
Revenue from domestic sales in 1996, 1997 and 1998 was approximately
$699,000, $1.9 million and $10.3 million, respectively, which represented
approximately 51%, 61% and 92%, respectively, of our revenue. Revenue from
international sales in 1996, 1997 and 1998 was approximately $689,000, $1.2
million and $942,000, respectively, which represented approximately 49%, 39% and
8%, respectively, of our revenue. In the six months ended July 4, 1998 and the
six months ended July 3, 1999, revenue from domestic sales was approximately
$3.8 million and $10.6 million, respectively, which represented approximately
86% and 91%, respectively, of our revenue, and revenue from international sales
was approximately $626,000 and $1.1 million, respectively, which represented
approximately 14% and 9%, respectively, of our revenue.
23
<PAGE> 25
Effective July 1, 1998, our agreement with a third party to distribute our
monitors internationally, except in Japan, was terminated pursuant to the terms
of the agreement. Sales to this third party represented substantially all of our
revenue from international sales in 1996, 1997 and 1998. In the six months ended
July 3, 1999, sales to this third party represented approximately 3% of our
international revenue. In December 1998 and March 1999, we established
subsidiaries in The Netherlands and the United Kingdom, respectively, to
facilitate our entry into the international market. We are developing our
international sales and distribution program through a combination of
distributors and marketing partners, including companies with which we have
entered into OEM relationships. We expect to enhance our international
third-party distribution program through direct sales to select customers and to
support these customers with clinical specialists. In January 1998, we entered
into a three-year distribution agreement with a third party to distribute BIS
monitors in Japan. During 1998 and the six months ended July 3, 1999, sales to
this third party represented approximately 3% and 6% of international revenue,
respectively. As a result of our move into the international market, we
anticipate that international sales will increase in absolute dollars.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, information
expressed as a percentage of revenue. This information has been derived from our
consolidated statements of operations included elsewhere in this prospectus. You
should not draw any conclusions about our future results from the results of
operations for any period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
----------------------- ----------------------------
1996 1997 1998 JULY 4, 1998 JULY 3, 1999
---- ---- ---- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue...................................... 100% 100% 100% 100% 100%
Costs and expenses:
Costs of revenue........................... 79 117 52 60 36
Research and development................... 168 85 36 44 20
Sales and marketing........................ 112 157 92 106 65
General and administrative................. 135 77 38 44 19
---- ---- ---- ---- ---
Total costs and expenses................ 494 436 218 254 140
Loss from operations......................... (394) (336) (118) (154) (40)
Interest income, net......................... 5 14 4 6 5
Other expense................................ -- -- (7) -- --
---- ---- ---- ---- ---
Net loss..................................... (389)% (322)% (121)% (148)% (35)%
==== ==== ==== ==== ===
</TABLE>
SIX MONTHS ENDED JULY 3, 1999 COMPARED TO SIX MONTHS ENDED JULY 4, 1998
Revenue. Our revenue increased to approximately $11.7 million in the six
months ended July 3, 1999 from approximately $4.4 million in the six months
ended July 4, 1998, an increase of approximately 166%. Revenue from the sale of
monitors increased to approximately $6.6 million in the six months ended July 3,
1999 from approximately $3.2 million in the six months ended July 4, 1998, an
increase of approximately 106%. Revenue from the sale of disposable sensors
increased to approximately $5.1 million in the six months ended July 3, 1999
from approximately $1.2 million in the six months ended July 4, 1998, an
increase of approximately 325%. The growth in sales of monitors was primarily
attributable to the growth of our direct sales force, the contribution of the
international organization and sales of the BIS Module Kit, which was introduced
in the second half of 1998. The increase in sales of disposable sensors was
primarily attributable to growth in the installed base of monitors.
Our gross profit was approximately 64% of revenue in the six months ended
July 3, 1999 as compared to a gross profit of approximately 40% of revenue in
the six months ended July 4, 1998. The increase in the gross profit percentage
in the six months ended July 3, 1999 as compared to the six months ended July 4,
1998 was primarily attributable to an increase in sales of disposable sensors as
a percentage of
24
<PAGE> 26
revenue. Disposable sensors have a higher profit margin than monitors. The
increase in the gross profit percentage for this period also resulted from
higher average monitor selling prices and improved manufacturing efficiencies.
We expect that sales of higher margin disposable sensors will continue to
increase as a percentage of revenue.
Research and Development. Research and development expenses increased to
approximately $2.4 million in the six months ended July 3, 1999 from
approximately $1.9 million in the six months ended July 4, 1998, an increase of
approximately 26%. Research and development expenses decreased as a percentage
of revenue. The increase in absolute dollars was primarily attributable to
continued product development efforts related to the A-2000 BIS Monitor, BIS
Sensor and BIS Module Kit, development of products for use outside the operating
room in the intensive care unit and for procedural sedation, and an increase in
research and development personnel and related payroll and other expenses. We
expect research and development expenses to increase in absolute dollars as we
continue to invest in product improvements, product extensions and technology
development.
Sales and Marketing. Sales and marketing expenses increased to
approximately $7.6 million in the six months ended July 3, 1999 from
approximately $4.7 million in the six months ended July 4, 1998, an increase of
approximately 62%. Sales and marketing expenses decreased as a percentage of
revenue. The increase in absolute dollars in 1999 was primarily attributable to
an increase in sales and marketing personnel and related payroll and other
expenses and an increase in professional education programs, customer support
and clinical education initiatives, development of sales materials and
participation at trade shows. We expect sales and marketing expenses to increase
in absolute dollars as we continue to expand our international operations,
increase our direct sales force and clinical specialists in the United States
and engage in activities to further educate and promote the use of the BIS
system by our customers.
General and Administrative. General and administrative expenses increased
to approximately $2.3 million in the six months ended July 3, 1999 from
approximately $2.0 million in the six months ended July 4, 1998, an increase of
approximately 15%. General and administrative expenses decreased as a percentage
of revenue. The increase in absolute dollars was primarily attributable to an
increase in general and administrative personnel to support our growth and
related payroll and other expenses. We expect general and administrative
expenses to increase in absolute dollars as we increase the number of personnel
and related resources required to support our growth.
Interest Income, Net. Interest income, net, increased to approximately
$644,000 in the six months ended July 3, 1999 from approximately $297,000 in the
six months ended July 4, 1998, an increase of approximately 117%. Interest
income increased to approximately $740,000 in the six months ended July 3, 1999
from approximately $313,000 in the six months ended July 4, 1998, an increase of
approximately 136%. The increase in interest income was primarily attributable
to a higher average outstanding balance of cash and investments resulting from
the sale of our convertible preferred stock in February 1998 and December 1998
and an increase in our investment in sales-type leases. Interest expense
increased to approximately $96,000 in the six months ended July 3, 1999 from
approximately $16,000 in the six months ended July 4, 1998, an increase of
approximately 500%, as a result of higher average outstanding debt obligations
under an equipment loan in the second half of 1998. We expect interest income to
increase in absolute dollars because of higher cash and investments balances
resulting from our initial public offering.
Net Loss. Our net loss decreased to approximately $4.1 million in the six
months ended July 3, 1999 from approximately $6.5 million in the six months
ended July 4, 1998, a decrease of 37%, as a result of the factors discussed
above.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenue. Our revenue increased to approximately $11.2 million in 1998 from
approximately $3.1 million in 1997, an increase of approximately 261%. Revenue
from the sale of monitors increased to approximately $7.5 million in 1998 from
approximately $2.5 million in 1997, an increase of approximately 200%. Revenue
from the sale of disposable sensors increased to approximately $3.7 million in
1998 from
25
<PAGE> 27
approximately $606,000 in 1997, an increase of approximately 511%. The increase
in revenue from the sale of monitors was primarily attributable to the
commercial introduction of the A-2000 BIS Monitor and the BIS Module Kit in
1998, and the increase in the growth of the direct sales force in 1998. The
increase in revenue from the sale of disposable sensors was primarily
attributable to the growth in the installed base of monitors and increased use
of disposable sensors.
In 1998, gross profit was approximately 48% of revenue as compared to a
gross loss (revenue less costs of revenue) of approximately 17% of revenue in
1997. The increase in gross profit in 1998 as compared to the gross loss in 1997
was primarily attributable to the introduction of the A-2000 BIS Monitor in 1998
which has a lower per unit cost compared to the A-1050 Monitor, and an increase
in sales of disposable sensors as a percentage of revenue. Disposable sensors
have a higher profit margin than monitors. The increase in gross profit in 1998
also resulted from a higher provision for excess and obsolete inventory in 1997
due to the transition from the A-1050 Monitor to the A-2000 BIS Monitor and
improved manufacturing efficiencies in 1998.
Research and Development. Research and development expenses increased to
approximately $4.0 million in 1998 from approximately $2.6 million in 1997, an
increase of approximately 54%. Research and development expenses decreased as a
percentage of revenue. The increase in absolute dollars in 1998 was primarily
attributable to the continued product development efforts related to the A-2000
BIS Monitor and the BIS Module Kit, development of products for use outside of
the operating room, in the intensive care unit and for procedural sedation, an
increase in expenses related to clinical studies, and an increase in research
and development personnel and related payroll and other expenses.
Sales and Marketing. Sales and marketing expenses increased to
approximately $10.4 million in 1998 from approximately $4.8 million in 1997, an
increase of approximately 117%. Sales and marketing expenses decreased as a
percentage of revenue. The increase in absolute dollars in 1998 was primarily
attributable to an increase in sales and marketing personnel and related payroll
and other expenses and an increase in professional education and trade show
activities.
General and Administrative. General and administrative expenses increased
to approximately $4.3 million in 1998 from approximately $2.4 million in 1997,
an increase of approximately 79%. General and administrative expenses decreased
as a percentage of revenue. The increase in absolute dollars in 1998 was
primarily attributable to an increase in general and administrative personnel
and related payroll and other expenses to support our growth, an increase in
leased space and an increase in professional services.
Interest Income, Net. Interest income, net, increased to approximately
$459,000 in 1998 from approximately $422,000 in 1997, an increase of
approximately 9%. Interest income increased to approximately $553,000 in 1998
from approximately $500,000 in 1997, an increase of approximately 11%, due to an
increase in the average outstanding balance of cash and investments resulting
from the sale of our convertible preferred stock in February 1998 and December
1998. Interest expense increased to approximately $94,000 in 1998 from
approximately $78,000 in 1997, an increase of approximately 21%, as a result of
higher average outstanding debt obligations in 1998 related to borrowings under
an equipment loan in the second half of 1998.
Other Expense. Other expense in 1998 related to the costs incurred in our
proposed initial public offering, which was terminated in August 1998.
Net Loss. Our net loss increased to approximately $13.6 million in 1998
from approximately $9.9 million in 1997, an increase of approximately 37%, as a
result of the factors discussed above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenue. Our revenue increased to approximately $3.1 million in 1997 from
approximately $1.4 million in 1996, an increase of approximately 121%. Revenue
from the sale of monitors increased to approximately $2.5 million in 1997 from
approximately $1.2 million in 1996, an increase of approximately 108%. Revenue
from the sale of disposable sensors increased to approximately $606,000 in 1997
from approximately $181,000 in 1996, an increase of approximately 235%. The
increase in revenue in 1997 from
26
<PAGE> 28
the sale of monitors was primarily attributable to the commercial introduction
of the A-1050 Monitor in 1996 and the increase in the growth of our direct sales
force in 1997. The increase in revenue from the sale of disposable sensors 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 EEG Electrode
was our only disposable sensor.
In 1997, we had a gross loss of approximately 17% of revenue as compared to
a gross profit of approximately 21% of revenue in 1996. The gross loss 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
due to the transition from the A-1050 Monitor to the A-2000 BIS Monitor.
Research and Development. Research and development expenses increased to
approximately $2.6 million in 1997 from approximately $2.3 million in 1996, an
increase of approximately 13%. Research and development expenses decreased as a
percentage of revenue. The increase in absolute dollars in 1997 was primarily
attributable to the new product development efforts related to the A-2000 BIS
Monitor and the BIS Module Kit.
Sales and Marketing. Sales and marketing expenses increased to
approximately $4.8 million in 1997 from approximately $1.6 million in 1996, an
increase of approximately 200%. This increase was primarily attributable 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. General and administrative expenses increased
to approximately $2.4 million in 1997 from approximately $1.9 million in 1996,
an increase of approximately 26%. General and administrative expenses decreased
as a percentage of revenue. The increase in absolute dollars was primarily
attributable to an increase in general and administrative personnel to support
our growth.
Interest Income, Net. Interest income, net, increased to approximately
$422,000 in 1997 from $81,000 in 1996, an increase of approximately 421%.
Interest income increased to approximately $500,000 in 1997 from approximately
$144,000 in 1996, an increase of approximately 247%, due to an increase in the
average outstanding balance of cash and investments resulting from the sale of
our convertible preferred stock in February 1997. Interest expense increased to
approximately $78,000 in 1997 from approximately $63,000 in 1996, an increase of
approximately 24%, as a result of higher average outstanding capital lease
obligations in 1997.
Net Loss. Our net loss increased to approximately $9.9 million in 1997
from approximately $5.4 million in 1996, an increase of approximately 83%, as a
result of the factors discussed above.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited selected operating results for
each of the six fiscal quarters in the period ended July 3, 1999. We believe
that the following selected quarterly information includes all adjustments
(consisting only of normal, recurring adjustments) that we consider necessary to
present this information fairly. This financial information should be read in
conjunction with the financial statements and related notes appearing elsewhere
in this prospectus. You should not draw any conclusions about our future results
from the results of operations for any quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------
APRIL 4, JULY 4, OCTOBER 3, DECEMBER 31, APRIL 3, JULY 3,
1998 1998 1998 1998 1999 1999
-------- ------- ---------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenue.............................. $ 1,733 $ 2,687 $ 3,082 $ 3,736 $ 5,327 $ 6,385
Net loss............................. (2,817) (3,700) (3,942) (3,148) (2,119) (1,966)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily from the
sale of our convertible preferred stock. Through July 3, 1999, we raised
approximately $67.6 million from equity financings and
27
<PAGE> 29
have received approximately $3.4 million in equipment financing. We have a
working capital line of credit of which approximately $1.6 million was drawn
against at July 3, 1999. At July 3, 1999, we had approximately $1.3 million
committed to the purchase of equipment related to the expansion of our automated
BIS Sensor production line.
Working capital at July 3, 1999 was approximately $11.2 million compared to
approximately $17.3 million and approximately $3.1 million at December 31, 1998
and 1997, respectively. The decrease in working capital from December 31, 1998
to July 3, 1999 was primarily attributable to continued operating losses and an
increase in accounts payable and accrued liabilities, offset by increases in
accounts receivable, investment in sales-type leases, inventory and a decrease
in deferred revenue. The increase in working capital from 1997 to 1998 was
primarily attributable to the sale of our convertible preferred stock in
February 1998 and December 1998, and an increase in accounts receivable and
investment in sales-type leases, offset by a decrease in inventory and increases
in accrued liabilities, current portion of long-term debt and deferred revenue.
We used approximately $4.9 million of cash for operations in the six months
ended July 3, 1999. Cash used for operations during this period was primarily
driven by operating losses, increases in accounts receivable, investment in
sales-type leases and inventory, offset by increases in accounts payable and
accrued liabilities. We used approximately $25.7 million for operations during
the three years ended December 31, 1998. Cash used for operations during this
period was also primarily driven by operating losses, increases in accounts
receivable, investment in sales-type leases and other current assets, offset by
increases in accounts payable, accrued liabilities and deferred revenue.
We received approximately $1.2 million of cash from investing activities in
the six months ended July 3, 1999. We sold approximately $2.6 million, net, of
marketable securities and invested approximately $1.4 million in manufacturing
equipment and information systems. We used approximately $6.6 million for
investing activities during the three years ended December 31, 1998. We invested
approximately $3.2 million, net, in marketable securities and approximately $3.4
million in manufacturing equipment, leasehold improvements and new information
systems.
We received approximately $1.1 million of cash from financing activities in
the six months ended July 3, 1999 primarily as a result of borrowings under our
working capital line of credit at July 3, 1999. We received approximately $47.1
million of cash from financing activities during the three years ended December
31, 1998. Cash provided by financing activities during this period was primarily
the result of the sale of our convertible preferred stock in the three year
period ended December 31, 1998 and proceeds from our equipment loan.
In June 1998, we entered into a loan agreement with a commercial bank.
Under the terms of this loan agreement, we may borrow up to $5.0 million for
working capital and equipment. The amount available to us under the working
capital portion of the loan agreement is based upon a percentage of our
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 being repaid in 36 equal monthly installments which commenced in January
1999. The loan agreement contains certain restrictive covenants that require us
to maintain minimum liquidity or debt service coverage ratios. The agreement
also restricts us from declaring and paying cash dividends. At July 3, 1999,
approximately $1.8 million was outstanding under the equipment portion of the
loan agreement and approximately $1.6 million was outstanding under the working
capital portion of the loan agreement. No additional amounts are available to us
under the equipment portion of the loan agreement and at July 3, 1999 we had
borrowed the total amount available to us under the working capital portion of
the loan agreement.
In July 1999, we entered into an agreement which allows us to sell some of
our existing and future investments in sales-type leases to a third-party
finance company. Upon sale, we expect to receive an amount approximately equal
to our investment in sales-type leases sold.
28
<PAGE> 30
We anticipate that capital expenditures for the remainder of 1999 will be
approximately $2.5 million. These funds will primarily be used for the purchase
of manufacturing equipment and for the preparation of and move to our new
facility, which we anticipate occupying in late 1999.
We believe that the financial resources available to us, including our
current working capital, any future availability under the working capital
portion of our loan agreement, proceeds from selling our investments in
sales-type leases, together with the net proceeds of this offering, will be
sufficient to finance our planned operations and capital expenditures at least
through 2000. However, our future liquidity and capital requirements will depend
upon numerous factors, including the resources required to further develop our
marketing and sales organization domestically and internationally, to expand
manufacturing capacity, to finance our sales-type lease program and to meet
market demand for our products.
YEAR 2000 COMPLIANCE
The year 2000 problem stems from the fact that many currently installed
computer systems include software and hardware products that are unable to
distinguish dates after December 31, 1999. As a result, computer software and/or
hardware used by many companies and governmental agencies may need to be
upgraded to comply with year 2000 requirements or risk system failure or
miscalculations causing disruptions to normal business activities.
We have defined year 2000 compliant or year 2000 readiness as the ability
to:
- correctly handle date information needed for dates after December 31,
1999,
- function according to the product documentation provided for these date
changes, without changes in operation, assuming correct configuration,
- where appropriate, respond to two-digit date input in a way that resolves
the ambiguity as to century in a disclosed, defined and predetermined
manner,
- store and provide output of date information in ways that are unambiguous
as to century if the date elements in interfaces and data storage specify
the century, and
- recognize year 2000 as a leap year.
State of Readiness. We are assessing the year 2000 readiness of our
operating, financial and administrative systems, including the hardware and
software that support our systems. This review includes assessing, validating,
testing and, where necessary, remediating, upgrading and replacing noncompliant
systems, hardware or software, as well as evaluating the need for contingency
planning.
For our currently marketed products, we have completed our year 2000
compliance testing efforts and believe that our current products are year 2000
compliant in all material respects. We have tested the older versions of our
products for year 2000 compliance and have determined that some older versions
of our products are not year 2000 compliant. We have made available to our
customers a description of the year 2000 readiness of these older versions of
our products. We have made available to our customers who are using older
versions of our products which are not year 2000 compliant the option to upgrade
the software to current versions. The upgrades are easy and quick to perform and
require no special skills or tools.
For all other material internal information technology systems, our year
2000 task force is currently conducting an inventory of and developing testing
procedures for all software and related systems we believe may be affected by
year 2000 issues. Since third parties developed and currently support many of
the systems that we use, a significant part of this effort is to ensure that
these third-party systems are year 2000 compliant. To date, the internal
evaluation has determined that all our critical hardware and software are year
2000 compliant. We have identified a small number of desktop computers and
workstations with operating systems that are not year 2000 compliant. The
hardware and operating systems on this equipment are currently being upgraded
and the majority of our scientific software has already been transferred and
validated. This hardware and software migration will be complete by the fourth
quarter of 1999.
29
<PAGE> 31
We are also conducting an assessment of our non-information technology
systems. Some aspects of our facilities and manufacturing equipment may include
embedded technology, such as microcontrollers. The year 2000 problem could cause
a system failure or miscalculation in such facilities or manufacturing equipment
which could disrupt our operations. Affected areas include security systems,
voice mail and telephone systems and computer-based production and test
equipment. We have identified the potential problem areas and have developed a
remediation plan to correct any issues. This plan includes contacting vendors to
obtain year 2000 compliance certification for the equipment provided by them.
This phase of the year 2000 project is currently on schedule for completion
during the fourth quarter of 1999.
Costs. Our costs to date associated with assessment, remediation and
testing activities concerning the year 2000 problem have not been material.
Costs incurred for year 2000 compliance for our products were included in the
continuing costs of research and development. We do not expect that we will
incur material additional costs in connection with identifying, evaluating and
addressing year 2000 compliance issues. It is not possible for us to completely
estimate the costs we have incurred to date or expect to incur in coming months
as most of our expenses are related to, and are expected to continue to relate
to, the operating costs associated with time spent by employees and consultants
in the evaluation process and year 2000 compliance matters generally. We have
funded and will continue to fund all year 2000 compliance activities principally
through cash provided by our financing activities.
Worst Case Scenario. Our reasonably likely worst case year 2000 scenario
would be that a material third-party vendor or supplier, such as a limited or
sole source supplier, would, as a result of its own year 2000 difficulties, fail
to successfully remediate year 2000 problems in hardware, software or equipment
which is material to our business and operations. If this scenario occurred, we
may be required to seek out new vendors and suppliers, which may not be
available to us on a timely basis, if at all. Furthermore, we would be required
to certify certain new limited or sole source suppliers. If we are required to
seek out or certify new vendors or suppliers, it will be costly and divert
management's attention, which could have a material adverse effect on our
business and operating results.
Contingency Plan. To date, we have no specific contingency plan to address
the effect of year 2000 compliance failures. If, in the future, it comes to our
attention that certain of our products need modifications or certain of our
third party hardware, software and equipment are not year 2000 compliant or
certain vendors are not year 2000 compliant, then we will seek to make the
necessary modifications or substitutions. In such cases, we expect these
modifications or substitutions to be made on a timely basis. However, we may not
be able to modify our products, services, systems and equipment or find
alternative vendors in a timely and successful manner to comply with year 2000
requirements, which could have a material adverse effect on our business,
financial condition and results of operations.
CONVERSION TO EURO
Eleven of the 15 members of the European Union have agreed to adopt the
Euro as their legal currency. Our current information systems allow us to
currently process Euro-denominated transactions. We are also assessing the
business implications of the conversion to the Euro, including long-term
competitive implications and the effect of market risk with respect to financial
instruments. Substantially all of our international sales are denominated in
United States dollars. We do not believe the Euro will have a significant effect
on our business, financial condition or results of operations. We will continue
to assess the impact of Euro conversion issues as the applicable accounting,
tax, legal and regulatory guidance evolves.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in foreign
currency exchange rates and interest rates. Most of our revenue, expenses and
capital spending are transacted in U.S. dollars. However, the expenses and
capital spending of our international subsidiaries are transacted in local
currency. As a result, changes in foreign currency exchange rates or weak
economic conditions in foreign markets could affect our financial results. We do
not use derivative instruments to hedge our foreign exchange risk. Our
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exposure to market risk for changes in interest rates relates primarily to our
cash and cash equivalent balances, marketable securities, investment in
sales-type leases and loan agreement. The majority of our investments are in
short-term instruments and subject to fluctuations in U.S. interest rates. Due
to the nature of our short-term investments, we believe that there is no
material risk exposure.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, or SFAS 133, "Accounting
for Derivatives and Hedging Activities," which establishes accounting and
reporting standards of derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In June
1999, the FASB issued Statement of Financial Accounting Standards No. 137,
"Accounting for Derivatives and Hedging Activities -- Deferral of the Effective
Date of FASB Statement No. 133," which defers the effective date of SFAS 133 to
be effective for all fiscal quarters beginning after June 15, 2000. The adoption
of SFAS 133, as amended, is not expected to have a material effect on our
financial condition and results of operations as we do not currently hold any
derivative instruments or engage in hedging activities.
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BUSINESS
OVERVIEW
We develop, manufacture and market an anesthesia-monitoring system that we
call the BIS system. The BIS system enables anesthesia providers to assess and
manage a patient's level of consciousness during surgery. Our proprietary BIS
system includes our BIS monitor or BIS Module Kit and our single-use, disposable
BIS Sensors. The BIS system is based on our patented core technology, the
Bispectral Index, which we refer to as the BIS index. The BIS index is the only
FDA-cleared, commercially available, direct measure of the effects of
anesthetics on the brain. We developed the BIS system over 10 years, and it is
the subject of 10 issued and six pending United States patents. As of July 3,
1999, more than 3,450 BIS monitors have been installed worldwide, including
3,226 BIS monitors in approximately 450 sites in the United States. These sites
include 29 of the 100 largest hospitals and 25% of teaching hospitals with
anesthesia residency programs. We believe that over 650,000 patients have been
monitored using the BIS index during surgery. Our latest generation monitor, the
A-2000 BIS Monitor, was cleared for marketing by the FDA in February 1998. We
market the BIS system in the United States primarily through a direct sales
organization and internationally through distributors and marketing partners. We
have also established OEM relationships with several patient monitoring and
anesthesia equipment companies to incorporate our BIS technology into their
equipment using the BIS Module Kit.
Clinical trials and routine clinical use of the BIS system have shown that
patient monitoring with the BIS system results in:
- a reduction in the amount of anesthetics used,
- faster wake-up from anesthesia,
- less patient time in the operating room and the post-anesthesia care unit
following surgery,
- higher rates of outpatients bypassing the post-anesthesia care unit and
proceeding to a less costly step-down recovery area directly from the
operating room,
- improvements in the quality of recovery, and
- improvements in the means to assess the risk of surgical awareness, the
unintentional regaining of consciousness during surgery.
MARKET OPPORTUNITY
Each year, approximately 29 million patients in the United States and more
than 35 million patients in Europe and Japan receive anesthesia for surgical
procedures. We estimate that approximately 70% of these surgical patients in the
United States, or 20 million patients, receive general anesthesia or deep
sedation monitored by an anesthesia provider. In the United States, there are
more than 34,000 operating rooms in hospitals and 5,000 operating rooms in
outpatient surgical centers. We believe that the aggregate number of operating
rooms in Europe and Japan exceeds the number of operating rooms in the United
States. Operating rooms represent our initial market opportunity for the sale of
BIS monitors, and surgical procedures utilizing general anesthesia or deep
sedation represent our initial market opportunity for annual sales of BIS
Sensors.
When administering general anesthesia, providers use a combination of drugs
to accomplish three basic objectives:
- to render the patient unconscious,
- to prevent response to pain, and
- to ensure the patient will not move during surgery.
Anesthesia providers historically have had no direct means of assessing a
patient's level of consciousness during surgery. They have generally relied on
recommended drug dosages and on indirect indicators of
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consciousness, including blood pressure and heart rate. This approach cannot
always account for variability in patient responses to anesthesia or changes in
anesthetic requirements during the course of surgery. Furthermore, indirect
measures such as blood pressure and heart rate are not reliable indicators of a
patient's level of consciousness. Consequently, historical approaches to
anesthesia may result in patients being undermedicated or overmedicated during
surgery.
Undermedication may lead to surgical awareness, which is the unintentional
regaining of consciousness during surgery. Surgical awareness may be undetected
during surgery because anesthetized patients who have received muscle relaxants
may be unable to communicate that they are conscious. Published reports estimate
that surgical awareness occurs in approximately 0.2% of procedures requiring
general anesthesia per year. In the United States 0.2% is equal to approximately
35,000 cases of surgical awareness per year.
Overmedication may result from an effort to ensure that the patient is
rendered unconscious to reduce the risk of surgical awareness. 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 post-anesthesia care unit. These factors, in
turn, lead to inefficiencies in operating room and post-anesthesia care unit
scheduling and increased personnel costs.
Additional market opportunities outside the operating room for patient
monitoring with the BIS system include sedation in intensive care units and for
diagnostic and therapeutic procedures. Sedation of patients is achieved through
the use of anesthetic or sedative drugs to affect the level of consciousness.
During sedation, the desired level of consciousness may range from a relaxed but
awake state to a deep state approaching a general anesthetic level.
In the United States, there are more than 83,000 beds in intensive care
units and over 23 million patient days per year are spent in the intensive care
unit. In Western Europe and Japan, there are approximately 91,000 intensive care
unit beds, and over 26 million patient days per year are spent in the intensive
care unit. We believe that approximately one-third of patients in the intensive
care unit could benefit from consciousness monitoring. Currently, the assessment
of a patient's level of sedation in the intensive care unit is subjective and is
conducted only on an intermittent basis during the patient's stay. This
assessment relies on indirect measures and is usually carried out by several
different medical personnel, many of whom are not trained in anesthesia. As a
result, we believe that both overmedication and undermedication occur in
patients in the intensive care unit, both of which may extend the patient's
length of stay. Extending the patient's length of stay in the intensive care
unit may contribute to additional medical complications and increased costs of
care. In addition, undermedication of patients can lead to patient discomfort
and agitation, which may contribute to dangerous complications for the patient.
Each year, approximately 30 million patients undergo diagnostic and
therapeutic procedures using sedation outside the operating room and intensive
care unit, which we refer to as procedural sedation. We estimate that in the
United States there are more than 46,000 rooms in hospitals, outpatient surgical
centers, doctors' offices and dentists' offices where these procedures are
performed. Overmedication during procedural sedation 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. Undermedication during procedural sedation may cause a patient to
experience significant unnecessary discomfort.
We believe that an effective tool for monitoring a patient's level of
consciousness will address the problems of overmedication and undermedication in
anesthesia and sedation monitoring and will contribute to improving the quality,
safety and cost effectiveness of anesthesia and sedation.
THE ASPECT SOLUTION: PATIENT MONITORING WITH THE BIS SYSTEM
We have developed the BIS monitoring system that is based on our
proprietary BIS index, the only FDA-cleared, commercially available, direct
measure of the effects of anesthetics on the brain. Our BIS system is comprised
of our BIS monitor or BIS Module Kit and our single-use, disposable BIS Sensors.
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The BIS Sensor is applied to a patient's forehead to acquire the EEG, a measure
of the electrical activity of the brain. The EEG is then analyzed by the BIS
monitor or BIS Module Kit to produce the BIS index. The BIS index is a numerical
index that correlates with levels of consciousness and is displayed as a number
ranging between 100, indicating that the patient is awake, and zero, indicating
an absence of brain activity. In October 1996, the FDA cleared the BIS index for
marketing for use as a direct measure of anesthetic effect on the brain, and in
February 1998, the FDA cleared for marketing our A-2000 BIS Monitor.
Our clinically validated BIS index assists anesthesia providers in
assessing levels of consciousness during surgery and minimizing the risk of
unintentional overmedication or undermedication. Clinical trials and routine
clinical use of the BIS system have shown that patient monitoring with the BIS
system results in:
- a reduction in the amount of anesthetics used,
- faster wake-up from anesthesia,
- less patient time in the operating room and the post-anesthesia care unit
following surgery,
- higher rates of outpatients bypassing the post-anesthesia care unit and
proceeding to a less costly step-down recovery area directly from the
operating room,
- improvements in the quality of recovery, and
- improvements in the means to assess the risk of surgical awareness.
Aspect and others have conducted numerous studies to evaluate the clinical
utility of the BIS system. For example, we conducted a 302-patient multicenter,
prospective, randomized, controlled clinical utility trial that demonstrated the
following benefits from using the BIS system:
- Cost-Effective Dosing of Anesthetic Drugs. Patients monitored with the
BIS system during surgery received 23% less anesthetic than patients who
were not monitored with the BIS system. Accordingly, based upon the
average cost of the anesthetic drugs used in this utility trial, the use
of the BIS system could result in drug cost savings of up to $18 per
surgical procedure.
- Faster and More Predictable Recovery From Anesthesia. Patients monitored
with the BIS system during surgery emerged from unconsciousness 35% to
40% faster than patients who were not monitored with the BIS system. Only
5% of patients monitored with the BIS system required more than 15
minutes to emerge from anesthesia compared with 16% of patients who were
not monitored with the BIS system. Moreover, patients who were monitored
with the BIS system were eligible for discharge from the post-anesthesia
care unit 16% faster than patients who were not monitored with the BIS
system.
- Improved Quality of Recovery. Patients received better clinical
assessments of their recovery in post-anesthesia care units when the BIS
system was used. In addition, 43% of patients monitored with the BIS
system were alert and oriented when admitted to the post-anesthesia care
unit, as compared to 23% of patients not monitored with the BIS system
during surgery.
STRATEGY
Our objective is to establish the BIS system as a global standard in
anesthesia and sedation monitoring. Key elements of our strategy to accomplish
our objective include the following:
- Accelerate Market Penetration Through a Direct Sales Force. We will
continue to capitalize on our first-to-market position by utilizing a
direct sales force in the United States to further penetrate the market.
We believe that a direct sales force is best able to convey to anesthesia
providers and administrators the clinical benefits and potential cost
savings achievable when patients are monitored with the BIS system. We
also intend to complement our direct sales force with specialty
distributors in selected markets, the sales organizations of our OEM
partners, and contracts
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with hospital group purchasing organizations. In the United States, we
had installed 1,005 monitors in approximately 140 sites as of July 4,
1998 and we had installed 3,226 monitors in approximately 450 sites as of
July 3, 1999.
- Educate and Promote the Use of the BIS System Through Clinical
Specialists. We intend to establish and maintain a ratio of
approximately 1.5 clinical specialists for each of our direct sales
representatives. The principal responsibilities of these clinical
specialists are to provide education, training and support for the
installed base and to promote use of BIS systems. As of July 3, 1999, we
estimate that more than 650,000 patients have been monitored using the
BIS system. As a result of the growth in the installed base and the
efforts of our clinical specialists, revenue from the sales of BIS
Sensors increased from 27% of revenue for the first six months of 1998 to
44% of revenue for the first six months of 1999. We expect that clinical
specialists will also play a key role in expanding patient monitoring
with the BIS system outside the operating room, including in the
intensive care unit and procedural sedation markets.
- Broaden Distribution Channels Through OEM Relationships. We have entered
into OEM agreements with Drager Medizintechnik GmbH, Hewlett-Packard
GmbH, Nihon Kohden Corporation and Spacelabs Medical, Inc. Under these
agreements, our OEM partners integrate the BIS Module Kit into their
patient-monitoring or anesthesia delivery systems. These systems will
require the use of our BIS Sensor to generate the BIS index. We believe
that OEM relationships will accelerate market penetration of the BIS
technology and provide us with access to a large installed base of
patient monitoring and anesthesia equipment. We expect to enter into
additional OEM relationships over the next several years to expand the
channels for distribution of the BIS system, particularly in
international markets.
- Maintain Market Leadership Through Continuous Product Improvements and
Extensions. We intend to adapt the BIS technology for use in the
intensive care unit and for procedural sedation. We also plan to utilize
our core expertise in EEG signal processing and sensor technology to
continuously improve the performance of the BIS index in the presence of
noise and motion artifacts. We are developing a BIS Sensor that will
contain an electronic memory device and a smaller BIS Sensor that can be
used with children between the ages of two and eight years. We believe
that these improvements and extensions of the BIS technology will
strengthen our competitive position while providing our customers with
improved products.
- Target New Market Opportunities Through Technology Development. We
intend to continue to focus on new applications for our core technology,
including other neuromonitoring applications, such as the diagnosis of
Alzheimer's disease, and other uses, such as analysis of
electrocardiograms. Continued innovation and commercialization of new
proprietary products are essential elements in our long-term growth
strategy. We intend to protect our technology leadership position and
maintain our competitive advantage through product innovation,
acquisitions of new technologies, by defending our current patents and
other proprietary rights, and by seeking to obtain additional patents and
other proprietary rights.
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PRODUCTS
The following chart summarizes our proprietary product offerings, all of
which have received clearance from the FDA:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
INITIAL
COMMERCIAL
PRODUCT SHIPMENT DESCRIPTION
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A-2000 BIS Monitor 1998 Small, lightweight third-generation BIS monitor
BIS Sensor 1997 Disposable product for use with A-2000, A-1050
and BIS Module Kit
BIS Module Kit 1998 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
Zipprep EEG Electrode 1995 EEG electrode with our Zipprep technology
- -------------------------------------------------------------------------------------------------------
</TABLE>
A-2000 BIS MONITOR
We began commercial distribution of the A-2000 BIS Monitor, our
third-generation monitor, in February 1998. The A-2000 is a compact,
lightweight, portable monitor designed to accommodate the space limitations and
positioning requirements of surgical settings. The A-2000 displays the BIS index
and supporting information and includes our proprietary digital signal
converter. This converter is a palm-sized module that serves as the interface
between the BIS monitor and the BIS Sensor. The digital signal converter
acquires the EEG signal from the BIS Sensor and converts the EEG signal to
digital format. The EEG signal is then processed and the BIS index is displayed
on the A-2000. The current list price for the A-2000 is $8,900.
BIS SENSOR
We commenced commercial distribution of the BIS Sensor in January 1997. The
BIS Sensor is a single-use, disposable product for use with the A-2000, the
A-1050 and the BIS Module Kit. Our 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 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 current list price for the BIS Sensor is $15.
Our Zipprep self-prepping technology is a key feature of the BIS Sensor.
The technology minimizes patient set-up time and establishes effective
electrical contact with the patient which enables consistent, accurate readings
of the EEG signal. Prior to our development of the Zipprep technology, to obtain
an EEG signal the user prepared a patient's skin by rubbing an abrasive cream
over the forehead 10 to 20 times in order to remove the top layer of skin prior
to applying the electrode.
BIS MODULE KIT
In 1996, we introduced our BIS Module Kit, which is designed to facilitate
the integration of the BIS index into monitoring products marketed by our OEM
partners. The BIS Module Kit consists of two pieces, our 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 and
converts the EEG signal to digital format. The circuit board then processes the
EEG signal and outputs the BIS index to the OEM system.
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The common architecture of the BIS Module Kit facilitates integration of
the BIS index into the OEM's system and simplifies any future software updates
of the BIS index technology. Each OEM is required to obtain FDA and other
appropriate regulatory clearance of its BIS module product.
TECHNOLOGY
We developed the BIS system, including our proprietary BIS index, over 10
years. The BIS index is a numerical index that correlates with levels of
consciousness and is derived from an analysis of the EEG signal. In general, an
EEG signal changes from a small-amplitude, high-frequency signal while a person
is awake to a large-amplitude, low-frequency signal while a person is deeply
anesthetized. Historically, researchers have used observations about these
changes in the EEG signal to create mathematical algorithms to track the effects
of anesthetics on the brain. However, these algorithms 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 anesthetics and doses.
In developing the BIS index, we sought to improve these early EEG analyses
in two ways. First, by using bispectral analysis, a mathematical tool that
examines signals such as the EEG, we can extract new information from the EEG
signal. Second, we developed proprietary processing algorithms that extract
information from bispectral analysis, power spectral analysis and time domain
analysis. Geophysicists originally used bispectral analysis in the early 1960s
to study ocean wave motion, atmospheric pressure changes and seismic activity.
The advent of high-speed, low-cost digital signal processors has enabled the use
of bispectral analysis for other applications. By using bispectral analysis, we
are able to extract a distinctive fingerprint of the underlying signal structure
of the EEG and represent it as a three-dimensional mathematical model.
We 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, Aspect and others collected a large database of high
fidelity EEG recordings and clinical assessments from patients and volunteers
receiving a wide variety of anesthetics. Researchers used clinical assessments
such as a sedation rating scale, picture or word recall memory tests and
response to stimuli to define levels of consciousness. Using statistical
methods, we identified features within the EEG that correlated with sedation and
loss of consciousness. We then used proprietary statistical methods to combine
these features to generate an interpretive numerical index, which we refer to as
the BIS index. The BIS index ranges from 100, indicating that the patient is
awake, to zero, indicating an absence of electrical brain activity.
CLINICAL DEVELOPMENT
Our clinical research and regulatory affairs group is responsible for:
- establishing collaborative relationships with leading clinical
researchers,
- encouraging publications related to the BIS index in the scientific
literature,
- coordinating with the FDA and other regulatory agencies,
- conducting clinical research with the goal of extending the application
of patient monitoring with the BIS system to other settings and clinical
uses, and
- collecting data for new product development.
We have a clinical database of over 5,000 cases for use in algorithm
development and product validation based on trials that we conducted or
sponsored or that third parties undertook.
In 1996, the FDA cleared the BIS index for marketing as a measure of
anesthetic effect on the brain. The regulatory process involved studies we
conducted 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.
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We evaluated the use of patient monitoring with the BIS system as a measure
of sedation, consciousness and memory function in two clinical trials. In a
multicenter study involving approximately 100 volunteers, we demonstrated that
the BIS index correlated with the level of responsiveness and memory function
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 we partially funded, have generally confirmed these results.
Our multicenter, prospective, randomized, controlled clinical utility trial
of 302 patients demonstrated the outcome benefits of patient monitoring with the
BIS system. This trial compared clinical outcomes of a group of patients
monitored with the BIS system to a similar group of patients who were monitored
under standard clinical practice without the BIS system. The principal efficacy
endpoints were the amounts of anesthetic given and the speed of recovery
following surgery. Patients monitored with the BIS system:
- received 23% less of the anesthetic drug propofol,
- woke up earlier after surgery in the operating room,
- were more likely, 43% versus 23%, to arrive at the post-anesthesia care
unit fully alert and oriented,
- were judged by post-anesthesia care unit nurses to have had better
recovery, and
- met criteria for discharge from the post-anesthesia care unit sooner.
Following FDA clearance of the BIS index, there have been at least five
additional prospective, randomized, clinical studies of patient monitoring with
the BIS system. These studies, one of which we conducted, evaluated the
effectiveness of patient monitoring with the BIS system in conjunction with
various commonly used anesthetics on nearly 300 patients. Each of the five
studies indicated that patient monitoring with the BIS system led to a
statistically significant reduction, ranging from 15% to 38%, in the amount of
anesthetic per patient.
One of the third-party studies, which we partially funded, evaluated
whether patients monitored with the BIS index were more likely to bypass the
post-anesthesia care unit and proceed directly to the step-down recovery unit
following surgery. In this 60-patient study, approximately 90% of patients
monitored with the BIS system were eligible to bypass the post-anesthesia care
unit as compared to 63% of patients who were not monitored with the BIS system.
In 1997, our clinical study of 1,552 patients documented the clinical
impact and cost-effectiveness of routine monitoring with the BIS system in all
operating rooms of a high-acuity teaching hospital located in Atlanta, Georgia.
Patients received a wide variety of anesthetics typically used in general
practice. We collected comprehensive data on all patients who received general
anesthesia for at least one hour. The results of this clinical study
demonstrated that maintaining BIS index values within a recommended target range
during general anesthesia was associated with improved outcomes in terms of drug
utilization, operating room and post-anesthesia care unit recovery and
associated costs.
In 1999, a major teaching hospital located in Boston, Massachusetts
conducted a clinical study of over 5,000 patients that documented the clinical
impact on patient recovery of routine monitoring with the BIS system in its
outpatient surgery unit. This study compared both the length of stay in the
post-anesthesia care unit and the eligibility of patients to bypass the
post-anesthesia care unit and proceed directly to the step-down recovery area
following surgery, both before and after the installation of BIS monitors in the
hospital's outpatient surgery unit. Overall, the length of stay in the
post-anesthesia care unit was reduced by 16% after the installation of BIS
monitors. In addition, 43% of patients monitored with the BIS system were
eligible to bypass the post-anesthesia care unit and proceed directly to the
step-down recovery area following surgery compared to 24% of patients prior to
monitoring with the BIS system. By the end of the study, the hospital
implemented a formal bypass program which allowed 35% of general anesthesia
patients monitored with the BIS system to bypass the post-anesthesia care unit
and to proceed directly to the step-down recovery area following surgery. Prior
to the implementation of monitoring with the BIS system, the hospital did not
permit patients who received general anesthesia to bypass the post-anesthesia
care unit.
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There are more than 350 scientific articles and abstracts reporting the
results of BIS index performance in studies conducted by us and third parties.
In addition, we collaborate with over 50 clinical research sites.
Several of the studies described above have also shown that patient
monitoring with the BIS system can assist anesthesia providers in assessing the
risk of surgical awareness. Estimates of the frequency of surgical awareness
indicate that awareness occurs in only two patients for every 1,000 surgical
procedures requiring general anesthesia. As of July 3, 1999, we believe that
more than 650,000 patients have been monitored with the BIS system during
surgery. Although we have not systematically solicited reports of surgical
awareness, only 24 cases of possible surgical awareness during BIS monitoring
have been reported to us. These reports may not include all cases of surgical
awareness that might have occurred during patient monitoring with the BIS
system. In most of the 24 cases that were reported to us, when BIS index values
were recorded at the time of awareness, high BIS index values were noted,
indicating that the BIS index correctly identified the increased risk of
awareness in these patients. However, in a small number of these reported cases,
surgical awareness may not have been detected by monitoring with the BIS system.
We have not conducted a prospective, randomized, controlled study to
evaluate whether or not monitoring with the BIS system reduces the incidence of
surgical awareness. A controlled study to evaluate the ability of monitoring
with the BIS system to reduce the frequency of surgical awareness would require
a sample size of up to 50,000 patients, which is not practicable. Because these
studies have not been undertaken, we cannot and do not claim that patient
monitoring with the BIS system will reduce the incidence of surgical awareness.
Although our experience suggests that surgical awareness is more likely to occur
when BIS values are high, we do not believe that our experience proves that
patient monitoring with the BIS system will reduce the frequency of awareness.
SALES, MARKETING AND CUSTOMERS
DOMESTIC
Our customers include anesthesia providers, hospitals, outpatient surgical
centers and individual practitioners in office-based practice. The key customers
that we have initially targeted include larger hospitals with a high ratio of
outpatient surgical procedures to total surgical procedures and outpatient
surgical centers, at or near capacity. Through July 3, 1999, BIS systems have
been installed in approximately 450 sites in the United States.
We market our BIS system in the United States through a direct sales force.
As of July 3, 1999, our domestic sales force was comprised of 20 sales
professionals and 26 clinical specialists. We have developed a financial model
which is used by sales representatives to assist administrators in evaluating
the economic impact of patient monitoring with the BIS system at their hospital.
We believe that our 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 feedback to our marketing and research and development
staffs. We also believe that these visits may help to establish patient
monitoring with the BIS system as a standard in anesthesia monitoring and to
extend patient monitoring with the BIS system into other settings in the
hospital, such as the intensive care unit and procedural sedation rooms.
Clinical specialists generally have nursing backgrounds and have experience in
anesthesia, perioperative care or critical care. We currently expect to
establish and maintain a ratio of approximately 1.5 clinical specialists for
each of our sales representatives.
We have entered into an agreement with Novation, the supply cost management
company for VHA Inc. and the University Hospital Consortium, two national health
care alliances. Under this agreement, the approximately 1,900 member healthcare
organizations of VHA and the University Hospital Consortium will have the right
to purchase BIS monitors and BIS Sensors under the pricing terms contained in
the agreement. The member healthcare organizations of the VHA and the University
Hospital Consortium represent 30% of the teaching and community hospitals in the
United States and perform 33% of the
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surgical procedures in the United States. Novation's field force will work with
our sales force to facilitate the adoption of BIS technology by their member
healthcare organizations.
We offer 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. We believe that the
sales-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.
We conduct several activities for the different constituencies that may be
involved in the decision-making process. For clinical audiences, we exhibit at
tradeshows, sponsor speakers at professional meetings and develop articles for
publication in conjunction with industry experts. In addition, we work with
hospitals to publicize their adoption of patient monitoring with the BIS system
in an effort to assist them in communicating their commitment to improving the
quality and efficiency of patient care.
INTERNATIONAL
In late 1998, we established our international operations and opened our
international headquarters in Leiden, The Netherlands. We are developing our
international sales and distribution program through a combination of
distributors and marketing partners, including companies with which we have
entered into OEM relationships. We expect to complement our international
third-party distribution program through direct sales to select customers and to
support these customers with clinical specialists. As of July 3, 1999, we
employed 10 persons in our international organization. Substantially all
international sales are denominated in United States dollars.
OEM RELATIONSHIPS
We have entered into agreements with three patient monitoring companies,
Hewlett-Packard GmbH, Nihon Kohden Corporation and Spacelabs Medical, Inc. and
one anesthesia equipment company, Drager Medizintechnik GmbH, that provide for
the integration of our BIS technology into their equipment. Spacelabs introduced
a BIS module for its patient monitoring systems in October 1998. We currently
expect that BIS modules for our other three OEM partners will be available
within the next several years. Under these agreements, each of these companies
has the right to distribute BIS modules on a nonexclusive basis throughout the
world. Each of these companies also has the right to distribute BIS Sensors on a
nonexclusive basis throughout the world with the exception of the United States.
The terms of these agreements are from five to seven years.
RESEARCH AND DEVELOPMENT
Our research and development efforts focus primarily on continuing to
improve the function and features of the BIS system and enhancing our technical
leadership in signal-processing technology for use in patient care. We intend to
leverage the BIS technology for the development of new monitoring products and
proprietary disposable sensors for new applications and to take advantage of new
opportunities such as the intensive care unit and procedural sedation markets.
During the fiscal years ended December 31, 1996, 1997 and 1998, and the six
months ended July 3, 1999, we spent $2.3 million, $2.6 million, $4.0 million and
$2.4 million, respectively, in our research and development efforts, including
clinical and regulatory expenses. We expect research and development expenses to
increase in the future as we seek to enhance our existing products and develop
additional products.
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<PAGE> 42
Our research and development department has four primary areas of
responsibility:
- algorithm research,
- product development,
- pre-production quality assurance, and
- clinical engineering.
Algorithm research involves developing signal-processing techniques to
analyze the EEG and other electrical signals generated by the body. Our product
development activities include developing and maintaining the hardware and
software, including signal-processing software employed in the 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 our disposable products,
including the BIS Sensor products. Pre-production quality-assurance activities
include testing our products to ensure that they meet FDA guidelines, other
applicable regulatory and international quality standards and internal
verification and validation protocols. Our clinical engineering activities
include optimizing products for use in the clinical environment.
We are developing a BIS Sensor with improved signal processing for
detection and filtration of electrical interference. We also continue to explore
new signal-processing techniques to improve the quality of the BIS index. We are
developing a new version of the BIS Sensor that will contain an electronic
memory device. This memory device will allow information about the sensor, such
as lot code, expiration date and type of sensor, to be stored on the sensor and
to be retrieved by the BIS monitor when used. In addition, we are developing a
smaller BIS Sensor that can be used with children between the ages of two and
eight years. We are exploring the development of other BIS Sensors which offer
advantages in cases where patients may require extended monitoring with the BIS
system, such as in the intensive care unit.
We are also investigating other product areas that utilize our expertise in
anesthesia delivery and monitoring. Specifically, we are exploring the
application of the BIS index to provide additional information about other
effects of anesthetics on the patient. We are evaluating the application of the
BIS index to measure additional states of the brain, including dementia, which
may apply to detection of Alzheimer's disease, sleep cycles, seizure detection,
and/or other neurological states. We believe that bispectral analysis may
provide a means for extracting and quantifying subtle physiological information
contained in the electrocardiogram, or 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
heart attacks and monitoring for advanced perioperative ischemia, which is
inadequate blood flow to the heart during surgery, for patients at risk for
heart attacks.
Additional studies, some of which we sponsored, are being conducted to
assess the performance of the BIS index in the presence of certain anesthetics,
such as ketamine, and patient populations such as infants and young children,
not included in the clinical development of the BIS algorithms.
MANUFACTURING
We have a 7,000 square foot manufacturing facility located in our Natick,
Massachusetts headquarters. In this facility we assemble all of our BIS
monitors, and we produce substantially all of our BIS Sensors on a
semi-automated production line. Prior to 1998, we outsourced all BIS Sensor
manufacturing. We currently outsource to third parties the production of our
Zipprep EEG Electrodes. In December 1999, we expect to move into approximately
60,000 square feet of development, production and administrative space.
Our production process for our BIS monitors consists of final assembly,
integration and testing of standard and custom components. Our production
process for our BIS Sensor consists of several manufacturing and assembly
processes using custom components. Qualified sub-contractors, who have met
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our supplier certification process and are placed on an approved vendors list,
produce certain custom components.
We maintain a quality-assurance program covering our manufacturing
operations. Suppliers of purchased components are required to meet stated
specifications. We certify suppliers prior to use by conducting audits and
product inspections. We engage in ongoing evaluations of the performance of our
suppliers by evaluating the results of inspections and tests as well as the
timeliness of product deliveries. We employ numerous quality-assurance
procedures during our 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. We
maintain an ongoing post-sale performance-monitoring program.
COMPETITION
The medical device industry is subject to intense competition. We believe
that competition will initially come from companies, including patient
monitoring companies, currently marketing conventional EEG monitors utilizing
standard signal-processing techniques such as spectral edge frequency analyses
and median frequency analyses. We also believe that competition will come 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. Several potential competitive
products are currently being marketed outside the United States although we do
not believe that these products provide any significant advantages relative to
the BIS technology. Additionally, a number of academic researchers worldwide are
studying the potential use of other techniques to measure the effects of
anesthetics. These other products and techniques include the use of auditory
evoked potentials, heart rate variability, pupillary reflexes and skin blood
flow measurement techniques.
We believe that the principal competitive factors in the market for
anesthesia-monitoring products include:
- improved patient outcomes,
- cost effectiveness,
- acceptance by leading anesthesia providers,
- ease of use for anesthesia providers,
- the publication of peer reviewed clinical studies,
- sales and marketing capability,
- timing and acceptance of product innovation,
- patent protection, and
- product quality.
PATENTS AND PROPRIETARY RIGHTS
Our policy is to prosecute and enforce our patents and proprietary
technology. We intend to continue to file United States and foreign patent
applications to protect technology, inventions and improvements that are
considered important to the development of our business. We also rely upon trade
secrets, know how, continuing technological innovation and licensing
opportunities to develop and maintain our competitive position. We have
established a substantial proprietary position with respect to our products and
our core signal processing technology, bispectral analysis, and its application
to biological signals. As of July 3, 1999, we held 10 United States patents and
had filed six additional United States patent applications. We also have
numerous corresponding patents and pending patent applications in certain
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major industrial countries, including Canada, the major European market
countries, Australia and Japan. The following chart summarizes our United States
patents and patent applications:
<TABLE>
<C> <C> <S> <C>
- ---------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF
ISSUED PATENTS PATENT APPLICATIONS TECHNOLOGY COVERED
- ---------------------------------------------------------------------------------------------------------
4 -- Application of Bispectral and higher order
analysis and various statistical modeling
technologies to EEG signals
1 1 Methods of ensuring the reliability of the
computed values
-- 1 Method of evaluating BIS information to
facilitate clinical decision making
2 -- Application of bispectral and higher order
analysis to electrocardiogram signals
1 -- Zipprep self-prepping disposable electrode
technology
1 1 Technology relating to the interface between the
BIS Sensor and the BIS monitor
-- 3 BIS Sensor technology
1 -- Signal acquisition technology for digital signal
converter
------ ------
10 6
------ ------
------ ------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
We have also been granted a perpetual, royalty-free, non-exclusive license by a
third party to a United States patent covering signal acquisition technology for
digital signal converters.
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. Our existing products are regulated
in the United States as medical devices by the FDA under the Federal Food, Drug,
and Cosmetic Act, or 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 refusal 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 we can introduce a new product in the United States, we
must obtain FDA clearance of a premarket notification under Section 510(k) of
the FDC Act, referred to as a 510(k) notification, or approval of a premarket
approval application under Section 515 of the FDC Act. To date, we have received
clearance of 510(k) notification from the FDA with respect to the following
products:
- Zipprep EEG Electrodes (June 1994),
- A-1050 EEG Monitor with BIS (January 1996),
- BIS Sensor (October 1996),
- BIS Clinical Utility Indication (October 1996), and
- A-2000 BIS Monitor (February 1998).
Once we have received clearance of a 510(k) notification, any products we
manufacture or distribute are subject to extensive and continuing regulation by
the FDA, including compliance with current Good Manufacturing Practices
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
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<PAGE> 45
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 FDC Act regulates our quality control and manufacturing procedures by
requiring us to demonstrate and maintain compliance with current Good
Manufacturing Practices regulations, including quality systems regulations, as
specified by the FDA. This regulation requires, among other things, that:
- we use written procedures to control our product development and
manufacturing process,
- we validate, by extensive and detailed testing of every aspect of the
process, our ability to produce devices which meet our manufacturing
specifications,
- we investigate any deficiencies in the manufacturing process or in the
products produced, and
- we maintain detailed record keeping.
The current Good Manufacturing Practices regulations are applicable to
manufacturers that produce components specifically for use in a medical device,
and require design controls and maintenance of service records.
The FDA monitors compliance with current Good Manufacturing Practices
regulations by conducting periodic inspections of manufacturing facilities. If
violations of applicable regulations are noted during FDA inspections of our
manufacturing facilities, the continued marketing of our products may be
adversely affected. In August 1996, the FDA conducted a routine inspection of
our manufacturing facility to ensure compliance with current Good Manufacturing
Practices regulations. The FDA noted no adverse observations during this
inspection. We believe that we have continued to maintain manufacturing
facilities and procedures that are fully compliant with all applicable
government quality systems regulations and guidelines.
In June 1998, we obtained ISO 9001/EN 46001 international quality systems
registration, a certification showing that our procedures and manufacturing
facilities comply with standards for quality assurance and manufacturing process
control. Our compliance with this registration has been confirmed since June
1998 in semi-annual surveillance audits. The ISO 9001 certification, along with
the EN 46001, the European Medical Device Directive certification, signifies
compliance with the requirements enabling us to affix the CE Mark to our 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.
We have established a dedicated regulatory and quality assurance group to
maintain regulatory compliance and manage all of our quality-assurance
activities. This group is responsible for the following activities:
- all regulatory submissions and communications,
- scheduling and performing company-wide audits,
- coordinating product update procedures and corrective actions,
- maintaining adherence 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
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<PAGE> 46
affect the pricing or demand for our products by regulating the maximum amount
of reimbursement provided for by such payors to the anesthesia providers,
hospitals, outpatient surgical centers or physicians' offices where surgical
procedures are performed.
We expect that anesthesia providers will not be separately reimbursed for
patient-monitoring activities utilizing the BIS system. When providers, such as
hospitals or outpatient surgical centers, are reimbursed a fixed fee calculated
on a per case, per stay, or per capita basis, the cost of monitoring with the
BIS system will not be recovered by these providers unless the incremental costs
of this monitoring are offset by savings in other costs, such as the costs of
anesthetics or costs of the operating room or post-anesthesia care unit. This
type of reimbursement policy is typical for inpatient hospital procedures and
procedures performed in outpatient surgical centers and we expect it will become
typical for all outpatient surgeries beginning in the year 2000. Patient
monitoring with the BIS system may not result in sufficient savings to offset
these costs. When reimbursement is based on charges or costs, patient monitoring
with the BIS system may have the effect of reducing reimbursement because the
charges or costs for surgical procedures, including operating room and
post-anesthesia care unit charges and costs, may decline as a result of
monitoring with the BIS system.
EMPLOYEES
As of July 3, 1999, we had 164 full-time employees, of which:
- 20 persons were engaged in research and development activities,
- 33 persons were engaged in manufacturing and engineering,
- 11 persons were engaged in clinical and regulatory affairs,
- 77 persons were engaged in sales and marketing and clinical support, and
- 23 persons were engaged in general and administrative functions.
None of our employees is covered by a collective bargaining agreement. We
consider relations with our employees to be good.
SCIENTIFIC ADVISORS
We seek advice from a number of leading scientists and physicians on
scientific and medical matters, including experts in EEG monitoring,
pharmacology and anesthesia management. These individuals advise us concerning a
number of matters, including:
- our research and development programs,
- the design and implementation of our clinical research program,
- our publication strategies,
- the identification of market opportunities from the clinical perspective,
and
- specific scientific and technical issues.
FACILITIES
We currently lease approximately 23,000 square feet of development,
production, and administrative space in Natick, Massachusetts pursuant to a
lease which expires on October 31, 2000. We have entered into a letter of intent
for a seven-year lease of approximately 60,000 square feet of development,
production and administrative space beginning in the fourth quarter of 1999. We
expect to move our operations to this space in late 1999. Our international
organization is based in approximately 2,800 square feet of office space in
Leiden, The Netherlands, which is expected to be sufficient to meet our needs
for the next 18 months. We believe our current facilities, including the space
to be occupied in late 1999, will
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be sufficient to meet our needs through mid-2001 and that additional space will
be available at a reasonable cost to meet our space needs thereafter.
INSURANCE
Our business entails the risk of product liability and product recall
claims and any such claims could have an adverse impact on us. We have taken and
will continue to take what we believe are appropriate precautions, including
maintaining general liability and commercial liability insurance policies which
include adequate coverage for product liability and product recall claims. We
evaluate our insurance requirements on an ongoing basis to enable us to maintain
adequate level of coverage. However, product liability or product recall claims
could exceed such insurance coverage limits and such insurance may not be
available on commercially reasonable terms or at all.
LITIGATION
We are 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 Aspect, their respective ages as of
August 31, 1999 and their positions with Aspect are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Nassib G. Chamoun.................... 37 Chief Executive Officer, President and Director
J. Breckenridge Eagle................ 49 Chairman of the Board of Directors
J. Neal Armstrong.................... 61 Vice President, Chief Financial Officer and Secretary
Jeffrey L. Barrett................... 36 Vice President of Manufacturing and Operations
Philip H. Devlin..................... 42 Vice President of Research and Development
Steven H. Kane....................... 46 Vice President of Sales and Field Operations
Paul J. Manberg, Ph.D................ 45 Vice President of Clinical, Regulatory and Quality
Assurance
Jean M. Nelson....................... 40 Vice President of Marketing
Helgert van Raamt.................... 51 Vice President and Managing Director -- International
Boudewijn L.P.M. Bollen.............. 52 Director
Stephen E. Coit...................... 51 Director
Edwin M. Kania, Jr................... 42 Director
Lester John Lloyd.................... 63 Director
Terrance G. McGuire.................. 43 Director
Donald R. Stanski, M.D............... 49 Director
</TABLE>
Nassib G. Chamoun is a founder of Aspect and has served as a director of
Aspect since 1987. Mr. Chamoun has served as President of Aspect 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 Aspect 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.
J. Breckenridge Eagle has served as a director of Aspect 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 Aspect in 1996 and served as a consultant to Aspect 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.
J. Neal Armstrong has served as Vice President, Chief Financial Officer and
Secretary of Aspect 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. 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 electronics company. Mr. Armstrong holds a bachelors
degree in Business Administration from the University of Texas and is a
certified public accountant.
Jeffrey L. Barrett has served as Vice President of Manufacturing and
Operations of Aspect 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, Inc., serving most recently as its Vice President of Operations.
Mr. Barrett received a
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<PAGE> 49
bachelors degree in Economics and Industrial Engineering from Rutgers University
and a masters degree in Business Administration from Boston University.
Philip H. Devlin has served as Vice President of Research and Development
of Aspect since 1994 and served as Director of Product Development of Aspect
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.
Steven H. Kane has served as Vice President of Sales and Field Operations
of Aspect since 1997. From 1990 to 1997, he was employed by Pyxis Corp., a
medical technology company, serving as Area Vice President, Sales and
Operations, Northeast United States, from 1992 to 1997. From 1983 to 1990, he
was employed by IVAC Corporation, a manufacturer of infusion therapy and vital
signs monitoring technology owned by Eli Lilly and Company, serving as Regional
Manager, Northeastern United States, from 1988 to 1990.
Paul J. Manberg has served as Vice President of Clinical, Regulatory and
Quality Assurance of Aspect 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.
Jean M. Nelson has served as Vice President of Marketing of Aspect since
1995 and served as Director of Marketing of Aspect from 1992 to 1995. From 1988
to 1992, she was employed by Nellcor Incorporated, 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.
Helgert van Raamt has served as Vice President and Managing
Director -- International of Aspect since November 1998. From April 1990 to
October 1998, Mr. van Raamt held several positions with Mallinckrodt, Inc., a
specialty chemicals and healthcare company, and its predecessor entities,
Nellcor Puritan Bennett, Inc. and Nellcor Incorporated. From February 1998 to
October 1998, Mr. van Raamt served as Mallinckrodt's Vice President and Managing
Director, Europe and as a member of Mallinckrodt's General Management Committee.
From August 1996 to February 1998, Mr. van Raamt served as Vice President and
Managing Director of Nellcor Puritan Bennett. From July 1995 to August 1996, Mr.
van Raamt was Director of Sales and Marketing at Nellcor Puritan Bennett, and
from April 1990 to July 1995, he held a variety of positions at Nellcor
Incorporated, including General Manager Europe North, Middle East, and Africa
and Director of Sales and Marketing. Mr. van Raamt studied mechanical
engineering at the Technical University of Twente in The Netherlands.
Boudewijn L.P.M. Bollen has served as a director of Aspect since November
1998. Since November 1998, he has been a self-employed consultant. From June
1998 to October 1998, Mr. Bollen served as President -- International of Aspect.
From 1986 to June 1998, Mr. Bollen held several positions with Mallinckrodt,
Inc. and predecessor entities, 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
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equipment. Mr. Bollen holds the equivalent of a bachelors degree in Hotel
Business Management from the Hotel Business School in Maastricht, Holland.
Stephen E. Coit has served as a director of Aspect 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.
Edwin M. Kania, Jr. has served as a director of Aspect 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.
Lester John Lloyd has served as a director of Aspect 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. Mr. Lloyd was a
founder and served as Chief Executive Officer of Nellcor Incorporated from 1981
to 1990.
Terrance G. McGuire has served as a director of Aspect since 1997. He was a
founder and has been a general partner of Polaris Venture Partners, Inc., a
venture capital firm, since June 1996. Since 1992, Mr. McGuire has served as
general partner of Burr, Egan, Deleage & Co., a venture capital firm, and since
1988, he has served as general partner of Beta Partners, a venture capital firm.
Mr. McGuire is also a director of Akamai Technologies, Inc. and deCode Genetics,
Inc.
Donald R. Stanski has served as a director of Aspect since 1996. Dr.
Stanski has been a professor of anesthesia and medicine (Clinical Pharmacology)
at Stanford University since 1979 and is an anesthesiologist/clinical
pharmacologist. 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 the terms of a voting agreement, certain stockholders of Aspect
have the right to nominate persons as their representatives on the 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.
BOARD OF DIRECTORS
The board of directors is currently fixed at eight members. Following this
offering, the board of directors will be divided into three classes, each of
whose members will serve for a staggered three-year term. The board of directors
will consist of three Class I Directors ( ), three Class II Directors
( ) and two 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 2000, 2001 and 2002, respectively.
In addition, Aspect's by-laws provide that the authorized number of
directors may be changed only by resolution of the board of directors or by the
stockholders. Any additional directorships resulting from an increase in the
number of directors will be distributed among the three classes, so that, as
nearly as possible, each class will consist of one-third of the total number of
directors. This classification of the board of directors may have the effect of
delaying or preventing changes in control or management of Aspect.
Each executive officer is elected by, and serves at the discretion of, the
board of directors. Each of Aspect's officers and directors, other than
nonemployee directors, devotes his or her full time to the affairs of Aspect.
There are no family relationships among any of the directors or officers of
Aspect.
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COMPENSATION OF DIRECTORS
We reimburse non-employee directors for reasonable out-of-pocket expenses
incurred in attending meetings of the board of directors or of any committee of
the board of directors. No director who is also an employee of Aspect receives
separate compensation for services rendered as a director.
In addition, Aspect's non-employee directors are eligible to receive stock
options under Aspect's 1998 Director Stock Option Plan.
On June 15, 1998, Mr. Bollen received a stock option to purchase 40,000
shares of common stock in connection with his employment with Aspect. In
November 1998, Mr. Bollen ceased to be an employee of Aspect and was elected to
the board of directors. In accordance with the original terms of his stock
option agreement, the option will continue to vest monthly over four years for
so long as Mr. Bollen continues to serve as a director of Aspect. The option has
an exercise price of $4.20.
1998 Director Stock Option Plan. Aspect's 1998 Director Stock Option Plan
was adopted by Aspect's board of directors and stockholders in February 1998.
Under the terms of the director plan, Aspect's directors who are not employees
of Aspect 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 granted under the director plan. As of July 3, 1999, options
to purchase an aggregate of 60,000 shares of common stock at a weighted average
exercise price of $5.15 were outstanding under the director plan.
Pursuant to the director plan, on April 14, 1998, each non-employee
director (other than Messrs. Bollen and Lloyd and Dr. Stanski) received an
initial option to purchase 10,000 shares of our common stock. Each person who
first becomes a non-employee director after that initial grant date is eligible
to receive an option to purchase 10,000 shares of our common stock on the date
of his or her initial election to the board of directors. In addition, on May 3,
1999, the following non-employee directors received additional options to
purchase 5,000 shares of our common stock: Messrs. Coit, Kania, Lloyd and
McGuire and Dr. Stanski. Upon completion of this offering, each non-employee
director will be eligible to receive an additional option to purchase 5,000
shares of our common stock on the date of each annual meeting of stockholders,
commencing with the 2000 annual meeting of stockholders. Each non-employee
director will be eligible to receive additional options if he or she is serving
as a director immediately prior to the annual meeting of stockholders and
continues to serve immediately following that annual meeting of stockholders and
if the grant date of that additional option is at least six months after the
non-employee director receives an initial option. In July 1998, the board of
directors adopted an amendment to the director plan to provide that options held
by non-employee directors would vest and become fully exercisable upon a change
of control event or acquisition event of Aspect, each as defined in the director
plan. In August 1998, our stockholders approved this amendment.
The exercise price per share of initial options that were granted on April
14, 1998 is $2.80 and the exercise price per share of the additional options
granted on May 3, 1999 is $7.50. The exercise price of any other initial options
and of any additional options will be the closing price per share of our 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 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 ten years from the date of grant or 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).
BOARD COMMITTEES
Aspect has a standing audit committee and compensation committee of the
board of directors. The audit committee reviews the results and scope of audits
and other services provided by Aspect's
50
<PAGE> 52
independent accountants. The audit committee also reviews Aspect's system of
internal accounting and financial controls. The audit committee consists of
Messrs. Lloyd and Kania.
The compensation committee of the board of directors reviews and recommends
to the Board the compensation and benefits of all executive officers of Aspect,
administers Aspect's stock option plan and establishes and reviews general
policies relating to compensation and benefits of employees of Aspect. The
compensation committee consists of Mr. Coit and Dr. Stanski. No interlocking
relationships exist between Aspect's board of directors or compensation
committee and the board of directors or compensation committee of any other
company.
EXECUTIVE COMPENSATION
The table below sets forth the total compensation paid or accrued for the
fiscal years ended December 31, 1998 and December 31, 1997 for our Chief
Executive Officer and each of our four other most highly compensated executive
officers, who received annual compensation in excess of $100,000 for the fiscal
year ended December 31, 1998, collectively referred to below as our named
executive officers. In accordance with the rules of the Securities and Exchange
Commission, the compensation set forth in the table below does not include
medical, group life or other benefits which are available to all of our salaried
employees, and perquisites and other benefits, securities or property which do
not exceed the lesser of $50,000 or 10% of the person's salary and bonus shown
in the table. In the table below, columns required by the regulations of the SEC
have been omitted where no information was required to be disclosed under those
columns.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
------------------- NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS
- --------------------------- ---- ------ ----- --------------------
<S> <C> <C> <C> <C>
Nassib G. Chamoun............................ 1998 $190,000 $63,250 110,000
Chief Executive Officer and President 1997 $170,000 $40,000 200,000
J. Breckenridge Eagle........................ 1998 $167,000 $41,750 74,500
Chairman of the Board of Directors 1997 $157,500 $27,565 --
J. Neal Armstrong............................ 1998 $163,000 $40,750 37,500
Vice President, Chief Financial Officer 1997 $153,750 $26,910 70,000
and Secretary
Steven H. Kane............................... 1998 $172,000 $80,935 28,750
Vice President of Sales and Field
Operations 1997 $127,153 $58,648 180,000
Paul J. Manberg.............................. 1998 $146,000 $32,850 27,500
Vice President of Clinical, Regulatory 1997 $137,500 $24,065 50,000
and Quality Assurance
</TABLE>
- ------------
Mr. Kane commenced employment with us on April 1, 1997 and received a salary for
only nine months of the year ended December 31, 1997.
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<PAGE> 53
OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth grants of stock options to our named executive
officers. The exercise price per share of each option was equal to the fair
market value of the common stock on the date of grant as determined by the board
of directors. The potential realizable value is calculated based on the term of
the option at its time of grant, which is 10 years. It is calculated assuming
that the fair market value of common stock on the date of grant appreciates at
the indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for the
appreciated stock price. These numbers are calculated based on the requirements
of the SEC and do not reflect our estimate of future stock price growth.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
-------------------------------------------------- REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES
NUMBER OF OPTIONS OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM
OPTIONS IN FISCAL BASE PRICE EXPIRATION -------------------
NAME GRANTED YEAR PER SHARE DATE 5% 10%
- ---- ---------- ---------- ----------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Nassib G. Chamoun............. 110,000 6.8% $4.20 7/9/08 $290,549 $736,309
J. Breckenridge Eagle......... 37,000 2.3% $2.80 4/14/08 $ 65,153 $165,112
37,500 2.3% $4.20 7/9/08 $ 99,051 $251,014
J. Neal Armstrong............. 37,500 2.3% $4.20 7/9/08 $ 99,051 $251,014
Steven H. Kane................ 12,500 .8% $0.80 1/22/08 $ 6,289 $ 15,937
6,250 .4% $2.80 4/14/08 $ 11,006 $ 27,890
10,000 .6% $4.20 7/9/08 $ 26,414 $ 66,937
Paul J. Manberg............... 27,500 1.7% $4.20 7/9/08 $ 72,637 $184,077
</TABLE>
- ------------
The dates of exercisability of the options are determined in accordance with
their respective vesting schedules.
OPTION EXERCISES AND YEAR-END OPTION VALUES
The table below sets forth information regarding exercisable and
unexercisable stock options held as of December 31, 1998 by our named executive
officers. There was no public trading market for our common stock as of December
31, 1998. Accordingly, the value of unexercised in-the-money options at fiscal
year end has been calculated by determining the difference between the exercise
price per share and the fair market value of our common stock at fiscal year
end, $6.00, as determined by our board of directors.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Nassib G. Chamoun....... 41,667 $116,668 33,333 235,000 $173,332 $848,000
J. Breckenridge Eagle... -- $ -- -- 74,500 $ -- $185,900
J. Neal Armstrong....... 14,583 $ 40,832 11,667 81,250 $ 60,668 $295,000
Steven H. Kane.......... -- $ -- 4,167 24,583 $ 19,584 $ 83,416
Paul J. Manberg......... -- $ -- 18,750 58,750 $ 97,500 $212,000
</TABLE>
52
<PAGE> 54
STOCK PLANS
Amended and Restated 1991 Stock Option Plan. Our Amended and Restated 1991
Stock Option Plan was initially adopted by the board of directors and approved
by our stockholders in April 1991. As of July 3, 1999, 3,360,000 shares of
common stock were authorized for issuance upon exercise of outstanding options
under this plan and options to purchase an aggregate of 1,550,687 shares of
common stock at a weighted average exercise price of $2.04 per share were
outstanding under this plan.
This plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code, nonstatutory stock
options, restricted stock and other stock-based awards.
Our officers, employees, directors, consultants and advisors are eligible
to receive awards under this plan. Under present law, however, incentive stock
options may only be granted to employees. No employee may receive any award for
more than 200,000 shares in any calendar year.
Optionees receive the right to purchase a specified number of shares of
common stock at a specified option price and subject to any other terms and
conditions specified in connection with the option grant. We may grant options
at an exercise price which may be less than, equal to or greater than the fair
market value of our 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 Internal Revenue Code may not be
granted at an exercise price less than the fair market value of our common stock
on the date of grant, or less than 110% of the voting power of all shares of our
capital stock. The plan permits the board of directors to determine how
optionees may pay the exercise price of their options, including through payment
by cash, check or in connection with a "cashless exercise" through a broker, by
surrender to us of shares of common stock, by delivery to us of a promissory
note, or by any combination of the permitted forms of payment.
Our board of directors administers the plan. Our board of directors has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the plan and to interpret its provisions. It may delegate
authority under the plan to one or more committees of the board of directors
and, subject to certain limitations, to one or more of our executive officers.
Our board of directors has authorized our compensation committee to administer
the plan, including the granting of options to our executive officers. Subject
to any applicable limitations contained in the plan, our board of directors, our
compensation committee or any other committee or executive officer to whom our
board of directors delegates authority, as the case may be, selects the
recipients of awards and determines:
- the number of shares of common stock covered by options and the dates
upon which these options become exercisable,
- the exercise price of options,
- the duration of options, and
- the number of shares of common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of these awards,
including our conditions for repurchase, issue price and repurchase
price.
No award may be granted under the plan after April 1, 2001, but the vesting
and effectiveness of awards previously granted may extend beyond that date. Our
board of directors may at any time amend, suspend or terminate the plan, except
that no award granted after an amendment of the plan and designated as subject
to Section 162(m) of the Internal Revenue Code by the board of directors will
become exercisable, realizable or vested (to the extent that amendment was
required to grant that award) unless and until such amendment is approved by our
stockholders.
1998 Stock Incentive Plan. Our 1998 Stock Incentive Plan was adopted by
the board of directors and approved by our stockholders in July 1998. The 1998
Stock Incentive Plan is intended to replace the 1991 plan. Up to 2,100,000
shares of common stock, subject to adjustment in the event of stock splits and
other similar events, may be issued pursuant to awards granted under the plan.
As of July 3, 1999, options
53
<PAGE> 55
to purchase an aggregate of 559,979 shares of common stock at a weighted average
exercise price of $5.56 were outstanding under this plan.
This plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code, nonstatutory stock
options, restricted stock awards and other stock-based awards.
Our officers, employees, directors, consultants and advisors are eligible
to receive awards under this plan. Under present law, however, incentive stock
options may only be granted to employees. No employee may receive any award for
more than 250,000 shares in any calendar year.
Optionees receive the right to purchase a specified number of shares of
common stock at a specified option price and subject to any other terms and
conditions specified in connection with the option grant. We may grant options
at an exercise price which may be less than, equal to or greater than the fair
market value of our 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 Internal Revenue Code may not be
granted at an exercise price less than the fair market value of our 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 all shares of our capital stock). The plan permits the board of
directors to determine how optionees may pay the exercise price of their
options, including through payment by cash, check or in connection with a
"cashless exercise" through a broker, by surrender to us of shares of common
stock, by delivery to us of a promissory note, or by any combination of the
permitted forms of payment.
Our board of directors administers this plan. Our board of directors has
the authority to adopt, amend and repeal the administrative rules, guidelines
and practices relating to the plan and to interpret its provisions. It may
delegate authority under the plan to one or more committees of the board of
directors and, subject to certain limitations, to one or more of our executive
officers. Our board of directors has authorized our compensation committee to
administer this plan, including the granting of options to our executive
officers. Subject to any applicable limitations contained in the plan, our board
of directors, our compensation committee or any other committee or executive
officer to whom our board of directors delegates authority, as the case may be,
selects the recipients of awards and determines:
- the number of shares of common stock covered by options and the dates
upon which these options become exercisable,
- the exercise price of options,
- the duration of options and
- the number of shares of common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of these awards,
including the conditions for repurchase, issue price and repurchase
price.
The 1998 Stock Incentive Plan provides that, unless otherwise specified, in
the event of a merger, liquidation or other acquisition event, as defined in the
plan, our board of directors is authorized to:
- cause all options to be assumed by the acquiring company,
- in the case of a cash acquisition, cause all options to be accelerated
and the acquiring company to pay cash to the optionees equal to their
spread, and
- in the case of stock options and restricted stock that do not become
fully exercisable upon an acquisition event,
- cause those options to be accelerated in full, and/or
- cause all restricted stock awards to become free of all
restrictions.
54
<PAGE> 56
No award may be granted under the plan after June 2008, but the vesting and
effectiveness of awards previously granted may extend beyond that date. Our
board of directors may at any time amend, suspend or terminate the plan, except
that no award granted after an amendment of the plan and designated as subject
to Section 162(m) of the Internal Revenue Code by the board of directors shall
become exercisable, realizable or vested, to the extent that amendment was
required to grant that award, unless and until such amendment is approved by our
stockholders.
1998 Director Stock Option Plan. Our 1998 Director Stock Option Plan was
adopted by our board of directors and approved by our stockholders in February
1998. Under the terms of the director plan, directors who are not our employees
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
granted under the director plan. As of July 3, 1999, options to purchase an
aggregate of 60,000 shares of common stock at a weighted average exercise price
of $5.15 were outstanding under the director plan. For more information about
the director plan, see "-- Compensation of Directors."
1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan
was adopted by our board of directors on , 1999 and is expected to
be approved by the stockholders in 1999, to be effective upon the
closing of this offering. The purchase plan provides for the issuance of a
maximum of shares of common stock to participating employees.
The purchase plan will be administered by the compensation committee. All
of our employees, including our directors who are employees, whose customary
employment is for more than 20 hours per week and for more than five months in
any calendar year, are eligible to participate in the purchase plan. Employees
who would own 5% or more of the total combined voting power or value of our
capital stock immediately after the grant may not participate in the purchase
plan. To participate in the purchase plan, an employee must authorize us to
deduct from one percent to 10 percent of his or her base pay during the offering
period. The exercise price for the option granted in each payment period is 85%
of the lesser of the last reported sale price of the common stock on the first
or last business day of the payment period. No options have been granted to date
under the purchase plan.
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 Aspect has served as a
director or member of the compensation committee, or other committee serving an
equivalent function, of any other entity, any of whose executive officers served
as a director of or member of the compensation committee of the board of
directors.
55
<PAGE> 57
CERTAIN TRANSACTIONS
PREFERRED STOCK ISSUANCES
Series B-1 Financing. In October 1995, investors, including One Liberty
Fund III, L.P., Charles River Partnership VII, Limited Partnership, New
Enterprise Associates IV, Limited Partnership and Catalyst Ventures, Limited
Partnership, made bridge loans to us in the aggregate amount of $500,000 in
exchange for promissory notes. In November 1995 and June 1996, we sold an
aggregate of 3,800,428 shares of our Series B-1 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 Aspect, One Liberty, Charles River, New
Enterprise Associates 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 promissory notes.
Mr. Kania, a director of Aspect, is a general partner of One Liberty Partners
III, L.P., which is the general partner of One Liberty. Mr. Coit, a director of
Aspect, served as a general partner of Charles River at the time that Charles
River purchased these securities from us.
Series C Financing. In February 1997, August 1997 and October 1997, we
sold an aggregate of 3,439,949 shares of our Series C preferred stock to a group
of existing and new investors, including Messrs. Eagle and Armstrong, Jeffrey L.
Barrett, Vice President of Manufacturing and Operations of Aspect, and Stephen
H. Kane, Vice President of Sales and Field Operations of Aspect, One Liberty,
Charles River, New Enterprise Associates, Orchid & Co., nominee for T. Rowe
Price Threshold Fund III, L.P., Merrill, Pickard, Anderson & Eyre IV Limited
Partnership, Polaris Venture Partners, L.P. and Polaris Venture Partners
Founders' Fund, L.P., 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 Aspect until August 1999, is a Vice President of T. Rowe Price
Associates, Inc., the general partner of T. Rowe Price. Mr. McGuire, a director
of Aspect, is a member of Polaris Venture Management Co., LLC, which is a
general partner of Polaris Venture Partners and Polaris Venture Founders' Fund.
Series D Financing. In February 1998, we sold an aggregate of 1,666,234
shares of our Series D preferred stock to a group of existing and new investors,
including Messrs. Armstrong, Kane, Coit and Lester John Lloyd, a director of
Aspect, One Liberty, Charles River, T. Rowe Price, Polaris Venture Partners,
Polaris Venture Partners Founders' Fund and Merrill Pickard, at a purchase price
of $7.00 per share for an aggregate purchase price of approximately $11.7
million.
Series E Financing. In December 1998, we sold an aggregate of 1,753,729
shares of our Series E preferred stock and warrants to purchase an aggregate of
192,903 shares of our common stock to a group of existing and new investors,
including a trust for which Mr. Lloyd is a trustee, One Liberty, Charles River,
T. Rowe Price, Polaris Venture Partners, Polaris Venture Founders' Fund and
QuestMark Partners, L.P., at a purchase price of $10.00 per unit for an
aggregate purchase price of approximately $17.5 million. The warrants have an
exercise price of $12.50 per share.
LOANS TO EXECUTIVE OFFICERS
In February 1997, we entered into a pledge agreement with Nassib Chamoun,
our Chief Executive Officer and President, pursuant to which we loaned to Mr.
Chamoun $68,214, on a full recourse basis, representing 90% of the aggregate
exercise price of certain options exercised by Mr. Chamoun. Mr. Chamoun pledged
341,068 of the 378,964 shares of restricted common stock issued upon exercise of
these options as collateral for the loan. The loan bears interest at 8% per
annum. As of July 3, 1999, $60,634 of the principal amount of the loan plus
accrued interest was outstanding. In the event that Mr. Chamoun ceases to be
employed by us, we will have the right, for 90 days after that termination of
employment, to purchase from Mr. Chamoun, for a repurchase price equal to the
original exercise price of $0.20 per share, up to the number of shares which
have not yet vested. As of July 3, 1999, 20,519 shares of common stock were
subject to repurchase by us.
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<PAGE> 58
In May 1997, we loaned $80,000 to Mr. Chamoun. The loan is represented by
two promissory notes and is secured by a security interest in securities of
Aspect owned by Mr. Chamoun. The loan bears interest at 6.42% per annum. As of
July 3, 1999, $65,927 of the principal amount of the loan plus accrued interest
was outstanding.
In May 1997, we entered into a pledge agreement with Mr. Kane, pursuant to
which we loaned Mr. Kane $60,750, on a full recourse basis, representing 90% of
the aggregate exercise price of certain options exercised by Mr. Kane. Mr. Kane
pledged the 180,000 shares of restricted common stock issued upon exercise of
these options as collateral for the loan. The loan bears interest at 8% per
annum. As of July 3, 1999, $54,000 of the principal amount of the loan plus
accrued interest was outstanding. In the event that Mr. Kane ceases to be
employed by us, we will have the right, for 90 days after that termination of
employment, to purchase from Mr. Kane, for a repurchase price equal to the
original exercise price of $0.375 per share, up to the number of shares which
have not yet vested. As of July 3, 1999, 82,500 shares of common stock were
subject to repurchase by us.
In September 1997, we loaned $27,000 to Mr. Barrett. The loan is evidenced
by a promissory note and bears interest at 8% per annum. As of July 3, 1999,
$15,188 of the principal amount of the loan plus accrued interest was
outstanding. Pursuant to the terms of the promissory note, on September 24, 1998
we forgave the payment by Mr. Barrett of $8,152 and that amount was considered
and treated as compensation to Mr. Barrett by us. In addition, pursuant to the
terms of the promissory note, in the event that Mr. Barrett is employed by us on
each of September 24, 1999, 2000 and 2001, respectively, we will forgive the
payment by Mr. Barrett of $8,152 on each of those date and those amounts will be
considered and treated as compensation to Mr. Barrett by us.
In April 1998, we entered into a pledge agreement with Mr. Barrett,
pursuant to which we loaned to Mr. Barrett $63,000, on a full recourse basis,
representing 90% of the aggregate exercise price of certain options exercised by
Mr. Barrett. Mr. Barrett pledged the 87,500 shares of restricted common stock
issued upon exercise of such options as collateral for the loan. The loan bears
interest at 8% per annum. As of July 3, 1999, the entire principal amount of the
loan plus accrued interest was outstanding. In the event that Mr. Barrett ceases
to be employed by us, we will have the right, for 90 days after that termination
of employment, to purchase from Mr. Barrett, for a repurchase price equal to the
original exercise price ($0.80 per share), up to the number of shares which have
not yet vested. As of July 3, 1999, 47,396 shares of common stock were subject
to repurchase by us.
In November 1998, we entered into a pledge agreement with Mr. Chamoun,
pursuant to which we loaned Mr. Chamoun $33,334, on a full recourse basis. Mr.
Chamoun pledged 41,667 shares of common stock as collateral for this loan. The
loan bears interest at 8% per annum. As of July 3, 1999, the entire principal
amount of the loan plus accrued interest was outstanding.
We have adopted a policy providing that all material transactions between
us and our officers, directors and other affiliates must be:
- approved by a majority of the members of our board of directors and by a
majority of the disinterested members of our board of directors, and
- on terms no less favorable to us than could be obtained from unaffiliated
third parties.
57
<PAGE> 59
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of our common stock as of August 1, 1999, and as adjusted to reflect the sale of
the shares of common stock in this offering, by:
- each person who owns beneficially more than 5% of the outstanding shares
of our common stock,
- each of our directors and the named executive officers, and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting or investment power with
respect to shares. Shares of common stock issuable under stock options that are
exercisable within 60 days after August 1, 1999 or issuable pursuant to
outstanding warrants that may be exercised upon completion of this offering are
deemed outstanding for computing the percentage ownership of the person holding
the options or warrants but are not deemed outstanding for computing the
percentage ownership of any other person. Unless otherwise indicated below, to
our knowledge, all persons named in the table have sole voting and investment
power with respect to their shares of common stock, except to the extent
authority is shared by spouses under applicable law. Unless otherwise indicated,
the address of each person owning more than 5% of the outstanding shares of
common stock is c/o Aspect Medical Systems, Inc., Two Vision Drive, Natick,
Massachusetts 01760. The percentage of common stock outstanding reflects the
conversion, upon the closing of this offering, of all outstanding shares of
preferred stock into an aggregate of 11,067,238 shares of common stock. The
number of shares of common stock deemed outstanding after this offering includes
the shares of common stock being offered for sale in this offering but
assumes no exercise of the underwriters' over-allotment option.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON
STOCK OUTSTANDING
-----------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------------------ ------------------ -------- --------
<S> <C> <C> <C>
5% STOCKHOLDERS
Charles River Partnership VII, Limited Partnership(1)..... 1,586,503 12.3% %
1000 Winter Street, Suite 3300
Waltham, MA 02154
One Liberty Fund III, L.P.(2)............................. 1,530,871 11.9
OneLiberty Ventures
One Liberty Square
Boston, MA 02109
Polaris Venture Partners, L.P.(3)......................... 1,012,692 7.9
Bay Colony Corporate Center
1000 Winter Street, Suite 3350
Waltham, MA 02154
QuestMark Partners, L.P.(4)............................... 915,750 7.1
QuestMark Advisers, LLC
One South Street, Suite 800
Baltimore, MD 21202
New Enterprise Associates IV, Limited Partnership(5)...... 654,493 5.1
1119 St. Paul Street
Baltimore, MD 21202
Orchid & Co., Nominee for T. Rowe Price Threshold Fund
III, L.P.(6)............................................ 646,132 5.0
T. Rowe Price Assoc. Inc.
100 East Pratt
Baltimore, MD 21202
</TABLE>
58
<PAGE> 60
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON
STOCK OUTSTANDING
-----------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------------------ ------------------ -------- --------
<S> <C> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Nassib G. Chamoun(7)...................................... 480,698 3.7% %
J. Breckenridge Eagle(8).................................. 237,583 1.8
Lester John Lloyd(9)...................................... 53,670 *
Stephen E. Coit(10)....................................... 10,238 *
Edwin M. Kania, Jr.(11)................................... 1,537,537 12.0
Donald R. Stanski(12)..................................... 50,146 *
Terrance McGuire(13)...................................... 1,019,358 7.9
J. Neal Armstrong(14)..................................... 209,666 1.6
Steven H. Kane(15)........................................ 223,391 1.7
Paul J. Manberg(16)....................................... 114,355 *
Boudewijn L.P.M. Bollen(17)............................... 13,333 *
All current executive officers and directors as a group
(15 persons)(18)........................................ 1,716,835 13.0
</TABLE>
- ------------
* Less than 1% of the outstanding common stock.
(1) Includes 550 shares of common stock subject to a warrant exercisable upon
completion of this offering.
(2) Includes 275 shares of common stock subject to a warrant exercisable upon
completion of this offering. Mr. Kania, a director of Aspect, is a general
partner of One Liberty Partners III, L.P., a general partner of One
Liberty. Mr. Kania disclaims beneficial ownership of the shares held by One
Liberty, except to the extent of his pecuniary interest therein.
(3) Includes 55,111 shares held by Polaris Venture Partners Founders' Fund.
Also includes 518 shares of common stock subject to a warrant exercisable
by Polaris Venture Partners upon completion of this offering and 31 shares
of common stock subject to a warrant exercisable by Polaris Venture
Partners Founders' Fund upon completion of this offering. North Star
Ventures directly or indirectly provides investment advisory services to
various venture capital funds, including Polaris Venture Partners and
Polaris Venture Partners Founders' Fund. The general partner of these funds
exercises sole voting and investment power with respect to the shares held
by the funds. The principals of North Star Ventures, including Mr. McGuire,
a director of Aspect, are members of Polaris Venture Management Co., L.L.C.
(the general partner of both Polaris Venture Partners and Polaris Venture
Partners Founders' Fund). As a member of the general partner, Mr. McGuire
may be deemed to share voting and investment power for the shares held by
the funds. Mr. McGuire disclaims beneficial ownership of all shares held by
all of these funds except to the extent of his proportionate pecuniary
interests therein.
(4) Includes 186,661 shares held by QuestMark Partners Side Fund, L.P. Also
includes 70,213 shares of common stock subject to a warrant exercisable by
QuestMark Partners, L.P. upon completion of this offering and 20,537 shares
of common stock subject to a warrant exercisable by QuestMark Partners Side
Fund upon completion of this offering.
(5) Includes 154,203 shares held by Catalyst. New Enterprise Associates 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 2,750 shares of common stock subject to a warrant exercisable upon
completion of this offering. Also includes 5,000 shares of common stock
held by T. Rowe Price Threshold Fund Associates, Inc. Mr. Jordan, a former
director of Aspect, is a Vice President of T. Rowe Price Associates, Inc.,
the general partner of T. Rowe Price. Mr. Jordan disclaims beneficial
ownership of the shares by T. Rowe Price, except to the extent of his
pecuniary interest therein.
(7) Includes an aggregate of 105,208 shares of common stock subject to options
which are exercisable within 60 days after August 1, 1999. 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
15,387
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<PAGE> 61
shares of common stock subject to repurchase by Aspect under certain
circumstances. Does not include 163,125 shares which will not become
exercisable within 60 days of August 1, 1999.
(8) Includes an aggregate of 27,136 shares of common stock subject to options
which are exercisable within 60 days after August 1, 1999, 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 15,572
shares of common stock subject to repurchase by Aspect under certain
circumstances. Does not include 47,364 shares which will not become
exercisable within 60 days of August 1, 1999.
(9) Includes 5,625 shares of common stock subject to options which are
exercisable within 60 days after August 1, 1999 and 1,705 shares of common
stock subject to repurchase by Aspect under certain circumstances. Also
includes 652 shares of common stock held by Lester John Lloyd and/or Lynne
Dewar Lloyd, Trustees or Successor Trustees under the Lloyd Trust U/A/D
10/05/88, of which Mr. Lloyd disclaims beneficial ownership, and 71 shares
of common stock subject to a warrant exercisable by Lester John Lloyd
and/or Lynne Dewar Lloyd, Trustees or Successor Trustees under the Lloyd
Trust U/A/D 10/05/88, upon completion of this offering, of which Mr. Lloyd
disclaims beneficial ownership. Does not include 9,375 shares which will
not become exercisable within 60 days of August 1, 1999.
(10) Includes 6,666 shares of common stock subject to options which are
exercisable within 60 days after August 1, 1999. Does not include 8,334
shares which will not become exercisable within 60 days of August 1, 1999.
(11) Includes 1,530,871 shares held by One Liberty. See Note 2 above. Also
includes 6,666 shares of common stock subject to options which are
exercisable within 60 days after August 1, 1999. Does not include 8,334
shares which will not become exercisable within 60 days of August 1, 1999.
(12) Includes an aggregate of 30,146 shares of common stock subject to options
which are exercisable within 60 days after August 1, 1999. Does not include
19,854 shares which will not become exercisable within 60 days of August 1,
1999.
(13) Includes 957,550 shares held by Polaris Venture Partners and 55,142 shares
held by Polaris Venture Partners Founders' Fund. See Note 3 above. Also
includes 6,666 shares of common stock subject to options which are
exercisable within 60 days after August 1, 1999. Does not include 8,334
shares which will not become exercisable within 60 days of August 1, 1999.
(14) Includes an aggregate of 36,511 shares of common stock subject to options
which are exercisable within 60 days after August 1, 1999 and 27,000 shares
of common stock subject to repurchase by Aspect under certain
circumstances. Does not include 56,406 shares which will not become
exercisable within 60 days of August 1, 1999.
(15) Includes an aggregate of 13,152 shares of common stock subject to options
which are exercisable within 60 days after August 1, 1999 and 78,750 shares
of common stock subject to repurchase by Aspect under certain
circumstances. Does not include 33,697 shares which will not become
exercisable within 60 days of August 1, 1999.
(16) Includes an aggregate of 36,719 shares of common stock subject to options
which are exercisable within 60 days after August 1, 1999. 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 3,612 shares of common stock
subject to repurchase by Aspect under certain circumstances. Does not
include 40,781 shares which will not become exercisable within 60 days of
August 1, 1999.
(17) Consists of shares of common stock subject to options which are exercisable
within 60 days after August 1, 1999. Does not include 26,667 shares which
will not become exercisable within 60 days of August 1, 1999.
(18) Includes an aggregate of 345,642 shares of common stock subject to options
which are exercisable within 60 days after August 1, 1999 and 194,407
shares of common stock subject to repurchase by Aspect under certain
circumstances. Does not include 522,269 shares which will not become
exercisable within 60 days of August 1, 1999.
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<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
After this offering, we will be authorized to issue shares
of common stock, $.01 par value per share, and shares of
preferred stock, $.01 par value per share. As of July 3, 1999, we had
outstanding:
- 1,789,905 shares of common stock held by 102 stockholders of record;
- 11,067,238 shares of preferred stock held by 95 stockholders of record;
- options to purchase 2,170,666 shares of common stock; and
- warrants to purchase 192,902 shares of common stock.
Upon the closing of this offering, all outstanding shares of preferred
stock will automatically convert into 11,067,238 shares of common stock, which
will result in an aggregate of shares of common stock
outstanding. The options and warrants will remain outstanding.
The following summary is not intended to be complete and is qualified by
reference to the provisions of applicable law and to our restated certificate of
incorporation and amended and restated by-laws included as exhibits to the
registration statement of which this prospectus is a part.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders. Holders of our common stock do
not have cumulative voting rights. Directors are elected by a plurality of the
votes of the shares present in person or by proxy at the meeting. Holders of
common stock are entitled to receive proportionately any lawful dividends as may
be declared by our board of directors. However, all dividends are subject to
preferences that may be applicable to the holders of any outstanding shares of
preferred stock. In the event of a liquidation, dissolution or winding up of the
affairs of Aspect, whether voluntarily or involuntarily, the holders of common
stock will be entitled to receive proportionately all of our remaining assets
available for distribution to stockholders. This distribution would be subject
to the rights of the holders of any outstanding shares of preferred stock.
Holders of common stock have no preemptive, redemption, conversion or
subscription rights. Our outstanding shares of common stock are fully paid and
non-assessable. The shares of common stock offered by us in this offering will
also be, when issued and paid for, fully paid and non-assessable. The rights,
powers, preferences and privileges of holders of common stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of preferred stock which we may designate and issue in the future. Upon
the closing of this offering, there will be no shares of preferred stock
outstanding.
PREFERRED STOCK
Our board of directors is authorized, subject to any limitations prescribed
by Delaware law, without further stockholder approval, to issue up to an
aggregate of shares of preferred stock, in one or more series.
Our board of directors is also authorized, subject to the limitations prescribed
by Delaware law, to establish the number of shares to be included in each series
and to fix the voting powers, preferences, qualifications and special or
relative rights or privileges of each series. Our board of directors is
authorized to issue preferred stock with voting, conversion and other rights and
preferences that could adversely affect the voting power or other rights of the
holders of common stock.
The purpose of authorizing our board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. However, the issuance of preferred
stock or of rights to purchase preferred stock could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, a majority of our outstanding common stock. We have
no current plans to issue any preferred stock.
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<PAGE> 63
WARRANTS
The warrants have an exercise price of $12.50. The warrants have net
exercise provisions under which the holder may, instead of paying the exercise
price in cash, surrender the warrant and receive a net amount of shares, based
on the fair market value of our shares of common stock at the time of exercise
of the warrant, after deducting the exercise price. These warrants expire on the
third anniversary of the date of this offering. However, if our common stock is
traded on a national exchange or trading system and the average closing price of
our common stock equals or exceeds $25.00 for 25 consecutive trading days, then
we have the right to require the holders to exercise their warrants. If the
holders do not exercise their warrants, the warrants will be automatically
exercised according to the net exercise provisions described above.
REGISTRATION RIGHTS
Pursuant to the terms of a registration rights agreement, the holders of
11,067,238 shares of common stock are entitled to rights with respect to the
registration of those shares under the Securities Act of 1933. The holders of
warrants to purchase 192,902 shares of common stock are also party to the
registration rights agreement and entitled to these registration rights. Under
that agreement, if we propose to register any of our securities under the
Securities Act of 1933, either for our own account or for the account of other
security holders, the holders of registration rights are entitled to notice of
the registration and to include their registrable shares in the registration.
However, in the event of a registration pursuant to an underwritten public
offering of our common stock, the underwriters have the right, subject to
certain conditions, to limit the number of shares included in the registration.
The holders of registration rights 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 shares then outstanding, require
us to prepare and file a registration statement under the Securities Act of 1933
with respect to their registrable shares. We are required to effect only three
of these demand registrations. In addition, at any time after we become eligible
to file a registration statement on Form S-3 (or any successor form), holders of
registration rights may request us to effect a registration on Form S-3 of
registrable shares having an aggregate offering price of at least $250,000.
These rights terminate six years following the date of this prospectus.
DELAWARE LAW AND OUR CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS
Upon the closing of this offering, our restated certificate of
incorporation will provide that:
- the board of directors be divided into three classes, with staggered
three-year terms,
- directors may be removed only for cause by the vote of the holders of at
least two-thirds of the shares of our capital stock entitled to vote, and
- any vacancy on the board of directors, however occurring, including a
vacancy resulting from an enlargement of the board, may only be filled by
vote of a majority of the directors then in office.
These provisions could discourage, delay or prevent a change in control of
Aspect or an acquisition of Aspect at a price which many stockholders may find
attractive. The existence of these provisions could limit the price that
investors might be willing to pay in the future for shares of common stock.
These provisions may also have the effect of discouraging a third party from
initiating a proxy contest, making a tender offer or attempting to change the
composition or policies of our board of directors.
Upon the closing of this offering, our restated certificate of
incorporation and amended and restated by-laws will also provide that:
- stockholder action may be taken only at a duly called and convened annual
or special meeting of stockholders and then only if properly brought
before such meeting,
- stockholder action not be taken by written action in lieu of a meeting,
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<PAGE> 64
- special meetings of stockholders may be called only by our Chairman of
the Board, our Chief Executive Officer or by our board of directors, and
- in order for any matter to be considered "properly brought" before a
meeting, a stockholder must comply with requirements regarding providing
certain information and advance notice to us.
These provisions could delay, until the next stockholders' meeting, actions
which are favored by the holders of a majority of our outstanding voting
securities. These provisions may also discourage another person or entity from
making a tender offer for our common stock, because such person or entity, even
if it acquired a majority of our outstanding voting securities, would be able to
take action as a stockholder only at a duly called stockholders' meeting, and
not by written consent.
The Delaware General Corporation Law provides that the 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 by-laws, as the case may be, requires a greater
percentage. Our restated certificate of incorporation will require the vote of
the holders of at least 75% of our capital stock entitled to vote to amend or
repeal any of the foregoing provisions. The 75% stockholder vote would be in
addition to any separate class vote that might be required pursuant to the terms
of any series of preferred stock that might be then outstanding.
Aspect 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 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. 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.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation provides that our directors will not be
personally liable to us or to our stockholders for monetary damages for breach
of fiduciary duty as a director, except that the limitation will not eliminate
or limit liability to the extent that the elimination or limitation of such
liability is not permitted by the Delaware General Corporation Law as it exists
or may later be amended.
Our certificate of incorporation further provides for the indemnification
of our directors and officers to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law, including circumstances in which
indemnification is otherwise discretionary.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Boston EquiServe
L.P.
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<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices of our common stock. Furthermore,
since some shares of common stock will not be available for sale shortly after
this offering because of the contractual and legal restrictions on resale
described below, sales of substantial amounts of common stock in the public
market after these restrictions lapse could adversely affect the prevailing
market price and our ability to raise equity capital in the future.
Prior to this offering, there has been no public market for our common
stock. Upon completion of this offering, we will have outstanding an aggregate
of shares of our common stock assuming no exercise of outstanding options
or warrants. Of these shares, the shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act of 1933, unless those shares are purchased by "affiliates" as that term is
defined in Rule 144 under the Securities Act of 1933. The remaining 12,857,872
shares of common stock held by existing stockholders are "restricted securities"
as that term is defined in Rule 144 under the Securities Act of 1933 or are
subject to the contractual restrictions described below. Of these remaining
securities:
- 2,838,708 shares which are not subject to the 180-day lock-up period
described below may be sold immediately after completion of
this offering,
- 578,982 additional shares which are not subject to the 180-day lock up
period described below may be sold beginning 90 days after the
effective date of this offering, and
- 9,440,182 additional shares may be sold upon expiration of the 180-day
lock-up period described below.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or 701 under the
Securities Act of 1933, which rules are summarized below.
LOCK-UP AGREEMENTS
Certain of our officers and directors and stockholders holding an aggregate
of 9,440,182 shares of common stock have signed lock-up agreements under which
they agreed not to transfer or dispose of, directly or indirectly, any shares of
common stock or any securities convertible into or exercisable or exchangeable
for shares of common stock, for a period ending 180 days after the date of this
prospectus. Transfers or dispositions by our officers, directors and
stockholders can be made sooner:
- with the written consent of Morgan Stanley & Co. Incorporated,
- as a bona fide gift,
- to immediate family members, or
- to a trust, the beneficiaries of which are immediate family members.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering, or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
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RULE 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, including the holding period
of any prior owner other than an affiliate, is entitled to sell those shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144. Therefore, unless otherwise restricted, shares
eligible for sale under Rule 144(k) may be sold immediately upon the completion
of this offering.
RULE 701
In general, under Rule 701 of the Securities Act of 1933 as currently in
effect, any of our employees, consultants or advisors who purchases shares from
us in connection with a compensatory stock plan or other written agreement is
eligible to resell those shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with various
restrictions, including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 11,067,238 shares of our
common stock, or their transferees, will be entitled to various rights with
respect to the registration of those shares under the Securities Act of 1933.
The holders of warrants to purchase 192,902 shares of our common stock will also
be entitled to these registration rights. See "Description of Capital
Stock -- Registration Rights" on page 62.
STOCK OPTIONS
Immediately after the 180-day lock-up period expires, we intend to file a
registration statement under the Securities Act of 1933 covering shares
of common stock reserved for issuance under our Amended and Restated 1991 Stock
Option Plan, 1998 Stock Incentive Plan, 1999 Employee Stock Purchase Plan and
1998 Director Stock Option Plan. That registration statement is expected to
become effective as soon as it is filed. Accordingly, shares registered under
that registration statement will, subject to vesting provisions and Rule 144
volume limitations applicable to our affiliates, be available for sale in the
open market immediately after the 180-day lock-up period expires.
As of July 3, 1999, options to purchase 2,170,666 shares of common stock
were issued and outstanding. Upon the expiration of the lock-up period described
above, at least 1,192,952 shares of common stock will be subject to vested
options, based on options outstanding as of July 3, 1999.
WARRANTS
Upon completion of this offering, there will be warrants outstanding to
purchase 192,902 shares of common stock at an exercise price of $12.50 per
share. Any shares purchased pursuant to the "cashless exercise" feature of
outstanding warrants may be sold approximately 90 days after completion of this
offering, subject to the requirements of Rule 144.
EFFECT OF SALES OF SHARES
Prior to this offering, there has been no public market for our 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 our common stock prevailing from time to time. Nevertheless,
sales of significant numbers of shares of our common stock in the public market
could adversely affect the market price of the common stock and could impair our
future ability to raise capital through an offering of our equity securities.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Deutsche Bank Securities Inc. and U.S.
Bancorp Piper Jaffray Inc. are acting as representatives, have severally agreed
to purchase, and Aspect has agreed to sell to the underwriters, the respective
number of shares of common stock set forth opposite the names of the
underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
Deutsche Bank Securities Inc................................
U.S. Bancorp Piper Jaffray Inc..............................
---------
Total.............................................
=========
</TABLE>
The underwriters are offering the shares of our common stock subject to
their acceptance of the shares from us and subject to prior sale. The
underwriting agreement provides that the obligations of the several underwriters
to pay for and accept delivery of the shares of our common stock offered in this
offering are subject to the approval of legal matters by their counsel and to
certain other conditions. The underwriters are obligated to take and pay for all
of the shares of our common stock offered by this prospectus if any shares are
taken. However, the underwriters are not required to take or pay for the shares
covered by the over-allotment options described below.
The underwriters initially propose to offer part of the shares of our
common stock directly to the public at the initial public offering price listed
on the cover page of this prospectus and part to dealers at a price that
represents a concession not in excess of $ a share under the public
offering price. Any underwriters may allow, and such dealers may reallow, a
concession not in excess of $ a share to other underwriters or to other
dealers. After the initial offering of the shares of our common stock, the
offering price and other selling terms may from time to time be varied by the
representatives.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of
additional shares of our common stock at the public offering
price set forth on the cover page of this prospectus, less underwriting
discounts and commissions. The underwriters may exercise this option solely for
the purpose of covering over-allotments, if any, made in connection with the
offering of the shares of our common stock offered by this prospectus. To the
extent the option is exercised, each underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of the
additional shares of our common stock as the number set forth next to the names
of all underwriters in the preceding table. If the underwriters' over-allotment
option is exercised in full, the total price to the public would be $ ,
the total underwriters' discounts and commissions would be $ , and the
total proceeds to us would be $ .
Each of Aspect and our directors and executive officers and certain other
securityholders has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the underwriters, during the period
ending 180 days after the date of this prospectus, he, she or it will not
directly or indirectly:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for our common stock, or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of our
common stock,
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whether any such transaction described above is to be settled by delivery of our
common stock or such other securities, in cash or otherwise.
The restrictions described in this paragraph do not apply to:
- the sale of shares to the underwriters,
- transactions by any person other than Aspect relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares, or
- the sale or transfer of shares of common stock to an acquiror in
connection with the sale of Aspect pursuant to a merger, sale of stock or
otherwise.
The underwriters have informed us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered by them.
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "ASPM."
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of our common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in our common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of our common stock, the underwriters may bid for, and purchase, shares of
our common stock in the open market. Finally, the underwriting syndicate may
reclaim selling concessions allowed to an underwriter or a dealer for
distributing our common stock in the offering, if the syndicate repurchases
previously distributed shares of our common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of our common stock
above independent market levels. The underwriters are not required to engage in
these activities and may end any of these activities at any time.
We and the underwriters have agreed to indemnify each other against
liabilities in connection with this offering, including liabilities under the
Securities Act of 1933.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares of common stock offered in
this offering for our directors, officers, employees and related persons.
Individuals purchasing these shares must have a retail account with Morgan
Stanley & Co. Incorporated and must commit to the purchase of these shares
within one day after the date of this prospectus. The number of shares of common
stock available for sale to the general public will be reduced to the extent
these persons purchase reserved shares. Any reserved shares which are not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered in this prospectus.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for our shares of
common stock. Consequently, the initial public offering price for our shares of
common stock will be determined by negotiations between us and the
representatives of the underwriters. Among the factors to be considered in
determining the initial public offering price will be:
- our record of operations, our current financial position and future
prospects,
- the experience of our management,
- sales, earnings and other financial and operating information in recent
periods, and
- the price-earnings ratios, price-sales ratios, market prices of
securities and financial and operating information of companies engaged
in activities similar to ours.
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<PAGE> 69
The estimated initial public offering price range set forth on the cover page of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.
LEGAL MATTERS
The validity of the shares of common stock we are offering will be passed
upon for us by Hale and Dorr LLP, Boston, Massachusetts. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The audited consolidated financial statements as of December 31, 1997 and
1998 and for each of the three years in the period ended December 31, 1998
included in this prospectus and elsewhere in the registration statement 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.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 (including the exhibits and schedules to the registration
statement) under the Securities Act of 1933 with respect to the common stock we
propose to sell in this offering. This prospectus, which is part of the
registration statement, does not contain all the information set forth in the
registration statement. For further information about us and the common stock we
propose to sell in this offering, we refer you to the registration statement.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to, are not necessarily complete, and in
each instance reference is made to the copy of each contract, agreement or other
document filed as an exhibit to the registration statement, each statement being
qualified by this reference.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information we file at the Securities and
Exchange Commission's public reference room at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices located
at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of
these documents upon payment of a duplicating fee, by writing to the Securities
and Exchange Commission. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Aspect's Securities and Exchange Commission filings, including the
registration statement, will also be available to you on the Securities and
Exchange Commission's website (http://www.sec.gov).
We intend to distribute to our stockholders annual reports containing
audited consolidated financial statements. We also intend to make available to
our stockholders, within 45 days after the end of each of the first three fiscal
quarters of each fiscal year, reports containing interim unaudited financial
information.
68
<PAGE> 70
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
----
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998, July 3, 1999 (Unaudited) and Pro Forma July 3, 1999
(Unaudited)............................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998 and for the Six Months
Ended July 4, 1998 (Unaudited) and July 3, 1999
(Unaudited)............................................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1997 and 1998 and for the
Six Months Ended July 3, 1999 (Unaudited)................. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998 and for the Six Months
Ended July 4, 1998 (Unaudited) and July 3, 1999
(Unaudited)............................................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 71
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Aspect Medical Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Aspect
Medical Systems, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1997 and 1998, and the related statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. 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.
and subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 15, 1999
F-2
<PAGE> 72
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31, JULY 3, JULY 3, 1999
1997 1998 1999 (NOTE 2)
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 368,507 $ 17,122,993 $ 14,549,785 $ 14,549,785
Marketable securities........................... 4,612,462 4,150,336 1,561,589 1,561,589
Accounts receivable, net of allowance of
$62,400, $200,000 and $347,500 at December 31,
1997 and 1998 and July 3, 1999,
respectively.................................. 719,172 2,108,944 2,870,845 2,870,845
Current portion of investment in sales-type
leases........................................ 136,392 776,275 1,369,502 1,369,502
Inventory....................................... 387,479 270,189 736,614 736,614
Other current assets............................ 245,962 316,773 379,922 379,922
------------ ------------ ------------ ------------
Total current assets..................... 6,469,974 24,745,510 21,468,257 21,468,257
Property and equipment, net....................... 923,559 2,121,915 2,991,655 2,991,655
Long-term investment in sales-type leases......... 209,074 1,721,825 2,622,856 2,622,856
------------ ------------ ------------ ------------
Total assets............................. $ 7,602,607 $ 28,589,250 $ 27,082,768 $ 27,082,768
------------ ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Working capital line of credit.................. $ -- $ -- $ 1,568,750 $ 1,568,750
Current portion of capital lease obligations.... 154,906 126,775 59,038 59,038
Current portion of long-term debt............... -- 720,670 720,670 720,670
Accounts payable................................ 1,119,055 891,943 1,695,995 1,695,995
Accrued liabilities............................. 1,500,591 3,663,407 4,317,368 4,317,368
Deferred revenue................................ 643,000 2,056,893 1,889,487 1,889,487
------------ ------------ ------------ ------------
Total current liabilities................ 3,417,552 7,459,688 10,251,308 10,251,308
------------ ------------ ------------ ------------
Long-term debt obligations........................ -- 1,441,339 1,081,004 1,081,004
Long-term capital lease obligations............... 117,680 -- -- --
------------ ------------ ------------ ------------
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred Stock, $.01 par value; (pro forma
[ ] shares authorized, no shares
issued or outstanding)........................ -- -- -- --
Convertible Preferred Stock, $.01 par value;
22,363,224 shares authorized, 7,647,275,
11,067,238 and 11,067,238 shares issued and
outstanding at December 31, 1997 and 1998 and
July 3, 1999, respectively (liquidation
preference -- $58,962,591 at July 3, 1999)
(pro forma -- no shares authorized, issued or
outstanding).................................. 38,726,070 67,560,365 67,560,365 --
Common Stock, $.01 par value; 17,030,000 shares
authorized, 1,548,027, 1,778,692 and 1,789,905
shares issued and outstanding at December 31,
1997 and 1998, and July 3, 1999, respectively
(pro forma -- [ ] shares authorized,
12,857,143 shares issued and outstanding)..... 15,480 17,787 17,899 128,571
Additional paid-in capital...................... 338,970 933,467 1,055,969 68,505,662
Warrants........................................ -- 146,606 146,606 146,606
Notes receivable from employees and directors... (273,579) (306,182) (305,323) (305,323)
Deferred compensation........................... -- (317,564) (289,931) (289,931)
Accumulated other comprehensive income(loss).... 3,098 3,641 (766) (766)
Accumulated deficit............................. (34,742,664) (48,349,897) (52,434,363) (52,434,363)
------------ ------------ ------------ ------------
Total stockholders' equity............... 4,067,375 19,688,223 15,750,456 15,750,456
------------ ------------ ------------ ------------
Total liabilities and stockholders'
equity................................. $ 7,602,607 $ 28,589,250 $ 27,082,768 $ 27,082,768
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 73
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------------
----------------------------------------- JULY 4, JULY 3,
1996 1997 1998 1998 1999
----------- ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue....................... $ 1,388,788 $ 3,067,573 $ 11,238,205 $ 4,420,165 $11,712,197
Costs and expenses:
Costs of revenue............ 1,095,872 3,601,569 5,880,288 2,662,249 4,235,937
Research and development.... 2,338,239 2,603,117 4,041,753 1,941,915 2,345,980
Sales and marketing......... 1,560,635 4,813,505 10,354,411 4,669,543 7,565,771
General and
administrative........... 1,871,071 2,357,695 4,253,712 1,960,271 2,293,062
----------- ------------ ------------ ----------- -----------
Total costs and
expenses.......... 6,865,817 13,375,886 24,530,164 11,233,978 16,440,750
----------- ------------ ------------ ----------- -----------
Loss from operations.......... (5,477,029) (10,308,313) (13,291,959) (6,813,813) (4,728,553)
Interest income............... 143,675 500,485 553,365 312,857 739,974
Interest expense.............. (63,084) (78,027) (94,137) (16,112) (95,887)
Other expense (Note 19)....... -- -- (774,502) -- --
----------- ------------ ------------ ----------- -----------
Net loss...................... $(5,396,438) $ (9,885,855) $(13,607,233) $(6,517,068) $(4,084,466)
=========== ============ ============ =========== ===========
Net loss per share:
Basic and diluted........... $ (57.76) $ (15.63) $ (11.70) $ (6.34) $ (2.79)
=========== ============ ============ =========== ===========
Pro forma basic and
diluted.................. $ (1.31) $ (0.33)
============ ===========
Shares used in computing net
loss per share:
Basic and diluted........... 93,424 632,377 1,162,695 1,028,215 1,462,520
Pro forma basic and
diluted.................. 10,351,979 12,529,758
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 74
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
CONVERTIBLE ---------------------
PREFERRED STOCK
COMPREHENSIVE ------------------------ PAR
LOSS SHARES AMOUNT SHARES VALUE
------------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995........................... 2,481,940 $22,454,371 93,424 $ 934
Issuance of Series B-1 convertible preferred stock,
net of issuance costs of approximately $14,000.... -- 1,725,386 3,436,899 -- --
Comprehensive loss:
Net loss............................................ $ (5,396,438) -- -- -- --
Other comprehensive loss -
Unrealized loss on marketable securities.......... (2,506) -- -- -- --
------------
Comprehensive loss.................................. (5,398,944) -- -- -- --
---------- ----------- --------- ---------
Balance, December 31, 1996........................... 4,207,326 25,891,270 93,424 934
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
Comprehensive loss:
Net loss............................................ (9,885,855) -- -- -- --
Other comprehensive income -
Unrealized gain on marketable securities.......... 3,260 -- -- -- --
------------
Comprehensive loss.................................. (9,882,595) -- -- -- --
---------- ----------- --------- ---------
Balance, December 31, 1997........................... 7,647,275 38,726,070 1,548,027 15,480
Issuance of Series D convertible preferred stock,
net of issuance costs of approximately $73,000.... -- 1,666,234 11,573,816 -- --
Issuance of Series E convertible preferred stock and
warrants, net of issuance costs of approximately
$130,000.......................................... -- 1,753,729 17,260,479 -- --
Issuance of common stock upon exercise of common
stock options..................................... -- -- -- 230,665 2,307
Deferred compensation related to stock options...... -- -- -- -- --
Reversal of unamortized deferred compensation
related to canceled stock options................. -- -- -- -- --
Payments on notes receivable........................ -- -- -- -- --
Amortization of deferred compensation related to
stock options..................................... -- -- -- -- --
Comprehensive loss:
Net loss............................................ (13,607,233) -- -- -- --
Other comprehensive income -
Unrealized gain on marketable securities.......... 543 -- -- -- --
------------
Comprehensive loss.................................. (13,606,690) -- -- -- --
---------- ----------- --------- ---------
Balance, December 31, 1998........................... 11,067,238 67,560,365 1,778,692 17,787
Issuance of common stock upon exercise of common
stock options (unaudited)......................... -- -- -- 11,213 112
Payments on notes receivable from employees and
directors (unaudited)............................. -- -- -- -- --
<CAPTION>
NOTES
RECEIVABLE ACCUMULATED
ADDITIONAL FROM OTHER
PAID-IN EMPLOYEES DEFERRED COMPREHENSIVE
CAPITAL WARRANTS AND DIRECTORS COMPENSATION INCOME(LOSS)
---------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995........................... $ 31,096 $ -- $ -- -$-........ $ 2,344
Issuance of Series B-1 convertible preferred stock,
net of issuance costs of approximately $14,000.... -- -- -- -- --
Comprehensive loss:
Net loss............................................ -- -- -- -- --
Other comprehensive loss -
Unrealized loss on marketable securities.......... -- -- -- -- (2,506)
Comprehensive loss.................................. -- -- -- -- --
---------- -------- --------- --------- -------
Balance, December 31, 1996........................... 31,096 -- -- -- (162)
Issuance of Series C convertible preferred stock,
net of issuance costs of approximately $61,000.... -- -- -- -- --
Issuance of common stock upon exercise of common
stock options..................................... 307,874 -- (273,579) -- --
Comprehensive loss:
Net loss............................................ -- -- -- -- --
Other comprehensive income -
Unrealized gain on marketable securities.......... -- -- -- -- 3,260
Comprehensive loss.................................. -- -- -- -- --
---------- -------- --------- --------- -------
Balance, December 31, 1997........................... 338,970 -- (273,579) --........ 3,098
Issuance of Series D convertible preferred stock,
net of issuance costs of approximately $73,000.... -- -- -- -- --
Issuance of Series E convertible preferred stock and
warrants, net of issuance costs of approximately
$130,000.......................................... -- 146,606 -- -- --
Issuance of common stock upon exercise of common
stock options..................................... 180,595 -- (63,001) -- --
Deferred compensation related to stock options...... 758,152 -- -- (758,152) --
Reversal of unamortized deferred compensation
related to canceled stock options................. (344,250) -- -- 344,250 --
Payments on notes receivable........................ -- -- 30,398 -- --
Amortization of deferred compensation related to
stock options..................................... -- -- -- 96,338 --
Comprehensive loss:
Net loss............................................ -- -- -- -- --
Other comprehensive income -
Unrealized gain on marketable securities.......... -- -- -- -- 543
Comprehensive loss.................................. -- -- -- -- --
---------- -------- --------- --------- -------
Balance, December 31, 1998........................... 933,467 146,606 (306,182) (317,564) 3,641
Issuance of common stock upon exercise of common
stock options (unaudited)......................... 7,266 -- -- -- --
Payments on notes receivable from employees and
directors (unaudited)............................. -- -- 859 -- --
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ -------------
<S> <C> <C>
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
Comprehensive loss:
Net loss............................................ (5,396,438) (5,396,438)
Other comprehensive loss -
Unrealized loss on marketable securities.......... -- (2,506)
Comprehensive loss.................................. -- --
------------ -----------
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
Comprehensive loss:
Net loss............................................ (9,885,855) (9,885,855)
Other comprehensive income -
Unrealized gain on marketable securities.......... -- 3,260
Comprehensive loss.................................. -- --
------------ -----------
Balance, December 31, 1997........................... (34,742,664) 4,067,375
Issuance of Series D convertible preferred stock,
net of issuance costs of approximately $73,000.... -- 11,573,816
Issuance of Series E convertible preferred stock and
warrants, net of issuance costs of approximately
$130,000.......................................... -- 17,407,085
Issuance of common stock upon exercise of common
stock options..................................... -- 119,901
Deferred compensation related to stock options...... -- --
Reversal of unamortized deferred compensation
related to canceled stock options................. -- --
Payments on notes receivable........................ -- 30,398
Amortization of deferred compensation related to
stock options..................................... -- 96,338
Comprehensive loss:
Net loss............................................ (13,607,233) (13,607,233)
Other comprehensive income -
Unrealized gain on marketable securities.......... -- 543
Comprehensive loss.................................. -- --
------------ -----------
Balance, December 31, 1998........................... (48,349,897) 19,688,223
Issuance of common stock upon exercise of common
stock options (unaudited)......................... -- 7,378
Payments on notes receivable from employees and
directors (unaudited)............................. -- 859
</TABLE>
<TABLE>
Deferred compensation related to stock options (unaudited). -- -- -- -- --
<S> <C> <C> <C> <C> <C>
Amortization of deferred compensation related to stock
options (unaudited).................................. -- -- -- -- --
Comprehensive loss:
Net loss (unaudited)................................... (4,084,466) -- -- -- --
Other comprehensive loss -
Unrealized loss on marketable securities(unaudited)... (4,407) -- -- -- --
------------
Comprehensive loss..................................... $ (4,088,873) -- -- -- --
---------- ----------- --------- ---------
Balance, July 3, 1999 (unaudited)....................... 11,067,238 $67,560,365 1,789,905 $ 17,899
========== =========== ========= =========
<CAPTION>
Deferred compensation related to stock options (unaudited). 115,236 -- -- (115,236) --
<S> <C> <C> <C> <C> <C>
Amortization of deferred compensation related to stock
options (unaudited).................................. -- -- -- 142,869 --
Comprehensive loss:
Net loss (unaudited)................................... -- -- -- -- --
Other comprehensive loss -
Unrealized loss on marketable securities(unaudited)... -- -- -- -- (4,407)
Comprehensive loss..................................... -- -- -- -- --
---------- -------- --------- --------- -------
Balance, July 3, 1999 (unaudited)....................... $1,055,969 $146,606 $(305,323) $(289,931) $ (766)
========== ======== ========= ========= =======
<CAPTION>
Deferred compensation related to stock options (unaudited). -- --
<S> <C> <C>
Amortization of deferred compensation related to stock
options (unaudited).................................. -- 142,869
Comprehensive loss:
Net loss (unaudited)................................... (4,084,466) (4,084,466)
Other comprehensive loss -
Unrealized loss on marketable securities(unaudited)... -- (4,407)
Comprehensive loss..................................... -- --
------------ -----------
Balance, July 3, 1999 (unaudited)....................... $(52,434,363) $15,750,456
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 75
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------------
----------------------------------------- JULY 4, JULY 3,
1996 1997 1998 1998 1999
----------- ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(5,396,438) $ (9,885,855) $(13,607,233) $(6,517,068) $(4,084,466)
Adjustments to reconcile net loss to net cash used
for operating activities -
Depreciation and amortization................... 189,378 192,571 623,133 160,474 509,943
Provision for doubtful accounts................. 43,000 14,333 146,500 40,000 151,015
Compensation expense related to stock options... -- -- 96,338 64,305 142,869
Changes in assets and liabilities -
Increase in accounts receivable............... (92,990) (437,525) (1,536,272) (626,831) (912,916)
Decrease (increase) in inventory.............. 61,193 763,483 117,290 (563,650) (466,425)
Increase in other current assets.............. (60,628) (108,343) (70,811) (160,855) (63,150)
Increase in investment in sales-type leases... -- (345,466) (2,152,634) (1,088,303) (1,494,257)
Increase (decrease) in accounts payable....... 493,575 459,778 (227,112) 103,787 804,052
(Decrease) increase in accrued liabilities.... (4,385) 776,260 2,162,816 1,433,163 653,961
Increase (decrease) in deferred revenue....... 814,717 (180,000) 1,413,893 1,052,830 (167,405)
----------- ------------ ------------ ----------- -----------
Net cash used for operating activities...... (3,952,578) (8,750,764) (13,034,092) (6,102,148) (4,926,779)
----------- ------------ ------------ ----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment............. (622,384) (958,271) (1,821,489) (1,133,750) (1,379,683)
Purchases of marketable securities................ (23,953,144) (65,379,625) (42,947,415) (38,316,566) (1,761,464)
Proceeds from sales of marketable securities...... 24,045,377 61,647,164 43,410,084 36,098,460 4,345,802
----------- ------------ ------------ ----------- -----------
Net cash (used for) provided by
investing activities...................... (530,151) (4,690,732) (1,358,820) (3,351,856) 1,204,655
----------- ------------ ------------ ----------- -----------
Cash flows from financing activities:
Proceeds from working capital line of credit...... -- -- -- -- 1,568,750
Principal payments on capital lease obligations... (287,616) (427,558) (145,811) (74,546) (67,737)
Proceeds from sale leaseback of property and
equipment....................................... 330,291 -- -- -- --
Proceeds from equipment loan...................... -- -- 2,162,009 775,831 --
Payments on equipment loan........................ -- -- -- -- (360,335)
Proceeds from issuance of convertible preferred
stock and warrants, net of issuance costs....... 3,436,899 12,834,800 28,980,901 11,573,816 --
Proceeds from issuance of common stock............ -- 48,841 119,901 80,023 7,379
Payments received on notes receivable from
employees and directors......................... -- -- 30,398 30,397 859
----------- ------------ ------------ ----------- -----------
Net cash provided by financing activities... 3,479,574 12,456,083 31,147,398 12,385,521 1,148,916
----------- ------------ ------------ ----------- -----------
Net (decrease) increase in cash and cash
equivalents....................................... (1,003,155) (985,413) 16,754,486 2,931,517 (2,573,208)
Cash and cash equivalents, beginning of period...... 2,357,075 1,353,920 368,507 368,507 17,122,993
----------- ------------ ------------ ----------- -----------
Cash and cash equivalents, end of period............ $ 1,353,920 $ 368,507 $ 17,122,993 $ 3,300,024 $14,549,785
=========== ============ ============ =========== ===========
Supplemental disclosure of cash flow information:
Interest paid..................................... $ 63,084 $ 78,027 $ 94,137 $ 16,112 $ 95,887
=========== ============ ============ =========== ===========
Supplemental disclosure of noncash financing
activities:
Capital lease obligations totaling $367,000,
including sale leaseback transactions, were
incurred in 1996
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 76
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) DESCRIPTION OF OPERATIONS
Aspect Medical Systems, Inc. and its subsidiaries (the "Company") develops,
manufactures and markets an anesthesia monitoring system that enables anesthesia
providers to assess and manage a patient's level of consciousness. The BIS
system incorporates the Company's proprietary disposable BIS Sensors and the
Company's BIS monitor or BIS Module Kit. The Company's latest generation BIS
monitor, the A-2000 BIS Monitor, was cleared for marketing by the United States
Food and Drug Administration in February 1998. The BIS system is based on the
Company'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 Company incurred net losses of $5,396,438, $9,885,855 and $13,607,233
for the years ended December 31, 1996, 1997 and 1998, respectively, and at July
3, 1999 had an accumulated deficit of $52,434,363. Principal risks that may
affect the business, results of operations and financial condition of the
Company include the Company's ability to raise sufficient capital to fund
operations, 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 consolidated balance sheet as of July 3, 1999, statements
of operations and cash flows for the six months ended July 4, 1998 and July 3,
1999 and the statement of stockholders' equity for the six months ended July 3,
1999 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 six
months ended July 3, 1999 are not necessarily indicative of results to be
expected for the entire year or for any other interim period.
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 six months ended July 4, 1998 relate to the period from
January 1, 1998 to July 4, 1998, and all references to the six months ended July
3, 1999 relate to the period from January 1, 1999 to July 3, 1999.
UNAUDITED PRO FORMA PRESENTATION
Under the terms of the Company's restated certificate of incorporation, all
outstanding preferred stock will be converted automatically into shares of
common stock upon the closing of the Company's initial public offering. Also,
upon the closing of the Company's initial public offering, the authorized
capital stock of the Company will consist of shares of common stock
and shares of preferred stock, the terms of which will not be
designated. The unaudited pro forma balance sheet information at July 3, 1999
reflects the conversion of all series of preferred stock into 11,067,238 shares
of common stock as if the conversion occurred on July 3, 1999.
F-7
<PAGE> 77
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all wholly-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION
Financial statements of international subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and a weighted average exchange rate for revenue and expenses. The
functional currency of the Company's international subsidiaries is the U.S.
dollar; therefore, translation adjustments are recorded in the consolidated
statements of operations and have not been material.
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company invests its excess cash in money market accounts, certificates
of deposit, 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, 1997 and 1998 and July 3, 1999. The securities are reported at fair value,
with any unrealized gains and losses excluded from earnings and reported as
other comprehensive income.
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.
RESEARCH AND DEVELOPMENT COSTS
The Company charges research and development costs to operations as
incurred.
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.
F-8
<PAGE> 78
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
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, 1997 and 1998 and July 3, 1999, accounts receivable from
one of the Company's international distributors accounted for approximately 19%,
14% and 2%, respectively, of the total amounts due to the Company. For the years
ended December 31, 1996, 1997 and 1998, sales to this customer accounted for
approximately 49%, 35% and 13%, respectively, of the Company's total revenue.
For the six months ended July 4, 1998 and the six months ended July 3, 1999,
sales to this customer accounted for approximately 17% and 3% of the Company's
total revenue, respectively. Effective July 1, 1998, this customer no longer
distributes the Company's monitors.
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 Financial Accounting Standards Board ("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
F-9
<PAGE> 79
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
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, bank loans 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,
---------------------- JULY 3,
1997 1998 1999
-------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash.............................................. $131,757 $11,122,993 $ 1,687,575
Certificates of deposit........................... -- 6,000,000 4,092,033
Corporate debt securities......................... -- -- 8,770,177
U.S. Government debt securities................... 236,750 -- --
-------- ----------- -----------
$368,507 $17,122,993 $14,549,785
======== =========== ===========
</TABLE>
Available-for-sale securities included in marketable securities at December
31, 1997 and 1998 and July 3, 1999 consist of the following:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========== ====== ===== ==========
December 31, 1998 --
Corporate debt securities........................ $3,136,075 $ 241 $ -- $3,136,316
Municipal notes.................................. 1,010,620 3,400 -- 1,014,020
---------- ------ ----- ----------
$4,146,695 $3,641 $ -- $4,150,336
========== ====== ===== ==========
July 3, 1999 -- (unaudited)
U.S. Government debt securities.................. $1,001,704 $ -- $(766) $1,000,938
Corporate debt securities........................ 560,651 -- -- 560,651
---------- ------ ----- ----------
$1,562,355 $ -- $(766) $1,561,589
========== ====== ===== ==========
</TABLE>
The amortized cost and estimated fair value of investments in debt
securities at July 3, 1999, by contractual maturity, were as follows:
<TABLE>
<CAPTION>
ESTIMATED
FAIR
COST VALUE
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Maturing in one year or less................................ $ 560,651 $ 560,651
Maturing in one to two years................................ 1,001,704 1,000,938
---------- ----------
$1,562,355 $1,561,589
========== ==========
</TABLE>
F-10
<PAGE> 80
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The cost of securities sold is determined based on the specific
identification method for purposes of recording realized gains and losses. 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,
---------------------- JULY 3,
1997 1998 1999
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Total minimum lease payments
receivable............................ $505,474 $3,300,533 $5,133,165
Less -- unearned interest............. 160,008 802,433 1,140,807
-------- ---------- ----------
Net investment in sales-type leases..... 345,466 2,498,100 3,992,358
Less -- current portion............... 136,392 776,275 1,369,502
-------- ---------- ----------
$209,074 $1,721,825 $2,622,856
======== ========== ==========
</TABLE>
Future minimum lease payments due under non-cancelable leases as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
- -----------
<S> <C>
1999........................................................ $1,226,664
2000........................................................ 892,561
2001........................................................ 559,384
2002........................................................ 402,093
2003........................................................ 219,831
----------
$3,300,533
==========
</TABLE>
(5) INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JULY 3,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials...................................... $322,636 $165,682 $390,439
Work-in-progress................................... -- -- 30,325
Finished goods..................................... 64,843 104,507 315,850
-------- -------- --------
$387,479 $270,189 $736,614
======== ======== ========
</TABLE>
F-11
<PAGE> 81
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE ------------------------ JULY 3,
IN YEARS 1997 1998 1999
---------------------------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment........... 3 $ 707,071 $1,626,676 $1,977,124
Construction in progress..... -- 490,194 98,866 768,375
Machinery and equipment...... 3 to 5 152,735 887,046 1,158,846
Furniture and fixtures....... 3 133,114 308,656 361,649
Shorter of the life of the
lease or the estimated
Leasehold improvements....... remaining useful life 1,485 273,313 292,863
---------- ---------- ----------
1,484,599 3,194,557 4,558,857
Accumulated depreciation and
amortization............... (561,040) (1,072,642) (1,567,202)
---------- ---------- ----------
$ 923,559 $2,121,915 $2,991,655
========== ========== ==========
</TABLE>
At December 31, 1997, 1998 and July 3, 1999, property and equipment held
under capital leases totaled approximately $521,651, $86,944 and $12,788,
respectively. Accumulated depreciation of these assets totaled approximately
$458,988 and $67,850 at December 31, 1997 and 1998, respectively, and $10,657 at
July 3, 1999.
During 1996, the Company entered into sale-leaseback transactions. The
Company received proceeds of approximately $330,000 from the sale of these
assets. 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,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforwards.......................... $12,254,000 $16,693,000
Tax credit carryforwards.................................. 1,119,000 1,292,000
Other..................................................... 782,000 1,507,000
----------- -----------
Gross deferred tax assets............................... 14,155,000 19,492,000
Valuation allowance..................................... (14,155,000) (19,492,000)
----------- -----------
Net deferred tax asset.................................. $ -- $ --
=========== ===========
</TABLE>
The Company has provided a full valuation allowance against its gross
deferred tax assets at December 31, 1997 and 1998 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 $41,452,000 and
$1,292,000, respectively, at December 31, 1998 that will expire commencing in
the year 2002 through the year 2018 if not utilized.
F-12
<PAGE> 82
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
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, 1998, the Company's authorized capital stock consisted
of 17,030,000 shares of common stock, $.01 par value, and 22,363,224 shares of
preferred stock, $.01 par value. Of the 22,363,224 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, 1,760,000 shares are designated
Series E convertible preferred stock, 406,898 shares are designated Series A-2
convertible preferred stock, 3,800,428 shares have been designated Series B-2
convertible preferred stock, 3,500,000 shares have been designated Series C-2
convertible preferred stock, 1,714,286 shares have been designated Series D-2
convertible preferred stock and 1,760,000 shares have been designated Series E-2
convertible preferred stock.
CONVERTIBLE PREFERRED STOCK
Convertible preferred stock outstanding consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JULY 3,
1997 1998 1999
----------- ----------- -----------
<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 12,834,800
Series D convertible preferred stock; 1,666,234 shares
issued and outstanding, at issuance price, net of
issuance costs........................................ -- 11,573,816 11,573,816
Series E convertible preferred stock; 1,753,729 shares
issued and outstanding, at issuance price, net of
issuance costs........................................ -- 17,260,479 17,260,479
----------- ----------- -----------
$38,726,070 $67,560,365 $67,560,365
=========== =========== ===========
</TABLE>
In 1995 and 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 $11,573,816.
F-13
<PAGE> 83
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
In December 1998, the Company issued 1,753,729 shares of Series E
convertible preferred stock and warrants to purchase 192,902 shares of common
stock for net proceeds of $17,407,085. The warrants are fully exercisable with
an exercise price of $12.50 per share and expire on the earlier of the third
anniversary of the Company's initial public offering or December 2008. However,
if the common stock is traded on a national exchange or trading system and the
average closing market price per share of common stock over 25 consecutive
trading days equals or exceeds $25.00, the Company has the right to require the
exercise of the warrants. The Company has allocated the proceeds received
between the Series E convertible preferred stock and the warrants based on the
estimated fair market value of the convertible preferred stock and the warrants.
The rights and preferences of the Company's convertible preferred stock are
as follows:
VOTING RIGHTS
Except as set forth in the restated certificate of incorporation, the
holders of the convertible preferred stock are entitled to 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.
CONVERSION
Each share of convertible preferred stock 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 in which the price per common share
equals or exceeds $14.00, resulting in gross proceeds of at least $20,000,000.
The number of shares of common stock into which holders of convertible 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 holders of Series E convertible preferred stock will receive an amount equal
to the greater of (i) $10.00 per share plus any dividends declared and/or
accrued but unpaid on such shares or (ii) the amount per share that would have
been payable had all series of Preferred Stock been converted into common stock.
If the remaining assets of the Company available for distribution are
insufficient to pay the Series E preferred stockholders the full amount they are
entitled to, the holders of Series E stock shall share ratably in any
distribution of the assets. Thereafter, the remaining assets shall be
distributed ratably as follows: 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 holders of
convertible preferred stock (other than Series E convertible preferred stock)
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 convertible preferred stock are entitled to dividends when
and if declared by the Board of Directors.
F-14
<PAGE> 84
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
COMMON STOCK
At July 3, 1999, the Company has reserved 11,067,238 shares of common stock
for issuance upon conversion of the preferred stock, 3,863,519 shares of common
stock for issuance under the Company's stock option plans, and 192,902 for
issuance upon the exercise of outstanding warrants.
(9) STOCK OPTION PLANS
The Company's stock option plans provide for the granting, at the
discretion of the Board of Directors, of options for the purchase of up to
5,560,000 shares of common stock to employees, directors and advisors. Option
prices are determined by the Board of Directors. At July 3, 1999, 1,692,853
shares were available for future grant under the Company's stock option plans.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE OPTION
NUMBER OF OPTION PRICE PRICE PER
SHARES PER SHARE SHARE
---------- ------------ --------------
<S> <C> <C> <C>
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................................................. (1,454,603) .20-.375 .22
Canceled.................................................. (77,376) .20-.375 .20
---------- ----------- -----
Outstanding, December 31, 1997.............................. 1,070,626 .20-45.83 .74
Granted................................................... 1,613,632 .80-11.05 6.18
Exercised................................................. (230,665) .20-4.20 1.32
Canceled.................................................. (616,577) .20-45.83 10.07
---------- ----------- -----
Outstanding, December 31, 1998.............................. 1,837,016 .20-45.83 2.31
Granted (unaudited)....................................... 364,110 6.00-7.50 6.57
Exercised (unaudited)..................................... (11,213) .20-4.20 .66
Canceled (unaudited)...................................... (19,247) .375-4.20 2.35
---------- ----------- -----
Outstanding, July 3, 1999 (unaudited)....................... 2,170,666 $.20-$45.83 $3.03
========== =========== =====
Exercisable, December 31, 1996.............................. 1,347,642 $.20-$45.83 $ .29
Exercisable, December 31, 1997.............................. 170,747 $.20-$45.83 $ .96
Exercisable, December 31, 1998.............................. 406,706 $.20-$45.83 $ .83
Exercisable, July 3, 1999 (unaudited)....................... 727,737 $.20-$45.83 $1.80
</TABLE>
On September 17, 1998, the Company's Board of Directors authorized the
repricing of 480,698 stock options previously granted under the Company's stock
option plans. The repricing provided for the exercise price of the options to be
reduced from $11.05 per share to $4.20 per share, the estimated fair market
value of the Company's common stock at that time.
Subsequent to July 3, 1999, stock options to purchase 19,400 shares of
common stock were granted with an exercise price of $11.05 per share, stock
options to purchase 729 shares of common stock with an exercise price of $4.20
per share were exercised and stock options to purchase 17,037 shares of common
stock with exercise prices ranging from $4.20 to $7.50 per share were canceled.
F-15
<PAGE> 85
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
During 1997 and 1998, the Company accelerated the vesting of certain
employees' and directors' stock options. These employees and directors exercised
options to acquire 1,495,470 shares of common stock. The shares of common stock
are subject to a repurchase right by the Company and the number of shares
subject to the repurchase provision decreases over time in accordance with the
vesting schedule of the original option grant. The option exercise price was
paid in the form of cash of $45,735 and by delivery to the Company of full
recourse promissory notes of $336,580. In the event that any holder of shares of
common stock which remain subject to the repurchase provision ceases to be
employed by the Company, the Company has the right to repurchase such shares for
90 days at a price equal to the original exercise price. The shares generally
vest over two to four years from the initial grant date, provided that the
holder continues to be employed by the Company. As the shares of restricted
common stock vest, they cease to be subject to the repurchase provision. As of
July 3, 1999, an aggregate of 237,831 shares remain subject to repurchase.
Stock options and restricted common stock generally vest over two to four
years and provide for the acceleration of vesting upon a change of control of
the Company.
A summary of outstanding and exercisable options as of July 3, 1999 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL NUMBER
PRICE OUTSTANDING LIFE EXERCISABLE
-------- ----------- ----------- -----------
<S> <C> <C> <C>
$0.20 190,222 6.84 161,790
0.375 99,604 7.89 52,907
0.80 587,999 8.28 241,373
2.80 185,257 8.78 74,604
4.20 743,254 8.43 184,710
6.00 226,085 9.49 10,633
7.50 138,025 8.36 1,500
16.67 207 1.13 207
45.83 13 4.74 13
--------- ----- -------
$0.20-$45.83 2,170,666 8.36 727,737
</TABLE>
In 1998 and in the six months ended July 3, 1999, the Company recorded
deferred compensation in connection with certain stock option grants, of
approximately $758,200 and $115,200, respectively, which represents the
aggregate difference between the estimated fair market value of the common stock
and the exercise price of the options as well as the estimated fair value of
options granted to non-employees. In connection with an employee termination, an
option to purchase 85,000 shares of common stock was canceled, and the related
unamortized deferred compensation of $344,250 was reversed. The remaining
unamortized deferred compensation of $289,931 at July 3, 1999 will be recognized
as compensation expense over the vesting term of the related options.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 requires the measurement of the fair value 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 1996,
1997, 1998 and the six months ended July 4, 1998 and July 3, 1999 using the
Black-Scholes option-pricing model prescribed by SFAS No. 123. The following
F-16
<PAGE> 86
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, ----------------------------
------------------------------------ JULY 4, JULY 3,
1996 1997 1998 1998 1999
----------- ----------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Risk-free interest rate................ 6.4%-6.8% 6.5%-6.75% 5.47% 5.1%-6.75% 4.58%-4.98%
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...................... $0.15 $0.48 $1.92 $4.46 $4.51
</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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------------
----------------------------------------- JULY 4, JULY 3,
1996 1997 1998 1998 1999
----------- ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss
As reported................. $(5,396,438) $ (9,885,855) $(13,607,233) $(6,517,068) $(4,084,466)
=========== ============ ============ =========== ===========
Pro forma................... $(5,457,382) $(10,073,236) $(13,842,377) $(6,676,033) $(4,350,627)
=========== ============ ============ =========== ===========
Basic and diluted net loss per
common share
As reported................. $ (57.76) $ (15.63) $ (11.70) $ (6.34) $ (2.79)
=========== ============ ============ =========== ===========
Pro forma................... $ (58.42) $ (16.54) $ (11.91) $ (6.50) $ (2.97)
=========== ============ ============ =========== ===========
Pro forma basic and diluted
net loss per common share
As reported................. $ (1.31) $ (0.33)
============ ===========
Pro forma................... $ (1.34) $ (0.35)
============ ===========
</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.
1991 AMENDED AND RESTATED STOCK OPTION PLAN
The Company's 1991 Amended and Restated Stock Option Plan (the "1991 Plan")
provides for the granting, at the discretion of the Board of Directors, of
options for the purchase of up to 3,360,000 shares of common stock to employees,
directors and advisors. Option prices are determined by the Board of Directors.
F-17
<PAGE> 87
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1998 STOCK INCENTIVE PLAN
The Company's 1998 Stock Incentive Plan (the "Incentive Plan") was adopted
by the Board of Directors on July 8, 1998 and is intended to replace the 1991
Plan. The Board of Directors has authorized the Compensation Committee to
administer the Incentive Plan, including the granting of options to executive
officers. The Incentive Plan provides for the granting, at the discretion of the
Compensation Committee, of options for the purchase of up to 2,100,000 shares of
common stock (subject to adjustment in the event of stock splits and other
similar events) to employees, directors and advisors. Option prices are
determined by the Compensation Committee, but cannot be less than 100% of fair
market value for incentive stock options (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).
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 and provide for the acceleration of vesting upon a change of
control of the Company. 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.
(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 as the inclusion of common stock issuable pursuant to the
exercise of stock options, warrants and the conversion of convertible preferred
stock would be antidilutive. The Company evaluated the requirements of the
Securities and Exchange Commission Staff Accounting Bulletin No. 98 ("SAB 98"),
and concluded that there are no nominal issuances of common stock or common
stock equivalents which would be required to be shown as outstanding for all
periods as outlined in SAB 98. 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 products with distributors covering the international
market. These agreements have terms ranging from three to ten years. In
connection with these agreements, approximately $643,000 and $1,770,000 in
revenue was deferred as of December 31, 1997 and 1998, respectively, and
approximately $1,674,000 was deferred as of July 3, 1999. 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
F-18
<PAGE> 88
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
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 the technology.
(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, 1996, 1997 and 1998.
(13) COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space under operating leases that expire in
October 2000. Rent expense was approximately $335,000, $346,000 and $414,000 in
1996, 1997 and 1998, respectively. Future gross minimum lease commitments for
all operating leases as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999..................................................... $ 495,000
2000..................................................... 434,000
2001..................................................... 93,000
2002..................................................... 97,000
2003..................................................... 45,000
Thereafter............................................... 23,000
----------
Total minimum lease payments............................. $1,187,000
==========
</TABLE>
The Company has entered into a letter of intent for a seven-year lease of
approximately 60,000 square feet of development, production and administrative
space beginning in the fourth quarter of 1999.
SUBLEASES
During 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 1996 and 1997 approximated $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 and 1998,
the Company loaned a total of $107,000 and $53,000, respectively, 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. The outstanding balance
on these notes at December 31, 1997 and 1998 and July 3, 1999 was approximately
$105,000, $138,000 and $134,000, respectively.
F-19
<PAGE> 89
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(15) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JULY 3,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Payroll and payroll-related............ $ 375,121 $1,220,000 $1,430,163
Clinical studies....................... 75,000 254,000 284,000
Warranty............................... 130,000 249,037 360,804
Other.................................. 920,470 1,940,370 2,242,401
---------- ---------- ----------
$1,500,591 $3,663,407 $4,317,368
========== ========== ==========
</TABLE>
(16) SEGMENT INFORMATION AND ENTERPRISE REPORTING
The Company has adopted the FASB's Statements of Financial Accounting
Standards No. 131, or SFAS 131, Disclosures about Segments of an Enterprise and
Related Information, effective for fiscal years beginning after December 31,
1997. The Company operates in one reportable segment as it has one family of
anesthesia monitoring systems. The Company does not disaggregate financial
information by product or geographically, other than export sales by region and
sales by product, for management purposes. Substantially all of the Company's
assets are located within the United States. All of the Company's products are
manufactured in the United States.
Revenue by geographic destination and as a percentage of total revenue are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------------- ---------------------------
1996 1997 1998 JULY 4, 1998 JULY 3, 1999
---------- ---------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
GEOGRAPHIC AREA BY DESTINATION
Domestic....................... $ 699,362 $1,881,409 $10,296,424 $3,794,447 $10,636,817
International.................. 689,426 1,186,164 941,781 625,718 1,075,380
---------- ---------- ----------- ---------- -----------
$1,388,788 $3,067,573 $11,238,205 $4,420,165 $11,712,197
========== ========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------------- ---------------------------
1996 1997 1998 JULY 4, 1998 JULY 3, 1999
---------- ---------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
GEOGRAPHIC AREA BY DESTINATION
Domestic....................... 51% 61% 92% 86% 91%
International.................. 49 39 8 14 9
--- --- --- --- ---
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, 1996................................. $ 7,000 $ 43,000 $ -- $ 50,000
December 31, 1997................................. 50,000 14,333 1,933 62,400
December 31, 1998................................. 62,400 146,500 8,900 200,000
Six months ended July 3, 1999....................... 200,000 151,015 3,515 347,500
</TABLE>
F-20
<PAGE> 90
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(18) LOAN AGREEMENTS
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 was at the prime rate plus 0.5% until September 30, 1998 at which time
it became the prime rate plus 0.25%. There were no borrowings under the working
capital loan as of December 31, 1998. As of July 3, 1999, $1,568,750 was
outstanding under the working capital portion of the loan agreement and based on
the Company's outstanding accounts receivable at July 3, 1999 there was no
additional availability under the working capital portion of the loan agreement.
During 1998, the Company borrowed approximately $2,162,000 under the
equipment portion of the loan agreement. The principal amount outstanding under
the equipment portion of the loan agreement is due in 36 equal monthly
installments of approximately $60,000, which commenced in January 1999. Interest
on the equipment 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. As of July 3, 1999, no additional amounts are available
to the Company under the equipment portion of the loan agreement.
The loan agreement contains certain restrictive covenants including minimum
liquidity or debt service coverage ratios. The agreement also restricts the
Company from declaring and paying cash dividends. As of July 3, 1999, the
Company was in compliance with these covenants or had received a waiver from the
bank for any events of default.
In July 1999, the Company entered into an agreement which allows it to sell
some of its existing and future investments in sales-type leases to a
third-party finance company. Upon the sale, the Company expects to receive an
amount approximately equal to the Company's investment in sales-type leases
sold.
(19) OTHER EXPENSE
In 1998, the Company incurred approximately $775,000 in one-time charges
related to a proposed initial public offering that was terminated in August
1998.
F-21
<PAGE> 91
[Aspect Medical Systems LOGO]
<PAGE> 92
[INSIDE BACK COVER OF PROSPECTUS]
Aspect's clinically validated BIS index assists anesthesia providers in
assessing levels of consciousness during surgery and minimizing the risk of
unintentional overmedication or undermedication.
[Photograph depicting an anesthesia provider sitting next to a patient
being monitored with the Company's BIS system.]
Clinical trails and routine clinical use of the BIS system have shown that
patient monitoring with the BIS system results in:
- a reduction in the amount of anesthetics used,
- faster wake-up from anesthesia,
- less patient time in the operating room and the post-anesthesia care unit
following surgery, and
- improvements in the quality of recovery.
[Photograph depicting a patient sitting in a chair holding a beverage.]
Clinical experience and published data have also shown that when anesthesia
is managed during outpatient surgery using the BIS index, patients are more
likely to bypass the post-anesthesia care unit and proceed immediately to the
less costly step-down recovery area directly from the operating room.
[Company Logo]
<PAGE> 93
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, the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee................................... $ 11,190
NASD filing fee........................................ 4,525
Nasdaq National Market listing fee..................... 95,000
Blue Sky fees and expenses............................. 15,000
Transfer Agent and Registrar fees...................... *
Accounting fees and expenses........................... *
Legal fees and expenses................................ *
Printing and mailing expenses.......................... *
Miscellaneous.......................................... *
--------
Total............................................. $ *
========
</TABLE>
* To be filed by amendment.
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 by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
II-1
<PAGE> 94
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 7 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 of 1933 (the "Securities Act").
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is information regarding shares of Common Stock and
Preferred Stock issued, and options and warrants granted, by the Registrant
within the past three years. Further included is the consideration, if any,
received by the Registrant for such shares, options and warrants and information
relating to the section of 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 Registrant. See "Certain Transactions."
Certain Sales of Securities. Within the past three years, the Registrant
has issued the following securities that were not registered under the
Securities Act.
(a) Issuances of Capital Stock and Warrants.
1. On February 26, 1997, August 8, 1997 and October 7, 1997, the
Registrant 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.
2. On February 13, 1998, the Registrant 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.
3. On December 17, 1998, the Registrant issued and sold an aggregate
of 1,753,729 shares of its Series E Convertible Preferred Stock, coupled
with Warrants to purchase an aggregate of 192,902 shares of Common Stock,
to a group of investors at a purchase price of $10.00 per share.
(b) Stock Option Grants.
The Registrant's Amended and Restated 1991 Stock Option Plan was adopted by
the Board of Directors and approved by the stockholders of the Registrant in
April 1991. As of July 3, 1999, options to purchase 1,697,901 shares of Common
Stock had been exercised for an aggregate consideration of
II-2
<PAGE> 95
$631,585 and options to purchase 1,550,687 shares of Common Stock, at a weighted
average exercise price of $2.04 per share, were outstanding under the plan.
The Registrant's 1998 Stock Incentive Plan was adopted by the Board of
Directors and approved by the stockholders of the Registrant in July 1998. As of
July 3, 1999, no options under this plan have been exercised, however, options
to purchase 559,979 shares of Common Stock, at a weighted average exercise price
of $5.56 per share, were outstanding under the plan.
The Registrant's 1998 Director Stock Option Plan was adopted by the Board
of Directors and approved by the stockholders of the Registrant in February
1998. As of July 3, 1999, options to purchase 5,000 shares of Common Stock had
been exercised for an aggregate consideration of $14,000 and options to purchase
60,000 shares of Common Stock, at a weighted average exercise price of $5.15 per
share, were outstanding under such plan.
No underwriters were involved in the foregoing sales of securities. The
sales were made in reliance upon exemptions from the registration provisions of
the Securities Act set forth in Sections 3(b) and 4(2) thereof relative to sales
by an issuer not involving any public offering or the rules and regulations
thereunder or, in the case of options to purchase Common Stock, Rule 701 of the
Securities Act. All of the foregoing securities are deemed restricted securities
for purposes of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant.
3.2* Form of Restated Certificate of Incorporation to be in
effect upon the closing of the offering.
3.3 By-Laws of the Registrant, as amended.
3.4* Form of Amended and Restated By-laws of the Registrant to be
in effect upon the closing of the offering.
4.1 Specimen common stock certificate.
4.2* See Exhibits 3.2 and 3.4 for provisions of the Registrant's
certificate of incorporation and by-laws defining the rights
of holders of common stock.
5.1* Opinion of Hale and Dorr LLP.
10.1 1998 Director Stock Option Plan, as amended.
10.2+ International Distribution Agreement, dated as of January
21, 1998, by and between the Registrant and Nihon Kohden
Corporation.
10.3+ International License Agreement, dated as of January 21,
1998, by and between the Registrant and Nihon Kohden
Corporation.
10.4 Trademark License Agreement, dated May 25, 1994, by and
between the Registrant and Aspect Electronics, Inc.
10.5 License Agreement, dated as of October 31, 1995, by and
between the Registrant and Siemens Medical Systems, Inc.
10.6+* Product Agreement, dated May 5, 1999, by and between the
Registrant and Drager Medizintechnik GmbH.
10.7+* OEM Development and Purchase Agreement, dated August 6,
1999, by and between the Registrant and Hewlett-Packard
GmbH.
10.8+* Letter Agreement, dated August 3, 1999, by and between the
Registrant and Hewlett Packard GmbH.
</TABLE>
II-3
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.9+ Distribution and License Agreement, dated as of April 1,
1996, between SpaceLabs Medical, Inc. and the Registrant.
10.10 Property Lease at 2 Vision Drive, by and between the
Registrant 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, by and between the Registrant and
Teachers Insurance Association of America, dated June 15,
1995.
10.11 Lease Extension Agreement, dated as of August 7, 1997, by
and between the Registrant and Vision Drive, Inc.
10.12 Loan Agreement, dated as of June 22, 1998, by and between
the Registrant and Imperial Bank, together with Revolving
Loans Promissory Note, dated June 22, 1998, made in favor of
Imperial Bank by the Registrant, Equipment Loans Promissory
Note, dated June 22, 1998, made in favor of Imperial Bank by
the Registrant, Security Agreement, dated as of June 22,
1998, by and between the Registrant and Imperial Bank,
Trademark Collateral Security and Pledge Agreement, dated as
of June 22, 1998, by and between the Registrant and Imperial
Bank, Patent Collateral Security and Pledge Agreement, dated
as of June 22, 1998, by and between the Registrant and
Imperial Bank and Agreement to Provide Insurance, dated June
22, 1998, by and between the Registrant and Imperial Bank.
10.13 Promissory Note, dated February 18, 1997, as amended on
April 14, 1997, made in favor of the Registrant by Nassib G.
Chamoun, together with Pledge Agreement, dated as of
February 18, 1997, as amended on April 14, 1997, by and
between the Registrant and Nassib G. Chamoun.
10.14 Promissory Note, dated May 1, 1997, made in favor of the
Registrant by Nassib G. Chamoun, together with Pledge
Agreement, dated as of May 1, 1997, by and between the
Registrant and Nassib G. Chamoun.
10.15 Promissory Note, dated May 1, 1997, made in favor of the
Registrant by Nassib G. Chamoun, together with Pledge
Agreement, dated as of May 1, 1997, by and between the
Registrant and Nassib G. Chamoun.
10.16 Form of Promissory Note made in favor of the Registrant by
certain directors and executive officers, together with Form
of Pledge Agreement, by and between the Registrant and
certain directors and executive officers, together with a
schedule of material terms.
10.17 Promissory Note, dated September 24, 1997, made in favor of
the Registrant by Jeffrey Barrett.
10.18 Promissory Note, dated April 10, 1998, made in favor of the
Registrant by Jeffrey Barrett, together with Pledge
Agreement, dated as of April 10, 1998, by and between the
Registrant and Jeffrey Barrett.
10.19 Series E Convertible Preferred Stock and Warrant Purchase
Agreement, dated December 17, 1998, by and among the
Registrant and the several purchasers named on Schedule I
thereto.
10.20 Fourth Amended and Restated Right of First Refusal and
Co-Sale Agreement, dated December 17, 1998, by and among the
Registrant and the several parties named on Schedules I, II
and III thereto.
10.21 Fourth Amended and Restated Registration Rights Agreement,
dated December 17, 1998, by and among the Registrant and the
several purchasers named on the signature pages thereto.
10.22 Fourth Amended and Restated Voting Agreement, dated December
17, 1998, by and among the Registrant and the several
parties named on Schedules I, II and III thereto.
10.23 Form of Warrant to purchase the Registrant's common stock,
together with schedule of Warrantholders.
10.24+* Supplier Agreement, dated August 13, 1999, between Novation,
LLC and the Registrant.
23.1* Consent of Hale and Dorr LLP (contained in Exhibit 5.1).
</TABLE>
II-4
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (contained on page II-6).
27.1 Financial Data Schedule for fiscal year end December 31,
1998.
27.2 Financial Data Schedule for the six months ended July 3,
1999.
</TABLE>
- ------------
* To be filed by amendment.
+ Confidential treatment has been requested as to certain portions of this
Exhibit pursuant to Rule 406 promulgated under the Securities Act. Such
portions have been omitted and filed separately with the Securities and
Exchange Commission.
Schedules have been omitted because they are not required or because the
required information is presented in the Company's consolidated financial
statements or related notes.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the provisions
contained in the Registrant's Restated Certificate of Incorporation, the
Underwriting Agreement, the laws of the State of Delaware, or otherwise, the
Registrant 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
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant 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 Registrant will, unless in
the opinion of its counsel that 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 Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from 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 Registrant 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> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Natick, Massachusetts on August 31,
1999.
ASPECT MEDICAL SYSTEMS, INC.
By: /s/ NASSIB G. CHAMOUN
------------------------------------
Nassib G. Chamoun
President and Chief Executive
Officer
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, the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ NASSIB G. CHAMOUN President, Chief Executive August 31, 1999
- --------------------------------------------------- Officer and Director (Principal
Nassib G. Chamoun Executive Officer)
/s/ J. BRECKENRIDGE EAGLE Chairman of the Board of August 31, 1999
- --------------------------------------------------- Directors
J. Breckenridge Eagle
/s/ J. NEAL ARMSTRONG Vice President and Chief August 31, 1999
- --------------------------------------------------- Financial Officer (Principal
J. Neal Armstrong Financial and Accounting
Officer)
/s/ BOUDEWIJN L.P.M. BOLLEN Director August 31, 1999
- ---------------------------------------------------
Boudewijn L.P.M. Bollen
/s/ STEPHEN E. COIT Director August 31, 1999
- ---------------------------------------------------
Stephen E. Coit
/s/ EDWIN M. KANIA Director August 31, 1999
- ---------------------------------------------------
Edwin M. Kania
</TABLE>
II-6
<PAGE> 99
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LESTER J. LLOYD Director August 31, 1999
- ---------------------------------------------------
Lester J. Lloyd
/s/ TERRANCE MCGUIRE Director August 31, 1999
- ---------------------------------------------------
Terrance McGuire
/s/ DONALD STANSKI Director August 31, 1999
- ---------------------------------------------------
Donald Stanski
</TABLE>
II-7
<PAGE> 100
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant.
3.2* Form of Restated Certificate of Incorporation to be in
effect upon the closing of the offering.
3.3 By-Laws of the Registrant, as amended.
3.4* Form of Amended and Restated By-laws of the Registrant to be
in effect upon the closing of the offering.
4.1 Specimen common stock certificate.
4.2* See Exhibits 3.2 and 3.4 for provisions of the Registrant's
certificate of incorporation and by-laws defining the rights
of holders of common stock.
5.1* Opinion of Hale and Dorr LLP.
10.1 1998 Director Stock Option Plan, as amended.
10.2+ International Distribution Agreement, dated as of January
21, 1998, by and between the Registrant and Nihon Kohden
Corporation.
10.3+ International License Agreement, dated as of January 21,
1998, by and between the Registrant and Nihon Kohden
Corporation.
10.4 Trademark License Agreement, dated May 25, 1994, by and
between the Registrant and Aspect Electronics, Inc.
10.5 License Agreement, dated as of October 31, 1995, by and
between the Registrant and Siemens Medical Systems, Inc.
10.6+* Product Agreement, dated May 5, 1999, by and between the
Registrant and Drager Medizintechnik GmbH.
10.7+* OEM Development and Purchase Agreement, dated August 6,
1999, by and between the Registrant and Hewlett-Packard
GmbH.
10.8+* Letter Agreement, dated August 3, 1999, by and between the
Registrant and Hewlett Packard GmbH.
10.9+ Distribution and License Agreement, dated as of April 1,
1996, between SpaceLabs Medical, Inc. and the Registrant.
10.10 Property Lease at 2 Vision Drive, by and between the
Registrant 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, by and between the Registrant and
Teachers Insurance Association of America, dated June 15,
1995.
10.11 Lease Extension Agreement, dated as of August 7, 1997, by
and between the Registrant and Vision Drive, Inc.
10.12 Loan Agreement, dated as of June 22, 1998, by and between
the Registrant and Imperial Bank, together with Revolving
Loans Promissory Note, dated June 22, 1998, made in favor of
Imperial Bank by the Registrant, Equipment Loans Promissory
Note, dated June 22, 1998, made in favor of Imperial Bank by
the Registrant, Security Agreement, dated as of June 22,
1998, by and between the Registrant and Imperial Bank,
Trademark Collateral Security and Pledge Agreement, dated as
of June 22, 1998, by and between the Registrant and Imperial
Bank, Patent Collateral Security and Pledge Agreement, dated
as of June 22, 1998, by and between the Registrant and
Imperial Bank and Agreement to Provide Insurance, dated June
22, 1998, by and between the Registrant and Imperial Bank.
10.13 Promissory Note, dated February 18, 1997, as amended on
April 14, 1997, made in favor of the Registrant by Nassib G.
Chamoun, together with Pledge Agreement, dated as of
February 18, 1997, as amended on April 14, 1997, by and
between the Registrant and Nassib G. Chamoun.
</TABLE>
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.14 Promissory Note, dated May 1, 1997, made in favor of the
Registrant by Nassib G. Chamoun, together with Pledge
Agreement, dated as of May 1, 1997, by and between the
Registrant and Nassib G. Chamoun.
10.15 Promissory Note, dated May 1, 1997, made in favor of the
Registrant by Nassib G. Chamoun, together with Pledge
Agreement, dated as of May 1, 1997, by and between the
Registrant and Nassib G. Chamoun.
10.16 Form of Promissory Note made in favor of the Registrant by
certain directors and executive officers, together with Form
of Pledge Agreement, by and between the Registrant and
certain directors and executive officers, together with a
schedule of material terms.
10.17 Promissory Note, dated September 24, 1997, made in favor of
the Registrant by Jeffrey Barrett.
10.18 Promissory Note, dated April 10, 1998, made in favor of the
Registrant by Jeffrey Barrett, together with Pledge
Agreement, dated as of April 10, 1998, by and between the
Registrant and Jeffrey Barrett.
10.19 Series E Convertible Preferred Stock and Warrant Purchase
Agreement, dated December 17, 1998, by and among the
Registrant and the several purchasers named on Schedule I
thereto.
10.20 Fourth Amended and Restated Right of First Refusal and
Co-Sale Agreement, dated December 17, 1998, by and among the
Registrant and the several parties named on Schedules I, II
and III thereto.
10.21 Fourth Amended and Restated Registration Rights Agreement,
dated December 17, 1998, by and among the Registrant and the
several purchasers named on the signature pages thereto.
10.22 Fourth Amended and Restated Voting Agreement, dated December
17, 1998, by and among the Registrant and the several
parties named on Schedules I, II and III thereto.
10.23 Form of Warrant to purchase the Registrant's common stock,
together with schedule of Warrantholders.
10.24+* Supplier Agreement, dated August 13, 1999, between Novation,
LLC and the Registrant.
23.1* Consent of Hale and Dorr LLP (contained in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (contained on page II-6).
27.1 Financial Data Schedule for fiscal year end December 31,
1998.
27.2 Financial Data Schedule for the six months ended July 3,
1999.
</TABLE>
- ------------
* To be filed by amendment.
+ Confidential treatment has been requested as to certain portions of this
Exhibit pursuant to Rule 406 promulgated under the Securities Act. Such
portions have been omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 1
Exhibit 3.1
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 Restated Certificate of Incorporation was proposed and declared
advisable by the Board of Directors of the Corporation in a Written Action in
Lieu of Meeting, dated as of December 11, 1998 and was consented to in writing
by the Corporation's stockholders as of December 17, 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 39,393,224 shares consisting of 17,030,000 shares of
Common Stock, par value $0.01 per share, and 22,363,224 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"), 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
<PAGE> 2
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"), 1,760,000 shares have been designated Series E Convertible
Preferred Stock (the "Series E Preferred Stock"), 406,898 shares have been
designated Series A-2 Convertible Preferred Stock (the "Series A-2 Preferred
Stock"), 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"),
1,714,286 shares have been designated Series D-2 Convertible Preferred Stock
(the "Series D-2 Preferred Stock") and 1,760,000 shares have been designated
Series E-2 Convertible Preferred Stock (the "Series E-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.
2
<PAGE> 3
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 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 E Preferred Stock, Series A-2 Preferred Stock, Series B-2
Preferred Stock, Series C-2 Preferred Stock, Series D-2 Preferred Stock and
Series E-2 Preferred Stock and/or the holders thereof are as follows:
Except as specifically set forth herein (including without limitation
Section 2(a) 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 E Preferred Stock, Series A-2 Preferred Stock, Series B-2 Preferred
Stock, Series C-2 Preferred Stock, Series D-2 Preferred Stock and Series E-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
(including without limitation Section 2(a) herein), such shares of Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series A-2 Preferred Stock, Series
B-2 Preferred Stock, Series C-2 Preferred Stock, Series D-2 Preferred Stock and
Series E-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 E Preferred Stock, the Series A-2 Preferred Stock, the Series
B-2 Preferred Stock, the Series C-2 Preferred Stock, the Series D-2 Preferred
Stock and Series E-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
3
<PAGE> 4
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." The Series E Preferred Stock and the Series E-2
Preferred Stock are collectively referred to as the "Series E 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,
(i) First, the holders of Series E Stock then
outstanding shall 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 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 Series E 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 Series E Stock by reason of their ownership thereof,
an amount equal to the greater of (x) $10.00 per share (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 (y) with respect to the Series E
Stock, the amount per share that would have been payable had all 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 Series E Stock
the full amount to which they should be entitled, the holders of Series E Stock
and any class or series of stock ranking on liquidation on a parity with the
Series E Stock shall share ratably in any distribution of the remaining assets
and funds of the Corporation in proportion in the respective amounts which would
otherwise be payable pursuant to this subsection 2(a)(i) in respect of the
4
<PAGE> 5
shares of Series E Stock held by them upon such distribution if all amounts
payable on or with respect to such shares were paid in full.
(ii) Second, the holders of shares of Series A Stock,
Series B Stock, Series C Stock and Series D Stock then outstanding shall 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
all amounts required to be distributed to the holders of Series E Stock and any
other class or series of stock of the Corporation ranking on liquidation prior
and in preference to the Series A Stock, Series B Stock, Series C Stock and
Series D 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
Series A Stock, Series B Stock, Series C Stock and Series D Stock by reason of
their ownership thereof, an amount equal to the greater of (x) $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 (y) with respect to each series of
the Preferred Stock other than the Series E Stock, the amount per share as would
have been payable had all 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 Series A Stock, Series B Stock, Series C Stock and Series D Stock the full
amount to which they shall be entitled, the holders of the Series A Stock,
Series B Stock, Series C Stock and Series D Stock and any class or series of
stock ranking on liquidation on a parity with the Series A Stock, Series B
Stock, Series C Stock and Series D 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 pursuant to this subsection
2(a)(ii) in respect of the shares of the Series A Stock, Series B Stock, Series
C Stock and Series D 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 other than the Series E Stock shall rank on liquidation on a
parity with each other series of Preferred Stock and the Series E Stock shall
rank on liquidation prior and in preference to all 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
5
<PAGE> 6
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 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. Except as specifically set forth in
this subsection 3(b), 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 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
6
<PAGE> 7
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"); (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; and (3) the shares of Common Stock
issuable upon exercise of warrants issued pursuant to the Series E
Purchase Agreement (as defined below) or upon conversion of the Preferred
Stock;
(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 E Convertible Preferred
Stock Purchase Agreement (the "Series E Purchase Agreement") and no such
violation exists at the time of such merger or acquisition;
(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), provided that
notwithstanding any other provision of this Section 3, it shall not be
considered a breach of this Section 3(b)(v) if the holders of a majority
of the Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) together as a single class
ratify such a filing after the filing has been made;
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(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 E 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.
(c) Amendment to Section 5(a). Notwithstanding any provision herein
to the contrary, the Corporation shall not, without the prior approval of
holders of no less than eighty percent (80%) of the shares of Preferred Stock,
given in writing or by a vote at a meeting, consenting or voting (as the case
may be) together as a single class, amend, repeal or modify Section 5(a) hereof
(and this paragraph 3(c)
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<PAGE> 9
shall not be amended without the consent of holders of no less than eighty
percent (80%) of the shares of Preferred Stock, given in writing or by a vote at
a meeting, consenting or voting, as the case may be).
4. Optional Conversion. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(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 after February 21, 1999, 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, $7.00 in the case
of Series D Stock and $10.00 in the case of Series E 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,
$7.00 in the case of Series D Stock and $10.00 in the case of Series E 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
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<PAGE> 10
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 of 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 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
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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:
(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
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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 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, Series D
Preferred Stock and/or Series E Preferred Stock Upon Dilutive Issuances of
Common Stock.
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(i) If the Corporation shall, at any time after the date
on which a share of Series E 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, Series D Preferred Stock and/or Series E 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, Series D Preferred Stock
and/or Series E 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, Series D Preferred Stock and/or
Series E 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 applicable 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 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, Series D Preferred Stock and Series E 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
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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 possible future upward price adjustments or rate adjustments which
may be applicable with respect to such Common Stock Equivalents.
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(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, (v) with respect to Series
D Stock, dividends payable in shares of Series D Stock or (vi) with
respect to Series E Stock, dividends payable in shares of Series E Stock;
provided, however, that holders of any shares of Series A Stock, Series B
Stock, Series C Stock, Series D Stock or Series E 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, Series D Stock or Series E 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,
Series D Preferred Stock and Series E 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,
Series D Preferred Stock and Series E 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,
Series D Preferred Stock and Series E 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;
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(B) the issuance of Common Stock upon
conversion of the Series A Stock, Series B Stock, Series C Stock, Series D
Stock and Series E Stock or upon exercise of the warrants to purchase
shares of Common Stock issued in connection with the sale and issuance of
Series E Preferred Stock; or
(C) the issuance of Series A-2 Preferred Stock,
Series B-2 Preferred Stock, Series C-2 Preferred Stock, Series D-2
Preferred Stock and Series E-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, Series D-2 Preferred Stock and Series
E-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,
Series D-2 Preferred Stock and Series E-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
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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;
(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.
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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 $14.00,
which number shall be appropriately 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 eighty percent (80%) 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.
(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
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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 E 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 any Conversion Price, and (i) the Corporation has
fully complied in all respects with its obligations pursuant to Section 7.14 of
the Series E 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 "Mandatory Offering"), then all of such holder's shares of
Preferred Stock whose Conversion Price would be reduced 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, (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 and (E) each share of Series E Preferred Stock held by such
Non-Participating Holder shall be converted into one share of Series E-2
Preferred Stock. Upon such conversion, the shares of Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock
and Series E 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:
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<PAGE> 20
(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 E 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 E 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
E Purchase Agreement, (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 E Purchase Agreement and (v) as to any holder of Series E Preferred
Stock that portion of the gross amount of offered securities which has
expressly been allocated for purchase by the holders of the Series E
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 E Preferred Stock pursuant to Section 7.14 of the
Series E Purchase Agreement; and
(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
20
<PAGE> 21
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, (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 and (v)
as to any holder of Series E 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 E 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 E
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 E 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, Series D Preferred Stock
and Series E 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, Series D Preferred Stock and/or
Series E 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
21
<PAGE> 22
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, Series D-2 Preferred Stock and Series E-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, Series D-2 Preferred Stock or Series E-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 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, Preferred Series D Stock or Series E Preferred Stock shall be converted
into one share of Series A-2 Preferred Stock, Series B-2 Preferred Stock, Series
C-2 Preferred Stock, Series D-2 Preferred Stock and Series E-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, Series
D-2 Preferred Stock and Series E-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, Series D
Preferred Stock and Series E Preferred Stock which are converted into shares of
Series A-2 Preferred Stock, Series B-2 Preferred Stock, Series C-2 Preferred
Stock, Series D-2 Preferred Stock and Series E-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.
22
<PAGE> 23
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
Section 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
Section 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 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.
23
<PAGE> 24
Executed by the undersigned on this 17th day of December, 1998.
/s/Nassib G. Chamoun
-------------------------------
Nassib G. Chamoun
President
24
<PAGE> 1
EXHIBIT 3.3
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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<PAGE> 9
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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<PAGE> 15
(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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<PAGE> 16
(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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<PAGE> 17
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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<PAGE> 18
(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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<PAGE> 1
[Front] ASPECT EXHIBIT 4.1
MEDICAL SYSTEMS
NUMBER Aspect Medical Systems, Inc. SHARES
CS INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERRABLE IN BOSTON, MA OR NEW YORK, NY
COMMON STOCK COMMON STOCK
CUSIP 045235 10 8
SEE REVERSE FOR
CERTAIN DEFINITIONS
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK PAR VALUE $.01 PER
SHARE, OF
Aspect Medical Systems, Inc. (the "Corporation") transferrable upon the
books of the Corporation in person or by duly authorized attorney upon surrender
of the Certificate properly endorsed or assigned. This Certificate and the
shares represented hereby are issued and held subject to the laws of the State
of Delaware and to the provisions of the Certificate of incorporation and
By-Laws of the Corporation, each as now in effect or hereinafter amended. This
Certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed
by the facsimile signatures of its duly authorized officers and sealed with the
facsimile seal of the Corporation.
Dated:
[Seal]
________________________ ______________________
VICE PRESIDENT, CHIEF PRESIDENT AND CHIEF
FINANCIAL OFFICER, EXECUTIVE OFFICER
SECRETARY AND TREASURER
COUNTERSIGNED AND REGISTERED:
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR
By:
AUTHORIZED SIGNATURE
AMERICAN BANK NOTE COMPANY
<PAGE> 2
[Reverse Side]
ASPECT MEDICAL SYSTEMS, INC.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS AND SERIES OF STOCK.
THE CORPORATION WILL FURNISH TO THE HOLDER UPON WRITTEN REQUEST WITHOUT CHARGE A
STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS.
The following abbreviations, when used in the Inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT- ___ Custodian___
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right under Uniform Gift to
of survivorship and not as Minors Act __________
tenants in common State
Additional abbreviations may also be used though not in the above list.
ASSIGNMENT
For value received, ____________________ hereby sell, assign, and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
of the common stock represented by the within Certificate, and does hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated,_____________________ ________________________________________________
NOTICE: The signature to this assignment
must correspond with the name as written upon
the face of the Certificate, in every particular,
without alteration or enlargement or any changes
whatever.
SIGNATURE(S) GUARANTEED: _______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-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 1, 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
-2-
<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.
-3-
<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.
-4-
<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
-5-
<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
-6-
<PAGE> 7
ASPECT MEDICAL SYSTEMS, INC.
AMENDMENT TO
1998 DIRECTOR STOCK OPTION PLAN
The 1998 Director Stock Option Plan (the "Director Stock Option Plan") of Aspect
Medical Systems, Inc. be and hereby is amended as follows:
1. The date "April 1, 1998" in the first line of Section 5(a)(i) of the
Director Stock Option Plan be and hereby is deleted and replaced with
the date "April 14, 1998."
2. Sections 5(d)(i) and (ii) of the Director Stock Option Plan are hereby
deleted and new Sections 5(d)(i) and (ii) are inserted in lieu thereof
which read as follows:
"(i) INITIAL OPTIONS. Except as provided in 5(f) below, 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. Except as provided in 5(f) below, 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."
3. A new Section 5(f) is hereby added to the Director Option Plan which
reads as follows:
"(f) ACQUISITION AND CHANGE IN CONTROL EVENTS
(1) DEFINITIONS
(a) An "Acquisition Event" shall mean:
(i) any merger or consolidation of the Company with
or into another entity as a result of
<PAGE> 8
which the Common Stock is converted into or
exchanged for the right to receive cash,
securities or other property; or
(ii) any exchange of shares of the Company for cash,
securities or other property pursuant to a
statutory share exchange transaction.
(b) A "Change in Control Event" shall mean:
(i) the acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of
beneficial ownership of any capital stock of the
Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule
13d-3 promulgated under the Exchange Act)
30% or more of either (x) the then-outstanding
shares of common stock of the Company (the
"Outstanding Company Common Stock") or (y) the
combined voting power of the then-outstanding
securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities");
PROVIDED, HOWEVER, that for purposes of this
subsection (i), the following acquisitions shall
not constitute a Change in Control Event: (A) any
acquisition directly from the Company (excluding
an acquisition pursuant to the exercise,
conversion or exchange of any security
exercisable for, convertible into or exchangeable
for common stock or voting securities of the
Company, unless the Person exercising, converting
or exchanging such security acquired such
security directly from the Company or an
underwriter or agent of the Company), (B) any
acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company, or (C) any acquisition by any
corporation pursuant to a Business Combination
(as defined below) which complies with clauses
(x) and (y) of
<PAGE> 9
subsection (iii) of this definition; or
(ii) such time as the Continuing Directors (as defined
below) do not constitute a majority of the Board
(or, if applicable, the Board of Directors of a
successor corporation to the Company), where the
term "Continuing Director" means at any date a
member of the Board (x) who was a member of the
Board on the date of the initial adoption of this
Plan by the Board or (y) who was nominated or
elected subsequent to such date by at least a
majority of the directors who were Continuing
Directors at the time of such nomination or
election or whose election to the Board was
recommended or endorsed by at least a majority of
the directors who were Continuing Directors at
the time of such nomination or election;
PROVIDED, HOWEVER, that there shall be excluded
from this clause (y) any individual whose initial
assumption of office occurred as a result of an
actual or threatened election contest with
respect to the election or removal of directors
or other actual or threatened solicitation of
proxies or consents, by or on behalf of a person
other than the Board; or
(iii) the consummation of a merger, consolidation,
reorganization or statutory share exchange
involving the Company or a sale or other
disposition of all or substantially all of the
assets of the Company (a "Business Combination"),
unless, immediately following such Business
Combination, each of the following two conditions
is satisfied: (x) all or substantially all of the
individuals and entities who were the beneficial
owners of the Outstanding Company Common Stock
and Outstanding Company Voting Securities
immediately prior to such Business Combination
beneficially own, directly or indirectly, more
than 50% of the then-outstanding shares of
common stock and the combined voting power of the
then-outstanding securities entitled to vote
<PAGE> 10
generally in the election of directors,
respectively, of the resulting or acquiring
corporation in such Business Combination (which
shall include, without limitation, a corporation
which as a result of such transaction owns the
Company or substantially all of the Company's
assets either directly or through one or more
subsidiaries) (such resulting or acquiring
corporation is referred to herein as the
"Acquiring Corporation") in substantially the
same proportions as their ownership of the
Outstanding Company Common Stock and Outstanding
Company Voting Securities, respectively,
immediately prior to such Business Combination
and (y) no Person (excluding the Acquiring
Corporation or any employee benefit plan (or
related trust) maintained or sponsored by the
Company or by the Acquiring Corporation)
beneficially owns, directly or indirectly, 30% or
more of the then-outstanding shares of common
stock of the Acquiring Corporation, or of the
combined voting power of the then- outstanding
securities of such corporation entitled to vote
generally in the election of directors (except to
the extent that such ownership existed prior to
the Business Combination).
(2) EFFECT ON OPTIONS
(a) ACQUISITION EVENT. Upon the occurrence of an
Acquisition Event (regardless of whether such event
also constitutes a Change in Control Event), or the
execution by the Company of any agreement with respect
to an Acquisition Event (regardless of whether such
event will result in a Change in Control Event), the
Board shall provide that all outstanding options shall
be assumed, or equivalent options shall be substituted,
by the acquiring or succeeding corporation (or an
affiliate thereof); PROVIDED THAT if such Acquisition
Event also constitutes a Change in Control Event,
except to the extent specifically provided to the
contrary in the instrument evidencing any option or any
other
<PAGE> 11
agreement between an optionee and the Company, such
assumed or substituted options shall be immediately
exercisable in full upon the occurrence of such
Acquisition Event. For purposes hereof, an option shall
be considered to be assumed if, following consummation
of the Acquisition Event, the option confers the right
to purchase, for each share of Common Stock subject to
the option immediately prior to the consummation of the
Acquisition Event, the consideration (whether cash,
securities or other property) received as a result of
the Acquisition Event by holders of Common Stock for
each share of Common Stock held immediately prior to
the consummation of the Acquisition Event (and if
holders were offered a choice of consideration, the
type of consideration chosen by the holders of a
majority of the outstanding shares of Common Stock);
provided, however, that if the consideration received
as a result of the Acquisition Event is not solely
common stock of the acquiring or succeeding corporation
(or an affiliate thereof), the Company may, with the
consent of the acquiring or succeeding corporation,
provide for the consideration to be received upon the
exercise of options to consist solely of common stock
of the acquiring or succeeding corporation (or an
affiliate thereof) equivalent in fair market value to
the per share consideration received by holders of
outstanding shares of Common Stock as a result of the
Acquisition Event.
Notwithstanding the foregoing, if the acquiring or
succeeding corporation (or an affiliate thereof) does not
agree to assume, or substitute for, such options, then the
Board shall, upon written notice to the optionees, provide
that all then unexercised options will become exercisable in
full as of a specified time prior to the Acquisition Event
and will terminate immediately prior to the consummation of
such Acquisition Event, except to the extent exercised by
the optionees before the consummation of such Acquisition
Event; provided, however, in the event of an Acquisition
Event under the terms of which holders of Common Stock will
receive upon consummation thereof a cash payment for each
share of Common Stock surrendered pursuant to such
Acquisition Event (the "Acquisition Price"), then the
<PAGE> 12
Board may instead provide that all outstanding options shall
terminate upon consummation of such Acquisition Event and
that each optionee shall receive, in exchange therefor, a
cash payment equal to the amount (if any) by which (A) the
Acquisition Price multiplied by the number of shares of
Common Stock subject to such outstanding options (whether or
not then exercisable), exceeds (B) the aggregate exercise
price of such options.
(b) CHANGE IN CONTROL EVENT THAT IS NOT AN ACQUISITION
EVENT. Upon the occurrence of a Change in Control Event
that does not also constitute an Acquisition Event,
except to the extent specifically provided to the
contrary in the instrument evidencing any option or any
other agreement between a optionee and the Company, all
options then-outstanding shall automatically become
immediately exercisable in full."
Amended by the Board of Directors on
July 9, 1998
Approved by the Stockholders in
August 1998
<PAGE> 1
Exhibit 10.2
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 50 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 50 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
50 prepaid monitors are delivered to NK within six months after the MHW
Approval Date. In the event Aspect is unable to deliver those 50 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 [**] 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 50 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 50 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 50 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 50 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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<PAGE> 6
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 that it has not previously, directly or indirectly,
marketed or manufactured monitoring equipment, either as stand-alone monitors or
as modules for monitors, which were designed to monitor the depth of anesthesia.
NK confirms that it has not previously, directly or indirectly, developed
monitoring equipment, either as stand-alone monitors or as modules for monitors,
which was designed to: (i) monitor the depth or effects of anesthesia being
administered to patients; and (ii) indicate any index of the depth or effects
of anesthesia to assist anesthesiologists to evaluate the depth or effects of
anesthesia using EEG (electroencephalogram). Until the first (1st) 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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<PAGE> 18
(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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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 10.3
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 a non-exclusive, worldwide right and license
during the Agreement Term to practice the Rights in order to manufacture, use
and sell the Product as a component of multi-parameter module patient monitoring
systems manufactured by or for NK. Specifically, but without limitation, the
Rights may not be used to make, use or distribute the Product for incorporation
into stand-alone EEG/BIS monitors.
(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 that is has not previously, directly or
indirectly, marketed or manufactured monitoring equipment, either as
stand-alone monitors or as modules for monitors, which were designed to monitor
the depth of anesthesia. NK confirms that it has not previously, directly or
indirectly, developed monitoring equipment, either as stand-alone monitors or
as modules for monitors, which was designed to: (i) monitor the depth or
effects of anesthesia being administered to patients; and (ii) indicate any
index of the depth or effects of anesthesia to assist anesthesiologists to
evaluate the depth or effects of anesthesia using EEG (electroencephalogram).
Until the first (1st) 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.
-7-
<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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<PAGE> 10
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
Confidential Materials omitted and filed separately with
the Securities and Exchange Commission. Asterisks denote omissions.
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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Confidential Materials omitted and filed separately with
the Securities and Exchange Commission. Asterisks denote omissions.
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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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
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 BIS Sensor System Interface to BIS Disposable
Sensor/Electrode
- -------------- -------------------- -------------------------------------------- -------
pending BIS Sensor Disposable
BIS (Zip Prep) Sensor
- -------------- -------------------- -------------------------------------------- -------
</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 10.4
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 10.5
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. 5,368,041 entitled
"Monitor and Method for Acquiring and Processing Electrical Signals Relating to
Bodily Functions" ("the 041 patent"), issued November 29, 1994, which relates
to devices commonly referred to as patient monitors. Aspect is desirous of
obtaining a non-exclusive license under the 041 patent.
Aspect is the owner of United States Patent No. 5,381,804 entitled
"Monitor and Method for Acquiring and Processing Electrical Signals Relating to
Bodily Functions" ("the 084 patent"), issued January 17, 1995, which relates to
devices commonly referred to as patient monitors. Siemens is desirous of
obtaining a non-exclusive license under the 084 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
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 041 PATENTS" shall mean:
U.S. Patent No. 5,368,041 entitled "Monitor and Method for
Acquiring and Processing Electrical Signals Relating to Bodily Functions,"
issued November 29, 1994, 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. 5,368,041, 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. 5,368,041 or in
original claims 1-5 and 19 in Appl. No. 07/961,525 which issued in modified form
in U.S. Pat. No. 5,368,041 and any present or future reexams, reissues, or
continuations therefrom; and
1.2 "LICENSED 804 PATENTS" shall mean:
U.S. Patent No. 5,381,804 entitled "Monitor and Method for
Acquiring and Processing Electrical Signals Relating to Bodily Functions,"
issued January 17, 1995, 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. 5,381,804, any present or future foreign
counter-part patents or applications pending in any patent office of any other
country
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<PAGE> 3
or the European Patent Office, the claims of which are directed to the
invention described and claimed in United States Pat. No. 5,381,804 or in
original claims 6-10 in Appl. No. 07/961,525 which issued in modified form in
U.S. Pat No. 5,381,804 and any present or future reexams, reissues, or
continuations therefrom; and
1.3 "LICENSED 041 PRODUCTS" shall mean any and all devices covered by
at least one claim of the LICENSED 041 PATENTS.
1.4 "LICENSED 804 PRODUCTS" shall mean any and all devices covered by
at least one claim of the LICENSED 804 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.
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<PAGE> 4
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 041 PRODUCTS throughout the
world. However, Aspect shall not be licensed to design, make, have made, use,
import, or sell LICENSED 041 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 041 PATENTS except under the following conditions:
(a) Aspect may grant a sublicense under the LICENSED 041
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
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<PAGE> 5
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 041 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 041
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 804 PRODUCTS throughout the
world and all products covered by any claim of any patent or utility model that
issues from Canadian Appl. Serial No. 2,146,979, EPO Appl. Serial No.
93923,860.9, PCT Appl. Serial No. US93/09763 or Australian Appl. Serial No.
9453702 (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 041 PATENTS), or any patent or utility model that claims filing
priority from U.S. Appl. Serial No. 07/961,525 not already owned by Siemens.
Siemens shall not be licensed to design, make, have made, use, or sell LICENSED
804 PRODUCTS or other products covered by patents licensed to Siemens
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<PAGE> 6
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 804 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 804
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.
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<PAGE> 7
(c) In the event Siemens grants to any third party a
sublicense under the LICENSED 804 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 804 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 041
PRODUCTS sold, imported, exported or used in the United States in the form of
"Licensed under U.S. Pat. No. 5,368,041" 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 041 PRODUCTS that have any
patent marking indicating that a patent is licensed from Aspect (whether said
marking be on the
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<PAGE> 8
product or associated literature) with "Manufactured under License from Siemens
Medical Systems, Inc. U.S. Pat. No. 5,368,041" 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 041 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 041 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 041 PRODUCTS so as to provide an
innocent infringer with constructive notice that the LICENSED 041 PRODUCTS are
patented.
3.2 Siemens shall mark and require all sublicensees to mark LICENSED
804 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. 5,381,804" 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 804 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
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<PAGE> 9
literature) with "Manufactured under License from Aspect Medical Systems, Inc.
U.S. Pat. No. 5,381,804" 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
804 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 804 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 804 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 804 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 041 PATENT or LICENSED 804 PATENT; or
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<PAGE> 10
(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 041
PATENTS or LICENSED 804 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 804 PATENTS or
LICENSED 041 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.
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<PAGE> 11
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 041 PATENTS
or LICENSED 804 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 041 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.
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<PAGE> 12
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 041 PATENTS, LICENSED 804 PATENTS, or
other patents licensed to Siemens under section 2.3.
6.2 In the event that any claim of the LICENSED 041 PATENTS or
LICENSED 804 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.
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<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.
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<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.
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<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
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<PAGE> 1
Exhibit 10.9
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
.
DISTRIBUTION AND LICENSE AGREEMENT
BETWEEN
SPACELABS MEDICAL, INC.
AND
ASPECT MEDICAL SYSTEMS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - DEFINITIONS.....................................................................................1
1.1 "Best Price"....................................................................................1
1.2 "Bispectral Index"..............................................................................1
1.3 "BIS Software"..................................................................................1
1.4 "Digital Signal Converter"......................................................................1
1.5 "Four Channel Digital Signal Converter".........................................................2
1.6 "Fully Burdened Costs"..........................................................................2
1.7 "International Territory".......................................................................2
1.8 "Losses"........................................................................................2
1.9 "Module"........................................................................................2
1.10 "Monitor".......................................................................................2
1.11 "Monitor Products"..............................................................................2
1.12 "Proprietary Information".......................................................................2
1.13 "Sensor"........................................................................................2
1.14 "Sensor Products"...............................................................................2
1.15 "Specifications"................................................................................3
1.16 "United States Territory".......................................................................3
1.17 "ZipPrep Electrode Product".....................................................................3
1.18 "ZipPrep Technology"............................................................................3
ARTICLE II - DISTRIBUTION RIGHTS TO MONITOR..................................................................3
2.1 Appointment.....................................................................................3
2.2 Claims..........................................................................................3
2.3 Approvals.......................................................................................4
2.4 Promotion.......................................................................................4
2.5 Demonstration...................................................................................5
2.6 Installation and Training.......................................................................5
2.7 Service.........................................................................................6
2.8 Training by Aspect..............................................................................6
2.9 Marketing Support in the International Territory................................................6
2.10 Provision of Spare Parts........................................................................6
2.11 Right of Aspect to Contact Customers............................................................7
2.12 Purchase Price..................................................................................7
2.13 International Purchase Requirements.............................................................8
2.14 Forecasts.......................................................................................9
2.15 Orders..........................................................................................9
2.16 Shipment.......................................................................................10
2.17 Labeling.......................................................................................10
2.18 Title and Risk of Loss.........................................................................10
2.19 Payment........................................................................................10
2.20 Warranty.......................................................................................10
2.21 Warranty Claims................................................................................11
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
2.22 Customer Complaints............................................................................12
2.23 Recalls........................................................................................12
2.24 Product Liability..............................................................................12
2.25 Claimed Infringement...........................................................................13
2.26 Clinical Testing...............................................................................14
2.27 Restrictive Covenant...........................................................................14
2.28 Improvements...................................................................................14
2.29 Obsolete Products..............................................................................15
ARTICLE III - DISTRIBUTION RIGHTS TO SENSOR PRODUCTS.........................................................15
3.1 Appointment....................................................................................15
3.2 Availability...................................................................................15
3.3 Promotion......................................................................................16
3.4 Purchase Price.................................................................................16
3.5 Additional Payments............................................................................16
3.6 Forecasts......................................................................................17
3.7 Orders.........................................................................................17
3.8 Shipment.......................................................................................17
3.9 Labeling.......................................................................................18
3.10 Title and Risk of Loss.........................................................................18
3.11 Payment........................................................................................18
3.12 Warranty.......................................................................................18
3.13 Warranty Claims................................................................................19
3.14 Customer Complaints............................................................................19
3.15 Recalls........................................................................................19
3.16 Product Liability..............................................................................19
3.17 Claimed Infringement...........................................................................20
3.18 Improvements...................................................................................21
3.19 Failure to Supply..............................................................................21
3.20 Restrictive Covenant...........................................................................22
3.21 Obsolete Products..............................................................................22
ARTICLE IV - RIGHTS TO BISPECTRAL INDEX.....................................................................23
4.1 Licenses.......................................................................................23
4.2 Development Efforts............................................................................23
4.3 BIS Software Maintenance.......................................................................24
4.4 Commercialization Obligation...................................................................24
4.5 Regulatory Process.............................................................................24
4.6 Quality Control................................................................................24
4.7 Royalties......................................................................................25
4.8 License to Manufacture Four Channel Digital Signal Converter...................................25
4.9 Reports and Payment............................................................................25
4.10 Customer Complaints............................................................................25
4.11 Product Liability of SMI.......................................................................26
4.12 Product Liability of Aspect....................................................................26
4.13 Claimed Infringement of SMI Technology.........................................................26
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
4.14 Claimed Infringement of Aspect Technology......................................................27
4.15 Digital Signal Converter.......................................................................28
4.16 Restrictive Covenant...........................................................................28
4.17 Right of Aspect to Contact Customers...........................................................29
ARTICLE V - COMMUNICATIONS.................................................................................29
5.1 Communications.................................................................................29
ARTICLE VI - TERMINATION....................................................................................30
6.1 Term...........................................................................................30
6.2 Termination by SMI.............................................................................30
6.3 Termination for Breach.........................................................................30
ARTICLE VII - CONFIDENTIALITY................................................................................31
ARTICLE VIII - MISCELLANEOUS..................................................................................32
8.1 Trademarks and Trade Names.....................................................................32
8.2 Records........................................................................................32
8.3 Publicity......................................................................................32
8.4 Force Majeure..................................................................................33
8.5 Relationship Between Parties...................................................................33
8.6 Notices........................................................................................33
8.7 Entire Agreement...............................................................................34
8.8 Severability...................................................................................34
8.9 Assignments....................................................................................34
8.10 Governing Law..................................................................................34
8.11 Compliance with Laws...........................................................................34
8.12 Waivers and Extensions.........................................................................34
8.13 Counterparts...................................................................................35
8.14 Consents.......................................................................................35
8.15 Limitation of Liability........................................................................35
</TABLE>
<PAGE> 5
DISTRIBUTION AND LICENSE AGREEMENT
THIS DISTRIBUTION AND LICENSE AGREEMENT (the "Agreement") is made as of
April 1, 1996 between ASPECT MEDICAL SYSTEMS, INC., a Delaware corporation with
its principal place of business at 2 Vision Drive, Natick, Massachusetts
01760-2059 ("Aspect") and SPACELABS MEDICAL, INC., a California corporation with
its principal place of business at 15220 NE 40th Street, Redmond, Washington
98073 ("SMI").
A. Aspect has developed certain EEG monitoring technology for measuring
the effects of anesthesia on the brain and SMI desires to market and distribute
products employing such technology;
B. Aspect and SMI desire to enter into an agreement that supersedes all
prior agreements between them, including but not limited to the Distribution and
License Agreement dated as of June 30, 1994.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1.1 "Best Price" means the lowest price on which Aspect charges any
other third party for a product for an "unbundled sale" of the product to a
third party which is buying similar quantities of such product under similar
terms and conditions. An "unbundled sale" means that the product is sold by
Aspect without being sold in, as part of, or as a condition to, the sale, lease,
loan, consignment or other disposition of any other product.
1.2 "Bispectral Index" means Aspect's index which is incorporated in
Aspect's A-1000 and A-1050 monitors used to monitor the hypnotic effects of
anesthetics on the brain.
1.3 "BIS Software" means Aspect's software which computes the
Bispectral Index.
1.4 "Digital Signal Converter" means an interface device that connects
to and accepts input from the Sensor or EEG electrodes, converts the signal into
digital form and inputs it into the Monitor or Module.
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1.5 "Four Channel Digital Signal Converter" means a Digital Signal
Converter developed by SMI under this Agreement that utilizes four EEG channels
for use with the Module.
1.6 "Fully Burdened Costs" means the direct and indirect costs to
manufacture a product, which costs are determined in accordance with generally
accepted accounting principles. Direct costs shall include direct materials and
direct labor costs associated with manufacturing the product. Indirect costs
mean the party's allocable overhead expenses which are applicable to the direct
costs of manufacturing the product.
1.7 "International Territory" means all countries and territories of
the world other than Japan and the United States Territory.
1.8 "Losses" means any claims, liability, suits, judgments, costs and
expenses (including but not limited to fines, penalties and reasonable
attorneys' fees).
1.9 "Module" means an integral EEG module that (i) can be incorporated
into SMI's patient monitoring equipment, and (ii) incorporates the Bispectral
Index. The term "Module" specifically excludes interface devices that allow data
from any Monitor to be displayed on other patient monitoring equipment.
1.10 "Monitor" means Aspect's EEG monitors which includes the
Bispectral Index, and all models of the EEG monitor, including those designated
by Aspect as its A-1000, A-1050, and A-2000 monitors (and such other
designations as Aspect may give to subsequently developed models of the
Monitor).
1.11 "Monitor Products" means the Monitors and the related products
listed on Schedule A to this Agreement.
1.12 "Proprietary Information" means all proprietary information and
materials of a party, whether or not patentable, which are communicated to,
learned of, or otherwise acquired by the other party during the course of this
Agreement.
1.13 "Sensor" means Aspect's disposable EEG sensor comprised of an
array of electrodes known by Aspect as its ZipPrep disposable EEG sensor. The
Sensor is designed and configured to detect EEG signals utilized for purposes of
determining the Bispectral Index. The term "Sensor" specifically excludes
individual, stand alone electrodes.
1.14 "Sensor Products" means the Sensor and the ZipPrep Electrode
Product, collectively.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
1.15 "Specifications" means the product specifications established from
time to time by Aspect for its Monitor Products and Sensor Products.
1.16 "United States Territory" means the United States of America
excluding its territories and protectorates.
1.17 "ZipPrep Electrode Product" means the ZipPrep snap electrode
configuration that utilizes the ZipPrep Technology.
1.18 "ZipPrep Technology" means the self-prepping electrode technology
which is proprietary to Aspect.
ARTICLE II - DISTRIBUTION RIGHTS TO MONITOR
2.1 Appointment. Subject to the terms and conditions of this Agreement,
Aspect hereby appoints SMI as its exclusive distributor of the Monitor Products
for the International Territory. Aspect will refer promptly to SMI all inquiries
Aspect receives, including but not limited to orders, E-mail, etc. regarding
Monitor Products from within the International Territory. This appointment shall
commence on the date of this Agreement [**], provided, however, that [**] in
accordance with the provisions of Section 2.13(b) of the Agreement.
2.2 Claims. Aspect shall provide SMI with the text of any marketing
claims which are approved and/or cleared by the FDA; by providing the text of
such marketing claims to SMI, Aspect will be deemed to represent to SMI that
such claims have been approved and/or cleared by the FDA. Aspect may choose to
provide to SMI the text of other marketing claims which Aspect has determined
are permitted under applicable federal and state laws and regulations; by
providing the text of such other marketing claims to SMI, Aspect will be deemed
to represent to SMI that such claims are permitted under all applicable federal
and state laws and regulations governing such claims for use in the
International Territory. SMI shall have the right in the International Territory
(unless additional clearance is needed from applicable international regulatory
agencies), but not in the United States Territory, to make claims which are the
same or equivalent to the claims provided by Aspect. SMI shall defend, indemnify
and hold Aspect harmless from any and all Losses resulting from any breach of
its obligations set forth in this Section. In addition and notwithstanding any
other provisions of this Agreement, if a party breaches its obligations under
this Section, the other party shall have the right to immediately terminate this
Agreement in accordance with the provisions of Section 6.3. Aspect shall defend,
indemnify and hold SMI harmless from any and all Losses arising from SMI's use
of the text of claims which have been provided to SMI by Aspect or from
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<PAGE> 8
SMI's use of the text of claims in marketing materials which have been approved
in writing by Aspect as contemplated in this Section. In the event SMI elects to
incorporate in SMI's marketing materials the text of claims provided by Aspect
hereunder, SMI will provide Aspect copies of such materials for Aspect's
approval. Aspect will not unreasonably withhold such approval and will respond
to SMI within three business days of its receipt of such materials. If Aspect
fails to respond within three business days, such materials will be deemed to
approved by Aspect. The text of any claims which are "provided" by Aspect to SMI
as contemplated in this Section, must be designated by Aspect in writing as
claims which SMI may use in its own marketing materials.
2.3 Approvals. Aspect, at its sole expense, shall be responsible for
obtaining the following safety approvals for the Monitors and the Sensor
Products, both individually and when used as a system: (a) UL Mark for Canada
("C UL"); (b) Mark for European Countries (compliance with EMC and/or Medical
Device Directive as required to sell into all countries in the European Union);
and (c) Underwriters Laboratory ("UL"). In connection with obtaining such safety
approvals, SMI shall be responsible for any required translation of the human
interface contained in the Monitor Products. At SMI's request, Aspect shall work
with SMI to implement any required translation of the human interface contained
in the Monitor Products, provided that (a) any direct costs incurred by Aspect
in translating or coding foreign language translations shall be reimbursed by
SMI as long as such costs have been approved in advance in writing by SMI, and
(b) SMI shall assist Aspect in validating such translation. SMI, at its sole
expense, shall be responsible for obtaining all other regulatory and marketing
approvals for the Monitor Products in those countries in the International
Territory in which SMI elects to distribute the Monitors. In addition, SMI shall
be responsible for obtaining safety approvals in those countries in the
International Territory in which SMI elects to distribute the monitors other
than those countries covered by the "C UL," the "CE," or the "UL" approvals. If
any language translations or product design changes are required in order for
SMI to obtain these additional safety, regulatory and marketing approvals,
Aspect shall assist SMI with such translations or changes, and SMI shall
reimburse Aspect for the reasonable and necessary costs associated with such
translations as long as such costs are approved in writing in advance by SMI.
Aspect, at its sole expense, shall be responsible for obtaining FDA clearance or
approval for the Monitor Products and Sensor Products for the United States
Territory. Aspect shall promptly apply for the approvals and clearances for
which it is responsible and shall diligently pursue such approvals and
clearances.
2.4 Promotion.
(a) Promotion of Monitor Products. SMI shall use reasonable
efforts to promote the sale of the Monitor Products, and shall do so using the
Aspect name.
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Such promotion shall include carrying the Monitor Products in its International
Price List.
(b) Advertising and Sales Promotional Material. Subject to
Section 2.2, Aspect shall provide SMI with reasonable quantities of certain
advertising and sales promotional material developed for Aspect's U.S. products
at no charge to SMI. At its expense and in its discretion, SMI may translate
these materials into the language or languages of its customers and provide
Aspect with at least one copy of all such materials. SMI shall be responsible
for the printing of all such materials. Aspect will provide SMI, at no charge to
SMI, any existing or available backup materials necessary to reproduce the
promotional materials of Aspect relating to the Monitor, Bispectral Index, or
Sensor, including but not limited to files, disks and artwork.
(c) Reimbursement. In no event shall either party be
responsible for any punitive, incidental or consequential damages, including
lost profits or lost sales, incurred by the other part and relating to the other
party's use of the promotional materials created in accordance with Sections 2.2
and 2.4; provided, however, that the foregoing limitation shall not limit or
modify a party's obligation under Section 2.2. If SMI receives notice that the
FDA intends to assess a fine, fee, assessment or other penalty, or receives any
notification from the FDA relating thereto, SMI shall promptly inform Aspect and
provide it with copies of all correspondence, notices and other materials
received by SMI from the FDA with respect thereto.
2.5 Demonstration. SMI shall keep available at all reasonable times for
demonstration purposes sufficient numbers of Monitor Products as are necessary
for appropriate sales promotion. Such demonstration Monitor Products shall be in
a condition appropriate for sales promotion.
2.6 Installation and Training. At its expense, SMI shall install the
Monitor Products on the premises of its customers of the Monitor Products and
shall train the employees of such customers to operate the Monitor Products. At
no charge to SMI, Aspect shall provide one copy of each user and technical
manual for each Monitor it ships to SMI and upon request shall provide SMI with
reasonable additional quantities of user and technical manuals. At its expense
and in its discretion, SMI may translate all user manuals (and any other manuals
required to sell the Monitor Products) into the language or languages of its
customers and shall provide Aspect both with copies of all such materials and
the master copy required to produce additional manuals. If SMI requests Aspect
to translate the human interface contained in the Monitor into a language other
than those languages required for the safety approvals listed in clauses (a),
(b) and (c) of Section 2.3 of this Agreement, Aspect shall perform such
translation at the expense of SMI and SMI shall reasonably cooperate with Aspect
in validating such translation. The costs of any such translation shall be
approved in writing in advance by SMI.
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<PAGE> 10
2.7 Service. SMI shall render prompt, workmanlike and willing service
with respect to the Monitor Products and shall use reasonable efforts to handle
satisfactorily all matters relating to the sale and servicing of the Monitor
Products in the International Territory. To facilitate timely customer service,
SMI may request support from Aspect. If such support is requested and approved
in writing by SMI and provided by Aspect, Aspect may, at its sole discretion,
bill SMI at Aspect's then current rates offered to similarly situated licensees
acquiring such services on similar terms and conditions for field or service
time and for reasonable expenses, provided that no charges shall be made for
services rendered by telephone (and Aspect hereby agrees to provide commercially
reasonable levels of telephone support). Aspect shall provide such support in a
prompt, workmanlike and willing manner. In addition, SMI shall use a method for
handling customer complaints which is the same or similar to that established by
SMI for its own products. SMI shall use reasonable efforts to maintain a supply
of spare parts and consumables to service the Monitor Products at levels
consistent with those maintained by SMI for its own products.
2.8 Training by Aspect. Aspect shall train designated groups of
employees of SMI at times mutually agreeable to the parties (a) in the use,
marketing and sale of the Monitor Products at Aspect's facilities, provided that
Aspect shall not be required to conduct more than six such training sessions per
calendar year, and (b) in the servicing of the Monitor Products at Aspect's
facilities, provided that Aspect shall not be required to conduct more than six
such training sessions per calendar year. The direct out-of-pocket costs of
reasonable and necessary travel, lodging and meals for these training sessions
shall be borne by SMI. The internal costs incurred by Aspect for these training
sessions shall be borne by Aspect. Additional training sessions shall be
conducted with the mutual consent of both parties, and SMI shall be required to
reimburse Aspect at Aspect's then current billing rates for all Aspect employees
and consultants involved.
2.9 Marketing Support in the International Territory. If SMI requests
Aspect to provide extraordinary marketing support (e.g. a lecture in the
International Territory by an Aspect representative, or protocol development in
the field) in the International Territory, over and above what Aspect is
required to provide under the other provisions by this Agreement, and over and
above what Aspect customarily provides to its own customers, then SMI will
reimburse Aspect for such support. The parties will agree on the costs, scope
and schedule for any extraordinary marketing support in advance and in writing
prior to Aspect's provision of such support.
2.10 Provision of Spare Parts. Aspect shall provide SMI a reasonable
and adequate number of spare parts at no charge and on consignment for servicing
of warranty claims on the Monitor Products during the period in which SMI
maintains rights to distribute the Monitor. At the end of each calendar quarter,
SMI shall account to Aspect for the disposition and use of such spare parts, and
shall return to
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Aspect all parts returned to SMI by its customers which were replaced with the
consigned spare parts. SMI's return of such parts to Aspect shall be at Aspect's
expense. SMI shall purchase spare parts from Aspect for servicing the
non-warranty claims during the period in which SMI maintains rights to
distribute the Monitor for the purpose of providing service to its customers. At
such time as SMI's rights to distribute the Monitor expire, at SMI's option,
Aspect will have the right and responsibility to furnish spare parts for the
Monitor Products directly to customers of SMI, provided that SMI shall provide
to Aspect promptly at such time all customer records and information necessary
for Aspect to provide such customers with spare parts. Alternatively, SMI may
elect to purchase spare parts from Aspect for the purpose of servicing
non-warranty claims of its customers.
2.11 Right of Aspect to Contact Customers. SMI shall notify Aspect on a
quarterly basis of each customer order in the International Territory for any
Monitor. Aspect shall have the right to contact the customers of SMI solely for
the purpose of assessing and ensuring customer satisfaction with the Monitor
Products. Aspect shall advise SMI of all contacts relating to its assessment of
customer satisfaction with the Monitor Products on a regular basis. Information
provided by SMI to Aspect pursuant to this Section 2.11 shall constitute
Proprietary Information of SMI. Aspect shall provide SMI with the information it
obtains from each such customer, on an ongoing basis.
2.12 Purchase Price.
(a) The purchase price for Monitors, with the exception of (i)
purchases of units for demonstration, loaner and similar purposes, and (ii) the
[**] Monitors purchased by SMI upon execution of this Agreement, shall be [**];
the price of the[**] of Aspect's material costs for the [**] for such
Monitor(s), [**]. The purchase price for the [**] Monitors purchased by SMI upon
execution of this Agreement, and for [**] Monitors purchased for demonstration,
loaner and similar purposes during the first year of this Agreement, shall be
[**] per Monitor.
(b) The purchase price for each other Monitor Product (other
than Monitors) for the International Territory shall be Aspect's United States
list price existing from time to time less that percentage discount as is set
forth on Schedule A to this Agreement. The particular purchase price for each
order shall be determined at the time of order. Aspect (i) shall [**] and (ii)
shall provide SMI with [**] of any
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
price increase. Aspect's price increases will not be effective on any SMI orders
that have been subject to a written price quotation provided to a customer
within 60 days of receipt by SMI of the notification of such increase. Aspect
shall have the right to review the documentation relating to any such price
quotations.
(c) Aspect shall provide SMI reasonable sales records, sales
reports and cost and pricing information upon request to enable SMI to confirm
the accuracy of the prices charged by Aspect under this Section 2.12. SMI shall
be entitled to audit such information and records pursuant to Section 8.2.
2.13 International Purchase Requirements.
(a) To maintain its exclusive right to distribute the Monitor
Products in the International Territory under this Agreement, SMI agrees to
purchase for resale to customers in the International Territory the following
minimum number of Monitors during the time periods indicated below. Purchases of
Monitors for demonstration, loaner, or other similar purposes do not count
towards SMI's minimum purchase requirements.
<TABLE>
<CAPTION>
PERIOD NUMBER OF MONITORS
<S> <C>
First Year (expiring on April 1, 1997, the [**]
first anniversary of this Agreement) (Upon execution of this Agreement)
[**]
(during the remainder of the year.)
Second Year [**]
Third Year [**]
</TABLE>
Note A: SMI will [**] to be purchased by SMI upon execution of this Agreement
[**] purchased by SMI from the April 1, 1996 effective date of this Agreement
through the date SMI executes this Agreement. In the third year, SMI's minimum
number of Monitors will [**] for that period. On a quarterly basis, [**]. SMI
shall be deemed to have met the minimum Monitor purchase requirements if [**]
for that year. In calculating Aspect's sales of Monitors for this purpose, the
parties will [**].
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<PAGE> 13
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
(b) SMI shall be entitled to an automatic extension, as
described in the balance of this paragraph, [**] are equal to or greater than
[**] in the U.S. This extension shall be granted automatically for the [**] and
shall continue for the [**] continue to [**]. Prior to the end of [**], Aspect
and SMI will in good faith discuss mutually satisfactory, commercially
reasonable terms for extending SMI's exclusive rights to distribute the Monitor
in the International Territory for an additional period of time under this
Agreement.
(c) SMI's compliance with the minimum purchase requirements
for each year of this Agreement will be jointly confirmed by the parties as soon
as practicable following the end of the year, but in no event more than [**]
following the end of the year. If SMI fails, with respect to any year, to meet
the minimum purchase requirements set forth above, Aspect may, on written notice
to SMI, elect to terminate SMI's right to distribute the Monitor. Upon receipt
of any such termination notice, SMI will have [**] within which to purchase
sufficient quantities of the Monitors to satisfy the minimum purchase
requirements. If Aspect elects not to terminate SMI's distribution rights
notwithstanding the failure of SMI to meet its total minimum purchase
requirements with respect to any year, Aspect shall have the right to terminate
such rights if, during the next succeeding year, SMI fails to meet a total
minimum purchase requirement equal to [**] by SMI during the preceding year.
2.14 Forecasts. At least [**], upon Aspect's request, SMI shall provide
Aspect with an estimated forecast of its requirements of Monitor Products [**]
broken out on a monthly basis and on an area basis. Such forecasts shall be
furnished solely for planning purposes and shall not constitute a commitment to
purchase.
2.15 Orders. All orders for Monitor Products shall be in writing.
Aspect shall fill each order from SMI within [**] after its receipt of the
order, provided that the aggregate of all orders placed by SMI during any
calendar quarter does not exceed the aggregate of the orders required to be
filled by Aspect during the immediately preceding calendar quarter by more than
[**]. In any event Aspect shall (i) fill orders during the calendar quarter up
to an aggregate of [**] of the aggregate amount of the orders required to be
filled by Aspect during the preceding calendar quarter, and (ii) Aspect shall
use reasonable efforts to fill the remaining portion of the order(s) as soon as
practicable thereafter. All sales of the Monitor Products shall be subject to
the terms and conditions of this Agreement, which terms and conditions shall
control to the extent that they conflict with the terms of any purchase order or
order confirmation. No terms in any purchase order for the Monitor Products
shall affect the dealings between the parties except as specifically set forth
in this Section 2.15, or as otherwise agreed in a written document signed by
both parties.
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2.16 Shipment. Aspect shall ship the Monitor Products from its
manufacturing facility to the destinations specified by SMI. Freight and
insurance charges prepaid by Aspect shall be added to the purchase price for the
Monitor Products or billed separately to SMI. SMI shall be responsible for
payment of all export and import duties, local taxes and similar charges with
respect to the Monitor Products.
2.17 Labeling. All Monitor Products shall be labeled and packaged in
the manner standard for Aspect unless otherwise requested by SMI. SMI will pay
any incremental costs incurred by Aspect to modify, at SMI's request, the
labeling or packaging of Monitor Products shipped to SMI or its customers, if
such costs are approved writing in advance by SMI.
2.18 Title and Risk of Loss. Title and ownership of the Monitor
Products shall pass to SMI upon delivery of the Monitor Products to the
destination(s) specified by to SMI pursuant to Section 2.16 of this Agreement.
Risk of loss to the Monitor Products following delivery of the Monitor Products
to a common carrier at Aspect's manufacturing facility shall be borne by SMI,
which shall reimburse Aspect for all claims of loss or damage to the Monitor
Products in transit. Aspect shall cooperate with and assist SMI in processing
all claims for loss or damage to the Monitor Products.
2.19 Payment. Aspect shall invoice SMI for the Monitor Products upon
delivery to a common carrier for shipment. The terms of payment granted to SMI
shall be net 60 days from the date of invoice. All payments by SMI to Aspect
shall be in the currency of the United States.
2.20 Warranty. Aspect warrants to SMI that each Monitor Product
(including expendable and supply items such as, but not limited to, electrodes,
cables and prep solutions) sold by it to SMI (a) shall be in good working
condition and free from defects in material and workmanship when given normal,
proper and intended usage and (b) with respect to the Monitor Products listed on
Schedule A, shall conform to its Specifications for the period of time set forth
on Schedule A to this Agreement for such Monitor Product measured from the date
of shipment of such Monitor Product to SMI or other destination designated by
SMI. For all other consumable supplies (including expendable and supply items
such as, but not limited to, electrodes, cables, and prep solutions) provided by
Aspect for use with the Monitor Products which were manufactured by third
parties, Aspect shall pass on the manufacturers warranties provided that Aspect
has the right to do so. Aspect shall not be responsible for defects which are
not due to a breach of Aspect's warranty such as, but not limited to, defects
due to fault or negligence on the part of the customer or SMI, or improper or
unauthorized use of the Monitor by the customer or SMI.
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EXCEPT AS PROVIDED IN THIS AGREEMENT, ASPECT DISCLAIMS ALL WARRANTIES,
WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THE MONITOR
PRODUCTS, INCLUDING, WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL EITHER
PARTY BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING FROM
THE BREACH OF THIS AGREEMENT, INCLUDING A BREACH BY ASPECT OF THE ABOVE STATED
WARRANTY. NOTHING IN THIS LIMITATION WILL BE DEEMED TO LIMIT ASPECT'S
OBLIGATIONS TO DEFEND, INDEMNIFY AND HOLD HARMLESS SMI IN ACCORDANCE WITH
SECTIONS 2.2, 2.4, 2.23, 2.24, 2.25 AND 8.11.
SMI shall undertake reasonable and appropriate action permitted or
required by the laws and regulations of the International Territory to ensure
that Aspect's limits of warranty responsibility as set forth above are valid and
enforceable against whomever they are applicable, to the extent permitted by
applicable law.
2.21 Warranty Claims. Under its warranty, Aspect shall repair or
replace, at its discretion, each demonstrably defective part returned by SMI,
provided that such parts shall have been returned to Aspect with all charges
prepaid by SMI within the time provided by and substantially in accordance with
Aspect's current instructions and procedures relating to returns. The
replacement part will come from Aspect's stock and may be new or refurbished. In
the case of refurbished parts, the warranty set forth in Section 2.20 of this
Agreement shall apply as if such parts were new. Aspect shall respond promptly
to any claims by SMI that any Monitor Product fails to conform to the warranty
set forth in Section 2.20. For allowed warranty claims, SMI shall pay for
transportation of Monitor Products (or components thereof) from the customer's
facility to the facility designated by Aspect, and Aspect shall pay for
transportation of replacement or repaired parts from Aspect's manufacturing
facility to the customer's facility. The party obligated to pay for such
transportation shall be responsible for all shipping costs, taxes, export and
import duties and other costs associated with the transportation of the parts.
If the returned part is not demonstrably defective, Aspect shall return the part
to SMI if SMI so requests; in that case, the costs of transportation shall be
borne by SMI. All labor costs for replacement of the defective part in the field
shall be borne by SMI.
2.22 Customer Complaints. SMI shall provide Aspect, on a quarterly
basis, with a written report of all customer complaints which require written
notifications to, or follow-up with, any regulatory agency, and follow-up
activities conducted by SMI relating to the Monitor Products. SMI shall notify
Aspect immediately of any complaints involving death or serious injury (MDR
reports) or of any other material complaints relating to the safety or efficacy
of the Monitor Products.
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2.23 Recalls. Upon receipt of any information relating to the safety or
efficacy of the Monitor Products, Aspect shall consult with SMI in an effort to
arrive at a mutually acceptable procedure for taking appropriate action, it
being understood that the ultimate decision-making authority shall rest with
Aspect, provided, however, that Aspect shall comply with all laws, regulations
and FDA and other agency guidelines regarding recalls. SMI agrees to follow any
reasonable recall or general corrective action procedures submitted to it by
Aspect and Aspect shall indemnify, defend and hold harmless SMI from any Losses
arising from any such recall or general corrective action. SMI shall be
responsible for maintaining sales records sufficient to effect any required
recall or general corrective action.
2.24 Product Liability. Aspect hereby agrees to indemnify, defend and
hold harmless SMI, its affiliates, directors, officers, employees and agents,
from and against Losses arising out of or in connection with the marketing, sale
or service of any Monitor Product, including, but not limited to, any actual or
alleged injury, damage, death or other consequence occurring to any person as a
result, directly or indirectly, of the possession or use of any such Monitor
Product, whether claimed by reason of breach of warranty, negligence, product
defect or otherwise, and regardless of the form in which such claim is made,
provided that such Losses arise from or are related to (a) a defect in the
design, manufacture or repair (to the extent the repair is performed by Aspect
or its agents other than SMI and SMI's subdistributors) of a Monitor Product or
the use of the Bispectral Index in accordance with its claims or (b) the
negligence, recklessness or intentional misconduct of Aspect. If SMI becomes
aware of a product liability claim which might give rise to a right or
obligation of indemnification and defense as provided herein, SMI shall promptly
notify Aspect. Aspect shall control and bear the full expense of the defense
against or settlement of such claim. SMI shall cooperate in such action if
reasonably necessary and requested by Aspect. In no event shall Aspect settle
any matter involving SMI without the prior written consent of SMI, which consent
shall not be unreasonably withheld. SMI may, in its own discretion, be
represented in the defense or settlement of any such claim by counsel of its own
choosing at its sole expense.
2.25 Claimed Infringement.
(a) Aspect hereby agrees to indemnify, defend and hold
harmless SMI, its affiliates, directors, officers, employees and agents, from
and against all Losses arising out of or in connection with any claim by a third
party that the manufacture, use or sale of a Monitor Product infringes any
intellectual property right claimed by such third party and relating to the
intellectual property rights owned by such party. If SMI becomes aware of an
infringement allegation which might give rise to a right or obligation of
indemnification and defense as provided herein, SMI shall promptly notify
Aspect. Aspect shall control, bear the full expense of and retain all proceeds
of the defense against or settlement of such allegation. SMI shall cooperate in
such action if reasonably necessary and requested by Aspect. In no
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<PAGE> 17
event shall Aspect settle any matter involving SMI without the prior written
consent of SMI, which consent will not be unreasonably withheld or delayed. SMI
may, in its own discretion, be represented in the defense or settlement of any
such allegation by counsel of its own choosing at its sole expense.
(b) Should any Monitor Product become the subject of an
injunction preventing its use or sale as contemplated herein, Aspect shall, at
its option (and in addition to its obligations under subsection 2.25(a)),
promptly (1) procure for SMI the right to continue to use and sell such Monitor
Product, (2) replace or modify such Monitor Product so that it becomes
non-infringing or, if options (1) and (2) are not reasonably available to
Aspect, then (3) terminate SMI's license to the allegedly infringing Monitor
Product and refund to SMI the amounts paid to Aspect for all Monitor Products,
parts or supplies in the possession of SMI or its subdistributors, upon the
return of the Monitor Products to Aspect. In addition, Aspect may undertake any
of the foregoing options (1), (2) and (3) if Aspect determines, in its
reasonable opinion, that a Monitor Product is likely to become the subject of an
injunction preventing its use or sale as contemplated herein.
(c) Aspect shall have no liability or obligation to SMI
hereunder with respect to any patent, copyright, trade secret or other
intellectual property infringement or claim thereof, to the extent such
liability or obligation is based upon (i) use or sale of a Monitor Product in
combination with devices or products not provided by Aspect, (ii) use of other
than the most recently mandatory released version of any software in a Monitor
Product or (iii) modifications, alterations or enhancements of a Monitor Product
not created by or for Aspect. SMI shall indemnify and hold Aspect harmless from
all costs, damages and expenses (including reasonable attorneys' fees) arising
from any claim enumerated in the preceding sentence. The limitations set forth
in the foregoing clause (ii) shall only apply to the extent Aspect has made the
most recently released version of the software available to SMI at no cost to
SMI for incorporation in Monitor Products which are then in SMI's possession or
have been previously distributed by SMI and the liability or obligation arises
after Aspect makes such revised version available to SMI. SMI will return the
PromCards for any such infringing software to Aspect upon receipt of replacement
PromCards; if the infringing PromCards are not returned to Aspect within six (6)
months of SMI's receipt of the replacement PromCards, Aspect will have the right
to charge SMI a reasonable amount for such unreturned PromCards.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
2.26 Clinical Testing. If SMI desires to conduct any clinical testing
of the Monitor, where the data from such testing is expected to be presented at
a public forum or be published, SMI shall advise Aspect and no such clinical
testing shall occur unless Aspect shall first have approved the protocols for
such clinical testing. Aspect shall not unreasonably delay or withhold its
approval of such clinical testing.
2.27 Restrictive Covenant. During the term of the appointment set forth
in Section 2.1 of this Agreement, SMI will not directly engage in, and will use
good faith and reasonable efforts to prevent its subdistributors from engaging
in, the sale of any products competitive with the Monitor, Aspect's Digital
Signal Converter(s), or the Bispectral Index (a "Competitive Monitor Product"),
except for the Module, an SMI EEG module which does not incorporate technology
competitive with the Bispectral Index, or SMI's Four Channel Digital Signal
Converters for which SMI has paid Aspect the license fee specified in Article IV
of this Agreement. Furthermore, in the event that SMI directly engages in the
sale of any Competitive Monitor Product, or fails (within thirty (30) days after
notice from Aspect) to use good faith and reasonable efforts to prevent a
subdistributor from engaging in the sale of any Competitive Monitor Product,
Aspect shall have the right to terminate the right of SMI to distribute Monitor
Products, effective thirty (30) days after delivery of written notice to SMI. In
the event that SMI fails to prevent a subdistributor from engaging in the sale
of any Competitive Monitor Product Aspect shall have the right to terminate the
right of SMI to distribute Monitor Products in the country for which the
subdistributor is responsible. SMI's obligation to prevent its subdistributors
from breaching the foregoing restrictive covenant shall not require SMI to take
any action which is illegal under any applicable laws or which could reasonably
be expected to expose SMI to liability in damages to the subdistributor or the
subdistributor's customers.
2.28 Improvements. In the event that Aspect develops an improved
version of the software embedded in the Monitor, Aspect shall supply such
upgrades to SMI to meet customer requirements. SMI shall be required to pay for
all software upgrades to the Monitor affected through the use of the PromCard
and all related shipping charges. The price to SMI of software upgrades will be
set at [**]. SMI agrees to use reasonable efforts to make the software upgrades
to the Monitor relating to improved performance of the Bispectral Index
available to its customers which have purchased the Monitor. If Aspect requests
that SMI provide the software upgrade free of charge to SMI customers that have
purchased the Monitor, and so informs SMI in writing, SMI agrees to take all
reasonable steps to distribute the software upgrade at no cost to the SMI
customers which have purchased the Monitor. Aspect shall provide updated
software to SMI in the form of a PromCard. Aspect will charge SMI a reasonable
cost for each PromCard, but will issue a credit to SMI
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
for the cost of the PromCard when each old PromCard is returned. In such event,
all reasonable shipping expenses incurred by SMI to send the software upgrade to
SMI customers will be borne by Aspect.
2.29 Obsolete Products. In the event Aspect elects to discontinue the
production of a particular model of Monitor Product because such Monitor Product
has been replaced by later models, Aspect shall provide SMI not less than six
(6) months prior written notice (the "Notice Period") of such discontinuance,
and shall fill such orders for the discontinued Monitor Product(s) as SMI
reasonably determines prior to the end of the Notice Period, will be required to
enable SMI to meet the requirements of its subdistributors and customers.
ARTICLE III - DISTRIBUTION RIGHTS TO SENSOR PRODUCTS
3.1 Appointment. Subject to the terms and conditions of this Agreement,
Aspect hereby appoints SMI as [**]. SMI shall [**]; provided, however, that
Aspect agrees to sell to SMI (at the same price that Sensors are sold to SMI for
distribution in the International Territory) a limited number of Sensors that
[**]. Aspect shall not be required to sell SMI more than [**] of the expected
requirements for Sensors (established by Aspect's consumption rate for Sensors)
for new Modules sold by SMI [**]. By way of example, if SMI has an installed
base of [**] Modules [**]. at the end of 1996, and sells [**] new Modules [**]
in 1997 to increase the installed base from [**], and Aspect's consumption rate
for Sensors is [**] Sensors/year per system, SMI may distribute [**] Sensors
[**] in 1997. This appointment shall commence on the date of this Agreement and
shall expire on the [**] anniversary of this Agreement.
3.2 Availability. Aspect agrees to use reasonable efforts to pursue and
receive 510(K) clearance from the FDA for the Sensor Products and to make the
Sensor Products available for commercial distribution by SMI for use with
Monitor Products and Modules. Except as provided by law, SMI at its sole expense
and in its reasonable discretion, shall be responsible for obtaining the
necessary regulatory and marketing approvals for the Sensor for all countries in
the International Territory in which the Monitor or Module will be distributed.
In the event that SMI is prohibited from obtaining such approvals, SMI shall
reimburse Aspect for Aspect's reasonable
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
costs incurred in assisting SMI to obtain such approvals, provided that SMI
shall approve all expenses in writing and advance.
3.3 Promotion. SMI shall use reasonable efforts to promote the sale of
the Sensor in the International Territory and Japan under Aspect's ZipPrep
trademark. Aspect shall provide SMI with reasonable quantities of its
advertising and sales promotion material at no charge to SMI. At its expense and
in its discretion, SMI may translate Aspect's advertising and sales promotion
material into the language or languages of its customers and provide Aspect with
copies of all such materials. Aspect shall not provide copies of such translated
material to its other customers, including distributors, nor permit the
customers or distributors to use them, but shall own the copyright to such
translations (which rights SMI will be deemed to assign to Aspect upon creation
of the translations). Aspect hereby grants SMI a royalty free license to use
such translations during the term of this Agreement throughout the International
Territory.
3.4 Purchase Price. The purchase price for the Sensor Products shall be
[**] existing from time to time (the "International and Japanese Sensor Purchase
Price"), but in no event [**] for the Sensor Products. SMI's purchase price for
Sensor Products shall be determined at each anniversary of this Agreement and be
based on Aspect's [**]. Aspect agrees to provide SMI reasonable sales records
and reports upon request to enable SMI to confirm the accuracy of the prices
charged by Aspect under this Section 3.4. SMI may audit this information in
accordance with Section 8.2.
3.5 Additional Payments. Aspect shall make the following payments to
SMI with respect to Net Sales (as defined below) in the United States Territory:
(a) During the term of this Agreement, Aspect shall pay to SMI
[**] in the United States Territory sold to [**], provided that if both Aspect
and SMI have [**], the payment to SMI shall be [**]. By way of illustration, if
(i) [**] to Account X in a year, (ii) [**] to Account X, and (iii) SMI has
previously sold [**] to Account X, then the additional payment shall be
determined as follows:
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Number of Units Sold by
[**]
[**] Total Number of Unit Sold = [**]
by SMI and Aspect to
Account X [**]
(b) As used in subsection (a), "Net Sales" means the gross
revenues realized by Aspect from or on account of the sales of Sensors sold in
the United States Territory to the accounts described in subsection (a), less
(i) credits or allowances, if any, actually granted on account of price
adjustments, rejection or return of items previously sold, (ii) excises, sales
taxes, duties or other taxes or franchise taxes imposed upon and paid with
respect to such sales (excluding income taxes), and (iii) separately itemized
insurance and transportation costs incurred in shipping products.
3.6 Forecasts. Beginning with the quarter in which Aspect and SMI
anticipate that the Sensor Products will become commercially available, at least
four weeks prior to the commencement of each quarter, upon Aspect's request, SMI
shall provide Aspect with a forecast of its requirements of Sensors for such
quarter and for the ensuing three quarters broken out on a monthly basis and for
the International Territory, United States Territory and Japan. Such forecasts
shall be furnished solely for planning purposes and shall not constitute a
commitment to purchase.
3.7 Orders. Promptly after the receipt from Aspect of written
notification of the availability of the Sensor Products for commercial
distribution, SMI shall order Sensor Products from Aspect when and as needed in
order to fulfill its responsibilities under this Agreement. All orders shall be
in writing. Aspect shall fill each order from SMI within 90 days after receipt
of the order, provided that the aggregate of all orders placed by SMI during any
calendar quarter does not exceed the aggregate of the orders required to be
filled by Aspect during the immediately preceding calendar quarter by more than
[**]. In any event, Aspect shall (i) fill orders during the calendar quarter up
to an aggregate of [**] of the aggregate amount of the orders required to be
filled by Aspect during the preceding calendar quarter, and (ii) Aspect shall
use reasonable efforts to fill the remaining portion of the order(s) as soon as
practicable thereafter. All sales of the Sensor Products shall be subject to the
terms and conditions of this Agreement, which terms and conditions shall control
to the extent that they conflict with the terms of any purchase order or order
confirmation.
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3.8 Shipment. Aspect shall ship the Sensor Products F.O.B. its
manufacturing facility to the destinations specified by SMI. Freight and
insurance charges prepaid by Aspect shall be added to the purchase price for the
Sensor Products or billed separately to SMI. SMI shall be responsible for
payment of all export and import duties, local taxes and similar charges with
respect to the Sensor Products.
3.9 Labeling. All Sensor Products shall be labeled and packaged in the
manner standard for Aspect unless otherwise requested by SMI. SMI will pay any
incremental costs incurred by Aspect to modify, at SMI's request, the labeling
or packaging of Sensor Products shipped to SMI or its customers, if such costs
are approved in writing in advance by SMI.
3.10 Title and Risk of Loss. Title and ownership of and risk of loss to
the Sensor Products shall pass to SMI upon delivery of the Sensor Products to a
common carrier at Aspect's manufacturing facility. Aspect shall cooperate with
SMI in processing all claims for loss or damage to the Sensor Products.
3.11 Payment. Aspect shall invoice SMI for the Sensor Products upon
delivery to a common carrier for shipment. The terms of payment granted to SMI
shall be net 60 days from the date of invoice. All payments by SMI to Aspect
shall be in the currency of the United States.
3.12 Warranty. Aspect warrants to SMI that each Sensor Product sold by
it to SMI (a) shall be in good working condition and free from defects in
material and workmanship when given normal, proper and intended usage and (b)
shall conform to its Specifications for a period of six (6) months from the date
of shipment of the Sensor Products to SMI. For all other consumable supplies
provided by Aspect for use with the Monitor Products which were manufactured by
third parties, Aspect shall provide the manufacturers warranties to SMI. Aspect
shall not be responsible for defects which are not due to a breach of Aspect's
warranty such as, but not limited to, defects due to fault or negligence on the
part of the customer or SMI, or improper or unauthorized use of the Sensor
Products by the customer or SMI.
EXCEPT AS PROVIDED IN THIS AGREEMENT, ASPECT DISCLAIMS ALL WARRANTIES,
WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THE SENSOR
PRODUCTS, INCLUDING, WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL EITHER
PARTY BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING FROM
THE BREACH OF THIS AGREEMENT, INCLUDING A BREACH BY ASPECT OF THE ABOVE STATED
WARRANTY. NOTHING IN THIS LIMITATION WILL BE DEEMED TO LIMIT ASPECT'S
OBLIGATIONS TO DEFEND, INDEMNIFY OR
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HOLD HARMLESS SMI IN ACCORDANCE WITH SECTIONS 2.2, 2.25, 3.15, 3.16 AND 8.11.
SMI shall undertake all reasonable and appropriate actions permitted or
required by laws and regulations of the Territory to ensure that Aspect's limits
of warranty responsibility as set forth above are valid and enforceable against
whomever they are applicable to the extent permitted by applicable law.
3.13 Warranty Claims. Under its warranty, Aspect shall replace each
demonstrably defective Sensor Product and other consumable supplies provided by
Aspect for use with the Sensor Product, returned by SMI, provided that such
Sensor Products shall have been returned to Aspect with all charges prepaid by
SMI (or destroyed by SMI or its customers at Aspect's request) within the time
provided by and substantially in accordance with Aspect's current instructions
and procedures relating to returns. Aspect shall respond promptly to any claims
by SMI that any Sensor Product and consumable supplies fails to conform to the
warranty set forth in Section 3.12. For allowed warranty claims, Aspect shall
pay for transportation of replacements from Aspect's manufacturing facility to
SMI customer. The party obligated to pay for such transportation shall be
responsible for all shipping costs, taxes, export and import duties and other
costs associated with the transportation of Sensor Products. If the returned
Sensor Product is not demonstrably defective, Aspect shall return the Sensor
Product if SMI so requests; in that case, the costs of transportation shall be
borne by SMI. All labor costs for replacement of the defective Sensor Products
in the field shall be borne by SMI.
3.14 Customer Complaints. SMI shall provide Aspect, on a quarterly
basis, with a written report of all customer complaints which require written
notification to, or follow up with, any regulatory agency, and follow up
activities conducted by SMI relating to the Sensor. SMI shall notify Aspect
immediately of any complaints involving death or serious injury (MDR reports) or
of any other material complaints relating to the safety or efficacy of the
Sensor Products.
3.15 Recalls. Upon receipt of any information relating to the safety or
efficacy of the Sensor Products, Aspect shall consult with SMI in an effort to
arrive at a mutually acceptable procedure for taking appropriate action, it
being understood that the ultimate decision-making authority shall rest with
Aspect, provided, however, that Aspect shall comply with all laws, regulations
and FDA and other agency guidelines regarding recalls. SMI agrees to follow any
reasonable recall or general corrective action procedures submitted to it by
Aspect and Aspect shall indemnify, defend and hold harmless SMI from any Losses
arising from any such recall or general corrective action. SMI shall be
responsible for maintaining sales records sufficient to effect any required
recall or general corrective action.
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3.16 Product Liability. Aspect hereby agrees to indemnify, defend and
hold harmless SMI, its affiliates, directors, officers, employees and agents,
from and against all Losses arising out of or in connection with the marketing
or sale of any Sensor Product, including, but not limited to, any actual or
alleged injury, damage, death or other consequence occurring to any person as a
result, directly or indirectly, of the possession or use of any such Sensor
Product, whether claimed by reason of breach of warranty, negligence, product
defect or otherwise, and regardless of the form in which such claim is made,
provided that such Losses arise from or are related to (a) a defect in the
design or manufacture of the Sensor Product or improper written instructions for
use of the Sensor Product provided by Aspect, or (b) the negligence,
recklessness or intentional misconduct of Aspect. If SMI becomes aware of a
product liability claim which might give rise to a right or obligation of
indemnification and defense as provided herein, SMI shall promptly notify
Aspect. Aspect shall control and bear the full expense of the defense against or
settlement of such claim. SMI shall cooperate in such action if reasonably
necessary and requested by Aspect. In no event shall Aspect settle any matter
involving SMI without the prior written consent of SMI, which consent will not
be unreasonably withheld or delayed. SMI may, in its own discretion, be
represented in the defense or settlement of any such claim by counsel of its own
choosing at its sole expense.
3.17 Claimed Infringement.
(a) Aspect hereby agrees to indemnify, defend and hold
harmless SMI, its affiliates, directors, officers, employees and agents, from
and against all Losses arising out of or in connection with any claim by a third
party that the manufacture, use or sale of a Sensor Product infringes any
intellectual property right claimed by such third party and relating to the
intellectual property rights owned by such party. If SMI becomes aware of an
infringement allegation which might give rise to a right or obligation of
indemnification and defense as provided herein, SMI shall promptly notify
Aspect. Aspect shall control, bear the full expense of and retain all proceeds
of the defense against or settlement of such allegation. SMI shall cooperate in
such action if reasonably necessary and requested by Aspect. In no event shall
Aspect settle any matter involving SMI without the prior written consent of SMI,
which consent shall not be unreasonably withheld or delayed. SMI may, in its own
discretion, be represented in the defense or settlement of any such allegation
by counsel of its own choosing at its sole expense.
(b) Should any Sensor Product become the subject of an
injunction preventing its use or sale as contemplated herein, Aspect shall (in
addition to its obligations under Section 3.17), at its option, promptly (1)
procure for SMI the right to continue to use and sell such Sensor Product, (2)
replace or modify such Sensor Product so that it becomes non-infringing or, if
options (1) and (2) are not reasonably available to Aspect, then (3) terminate
SMI's license to the allegedly infringing Sensor Product and refund to SMI the
amounts paid to Aspect for all Sensor Products in the
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possession of SMI or its subdistributors, upon the return of the Sensor Products
to Aspect. In addition, Aspect may undertake any of the foregoing options (1),
(2) and (3) if Aspect determines, in its reasonable opinion, that a Sensor
Product is likely to become the subject of an injunction preventing its use or
sale as contemplated herein.
(c) Aspect shall have no liability or obligation to SMI
hereunder with respect to any patent, copyright, trade secret or other
intellectual property infringement or claim thereof, to the extent such
liability or obligation is based upon (i) use or sale of a Sensor Product in
combination with devices or products not provided by Aspect, or (ii)
modifications, alterations or enhancements of a Sensor Product not created by or
for Aspect. SMI shall indemnify and hold Aspect harmless from all costs, damages
and expenses (including reasonable attorneys' fees) arising from any claim
enumerated in the preceding sentence.
3.18 Improvements. In the event that Aspect develops an improved
version of the Sensor Products, the rights set forth in this Agreement with
respect to the Sensor Products shall apply to the improved version of the Sensor
Products at such time as the improved version of the Sensor Products first
becomes available for commercial distribution. Notwithstanding the foregoing, in
the event that Aspect is able to document an increase in the cost to manufacture
the improved version of the Sensor Products, Aspect shall be entitled to a
commensurate increase in the International and Japanese Sensor Product Purchase
Price.
3.19 Failure to Supply. If, at any time during the term of this
Agreement, Aspect shall fail to supply SMI with Sensors in accordance with
Section 3.7, Aspect and SMI shall meet to discuss the situation promptly
following written notice from SMI of Aspect's failure to supply, and shall
cooperate in good faith to resolve the reason for the failure to supply. If
Aspect and SMI are unable to agree on a resolution within 30 days of Aspect's
receipt of SMI's written notice of Aspect's failure to supply, and if Aspect is
unable to meet SMI's requirements for Sensors within such period, SMI shall have
the right (in addition to its other rights and remedies hereunder) to choose one
of the following options for meeting its customers' requirements for Sensors:
(a) SMI may elect to manufacture its Sensor requirements. In
the event SMI elects this option, SMI will not be required to pay Aspect a
royalty during the period in which SMI is manufacturing the Sensor. However,
when Aspect is once again able to supply SMI with its requirements for Sensors,
Aspect may do so on the same terms that existed prior to the interruption of
supply, provided that SMI will be allowed to continue to manufacture Sensors for
a sufficiently long period of time to recover its investment in establishing
Sensor production. For this purpose, "sufficiently long" means the point at
which SMI's investment in tooling and non-recurring engineering costs to
establish Sensor production equals SMI's gross
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margin per Sensor (calculated using its Fully Burdened Costs) multiplied by the
total quantity of Sensors produced by SMI; or
(b) SMI may select an alternative electrode set to provide BIS
functionality, provided that the alternative electrode set will maintain the
closed nature of the BIS Software system to the reasonable satisfaction of
Aspect through a proprietary connector or other means. When Aspect is once again
able to supply SMI with its requirements for Sensors, Aspect may do so on the
same terms that existed prior to the interruption of supply, provided that SMI
will be allowed to continue to utilize the alternative electrode set for up to
60 days.
In the event the failure to supply exceeds one year, SMI will have the
right to utilize an alternative electrode set of its own choosing on a
royalty-free basis in perpetuity. Notwithstanding anything to the contrary in
this Agreement, the foregoing rights of SMI shall not apply if Aspect's failure
to supply SMI is excused pursuant to Section 8.4 of this Agreement. At any time
during the term of this Agreement, Aspect will, at SMI's request, deposit into
escrow all drawings, diagrams, schematics, source code and other proprietary
information which may be necessary or desirable to enable SMI to exercise its
rights under this Section 3.19. The escrow of such material shall be made
pursuant to an escrow agreement with an independent third party escrow agent, on
terms and conditions which are consistent with this Section 3.19, and which are
reasonable and customary for escrow transactions of this type. SMI shall pay the
fees of the escrow agent for establishing and maintaining the escrow.
3.20 Restrictive Covenant. Except as provided in Section 3.19, during
the term of the appointment set forth in Section 3.1 of this Agreement, SMI will
not directly engage in, and will use good faith and reasonable efforts to
prevent its subdistributors from engaging in, the sale in the International
Territory or Japan or in the United States Territory of any products that are
competitive with the Sensor (a "Competitor Sensor Product"). In addition, SMI
agrees that it will not promote or market the ZipPrep electrode product for use
as an EKG electrode. The restriction set forth in this section shall not apply
to the sale of electrode products compatible with SMI's own EEG products or Four
Channel Digital Signal Converter, provided that these products are used for EEG
monitoring only without the Bispectral Index. Furthermore, in the event that SMI
directly engages in the sale of any Competitor Sensor Product, or fails (within
thirty (30) days after notice from Aspect) to use good faith and reasonable
efforts to prevent a subdistributor from engaging in the sale of any Competitive
Sensor Product, Aspect shall have the right to terminate the right of SMI to
distribute the Sensor Products, effective thirty (30) days after delivery of
written notice to SMI. SMI's obligation to prevent its subdistributors from
breaching the foregoing restrictive covenant shall not require SMI to take any
action which is illegal under any applicable law or which could reasonably be
expected to expose SMI to liability and damages to the subdistributor or the
subdistributor's customers.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
3.21 Obsolete Products. In the event Aspect elects to discontinue the
production of a particular model of a Sensor Product because such Sensor Product
has been replaced by later models, Aspect shall provide SMI not less than six
(6) months prior written notice (the "Notice Period") of such discontinuance,
and shall fill such orders for the discontinued Sensor Product(s) as SMI
reasonably determines, prior to the end of the Notice Period, will be required
to enable SMI to meet the requirements of its subdistributors and customers.
ARTICLE IV - RIGHTS TO BISPECTRAL INDEX
4.1 Licenses. Subject to the terms and conditions of this Agreement,
Aspect hereby grants to SMI a non-exclusive license to the Bispectral Index for
the purposes of developing, manufacturing, marketing and selling the Module
worldwide. This license shall commence on the date of this Agreement and shall
expire on the tenth anniversary of this Agreement. Prior to the expiration of
this license, Aspect and SMI agree to negotiate in good faith concerning
commercially reasonable terms under which SMI may elect to renew the license.
SMI shall have the right to grant sublicenses to third party distributors for
the sole purpose of marketing and selling the Module. Subject to Section 4.16,
in the event Aspect obtains PMA approval of the Bispectral Index, Aspect hereby
grants to SMI, and SMI accepts, a nonexclusive royalty free license to reference
and use information in the Aspect PMA to enable SMI to file for and obtain PMA
approval of the Module from the FDA. SMI may continue to reference and use the
same PMA information in support of changes or modifications to the Module
subsequently proposed by SMI. In addition, in consideration of SMI's payment of
a license fee of [**] due upon execution of this Agreement, Aspect hereby grants
SMI a fully paid, perpetual and worldwide license to use the source code for low
level communication and control interface to the Field Programmable Gate Array
("FPGA"), in accordance with the provisions of Schedule B, and to incorporate
such source code in the Module.
4.2 Development Efforts. SMI agrees to use reasonable efforts to
develop the Module. The development shall be conducted at and/or coordinated
from the facilities of SMI. Aspect agrees to provide such assistance and such
information about the Bispectral Index, the ZipPrep Technology and other Aspect
technology as SMI reasonably requests in order to develop the Module. SMI shall
be responsible for all costs incurred in developing the Module in excess of
costs incurred in delivering the items and services set forth in Schedule B, and
shall reimburse Aspect for both its internal and reasonable out-of-pocket
expenses. The role of Aspect and SMI with respect to the (i) development of
modifications to the BIS Software to be incorporated in SMI's Module, (ii) the
source code license for the FPGA and low level drivers which control the FPGA,
and (iii) for the development of a Four Channel
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Digital Signal Converter, are set forth in detail in Schedule B. SMI agrees to
mark the Four-Channel Digital Signal Converter and the Module in the form of
"Licensed under U.S. Pat. No. 5,381,804; 4,907,597; 5,010,891; 5,320,109;
5,458,117; 5,368,041; and other patents pending" at a location and in a manner
on the products sufficient to meet the requirements of 35 U.S.C. 287. In
addition, [**] between: (a) [**] or (b) [**]. The Module will also [**], which
the Module [**].
4.3 BIS Software Maintenance. In addition, SMI will pay Aspect an
annual maintenance fee of [**] per year, payable in advance upon execution of
this Agreement and on the first and second anniversary of this Agreement. In
consideration of this maintenance fee, Aspect shall provide SMI up to [**],
shall reasonably assist SMI in debugging and utilizing the software and shall
provide software updates to BIS Software. Upon request by SMI, Aspect will, on
or about the third anniversary of this Agreement, negotiate in good faith on
commercially reasonable terms under which Aspect would agree to continue to
provide software maintenance support. SMI shall have the sole responsibility to
develop all other software for the Module.
4.4 Commercialization Obligation. Subsequent to development of the
Module, SMI agrees to use reasonable efforts to (a) obtain necessary regulatory
approvals for the marketing and sale of the Module in the International
Territory, in those countries in which it elects to commercially distribute the
Module, (b) provide for commercial production of the Module and (c) diligently
market the Module after receipt of the necessary regulatory approvals,
including, but not limited to, listing the Module in all of SMI's standard price
lists and promoting and selling the Module at a level of effort and expense
similar to the levels devoted to SMI's own patient monitoring equipment.
4.5 Regulatory Process. SMI shall provide Aspect with an advance copy
of any regulatory filing relating to the Modules and Aspect shall have the right
to make comments and suggestions on any such regulatory filing, provided that
SMI shall only be required to provide portions of such filings describing or
relating to the Bispectral Index. Any comments or suggestions made by Aspect
shall be given due consideration by SMI in its discretion and changes to the
regulatory filings specifically requested by Aspect shall not be unreasonably
refused. Aspect agrees to promptly provide such comments (in any event within
thirty (30) days of its receipt
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
of the proposed filing), and agrees that such filings shall be the Proprietary
Information of SMI.
4.6 Quality Control. Aspect shall furnish SMI the executable code for
the Bispectral Index. SMI shall have no right to the source code for the
Bispectral Index and shall have no right to modify the Bispectral Index. Prior
to the first commercial sale of a Module, Aspect shall test Modules at the
facilities of either Aspect or SMI and Aspect and SMI shall determine and
implement the most efficient method for such testing.
4.7 Royalties. SMI shall pay Aspect upon execution of this Agreement,
either a prepaid royalty of [**], which shall authorize SMI to sell up to [**]
Modules, or a prepaid royalty of [**], which shall authorize SMI to sell up to
[**] Modules; in either case, SMI shall also pay Aspect prepaid royalties of
[**] when Aspect completes the modifications to the BIS software in accordance
with the Specifications set forth in Schedule B, and prepaid royalties of [**]
when the modified BIS software is validated in accordance with Schedule B. At
any time after the date of this Agreement through [**] from the date of this
Agreement, SMI may, at its election, prepay an additional royalty of [**], which
shall authorize SMI to sell an additional [**] Modules. In addition, at any time
from the date of this Agreement through the [**] anniversary of the date of this
Agreement, SMI may prepay an additional royalty of [**] to Aspect, which shall
authorize SMI to sell an additional [**] Modules. For any Module sales in excess
of the amounts authorized by the foregoing prepaid royalties, Aspect shall grant
SMI commercially reasonable royalty price and payment terms, which terms [**],
and in any event such royalty will not exceed [**] per Module sold by SMI.
4.8 License to Manufacture Four Channel Digital Signal Converter. In
consideration of SMI's payment of a prepaid license fee of [**] payable on
execution of this Agreement, an additional [**] license fee payable on
completion of the electronic and mechanical design reviews between Aspect and
SMI, and an additional [**] license fee payable when fully functional prototypes
of the Four-Channel Digital Signal Converter are tested and meet the
specifications set forth in Schedule B, Aspect hereby grants SMI a worldwide,
nonexclusive, fully-paid, perpetual and irrevocable license to develop,
manufacture, market and sell the Four Channel Digital Signal Converter. SMI may
only use the Four Channel Digital Signal Converter in conjunction with the
Module for the EEG and Bispectral Index.
4.9 Reports and Payment. SMI shall deliver to Aspect within 30 days
after the end of each quarter a written report showing its sales of Modules
during such quarter. All sales shall be segmented in each such report on a
country-by-country
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basis. SMI, simultaneously with the delivery of each such report, shall tender
payment in United States dollars of all royalties shown to be due thereon.
4.10 Customer Complaints. To the extent related to the Bispectral Index
or its performance, SMI shall provide Aspect, on a quarterly basis, with a
written report of all customer complaints which require written notification to,
or follow up with, any regulatory agency, and follow up activities conducted by
SMI relating to the Module. SMI shall notify Aspect immediately of any
complaints involving death or serious injury (MDR reports) or any other
complaints relating to the safety or efficacy claims of the Bispectral Index.
4.11 Product Liability of SMI. SMI hereby agrees to indemnify, defend
and hold harmless Aspect, its affiliates, directors, officers, employees and
agents, from and against all Losses arising out of or in connection with the
marketing or sale of any Module, including, but not limited to, any actual or
alleged injury, damage, death or other consequence occurring to any person as a
result, directly or indirectly, of the possession or use of any such Module,
whether claimed by reason of breach of warranty, negligence, product defect or
otherwise, and regardless of the form in which such claim is made, provided that
such Losses are due to (a) a defect in the design or manufacture of the Module
(excluding defects in the BIS Software, the Bispectral Index or other products
provided by Aspect hereunder) or modifications to the BIS Software made by SMI
or (b) the negligence, recklessness or intentional misconduct of SMI. If Aspect
becomes aware of a product liability claim which might give rise to a right or
obligation of indemnification and defense as provided herein, Aspect shall
promptly notify SMI. SMI shall control and bear the full expense of the defense
against or settlement of such claim. Aspect shall cooperate in such action if
reasonably necessary and requested by SMI. In no event shall SMI settle any
matter involving Aspect without the prior written consent of Aspect, which
consent shall not be unreasonably withheld or delayed. Aspect may, in its own
discretion, be represented in the defense or settlement of any such claim by
counsel of its own choosing at its sole expense.
4.12 Product Liability of Aspect. Aspect hereby agrees to indemnify,
defend and hold harmless SMI, its affiliates, directors, officers, employees and
agents, from and against all Losses arising out of or in connection with the
marketing or sale of any Module, including, but not limited to, any actual or
alleged injury, damage, death or other consequence occurring to any person as a
result, directly or indirectly, of the possession or use of any such Module,
whether claimed by reason of breach of warranty, negligence, product defect or
otherwise, and regardless of the form in which such claim is made, provided that
such Losses arise from or are related to (a) a defect in the design or
manufacture of the BIS Software or the Bispectral Index as delivered by Aspect
or as modified by Aspect, or (b) the negligent, recklessness or intentional
misconduct of Aspect. If SMI becomes aware of a product liability claim which
might give rise to a right or obligation of indemnification and defense as
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provided herein, SMI shall promptly notify Aspect. Aspect shall control and bear
the full expense of the defense against or settlement of such claim. SMI shall
cooperate in such action if reasonably necessary and requested by Aspect. In no
event shall Aspect settle any matter involving SMI without the prior written
consent of SMI, which consent shall not be unreasonably withheld or delayed. SMI
may, in its own discretion, be represented in the defense or settlement of any
such claim by counsel of its own choosing at its sole expense.
4.13 Claimed Infringement of SMI Technology. SMI hereby agrees to
indemnify, defend and hold harmless Aspect, its affiliates, directors, officers,
employees and agents, from and against all Losses arising out of or in
connection with any claim by a third party that the manufacture, use or sale of
a Module infringes any intellectual property right claimed by such third party
and relating to the intellectual property rights owned by such party.
Notwithstanding the preceding sentence, SMI will not be required to indemnify,
defend or hold Aspect harmless from Losses which arise from the BIS Software,
the Bispectral Index or other products provided by Aspect hereunder, except to
the extent such Losses result from the use or sale of the BIS Software,
Bispectral Index or other Aspect products in combination with products which are
provided by parties other than Aspect. If Aspect becomes aware of an
infringement allegation which might give rise to a right or obligation of
indemnification and defense as provided herein, Aspect shall promptly notify
SMI. SMI shall control, bear the full expense of and retain all proceeds of the
defense against or settlement of such allegation. Aspect shall cooperate in such
action if reasonably necessary and requested by SMI. In no event shall SMI
settle any matter involving Aspect without the prior written consent of Aspect,
which consent shall not be unreasonably withheld or delayed. Aspect may, in its
own discretion, be represented in the defense or settlement of any such
allegation by counsel of its own choosing at its sole expense.
4.14 Claimed Infringement of Aspect Technology.
(a) Aspect hereby agrees to indemnify, defend and hold
harmless SMI, its affiliates, directors, officers, employees and agents, from
and against all Losses arising out of or in connection with any claim by a third
party that the BIS Software, the Bispectral Index or other products provided by
Aspect hereunder infringes any intellectual property right claimed by such third
party and relating to the intellectual property rights owned by such party. If
SMI becomes aware of an infringement allegation which might give rise to a right
or obligation of indemnification and defense as provided herein, SMI shall
promptly notify Aspect. Aspect shall control, bear the full expense of and
retain all proceeds of the defense against or settlement of such allegation. SMI
shall cooperate in such action if reasonably necessary and requested by Aspect.
In no event shall Aspect settle any matter involving SMI without the prior
written consent of SMI, which consent shall not be unreasonably withheld or
delayed. SMI may, in its own discretion, be
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represented in the defense or settlement of any such allegation by counsel of
its own choosing at its sole expense.
(b) Should any BIS Software or the Bispectral Index become the
subject of an injunction preventing its use or sale as contemplated herein,
Aspect shall, at its option (and in addition to its obligations under subsection
4.13(a)), promptly (1) procure for SMI the right to continue to use and sell
such BIS Software or Bispectral Index, (2) replace or modify such BIS Software
or Bispectral Index so that it becomes non-infringing or, if options (1) and (2)
are not reasonably available to Aspect, then (3) terminate SMI's license to the
allegedly infringing BIS Software or Bispectral Index and refund to SMI the
amounts paid to Aspect for all BIS Software or the Bispectral Index in the
possession of SMI or its subdistributors, upon the return of the BIS Software or
Bispectral Index to Aspect. In addition, Aspect may undertake any of the
foregoing options (1)(2) and (3) if Aspect determines, in its reasonable
opinion, that the BIS Software or Bispectral Index is likely to become the
subject of an injunction preventing its use or sale as contemplated herein.
(c) Aspect shall have no liability or obligation to SMI
hereunder with respect to any patent, copyright, trade secret or other
intellectual property infringement or claim thereof, to the extent such
liability or obligation is based upon (i) use or sale of BIS Software or the
Bispectral Index in combination with devices or products not provided by Aspect,
(ii) use of other than the most recently released version of any software
included in the BIS Software or the Bispectral Index or (iii) modifications,
alterations or enhancements of the BIS Software or Bispectral Index not created
by or for Aspect. SMI shall indemnify and hold Aspect harmless from all costs,
damages and expenses (including reasonable attorneys' fees) arising from any
claim enumerated in the preceding sentence. The limitations set forth in the
foregoing clause (ii) shall only apply to the extent Aspect has made the most
recently released version of the software available to SMI at no cost to SMI for
incorporation in the BIS Software or Bispectral Index which are then in SMI's
possession or have been previously distributed by SMI and the liability or
obligation arises after Aspect makes such revised version available to SMI.
4.15 Digital Signal Converter. Aspect agrees to sell to SMI, and SMI
agrees to purchase exclusively from Aspect, the Digital Signal Converters (the
DSC II, or Aspect's next generation Digital Signal Converter, such as a
one-channel Digital Signal Converter, which may take the place of the DSC II) to
be used in conjunction with the Module and the Monitor. In addition, SMI at its
option may distribute the Four Channel Digital Signal Converter for use with the
Module in configurations with Bispectral Index, EEG, or both capabilities
enabled. In either case, the Bispectral Index will only be operated through the
use of the Sensor except for failure to supply
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
pursuant to Section 3.20. The price for each Digital Signal Converter
manufactured by Aspect shall be [**]. Aspect's obligation to sell Digital Signal
Converters to SMI shall be in effect during the term of the license set forth in
Section 4.1 above. The provisions of Sections 2.14 and 2.15 (regarding forecasts
and orders) and 2.16, 2.18 and 2.19 (regarding shipment, risk of loss and
payments) shall apply with respect to Digital Signal Converters.
4.16 Restrictive Covenant. During the term of the appointment set forth
in Section 4.1, SMI will not directly engage in, and will use good faith and
reasonable efforts to prevent its sublicensees and subdistributors from engaging
in, the sale anywhere in the world of any EEG Module that incorporates the
technology that can be used to measure the hypnotic effects of anesthetics on
the brain, provided that the foregoing restriction shall not apply to an EEG
module that includes spectral edge frequency (SEF) as long as SMI or any
sublicensee or subdistributor does not market or promote such SEF product for
use in anesthesia monitoring. Furthermore, in the event that SMI directly
engages in the sale of such a competitive product, or fails (within thirty (30)
days after notice from Aspect) to use good faith and reasonable efforts to
prevent a subdistributor or sublicensee from engaging in the sale of any such
competitive product), Aspect shall have the right to terminate the right of SMI
to distribute the Module, effective thirty (30) days after delivery of written
notice to SMI. SMI's obligation to prevent its subdistributors and sublicensees
from breaching the foregoing restrictive covenant shall not require SMI to take
any action which is illegal under any applicable laws or which could reasonably
expected to expose SMI to liability and damages to the subdistributor or
sublicensee, or the subdistributor or sublicensee's customers.
4.17 Right of Aspect to Contact Customers. After the first Sensor
shipment, SMI shall notify Aspect on a monthly basis of each customer order in
the United States territory for any Module. Aspect shall have the right to
contact the customers of SMI solely for the purpose of selling the Sensor in the
United States territory. All information provided by SMI to Aspect pursuant to
this Section 4.17 shall constitute Proprietary Information of SMI.
ARTICLE V - COMMUNICATIONS
5.1 Communications: Aspect and SMI agree that during the first 3 years
of this Agreement, a working group composed of senior personnel at Aspect and at
SMI will meet on a quarterly basis to discuss the relationship between the
parties and to review issues relating to the Agreement including, but not
limited to the following:
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(a) to review the extent to which the Agreement has met the
objectives of the parties;
(b) to monitor performance measures (such as the number of
units sold, the number on consignment, average selling prices, Sensor
consumption rates, etc.);
(c) to monitor compliance with the terms of the Agreement on
the part of both Aspect and SMI;
(d) to identify steps that might be taken to improve the
Agreement, or the way in which the Agreement is administered, to better meet the
objectives of both parties; and
(e) to coordinate joint and separate market development
activities, and to plan new initiatives designed to accelerate development of
the market.
It is expected that the composition of the working group may change
over time (for example, development personnel will be included initially during
the period in which the Module is under development), but SMI and Aspect agree
to identify at least one senior member of their respective organizations who
will have primary oversight responsibility for the Agreement and who will attend
all of the quarterly meetings to provide continuity over time. It is understood
that the parties will identify mutually convenient times and locations to hold
the quarterly meetings to minimize the cost and the time required of company
personnel, and that a preliminary schedule of quarterly meetings will be
established within ninety (90) days after this Agreement is signed.
ARTICLE VI - TERMINATION
6.1 Term. This Agreement shall commence on the date first set forth
above and shall continue for a term of ten (10) years, subject to earlier
termination as provided herein.
6.2 Termination by SMI. SMI shall have the right, at any time following
the second anniversary of this Agreement, to terminate this Agreement in its
entirety or to terminate the provisions of any of Articles II, III or IV of this
Agreement, on six months prior written notice to Aspect.
6.3 Termination for Breach.
(a) If SMI breaches the provisions of this Agreement relating
to the making or promotion of claims, Aspect shall have the right to terminate
this Agreement immediately upon written notice to SMI. Aspect shall be entitled
to
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terminate this Agreement by written notice to SMI in the event that SMI shall
fail to make any required payment, and shall fail to remedy such default within
30 days after notice thereof by Aspect. SMI shall be entitled to terminate this
Agreement by written notice to Aspect if Aspect shall fail to fill an order for
Monitor Products or Sensor Products in accordance with the terms of Sections
2.15 or 3.7 and shall fail to remedy such default within 30 days after notice of
default from SMI; provided, however, if SMI elects to use the remedies provided
by Section 3.19, such remedies will be in lieu of SMI's right to terminate this
Agreement for Aspect's failure to supply the Sensor Products. In addition,
except for a breach by SMI of its minimum purchase requirements set forth in
Sections 2.12 of this Agreement, which breach will be governed by the provisions
of that Section 2.12, either party shall be entitled to terminate this Agreement
by written notice to the other party in the event that the other party shall be
in material default of any of its other obligations hereunder, and shall fail to
remedy any such default within 90 days after notice thereof by the non-breaching
party. Notwithstanding the foregoing provisions of this Section 6.3 relating to
payment or other breaches by SMI of this Agreement, (a) if such breach relates
to Monitor Products, the provisions of Article II shall terminate and the
distribution rights of SMI to the Sensor shall continue, but the other
provisions of this Agreement shall remain in effect; (b) if such breach relates
to the Sensor the provisions of Article III shall terminate, but the other
provisions of this Agreement shall remain in effect; and (c) if such breach
relates to the Modules, the provisions of Article IV shall terminate, but the
other provisions of this Agreement shall remain in effect.
(b) Effect of Expiration or Termination. Upon any expiration
or termination of this Agreement, neither party shall be relieved of any
obligations incurred prior to such expiration or termination. In the event of
any expiration or termination of this Agreement, each party shall return to the
other party all tangible Proprietary Information of the other party, provided
that SMI shall be entitled to retain one copy of any such tangible Proprietary
Information as is necessary to service its customers of Monitor Products, Sensor
Products and Modules.
ARTICLE VII - CONFIDENTIALITY
Each party shall maintain the Proprietary Information of the other
party in confidence, and shall not disclose, divulge or otherwise communicate
such Proprietary Information to others, or use it for any purpose, except
pursuant to, and in order to carry out, the terms and objectives of this
Agreement, and hereby agrees to exercise every reasonable precaution to prevent
and restrain the unauthorized disclosure of such Proprietary information by any
of its directors, officers, employees, consultants, subcontractors, sublicensees
or agents. Without limiting the generality of the foregoing, neither party
shall, without the prior written consent of the other party, (i) make any
disclosures to any third party concerning the Module development program
conducted under this Agreement, or (ii) provide advance
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notice, whether written or oral, concerning product introductions to sales
representatives or customers that is inconsistent with its policies and
procedures for introducing its own new products. The foregoing provisions shall
not apply to any Proprietary Information disclosed hereunder which: (a) was
known or used by the receiving party prior to its date of disclosure to the
receiving party, as evidenced by the prior written records of the receiving
party; (b) either before or after the date of the disclosure to the receiving
party is lawfully disclosed to the receiving party by an independent,
unaffiliated third party rightfully in possession of the Proprietary
Information; (c) either before or after the date of the disclosure to the
receiving party becomes published or generally known to the public through no
fault or omission on the part of the receiving party; or (d) is required to be
disclosed by the receiving party to comply with applicable laws, to defend or
prosecute litigation or to comply with governmental regulations, provided that
the receiving party provides prior written notice of such disclosure to the
other party and takes reasonable and lawful actions to avoid and/or minimize the
degree of such disclosure. This Section shall survive the expiration or
termination of this Agreement.
ARTICLE VIII - MISCELLANEOUS
8.1 Trademarks and Trade Names. SMI shall not use the Aspect name or
any other trademark or trade name used or claimed by Aspect (all of which names
or marks shall hereinafter be referred to as "Aspect Proprietary Marks") in
connection with any business conducted by SMI other than in dealing with the
Monitor Products, the Sensor Products and the Module or unless otherwise
approved in writing by Aspect. In the event the Module bears Aspects's
trademarks, the Module must meet Aspect's reasonable quality standards; Aspect
acknowledges that SMI's current line of monitor products meets such quality
standards, and the Module will be deemed to meet Aspect's quality standards if
it is of a quality substantially equivalent to the current quality standards for
SMI's monitor products. Aspect shall not use the SMI name or any other trademark
or trade name used or claimed by SMI (all of which names or marks shall
hereafter be referred to as the "SMI Proprietary Marks"). The "Aspect
Proprietary Marks" and "SMI Proprietary Marks" shall hereinafter be referred to
as the "Proprietary Marks". Each party agrees that its use of the Proprietary
Marks of the other party shall not create in its favor any right, title or
interest therein and acknowledges the other party's exclusive right, title and
interest in the Proprietary Marks of the other party. Each party shall use the
trademarks of the other party in compliance with all relevant laws and
regulations and not modify any of the other party's trademarks in any way.
Neither party shall take any action calculated or likely to prejudice, affect,
impair or destroy the title and interest of the other party in the Proprietary
Marks.
8.2 Records. Each party shall keep, and shall require all affiliates to
keep, full, true and accurate books of accounts and other records containing all
information and data which may be necessary to ascertain and verify the data
required to be
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maintained or furnished pursuant to the terms of this Agreement. During the term
of this Agreement and for a period of one year following its termination, each
party shall have the right from time to time (not to exceed once during each
calendar year) to have an accounting firm inspect such books, records and
supporting data of the other party during reasonable business hours at such time
as is approved in advance by the other party, provided that such accounting firm
executes a standard nondisclosure agreement in a form reasonably acceptable to
the other party.
8.3 Publicity. Neither party shall originate any publicity, news
release or other public announcement, written or oral, relating to this
Agreement or the existence of an arrangement between the parties, without the
prior written consent of the other party except as otherwise required by law (in
which case, such party shall use reasonable efforts to provide a copy of such
information to the other party prior to the required legal disclosure and
provide a reasonable opportunity for review and comment).
8.4 Force Majeure. In the event that either party is prevented from
performing, or is unable to perform, any of its obligations under this Agreement
due to any act of God, acts or omissions of any government or any agency
thereof, compliance with request, recommendations, rules, regulations or orders
of any international government or agency thereof, fire, storm, flood,
earthquake, accident, war, rebellion, insurrection, riots, sabotage, invasion,
quarantine, strikes, lockouts, disputes or differences with workers,
transportation embargoes or failure of public facilities, and if such party
shall have used reasonable efforts to avoid such occurrence and minimize its
duration and shall have given proper written notice to the other party, then the
affected party's performance shall be excused and the time for performance shall
be extended for the period of delay or inability to perform due to such
occurrence.
8.5 Relationship Between Parties. The relationship between the parties
is that of independent contractors, and nothing in this Agreement shall be
construed to constitute either party as an employee, partner or agent of the
other party. Without limiting the foregoing, neither party shall have authority
to act for or to bind the other party in any way, to make representations or
warranties or to execute agreements on behalf of the other party or to represent
that the other party is in any way responsible for the acts or omissions of such
party.
8.6 Notices. All notices, demands, requests, consents, approvals or
other communications required or permitted to be given hereunder or which are
given with respect to this Agreement shall be in writing and may be personally
served, deposited in certified mail postage prepaid, or deposited with an
overnight courier service, or sent via facsimile transmission, addressed as
follows:
- 33 -
<PAGE> 38
If to Aspect: Aspect Medical Systems, Inc.
2 Vision Drive
Natick, MA 01760-2059
Telecopy: (508) 653-6788
Attn: President
If to SMI: SpaceLabs Medical, Inc.
15220 NE 40th Street
P.O. Box 97013
Redmond, WA 98073
Telecopy: (206) 883-7091
Attn: James W. Bowra,
Director, Business Development
Copy to: Eugene V. DeFelice
General Counsel
or to such other address or person as either party shall have specified most
recently by written notice provided in accordance with this Section 8.6. Notice
shall be deemed given on the date of service if personally served. Notice mailed
as provided herein shall be deemed given on the fifth business day following the
date so mailed. Notice deposited with an overnight courier service shall be
deemed given on the next business day following the date so deposited. Notice
sent via facsimile transmission shall be deemed given when acknowledged by the
recipient.
8.7 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
all prior agreements of the parties, including but not limited to the
Distribution and License Agreement between them dated as of June 30, 1994, which
is hereby terminated in its entirety. No waiver, consent, modification,
amendment or change of the terms of this Agreement shall bind either party
unless in writing and signed by both parties.
8.8 Severability. In the event that any provision of this Agreement is
held by a court of competent jurisdiction to be unenforceable because it is
invalid or in conflict with any law of any relevant jurisdiction, the validity
of the remaining provisions shall not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular provisions held to be unenforceable.
8.9 Assignments. Neither this Agreement nor any rights or obligations
hereunder may be assigned by either party without the prior written consent of
the other party, except to a party who acquires all or substantially all of the
business of the assigning party by merger, sale of assets or otherwise.
- 34 -
<PAGE> 39
8.10 Governing Law. This Agreement shall be governed by and construed
as a sealed instrument in accordance with the laws of the Commonwealth of
Massachusetts.
8.11 Compliance with Laws. Each party agrees to comply with all laws
and regulations that may be applicable to such party's performance hereunder,
including but not limited to the Food, Drug and Cosmetics Act and good
manufacturing practices regulations. Each party (the "Indemnitor") agrees to
defend, indemnify and hold harmless the other party from all Losses arising out
of the Indemnitor's failure to comply with any applicable law or regulation.
8.12 Waivers and Extensions. No waiver of any breach of any agreement
or provision herein contained shall be deemed a waiver of any preceding or
succeeding breach thereof or of any other agreement or provision herein
contained. No extension of time for performance of any obligations or acts shall
be deemed an extension of the time for performance of any other obligations or
acts.
8.13 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute but one and the same instrument.
8.14 Consents. Whenever any provision of this Agreement requires one
party to seek the prior approval or consent of the other party, the parties
agree that such consents or approvals will not be withheld unreasonably.
8.15 Limitation of Liability. Neither party shall be responsible to the
other party for any punitive, incidental or consequential damages, including
lost profits or lost sales, arising from or related to a breach of this
Agreement; provided, however, that nothing herein shall be deemed to limit or
modify either party's obligations to indemnify the other party from any Losses
asserted by third parties, to the extent such indemnity is contractually
required hereunder.
IN WITNESS WHEREOF, the parties hereto have set their hand and seal as
of July 24, 1996.
ASPECT MEDICAL SYSTEMS, INC.
By: /s/J. Breckenridge Eagle
Its: President
SPACELABS MEDICAL, INC.
By: /s/James W. Bowra
James W. Bowra
Its: Director, Business Development
- 35 -
<PAGE> 40
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
SCHEDULE A
SpaceLabs Pricing
<TABLE>
<CAPTION>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
Aspect's SpaceLabs
Prod. No. Product Description U.S. Price Intl. Price
- ----------------- --------------------------------------------------------- --------------- ---------------
<S> <C> <C> <C>
Monitoring System
Components
A-1000(TM) 4-channel EEG monitoring system. Supplied with
one A-1000 4-channel EEG monitor, one A-1000 4-channel EEG
digital signal converter, one power cord, one digital
signal converter cable, and one electrode starter kit.
(Monitor and digital signal converter include 15 months
warranty.)
186-0026 A-1000 4-channel EEG monitoring system, German [**]
language, UL/cUL, TUV, CEemc, 50 Hz
186-0039 A-1000 4-channel EEG monitoring [**]
system, English language, UL/cUL, TUV, CEemc,
60 Hz
186-0040 A-1000 4-channel EEG monitoring system, French [**]
language, UL/cUL, TUV, CEemc, 60 Hz
186-0041 A-1000 4-channel EEG monitoring system, French [**]
language, UL/cUL, TUV, CEemc, 50 Hz
186-0042 A-1000 4-channel EEG monitoring system, English [**]
language, UL/cUL, TUV, CEemc, 50 Hz
186-0051 A-1000 4-channel EEG monitoring system, [**]
ENGLISH language, CE, 50 Hz
186-0058 A-1000 4-channel EEG monitoring system, French [**]
language, CE, 50 Hz
</TABLE>
- 36 -
<PAGE> 41
<TABLE>
<CAPTION>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
Aspect's SpaceLabs
Prod. No. Product Description U.S. Price Intl. Price
- ----------------- --------------------------------------------------------- --------------- ---------------
<S> <C> <C> <C>
186-0060 A-1000 4-channel EEG monitoring system, German [**]
language, CE, 50 Hz
186-0053 A-1050(TM) 2-channel EEG Brain Monitor system, [**]
English language, UL/cUL, TUV, CEemc, 60Hz
Supplied with one A-1050 2-channel EEG monitor, one A-1050
2-channel EEG digital signal converter (DSC-2), one power
cord. (Monitor and digital signal converter include 15
months warranty.)
*Discount %
186-0008 A-1000 4-channel EEG digital signal converter (DSC). For
use with A-1000 4-channel EEG monitor only. (Includes 15
months warranty).
186-0045 A-1050 2-channel EEG digital signal converter [**] [**]
(DSC-2) (includes 15 months warranty.)
186-0009 Digital Signal Converter cable (20 feet) to connect [**]
[**] A-1000 EEG monitor to A-1000 4-channel EEG digital
signal converter.
186-0025 Female Snap EEG Lead Wires with safety [**] [**]
connector 24" long, 10 leads per set
186-0055 A-1050 Two channel Referential patient Interface [**] [**]
Cable (PIC)
186-0014 Printrex printer (115V) compatible for use with the [**] [**]
A-10xx.
186-0011 Printer interface cable (6 feet), DB25 parallel port. [**] [**]
Centronics 36, isolated ground, shield.
186-0015 Permanent thermal paper for use with Printrex [**] [**]
printer. Provided in 100 feet rolls. (4 rolls/case)
186-0016 Permanent thermal paper for use with Printrex [**] [**]
printer. Provided in 100 feet rolls. (8 rolls/case)
186-0043 Starter kit with Zipprep(TM)Self-Prepping [**] [**]
Disposable Electronics; 1 case containing 300
electrodes (75 box, 4 boxes/case)
</TABLE>
- 37 -
<PAGE> 42
<TABLE>
<CAPTION>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
Aspect's SpaceLabs
Prod. No. Product Description U.S. Price Intl. Price
- ----------------- --------------------------------------------------------- --------------- ---------------
<S> <C> <C> <C>
185-0043 Starter kit with Zipprep(TM)Self-Prepping [**] [**]
Disposable Electrodes:
* 1 Box (75) electrodes
* 15 alcohol swaps
* 1 Set (5) leadwires
* 15 gaude pads
</TABLE>
*Discount Off Prevailing U.S.A. Price List
- 38 -
<PAGE> 43
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
SCHEDULE B
Aspect Development Activities for the SMI BIS Module
BIS SOFTWARE DEVELOPMENT
Scope. Aspect shall provide to SMI the standard Aspect BIS Software (in
binary form) along with suitable documentation in a form reasonably acceptable
to SMI and sufficient to enable SMI to use the BIS Software for execution in the
Module. In addition, Aspect shall provide FPGA source code, and source code
which controls the following elements of the Digital Signal Converter (the "Low
Level Interface Source Code"): Digital Signal Converter interface code including
acquisition and control (impedance checking, self test initiation and
termination).
[**]
- 39 -
<PAGE> 1
EXHIBIT 10.10
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.
-3-
<PAGE> 6
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.
-4-
<PAGE> 7
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.
-5-
<PAGE> 8
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
-6-
<PAGE> 9
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
-7-
<PAGE> 10
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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<PAGE> 27
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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<PAGE> 28
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.
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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
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<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.
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<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.
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<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).
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<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
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<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.
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<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.
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<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:
------------------------------- -------------------------------
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<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
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<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
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<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.
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<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.
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<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.
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<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 10.11
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 10.12
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
Page 1 of 12
<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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<PAGE> 6
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.
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<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.
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<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
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<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,
<PAGE> 18
-2-
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
<PAGE> 19
-3-
(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;
<PAGE> 20
-4-
(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:
<PAGE> 21
-5-
(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.
<PAGE> 22
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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.
<PAGE> 23
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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).
<PAGE> 24
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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
<PAGE> 25
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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
-12-
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
-13-
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.
-2-
<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
-3-
<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
-4-
<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 10.13
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 10.14
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 10.15
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 10.16
SCHEDULE OF MATERIAL TERMS
<TABLE>
<CAPTION>
Shares of
Common
Date of Installments Due Final Payment Stock
Name Agreement Amount Interest Rate And Payable Due and Payable Pledged
- ---- ---------- ------ ------------- ------------------ --------------- ------
<S> <C> <C> <C> <C> <C> <C>
Philip H. Devlin May 6, 1997 $ 13,642.74 8% May 5 May 5, 2002 75,793
J. Breckenridge Eagle May 6, 1997 $ 34,106.76 8% May 5 May 5, 2002 189,482
Steven H. Kane May 6, 1997 $ 60,750 8% May 5 May 5, 2002 180,000
Lester John Lloyd May 6, 1997 $ 7,875 8% May 5 May 5, 2002 43,750
Peter J. Manberg May 6, 1997 $ 14,617.19 8% May 5 May 5, 2002 81,207
Jean M. Nelson May 6, 1997 $ 12,180.76 8% May 5 May 5, 2002 67,672
J. Neal Armstrong May 6, 1997 $ 21,600 8% May 5 May 5, 2002 120,000
Nassib G. Chamoun November 1, 1998 $33,333.60 8% October 31 October 31, 2003 41,667
J.Neal Armstrong November 1, 1998 $11,666.40 8% October 31 October 31, 2003 14,583
Philip H. Devlin November 1, 1998 $ 8,333.60 8% October 31 October 31, 2003 10,417
</TABLE>
<PAGE> 2
PROMISSORY NOTE
$ ---------------------
--------------------------------- 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 and the next three installments due and payable on ,
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 .
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 of 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 10.17
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 10.18
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 10.19
SERIES E CONVERTIBLE PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT
between
ASPECT MEDICAL SYSTEMS, INC.
and
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
Dated as of December 17, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Authorization and Sale of Shares and Warrants; Use of Proceeds;
Restricted Securities................................................. 1
1.01 Authorization................................................... 1
1.02 Sale of Shares and Warrants..................................... 1
1.03 Use of Proceeds................................................. 1
1.04 Restricted Securities........................................... 1
2. Closing............................................................... 2
3. Representations of the Company........................................ 2
3.01 Organization and Standing....................................... 2
3.02 Capitalization.................................................. 3
3.03 Subsidiaries.................................................... 4
3.04 Stockholder List and Agreements................................. 4
3.05 Issuance of Shares.............................................. 4
3.06 Authority for Agreements, Etc................................... 5
3.07 Governmental and Other Consents................................. 5
3.08 Litigation; Compliance with Law................................. 6
3.09 Taxes........................................................... 6
3.10 Financial Statements............................................ 7
3.11 Books and Records............................................... 7
3.12 Title to Properties, Leasehold Interests, Liens and Encumbrances 8
3.13 Compliance with Other Instruments............................... 8
3.14 Indebtedness to Affiliates...................................... 8
3.15 Contracts....................................................... .8
3.16 U.S. Real Property Holding Corporation.......................... 9
3.17 Insurance....................................................... 9
3.18 Patents, Trademarks, Etc........................................ 9
3.19 Proprietary Information of Third Parties........................ 10
3.20 Proprietary Information and Inventions Agreements............... 10
3.21 Key Employees................................................... 10
3.22 Brokers......................................................... 10
3.23 Disclosure...................................................... 10
3.24 Compliance with Environmental and Safety Laws................... 11
3.25 Year 2000 Compliance............................................ 13
4. Representations and Warranties of the Purchasers...................... 14
4.01 Investment...................................................... 14
4.02 Authority....................................................... 14
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
4.03 Experience...................................................... 14
4.04 Accredited Investor............................................. 15
4.05 Restricted Securities........................................... 15
4.06 Qualified Institutional Buyer................................... 15
5. Conditions to Obligations of the Purchasers at the Closing............ 15
5.01 Issuance of Shares and Warrants................................. 15
5.02 Accuracy of Representations and Warranties...................... 15
5.03 Performance..................................................... 15
5.04 All Proceedings to be Satisfactory.............................. 16
5.05 Compliance Certificate.......................................... 16
5.06 Consents; Filings............................................... 16
5.07 Opinion of Counsel.............................................. 16
5.08 Filing of Charter............................................... 16
5.09 Certificates and Documents...................................... 16
5.10 Voting Agreement................................................ 17
5.11 Co-Sale Agreement............................................... 17
5.12 Rights of First Refusal......................................... 17
5.13 Registration Rights Agreement................................... 17
5.14 Minimum Sales................................................... 18
5.15 Legal Fees...................................................... 18
5.16 No Adverse Changes.............................................. 18
6. Conditions to the Obligations of the Company.......................... 18
6.01 Accuracy of Representations and Warranties...................... 18
7. Covenants of the Company.............................................. 18
7.01 Inspection...................................................... 18
7.02 Financial Statements and Other Information...................... 19
7.03 Material Changes and Litigation................................. 20
7.04 Key Man Insurance............................................... 20
7.05 Other Insurance................................................. 20
7.06 Accounts and Records............................................ 20
7.07 Availability of Common Stock for Conversion..................... 21
7.08 Proprietary Information and Inventions Agreements............... 21
7.09 Non-Competition................................................. 21
7.10 Use of Proceeds................................................. 21
7.11 Prepayment of Taxes; Corporate Existence........................ 21
7.12 Special Covenants............................................... 22
7.13 Board of Directors.............................................. 24
7.14 Right of First Refusal.......................................... 25
7.15 Termination of Covenants........................................ 26
8. Waiver of Prior Preemptive Rights; Termination of Covenants........... 27
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
9. Successors and Assigns................................................ 27
10. Transfers of Certain Rights........................................... 28
11. Confidentiality....................................................... 28
12. Survival of Representations and Warranties............................ 29
13. Notices............................................................... 29
14. Brokers............................................................... 29
15. Entire Agreement...................................................... 29
16. Amendments and Waivers................................................ 30
17. Consents.............................................................. 30
18. Counterparts.......................................................... 30
19. Headings.............................................................. 30
20. Severability.......................................................... 30
21. Governing Law......................................................... 30
</TABLE>
INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
SCHEDULE III Stockholders List
INDEX TO EXHIBITS
EXHIBIT A Restated Certificate of Incorporation
EXHIBIT B Form of Warrant
EXHIBIT C Fourth Amended and Restated Right of First Refusal and
Co-Sale Agreement
EXHIBIT D Fourth Amended and Restated Registration Rights Agreement
EXHIBIT E Fourth Amended and Restated Voting Agreement
EXHIBIT F Non-Disclosure and Assignment of Inventions Agreement
EXHIBIT G Opinion of Hale and Dorr LLP
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SERIES E CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
This Agreement dated as of December 17, 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 and Warrants; Use of Proceeds;
Restricted Securities.
1.01 Authorization. The Company has, on or before the Closing (as
defined in Section 2 below), duly authorized the sale and issuance of (a) up to
1,760,000 shares (the "Preferred Shares") of its Series E Convertible Preferred
Stock, $.01 par value per share (the "Series E Preferred Stock"), having the
rights, restrictions, privileges and preferences as set forth in the Restated
Certificate of Incorporation attached as Exhibit A hereto (the "Charter"), and
(b) warrants (the "Warrants") to purchase up to 193,600 shares (the "Warrant
Shares") of Common Stock, $.01 par value per share of the Company (the "Common
Stock"). 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 and Warrants. 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, for a purchase price of $10.00
per share, (a) the number of shares of Series E Preferred Stock set forth
opposite the name of such Purchaser on Schedule I hereto under the heading
"Preferred Shares to be Purchased" and (b) Warrants to purchase the number of
shares of Common Stock set forth opposite the name of such Purchaser on Schedule
I hereto under the heading "Shares of Common Stock Subject to Warrants". The
Warrants shall have an exercise price of $12.50 per share and shall be issued
upon such other terms and conditions as are set forth in the form of Warrant
attached hereto as Exhibit B.
1.03 Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Shares and Warrants primarily for research and development
and working capital, to purchase capital equipment and for sales and marketing
efforts.
1.04 Restricted Securities. The offer, issuance and sale of the
Preferred Shares hereunder has not been registered under the Securities Act of
1933 (as amended, the "Securities Act"). The Preferred Shares, the Warrants, the
shares of Common Stock issuable upon conversion of the Preferred Shares (the
"Conversion
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Shares") and the Warrant Shares are "restricted securities" within the meaning
of Rule 144 under the Securities Act. The Purchasers do not have the protections
of Section 11 of the Securities Act in connection with the sale of the Preferred
Shares and Warrants hereunder or, after the date hereof, the issuance or sale of
the Conversion Shares or the Warrant Shares.
2. Closing. (a) The closing of the sale and purchase of the Preferred
Shares and the Warrants 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 December __, 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) a certificate evidencing the shares of Series E Preferred Stock purchased by
such Purchaser pursuant to Section 1.02 hereof, with such certificates
registered in the name of such Purchaser, (b) a Warrant purchased by such
Purchaser pursuant to Section 1.02 hereof exercisable for the number of Warrant
Shares set forth on Schedule I registered in the name of the 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 and Warrants," (i) in cash, (ii) by 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
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delivered to the Purchasers true and complete copies of its Charter and By-Laws,
each as amended to date.
3.02 Capitalization. Effective immediately prior to the Closing, the
authorized capital stock of the Company will consist of (i) 17,030,000 shares of
Common Stock, $.01 par value per share (the "Common Stock"), of which 1,778,359
shares are issued and outstanding; and (ii) 22,363,224 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 Convertible Preferred
Stock (the "Series D Preferred Stock"), 1,666,234 of which are issued and
outstanding, (h) 1,714,286 have been designated Series D-2 Convertible Preferred
Stock (the "Series D-2 Preferred Stock"), none of which are issued and
outstanding, (i) 1,760,000 shares of Series E Preferred Stock, none of which are
issued and outstanding and (j) 1,760,000 shares of Series E-2 Convertible
Preferred Stock (the "Series E-2 Preferred Stock"), 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 are fully paid and nonassessable. All of the
Series E Preferred Stock and Series E-2 Preferred Stock have been duly
authorized and when issued in accordance with the terms of this Agreement or the
Charter will be validly issued and 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 Third Amended and Restated Registration Rights Agreement dated as
of February 13, 1998 by and
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among the Company and the several parties named in the signature pages thereto,
as amended (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. Except as otherwise set forth in Schedule II, 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, as amended to date, the Third Amended and Restated Voting
Agreement dated as of February 13, 1998 by and among the Company and the several
parties named in the signature pages thereto, as amended (the "Old Voting
Agreement"), and the Third Amended and Restated Right of First Refusal and
Co-Sale Agreement dated as of February 13, 1998 by and among the Company and the
several parties named in the signature pages thereto, as amended (the "Old
Co-Sale Agreement"), or as otherwise set forth in Schedule II, there are no
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 and the Warrants in accordance with this Agreement and the
issuance and delivery of the Series A-2 Preferred Stock, the Series B-2
Preferred Stock, the Series C-2 Preferred Stock, the Series D-2 Preferred Stock
and the Series E-2 Preferred Stock (collectively, the "Special Preferred
Stock"), the Warrant Shares and the Conversion Shares, 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 and the Warrants 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"), the Conversion Shares
when issued upon conversion of the Preferred
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Stock, the Warrant Shares when issued upon exercise of the Warrants 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 Fourth Amended and Restated Right of First
Refusal and Co-Sale Agreement in the form attached as Exhibit C (the "Amended
and Restated Co-Sale Agreement"); the Fourth Amended and Restated Registration
Rights Agreement in the form attached as Exhibit D (the "Amended and Restated
Registration Rights Agreement"); the Fourth Amended and Restated Voting
Agreement in the form attached as Exhibit E (the "Amended and Restated Voting
Agreement") and the Warrants 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 and
the Warrants 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, the Amended and Restated Voting Agreement and the Warrants 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, 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, the
Amended and Restated Voting Agreement and the Warrants, the offer, issue, sale
and delivery by the Company of the Preferred Shares or the Warrants, 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
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Shares and the Warrants 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.
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
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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, 1997 (the "Balance Sheet") and the related statements of
operations, cash flows and stockholders" equity for the year ended December 31,
1997 and the unaudited consolidated balance sheet of the Company as of October
3, 1998 and the related unaudited statement of operations, cash flows and
stockholders" equity for the nine months ended October 3, 1998. 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, 1997 and the results of its
operations and cash flows for the year ended December 31, 1997 and (ii) the
consolidated financial position of the Company and its subsidiaries as of
October 3, 1998 and the results of their operations and cash flows for the nine
months ended October 3, 1998. 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 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
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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 By-Laws, 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
reimbursement of travel and other expenses incurred in the ordinary course of
business.
3.15..Contracts. Except for this Agreement, the Warrants, 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 D Convertible Preferred Stock
Purchase Agreement dated as of February 13, 1998, by and among the Company and
the parties named on Schedule I thereto, as amended (the "1998 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
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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 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.
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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 F hereto.
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 F 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
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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.
"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.
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"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 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
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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 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.
3.25 Year 2000 Compliance. Except as set forth on Schedule II, (1)
all of the Company's products and (2) any upgrades to its products under
development each will (i) record, store, process, calculate and present calendar
dates falling on or
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after January 1, 2000, and will calculate any information dependent on or
relating to such dates in the same manner and with the same functionality, data
integrity and performance as such products record, store, process, calculate and
present calendar dates on or before December 31, 1999, or (ii) calculate any
information dependent on or relating to such dates (collectively "Year 2000
Compliant"). Except as set forth on Schedule II, all of the Company's material
products will lose no functionality with respect to the introduction of records
containing dates falling on or after January 1, 2000. All of the Company's
internal computer systems which are material to its business, including without
limitation, its accounting systems, are Year 2000 Compliant. The Company is not
aware of any third party, including, but not limited to, its customers and
vendors, whose failure to be Year 2000 Compliant would have a material adverse
effect on the Company. Furthermore, the Company is taking all reasonable steps,
including the creation of contingency plans where applicable, necessary to
remain Year 2000 Compliant.
4. Representations and Warranties of the Purchasers. Each of the
Purchasers severally represents and warrants to the Company as follows (except
that the representations in Section 4.06 are made by the Purchasers specifically
named therein):
4.01 Investment. Each Purchaser is acquiring the Preferred Shares,
the Warrants, the Warrant 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.
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4.04 Accredited Investor. Each Purchaser represents and warrants
that it is an Accredited Investor as defined in Rule 501 of Regulation D
promulgated under the Securities Act.
4.05 Restricted Securities. Each Purchaser understands and
acknowledges that the offer, issuance and sale of the Preferred Shares and the
Warrants by the Company hereunder have not been registered under the Securities
Act and that the Preferred Shares, the Warrants, the Warrant Shares and the
Conversion Shares are "restricted securities" within the meaning of Rule 144
under the Securities Act. Each Purchaser also understands and acknowledges that
such Purchasers do not have the protections of Section 11 of the Securities Act
in connection with the sale of the Preferred Shares and the Warrants hereunder
or, after the date hereof, the issuance or sale of the Warrant Shares or the
Conversion Shares.
4.06 Qualified Institutional Buyer.
(a) Benefit Capital Management Corporation represents and
warrants that it is a "Qualified Institutional Buyer" as defined in Rule 144A
promulgated under the Securities Act.
(b) Riggs Capital Partners represents and warrants that it is
a "Qualified Institutional Buyer" as defined in Rule 144A 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 and Warrants.
(a) The Company shall have duly issued and delivered
certificates representing the Preferred Shares to the Purchasers.
(b) The Company shall have duly issued and delivered the
Warrants to the Purchasers.
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
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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 G 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 Restated 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) Certificates, as of the most recent practicable
date, as to (i) the corporate good standing of the Company, which shall be
issued by the Secretary of State of the State of Delaware and (ii) the
Company's qualification to conduct business as a foreign corporation in
the Commonwealth of Massachusetts, which shall be issued by the Secretary
of State of Commonwealth of Massachusetts;
(iii) By-Laws of the Company, as amended, certified by
its Secretary as of the Closing Date;
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(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.
(a) The Company and the Purchasers shall have executed the
Amended and Restated Voting Agreement; and
(b) The (i) holders of at least 85% of the outstanding shares
of the Company's Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series
C Preferred Stock and Series D 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.
(a) The Company and the Purchasers shall have executed the
Amended and Restated Co-Sale Agreement; and
(b) The holders of at least 55% of the issued and outstanding
shares of the Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C
Preferred Stock and Series D 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, Warrants, Warrant Shares or Conversion Shares, of any stockholders of
the Company, shall have been irrevocably waived in writing.
5.13 Registration Rights Agreement.
(a) The Company and the Purchasers shall have executed the
Amended and Restated Registration Rights Agreement; and
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(b) 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
$15,000,000 from the sale of the Series E Preferred Stock and Warrants pursuant
to the Closing hereunder.
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 $25,000,
assuming no extraordinary circumstances.
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 holders of shares of the Company's Preferred Stock (individually a
"Preferred Shareholder" and collectively the "Preferred Shareholders"), except
with respect to Sections 7.10 and 7.13(b), for which the Company covenants and
agrees solely with 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 Preferred Shareholder
holding at least 1.5% of the outstanding shares of Preferred Stock of the
Company on a fully diluted basis (a "1.5% Holder"), or any authorized
representative
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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 Preferred
Shareholder.
7.02 Financial Statements and Other Information. The Company shall
prepare and deliver to each 1.5% 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 sheets, cash flow statements and summaries of
bookings and backlogs), including a comparison of such financial statements to
the Company's budget for such quarter; (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 1.5% 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), including a
comparison of such financial statements to the Company's budget for such year.
The Company shall prepare and deliver to each Preferred Shareholder holding less
than 1.5% 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 1.5% Holder other customary information and
materials, including without limitation
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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 Preferred Shareholders 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 no less than
$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.
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.
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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.
7.08 Proprietary Information and Inventions Agreements. The Company
and each person hereafter employed by it or any subsidiary (which shall include
any person engaged as a consultant) 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 F 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 F 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 necessary for its operations 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
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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 Preferred
Shareholders 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
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 (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
(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"); (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
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directors; and (iii) the Warrant Shares, the Conversion Shares and shares of
Common Stock issuable upon conversion of shares of 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.
(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;
(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),
provided that notwithstanding any other provision of this Section 7.12, it shall
not be considered a breach of this covenant if 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, ratify such a filing after the filing
has been made;
(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:
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(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.
(a) 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 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.
(b) For so long as the Purchasers hold at least 25% of the
Preferred Shares purchased by them hereunder (subject to adjustment for stock
splits, stock dividends, combinations, recapitalizations, reorganizations and
the like), the Purchasers shall have the right to designate one representative
to attend all meetings of the board of directors of the Company (including
telephonic meetings) and to receive (i) copies of all materials distributed to
the Board of Directors and (ii) copies of all written consents of directors in
lieu of meetings. Such right excludes the right to vote at such meetings or
execute such consents. The designated representative of the Purchasers shall
initially be designated by Artal Luxembourg S.A.
-24-
<PAGE> 29
7.14 Right of First Refusal.
(a) The Company hereby grants to each of 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.
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 and Warrants issuable
under this Agreement, the Special Preferred Stock, the Warrant Shares, 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 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.
-25-
<PAGE> 30
(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 shares of Preferred Stock so converted 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 the shares of Preferred Stock converted pursuant to the Special
Mandatory Conversion.
7.15 Termination of Covenants. The covenants of the Company
contained in Section 7.14 shall terminate upon the closing of a firm
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 $14.00, which number shall be appropriately adjusted
for stock splits, stock dividends, combinations, reorganizations,
recapitalizations and other similar events
-26-
<PAGE> 31
involving a change in the capital structure of the Company (the "Qualified
Public Offering").
8. Waiver of Prior Preemptive Rights; Termination of Covenants.
(a) The Company and certain of the stockholders of the Company who
hold Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C Preferred
Stock and/or Series D Preferred Stock (the "Old Investors"), it being
acknowledged that such Old Investors collectively hold at least 51% of the
shares of Common Stock issued or issuable upon the conversion of the Preferred
Stock (as such term is defined in the 1998 Agreement), hereby agree that the
operation of Section 7.14 of the 1998 Agreement is hereby waived as it may apply
to the authorization, offer, issuance and sale by the Company of the Preferred
Shares, the Warrants, the Warrant Shares and the Conversion Shares, as
applicable.
(b) In addition, the Company and certain Old Investors, it being
acknowledged that collectively such Old Investors hold at least 51% of the
shares of Common Stock issued or issuable upon conversion of the Preferred Stock
(as defined in the 1998 Agreement) hereby agree that (x) the 1998 Agreement be
amended by deleting Section 7 in its entirety and that Section 7 shall be of no
further force and effect, and (y) Section 7 of the 1998 Agreement shall be
superseded by Section 7 of this Agreement.
(c) In addition, the Company and certain Old Investors, it being
acknowledged that collectively such Old Investors hold at least 51% of the
shares of Common Stock issued or issuable upon conversion 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 (x) the 1997 Agreement be amended by deleting Section 7 in its entirety and
that Section 7 shall be of no further force and effect, and (y) Section 7 of the
1997 Agreement shall be superseded by Section 7 of this Agreement.
(d) In addition, the Company and certain Old Investors, it being
acknowledged that collectively such Old Investors hold at least 51% of the
shares of Common stock issued or issuable upon conversion of the Preferred Stock
(as such term is defined in the Preferred Stock Purchase and Exchange Agreement
dated as of November 2, 1995, as amended (the "1995 Agreement") hereby agree
that (x) the 1995 Agreement be amended by deleting Section 7 in its entirety and
that Section 7 shall be of no further force and effect, and (y) Section 7 of the
1995 Agreement shall be superseded by Section 7 of this Agreement.
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.
-27-
<PAGE> 32
10. Transfers of Certain Rights.
(a) The rights granted to a Preferred Shareholder under Section 7
may be transferred by such Preferred Shareholder to a Preferred Shareholder, to
any affiliate of the transferor or to any person or entity acquiring at least
(i) 25,000 shares of Preferred Stock or an equivalent number of shares of Common
Stock issuable upon conversion of such shares of Preferred Stock or (ii)
Warrants to purchase 25,000 shares of Common Stock or an equivalent number of
Warrant 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. Notwithstanding anything to the contrary in this Agreement, the
Company acknowledges and agrees that Artal Luxembourg S.A. may transfer the
Preferred Shares and Warrants acquired by it hereunder to QuestMark Partners,
L.P. and/or any of its affiliates ("QuestMark") without restriction (other than
compliance with applicable securities laws), and that subsequent to such
transfer, QuestMark shall be deemed a Purchaser for all purposes under this
Agreement. At the time of the transfer, QuestMark shall deliver to the Company a
written instrument by which it agrees to be bound by the obligations imposed
under this Agreement, to the same extent as if it were a Purchaser hereunder.
(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 Preferred
Shareholder which is a partnership or corporation may transfer rights granted to
such Preferred Shareholder under Section 7 to any partner or stockholder thereof
to whom Preferred Shares or Warrants 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 Preferred Shareholder delivers to
the Company a written instrument containing a representation that the transfer
is exempt from registration under the Securities Act, and provided further that
if such Preferred Shareholder is a publicly-traded corporation then any
stockholder transferee must hold at least 10% of the outstanding voting
securities of such Preferred Shareholder. In the event of such transfer, such
transferee partner or stockholder shall be deemed a Preferred Shareholder for
purposes of this Section 10 and may again transfer such rights to any other
person or entity which acquires shares of Preferred Stock or Warrants 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
-28-
<PAGE> 33
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 Preferred Shareholders, 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: Leslie E. Davis, Esq.
If to a Preferred Shareholder other than a Purchaser, at such
address or addresses as may have been furnished to the Company in writing by
such Preferred Shareholder.
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.
-29-
<PAGE> 34
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 (i)
no condition set forth in Section 5 may be waived with respect to any Purchaser
who does not consent thereto; (ii) any provision of Sections 7, 10, 12, 13, 15,
18, 19, 20 and 21 may be waived or amended only by the written consent of
holders of a majority of the outstanding shares of Common Stock issued or
issuable upon conversion of the Preferred Stock and (iii) Section 7.15 may be
waived or amended only by the written consent of holders 80% of the outstanding
shares of Common Stock issued or issuable upon conversion of the Preferred
Stock.
(b) Any amendment or waiver effected in accordance with this Section
16 shall be binding upon each holder of Preferred Stock or shares of Common
Stock issued upon conversion of such shares of Preferred Stock, 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.
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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-30-
<PAGE> 35
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
ARTAL LUXEMBOURG S.A.
By: /s/ Paul R. Kohler
---------------------------------------
Name: Paul R. Kohler
Title: Managing Director
BENEFIT CAPITAL MANAGEMENT
CORPORATION, as Investment Manager of
the Prudential Insurance Company of America
By: /s/ Sue DeCarlo
---------------------------------------
Name: Sue DeCarlo
Title: Sr. VP and CFO
HLM/CB FUND, L.P.
By: /s/ James J. Mahoney Jr.
---------------------------------------
Name: James J. Mahoney Jr.
Title: General Partner
[Series E Purchase Agreement]
<PAGE> 36
RIGGS CAPITAL PARTNERS
By: /s/
---------------------------------------
Name:
Title:
US DEVELOPMENT CAPITAL INVESTMENT
COMPANY
By: /s/ Raymond L. Moss
---------------------------------------
Name: Raymond L. Moss
Title: Corporate Secretary
NEW VENTURE PARTNERS IV, LIMITED
PARTNERSHIP
By: /s/ Howard D. Wolfe, Jr.
---------------------------------------
Name: Howard D. Wolfe, Jr.
Title: General Partner
CITIVENTURE 96 PARTNERSHIP, L.P.
By: Chancellor LGT Asset Management, Inc.
as investment advisor
By: /s/
---------------------------------------
Name:
Title:
[Series E Purchase Agreement]
<PAGE> 37
JULIET CHALLENGER, INC.
By: /s/ Andrew H. McQuarrie
---------------------------------------
Name: Andrew H. McQuarrie
Title: Vice President
ORCHID & CO., nominee for
T. Rowe Price Threshold Fund III, L.P.
By: T. Rowe Price Threshold Fund Associates,
Inc.
General Partner
By: /s/ Junerose C. Sordoni
---------------------------------------
Name: Junerose C. Sordoni
Title: Vice President
LANDMARK VENTURE CAPITAL
PARTNERS, LIMITED PARTNERSHIP
By:
---------------------------------------
Name:
Title:
/s/ Vikas Saini
-------------------------------------------
Vikas Saini
/s/ Douglas Schair
-------------------------------------------
Douglas Schair
/s/ C. G. Grefenstette
-------------------------------------------
Henry L. Hillman, Elsie Hilliard Hillman and
C. G. Grefenstette, Trustees of the Henry L.
Hillman Trust U/A dated 11/18/85
[Series E Purchase Agreement]
<PAGE> 38
NEW VENTURE PARTNERS III, LIMITED
PARTNERSHIP
By: /s/ Howard D. Wolfe, Jr.
---------------------------------------
Name: Howard D. Wolfe, Jr.
Title: General Partner
LANDMARK VENTURE CAPITL
PARTNERS, LIMITED PARTNERSHIP
By: /s/ Howard D. Wolfe, Jr.
---------------------------------------
Name: Howard D. Wolfe, Jr.
Title: General Partner
[Series E Purchase Agreement]
<PAGE> 39
VENHILL LIMITED PARTNERSHIP
By: /s/ Howard B. Hillman
---------------------------------------
Name:
Title: General Partner
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:
/s/ Veena C. Saini
-------------------------------------------
Veena C. Saini
HIGHLAND CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By: Highland Management Partners II
Limited Partnership, its General
Partner
By: /s/ W. Grousbeck
---------------------------------------
Name: W. Grousbeck
Title: G.P.
[Series E Purchase Agreement]
<PAGE> 40
CHARLES RIVER PARTNERSHIP VII,
LIMITED PARTNERSHIP
By: /s/ Richard M. Burnes, Jr.
---------------------------------------
Name: Richard M. Burnes, Jr.
Title: General Partner
POLARIS VENTURE PARTNERS, L.P.
By: Polaris Venture Management Co., LLC
Its General Partner
By: /s/ Terrance McGuire
---------------------------------------
Member
/s/ T. C. Bigley
/s/ C. G. Grefenstette
-------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Audrey
Hilliard Hillman
/s/ T. C. Bigley
/s/ C.G. Grefenstette
-------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Henry L.
Hillman, Jr.
/s/ T. C. Bigley
/s/ C. G. Grefenstette
-------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Juliet Lea
Hillman
/s/ T. C. Bigley
/s/ C. G. Grefenstette
-------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for William
Talbott Hillman
[Series E Purchase Agreement]
<PAGE> 41
/s/ Anne De Gheest
-------------------------------------------
Anne De Gheest
/s/ Theodore H. Ashford
-------------------------------------------
Theodore H. Ashford
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
/s/ Suzanne M. Otterbein
-------------------------------------------
Suzanne M. Otterbein
/s/ David C. Zraket
-------------------------------------------
David C. Zraket
GENSTAR INVESTMENT CORPORATION
By: /s/ Richard D. Paterson
---------------------------------------
Name: Richard D. Paterson
Title: Executive Vice President
/s/ Elizabeth Z. Callahan
-------------------------------------------
Elizabeth Z. Callahan
/s/ Caroline Z. Pratt
-------------------------------------------
Caroline Z. Pratt
/s/ L. J. Lloyd
-------------------------------------------
Lester J. Lloyd and/or Lynne Dewar Lloyd
Trustees or Successor Trustees under The
Lloyd Trust U/A/D 10/05/88
[Series E Purchase Agreement]
<PAGE> 42
POLARIS VENTURE PARTNERS
FOUNDERS' FUND, L.P.
By: Polaris Venture Management Co., LLC
Its General Partner
By: /s/ Terrance McGuire
---------------------------------------
Member
/s/ Philip G. Aberizk
-------------------------------------------
Philip G. Aberizk
[Series E Purchase Agreement]
<PAGE> 43
The undersigned holders of shares of Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock, by
signing below, shall become parties to the Agreement solely with respect to the
provisions of (i) Sections 7, 8(a), 10, 13, 15, 16, 18, 19, 20 and 21; (ii)
Section 8(b) solely with respect to the holders of Series D Preferred Stock;
(iii) Section 8(c) solely with respect to the holders of Series C Preferred
Stock; and (iv) Section 8(d) solely with respect to the holders of Series A-1
Preferred Stock and Series B-1 Preferred Stock.
ABS EMPLOYEE VENTURE FUND
LIMITED PARTNERSHIP
By: /s/ Margaret-Mary V. Preston
---------------------------------------
Name: Margaret-Mary V. Preston
Title: VP of Alex. Brown Investments Inc.
GP of the Partnership
SECOND CENTURY GROWTH DEFERRED
COMPENSATION PLAN: Piper Jaffray, Inc.
By: /s/ Piper Jaffray Inc.
---------------------------------------
Name: Authorized Signatory
Title:
THE JOHN BURROUGHS SCHOOL
ENDOWMENT FUND
By: /s/
---------------------------------------
Name:
Title:
/s/ Noubar Afeyan
-------------------------------------------
Noubar Afeyan
[Series E Purchase Agreement]
<PAGE> 44
/s/ Stanley Lapidus
-------------------------------------------
Stanley Lapidus
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
MAYFIELD ASSOCIATES
MAYFIELD ASSOCIATES FUND,
A CALIFORNIA LIMITED PARTNERSHIP By: /s/ George A. Pavlov
---------------------------------------
Name: George A. Pavlov
Title: Authorized Signatory
MAYFIELD MEDICAL PARTNERS,
A CALIFORNIA PARTNERSHIP MAYFIELD MEDICAL PARTNERS
BY: MAYFIELD VI, INVESTMENT By: /s/ George A. Pavlov
PARTNERS ---------------------------------------
A CALIFORNIA LIMITED PARTNERSHIP, Name: George A.Pavlov
Its General Partner Title: Authorized Signatory
BY: MAYFIELD VI MANAGEMENT
PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP MAYFIELD VI
General Partner of Mayfield VI
Investment Partners By: /s/ George A. Pavlov
---------------------------------------
Name: George A. Pavlov
MAYFIELD VI INVESTMENT PARTNERS, Title: Authorized Signatory
A CALIFORNIA LIMITED PARTNERSHIP
BY: MAYFIELD VI MANAGEMENT
PARTNERS, A CALIFORNIA LIMITED
PARTNERSHIP, Its General Partner
[Series E Purchase Agreement]
<PAGE> 45
MERRILL, PICKARD, ANDERSON &
EYRE IV, LIMITED PARTNERSHIP
By: MPAE IV Management Co., L.P.
By: /s/ Steven L. Merrill
---------------------------------------
Name: Steven L. Merrill
Title: General Partner
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
HLM PARTNERS VII, L.P.
By: /s/ James J. Mahoney Jr.
---------------------------------------
Name: James J. Mahoney Jr.
Title: General Partner
SUTTER HILL VENTURES, A CALIFORNIA
LIMITED PARTNERSHIP
By: /s/ G. Leonard Baker, Jr.
---------------------------------------
Name: G. Leonard Baker, Jr.
Title: Managing Director
of the General Partner
[Series E Purchase Agreement]
<PAGE> 46
TOW PARTNERS, A CALIFORNIA LIMITED
PARTNERSHIP
By: /s/ Paul M. Wythes
---------------------------------------
Name: Paul M. Wythes
Title: General Partner
/s/ William H. Younger, Jr.
-------------------------------------------
William H. Younger, Jr., Trustee of the
Younger Living Trust
/s/ Paul M. Wythes
-------------------------------------------
Paul M. and Marsha R. Wythes, Trustees of
the Wythes Living Trust
/s/ G. Leonard Baker
-------------------------------------------
G. Leonard Baker
/s/Sherryl W. Hossack Under Power of Attorney
-------------------------------------------
Ronald L. Perkins
/s/Sherryl W. Hossack Under Power of Attorney
-------------------------------------------
James C. Gaither
/s/ David L. Anderson
-------------------------------------------
David L. Anderson
/s/ Tench Coxe
-------------------------------------------
Tench Coxe
/s/ Robert Carpenter
-------------------------------------------
Robert Carpenter
/s/ Theodore Stanley
-------------------------------------------
Theodore and Mary Stanley
[Series E Purchase Agreement]
<PAGE> 47
H&D INVESTMENTS II
By: /s/ Paul P. Brountas
---------------------------------------
Name: Paul P. Brountas
Title: Partner
/s/ J. Breckenridge Eagle
-------------------------------------------
J. Breckenridge Eagle
-------------------------------------------
Vijay J. Shah
/s/ J. Neal Armstrong
-------------------------------------------
J. Neal Armstrong
/s/ Timothy J. Crowley
-------------------------------------------
Timothy J. Crowley
/s/ Robert R. Everett
-------------------------------------------
Robert R. Everett
THE LOWN CARDIOVASCULAR
RESEARCH FOUNDATION
By: /s/ Peter A. Zheutlin
---------------------------------------
Name: Peter A. Zheutlin
Title: Treasurer
/s/ Glen E. Wegner
-------------------------------------------
Glen E. Wegner
[Series E Purchase Agreement]
<PAGE> 48
ZED INTERNATIONAL, INC.
By:
---------------------------------------
Name:
Title:
BAYVIEW INVESTORS, LTD.
By: /s/ Terry R. Otton
---------------------------------------
Name: Terry R. Otton
Title: Authorized Signatory
INTERSTOCK ANSTALT
By: /s/
---------------------------------------
Authorized Signatory
SVE STAR VENTURE ENTERPRISES NO. V,
A GERMAN CIVIL LAW PARTNERSHIP
(WITH LIMITATION OF LIABILITY)
By: SVM Star Ventures Management
gesellschaft mbH Nr. C
By: /s/
---------------------------------------
Authorized Signatory
[Series E Purchase Agreement]
<PAGE> 49
SVM STAR VENTURES
MANAGEMENTGESELLSCHAFT MBH NR.
3 & CO. BETEILIGUNGS KG
By: SVM Star Ventures Management
gesellschaft mbH Nr. C
By: /s/
---------------------------------------
Authorized Signatory
/s/ Richard Rogers /s/ Julie Rogers
-------------------------------------------
Richard and Julie Rogers
AENEAS VENTURE CORPORATION
By: /s/ Michael R. Eisenson
---------------------------------------
Name: Michael R. Eisenson
Title: Authorized Signatory
CATALYST VENTURES, LIMITED
PARTNERSHIP
By: New Enterprise Associates IV, Limited
Partnership
By: NEA Partners IV, Limited Partnership
By: /s/ Nancy Dorman
---------------------------------------
Name: Nancy Dorman
Title: General Partner
[Series E Purchase Agreement]
<PAGE> 50
WELLS FARGO BANK, TRUSTEE SHV
M/P/T FBO DAVID L. ANDERSON
By: /s/ Vicki M. Bandel /s/ S. Matson
---------------------------------------
Name: Vicki M. Bandel
Title: Trust Officer
WELLS FARGO BANK, TRUSTEE SHV
M/P/T FBO TENCH COXE
By: /s/ Vicki M. Bandel /s/ S. Matson
---------------------------------------
Name: Vicki M. Bandel
Title: Trust Officer
/s/ William H. Younger, Jr.
-------------------------------------------
William H. Younger, Jr.
THE STANLEY RESEARCH FOUNDATION
By: /s/ Theodore Stanley
---------------------------------------
Name:
Title:
FISHERS ISLAND PARTNERS
By: /s/
---------------------------------------
Name: For Fishers Island Partners
Title:
/s/ Nassib G. Chamoun
-------------------------------------------
Nassib G. Chamoun
-------------------------------------------
Ziad and Lori Chamoun
[Series E Purchase Agreement]
<PAGE> 51
/s/ Philip Devlin as Custodian for
Michael Travers Devlin
-------------------------------------------
Philip Devlin as Custodian for Michael
Travers Devlin
-------------------------------------------
Farhat N. Homsy, M.D.
-------------------------------------------
Douglas N. Young
/s/ Mary Lee Young
-------------------------------------------
NEW VENTURE PARTNERS III, LIMITED
PARTNERSHIP
By: /s/ Howard D. Wolfe, Jr.
---------------------------------------
Name: Howard D. Wolfe, Jr.
Title: General Partner
Mary Lee Young
/s/ Donald Stanski M.D.
-------------------------------------------
Donald Stanski
-------------------------------------------
Nina S. Rohrbasser
-------------------------------------------
Victoria Shah
/s/ Jeffrey L. Barrett
-------------------------------------------
Jeffrey L. Barrett
/s/ Stephen E. Coit
-------------------------------------------
Stephen E. Coit
/s/ Steven H. Kane
-------------------------------------------
Steven H. Kane
[Series E Purchase Agreement]
<PAGE> 52
/s/ Lester J. Lloyd
-------------------------------------------
Lester J. Lloyd
[Series E Purchase Agreement]
<PAGE> 1
EXHIBIT 10.20
FOURTH AMENDED AND RESTATED RIGHT OF FIRST REFUSAL
AND CO-SALE AGREEMENT
AGREEMENT, dated as of December 17, 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 Third Amended and Restated Right of First Refusal
and Co-Sale Agreement dated as of February 13, 1998 (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 E Convertible Preferred Stock and Warrant
Purchase Agreement dated as of the date hereof (the "Purchase Agreement")
certain of the Preferred Shareholders identified in Schedule I are purchasing
(a) Series E Convertible Preferred Stock, $.01 par value per share (the "Series
E Preferred Stock") and (b) warrants (the "Warrants") to purchase shares of
Common Stock, $.01 par value per share, of the Company (the "Common Stock"); and
WHEREAS, it is a condition to the obligations of such Preferred
Shareholders under the Series E 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.
<PAGE> 2
2. Definition of Shares. The term "Shares" shall mean and include all
equity securities of the Company (including without limitation, the Warrants)
owned by the Key Stockholders, whether presently held or hereafter acquired.
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
-2-
<PAGE> 3
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 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 on the date of the second offer, being
a number of shares equal to (i) 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 Convertible Preferred Stock,
$.01 par value per share (the "Series D Preferred Stock"), Series E 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"),
Series D-2 Convertible Preferred Stock, $.01 par value per share (the "Series
D-2 Preferred Stock"), and Series E-2 Convertible Preferred Stock, $.01 par
value per share (the "Series E-2 Preferred Stock" and together with the Series
A-1 Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock, Series A-2 Preferred Stock,
Series B-2 Preferred Stock, Series C-2 Preferred Stock and Series D-2 Preferred
Stock, the "Preferred Stock"), held by such Preferred Shareholder is convertible
and (ii) the shares of Common Stock issuable upon exercise of the Warrants), 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
(including
-3-
<PAGE> 4
in such writing the number of Remaining Shares such Preferred Shareholder would
like to purchase, which, subject to the pro rata reduction set forth above, may
be in excess of such Preferred Shareholder's Pro Rata Fraction), 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 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 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
-4-
<PAGE> 5
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.
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 be at least $14.00 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.
-5-
<PAGE> 6
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
outstanding shares of 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, provided that, the provisions of Section 6 may not be
waived without the consent of Preferred Shareholders holding at least 80% of the
issued and outstanding shares of 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 all Preferred Shareholders by
all 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 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, provided that, the provisions of Section 6 may not be amended without
the consent of Preferred Shareholder holding at least 80% of the issued and
outstanding shares of 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 all Preferred Shareholders by all
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. Notwithstanding anything
to the contrary in
-6-
<PAGE> 7
this Agreement, the company acknowledges and agrees that Artal Luxembourg S.A.
may transfer the shares of Series E Preferred Stock and the Warrants acquired by
it under the Purchase Agreement to QuestMark Partners, L.P. and/or its
affiliates ("QuestMark") without restriction (other than compliance with
applicable securities laws), and that subsequent to such transfer, QuestMark
shall be deemed a Preferred Shareholder for all purposes under this Agreement.
At the time of the transfer, QuestMark shall deliver to the Company a written
instrument by which it agrees to become a party to this Agreement, to the same
extent as if it were a Preferred Shareholder hereunder.
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.
16. Governing Law. This agreement shall be construed and enforced in
accordance with and governed by the laws of the Commonwealth of Massachusetts.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-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
ARTAL LUXEMBOURG S.A.
By: /s/ Paul R. Komler
------------------------------------------
Name: Paul R. Komler
Title: Managing Director
BENEFIT CAPITAL MANAGEMENT
CORPORATION, as Investment Manager of
the Prudential Insurance Company of America
Separate Account #VCA-GA-5298
By: /s/ Sue DeCarlo
-------------------------------------------
Name: Sue DeCarlo
Title: Sr. VP and CFO
HLM/CB FUND, L.P.
By: /s/ James J. Mahoney Jr.
------------------------------------------
Name: James J. Mahoney Jr.
Title: General Partner
RIGGS CAPITAL PARTNERS
By: /s/ J. Carter Beese, Jr.
------------------------------------------
Name:
Title:
US DEVELOPMENT CAPITAL INVESTMENT COMPANY
By: /s/ Raymond L. Moss
------------------------------------------
Name: Raymond L. Moss
Title: Corporate Secretary
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 9
NEW VENTURE PARTNERS III, LIMITED
PARTNERSHIP
By: /s/ Howard D. Wolfe, Jr.
------------------------------------------
Name: Howard D. Wolfe, Jr.
Title: General Partner
CITIVENTURE 96 PARTNERSHIP, L.P.
By: Chancellor LGT Asset Management, Inc.
as investment advisor
By: /s/ Mark Radovanovich
-----------------------------------------
Name:
Title:
JULIET CHALLENGER, INC.
By: /s/ Andrew H. McQuarrie
-----------------------------------------
Name: Andrew H. McQuarrie
Title: Vice President
ORCHID & CO., nominee for
T. Rowe Price Threshold Fund III, L.P.
By: T. Rowe Price Threshold Fund Associates,
Inc. General Partner
By: /s/ Junerose C. Sordoni
-----------------------------------------
Name: Junerose C. Sordoni
Title: Vice President
LANDMARK VENTURE CAPITAL PARTNERS, LIMITED
PARTNERSHIP
By: /s/ Howard D. Wolfe, Jr.
-----------------------------------------
Name: Howard D. Wolfe, Jr.
Title: General Director
/s/ Vikas Saini
----------------------------------------------
Vikas Saini
/s/ Douglas Schair
----------------------------------------------
Douglas Schair
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 10
/s/ C. G. Grefenstette
-------------------------------------------------
Henry L. Hillman, Elsie Hilliard Hillman and
C. G. Grefenstette, Trustees of the Henry L.
Hillman Trust U/A dated 11/18/85
VENHILL LIMITED PARTNERSHIP
By: /s/ Howard B. Hillman
---------------------------------------------
Name:
Title: General Partner
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/ Mark Radovanovich
---------------------------------------------
Name:
Title:
/s/ Veena C. Saini
-------------------------------------------------
Veena C. Saini
HIGHLAND CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By: Highland Management Partners II
Limited Partnership, its General
Partner
By: /s/ Wycliffe K. Grousbeck
---------------------------------------------
Name: Wycliffe K. Grousbeck
Title: GP
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 11
CHARLES RIVER PARTNERSHIP VII,
LIMITED PARTNERSHIP
By: /s/ Richard M. Burnes, Jr.
----------------------------------------------
Name: Richard M. Burnes, Jr.
Title: General Partner
POLARIS VENTURE PARTNERS, L.P.
By: Polaris Venture Management Co., LLC
Its General Partner
By: /s/ Terrance McGuire
----------------------------------------------
Member
/s/ C. G. Grefenstette /s/ T.C. Bigley
--------------------------------------------------
C. G. Grefenstette and Thomas C. Bigley, Trustees
U/A/T dated 8/28/68 for Audrey Hilliard Hillman
/s/ C. G. Grefenstette /s/ T.C. Bigley
--------------------------------------------------
C. G. Grefenstette and Thomas C. Bigley, Trustees
U/A/T dated 8/28/68 for Henry L. Hillman, Jr.
/s/ C. G. Grefenstette /s/ T.C. Bigley
--------------------------------------------------
C. G. Grefenstette and Thomas C. Bigley, Trustees
U/A/T dated 8/28/68 for Juliet Lea Hillman
/s/ C. G. Grefenstette /s/ T.C. Bigley
--------------------------------------------------
C. G. Grefenstette and Thomas C. Bigley, Trustees
U/A/T dated 8/28/68 for William Talbott Hillman
/s/ Anne De Gheest
--------------------------------------------------
Anne De Gheest
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 12
/s/ Theodore H. Ashford
--------------------------------------------------
Theodore H. Ashford
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
/s/ Suzanne M. Otterbein
--------------------------------------------------
Suzanne M. Otterbein
/s/ David C. Zraket
--------------------------------------------------
David C. Zraket
GENSTAR INVESTMENT CORPORATION
By: /s/ Richard D. Paterson
----------------------------------------------
Name: Richard D. Paterson
Title: Executive Vice President
/s/ Elizabeth Z. Callahan
--------------------------------------------------
Elizabeth Z. Callahan
/s/ Caroline Z. Pratt
--------------------------------------------------
Caroline Z. Pratt
/s/ Lester J. Lloyd
--------------------------------------------------
Lester J. Lloyd and/or Lynne Dewar Lloyd Trustees
or Successor Trustees under The Lloyd Trust
U/A/D 10/05/88
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 13
POLARIS VENTURE PARTNERS FOUNDERS' FUND, L.P.
By: Polaris Venture Management Co., LLC
Its General Partner
By: /s/ Terrance McGuire
---------------------------------------------
Member
/s/ Philip G. Aberizk
-------------------------------------------------
Philip G. Aberizk
ABS EMPLOYEE VENTURE FUND LIMITED PARTNERSHIP
By: /s/ Margaret-Mary V. Preston
---------------------------------------------
Name: Margaret-Mary V. Preston
Title: VP of Alex Brown Investments, Inc., GP
of the Partnership
SECOND CENTURY GROWTH DEFERRED COMPENSATION PLAN:
Piper Jaffray, Inc.
By: /s/ Piper Jaffray, Inc.
---------------------------------------------
Name: Buzz Benson
Title:
THE JOHN BURROUGHS SCHOOL ENDOWMENT FUND
By: /s/ Keith Shahan
---------------------------------------------
Name:
Title:
/s/ Noubar Afeyan
-------------------------------------------------
Noubar Afeyan
/s/ Stanley Lapidus
-------------------------------------------------
Stanley Lapidus
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 14
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
Mayfield Associates Fund,
A California Limited Partnership MAYFIELD ASSOCIATES
By: /s/ George A. Pavlov
---------------------------------------
Name: George A. Pavlov
Title: Authorized Signatory
Mayfield Medical Partners,
A California Limited Partnership MAYFIELD MEDICAL PARTNERS
By: Mayfield VI Investment By: Mayfield VI Investment Partners
Partners, A California Limited
Partnership, Its General By: /s/ George A. Pavlov
Partner ---------------------------------------
By: Mayfield VI Management Name: George A. Pavlov
Partners, A California Title: Authorized Signatory
Limited Partnership, General
Partner of Mayfield VI
Investment Partners
Mayfield VI Investment Partners,
A California Limited Partnership MAYFIELD VI INVESTMENT PARTNERS
By: Mayfield VI Management By: Mayfield VI Management Partners
Partners, A California
Limited Partnership, Its By: /s/ George A. Pavlov
General Partner ---------------------------------------
Name: George A. Pavlov
Title: Authorized Signatory
MERRILL, PICKARD ANDERSON &
EYRE IV, LIMITED PARTNERSHIP
By: MPAE IV Management Co., L.P.
By: /s/ S. L. Merrill
---------------------------------------
Name: Steven L. Merrill
Title: General Partner
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 15
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
HLM PARTNERS VII, L.P.
By: /s/ James J. Mahoney Jr.
--------------------------------------------
Name: James J. Mahoney Jr.
Title: General Partner
SUTTER HILL VENTURES, A
CALIFORNIA LIMITED PARTNERSHIP
By: /s/ G. Leonard Baker, Jr.
--------------------------------------------
Title: Managing Director of the
General Partner
TOW PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP
By: /s/ Paul M. Wythes
--------------------------------------------
Name: Paul M. Wythes
Title: General Partner
/s/ William H. Younger, Jr.
------------------------------------------------
William H. Younger, Jr., Trustee of the Younger
Living Trust
/s/ Paul M. Wythes
------------------------------------------------
Paul M. and Marsha R. Wythes, Trustees of the
Wythes Living Trust
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 16
/s/ G. Leonard Baker
------------------------------------------------
G. Leonard Baker
/s/ Sherryl W. Hossack Under Power of Attorney
------------------------------------------------
Ronald L. Perkins
/s/ Sherryl W. Hossack Under Power of Attorney
------------------------------------------------
James C. Gaither
/s/ David L. Anderson
------------------------------------------------
David L. Anderson
/s/ Tench Coxe
------------------------------------------------
Tench Coxe
/s/ Robert Carpenter
------------------------------------------------
Robert Carpenter
/s/ Theodore Stanley
------------------------------------------------
Theodore and Mary Stanley
H&D INVESTMENTS II
By: /s/ Paul P. Brountas
--------------------------------------------
Name: Paul P. Brountas
Title: Partner
/s/ J. Breckenridge Eagle
------------------------------------------------
J. Breckenridge Eagle
------------------------------------------------
Vijay J. Shah
/s/ J. Neal Armstrong
------------------------------------------------
J. Neal Armstrong
/s/ Timothy J. Crowley
------------------------------------------------
Timothy J. Crowley
/s/ Robert R. Everett
------------------------------------------------
Robert R. Everett
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 17
THE LOWN CARDIOVASCULAR RESEARCH FOUNDATION
By: /s/ Peter A. Zheutlin
-------------------------------------------
Title: Treasurer
/s/ Glen E. Wegner
------------------------------------------------
Glen E. Wegner
ZED INTERNATIONAL, INC.
By: --------------------------------------------
Name:
Title:
BAYVIEW INVESTORS, LTD.
By: /s/ Terry R. Otton
--------------------------------------------
Name: Terry R. Otton
Title: Authorized Signatory
INTERSTOCK ANSTALT
By: /s/ Ernst Bloathlinger
--------------------------------------------
Authorized Signatory
SVE STAR VENTURE ENTERPRISES NO. V,
A GERMAN CIVIL LAW PARTNERSHIP
(WITH LIMITATION OF LIABILITY)
By: SVM Star Ventures Management
gesellschaft mbH Nr. C
By: /s/ Andreas Hofbauer
--------------------------------------------
Authorized Signatory
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 18
SVM STAR VENTURES
MANAGEMENTGESELLSCHAFT MBH NR.
3 & CO. BETEILIGUNGS KG
By: SVM Star Ventures Management
gesellschaft mbH Nr. 3
By: /s/ Andreas Hofbauer
--------------------------------------------
Authorized Signatory
/s/ Richard Rogers /s/Julie Rogers
------------------------------------------------
Richard and Julie Rogers
AENEAS VENTURE CORPORATION
By: /s/ Michael R. Eisenson
--------------------------------------------
Name: Michael R. Eisenson
Title: Authorized Signatory
CATALYST VENTURES, LIMITED PARTNERSHIP
By: New Enterprise Associates IV, Limited
Partnership
By: NEA Partners IV, Limited Partnership
By: /s/ Nancy C. Dorman
--------------------------------------------
Name:
Title:
WELLS FARGO BANK, TRUSTEE SHV M/P/T FBO DAVID L.
ANDERSON
By: /s/ Vicki M. Bandel /s/Sherill Y. Matson
--------------------------------------------
Name: Vicki M. Bandel
Title: Trust Officers
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 19
WELLS FARGO BANK, TRUSTEE SHV M/P/T FBO
TENCH COXE
By: /s/Vicki M. Bandel /s/Sherill Y. Matson
-------------------------------------------
Name: Vicki M. Bandel
Title: Trust Officers
/s/ William H. Younger, Jr.
-----------------------------------------------
William H. Younger, Jr.
THE STANLEY RESEARCH FOUNDATION
By: /s/ Theodore Stanley
-------------------------------------------
Name:
Title:
FISHERS ISLAND PARTNERS
By: /s/ Nathan Saint-Amand, MD
-------------------------------------------
Name:
Title: Managing Partner for
Fisher Island Partners
/s/ Nassib G. Chamoun
-----------------------------------------------
Nassib G. Chamoun
-----------------------------------------------
Ziad and Lori Chamoun
/s/ Philip Devlin
-----------------------------------------------
Philip Devlin as Custodian for Michael
Travers Devlin
-----------------------------------------------
Farhat N. Homsy, M.D.
-----------------------------------------------
Douglas N. Young
/s/ Mary Lee Young
-----------------------------------------------
Mary Lee Young
/s/ Donald Stanski
-----------------------------------------------
Donald Stanski
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 20
-----------------------------------------------
Nina S. Rohrbasser
-----------------------------------------------
Victoria Shah
/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
NEW VENTURE PARTNERS IV, LIMITED
PARTNERSHIP
By: /s/ Howard D. Wolfe, Jr.
-------------------------------------------
Name: Howard D. Wolfe, Jr.
Titel: General Partner
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 21
SCHEDULE I
PREFERRED SHAREHOLDERS
Artal Luxembourg S.A.
Attn: Paul R. Kohler
105, Grand-Rue
L-1161 Luxembourg
Benefit Capital Management Corporation
as Investment Manager for the Prudential Insurance
Company of America
Separate Account Number VCA-GA-5298
c/o Susan DeCarlo
39 Old Ridgebury Road
Danbury, CT 06817
HLB/CB Fund, L.P.
HLM Management Company
c/o Peter Grua
222 Berkeley Street, #2150
Boston, MA 02116
Riggs Capital Partners, a division of Riggs National
Corporation
c/o J. Carter Beese, Jr.
800 17th Street, N.W.
Washington, D.C. 20006
US Development Capital Investment Company
c/o Raymond L. Moss
Simms, Moss, Kline, and Davis, LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, GA 30328
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 22
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
<TABLE>
<S> <C>
C. G. Grefenstette and Thomas C. Bigley, Trustees U/A/T C. G. Grefenstette and Thomas C. Bigley, Trustees U/A/T
dated 8/28/68 for Juliet Lea Hillman dated 8/28/68 for Audrey Hilliard Hillman
1800 Grant Building 1800 Grant Building
Pittsburgh, PA 15219 Pittsburgh, PA 15219
C. G. Grefenstette and Thomas C. Bigley, Trustees U/A/T C. G. Grefenstette and Thomas C. Bigley, Trustees U/A/T
dated 8/28/68 for William Talbott Hillman dated 8/28/68 for 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
ABS Employees' Venture Fund Second Century Growth Deferred Compensation Plan: Piper
Limited Partnership 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
</TABLE>
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 23
<TABLE>
<S> <C>
The John Burroughs School Endowment Fund Noubar Afeyen
c/o Keith Shahan c/o PerSeptive Biosystems
755 South Price Road 500 Old Connecticut Pass
St. Louis, MO 63124 Framingham, MA 01701
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, L.P. Aeneas Venture Corporation
Bay Colony Corporate Center c/o Harvard Management
1000 Winter Street, Suite 3350 Company, Inc.
Waltham, MA 02154 600 Atlantic Avenue
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
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
</TABLE>
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 24
<TABLE>
<S> <C>
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 Partnership Catalyst Ventures, Limited
1119 St. Paul Street Partnership
Baltimore, MD 21202 1119 St. Paul Street
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
Mayfield Medical Partners Ziad and Lori Chamoun
2800 Sand Hill Road 100A Green Street
Menlo Park, CA 94025 Milton, MA 02186
</TABLE>
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 25
<TABLE>
<S> <C>
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
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
</TABLE>
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 26
<TABLE>
<S> <C>
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
Merrill, Pickard, Anderson & J. Breckenridge Eagle
Eyre IV Limited Partnership Box 1197
1000 Winter Street Mattapoisett, MA 02739
Suite 1080
Waltham, MA 02154
</TABLE>
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 27
<TABLE>
<S> <C>
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 Trust Verwaltung
24 Brook Street c/o Ernst Bloathlinger
Brookline, MA 02146 Herrengasse 21
FL-9490 Vaduz
Liechtenstein
Vijay J. Shah Richard & Julie Rogers
7 Fanueil Halll 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
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
</TABLE>
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 28
<TABLE>
<S> <C>
SVE Star Venture Enterprises Nassib G. Chamoun
No. V A German Civil Law c/o Aspect Medical Systems, Inc.
Partnership (with limitation of liability) 2 Vision Drive
c/o Andreas Hofbauer Natick, MA 01760
Star Venture Managment
Possartstr. 9
D-81679 Munich
Germany
SVM StarVentures Chancellor LGT Private Capital Partners III, L.P.
Managementgesellschaft mbH Nr.3 & 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
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
</TABLE>
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 29
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
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 30
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 Fourth Amended and Restated Right of First Refusal and
Co-Sale Agreement, dated as of December __, 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: _________________________
[Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement]
<PAGE> 1
Exhibit 10.21
FOURTH AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
As of December 17, 1998
To each of the Several Purchasers (the "Purchasers") named on the signature
pages of this Fourth Amended and Restated Registration Rights Agreement
Dear Sirs:
Pursuant to the Third Amended and Restated Registration Rights Agreement
dated as of February 13, 1998 (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 A-2 Convertible Preferred
Stock, $.01 par value per share (the "Series A-2 Preferred Stock"), Series B-1
Convertible Preferred Stock, $.01 par value per share (the "Series B-1 Preferred
Stock"), Series B-2 Convertible Preferred Stock, $.01 par value per share (the
"Series B-2 Preferred Stock"), Series C Convertible Preferred Stock, $.01 par
value per share (the "Series C Preferred Stock"), Series C-2 Convertible
Preferred Stock, $.01 par value per share (the "Series C-2 Preferred Stock"),
Series D Convertible Preferred Stock (the "Series D Preferred Stock") and Series
D-2 Convertible Preferred Stock, $.01 par value per share (the "Series D-2
Preferred Stock"). 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 are referred to hereinafter as the "Existing Preferred Stock." In order to
attract additional investment in the Company, pursuant to this Fourth Amended
and Restated Registration Rights Agreement (the "Agreement"), the Company is
granting registration rights to the purchasers of the (a) Company's Series E
Convertible Preferred Stock, $.01 par value per share (the "Series E Preferred
Stock") and (b) warrants ("Warrants"), to purchase shares of Common Stock, $.01
par value per share, of the Company ("Common Stock"), who are purchasing such
shares of Series E Preferred Stock and such Warrants pursuant to the Series E
Convertible Preferred Stock and Warrant Purchase Agreement of even date herewith
(the "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:
<PAGE> 2
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).
"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 and the Warrant Holders,
any persons or entities to whom the rights granted under this Agreement are
transferred by the Preferred Shareholders or the Warrant Holders, 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 E Preferred Stock, Series A-2 Preferred Stock,
Series B-2 Preferred Stock, Series C-2 Preferred Stock, Series D-2 Preferred
Stock and Series E-2 Convertible Preferred Stock, $.01 par value per share
(the "Series E-2 Preferred Stock").
"Preferred Shareholders" means the holders of the Preferred Shares.
"Registrable Shares" means (i) the shares of Common Stock issued or
issuable upon conversion of Preferred Shares and upon exercise of the
Warrants 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 and upon
-2-
<PAGE> 3
exercise of the Warrants even if such conversion or exercise, as the case
may be, 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.
"Warrant Holders" means the holders of the Warrants.
"Warrants" means the Warrants to purchase up to 193,600 shares of Common
Stock issued to certain of the Preferred Shareholders pursuant to the
Purchase Agreement.
3. Sale or Transfer of Shares or Warrants and Rights; Legend.
a. The Preferred Shares and the Warrants and shares issued in respect of
the Preferred Shares and the Warrants 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 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 (provided that if such
-3-
<PAGE> 4
Holder is publicly-traded, then such transferee must hold at least 10% of
the outstanding voting securities of such Holder), 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; (iii) the transfer by Artal Luxembourg S.A. ("Artal") to
QuestMark Partners, L.P. and/or its affiliates ("QuestMark") which is
contemplated by the Purchase Agreement; or (iv) a transfer made in
accordance with Rule 144 under the Securities Act; provided, however, that
in the case of any transfer pursuant to 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, each Warrant and
shares issued in respect of the Preferred Shares and the Warrants 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.
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
-4-
<PAGE> 5
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.
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-
<PAGE> 6
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 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
-6-
<PAGE> 7
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 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
-7-
<PAGE> 8
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.
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
-8-
<PAGE> 9
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 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.
In order to provide for just and equitable contribution in circumstances in
which the indemnification provided for in this Section 8 is due in accordance
with its terms but for any reason is held to be unavailable to an Indemnified
Party in respect to any losses, claims, damages and liabilities referred to
herein, then the Indemnifying Party shall, in lieu of indemnifying such
Indemnified Party, contribute to the amount paid or payable by such Indemnified
Party as a result of such losses, claims, damages or liabilities to which such
party may be subject in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and the selling Holders on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company and the selling Holders
-9-
<PAGE> 10
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of material fact related to information supplied by the
Company or the selling Holders and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above. Notwithstanding the
provisions of this paragraph of Section 8, in no case shall any one selling
Holder be liable or responsible for any amount in excess of the net proceeds
received by such selling Holder from the offering of Registrable Shares;
provided, however, that no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties under this Section 8, notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
from whom contribution may be sought shall not relieve such party from any other
obligation it or they may have thereunder or otherwise under this Section. No
party shall be liable for contribution with respect to any action, suit,
proceeding or claim settled without its prior written consent, which consent
shall not be unreasonably withheld.
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:
-10-
<PAGE> 11
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.
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
-11-
<PAGE> 12
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 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, Preferred Shares or Warrants. If, and as often
as, there is any change in the Common Stock of the Company or the Preferred
Shares or Warrants 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 Warrants and the shares of
Common Stock issuable upon conversion or exercise thereof, as the case may be,
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, Warrants or
Preferred Shares, whether so expressed or not), provided, however, that
registration rights conferred herein on the holders of Preferred Shares,
Warrants or Registrable Shares shall only inure to the benefit of a
transferee of Preferred Shares, Warrants or Registrable Shares if there is
transferred to such transferee at least 25,000 shares of Preferred Shares,
Warrants to purchase at least 25,000 shares of Common Stock or at least
25,000 shares of Registrable Shares (other than
-12-
<PAGE> 13
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.
Notwithstanding anything to the contrary in this Agreement, the Company
acknowledges and agrees that Artal may transfer the Preferred Shares and
Warrants acquired by it under the Purchase Agreement to QuestMark without
restriction (other than compliance with applicable securities laws), and
that subsequent to such transfer, QuestMark shall be deemed a Holder for all
purposes under this Agreement. At the time of the transfer, QuestMark shall
deliver to the Company a written instrument by which it agrees to become a
party to this Agreement, to the same extent as if it were a Holder
hereunder.
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, Warrants or Registrable
Shares, to it at such address as may have been furnished to the Company in
writing by such holder;
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, Warrants or Registrable Shares) or to the holders of Preferred
Shares, Warrants 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, provided that, the terms of Section 16(f)(i) and (ii) may be amended
and the observance of the terms of such Section may be waived only with the
written consent of the Company and the holders of at least 80% of the
Registrable Shares.
-13-
<PAGE> 14
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 to
the public of at least $14.00.
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.
-14-
<PAGE> 15
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
ARTAL LUXEMBOURG S.A.
By: /s/Paul R. Komler
-------------------------------------------
Name: Paul R. Komler
Title: Managing Director
BENEFIT CAPITAL MANAGEMENT
CORPORATION, as Investment Manager of
the Prudential Insurance Company of America
Separate Account # VCA-GA-5298
By: /s/Sue DeCarlo
-------------------------------------------
Name: Sue DeCarlo
Title: Sr. VP & CFO
HLB/CB Fund, L.P.
By: /s/James J. Mahoney Jr.
-------------------------------------------
Name: James J. Mahoney Jr.
Title: General Partner
RIGGS CAPITAL PARTNERS
By: /s/J. Carter Beese, Jr.
-------------------------------------------
Name:
Title:
US DEVELOPMENT CAPITAL INVESTMENT COMPANY
By: /s/Raymond L. Moss
-------------------------------------------
Name: Raymond L. Moss
Title: Corporate Secretary
[Fourth Amended and Restated Registration Rights Agreement]
<PAGE> 16
NEW VENTURE PARTNERS III, LIMITED
PARTNERSHIP
By: /s/Howard D. Wolfe, Jr.
-------------------------------------------
Name: Howard D. Wolfe, Jr.
Title: General Partner
CITIVENTURE 96 PARTNERSHIP, L.P.
By: Chancellor LGT Asset Management, Inc.
as investment advisor
By: /s/Mark Radovanovich
-------------------------------------------
Name:
Title:
JULIET CHALLENGER, INC.
By: /s/Andrew H. McQuarrie
-------------------------------------------
Name: Andrew H. McQuarrie
Title: Vice President
ORCHID & CO., nominee for
T. Rowe Price Threshold Fund III, L.P.
By: T. Rowe Price Threshold Fund Associates,
Inc. General Partner
By: /s/Junerose C. Sordoni
-------------------------------------------
Title: Vice President
LANDMARK VENTURE CAPITAL PARTNERS, LIMITED
PARTNERSHIP
By: /s/Howard D. Wolfe, Jr.
-------------------------------------------
Name: Howard D. Wolfe, Jr.
Title: General Partner
/s/ Vikas Saini
-------------------------------------------
Vikas Saini
[Fourth Amended and Restated Registration Rights Agreement]
<PAGE> 17
/s/Douglas Schair
-------------------------------------------
Douglas Schair
/s/ C. G. Grefenstette
-------------------------------------------
Henry L. Hillman, Elsie Hilliard Hillman
and C. G. Grefenstette, Trustees of the
Henry L. Hillman Trust U/A dated 11/18/85
VENHILL LIMITED PARTNERSHIP
By: /s/Howard B. Hillman
-------------------------------------------
Name:
Title: General Partner
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/Mark Radovanovich
-------------------------------------------
Name:
Title:
/s/Veena C. Saini
-------------------------------------------
Veena C. Saini
HIGHLAND CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By: Highland Management Partners II
Limited Partnership, its General
Partner
By: /s/Wycliffe K. Grousbeck
-------------------------------------------
Name: Wycliffe K. Grousbeck
Title: GP
[Fourth Amended and Restated Registration Rights Agreement]
<PAGE> 18
CHARLES RIVER PARTNERSHIP VII,
LIMITED PARTNERSHIP
By: /s/Richard M. Burnes, Jr.
-------------------------------------------
Name: Richard M. Burnes, Jr.
Title: General Partner
POLARIS VENTURE PARTNERS, L.P.
By: Polaris Venture Management Co., LLC
Its General Partner
By: /s/Terrance McGuire
-------------------------------------------
Member
/s/C. G. Grefenstette /s/T.C. Bigley
---------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for
Audrey Hilliard Hillman
/s/C. G. Grefenstette /s/T.C. Bigley
---------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for
Henry L. Hillman, Jr.
/s/C. G. Grefenstette /s/T.C. Bigley
---------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for
Juliet Lea Hillman
/s/C. G. Grefenstette /s/T.C. Bigley
---------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for
William Talbott Hillman
/s/Anne De Gheest
---------------------------------------------
Anne De Gheest
[Fourth Amended and Restated Registration Rights Agreement]
<PAGE> 19
/s/Theodore H. Ashford
---------------------------------------------
Theodore H. Ashford
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
/s/Suzanne M. Otterbein
---------------------------------------------
Suzanne M. Otterbein
/s/David C. Zraket
---------------------------------------------
David C. Zraket
GENSTAR INVESTMENT CORPORATION
By:/s/Richard D. Paterson
---------------------------------------------
Name: Richard D. Paterson
Title: Executive Vice President
/s/Elizabeth Z. Callahan
---------------------------------------------
Elizabeth Z. Callahan
/s/Caroline Z. Pratt
---------------------------------------------
Caroline Z. Pratt
/s/Lester J. Lloyd
---------------------------------------------
Lester J. Lloyd and/or Lynne Dewar Lloyd
Trustees or Successor Trustees under The
Lloyd Trust U/A/D 10/05/88
[Fourth Amended and Restated Registration Rights Agreement]
<PAGE> 20
POLARIS VENTURE PARTNERS FOUNDERS' FUND, L.P.
By: Polaris Venture Management Co., LLC
Its General Partner
By:/s/Terrance McGuire
---------------------------------------------
Member
/s/Philip G. Aberizk
---------------------------------------------
Philip G. Aberizk
ABS EMPLOYEE VENTURE FUND LIMITED PARTNERSHIP
By:/s/Margaret-Mary V. Preston
---------------------------------------------
Title: VP of Alex Brown Investments Inc.
GP of the Partnership
SECOND CENTURY GROWTH DEFERRED
COMPENSATION PLAN: Piper Jaffray, Inc.
By:/s/Piper Jaffray, Inc.
---------------------------------------------
Name: Buzz Benson
Title:
THE JOHN BURROUGHS SCHOOL ENDOWMENT FUND
By:/s/Keith Shahan
---------------------------------------------
Name:
Title:
/s/Noubar Afeyan
---------------------------------------------
Noubar Afeyan
/s/Stanley Lapidus
---------------------------------------------
Stanley Lapidus
[Fourth Amended and Restated Registration Rights Agreement]
<PAGE> 21
GILDE INTERNATIONAL B.V.
By: One Liberty Partners III, L.P.,
its Attorney-in-Fact
By:/s/Edwin M. Kania, Jr.
---------------------------------------------
Title: General Partner
Mayfield Associates Fund, MAYFIELD ASSOCIATES FUND
A California Limited Partnership
By:/s/George A. Pavlov
Mayfield Medical Partners, ---------------------------------------------
A California Limited Partnership Name: George A. Pavlov
Title: Authorized Signature
By: Mayfield VI Investment
Partners, A California
Limited Partnership, MAYFIELD MEDICAL PARTNERS
Its General Partner
By: Mayfield VI Investment Partners
By: Mayfield VI Management
Partners, A California By:/s/George A. Pavlov
Limited Partnership, ---------------------------------------------
General Partner of Name: George A. Pavlov
Mayfield VI Investment Title: Authorized Signature
Partners
Mayfield VI Investment Partners,
A California Limited Partnership MAYFIELD VI INVESTMENT PARTNERS
By: Mayfield VI Management By: Mayfield VI Management Partners
Partners, A California
Limited Partnership, By:/s/George A. Pavlov
Its General Partner ---------------------------------------------
Name: George A. Pavlov
Title: Authorized Signature
MERRILL, PICKARD, ANDERSON &
EYRE IV, LIMITED PARTNERSHIP
By: MPAE IV Management Co., L.P.
By: /s/Steven L. Merrill
---------------------------------------------
Name: Steven L. Merrill
Title: General Partner
[Fourth Amended and Restated Registration Rights Agreement]
<PAGE> 22
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
HLM PARTNERS VII, L.P.
By:/s/James J. Mahoney Jr.
---------------------------------------------
Name: James J. Mahoney Jr.
Title: General Partner
SUTTER HILL VENTURES, A CALIFORNIA
LIMITED PARTNERSHIP
By:/s/G. Leonard Baker, Jr.
---------------------------------------------
Name: G. Leonard Baker, Jr.
Title: Managing Director of General Partner
TOW PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP
By:/s/Paul M. Wythes
---------------------------------------------
Title: General Partner
/s/William H. Younger, Jr.
---------------------------------------------
William H. Younger, Jr., Trustee of the
Younger Living Trust
/s/Paul M. Wythes
---------------------------------------------
Paul M. and Marsha R. Wythes, Trustees of the
Wythes Living Trust
[Fourth Amended and Restated Registration Rights Agreement]
<PAGE> 23
/s/G. Leonard Baker
---------------------------------------------
G. Leonard Baker
/s/Sherryl W. Hossack Under Power of Attorney
---------------------------------------------
Ronald L. Perkins
/s/Sherryl W. Hossack Under Power of Attorney
---------------------------------------------
James C. Gaither
/s/David L. Anderson
---------------------------------------------
David L. Anderson
/s/Tench Coxe
---------------------------------------------
Tench Coxe
/s/Robert Carpenter
---------------------------------------------
Robert Carpenter
/s/Theodore Stanley
---------------------------------------------
Theodore and Mary Stanley
H&D INVESTMENTS II
By: /s/Paul P. Brountas
---------------------------------------------
Name: Paul P. Brountas
Title: Partner
/s/J. Breckenridge Eagle
---------------------------------------------
J. Breckenridge Eagle
---------------------------------------------
Vijay J. Shah
/s/J. Neal Armstrong
---------------------------------------------
J. Neal Armstrong
/s/Timothy J. Crowley
---------------------------------------------
Timothy J. Crowley
/s/Robert R. Everett
---------------------------------------------
Robert R. Everett
[Fourth Amended and Restated Registration Rights Agreement]
<PAGE> 24
THE LOWN CARDIOVASCULAR RESEARCH FOUNDATION
By:/s/Peter A. Zheutlin
---------------------------------------------
Title: Treasurer
/s/Glen E. Wegner
---------------------------------------------
Glen E. Wegner
ZED INTERNATIONAL, INC.
By:
---------------------------------------------
BAYVIEW INVESTORS, LTD.
By:/s/Terry R. Otton
---------------------------------------------
Name: Terry R. Otton
Title: Authorized Signatory
INTERSTOCK ANSTALT
By:/s/Ernst Bloathlinger
---------------------------------------------
Authorized Signatory
SVE STAR VENTURE ENTERPRISES NO. V,
A GERMAN CIVIL LAW PARTNERSHIP
(WITH LIMITATION OF LIABILITY)
By: SVM Star Ventures Management
gesellschaft mbH Nr. 3
By: /s/Andreas Hofbauer
---------------------------------------------
Authorized Signatory
[Fourth Amended and Restated Registration Rights Agreement]
<PAGE> 25
SVM STAR VENTURES
MANAGEMENT GESELLSCHAFT MBH NR.
3 & CO. BETEILIGUNGS KG
By: SVM Star Ventures Management
gesellschaft mbH Nr 3.
By: /s/Andreas Hofbauer
---------------------------------------------
Authorized Signatory
/s/Richard Rogers /s/Julie Rogers
---------------------------------------------
Richard and Julie Rogers
AENEAS VENTURE CORPORATION
By:/s/Michael R. Eisenson
---------------------------------------------
Name: Michael R. Eisenson
Title: Authorized Signatory
CATALYST VENTURES, LIMITED PARTNERSHIP
By: New Enterprise Associates IV, Limited
Partnership
By: NEA Partners IV, Limited
Partnership
By:/s/Nancy C. Dorman
---------------------------------------------
Name:
Title:
WELLS FARGO BANK, TRUSTEE SHV M/P/T FBO
DAVID L. ANDERSON
By:/s/Vicki M. Bandel /s/Sherill Y. Matson
---------------------------------------------
Name: Vicki M. Bandel
Title: Trust Officer
[Fourth Amended and Restated Registration Rights Agreement]
<PAGE> 26
WELLS FARGO BANK, TRUSTEE SHV M/P/T
FBO TENCH COXE
By:/s/Vicki M. Bandel /s/Sherill Y. Matson
---------------------------------------------
Name: Vicki M. Bandel
Title: Trust Officer
/s/William H. Younger, Jr.
---------------------------------------------
William H. Younger, Jr.
THE STANLEY RESEARCH FOUNDATION
By:/s/Theodore Stanley
---------------------------------------------
Name:
Title:
FISHERS ISLAND PARTNERS
By: /s/Nathan Saint-Amand, MD,
---------------------------------------------
Name:
Title: Managing Partner of Fisher
Island Partners
/s/Nassib G. Chamoun
---------------------------------------------
Nassib G. Chamoun
---------------------------------------------
Ziad and Lori Chamoun
/s/Philip Devlin as Custodian for Michael
Travers Devlin
---------------------------------------------
Philip Devlin as Custodian for Michael
Travers Devlin
---------------------------------------------
Farhat N. Homsy, M.D.
---------------------------------------------
Douglas N. Young
/s/Mary Lee Young
---------------------------------------------
Mary Lee Young
/s/Donald Stanski
---------------------------------------------
Donald Stanski
---------------------------------------------
Nina S. Rohrbasser
---------------------------------------------
Victoria Shah
/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
New Ventures Partners IV, Limited
Partnership
By: /s/ Howard Wolfe, Jr.
---------------------------------------------
Name: Howard Wolfe, Jr.
Title: General Partner
[Fourth Amended and Restated Registration Rights Agreement]
<PAGE> 1
Exhibit 10.22
FOURTH AMENDED AND RESTATED VOTING AGREEMENT
AGREEMENT, dated as of December 17, 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 Third Amended and Restated Voting
Agreement dated February 13, 1998 (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 E Convertible Preferred Stock and Warrant
Purchase Agreement dated as of the date hereof between the Company and the
purchasers listed on Schedule I thereto (the "Purchase Agreement"), certain of
the Preferred Shareholders are purchasing (a) Series E Convertible Preferred
Stock, $.01 par value per share (the "Series E Preferred Stock") and (b)
Warrants (the "Warrants") to purchase shares of Common Stock, $.01 par value per
share, of the Company (the "Common Stock"); and
WHEREAS, it is a condition to the obligations of the Preferred
Shareholders purchasing Series E Preferred Stock and Warrants pursuant to the
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 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 of at least $14.00, 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 nine 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
Restated Certificate of Incorporation (as it may be further amended or restated
from time to time), 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);
-2-
<PAGE> 3
(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 the holders of a
majority of the shares of Series D Convertible Preferred Stock, $.01 par value
per share (the "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) two additional nominees 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 one of the nominees 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 "Non-Affiliated Director");
provided further that each party agrees to vote their Shares to remove such
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
-3-
<PAGE> 4
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
nominees elected pursuant to clause (vii) of Section 4 (b) are Lester J. Lloyd
and Boudewijn Bollen.
(e) The Board of Directors shall be expanded by up to one
additional member 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 E Convertible Preferred Stock, $.01 par value per share
(the "Series E Preferred Stock"), Series A-2 Preferred Stock, Series B-2
Preferred Stock, Series C-2 Preferred Stock, Series D-2 Preferred Stock and
Series E-2 Convertible Preferred Stock, $.01 par value per share (the "Series
E-2 Preferred Stock" and together with the Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock, Series A-2 Preferred Stock, Series B-2 Preferred Stock,
Series C-2 Preferred Stock and Series D-2 Preferred Stock, the "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, however, that the nominee(s) designated pursuant to this paragraph (e)
shall not be any person affiliated with the Company's management or the holders
of 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 55% of the then
outstanding shares of 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, provided
that the provisions of Section 3(i) of this Agreement may not be waived without
the written consent of holders of at least 80% of the then outstanding shares of
Preferred Stock, voting separately as a single class.
-4-
<PAGE> 5
(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. Notwithstanding
anything to the contrary in this Agreement, the Company acknowledges and agrees
that Artal Luxembourg S.A. may transfer the shares of Series E Preferred Stock
and Warrants acquired by it under the Purchase Agreement to QuestMark Partners,
L.P. and/or any of its affiliates ("QuestMark") without restriction (other than
compliance with applicable securities laws), and that subsequent to such
transfer, QuestMark shall be deemed a Preferred Shareholder for all purposes
under this Agreement. At the time of the transfer, QuestMark shall deliver to
the Company a written instrument by which it agrees to be bound by the
obligations imposed under this Agreement, to the same extent as if it were a
Preferred Shareholder hereunder.
(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.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-5-
<PAGE> 6
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
ARTAL LUXEMBOURG S.A.
By:/s/Paul R. Komler
----------------------------------------
Name: Paul R. Komler
Title: Managing Director
BENEFIT CAPITAL MANAGEMENT
CORPORATION, as Investment Manager of
the Prudential Insurance Company of America
Separate Account #VCA-GA-5298
By:/s/Sue DeCarlo
----------------------------------------
Name: Sue DeCarlo
Title: Sr. VP & CFO
HLB/CB Fund, L.P.
By:/s/James J. Mahoney Jr.
----------------------------------------
Name: James J. Mahoney Jr.
Title: General Partner
RIGGS CAPITAL PARTNERS
By:/s/J. Carter Beese, Jr.
----------------------------------------
Name:
Title:
US DEVELOPMENT CAPITAL INVESTMENT
COMPANY
By:/s/Raymond L. Moss
----------------------------------------
Name: Raymond L. Moss
Title: Corporate Secretary
[Fourth Amended and Restated Voting Agreement]
<PAGE> 7
NEW VENTURE PARTNERS III, LIMITED
PARTNERSHIP
By: /s/Howard D. Wolfe, Jr.
----------------------------------------
Name: Howard D. Wolfe, Jr.
Title: General Partner
CITIVENTURE 96 PARTNERSHIP, L.P.
By: Chancellor LGT Asset Management, Inc.
as investment advisor
By:/s/Mark Radovanovich
----------------------------------------
Name:
Title:
JULIET CHALLENGER, INC.
By:/s/Andrew H. McQuarrie
----------------------------------------
Name: Andrew H. McQuarrie
Title: Vice President
ORCHID & CO., nominee for
T. Rowe Price Threshold Fund III, L.P.
By:T. Rowe Price Threshold Fund Associates, Inc.
General Partner
By:/s/Junerose C. Sordoni
----------------------------------------
Name: Junerose C. Sordoni
Title: Vice President
LANDMARK VENTURE CAPITAL
PARTNERS, LIMITED PARTNERSHIP
By:/s/Howard D. Wolfe, Jr.
----------------------------------------
Name: Howard D. Wolfe, Jr.
Title: General Partner
/s/Vikas Saini
------------------------------------------
Vikas Saini
/s/Douglas Schair
------------------------------------------
Douglas Schair
[Fourth Amended and Restated Voting Agreement]
<PAGE> 8
/s/C. G. Grefenstette
------------------------------------------
Henry L. Hillman, Elsie Hilliard Hillman and
C. G. Grefenstette, Trustees of the Henry L.
Hillman Trust U/A dated 11/18/85
VENHILL LIMITED PARTNERSHIP
By:/s/Howard B. Hillman
------------------------------------------
Name:
Title: General Partner
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/Mark Radovanovich
------------------------------------------
Name:
Title:
/s/Veena C. Saini
------------------------------------------
Veena C. Saini
HIGHLAND CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By: Highland Management Partners II
Limited Partnership, its General
Partner
By:/s/Wycliffe K. Grousbeck
------------------------------------------
Name: Wycliffe K. Grousbeck
Title: GP
[Fourth Amended and Restated Voting Agreement]
<PAGE> 9
CHARLES RIVER PARTNERSHIP VII,
LIMITED PARTNERSHIP
By:/s/Richard M. Burnes, Jr.
------------------------------------------
Name: Richard M. Burnes, Jr.
Title: General Partner
POLARIS VENTURE PARTNERS, L.P.
By: Polaris Venture Management Co., LLC
Its General Partner
By:/s/Terrance McGuire
------------------------------------------
Member
/s/C. G. Grefenstette /s/T. C. Bigley
------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Audrey
Hilliard Hillman
/s/C. G. Grefenstette /s/T. C. Bigley
------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Henry L.
Hillman, Jr.
/s/C. G. Grefenstette /s/T. C. Bigley
------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for Juliet Lea
Hillman
/s/C. G. Grefenstette /s/T.C. Bigley
------------------------------------------
C. G. Grefenstette and Thomas C. Bigley,
Trustees U/A/T dated 8/28/68 for William
Talbott Hillman
/s/Anne De Gheest
------------------------------------------
Anne De Gheest
[Fourth Amended and Restated Voting Agreement]
<PAGE> 10
/s/Theodore H. Ashford
------------------------------------------
Theodore H. Ashford
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
/s/Suzanne M. Otterbein
------------------------------------------
Suzanne M. Otterbein
/s/David C. Zraket
------------------------------------------
David C. Zraket
GENSTAR INVESTMENT CORPORATION
By:/s/Richard D. Paterson
------------------------------------------
Name: Richard D. Paterson
Title: Executive Vice President
/s/Elizabeth Z. Callahan
------------------------------------------
Elizabeth Z. Callahan
/s/Caroline Z. Pratt
------------------------------------------
Caroline Z. Pratt
/s/Lester J. Lloyd
------------------------------------------
Lester J. Lloyd and/or Lynne Dewar Lloyd
Trustees or Successor Trustees under The
Lloyd Trust U/A/D 10/05/88
[Fourth Amended and Restated Voting Agreement]
<PAGE> 11
POLARIS VENTURE PARTNERS
FOUNDERS' FUND, L.P.
By: Polaris Venture Management Co., LLC
Its General Partner
By:/s/Terrance McGuire
------------------------------------------
Member
/s/Philip G. Aberizk
------------------------------------------
Philip G. Aberizk
ABS EMPLOYEE VENTURE FUND LIMITED
PARTNERSHIP
By:/s/Margaret-Mary V. Preston
------------------------------------------
Name: Margaret-Mary V. Preston
Title: VP of Alex Brown Investments,
GP of the Partnership
SECOND CENTURY GROWTH DEFERRED
COMPENSATION PLAN: Piper Jaffray, Inc.
By:/s/Piper Jaffray, Inc.
------------------------------------------
Name: Buzz Benson
Title:
THE JOHN BURROUGHS SCHOOL
ENDOWMENT FUND
By:/s/Keith Shahan
------------------------------------------
Name:
Title:
/s/Noubar Afeyan
------------------------------------------
Noubar Afeyan
/s/Stanley Lapidus
------------------------------------------
Stanley Lapidus
[Fourth Amended and Restated Voting Agreement]
<PAGE> 12
GILDE INTERNATIONAL B.V.
By: One Liberty Partners III, L.P.,
its Attorney-in-Fact
By: /s/ Edwin M. Kania, Jr.
---------------------------------------
Title: General Partner
Mayfield Associates Fund, MAYFIELD ASSOCIATES FUND
A California Limited Partnership
By: /s/ George A. Pavlov
---------------------------------------
Name: George A. Pavlov
Title: Authorized Signatory
Mayfield Medical Partners, MAYFIELD MEDICAL PARTNERS
A California Limited Partnership
By: Mayfield VI Investment Partners
By: Mayfield VI Investment
Partners, A California By: /s/ George A. Pavlov
Limited Partnership, Its ---------------------------------------
General Partner Name: George A. Pavlov
Title: Authorized Signatory
By: Mayfield VI Management
Partners, A California MAYFIELD VI INVESTMENT PARTNERS
Limited Partnership,
General Partner of By: Mayfield VI Management Partners
Mayfield VI Investment
Partners By: /s/ George A. Pavlov
--------------------------------------
Mayfield VI Investment Partners, Name: George A. Pavlov
A California Limited Partnership Title: Authorized Signatory
By: Mayfield VI Management MERRILL, PICKARD, ANDERSON &
Partners, A California EYRE IV, LIMITED PARTNERSHIP
Limited Partnership, Its
General Partner By: MPAE IV Management Co., L.P.
By: /s/ Steven L. Merrill
------------------------------------------
Name: Steven L. Merrill
Title: General Partner
[Fourth Amended and Restated Voting Agreement]
<PAGE> 13
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
HLM PARTNERS VII, L.P.
By:/s/James J. Mahoney Jr.
------------------------------------------
Name: James J. Mahoney Jr.
Title: General Partner
SUTTER HILL VENTURES, A CALIFORNIA
LIMITED PARTNERSHIP
By:/s/G. Leonard Baker, Jr.
------------------------------------------
Name: G. Leonard Baker, Jr.
Title: Managing Director of the General
Partner
TOW PARTNERS, A CALIFORNIA LIMITED
PARTNERSHIP
By:/s/Paul M. Wythes
------------------------------------------
Name: Paul M. Wythes
Title: General Partner
/s/William H. Younger, Jr.
------------------------------------------
William H. Younger, Jr., Trustee of the
Younger Living Trust
/s/Paul M. Wythes
--------------------------------------------
Paul M. and Marsha R. Wythes, Trustees of
the Wythes Living Trust
[Fourth Amended and Restated Voting Agreement]
<PAGE> 14
/s/G. Leonard Baker
------------------------------------------
G. Leonard Baker
/s/Sherryl W. Hossack Under Power of Attorney
------------------------------------------
Ronald L. Perkins
/s/Sherryl W. Hossack Under Power of Attorney
------------------------------------------
James C. Gaither
/s/David L. Anderson
------------------------------------------
David L. Anderson
/s/Tench Coxe
------------------------------------------
Tench Coxe
/s/Robert Carpenter
------------------------------------------
Robert Carpenter
/s/Theodore Stanley
------------------------------------------
Theodore and Mary Stanley
H&D INVESTMENTS II
By: /s/Paul P. Brountas
------------------------------------------
Name: Paul P. Brountas
Title: Partner
/s/J. Breckenridge Eagle
------------------------------------------
J. Breckenridge Eagle
--------------------------------------------
Vijay J. Shah
/s/J. Neal Armstrong
------------------------------------------
J. Neal Armstrong
/s/Timothy J. Crowley
------------------------------------------
Timothy J. Crowley
/s/Robert R. Everett
------------------------------------------
Robert R. Everett
[Fourth Amended and Restated Voting Agreement]
<PAGE> 15
THE LOWN CARDIOVASCULAR
RESEARCH FOUNDATION
By:/s/Peter A. Zheutlin
------------------------------------------
Name: Peter A. Zheutlin
Title: Treasurer
/s/Glen E. Wegner
------------------------------------------
Glen E. Wegner
ZED INTERNATIONAL, INC.
By:
------------------------------------------
BAYVIEW INVESTORS, LTD.
By:/s/Terry R. Otton
------------------------------------------
Name: Terry R. Otton
Title: Authorized Signatory
INTERSTOCK ANSTALT
By:/s/Ernst Bloathlinger
------------------------------------------
Authorized Signatory
SVE STAR VENTURE ENTERPRISES NO. V,
A GERMAN CIVIL LAW PARTNERSHIP
(WITH LIMITATION OF LIABILITY)
By: SVM Star Ventures Management
gesellschaft mbH Nr. 3
By: /s/Andreas Hofbauer
------------------------------------------
Authorized Signatory
[Fourth Amended and Restated Voting Agreement]
<PAGE> 16
SVM STAR VENTURES
MANAGEMENTGESELLSCHAFT MBH NR.
3 & CO. BETEILIGUNGS KG
By: SVM Star Ventures Management
gesellschaft mbH Nr. 3
By: /s/Andreas Hofbauer
--------------------------------
Authorized Signatory
/s/Richard Rogers /s/Julie Rogers
------------------------------------------
Richard and Julie Rogers
AENEAS VENTURE CORPORATION
By:/s/Michael R. Eisenson
------------------------------------------
Authorized Signatory
CATALYST VENTURES, LIMITED
PARTNERSHIP
By: New Enterprise Associates IV, Limited
Partnership
By: NEA Partners IV, Limited
Partnership
By:/s/Nancy C. Dorman
------------------------------
Name:
Title:
WELLS FARGO BANK, TRUSTEE SHV
M/P/T FBO DAVID L. ANDERSON
By:/s/Vicki M. Bandel /s/Sherill Y. Matson
------------------------------------------
Name: Vicki M. Bandel
Title: Trust Officer
[Fourth Amended and Restated Voting Agreement]
<PAGE> 17
WELLS FARGO BANK, TRUSTEE SHV
M/P/T FBO TENCH COXE
By:/s/Vicki M. Bandel /s/Sherill Y. Matson
------------------------------------------
Name: Vicki M. Bandel
Title: Trust Officer
/s/William H. Younger, Jr.
------------------------------------------
William H. Younger, Jr.
THE STANLEY RESEARCH FOUNDATION
By:/s/Theodore Stanley
------------------------------------------
Name:
Title:
FISHERS ISLAND PARTNERS
By: /s/Nathan Saint-Amand, MD
------------------------------------------
Name:
Title: Managing Partner of
Fisher Island Partners
/s/Nassib G. Chamoun
--------------------------------------------
Nassib G. Chamoun
--------------------------------------------
Ziad and Lori Chamoun
/s/Philip Devlin as Custodian for Michael
Travers Devlin
--------------------------------------------
Philip Devlin as Custodian for Michael
Travers Devlin
--------------------------------------------
Farhat N. Homsy, M.D.
--------------------------------------------
Douglas N. Young
/s/Mary Lee Young
--------------------------------------------
Mary Lee Young
/s/Donald Stanski
--------------------------------------------
Donald Stanski
[Fourth Amended and Restated Voting Agreement]
<PAGE> 18
--------------------------------------------
Nina S. Rohrbasser
--------------------------------------------
Victoria Shah
/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
NEW VENTURE PARTNERS IV, LIMITED
PARTNERSHIP
By:/s/Howard D. Wolfe, Jr.
--------------------------------------------
Name: Howard D. Wolfe, Jr.
Title: Gerneral Partner
[Fourth Amended and Restated Voting Agreement]
<PAGE> 19
SCHEDULE I
PREFERRED SHAREHOLDERS
Artal Luxembourg S.A.
Attn: Paul R. Kohler
105, Grand-Rue
L-1161 Luxembourg
Benefit Capital Management Corporation
as Investment Manager for the Prudential
Insurance Company of America
Separate Account Number VCA-GA-5298
c/o Susan DeCarlo
39 Old Ridgebury Road
Danbury, CT 06817
HLB/CB Fund, L.P.
HLM Management Company
c/o Peter Grua
222 Berkeley Street, #2150
Boston, MA 02116
Riggs Capital Partners, a division of
Riggs National Corporation
c/o J. Carter Beese, Jr.
800 17th Street, N.W.
Washington, DC 20006
US Development Capital Investment
Company
c/o Raymond L. Moss
Simms, Moss, Kline, and Davis, LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, GA 30328
[Fourth Amended and Restated Voting Agreement]
<PAGE> 20
<TABLE>
<S> <C>
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
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
</TABLE>
[Fourth Amended and Restated Voting Agreement]
<PAGE> 21
<TABLE>
<S> <C>
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 A 200
Palo Alto, CA 94304
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
</TABLE>
[Fourth Amended and Restated Voting Agreement]
<PAGE> 22
<TABLE>
<S> <C>
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
Mayfield Medical Partners Ziad and Lori Chamoun
2800 Sand Hill Road 100A Green Street
Menlo Park, CA 94025 Milton, MA 02186
</TABLE>
[Fourth Amended and Restated Voting Agreement]
<PAGE> 23
<TABLE>
<S> <C>
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 A 200
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 A 200
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 A 200
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 A 200
Palo Alto, CA 94304
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 A 200
Palo Alto, CA 94304
</TABLE>
[Fourth Amended and Restated Voting Agreement]
<PAGE> 24
<TABLE>
<S> <C>
Tench Coxe Zed International, Inc.
c/o Sutter Hill Ventures c/o Thomas J. Landergan
755 Page Mill Road BankBoston, N.A.
Suite A 200 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 A 200 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 A 200 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 A 200
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
Merrill, Pickard, Anderson & J. Breckenridge Eagle
Eyre IV Limited Partnership Box 1197
1000 Winter Street Mattapoisett, MA 02739
Suite 1080
Waltham, MA 02154
</TABLE>
[Fourth Amended and Restated Voting Agreement]
<PAGE> 25
<TABLE>
<S> <C>
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 Halll 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 B 107
Concord, MA 01742 Greenville, DE 19807
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
</TABLE>
[Fourth Amended and Restated Voting Agreement]
<PAGE> 26
<TABLE>
<S> <C>
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
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
</TABLE>
[Fourth Amended and Restated Voting Agreement]
<PAGE> 27
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
Fourth Amended and Restated Voting Agreement, dated as of December __, 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: __________________________
[Fourth Amended and Restated Voting Agreement]
<PAGE> 1
Exhibit 10.23
Summary of Terms
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
WARRANT NO. OF
WARRANT HOLDER NUMBER DATE OF ISSUANCE SHARES
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Benefit Capital Management Corporation C-2 December 17, 1998 33,000
- ----------------------------------------------------------------------------------------
HLM/CB L.P. C-3 December 17, 1998 12,100
- ----------------------------------------------------------------------------------------
Riggs Capital Partners, a Division of Riggs
National Corporation C-4 December 17, 1998 11,000
- ----------------------------------------------------------------------------------------
US Development Capital Investment Company C-5 December 17, 1998 11,000
- ----------------------------------------------------------------------------------------
New Venture Partners IV, Limited Partnership C-6 December 17, 1998 8,867
- ----------------------------------------------------------------------------------------
Citiventure 96 Partnership, L.P. C-7 December 17, 1998 4,483
- ----------------------------------------------------------------------------------------
Juliet Challenger, Inc. C-8 December 17, 1998 4,462
- ----------------------------------------------------------------------------------------
Orchid & Co., nominee for T. Rowe Price
Threshold Fund III, L.P. C-9 December 17, 1998 2,750
- ----------------------------------------------------------------------------------------
Vikas Saini, M.D. C-10 December 17, 1998 2,475
- ----------------------------------------------------------------------------------------
Douglas Schair C-11 December 17, 1998 1,650
- ----------------------------------------------------------------------------------------
Henry L. Hillman, Elsie Hilliard Hillman and
C.G. Grefenstette, Trustees of the Henry L
Hillman Trust U/A dated 11/18/85 C-12 December 17, 1998 1,338
- ----------------------------------------------------------------------------------------
Venhill Limited Partnership C-13 December 17, 1998 1,338
- ----------------------------------------------------------------------------------------
Chancellor LGT Private Capital Partners III, L.P. C-14 December 17, 1998 1,120
- ----------------------------------------------------------------------------------------
Veena G. Saini C-15 December 17, 1998 1,100
- ----------------------------------------------------------------------------------------
Highland Capital Partners II, Limited Partnership C-16 December 17, 1998 825
- ----------------------------------------------------------------------------------------
Charles River Partnership VII,
Limited Partnership C-17 December 17, 1998 550
- ----------------------------------------------------------------------------------------
Polaris Venture Partners, L.P. C-18 December 17, 1998 518
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
WARRANT NO. OF
WARRANT HOLDER NUMBER DATE OF ISSUANCE SHARES
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
C.G. Grefenstette and Thomas G.
Bigley, Trustees U/A/T dated
8/28/68 for Audrey Hilliard Hillman C-19 December 17, 1998 446
- ----------------------------------------------------------------------------------------
C.G. Grefenstette and Thomas G.
Bigley, Trustees U/A/T dated
8/26/68 for Henry L. Hillman, Jr. C-20 December 17, 1998 446
- ----------------------------------------------------------------------------------------
C.G. Grefenstette and Thomas G.
Bigley, Trustees U/A/T dated
8/28/68 for Juiliet Lea Hillman C-21 December 17, 1998 446
- ----------------------------------------------------------------------------------------
C.G. Grefenstette and Thomas G.
Bigley, Trustees U/A/T dated
8/28/68 for William Talbott Hillman C-22 December 17, 1998 446
- ----------------------------------------------------------------------------------------
Anne DeGheest C-23 December 17, 1998 385
- ----------------------------------------------------------------------------------------
Theodore H. Ashford C-24 December 17, 1998 275
- ----------------------------------------------------------------------------------------
One Liberty Fund III, L.P. C-25 December 17, 1998 275
- ----------------------------------------------------------------------------------------
Suzanne M. Otterbein C-26 December 17, 1998 220
- ----------------------------------------------------------------------------------------
David C. Zraket C-27 December 17, 1998 198
- ----------------------------------------------------------------------------------------
Genstar Investment Corporation C-28 December 17, 1998 116
- ----------------------------------------------------------------------------------------
Elizabeth Zraket Callahan C-29 December 17, 1998 110
- ----------------------------------------------------------------------------------------
Caroline Zraket Pratt C-30 December 17, 1998 110
- ----------------------------------------------------------------------------------------
Lester John Lloyd and/or Lynne
Deward Lloyd Trustees or Successor
Trustees under The Lloyd Trust C-31 December 17, 1998 71
U/A/D 10/05/88
- ----------------------------------------------------------------------------------------
Polaris Venture Partners Founders' C-32 December 17, 1998 31
Fund L.P.
- ----------------------------------------------------------------------------------------
Philip G. Aberizk C-33 December 17, 1998 1
- ----------------------------------------------------------------------------------------
QuestMark Partners, L.P. C-34 March 25, 1999 70,213
- ----------------------------------------------------------------------------------------
QuestMark Partners Side Fund, L.P. C-35 March 25, 1999 20,537
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SECURITIES ARE REGISTERED UNDER THE ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED.
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
________________________________________________________________________________
Warrant No. C-____________ Number of Shares: _________
(subject to adjustment)
Date of Issuance: December 17, 1998
ASPECT MEDICAL SYSTEMS, INC.
Common Stock Purchase Warrant
Aspect Medical Systems, Inc., a Delaware corporation (the "Company"),
for value received, hereby certifies that ____________________________________,
or his, her or its registered assigns (the "Registered Holder"), is entitled,
subject to the terms set forth below, to purchase from the Company, at any time
or from time to time on or after the first firm commitment underwritten initial
public offering of Common Stock, $0.01 par value per share (the "Common Stock"),
of the Company (the "First Exercise Date") and on or before the first to occur
of (i) the third anniversary of the First Exercise Date, (ii) the Mandatory
Exercise Date (as defined in Section 1(b)(ii) below) or (iii) December 17, 2008
at not later than 5:00 p.m. (Boston, Massachusetts time), _____________________
shares of Common Stock, of the Company, at a purchase price of $12.50 per share.
The shares purchasable upon exercise of this Warrant, and the purchase price per
share, each as adjusted from time to time pursuant to the provisions of this
Warrant, are hereinafter referred to as the "Warrant Shares" and the "Purchase
Price," respectively.
-1-
<PAGE> 4
1. Exercise.
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, by surrendering this Warrant, with the purchase form appended
hereto as Exhibit I duly executed by such Registered Holder or by such
Registered Holder's duly authorized attorney, at the principal office of the
Company, or at such other office or agency as the Company may designate,
accompanied by payment in full, in lawful money of the United States, of the
Purchase Price payable in respect of the number of Warrant Shares purchased upon
such exercise.
(b) In addition to and without limiting the rights of the
Registered Holder under the terms of this Warrant, the Registered Holder shall
have the right to convert this Warrant or any portion thereof (the "Conversion
Right") into shares of Common Stock as provided in this subsection 1(b) at any
time or from time to time after the First Exercise Date and during the term of
this Warrant. Upon exercise of the Conversion Right with respect to a particular
number of shares subject to this Warrant (the "Converted Warrant Shares"), the
Company shall deliver to the Registered Holder (without payment by the
Registered Holder of any exercise price or any cash or other consideration) (X)
that number of shares of fully paid and nonassessable Common Stock equal to the
quotient obtained by dividing the value of this Warrant (or the specified
portion hereof) on the date that this Warrant shall have been surrendered to the
Company as provided in subsection (1)(a) (the "Conversion Date"), which value
shall be determined by subtracting (A) the aggregate Purchase Price of the
Converted Warrant Shares immediately prior to the exercise of the Conversion
Right from (B) the aggregate Fair Market Value of the Converted Warrant Shares
issuable upon exercise of this Warrant (or the specified portion hereof) on the
Conversion Date by (Y) the Fair Market Value of one share of Common Stock on the
Conversion Date.
Expressed as a formula, such conversion shall be computed as follows:
X = B - A
-----
Y
Where: X = the number of shares of Common Stock that may be issued to
Registered Holder
Y = the Fair Market Value of one share of Common Stock
A = the aggregate Purchase Price (i.e., Converted Warrant Shares
multiplied by the Purchase Price)
B = the aggregate Fair Market Value (i.e., Converted Warrant
Shares multiplied by the Fair Market Value)
-2-
<PAGE> 5
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined).
The Fair Market Value per share of Common Stock shall be determined as
follows:
(i) If the Common Stock is listed on a national
securities exchange, the Nasdaq National Market, the Nasdaq system, or another
nationally recognized exchange or trading system as of the Exercise Date, the
Fair Market Value per share of Common Stock shall be deemed to be the last
reported sale price per share of Common Stock thereon on the Exercise Date; or,
if no such price is reported on such date, such price on the next preceding
business day; or, if no such price is reported on such date, the average of the
mean of the closing bid and the asked prices for the three preceding business
days (provided that if no such price is reported for the three preceding
business days, the Fair Market Value per share of Common Stock shall be
determined pursuant to clause (ii)).
(ii) If the Common Stock is not listed on a
national securities exchange, the Nasdaq National Market, the Nasdaq system or
another nationally recognized exchange or trading system as of the Exercise
Date, the Fair Market Value per share of Common Stock shall be deemed to be the
amount most recently determined by the Board of Directors to represent the fair
market value per share of the Common Stock (including without limitation a
determination for purposes of granting Common Stock options or issuing Common
Stock under an employee benefit plan of the Company). Notwithstanding the
foregoing, if the Board of Directors has not made such a determination within
the three-month period prior to the Exercise Date, then (A) the Fair Market
Value per share of Common Stock shall be the amount next determined by the Board
of Directors to represent the fair market value per share of the Common Stock
(including without limitation a determination for purposes of granting Common
Stock options or issuing Common Stock under an employee benefit plan of the
Company), and (B) the exercise of this Warrant pursuant to this subsection 1(b)
shall be delayed for a period of up to one month until such determination is
made.
(c) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such exercise as provided
in subsection 1(d) below shall be deemed to have become the holder or holders of
record of the Warrant Shares represented by such certificates.
-3-
<PAGE> 6
(d) As soon as practicable after the exercise of this Warrant
in full or in part, and in any event within ten (10) days thereafter, the
Company, at its expense, will cause to be issued in the name of, and delivered
to, the Registered Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct:
(i) a certificate or certificates for the number
of full Warrant Shares to which such Registered Holder shall be entitled upon
such exercise plus, in lieu of any fractional share to which such Registered
Holder would otherwise be entitled, cash in an amount determined pursuant to
Section 3 hereof; and
(ii) in case such exercise is in part only, a new
warrant or warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of Warrant Shares equal
(without giving effect to any adjustment therein) to the number of such shares
called for on the face of this Warrant minus the sum of (a) the number of such
shares purchased by the Registered Holder upon such exercise plus (b) the number
of Warrant Shares (if any) covered by the portion of this Warrant cancelled in
payment of the Purchase Price payable upon such exercise pursuant to subsection
1(b) above.
(e) In the event that the Common Stock is listed on a national
securities exchange, the Nasdaq National Market, the Nasdaq system, or another
nationally recognized exchange or trading system and the average closing market
price per share of the Common Stock (as adjusted for stock splits, stock
dividends, combinations, reorganizations, recapitalizations and other similar
events involving a change in capital structure of the Company) over twenty-five
(25) consecutive trading days equals or exceeds $25.00, the Company shall have
the right to cause the Registered Holder to exercise this Warrant. In the event
that the Company shall exercise its right to cause the Registered Holder to
exercise this Warrant, it shall fix a date for mandatory exercise (the
"Mandatory Exercise Date") and it shall mail or cause to be mailed a notice of
such mandatory exercise at least fifteen (15) business days prior to the
Mandatory Exercise Date. Such notice shall be in accordance with Section 12. The
Registered Holder shall have the right to exercise this Warrant in accordance
with the provisions of Section 1(a) or 1(b) herein until 5:00 p.m. on the
Mandatory Exercise Date. Any portion of the Warrant that is not exercised as of
such time on the Mandatory Exercise Date shall be automatically exercised
pursuant to Section 1(b), without any further action on behalf of the Holder. In
the event that the Company provides notice in accordance with this subsection
1(e), the Registered Holder of this Warrant shall, within ten (10) days of
receipt of such notice, mail this Warrant to the Company for cancellation at its
principal office. As soon as practicable after the Mandatory Exercise Date, and
in any event within ten (10) days thereafter, the Company shall provide to the
Registered Holder a certificate or certificates pursuant to subsection 1(d)
above, provided that the Company shall not
-4-
<PAGE> 7
be required to provide to the Registered Holder a certificate or certificates
pursuant to subsection 1(d) until the Company receives from the Registered
Holder for cancellation the Warrant.
2. Adjustments.
(a) If outstanding shares of the Company's Common Stock shall
be subdivided into a greater number of shares or a dividend in Common Stock
shall be paid in respect of Common Stock, the Purchase Price in effect
immediately prior to such subdivision or at the record date of such dividend
shall simultaneously with the effectiveness of such subdivision or immediately
after the record date of such dividend be proportionately reduced. If
outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased. When any adjustment is required to be made in the
Purchase Price, the number of Warrant Shares purchasable upon the exercise of
this Warrant shall be changed to the number determined by dividing (i) an amount
equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment, multiplied by the Purchase Price in effect
immediately prior to such adjustment, by (ii) the Purchase Price in effect
immediately after such adjustment.
(b) If there shall occur any capital reorganization or
reclassification of the Company's Common Stock (other than a change in par value
or a subdivision or combination as provided for in subsection 2(a) above), or
any consolidation or merger of the Company with or into another corporation, or
a transfer of all or substantially all of the assets of the Company, then, as
part of any such reorganization, reclassification, consolidation, merger or
sale, as the case may be, lawful provision shall be made so that the Registered
Holder of this Warrant shall have the right thereafter to receive upon the
exercise hereof the kind and amount of shares of stock or other securities or
property which such Registered Holder would have been entitled to receive if,
immediately prior to any such reorganization, reclassification, consolidation,
merger or sale, as the case may be, such Registered Holder had held the number
of shares of Common Stock which were then purchasable upon the exercise of this
Warrant if exercised for full in cash. In any such case, appropriate adjustment
(as reasonably determined in good faith by the Board of Directors of the
Company) shall be made in the application of the provisions set forth herein
with respect to the rights and interests thereafter of the Registered Holder of
this Warrant, such that the provisions set forth in this Section 2 (including
provisions with respect to adjustment of the Purchase Price) shall thereafter be
applicable, as nearly as is reasonably practicable, in relation to any shares of
stock or other securities or property thereafter deliverable upon the exercise
of this Warrant.
-5-
<PAGE> 8
(c) When any adjustment is required to be made in the Purchase
Price, the Company shall promptly mail to the Registered Holder a certificate
setting forth the Purchase Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such certificate shall also
set forth the kind and amount of stock or other securities or property into
which this Warrant shall be exercisable following the occurrence of any of the
events specified in subsection 2(a) or (b) above.
3. Fractional Shares. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares, but shall make an
adjustment therefor in cash on the basis of the Fair Market Value per share of
Common Stock, as determined pursuant to subsection 1(b) above.
4. Requirements for Transfer.
(a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
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 Act.
(b) Notwithstanding the foregoing, no registration or opinion
of counsel shall be required for (i) a transfer by a Registered 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, if the transferee agrees in writing to be subject to
the terms of this Section 4, or (ii) a transfer made in accordance with Rule 144
under the Act.
(c) Each certificate representing Warrant Shares shall bear a
legend substantially in the following form:
"The securities 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 securities 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 the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
5. No Impairment. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other
-6-
<PAGE> 9
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holder of this
Warrant against impairment.
6. Liquidating Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such Registered Holder if he had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
7. Notices of Record Date, etc. In case:
(a) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time deliverable upon the
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to subscribe
for or purchase any shares of stock of any class or any other securities, or to
receive any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
-7-
<PAGE> 10
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least ten (10) days prior to the
record date or effective date for the event specified in such notice.
8. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
9. Exchange of Warrants. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
11. Transfers, etc.
(a) The Company will maintain a register containing the names
and addresses of the Registered Holders of this Warrant. Any Registered Holder
may change his, her or its address as shown on the warrant register by written
notice to the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this
Warrant and all rights hereunder are transferable, in whole or in part, upon
surrender of this Warrant with a properly executed assignment (in the form of
Exhibit II hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
-8-
<PAGE> 11
12. Mailing of Notices, etc. All notices and other communications from
the Company to the Registered Holder of this Warrant shall be mailed by
first-class certified or registered mail, or overnight courier service, postage
prepaid, to the address furnished to the Company in writing by the last
Registered Holder of this Warrant who shall have furnished an address to the
Company in writing. All notices and other communications from the Registered
Holder of this Warrant or in connection herewith to the Company shall be mailed
by first-class certified or registered mail or overnight courier service,
postage prepaid, to the Company at its principal office set forth below. If the
Company should at any time change the location of its principal office to a
place other than as set forth below, it shall give prompt written notice to the
Registered Holder of this Warrant and thereafter all references in this Warrant
to the location of its principal office at the particular time shall be as so
specified in such notice. The principal office of the Company is as follows:
Aspect Medical Systems, Inc.
Two Vision Drive
Natick, MA 01760-2059
13. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
14. Change or Waiver. This Warrant is one of a series of Warrants
issued by the Company, all dated the date hereof and of like tenor, except as to
the number of shares of Common Stock subject thereto (collectively, the "Company
Warrants"). Any term of this Warrant may be amended or waived upon the written
consent of the Company and the holders of Company Warrants representing at least
50% of the number of shares of Common Stock (or securities convertible into or
exercisable for Common Stock) held by the holders of Company Warrants; provided
that any such amendment or waiver must apply to all Company Warrants then
outstanding; and provided further that the number of Warrant Shares subject to
this Warrant and the Purchase Price of this Warrant may not be amended, and the
right to exercise this Warrant may not be waived, without the written consent of
the holder of this Warrant (it being agreed that an amendment to or waiver under
any of the provisions of Section 2 of this Warrant shall not be considered an
amendment of the number of Warrant Shares or the Purchase Price).
15. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
-9-
<PAGE> 12
16. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
17. Termination. Unless previously exercised pursuant to the terms of
this Warrant, the right to exercise this Warrant shall expire at 5:00 p.m.
(Boston, Massachusetts time) on December 17, 2008 (the "Termination Date").
Notwithstanding the foregoing, if on the Termination Date, the Fair Market Value
per share of the Common Stock exceeds the Purchase Price per share of the
Warrant Shares, this Warrant shall automatically be deemed to be exercised in
full pursuant to the provisions of Section 1(b) hereof, without any further
action on behalf of the Registered Holder, immediately prior to the time this
Warrant would otherwise expire on the Termination Date pursuant to the preceding
sentence.
[Remainder of Page Intentionally Left Blank]
-10-
<PAGE> 13
ASPECT MEDICAL SYSTEMS, INC.
By:________________________________
Title:_____________________________
-11-
<PAGE> 14
EXHIBIT I
PURCHASE FORM
To: Aspect Medical Systems, Inc. Dated:______________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. ___), hereby irrevocably elects to purchase _____ shares of the
Common Stock covered by such Warrant. The undersigned herewith makes payment of
$____________, representing the full purchase price for such shares at the price
per share provided for in such Warrant. Such payment takes the form of (check
applicable box or boxes):
[ ] $_________ in lawful money of the United States, and/or
[ ] the cancellation of such portion of the attached Warrant
as is exercisable for a total of ______ Warrant Shares
(using a Fair Market Value of $_______ per share for
purposes of this calculation).
Signature:__________________________
Address:____________________________
____________________________
<PAGE> 15
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (No. ____) with respect to the number of shares of Common Stock
covered thereby set forth below, unto:
<TABLE>
<CAPTION>
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
<S> <C> <C>
</TABLE>
Dated:_________________ Signature:_______________________________
Dated:_________________ Witness:_________________________________
<PAGE> 1
Exhibit 23.2
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
August 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 17,122,993
<SECURITIES> 4,150,336
<RECEIVABLES> 2,308,944
<ALLOWANCES> 200,000
<INVENTORY> 270,189
<CURRENT-ASSETS> 24,745,510
<PP&E> 3,194,557
<DEPRECIATION> 1,072,642
<TOTAL-ASSETS> 28,589,250
<CURRENT-LIABILITIES> 7,459,688
<BONDS> 1,441,339
0
67,560,365
<COMMON> 17,787
<OTHER-SE> (47,889,929)
<TOTAL-LIABILITY-AND-EQUITY> 28,589,250
<SALES> 11,238,205
<TOTAL-REVENUES> 11,238,205
<CGS> 5,880,288
<TOTAL-COSTS> 24,530,164
<OTHER-EXPENSES> 774,502
<LOSS-PROVISION> 146,500
<INTEREST-EXPENSE> (459,228)
<INCOME-PRETAX> (13,607,233)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,607,233)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,607,233)
<EPS-BASIC> (11.70)
<EPS-DILUTED> (11.70)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUL-03-1999
<EXCHANGE-RATE> 1
<CASH> 14,549,785
<SECURITIES> 1,561,589
<RECEIVABLES> 3,218,345
<ALLOWANCES> 347,500
<INVENTORY> 736,614
<CURRENT-ASSETS> 21,468,257
<PP&E> 4,558,857
<DEPRECIATION> 1,567,202
<TOTAL-ASSETS> 27,082,768
<CURRENT-LIABILITIES> 10,251,308
<BONDS> 1,081,004
0
67,560,365
<COMMON> 17,899
<OTHER-SE> (51,827,808)
<TOTAL-LIABILITY-AND-EQUITY> 27,082,768
<SALES> 11,712,197
<TOTAL-REVENUES> 11,712,197
<CGS> 4,235,937
<TOTAL-COSTS> 16,440,750
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 151,015
<INTEREST-EXPENSE> (644,087)
<INCOME-PRETAX> (4,084,466)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,084,466)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,084,466)
<EPS-BASIC> (2.79)
<EPS-DILUTED> (2.79)
</TABLE>
